Industry Heavyweights Form B2B Exchange

Twelve industry heavyweights have stunned the industry by setting aside their rivalries and announcing they will launch an independent company that will serve as an Internet exchange. The participants include AMD, Compaq, Gateway, Hitachi, HP, Infineon, NEC, Quantum, Samsung, SCI Systems, Solectron and Western Digital. HP CEO and President Carly Fiorina apparently spurred the effort.

The new venture will address supply chain inefficiencies in the computing and electronics-related industries by providing end-to-end services that are open and available to all parties in the supply chain process—consumer and business electronics makers, contract manufacturers, suppliers and distributors. "The creation of such an exchange can improve supply chain efficiency tremendously through cost reduction, timely transactions, inventory savings, and high-value services," Dr. Hau Lee, Professor of Operations, Information and Technology at Stanford Business School, said in a statement.

The founders initially expect to sink $100 million in the new company and will share equal ownership. That requires only a modest investment from each of the companies, which aim to take advantage of a big opportunity. They say $600 billion in high-tech components and parts will be sold online over the next few years. The companies also intend to take advantage of another opportunity presented by the exchange—the chance to reduce their own supply chain costs by using it to manage many of their own e-procurement purchases and sales.

The companies have established four goals for the exchange:

  • a reduction in manufacturing and purchasing transaction costs through process efficiencies
  • a reduction in inventory levels throughout the entire supply chain by better matching supply and demand via the online marketplace
  • increased customer satisfaction due to quicker and more predictable delivery of services
  • provision of expertise on supply chain "best practices" to help participants achieve better results from product design to customer delivery

The exchange, expected to be operational within 90 days, is welcoming additional founding members during that time. One company, though, apparently will not be joining the venture. IBM announced that it will partner with at least nine companies in the electronic industry to create its own B2B exchange. Big Blue wouldn't give any information about the companies it is lining up for its venture but indicated that its exchange basically will serve the same purposes as the one being established by HP, AMD and the other ten companies.