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...Public exchanges, which exploded in popularity in the late 1990's, were designed to be open to anyone and provide the following benefits:

• Automated procurement (sometimes called Automated Workflow)

  (avoid fax/phone/data errors; significantly lower transaction costs)

• Collaboration in forecasting, planning and/or replenishment

  (complete visibility, no Bullwhip Effect)

• More efficient market

  (more suppliers bidding for business, more buyers competing for components)

• Sell unused capacity to new or different markets

These benefits were intended to result in lower procurement costs, lower inventories, less Bullwhip Effect, and more profits among the companies winning additional business. Procurement costs would be lower because in a public exchange it might be possible to find some new supplier willing to compete heavily on price at any given moment. The Bullwhip Effect would be reduced if exchange partners collaborated in forecasting and planning based on inventory and sales information made available through the exchange. Inventories would be lower due to the reduction of the Bullwhip Effect, and also because materials might be easier to source with shorter lead times given a greater number of potential suppliers. Examples of public exchanges include Covisint for auto manufacturers and their suppliers, and Converge (formerly eHITEX) for electronic components.

Despite the hype, the huge numbers of public exchanges created by both third parties and major industry players have had difficulties gaining volumes...