Dynamic trading communities
Business-to-business (B2B) e-commerce in Asia Pacific is entering a point of hypergrowth. According to the GartnerGroup, B2B e-commerce has already overtaken B2C (business-to-consumer), predicting that the B2B market will grow at a compound rate of 155 percent a year in the region outside of Japan, from US$9.2 billion (RM34.96 billion) in 1999 to US$995.8 billion (RM3.784 trillion) in 2004.
Collapsing the traditional linear supply chain
A noticeable phenomenon in the B2B arena has been the explosion of numerous dynamic trading communities, although there exists in the marketplace many variances in terminology, including labels such as electronic trading communities, online exchanges, B2B hubs or e-marketplaces. Call them what you will--but Gartner predicts that these trading communities will handle US$581 billion (RM2.207 trillion) of regional trade by 2004, representing 29 percent of total B2B e-commerce. A Dynamic Trading Community (DTC) basically refers to a virtual marketplace where a community of buyers and sellers can trade online. Asia has produced several regional and even global success stories, with players such as ECnet, Arena and CommerceNet as star performers.
This trend, however, comes as no surprise. The B2B e-commerce world is one of simultaneous chaos and order. With the chaotic speed that markets, competitors and technology are moving, business rules are being thrown out of the window. Out of that chaos, the winners will be those organizations that can first make sense, then take advantage of the rapid shifts in market conditions.
DTC is an emerging business model that is being adopted at an astounding rate as a way of creating order out of the chaos. DTCs aim to deliver on needs of both buyers and sellers. Ultimately, they provide a platform to collapse the entire supply chain from a linear model that is slow and rigid, to a collaborative model that can handle many-to-many information sharing in real-time.
By joining trading communities, buyers can expect to streamline the procurement process, gain access to new market opportunities, share critical information, and reduce transaction costs.
Suppliers can expect to increase revenue by expanding outside of traditional channels and offloading excess and obsolete inventories. The real-time information exchange lets buyers and sellers reduce time and geographical barriers. In many instances, trading communities also enable a more level playing field for smaller buyers and suppliers.
Naturally, DTCs are more relevant to some industries than others. Typically, those with many suppliers and buyers, fragmented processes and non-local supply chains will benefit the most.
Types of DTCs
Joining a DTC can be as simple as accessing membership through a portal service. Typically, these very thin exchanges do not provide all the benefits of a fully developed DTC that encompasses every element of the supply chain process, from buying and selling and transaction clearance to inventory visibility and logistics.
There are a number of different types of exchanges, but very broadly these can be categorized into two business models. The first, which receives less attention though just as prevalent, is the private trading community. The private trading community is centred around a specific channel master (typically the manufacturer) and enables customers, suppliers, logistics companies and the manufacturer to share critical information about demand and inventory in a defined supply chain. The key objective is to optimize the overall return on assets and competitiveness of the supply chain by increasing visibility of information and velocity of goods.
The second model is known as a hosted or public exchange. There are many different types of hosted exchanges depending on the complexity of the buying and selling relationships involved as well as the depth of technology supporting them. The additional benefit of joining a hosted exchange is real-time access to buyers or suppliers.
A Three-Step Approach
To reap the full advantages of joining a dynamic trading community, or develop a private community, organizations need to carry out a three-step process. First, they should ensure that they are maximising the value of their information flow within the organization.
The choice of ERP (enterprise resource planning), CRM (customer relationship management) and even a SCM (supply chain management) solution is simply a functional decision. The most critical business decision with regards to these applications is in providing the internal e-infrastructure that seamlessly ties all these different applications together in order for them to share information efficiently. Without leveraging the efficiencies gained from these internal systems, real-time external information is unmanageable and almost redundant.
Second, if an organization has chosen an internal e-infrastructure tool, the same tool can be used to integrate externally to communicate with immediate trading partners. By creating this communication hub with its immediate business partners and by already integrating the organization internally, an organization now has the e-infrastructure in place to maximise the benefits of joining a trading community.
The final step to joining the community typically depends on the type of technology the community is using. However, if the community is using a many-to-many, scalable e-infrastructure tool, collaboration with the trading community is straightforward. With the proper e-infrastructure in place, participants, who can possess anything from a fax machine to a complex SCM solution, can join a trading community with ease. Similarly, for participants who have already developed their own proprietary e-infrastructure, they will not be dependent on the technology that the hosting company is based on. This greatly reduces the risks of joining a community in time and cost.
Key to success
Some of the lessons learnt from the B2C marketplace of a couple of years ago also apply to DTCs. If a company is joining a hosted community, the benefits of real-time spot buying and selling, for instance, will depend on how many members have joined the community. Key attributes include:
- The ability of the community to handle many-to-many transactions, independent of the technology or communications protocol being used by any of the members. A community based purely on XML, while a flexible language, is not going to be as attractive as a community that can handle both EDI and XML.
- The ability of the community to scale quickly is critical. If the community is not geared to handle high volumes of information exchange in real-time, it virtually defeats the objective of joining the community in the first place.
- Trading communities are self-perpetuating. They need to be established with a global marketplace in mind and the hosting organization should be able to support customers either directly or through a technology partner on a worldwide basis.
- The functionality that sits on top of the e-infrastructure should be geared towards visibility of the whole process, not just the buying and selling function. Whether vertical or horizontal, the depth of this functionality should enable end-to-end transaction, including delivery, from a single interface.
- The desktop is key. Non-technology users need to have their own management control of who they want to collaborate with and when, without relying on the hosting organization to manage this process for them.
Companies probably will join more than one DTC initially. If they have developed a flexible e-infrastructure, they will be able to co-exist with a number of DTCs at any one time. If they are locked into using specific protocols or only able to connect to certain types of systems or applications, they will not enjoy the flexibility to choose the community, nor will be limited to browser-only interfaces, without being able to integrate the information into their back-end systems.
Over time, the communities that provide the most value will attract critical mass, making it very difficult for more than a few to exist in each sector. Early mover advantage for communities and members is key. The communities that adopt an agnostic approach with their e-infrastructure are expected to reap the benefits of being able to deliver on the real value-add of supply chain visibility and velocity for multi-level, multi-party, scalable collaboration.