Paper profit
An electronic trading floor can help put paper suppliers or
other manufacturers in touch with buyers.
As business-to-business e-commerce grows, new kinds of intermediaries are bound to arise, revolutionizing the supply chain. With that realization in mind, Sesh Murthy, manager of cooperative scheduling at IBM's Thomas J. Watson Research Center, approached The Colombier Group of Myllykoski Oy, a pan-European paper trading company, about co-developing an Internet trading system.
Colombier had the perfect test market. In the course of buying bulk paper from manufacturers and selling it to printers, Colombier often encounters manufacturers that have excess inventory or odd lots they want to sell at a
discount, but don't know which buyers might be interested. Colombier also hears from printers who need to place last-minute spot orders that leave no time to shop for the best deal. An electronic trading system would allow sellers and buyers to reach deals quickly. The process would be anonymous, so a company would not have to tip its hand to competitors. A trading system would also make paper available to small buyers, which the manufacturers can't afford to service directly.
In mid-1998 Colombier agreed to participate in a "first-of-a-kind" project to create a Web-based electronic trading floor. Murthy teamed up with his colleagues in Watson's electronic commerce systems group and at the India Solutions Research Center to design a set of tools that could be adapted to any industry. The resulting system is being implemented in phases throughout this year.
The electronic trading floor has four main components. A Web site hosted by Colombier lets sellers list excess inventory and production capacity, and buyers list items and capacity they want -- all anonymously if they like. The system also contains software that matches the two sides and provides the buyer with a list of the most appealing deals. A "decision support system" analyzes the effects of various trades on the buyer's manufacturing schedule, inventory and finances, and recommends trades. The fourth component offers a variety of auction methods for unloading surpluses. People or automated agents could monitor recommendations and close deals.
PAPERLESS TRADES
The system would significantly alter Colombier's current supply-chain model, in which suppliers fax offers to Colombier, which then negotiates a price, buys the paper, stores it and figures out how to sell it. In the electronic trading system, suppliers would post offers on the Web site and buyers would post their needs. Colombier would analyze both and present a short list of recommendations to each buyer. If a buyer chose one, Colombier would pay the seller and bill the buyer. The paper would be relabeled with a Colombier brand and shipped directly. Even after the fact, the buyer and seller may never learn each other's identity.
All parties benefit. Colombier earns a transaction fee, and reduces its risk by avoiding inventory. The seller does not have to let buyers know it has a surplus, and thus can't be bargained down. By the same token, sellers don't know buyers are in a jam, or are small, and thus won't artificially raise the price.
The prototype trading system began running in March. The decision support software, for which IBM has filed a patent, should follow several months later. The actual Colombier trading site is scheduled to go online in September.
If the project continues, Murthy says, suppliers will be able to move excess paper or capacity faster and at a higher price than is now possible. In the future, buyers will be able to publish last-minute purchase requirements and collect bids from potential suppliers.
Eventually, if electronic trading systems become popular, Murthy says, "intermediaries like Colombier might even begin to sell primary capacity this way. They could conceivably take over the entire sales function for companies that sell business-to-business."
Mark Fischetti is a freelance writer who lives in Lenox, Massachusetts.
