Focus the secret of B2B: Ariba

Paul Broekhuyse

03 October 2000

Australian IT

Original at http://www.australianIT.com.au/common/storyPage/0,3811,1266428%255E501,00.html

VERTICAL exchanges will prevail over their horizontal cousins as the preferred platform for B2B e-commerce, according to Ariba Asia-Pacific vice-president Mukesh Aghi.

Aghi says vertical exchanges that target a particular industry can offer more focused services than horizontal exchanges such as Australia's corProcure, which include a motley collection of large companies with little in common aside from their size.

"There are three issues: commerce, content and community," Aghi says.

"Community is becoming more important.

On a vertical exchange you can offer things such as newsletters and speakers that are relevant to all the participants, he says.

"In the tyre industry, for example, it's useful to know about the local market in Peru or Bulgaria. You can't really do that with a horizontal exchange."

He predicts three tiers of exchanges will continue to exist after the boom in B2B portals - expected to number 10,000 by 2004 - reaches its peak.

"There will be a consolidation, but there will still be three broad categories: private, regional and global exchanges," he says.

"You'll need the regional ones simply because the way they do business in Japan, for example, is different to how they do it in America.

"And companies will still have private exchanges for their valued suppliers."

Compared with the US, Aghi says, there's hardly any B2B in Australia - but that will have to change very soon.

He endorses the fashionable view that rapid uptake of B2B technology explains the current US economic surge.

"A few years ago Goldman Sachs analysed supply chain management in the US and found $US1.5 trillion ($2.7 trillion) lying idle, either as raw materials or in warehouses.

"That's a huge amount of capital not being productive.

"Information technology has created tremendous efficiencies in the past five years by releasing 50 per cent of that into the US economy - some $US800 billion.

"The result is that the US economy is moving forward without high inflation or unemployment.

"The economy is moving from push to pull - there's no inventory and more customisation of goods."

Aghi says networking giant Cisco - which uses Ariba's B2B e-commerce platform - now does 95 per cent of its procurement on the internet.

"It saved $US200 million this year," he says.

Asian countries - including Australia - are export-oriented, and usually have the US as a major customer, so they have no choice but to get into B2B, he says.

According to analyst Forrester, Asian e-commerce ($US1.6 trillion) will surpass European ($US1.4 trillion) by 2004, Aghi says. The savings from B2B e-commerce are "not just from squeezing suppliers, but from more efficient processes".

"A consortium of buyers squeezing suppliers will be a failure," he says.

"The exchanges will help suppliers, because their biggest cost is usually marketing and sales -- about 30 per cent.

"Exchanges create equality between small and large suppliers, allowing them to cut costs and pass on these savings to customers."

He doubts that the rise of huge, focused portals could pose the same dangers that offline monopolies and cartels do. "The US government was conscious of the issue of a monopoly of buyers ganging up on suppliers," he says.

"But recently they decided that one of the biggest vertical portals - Corvisint, comprising GM, Chrysler and Ford - was not a antitrust issue," he says.

Ariba is keen to implement its e-commerce platform in Australia, he says. The company recently implemented Orica, its system for Australia's largest supplier of fertilisers, chemicals and explosives.

The company boasts it has produced more live exchanges than anyone else, and claims its methodology - Ariba Live - is responsible.

"We have more than 160 exchanges, which is more than Oracle and CommerceOne combined," Aghi says.

"We also have 30,000 suppliers already on our Ariba Commerce Services Network (CSN), which allows them to access services such as insurance and logistics.

"One of the problems with ERP implementations was that the return on investment was too slow.

"Ariba is making sure its customers are live and enjoying the benefits of B2B as soon as possible.

"We got Dana Corp in the US up and running in 11 working days. Telecom New Zealand-AAPT took 90 days, but that's still fast."

He says another advantage of Ariba is its ability to link with other, non-Ariba exchanges.

"B2B is not about proprietary systems," he says, taking a swipe at competitors CommerceOne and Oracle.

The company recently did a deal with supply chain optimisation specialist i2 Technologies and IBM, working out how their products will work together.

It is also co-operating with IBM and Microsoft on UDDI (Universal Description Discovery and Integration), a global standard to give companies their own identity number for e-commerce.

The proposal goes beyond XML, and 40 companies have already signed up, he says.