Insider Trading, Part 2

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Dell Computer Corp of Austin, Texas, pioneered direct marketing of personal computers (PCs) to consumers, first using telesales and then through the Web. Now, it is also leading in the movement toward private trading exchanges, a more successful alternative to public trading and consortium exchanges. Private exchanges require a password and allow one company to link to its key suppliers.

So far, Dell has found the use of its private trading exchange has helped it get in close contact and communicate with suppliers in near real-time. Through the Dell system–which came from supply chain management (SCM) software vendor i2 Technologies, Inc., of Irving, Texas–suppliers plug directly into Dell’s private real-time exchange at valuechain.dell.com. Dell communicates its orders with suppliers constantly and the suppliers know what’s needed for every two-hour manufacturing window. For example, says spokesman Figueroa, a supplier will know that Dell needs 877 motherboards or chassis in the next two-hour manufacturing time slot.

“We’re constantly downloading orders from customers into our factories,” he says. “As the orders are processed, suppliers know what to deliver, when to deliver, and what loading docks to deliver to.”

In addition to cutting inventory backlogs, Dell is able to avoid supply shortages and push customers toward the components it has greater access to. “The bottom line is it speeds information from customers to suppliers. You increase the accuracy of doing business,” Figueroa says.

HomeBase, Inc., which operates 89 home improvement stores in the Western U.S., also is turning to a private trading exchange to improve its relationship with suppliers. But unlike Dell, HomeBase is earlier in the implementation process.

The Irvine, Calif., company is transitioning 850 suppliers away from the third-party value-added network electronic data interchange it used in the past to a less-expensive in-house system that allows it to communicate directly via e-mail with those suppliers.
Using technology from IPNet Solutions Inc. of Newport Beach, Calif., HomeBase predicts it will cut $2 million annually from what it has been paying to communicate with its suppliers electronically through value-added networks.

The new system, which is the beginning of a private trading exchange, allows HomeBase to communicate with its suppliers via encrypted e-mail. The company transmits its replenishment, sales, and inventory information to its suppliers. The suppliers in turn send on purchase orders based on the sales and inventory information they get. Not only does the new system save money, it also cuts down on mistakes, says Glen Hamilton, HomeBase’s manager of quick response.

Lessons Learned

Define the problem or problems you want to solve first, then design the exchange around solving that.

Use technology that allows suppliers to easily interface with your exchange.

Don’t try to implement an entire private trading exchange at once; it’s
OK to do it in pieces, such as inventory replenishment, and work your way
from there.

Keep the bottom line in mind when designing a private trading exchange;
figure out how it will save you money.

By September, HomeBase expects to complete a restructuring that will change all of its outlets to House2Home stores that focus on home interiors and furnishings instead of hardware. At that time the company will move to a more collaborative supply chain management system to complete its virtual trading exchange.

That system will be in the form of a Web portal that will allow suppliers to input their data and view forecasting and inventory reports derived from the data House2Home puts into the system.

“We expect vendors will be able to better plan their production and give us better information than we may have,” Hamilton says. “We expect to be able to maintain lower warehouse inventories and get an increase in service level from our suppliers, especially in textile areas, where they run short on manufacturing run because their forecasts are not tuned into supply chain use.”

While some entities like Dell and HomeBase never tried a public or consortium exchange and jumped directly into a private exchange, others are trying private exchanges after realizing that the public exchanges didn’t live up to their promise.

The National Association of Manufacturers, which has 14,000 direct members and has access through affiliate programs to 180,000 companies, is offering a private trading exchange option to its members after its public exchange failed to generate much business. The trade group in March 2000 created a public exchange called Marketing Central in hopes that small and medium-sized manufacturers would go there to increase B2B commerce activities. While many posted online catalogues and created virtual trade show booths, few transacted business there, says association senior vice president Ladd Biro. Now the association is working with e-commerce vendor Unibex, Inc., of Washington, D.C., to offer private trading exchanges to its members.

“We’re moving toward private exchanges where you can bring your current supply chain online and conduct your transactions in a more cost-efficient, productive way in the confines of a secure, private exchange,” Biro says.

While the manufacturer’s association supports private trading exchanges, Biro says they’re not for all companies. A recent survey of its members found that small manufacturers with fewer than 500 employees are way behind their larger counterparts, mainly because they don’t have their own IT staff.

Whatever the solution, however, it’s clear the technology is pushing marked changes in supply chain management.

“Every company will need to reconsider the re-optimization of its supply chain, whether they go public and do it, whether they choose a private trading network, or some other buzz word we haven’t heard of yet,” says Skip King, vice president for e-business solutions and strategy of supply chain management vendor Manugistics, Inc., of Rockville, MD. “For those that don’t, I would question what their long-term competitive advantage would be.”

(Freelance writer Cynthia Flash covers business and technology from Bellevue, Wash. She can be reached at cynthia@flashmediaservices.com)