5.36 Industrial Consortia

An industry consortium is an industry-owned vertical market that enables buyers to purchase direct inputs (both goods and services) from a limited number of invited participants. {1}

Industrial consortia aim to:

1. Develop stable relationships within the industry.
2. Establish long-term contractual purchasing.
3. Create industry-wide standards through common data definitions, network standards and computing platforms.
4. Synchronize developments between interested parties.
5. Unify all supply chains within the industry, across tiers of companies and their divisions.
6. Regulate themselves, returning profits to the industry as a whole. {1}.

Most Fortune 500 and other large companies belong to industrial consortia, sometimes to several.

The consortia recoup investment and working capital by participants in:

1. Charging subscription and transaction fees.
2. Forging closer ties between companies.
3. More efficient procurement.
4. More transparent competition between vendors.

History

Industrial consortia appeared around the turn of the century as a response to independently-owned exchanges, which were often viewed by established companies as interlopers, returning profits to the exchanges and their investors rather than to the industry itself. Being reluctant to join the exchanges, the large players in the chemical and automotive industries created a liquidity gap, making them even less useful to the industries concerned. Value added services required the link up of existing ERP systems, which large companies were again reluctant to allow when the benefit would go to exchanges, both as increased profits and IT know-how. Rather than leave such vital matters in the hands of third parties, the large companies took over the design, management and regulation of the networks themselves, 'paying to own' rather than 'paying to play'. The independent exchanges dwindled, and industry supply-and-purchase systems consolidated around some 60 industrial consortia. {1}

Operation

Consortia offer many facilities to improve profitability within the industry, including:

1. Participants selected for their efficiency and reliability.
2. Well-honed procurement processes.
3. A wide range of pricing mechanisms: auctions, fixed prices and RFQs (request for quotation).

Examples of Industrial Consortia

Industrial Consortia

Industry

Exostar

Aerospace

SupplyOn

Automotive, Aerospace and Manufacturing

Elemica

Chemical

Dairy.Com

Dairy Products

Global Healthcare Exchange

Medical Services and Supplies

Quadrem

Metals, Minerals and Mining

OceanConnect

Risk Risk Management for Ship Owners,

Traders, Refiners,and Financial Institutions

TheSeam

Food and Beverage

Transplace

Freight and Carrier Services

Consortia Size

Exostar

Exostar's founding partners included BAE Systems, Rolls Royce, Boeing, Lockheed Martin and Raytheon. Its aerospace consortium currently includes Supply Pass (connecting buyers and suppliers via the Internet), SourcePass (a dynamic bidding environment) and ProcurePass (a procurement service). {6} In July 2010, Exostar was fulfilling the needs of over 70,000 companies in 95 countries with transactions totalling $35 billion annually.{7}

Quadrem

Quadrem serves the mining, minerals and metals industries, and began in May 2000 with 14 founding members. In July 2011, this industrial consortium (termed a transaction delivery network) was connecting more than 80,000 suppliers with 1,500 buyers, and handling more than $20 billion worth of orders annually. {8}

Questions

1. Distinguish between eprocurement, digital exchanges, industrial consortia and private industrial networks.
2. What are the aims of industrial consortia?
3. How did industrial consortia develop in America?.
4. Describe some US industrial consortia, with financial data as available.

Sources and Further Reading

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