As reported earlier, twelve companies--including Hewlett-Packard, Compaq, Gateway, Solectron, Hitachi and AMD--said today that they will create an independent company to manage an electronic marketplace where high technology companies can buy and sell components, completed computer systems and other electronics products. Putting these businesses on the Web could save millions of dollars, proponents claim.
"It will revolutionize supply chain management," HP chief executive Carleton "Carly" Fiorina told attendees at a Merrill Lynch conference earlier this morning. "We're sitting on a huge opportunity that we are well positioned to exploit."
The collective effort follows the creation of similar electronic marketplaces in the aerospace and auto industries, but with mixed results. Also today, IBM announced it was forming an electronic marketplace for computer components.
The exchange is expected to open in the next 90 days. The founding companies will collectively contribute $100 million to the effort. Each of them will own an equal share of the new venture.
Not all the details have been worked out. The new company as yet has no name or management team. The venture also has yet to select a database program to run the exchange. Still, the founders aren't ruling out a public offering for the new venture.
"You never say never to an IPO," said Fiorina.
The founding 12 companies will use the electronic marketplace to manage their own purchasing and procurement activities, but the system will not be theirs exclusively. Other companies will be invited to participate in the system.
Inventory and supply chain management has become one of the dominant markets in the e-commerce industry. Shifting purchasing systems from phones and fax machines to the Internet can save millions of dollars in transaction costs, executives and industry observers have said. HP will initially put 28,000 products and 200,000 components for sale on the exchange.
Compaq CEO Michael Capellas said computer companies could still cut as much as 5 to 7 percent from their transaction costs by using such an exchange. Capellas declined to predict specifically the savings that would emerge from this new system.
The companies were each independently considering creating their own electronic marketplace. The collective effort got rolling when Fiorino talked to Capellas about combining efforts.
Other industries have already moved to create electronic marketplaces, but the success of these efforts remains a topic of debate.
Detroit's Big Three automakers announced plans in February to merge their Internet-based supply exchanges--a daunting effort to connect 30,000 independent suppliers, eliminate excess inventory and minimize paperwork.
General Motors, Ford and DaimlerChrysler spend a total of roughly $250 billion per year in parts and services from suppliers.
The automakers plan to use the sites to hold product auctions, submit pricing bids and monitor the status of purchases from the supplier's factory to the automaker's assembly line, and eventually, to the dealership. The Federal Trade Commission is investigating the exchange on antitrust concerns, but the automakers say they don't intend to use the site to collude on prices or orders--only to create a common, international infrastructure for suppliers.
Still, other companies, including Cisco Systems and Intel, have stated that they have seen substantial transaction cost reductions through Web-based exchanges.
News.com's Rachel Konrad contributed to this report.