E-marketplaces &#151 A Positive Case For Suppliers

By now it’s an old story. Big buyer puts pressure on small seller to engage in electronic commerce, either directly or through an intermediary. Result: small seller loses – or so it often seems to the small seller.

Auto makers were the first to insist that parts suppliers implement electronic data interchange (EDI) technology over 20 years ago. It frequently entailed significant expense and upheaval for small businesses &#151 with little tangible benefit. Some SMBs simply couldn’t afford to participate.

More recent experience with Internet-based business-to-business e-marketplaces has been little better. Big companies forced suppliers into online blind reverse auctions &#151 where they had to bid down prices to win business. E-marketplaces often just had the effect of eroding suppliers’ margins.

Many small businesses still see EDI and e-marketplaces as an imposition, something to be resisted, or at least resented. Given past history, distrust is perhaps justified. But small businesses in at least some industries are discovering that e-marketplace survivors that learned from early mistakes &#151 many failed &#151 can deliver real benefits to sellers as well as buyers.

E-marketplace in Action
A.J. Levin Company is a good example. The Burbank CA aircraft spare parts supplier has 10 employees and annual revenues of about $10 million. It counts major airlines such as United and Lufthansa and many aircraft Maintenance and Repair Organizations (MROs) as customers.

Eighteen months ago, FedEx, a long-time A.J. Levin customer, told the parts supplier that if it wanted to continue doing business it would have to join Aeroxchange, an airline industry e-marketplace launched in 2000. That’s how FedEx was going to do business henceforth.

“We really had no option,” says company vice president Richard Levin. “FedEx has 100 airplanes &#151 that’s a lot. Plus we knew other customers were looking at joining Aeroxchange too.”

Levin says the company is still not 100-percent comfortable with its involvement in Aeroxchange. But he admits it has won one important new customer through Aeroxchange, and he expects to reap significant productivity benefits down the road.

His company, like many others, had previously invested in an earlier generation of EDI technology based on the Spec 2000 standard developed for the airline industry and promoted by the Air Transport Association (ATA). It used Spec 2000 to communicate with some customers over a dedicated commercial network operated by SITA.”Aeroxchange is basically a reinventing of the system that we already had with the ATA’s Spec 2000 and SITA,” Levin says.

It meant another round of technology change for A.J. Levin and other suppliers in the same position &#151 still ongoing at many, including at A.J. Levin.

Because Aeroxchange is based on the Internet and open systems standards, though, costs for change are much lower. And while the impetus for change came from the airlines, supplier participants enjoy significant benefits as well, Levin admits. For example, Aeroxchange’s use of the Internet for communications eliminates SITA charges for both sides.

Aeroxchange itself is anxious to reassure small suppliers that the benefits cut both ways. “We’re trading-partner neutral,” is how Aeroxchange president and CEO Al Koszarek puts it. Suppliers can be forgiven for being a little skeptical about this statement given that Aeroxchange was formed by &#151 and is still owned by &#151 a consortium of big airlines.

Continued on Page 2: The Cost of Doing Business