This chapter is from the book
This chapter is from the book
This chapter is from the book
Horizontal e-markets
Horizontal trading communities, on the other hand, cut across the boundaries of industries and focus on broad categories of goods—office supplies, furniture, travel services, janitorial help—that are common to large numbers of cross-industry organizations. Horizontal e-markets are often sponsored by e-procurement software groups or leaders in specific areas of these types of indirect goods and service provision. Horizontal exchanges have, at least in the past, been driven primarily by indirect materials and tend to develop in highly fragmented markets.
W.W. Grainger, the powerful MRO supplies group, provides a perfect example of the horizontal trading community. Their exchange, OrderZone.com, went online in May 1999, and provides a single Web portal that gives customers access to six industry-leading MRO suppliers. The service includes online ordering and invoicing and provides customers with a single point of contact for access to a wide variety of indirect products. Only one registration on this single Web site is necessary to gain access to not only Grainger.com and its MRO catalogs, but to catalogs of other leading indirect suppliers for items such as office and computer supplies, laboratory equipment, and uniforms.
Some would also contend that companies such as Ariba and Commerce One are in fact not only software providers, but horizontal exchanges as well, in that they provide a trading community for a broad spectrum of suppliers of ORM and MRO materials, regardless of vertical industry. For example, Office Depot has aligned with Commerce One's MarketSite to provide an online trading community for their ORM goods in the U.S., the U.K., and Japan. Ariba has purchased SupplierMarket.com, which is an online marketplace for manufacturing materials. The fact that various vertical industry exchanges have begun to use their software and exchange networks means that the lines between vertical and horizontal markets are blurred even farther.
There are a number of variations on this central theme, but basically all of these groups—whether known as trading hubs, exchanges, or e-markets—are focused on creating a global electronic hub based upon their single, industry-focused portal, which will provide seamless integration through the entire supply chain, allowing buyers and suppliers of every size and type, and from any country, to transact all their business through a single electronic marketplace. Supported by a broad mix of hardware, software, communications, and industry specialist companies, they differ significantly—in focus, size, level of service, and market—and range from enormously powerful collaborations between automakers to tiny e-marketplace hubs for buying specialty products, such as motorboat equipment or wine.
W.W. GRAINGER AND BFGOODRICH *
In business since 1927, W.W. Grainger, Inc. has a number of Web properties, but Grainger.com is the granddaddy of them all (in terms of sales as well as time on the Net). In 1999, Grainger had $4.5 billion in sales, with more than $100 million over the Web, the majority of which was placed through Grainger.com.
More than 560,000 brand name maintenance, repair, and operating (MRO) supplies are offered at Grainger.com, with a growing number of Grainger's 1.5 million customers actively ordering online. The Web site continues the same kind of customer service and wide range of industrial products provided in the traditional business, with the additional convenience of 24/7 ordering.
This convenience is what first hooked Isaac Pendarvis, assistant buyer for BFGoodrich Aerospace in Pueblo, Colorado. As Pendarvis says, "I'd known about Grainger since I was a kid, so one day I was on the Internet and tried out their site and was hooked. It's one of the most convenient and easy sites to use."
Pendarvis makes purchases for the entire BFGoodrich plant of approximately 250 employees. He used to call in orders to suppliers, give the salesperson a part number, and wait until the price could be pulled up. There was also the chance that numbers could be transposed. Now he can place orders online in a matter of minutes, and his display has BFGoodrich's pricing built in. Pendarvis claims he can get just about anything he needs from Grainger.com. "They interface with other suppliers," he says, "so if I need something specific that they don't normally carry, they'll research and find the items through their FindMRO.com site, and with their buying power, they can get better prices than I can, so I save money as well as time."
BFGoodrich has achieved additional savings from the tremendous decrease in paperwork. Individuals in each department now have access to purchasing cards (P-cards), which allow them to do some of their own ordering. "Before, we had to issue purchase orders for every little thing," says Pendarvis, "but now employees with P-cards and passwords can place orders according to the spending limits that have been set up for their positions."
Last year, the BFGoodrich Pueblo operation made $100,000 in purchases from Grainger.com, which reflects a 10 to 15 percent savings. BFGoodrich has now signed a companywide enterprise agreement that allows every BFGoodrich facility in the country to order through Grainger.com, with an expected savings of at least 10 percent....
In fact, a good deal of criticism has been leveled already at some of these exchanges—both large and small—because it is alleged that they are simply industry leaders who, although experts in the provision of goods and services to their own markets, understand little about technology or the complex interaction of software and new business processes over the Internet. Accordingly, almost every trading hub and exchange is moving toward becoming a consortium of various ASPs, software vendors, and other third-party support organizations. Many e-marketplaces are in fact now run by ASPs.
All of these types of trading hubs typically make their money by charging a 1% to 15% fee for each transaction, depending on volume and materials being sold. Even then, the buyer usually comes out well ahead-often saving up to 40% on the price they would have paid through their traditional distribution channels3.