E-commerce: The Challenges of Creating a B2B Exchange

By Terry Wohlers

Internet Editorial

An edited version was published in Rapid Prototyping Journal, Vol. 7, No. 2, 2001, MCB University Press. Copyright 2001 by Terry T. Wohlers

A foolish amount of money was spent on the development of dot-com companies in 1999 and 2000. During the second quarter of last year, reality sat in. Many of these companies were expected to do more than show potential and perceived value. They had to produce revenue with the strong potential of profitability within a reasonable amount of time. The purse strings were cut from those who could not.

Business-to-business (B2B) exchanges are a part of the many dot-com companies that emerged over the past 2-3 years. Example exchanges in rapid prototyping and custom manufacturing are Ariba Sourcing, Quickparts.com, MfgQuote.com, MyB2O.com, and Protomarket.com. The main goal behind these services is to bring together buyers and sellers using the Internet as the vehicle. (In the context of RP, the buyers are the customers and the sellers are the suppliers and service providers.) Using a B2B exchange, buyers initiate new business through request-for-quotes (RFQs) that the sellers hope lead to transactions. The B2B exchanges produce revenue for themselves through membership and subscription fees, transaction fees, or a combination of the two. Few B2B exchanges are flourishing for many reasons.

People are creatures of habit. Web-based tools attempt to mimic traditional methods of buying and selling, but they are not the same. Using the phone, fax machine, and e-mail to do business is deeply engrained in most companies. B2B exchanges promise to save time and money by streamlining the communication between companies, but many of them have failed to convince buyers of this. Most customers of RP and other custom manufactured parts are content with familiar business practices, so few are giving one of the exchanges a try. Moving these people to using the web to conduct business transactions will take time and patience.

Money does not ensure success. Deep pockets can prevent a start-up B2B exchange from going out of business prematurely, but money alone is an incomplete recipe for success. Bringing together the right talent and managing it well is key. If employees are talented and sufficiently motivated, they will develop a service that is in tune with the market place. Even this does not ensure success, but without it, failure is almost certain. Money is important to any start-up, but many other pieces of the puzzle must also fall into place.

Prioritizing new features is not easy. Defining new features is not terribly difficult, but communicating them to the web development team can be challenging. Even more complicated is trying to prioritize these features. The marketing staff and product management create a list of features that is impossible to add into the site within the scheduled time frame. This means that they must work to position the most important features at the top of the list. This sounds easy, but it’s not because each feature requires a specific amount of time to integrate, which is largely unknown. A marketing person might believe that a particular feature should only take a few hours to integrate into the site, but the web development staff estimates that it will take several days. So the feature that was near the top of the list suddenly drops much lower in priority because the team is not willing to pay that price in time. It’s important that customers influence the feature set.

Launching at the right time is tricky. The more people you put on a project, the faster you can get it done. This also means spending money faster, and for some start-up companies, this may not be an option. Regardless of head count, the company must determine when the product is ready for testing, how long it should occur, and when it’s ready for the open market. In the end, the launch date is usually a compromise because there’s always someone that wants to slip in one or more features. At some point, however, the company must determine that the service is good enough. The difficulty lies in understanding when it is, in fact, good enough. It’s a subjective call based on one’s knowledge of the market and competition. Most individuals and groups within a start-up B2B exchange have varying viewpoints on this and this creates friction.

Security is critical. Most companies will say that data security is important, but in reality, many companies ignore it. Put another way, a company may say secure transmission of its product model data is critical, but will admit that they routinely send confidential designs by e-mail attachment. This is not secure and it may give the B2B exchange the impression that security is not imperative, but in the end, the company must offer secure methods such as 128-bit encryption. As users and companies become educated as to the risks involved, they will insist on it.

Tools for viewing and collaboration are essential. When reviewing and bidding on RFQs, it is important to offer web-based tools for easy viewing of STL, IGES, STEP, and other model data formats that accompany the RFQ. Likewise, tools for real-time markup and collaboration are helpful. An example product that permits on-line collaboration is Magics Communicator from Materialise. As with the exchanges themselves, the development and acceptance of these tools will be slow. Over time, though, they will become a vital part of the B2B exchange.

Movement is toward private exchanges. A public B2B exchange is open to anyone with a computer, web browser, and Internet connection. The user logs in using a user name and password and then works with the tools to view a list of suppliers, create an RFQ, and so on. The tools and services behind a private exchange can be very similar to a public offering, but there’s an important difference. A private exchange sits behind a company’s firewall. Also, the web pages are often custom-tailored to meet the company’s specific needs. For example, the exchange may interface tightly with the host company’s product data management (PDM) system or accounting system. A specific number of preferred suppliers are a part of the exchange, versus tens or hundreds of suppliers. This makes it possible to customize the user interface to match the needs of the users. Improved security is a major benefit of private exchanges.

In the future, the use of B2B exchanges will prevail over traditional methods of buying custom parts and they will become an integral part of supply chain management. As these web tools improve, suppliers will discover that using a B2B exchange reduces the time and cost of purchasing parts and working with others in the development of new products.

Meanwhile, companies will work hard to define and deliver websites that have broad market appeal. Already, many supplier companies have warmed up to exchanges, hoping that the exchanges will become a new source of business for them. Buyers, however, have been slow to embrace the idea. Most are in a holding pattern, as they watch others make mistakes. This activity will lead to improved exchanges over the next several years. Eventually, scores of companies will reap the rewards, but in the meantime, many B2B exchanges will fail.