New Links in the Supply Chain: B2B Exchanges

The proliferation of trade exchanges and B2B technologies is fundamentally changing the way companies do business. Grady Means, managing partner at PricewaterhouseCoopers’ Washington practice and coauthor of Meta-Capitalism: The E-Business Revolution and the Design of 21st-century Companies and Markets (John Wiley & Sons, 2000) with colleague David M. Schneider, believes the economic slowdown in the United States is indicative of a major shift in business practices brought on by the Internet and online exchanges.

CIO: What is this transformation?

Means: It’s a new form of capitalism. The principles are that you can get capital?human, physical, financial, brand?through the Internet. If you look at the balance sheets of large companies over the past few years, you see them selling off a lot of their factories. You see them outsourcing a tremendous amount?more than they ever did before. You see them developing alliances and using the Net to identify and manage those alliances. The model says we don’t have to own factories, but we have to know how to manage the supply chains and the factories that we don’t own but that produce our products. It lets companies decapitalize more quickly, drive their working capital down more quickly and their EBIT [earnings before interest and taxes] up.

How is the economic slowdown indicative of this change?

Even though stocks have taken a beating, U.S. productivity is up and seems to continue to grow. Alan Greenspan and others explain [that] the continued growth in productivity in spite of the apparent economic slowdown is [a result of] companies moving to these new types of technologies and using them more effectively. Companies in just about every sector are putting more of their procurement and more of their supply chain online.

How relevant is this idea of outsourcing business operations in the post-Sept. 11 world?

When talking about connecting through virtual networks, you’ve got the elements of a disaster recovery plan, which is very different if you have one manufacturing plant vertically integrated, making everything from back to back. People have discovered that using virtual systems and technologies that can prepare and repair themselves and reassemble supply chains quickly is a very smart move in an era where we face terrorist problems and other unpredictable attacks. There’s no question recent events [of Sept. 11] will accelerate these new economy principles.