The Economy

Exchange Strategy

Dec. 21, 2004

How to do what, and with whom.

Today there are so many kinds of trading exchanges that companies need a score card to know what's out there. Then they can adopt a strategy to optimize the contribution of exchanges to their business model. In an effort to catalog the various models, AMR Research Inc., Boston, constructed the following exchange classifications:

Independent trading exchanges, not owned by industry buyers or sellers, though they may have some minority interest from industry players. Example: Third-party-owned e-Steel, serving the steel industry, with Ford Motor Co. holding a minority interest.

Vendor-managed trading exchanges, a subgroup of independents, created by software companies supplying solutions for trading exchange operation. Example: i2 Technologies Inc., Dallas, operates FreightMatrix for logistics planning services.

Consortia trading exchanges, formed by a group of industry buyers and sellers creating an exchange for themselves or the entire industry. In the most prevalent model, these eventually will be independently managed. Example: Covisint, the new automotive industry exchange.

Private trading exchanges, established by one large buyer or seller exclusively for its own set of customers or suppliers. Covisint, for instance, also has offered to create individual exchanges within its framework for large tier-one suppliers to deal with their suppliers. AMR suggests companies will need to segment their trading partners into at least three classes of goods and services for the purposes of developing trading-exchange strategy: 1. For commodity-like, nonstrategic direct and indirect manufacturing goods and services: independent exchanges to connect trading partners. 2. For noncommodity, low-volume strategic direct materials and services: private/consortium exchanges. 3. For strategic, high-volume direct materials and services: private/consortium exchanges supplemented by traditional EDI.