3.1 Private exchange structure
While the consortia results and accomplishments are covered,
private exchanges do not reveal such information. However, we can say that at
least 25 percent of the Fortune 100 companies have built, or are building, a
private exchange. In addition, a survey conducted by AMR Research revealed that
the average cost to build a private exchange was of $83 million for Fortune 500
companies. Considering the economic context, this cost should appear as too
huge. However, it must be considered in relation to the breadth and depth of
functionality that these firms are developing.
The private exchange development varies a lot from one
exchange to another as it depends on the type of processes being addressed and
the size of the owner. In addition, some private exchanges are brand new and
others were put in place ten years ago.
Private exchange functionalities have allowed companies to
create an advantaged cost structure while changing the rules of the game in
their industry. It seems that private exchange functionalities are suddenly on
the schedule of both large and small companies.
Large companies are frequently undertaking functionality
addressing several value chain processes. DaimlerChrysler, for example, is
developing tools to address procurement, product development decision support,
and supply chain networking with multiple tiers of its supply chain.
3.2 Private exchange functionality
Obviously, the functionalities provided by private exchanges are
more diverse. Most of the private exchanges build procurement tools or tools
dedicated to other value chain processes.
It seems that the procurement tools developed by private
exchanges are similar to those developed by consortia. Usually, these tools are
eRFx, e-catalogs, auctions or data mining. However, we must keep in mind that
instead of cross-enterprise opportunities, these tools leverage individual
organization opportunities. They usually go beyond the tools put in place at
consortia but the costs are not shared. They vary from one company to another,
they are often dedicated to value chain processes such as product development,
supply chain network integration or sales and marketing
3.3 Private exchange value creation: the DaimlerChrysler
supply chain network example
As the automotive industry supply chain involves hundreds of
suppliers, its management is challenging. The Tier 1 suppliers are the ones who
have direct relationships with the OEMS. The other suppliers have indirect
relationships with the OEMS, they supply products to the OEM through other
suppliers. Consequently, the automotive supply chain can imply four levels or
more of tiers for some subassemblies.
With regard to forecast, suppliers situated at different
levels within the supply chain receive different amounts of forecasted demand
information at different times. For instance, Tier 1 might receive weekly
forecasts with 12 to 15 months of monthly demand information and 5 to 6 weeks
of weekly demand information from DaimlerChrysler. Obviously, this information
is not immediately passed on to lower-tier suppliers.
As the supplier has to deliver its orders on time, he might
hold extra inventory of both raw materials and finished product in order to met
DaimlerChrysler demand fluctuations. This inventory results in higher costs and
implies risk of obsolescence as the customer preferences might change. In
addition, the supplier might schedule overtime and incur incremental equipment
changeover costs due to late changes in the production schedule. In order to
get the product faster, the supplier might also use expedited freight.
DaimlerChrysler's forecast is changed from a number of cars
of specific makes and models, to part numbers and metrics that are meaningful
to each supplier (such as yards of a particular seat fabric). Considering the
supplier situation, DaimlerChrysler worked on the development of a software,
which translates its weekly demand forecasts to the requirements of each
supplier of its supply chain.
This translated forecast data can then be sent out to each
supplier in the company's supply chain at once. Development and implementation
of this supply chain networking functionality has many complexities that must
be overcome before it can be launched to the entire supply chain. To date it
has been piloted with three supply chain segments. However, the opportunity
represented by this functionality could yield a significant savings per car.
Based on this opportunity, DaimlerChrysler continues its development and
piloting efforts in supply chain networking.
