B2B struggling to achieve take-off

This time last year the aerospace industry was heralding the advent of web-based trading exchanges with a gusto that epitomised the dotcom frenzy. In reality, deep-rooted suspicions of the suitability of the model to the sector had meant it was late arriving at the party and in its aftermath many executives must now be wondering why they even bothered.
Indeed, such is the lethargic response to even the most high-profile electronic marketplaces, such as Exostar, which was set up by four of the world's largest players – BAE Systems, Boeing, Lockheed Martin and Raytheon – in March last year, that a growing band of sceptics are questioning whether they can survive in their current form.
Brad Corrodi, of Booz-Allen & Hamilton, who has recently completed a validation study of business-to-business (B2B) exchanges across a number of industries, says the marketplaces are putting an intolerable strain on the relationship with suppliers.
"The companies are finding progress hard," he says. "There is an awful lot of turbulence and risk between today's stable economic relationship and tomorrow's potential stable relationship. It is like a trapeze effect: you have to let go of one before you can grab the other, but if you are a supplier who has been beat up on price for the past 10 years, you are going to be reticent to let go."
Jeremy Hammant, of PA Consulting, who was commissioned by the UK's Department of Trade and Industry to study the impact of e-business on the country's aerospace industry, agrees. 'Sub-contractors and suppliers from levels two or three downwards in the supply chain continue to be reluctant to sign up to portals and other e-mechanisms created by the prime contractors." he says. "The key reason for this is that the primary objective of e-procurement is perceived to be a reduction in the purchase price, thereby forcing pressure on margins."
Unlike other industries, the relationship with suppliers is more complex, built up over a product's lifetime, which can run into decades and through a stringent regulatory regime that not only demands high safety and quality standards but on the military side can also require strict security protocols.
Both Mr Corrodi and Mr Hammant believe the industry should forget about the promise of large savings from e-procurement and instead use the portals to manage collaboration on existing programmes, where the relationship between prime contractors and suppliers are secure.
"The role of the B2B exchanges in the aerospace sector is very definitely going to have to change if they are going to be successful," says Mr Corrodi.
It is not just concerns about how far contractors can squeeze their relation-
with their suppliers that has left the future of the some portals in doubt. The sector's peculiarities are also testing the resources of the IT industry and its ability to design web-based e-procurement systems that work.
The highly-regulated nature of t he industry means every art in a companies inventory must ·be fully traceable – Add to that the preponderance of anachronistic procurement systems in t e industry and the whole thing starts to look like IT manager's worst dream.
Oracle, the technology partner on Aeroxchange – a portal set up by 13 of the world's leading airlines last July – admits this project is its most challenging B2B contract to date. The founding carriers have pulled in a further 20 airlines from around the world, leaving Oracle to figure out how to create and manage all their inventories in electronic form.
"One of the surprises is that the volume of information that was previously identified has grown considerably. We are now forecasting a need for a billions lines of inventory," says Terry Tooley, Oracle's senior director for travel and transportation. So far, the member-airlines have loaded little more than a million lines.