FreeMarkets leads business-to-business on-line marketplaces
Businesses will exchange billions of dollars in goods and services through Internet auction sites this year, and leading the growing pack of on-line marketplaces specializing in business-tobusiness transactions is FreeMarkets (www.freemarkets.com). Founded in 1995, the Pittsburgh-based company holds on-line auctions for products in more than 70 supply verticals, including injectionmolded plastic parts, commercial machinings, metal fabrications, chemicals, printed circuit boards, corrugated packaging, and coal. FreeMarkets auctions have transacted $4.1 billion of real commerce since its debut; its 1999 online auctions total more than $2.7 billion, which is about 90 percent of all industrial auctions hosted by purchasers on the web, according to Fortune.
To participate in FreeMarkets auctions, companies begin by registering on-line. Following registration, FreeMarkets contacts companies to gather additional information. For buyers, FreeMarkets researches their specific needs and then helps craft their request for quote (RFQ).
"We spend a tremendous amount of time understanding what the engineering needs are for the material we're purchasing," says Jim Zuffoletti, director of market making at FreeMarkets. "We have to understand the buy to get the best market possible."
Through FreeMarkets' supplier database, a buyer can identify suppliers that are compatible with its needs, such as the supplier's geographic location, financial stability, production capacity, or similar client base.
Each auction is tailored to meet the buyer's specific needs, defining the exact criteria of the auction for potential bidders. During conventional bidding, buyers are often forced to compare bids with different terms, making it difficult to determine the best overall bid; the FreeMarkets system standardizes such terms because each bid is made under the same criteria, whether placed by a company in Singapore or one in France.
Once a supplier is invited to participate in an auction, the company can review the specifications of the bid and choose whether to participate. During the auction, all bidders can monitor the event's progress through FreeMarkets' proprietary software, which, along with training, is provided to suppliers at no cost (FreeMarkets relies on contracts with buyers for its revenue; it provides services to suppliers at no charge to encourage their participation). The real-time auction system (Figure 1) allows users to make direct price comparisons of similar products and to place bids in the currency of their choice.
FreeMarkets is establishing an international presence by combining the benefits of a real-time auction, in which companies across the globe can participate, with the ability to provide customer support in more than 30 languages. As evidence, Zuffoletti recounts a recent bid for printed circuit boards that involved coordinating ten nationalities from various divisions of one manufacturer. "We do this on a routine basis-harmonizing the requirements of multiple divisions in a cohesive package," says Zuffoletti. He adds that FreeMarkets shows companies how to adapt their businesses to the international marketplace, causing old-economy companies to become new-economy companies.
For example, FreeMarkets has saved Owens Corning a substantial amount since the materials and composites systems giant signed on to conduct strategic purchasing. At an average savings of ten percent, Owens Corning has purchased steel, loose fill and bulk bags, construction materials and services, control panels, and transportation through FreeMarkets' real-time auctions, leading Chuck Dana, Owens Corning vice president of global sourcing, to call the on-line marketplace "integral to our continuing innovation in strategic purchasing."
Owens Corning is just one of several large companies that use the marketplace to purchase, sell, and exchange industrial parts, raw materials, commodities, and services on-line. Others include United Technologies, Quaker Oats Company, Eaton Corporation, Emerson Electric, FirstEnergy, SmithKline Beecham, Navistar International, and Delphi Automotive Systems.
While FreeMarkets lost a hefty account earlier this year when General Motors decided to form its own supply-chain network with Ford and DaimlerChrysler, its business continues to grow. In April, the company added Singapore Technologies Engineering; Bayer Corporation; and Visteon Corporation, the parts unit of Ford, to its client list. During the first quarter of 2000, FreeMarkets conducted on-line auctions of nearly $1.4 billion. Revenues for the quarter totaled $10.8 million, a 38% increase over the previous quarter and a 209% increase over the first quarter in 1999. Offices have opened in Brussels, Singapore, Hong Kong, India, as well as Michigan and California.
As an extension of FreeMarkets' international marketplace, the company is testing a new offering, FreeMarketPlace, which is intended to provide seamless purchasing and selling services, including those that are typically provided off-line. The web-based desktop allow buyers and sellers to interact more closely and includes tools to review and select suppliers, develop and publish RFQs, manage workflow, and integrate purchasing performance measurements. Suppliers can explore sales opportunities, review complete RFQs, and bid for business. Currently, only selected suppliers are participating in the offering.