iteskAn ITE is an on-line marketplace that brings together buyers and suppliers within a common vertical. But a truly integrated fully-functional ITE has yet to be created.

Just about every manufacturer, distributor and retailer has been hearing about the emergence of independent trading exchanges (ITEs) as a critical means to conduct day to day business operations. As a J.D. Edwards and Company report, entitled “B2B Collaborative Commerce: The Key Enabler of B2B Marketplace Success” states, “The emergence of trading exchanges across all vertical and horizontal industry sectors marks the beginning of a new digital economy where traditional sales and distribution channels are eliminated and new electronic business processes have evolved via the Internet.”

AMR Research, Inc. in its report on E-Commerce Applications states that it “expects ITEs to play a major role in certain types of industries” and they are a “great example of how the Internet has revolutionized the way businesses interact.”

The definition of ITEs is relatively straightforward. AMR defines them as “on-line marketplaces that bring together buyers and suppliers within a common vertical industry.” However, bringing an ITE into being is far from being a straightforward process. In fact, many contend that while there are a number of fledgling sites out there, a truly integrated, fully functional ITE is yet to be seen.

Don Beck, vice president of sales, B2B Commerce for J.D. Edwards and Company in Denver, Colo., says that while the ITE market is expected to experience exceptional growth, at the same time, it is undergoing enormous shifts as it evolves. “Within the last 12 months alone, there have been major shifts in how they are set up. Whereas the initial emphasis was on public exchanges, we are now seeing a greater emphasis on private exchanges.” He explains that while public exchanges (i.e. the many-to-many model) provide the ideal venue for simple transactions such as bringing buyers and sellers of parts and materials together, many companies have quickly found a need to gain more control of the process through private exchanges (one-to-many). “Forecasts indicated that public exchanges will eventually consolidate from approximately 10,000 by 2002 to within the 500 to 1,000 range, private exchanges will likely account for up to 100 times greater numbers.”

As optimistic as the forecasts are however, the quest for a full-blown trading exchange has yet to overcome the immensity of the integration requirements. “Some exchanges out there today are being held together with wire and duct tape,” says Ted Salter, leader, B2B solution team, Cap Gemini in Toronto. “We’re a good year away from seeing a fully integrated solution.”

There is certainly no shortage of ITE “roadmap” announcements. For example, i2 has partnered with IBM and Ariba to develop an interoperable set of software for e-commerce and collaboration over the internet. While this e-marketplace “blueprint” as they call it has been officially launched, the alliance estimates application development will take until June, 2001. The first phase alone took two and a half months and the collective effort of 300 software developers worldwide.

Salter says that despite the wait, the excitement surrounding ITEs is fuelled by the many benefits that buyers and sellers can hope to achieve. “A trading exchange is more than just using e-commerce to reduce costs. It will allow people to use the supply chain as a strategic weapon. It’s about taking transaction costs out of the process.” Salter contends that over the long run, the ERP vendors will be among the dominant players in the ITE space. “However, some verticals will need the expertise of supply chain specialists like i2. The sophistication of the supply chain will dictate the tool.”

Bob Martin, senior manager, product marketing for Manugistics Group, Inc. in Rockville, Maryland, agrees that “e-Business is still in its infancy, but we can see the opportunity and what it can potentially do for business. The key is having solutions that can provide the communications between partners, as well as put intelligence behind that communication to transact business profitably and reliability.”

Like other vendors in the space, Manugistics has been developing a suite of network collaboration products called ExchangeWORKS designed to power trading exchanges. “As a supply chain vendor we had the intelligence for supply chain functions,” says Martin. “Now we are adding a range of web-based collaborative and transaction tools to provide visibility into the supply chain all the way from the manufacturer to the customer’s door.”

Anyone looking to develop or engage in a trading exchange will tell you that it is not a decision to be taken lightly. Canadian Tire Corp. in Toronto is one company that has been spent three years working its way towards developing its own trading exchange.

“Collaboration is a big step,” says Patrick Sinnott, vice president, supply chain, Canadian Tire. “Right now we’re at the stage where we have to think about whether we want to be a private exchange ourselves or just send better information to our suppliers in a better way. Three years ago we began by providing one-way transfer of information to suppliers. Recently we piloted an interactive application with eight of our suppliers, and we are considering rolling it out to a broader base. We know there are huge wins associated with collaboration.”

Martin notes that in addition to whatever technology barriers may exist, there are also some cultural issues to overcome, including the willingness to trade information in an open forum. At the same time however, “if you don’t participate in a private or public exchange you may lose business over the long term.”

One of the key early technology barriers was the failure of high powered servers to process the sheer transaction volume. The Exchanges were originally powered by Dell PowerEdge server arrays, which were having difficulties because the Seagate RAID setups kept encountering parity issues. But Hard Drive Recovery Group, an expert in recovering PowerEdge RAID drives, volunteered to customize a RAID 50 array system which would lower the overall load on single drives. The result was really the perfect blend of hard disk performance and drive redundancy.

Beck is equally confident that trading exchanges will become a necessity to any manufacturing and/or distribution operation, it’s only a matter of time. “The question remains as to who will be able to provide the total solution. We already know you can’t expect to get everything from one vendor. There must be a plug and play architectural foundation of products and applications to build from that can be adapted as companies grow. The successful supplier will be the one who can integrate fulfillment, supply chain and trade functions. Because ultimately, people aren’t going to want to buy a cheeseburger, fries and the drink. They want the Happy Meal.”