Exchanges are Web-based real-time transaction systems characterized by industry-specific alliances, standard-setting bodies and marketplaces.

Exchange Evolution

Early EDI implementations were difficult to implement and maintain.  Each spoke of the hub required distinct setup solutions.  Integration into back-end supplier systems ranged from manual input of paper transaction printouts to full integration with transaction databases. Transmission efficiency was improved via asynchronous, batch transactions over expensive value-added networks (VANs). 

Exchanges, on the other hand, seek to consolidate communication links, eliminate transaction charges (and often the VANs themselves), and reduce setup, hardware, software and maintenance costs.  Most often these exchanges support synchronous, real-time transaction processing in "electronic markets".  These are described alternatively as multilateral interorganizational information systems (IOISs) or alliance-based interorganizational communication and information (ICI) systems [Choudhury, 1997], [Monge et al, 1998].

The earliest exchanges supported spot buying.  They are markets designed for  commodity procurement.  In this first wave of exchanges, price is a primary, if not the primary, criteria when completing online transactions.  However, the new wave of exchanges focuses on supply chain automation and partner-to-partner application integration.  They are automating transactions between companies with long-standing relationships.  These exchanges develop their own markets according to the partnerships maintained by their founding members and reflected in current contractual relationships [Wilson, 2000].

Exchange Technology

The enabling technology for this explosion of exchanges is eXtensible Markup Language (XML), a subset of Standard Generalized Markup Language that is designed for use on the World Wide Web.  Unlike HyperText Markup Language (used for most web pages) which defines data presentation for the user, XML tells you what the data is or represents.   By separating data from format information, XML makes it easy to connect databases over the Internet.  A particular advantage is that EDI transaction sets can be easily translated to and from XML, allowing the installed base of EDI users to switch from high-cost VANs to Internet transmission.  CIO Magazine's Fred Hapgood wrote, "One change looming over the EDI universe is the imminent adoption of XML as a standard way of coding EDI standards. XML is an object representation language that is designed to include a flexible and dynamic range of information about the objects it represents. This makes it ideal as an EDI template [Hapgood, 2000].”

Exchanges are in early stages of development, aligned by industry.  The number of exchanges is growing rapidly. "The Organization for the Advancement of Structured Information Standards (OASIS) estimates that well in excess of 100 industry trade groups are working to develop their own industry-specific flavor of XML [Gaskin, 2000]. "

 Advantages

As with EDI, the Internet dramatically lowers the cost of transactions in trade exchanges.

1.      Industry-specific trade exchanges may be easier to integrate into back-end processes than One Size Fits All solutions.

2.      Transmission between multiple trading partners can be facilitated.

3.      The first wave of exchanges offer near-perfect information allowing easy cost comparisons for buyers.

Disadvantages

The expected shakeout period increases risk in choosing an exchange.

1.      Transaction security will vary across the exchanges during the shakeout process.

2.      Only a limited number of exchanges are likely to survive the shakeout process.

3.      The first wave of exchanges may result in sellers facing stiffer price competition