Web based business to business exchanges are really just a new twist on the old electronic data interchange (EDI) commerce model, in which buyers and suppliers conduct transactions for bulk quantities at set prices across expensive proprietary networks.  But no special hardware or software other than a Web browser and Internet access is needed for company to participate in these new exchanges.  Exchanges can be set up for a variety of commodities, from insurance liability and freight container space to chemicals.

What are the traits of a Web based system that could support an online business to business exchange?

HIGH AVAILABILITY

The key to an exchange's computer system is high availability; the exchange must be available to its members every minute of ever day.  In order to provide the required levels of availability, an exchange system requires redundancy:  Multiple data centers, located in different geographic regions, perhaps even connected to different Internet service providers, to eliminate any single point of failure.  Software applications and data are constantly replicated between these data centers on a per transaction basis, with the secondary data centers mirroring the primary data center.

TRANSACTION SUPPORT

In order for commerce to occur, there must be a common way of describing the quantity and quality of products offered, who's buying or selling, the offer price, and the terms.  This information is transmitted in real time messages and recorded in a searchable database of current offerings and completed sales.  Additionally, there must be a way to execute transactions in real time.  This requires a medium of exchange, be it dollars, euros, or in house credits.  Equally important is a secure and detailed transaction log for dispute resolution and for compliance with the record keeping requirements of any Federal Government.

 SECURITY

An exchange needs to allow only its members to peruse its offerings, given that anyone with a Web browser and Internet access has the technology to log on.  Security is one of the most important traits of an exchange system.  A modern Web base exchange relies on digital certificates, encrypted user Ids that the sever reads to confirm that the user is an exchange member.

 TIMELINESS

Nobody wants trades delayed for 15 minutes.  Even 15 seconds may be too long for an effective business to business exchange.  To get the needed real time performance from the Web server, the databases, the whole system, there has to be more than enough capacity - bandwidth and processing power - to handle the load.

MOVING TOWARDS A GLOBAL MARKET

SMEs are becoming increasingly aware of the growing competition at home and abroad. They especially require better information on markets, buyers, suppliers,
prices, trade regulations and business procedures in this global market. Trade information and commercial intelligence gathering require extensive market research and information analysis skills as well as experience with information technology. For most SMEs this turns out to be a tall order. Electronic commerce can offer a more accessible means to this information.

Market competition is strongly driven by price; therefore, improving productivity and reducing cost is an important preoccupation. Electronic commerce can achieve cost savings up to 15-20% by providing the means for careful sourcing and inventory planning. Few SMEs in developing countries, however, have the technology needed to achieve this level of electronic commerce. Many are content with traditional suppliers and large inventory that keep import costs unnecessarily high. Outdated technology may lower quality and raise cost, making the product uncompetitive. Knowledge, skills and experience soon become obsolete unless continuously upgraded, but SMEs in developing countries have little access to the practical training they require. Sooner or later these SMEs will face exclusion from the market unless they leverage the benefits of e-commerce technology.

Another area in global trade where electronic commerce can make a difference is subcontracting. Programmes that link SMEs to larger firms as subcontractors have been introduced in the Republic of Korea, Taiwan Province of China and Singapore. The most successful ones help increase the response capacity of small enterprises to make them more attractive to large firms as suppliers for exports. Part of the secret of success is that all three countries have strong coordination through agencies that provide support, e.g. Investment Development Bureau in Taiwan Province of China, the Ministry of International Trade and Industries in the Republic of Korea and the Economic Development Board in Singapore.

Links established and reinforced through electronic commerce ensure that local small firms benefit from support of these agencies. Intra-country measures to attract subcontracting links and direct foreign investment have proved beneficial in creating a wider network of interfirm linkages in Japan and the Republic of Korea. It permitted firms in the latter country to penetrate otherwise inaccessible international markets.
 
 

PROCUREMENTS SAVINGS CAN BE SIGNIFICANT

Many software developers prefer to avoid developing systems to meet corporate purchasing requirements because:
 Purchasing has resisted automation thus far because two clients are involved, the employee who needs the supplies and the buyer, the person authorized to make the purchase.  Furthermore, purchasing has two aspects, the purchasing (the placement of the order), and the procurement (requisitions, approvals, purchase orders, accounting, etc.).  Four agents are involved, not two as in most early systems.

Suppliers sell products by distancing themselves from the pack.  They need their products and pricing that distinguishes them from their competitors.  How do they prevent their catalogs from getting pulled into enormous, consolidated catalogs where they lose their distinction?  In addition, how can they maintain control of not just content but form?  The buyers, however, don't want to master the fine art of keyword searches just to find the best price for a widget.  Companies such as Ariba Software are developing procurements systems to tackle the huge problem of automating the procurement process.  Their system integrates the procurement process by electronically processing an order and interfacing it with back office systems (finance and accounting).

SUMMARY

To what extent companies in specific industries will actually participate in the exchanges remains to be seen.  Despite Forrester Research's glowing predictions for the growth of U.S. business to business e-commerce, we don't believe that most trade will be conducted electronically anytime soon.  Most industries are dominated by companies with staggering capital investments in proprietary transaction systems and work flow processes like warehouse management systems that cannot be easily customized to tie into online exchanges.  For instance, the construction industry is only beginning to understand how Internet technologies can indirectly improve supply chain processes involved with such tasks as brick laying and the welding of steel.  Currently, the most impressive benefits are time and cost savings from the use of Web based project management software.  But several startups, including BuildNet and eBricks.com, are seeking to build exchanges for the raw materials used in construction.

Standardizing the transaction process itself will be another factor in determining the penetration of online exchanges into overall business to business e-commerce.  Not all industries will necessarily benefit from exchanges with dynamic, real time pricing.  For some exchanges where low value bulk commodities are traded, a post and bid system of offers to buy and fill is sufficient.  In others, like energy, where prices fluctuate throughout the day and vary from zip code to zip code, a sophisticated exchange system is a natural fit.  Therefore, it's unlikely for electronic marketplaces to rely on one universal method of exchange.

The final point of friction faced by online exchanges is also their greatest opportunity.  To be accepted by the industries they serve, the exchanges simply need to garner a greater slice of the $1.3 trillion boom in business to business e-commerce.  Succeeding in this will have a staggering effect on their financial standings as well as their reputations.