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One B2B winner is ChemConnect of San Francisco, which has become "close to the NASDAQ of chemicals," says Stanford economics professor Bob Hall, author of Digital Dealing. ChemConnect has offices in seven countries and offers to bring together buyers and sellers worldwide. But rather than try to hook the computers of all participants into one online catalog, it started with a simple electronic bulletin board where buyers and sellers could post what they had or were seeking. From there the company worked up to more sophisticated auctions.
And whereas Ventro sold laboratory chemicals in beaker quantities, ChemConnect focused on industrial chemicals sold by the railcar--a market in which there are fewer transactions but much more money involved. "I've spoken to suppliers who had a corporate edict that they were not going to participate in this type of auction because it would only drive prices down," says Michele Hincks, ChemConnect's marketing vice president. "They regretted it because they lost a market."
Some of the savings offered by independent exchanges are negated by extra costs--including commissions and membership fees. Some firms have eliminated the middleman by forging industry consortiums, such as Covisint, an automotive-supply exchange owned by six of the world's largest carmakers. But participants in consortiums run the risk of giving away buying and selling secrets to competitors.
As a result, many companies are building private exchanges, through which they can buy or sell on their own terms. Eastman Chemical, based in Kingsport, Tenn., is doing more than $400 million a year in business through its eastmanmarketplace.com website, established in November 1999. "Thanks to e-commerce, I now enjoy my job again," says sales rep Geri Mitchell.
That job is selling polyethylene to makers of such products as buckets and food packaging. Until Eastman set up its website, Mitchell fielded 40 to 50 calls a day from potential buyers and haggled over prices for hours. "I was getting cauliflower ear," she says. Now she simply tells the buyers when to log on to the website for an auction. Within 15 minutes, it's all over, with an e-mail message going out automatically to the winner. But when supplies of polyethylene are scarce, Mitchell stops doing auctions and doles it out to select buyers with whom the company has long-term relationships. It's one way she has kept favored customers from stalking off when asked to participate in auctions.
Creating your own private exchange, however, can easily cost $5 million or more. One alternative is the route taken by Diebold, a Canton, Ohio, maker of safes and ATMs, which has hired FreeMarkets to conduct online auctions for it. FreeMarkets acts as a corporate matchmaker, combining the services of a broker, an auctioneer and a software designer. FreeMarkets seeks out suppliers, ensures they can meet specifications, then invites them to either participate in a real-time auction online or submit sealed bids.
Some suppliers have balked, and in a few cases Diebold has decided not to hold an auction just to preserve those relationships. But it has also found new suppliers. Diebold has realized at least a 15% savings on commodities bought through FreeMarkets, more than enough to justify the flat fee that Diebold pays for the service.