freemarket online. questions? w how does freemarket create value for its customers? how is it...
TRANSCRIPT
Questions? How does FreeMarket create value for its customers? How
is it different from existing/traditional models? How do you assess the company’s business model? What
are its strengths? Weaknesses? Which of the following alternatives should the company
choose in order to go forward to scale:• horizontal market expansion or vertical market
dominance• technology and user subscription licensing• networked purchasing information systems
The Consulting Model Fees from buyer The marketing arm Thus, priced at a discount Labor intensive (industry experts?) Little re-useable learning Will decline over time for a particular buyer Can spread to other departments Must grow to grow business Will remain unprofitable
The Commission Model 2.5% Over multiple years of contract Cash flow delay High fixed costs Better returns Commission for cutting their profits??? The more they cut the less we make??? Why not cut us out on next contract?
Recent Business
$33 million electricity (5% savings) $123M of packaging materials (7%)$9M office furniture and installation (31%)$31M transportation services$93M relocation services (20%)$4M telecommunications services (30%)Hotel services (20%)Tax preparation services (50%)Security guards (14%)
Share Prices
http://www.bigcharts.com/custom/hoovers-com/hoovers-new.asp?sid=&o_symb=FMKT&symb=FMKT&time=6&uf=0
Class Action Law Suit
“During 12/10/99 through 1/4/00, FreeMarkets saw its stock price soar from ... $48 per share to $350 per share as FreeMarkets misrepresented the true status of its relationship with General Motors, concealing the fact that GM, one of FreeMarkets's largest customers, had signed an agreement with Commerce One to create an internet auction site which would result in the total evaporation of all of FreeMarkets's business from GM. The Individual Defendants knew that disclosure of this Commerce One agreement with GM would devastate FreeMarkets's chances of going public which allowed FreeMarkets to raise $160 million in its 12/10/99 IPO.”
http://www.milberg.com/freemarkets/complaint.html
Analysts Still Positive (2/17/00)
"We continue to remain impressed with the company's ability to horizontally scale its reverse-auction technology into additional vertical market segments, including, most recently, into higher-margin service offerings. In addition, we believe that as FreeMarkets further establishes comprehensive understandings of the competitive landscapes for multiple industries, the company should be able to increasingly convert suppliers to buyers and buyers to suppliers."
http://www.hoovershbn.hoovers.com/bin/story?StoryId=CokUaubWbtLLusda3o&FQ=c%25FMKT%20&Title=Headlines%20for%3A%20FMKT%0A
Other Big B-2-B Players
www.ariba.com www.commerceone.com www.chemdex.com www.verticalnet.com www.wwgrainger.com www.purchasepro.com www.clarus.com www.i2.com
How can you Optimise Inventory?
1. Minimum Stock LevelEngineers, Production and Procurement staff work together to set optimal stock levels that balance the costs of holding spares against the risk of being without them when equipment fails.
Modified from presentation by Erran Carmel of American University
How can you Optimise Inventory?
2. Actual Stock LevelHowever, large economic order quantities, slower than anticipated stock turnover and long lead times for difficult to source items, rapidly creates an inventory level somewhat different to the ideal one!
1. Minimum Stock LevelEngineers, Production and Procurement staff work together to set optimal stock levels that balance the costs of holding spares against the risk of being without them when equipment fails.
Modified from presentation by Erran Carmel of American University
How can you Optimise Inventory?
3. Excess StockCertain items held to support in-service equipment are above the minimum level and represent a financial burden….. but you have neither the time nor the systems in place to find buyers and dispose of them efficiently.
1. Minimum Stock LevelEngineers, Production and Procurement staff work together to set optimal stock levels that balance the costs of holding spares against the risk of being without them when equipment fails.
2. Actual Stock LevelHowever, large economic order quantities, slower than anticipated stock turnover and long lead times for difficult to source items, rapidly creates an inventory level somewhat different to the ideal one!
Modified from presentation by Erran Carmel of American University
4. Required StockOther items are below the minimum level and represent a business risk….. and could be difficult to source, especially for older equipment still in service.
How can you Optimise Inventory?
3. Excess StockCertain items held to support in-service equipment are above the minimum level and represent a financial burden….. but you have neither the time nor the systems in place to find buyers and dispose of them efficiently.
1. Minimum Stock LevelEngineers, Production and Procurement staff work together to set optimal stock levels that balance the costs of holding spares against the risk of being without them when equipment fails.
2. Actual Stock LevelHowever, large economic order quantities, slower than anticipated stock turnover and long lead times for difficult to source items, rapidly creates an inventory level somewhat different to the ideal one!
Modified from presentation by Erran Carmel of American University
5. Redundant StockSpares still held to support redundant equipment and
destined for disposal even scrapping.
How can you Optimise Inventory?
4. Required StockOther items are below the minimum level and represent a business risk….. and could be difficult to source, especially for older equipment still in service.
3. Excess StockCertain items held to support in-service equipment are above the minimum level and represent a financial burden….. but you have neither the time nor the systems in place to find buyers and dispose of them efficiently.
1. Minimum Stock LevelEngineers, Production and Procurement staff work together to set optimal stock levels that balance the costs of holding spares against the risk of being without them when equipment fails.
2. Actual Stock LevelHowever, large economic order quantities, slower than anticipated stock turnover and long lead times for difficult to source items, rapidly creates an inventory level somewhat different to the ideal one!
Modified from presentation by Erran Carmel of American University
Inventory Management with Horizontal and Vertical Supply Chains
Manufacturer
SupplierSupplier
Traditional Vertical Supply Chains are designed to efficiently move engineering spare parts from Manufacturer to Industrial End User.
Industrial End Users
The case of spare
parts.
Modified from presentation by Erran Carmel of American University
Horizontal and Vertical Supply Chains
To maximise profit, Manufacturers and Suppliers need a fast stock turn and a small inventory. Their stock needs to be visible and accessible to facilitate sale to Industrial End Users.
Manufacturer
SupplierSupplier
Industrial End UsersIndustrial End Users
Modified from presentation by Erran Carmel of American University
Horizontal and Vertical Supply ChainsEventually, it becomes uneconomic for them to support older equipment as demand rate, and hence stock turn, reduces.
Manufacturer
SupplierSupplier
Industrial End Users
Modified from presentation by Erran Carmel of American University
Horizontal and Vertical Supply Chains. At this point, the traditional Vertical Supply Chain will fail - possibly resulting in expensive plant down time.
Manufacturer
SupplierSupplier
Industrial End Users
Modified from presentation by Erran Carmel of American University
Horizontal and Vertical Supply Chains
Thus, plant management is inclined to build up insurance stocks.
Such spares held by Industrial End Users usually have a low stock turn. They may be expensive to purchase and hold and can be held on site for many years.
Manufacturer
SupplierSupplier
Industrial End Users
Modified from presentation by Erran Carmel of American University
Horizontal and Vertical Supply ChainsThis is the physical location within the Supply Chain where the majority of spare parts are held. Inter-company visibility of these parts is usually poor or non-existent.
Manufacturer
SupplierSupplier
Industrial End Users
Modified from presentation by Erran Carmel of American University
Horizontal and Vertical Supply ChainsHowever, typically 20% of the spare parts inventory held by an Industrial End User is Excess or Redundant stock.
Manufacturer
SupplierSupplier
Industrial End Users
Modified from presentation by Erran Carmel of American University
Horizontal and Vertical Supply ChainsA part that is surplus to one companies’ requirement, and perhaps destined for disposal, may be desperately sought by another.
How do we open up the Horizontal Supply Chain for internal and inter-company trade of surplus engineering parts.
Manufacturer
SupplierSupplier
Industrial End Users
But if they can’t see it they can’t attempt to buy it !
Modified from presentation by Erran Carmel of American University
SparesFinder.Com
Modified from presentation by Erran Carmel of American University
http://sparesfinder.com/info/brochure
Modified from presentation by Erran Carmel of American University
How it works
http://sparesfinder.com/info/brochureModified from presentation by Erran Carmel of American University
Want to Build a b2b Hub?
The intermediary as a business proposition
Modified from presentation by Erran Carmel of American University
Challenges of building a b2b electronic intermediary
Large amounts of money in up-front cost. must build a critical mass very quickly resistance by older middlemen long sales cycles for buyers & sellers need to qualify buyers & sellers need to build domain expertise
Lee & Clark, 1996 and othersModified from presentation by Erran Carmel of American University