E-markets lack back-end ties

Few integrate data for buying, selling online

Chemicals, oil, paper, even water. Name any industry and you will likely find an online digital exchange or electronic marketplace promising huge efficiency gains and lower costs through electronic buying and selling.

By 2004, the Internet will be home to online marketplaces that account for 53% of $2.7 trillion in business-to-business e-commerce, according to a report released last week by Forrester Research Inc. in Cambridge, Mass.

The dirty little secret is that few, if any, of the marketplaces fully integrate things like inventory and shipping data to buyers' and sellers' enterprise systems. As a result, many of the same supply-chain inefficiencies remain, such as an inability to quickly confirm orders and track shipments.

But this week, San Francisco-based ChemConnect Inc. and General Electric Aircraft Engines Co. will announce new features that address the issue, freeing users of massive systems integration headaches. Analysts expect other industry exchanges to follow, especially if they're to survive an inevitable shakeout among the thousands of digital bazaars springing up online.

ChemConnect and GE hope to make the back-end integration a differentiator to help attract suppliers and customers.

Until now, information technology managers at companies looking at online exchanges have faced an increasing number of choices, plus the challenge of integrating their in-house enterprise systems with that of the chosen exchange.

Without this integration, the Internet-based trades occur electronically. But recording the information about the transaction -- commodities purchased, prices sold, deliveries scheduled -- can turn into manual data-entry projects at both the buyer's and seller's ends. Potential cost savings for Internet transactions can get lost in time spent and data entry errors.

"The concern is there is going to be so many exchanges out there that you won't be able to see the forest through the trees," said Dror Liwer, chief technology officer at Context Integration Inc., an Internet services firm in Burlington, Mass., that develops online exchanges.

"If a company is going to build a (successful) marketplace, they have to make it as easy as possible to pull in buyers and suppliers," said Lara Abrams, an analyst at Aberdeen Group Inc. in Boston. That means providing end-to-end electronic processing of transactions, from the time a trade is executed online until it's recorded in a buyer's and/ or seller's in-house inventory and financial systems.

Under the new enterprise resource planning integration feature on ChemConnect's online World Chemical Exchange, users' inventory and accounting systems can be updated and shipping can be initiated as soon as a bid is accepted online. "Not only do we act as a hub or marketplace for buyers and sellers, we also act as a hub for connections. Every company just has to do one integration back to ChemConnect," said Linda Stegeman, vice president of marketing.

That feature appeals to Ann Benson, purchasing project manager at Life Technologies Inc. in Rockville, Md. Now, she said, Life Technologies does very little purchasing on the Internet exchanges, and one reason is the extra time and expense involved in rekeying data into in-house systems.

Along with other features, the back-end integration has attracted some industry heavyweights, including The Dow Chemical Co., Eastman Chemical Co. in Kingsport, Tenn., and BP Amoco PLC in London, which plans to move virtually all of its chemical business to online trading by year's end, according to John Robinson, a vice president at the BP Amoco chemicals group.

GE Aircraft Engines in Cincinnati aims to move its 300 customers to a new online customer Web center by linking user access to service and technical information with a system for purchasing parts from its 250,000-item database.

Thanks to a nine-month integration effort by a 40-person e-commerce team, corporate customers like Delta Air Lines Inc. in Atlanta can electronically place orders, check inventory, pay bills and view pictures of repairs being performed. They also can get technical manuals and service bulletins, which are "what drives the parts business in the aviation industry," said John Rosenfeld, e-commerce leader at the $10 billion aircraft engine unit.

"Service bulletins drive the actions that airlines take to maintain engines. Everything is determined off of these publications," which can take weeks to publish and distribute to customers, Rosenfeld said. By linking this data with the company's parts database, airline mechanics can determine the maintenance tasks they need to perform as well as order the parts to complete the task, in a single transaction at the online Web customer center.

"That means we'll shorten the cycle time from weeks to minutes," he said.

Looking ahead, GE's "plan is to integrate further with customers' systems to provide even greater value," said Rosenfeld. GE also would consider adding other manufacturers' parts and service bulletins to its site, thus creating yet another digital marketplace in the process.

"We are actively pursuing potential new opportunities," said Rosenfeld.

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