December 27, 2000, 9:41 AM — AT A TIME when most business leaders envisioned dollar signs as they watched the emergence of Internet-based, business-to-business trading exchanges, BASF Group's Karl Grupp saw an omen for his company's digital future instead.
"If we just go into marketplaces and into e-ventures through other companies, not investing by ourselves, the threat could be that in some years we'll be just a production company and nothing else," or even be acquired, says Grupp, senior vice president of IT applications at the BASF Group, a $29 billion global chemical products manufacturer in Ludwigshafen, Germany.
It's even likely, Grupp adds, that an e-venture start-up could "have such capitalization that one day they just ask, 'OK, why not buy BASF as a production company?' "
Like many established companies of its size, BASF is discovering that it will have dual roles in the world of trading exchanges: It will become a major buyer in a chemical exchange and major sell-side supplier. For these reasons, BASF and companies similar to it are starting to take trading exchanges very seriously.
First movers in the business-to-business trading exchanges are finding that their baby steps have allowed them to gain control over "maverick," or spot-buying, of goods and services. The early embrace has also brought into clear focus the challenges of integrating front-end exchange systems with back-end ERP (enterprise resource planning) platforms to make it possible.
Just a year ago, there were about 30 such exchanges, but that has blossomed to estimates of 300 to 600 exchanges currently, according to industry analysts. Several vertical industries are leading the way -- chemical, high technology, consumer electronics, aerospace, and automotive -- with many analysts forecasting that there will be between 5,000 and 10,000 exchanges in only five years' time.
Evolving buyer, supplier roles
The stampede toward exchanges is driven by the promise of supply-chain streamlining, particularly for the buy side, according to analysts at AMR Research, in Boston. AMR reports that buy-side participants can expect to see a 15 percent to 20 percent drop in maverick buying, $50 to $100 savings in costs per order, and 2.5 percent to 10 percent in price savings because of the give-and-take of negotiating over the Internet.
"The buyers will always benefit. It's the suppliers who will bear the brunt of it," says Scott Latham, an analyst at AMR. Suppliers want exchange vendors to provide Web-based front ends, front-to-back-end integration with an inventory view, and better logistics and CRM (customer relationship management) support. "[Suppliers are] going to demand more than a product listing on a PC screen," Latham adds.