Petri Vasara, Hiltrud Kinnunen and Pia Lobbas
In the short time that it has taken the phrases "E-commerce", "B2C" and "B2B" to enter common vocabulary, many early players and innovators in the area of e-commerce have disappeared or have reinvented their business model. But, while participants and business models change, e-commerce is still a red-hot topic for business executives. Tissue companies have been relatively slow in entering the e-commerce arena, though the big global players all have some activities in the area. Procter and Gamble's participation in Transora, Georgia-Pacific's involvement withForestexpress.com (and Fort James' participation in CoNext), and Kimberly-Clark's use of supply chain collaboration systems Syncra and KCAnet are some examples. The pace can be expected to accelerate, though, with pressure from retailers expected to be a major driving force. E-commerce forerunners like amazon.com concentrated on the B2C(business-to-consumer) area. Early interest in B2B (business-to-business) e-commerce was spurred on by the idea that dot.coms with new business models could, in a similar way, revolutionise business-to-business markets and threaten established, so-called "bricks-and-mortar" companies. This has gradually developed towards an appreciation that e-commerce can create a platform for co-ordinating demand/supply chains and even wider business networks while at the same time offering scope for truly customised one-to-one relationships. To take a paper company example, the relationship with a bulk chemical supplier may be loosened by using an auction for purchasing, while, on the other hand, the relationship with a key customer may be even more intimate than is common practice with today's EDT connections.
OVER RECENT YEARS MANY DIFFERENT MODELS FOR ENGAGING IN E-COMMERCE HAVE BEEN DEVELOPED, including web storefronts, online catalogues, exchanges and many more. Exchanges, especially, have received a lot of attention as part of the continuous trend to broaden the reach and scope of e-commerce to facilitate B2B transactions. For exchanges, many steadfastly "old economy" sectors, now known in e-language as "click-and-mortar", have been among the most active and innovative. The chemical industry as a whole has perhaps been a leader, with both numerous sites and innovative business models. The paper industry also has numerous would-be e-marketplaces, none of which can he said to have a true foothold, however. Given the very rapid pace of change, it is a real challenge for observers to follow the news and understand the relationships and forces at work. In fact, to help ourselves (and our clients) understand this rapidly changing landscape, we have developed a tool called "The Lair" to keep track and analyse the web of exchanges on the Web (Fig.1). One reason why independent exchanges have been only slowly adopted in the paper industry is the fear of dis-intermediation: paper companies have felt that they would lose the customer intimacy they had built up over many years if transactions were handled through a third-party exchange. Feeding this concern is the technical concept: so far, one common technical feature of exchanges has been that the user (e.g. a paper company) always hooks up to a central server at the marketplace, where the communication takes place. This, too, reduces the customer-producer intimacy.
THE NEXT STEP: B2B TO P2P. However, this loss of intimacy does not necessarily have to be the case. Auction sites without a middleman such as AuctionWatch are heralds of a different type of exchange. These sites monitor other auctions and form what is known as a metanet (i.e. a net of nets). That is: a meta-marketplace is formed by linking together marketplaces. This is related to the Napster/Gnutella phenomenon. Napster is a program/website which maintains a central database of files residing on PC's of individuals. A user consults the central database of Napster for a file, Napster then redirects the user to direct contact with a PC containing the file and steps aside. This is considered peer-to-peer (or P2P) because the users communicate directly with each other and not inside e.g. a Napster server (which would be the case in a B2B exchange). Gnutella is a program which is even purer P2P - there isn't even a central database.
Now comes the question: what would a P2P exchange look like and mean for the paper industry? We have developed a P2P concept which we call "eNCLAVE", which consists of a linkage of paper traders, pulp and paper companies, suppliers of pulp/paper chemicals and, finally, energy companies (Fig.2).
Since, in a P2P-network, everybody is connected to everybody else, a complete diagram gets very complicated very soon. For simplicity's sake, we show a small area with a paper trader, a paper company, a pulp company, a paper chemical company, a machinery supplier and an energy company. To flesh out this to a full model of the paper sector, we have also included converters, printers and pulping chemicals companies to form a large cluster of linked industries. The lines indicate connections going from all of these to everywhere else on the P2P exchange. Now, what is put out on the P2P exchange? Whatever information the participants want to put there, ranging from for example a sales catalogue and prices to production schedules. What happens? Everybody knows every piece of information put out in public by any participant. In eNCLAVE, inquiries in every direction (a paper trader buying paper from a paper company, a paper company buying pulp from a pulp company, a pulp company buying pulping chemicals etc.), money (if secure transactions are possible), procurement orders and other relevant items then flow. These flows are private, peer-to-peer, known only to the parties using a direct link. This private link, however, is extremely low-cost compared to EDI connections - and private and common information are processed in the same network using different levels of security in channels. What is the main difference between this and a B2B exchange? With a P2P exchange the marketplace is "everywhere"; everybody is connected to everybody else; general information is used to spark information exchanges and trades between two parties connected directly to each other. Nobody really runs this market, it is governed by the information flowing around. However, private transactions of every sort remain private. This avoids the problem of today's exchanges of centralising information at a third-party's marketplace.
THE STRATEGIC CONSEQUENCE: PEER COMPETITION AND THE PAPER INDUSTRY.
A marketplace of this type (where information from all participants is always available; where whole chains of buyers and suppliers are always connected at the moment of their choice; where e-procurement and e-sales are one and the same thing) would allow the jump to a new level in building/managing strategic networks discussed so much in the management literature. For example, it would by necessity have a crucial impact on sourcing and counter-sourcing strategies, a matter of the utmost strategic importance.
We try to measure a new type of strategic cost competitiveness ("peer competitiveness") and test effects of different strategies, which in this context are ways of:
- Selecting the information to put on the net (here, there must be rules: a minimum amount that all participants put up; there need not be a limit on volunteered information, however). Nobody will, of course, divulge any trade secrets
- Pricing (naturally, avoiding anything even remotely against cartel legislation)
- Applying pressure- and counter-pressure.
THE RATINGS GAME: SUPPLIER PRESSURE IN A NETWORK. Supplier pressure is, of course, common practice in any business. It may be purely about cost or it may have wider implications (for example, the type of ratings pioneered by the former Scott Paper on its pulp suppliers). The common idea is, however, the waves radiating from a central hub. There is an ultimate buyer, who puts pressure on his suppliers, who in their turn put pressure on their suppliers and so on. That includes the e/IT-sector: hardware, software and networking suppliers are, in the climate of insecurity, developing rating systems and looking closely at factors such as their partners' customer-satisfaction level, industry expertise and technical depth. In a P2P network, this type of supplier pressure takes on another dimension. If
-more information than before is available
-parts of supply chains can form temporary (or permanent, for that matter) alliances;
pressure is not so easily applied, and can be countered in numerous new ways. This necessitates the testing of different strategies, which might be called "Attack-and-Desist". In this case, a pressure applied from all sides is linked to an easing-up when a certain level of counter-pressure is reached. Another possible strategy, "The Great Game", pits cross-industry-alliances of companies against each other. It is best not to get into a complicated interpretation here, but the interaction inside the alliance (i.e. the openness of the information flow) is surely playing a notable role.
THE ALLIANCES. The alliances and other strategic moves on current e-marketplaces can easily be translated to the P2P framework, which is a superset of the former. We can look at:
-common e-marketplaces sites formed by a group of companies (such as forestex-press.com with at least International Paper, Georgia-Pacific, Weyerhaeuser and Mead)
-e-procurement sites for one company
-alliances as information warfare: disinformation as a weapon.
A common e-market place for a group of companies can be said to have as its purpose a position of strength in procurement and sales. With current marketplaces, there is an explicit address at which this market resides (www..com). In a P2P network, the market would be an agreement among a group of peers to act according to a certain set of rules in their internal and external transactions. So as not to be a cartel, the alliance would have to declare the rules of its functioning to the rest of the network (i.e. add that information to the common knowledge flowing in the network). Different groupings could form, having different sets of rules - and competing in procurement and sales. If case of need, these alliances could be dissolved very rapidly, with a declaration that the grouping is no longer active and the rules laid aside.
The ease with which these alliances can (theoretically) form is matched by the ease by which different combinations of companies in the supply chain can form them.
An alliance of a chemical company, a paper company and a paper trader can compete against one formed by an energy company and a pulp/paper company. The whole P2P network can be seen by each company procuring anything as its own e-procurement site. Even when operating in an alliance as described above, the same applies.
THE CONCLUSION: A TENTATIVE ONE. The scenarios we are experimenting with seem to offer a new perspective on the relationship between e.g. printers, converters, pulp, paper, chemical and energy suppliers.
Sourcing and counter-sourcing in a world (albeit at the moment a virtual one) where everybody is connected to everybody else brings forth several types of new strategies for buyer/supplier interaction. But what is possible is not necessarily desirable. The nature of the paper industry and its supplier and customer relationships is not a blitz of switched alliances.
Instead, long-term relationships with security and trust are of extreme significance. The technical possibilities offered by a P2P network should not dictate a company's actions. Instead, the industry should look at how it may improve its current status, especially profitability, using the tools offered. For the paper industry, as for all industries, it is essential to attempt to understand what new concepts might bring about, while they can still be influenced.
This means that even before impact of current B2B exchanges are properly understood, you have to analyse the next generation.
The one to grasp the consequences first will have a notable competitive advantage - until the next generation comes along.
P2P has two current meanings in e-language: peer-to-peer and path-to-profitability. Given this, P2P3 might perhaps be read as: peer-to-peer-path to profitability for pulp-to-paper.