Bring E-Business to the World s Largest Flower Auction: The Case of Aalsmeer lsmar

1. Bring E-Business to the World�s Largest Flower Auction: The Case of Aalsmeer(�ls`mar) Yu-Hui Tao

3. Executive Summary Biggest flower auction of the world Directors of Aalsmeer: an active & leading position in applying electronic networks End of 1990s, various e-business initiatives Case study: different-business initiatives and the responses from suppliers, customers, managers, and other stakeholders

4. Organizational BackgroundHistory Earlier 20th Century - a cooperative joined forces to counterbalance the middlemen Eastern Aalsmeer � Flowerlove 1911/12 Aalsmeer Village-Central Aasmeer Auction (CAV) 1912 1918 CAV Yearly turnover of 1 million guilders ($560,000) 1971 FlowerLove 107 million guilders ($60 million) CAV 113 million guilders ($65 million)

5. Organizational BackgroundHistory (count.) Aalsmeer Flower Auction (AFS) � merged on March 6, 1968 1972 � a brand new huge auction complex 1973 � mediation agency Cultra � cash-and-carry-center dates from 1980 (wholesalers serve smaller buyers) 1985 the only one main flower exporting country in the world � controlling pricing, packaging, distribution, and quality control Signals for change: new countries produce flowers trading in Netherlands

6. Organizational BackgroundAuctions Different roles for the auctions Price discovery Efficient allocation mechanism Distribution mechanism Coordination mechanism Offer: a commitment of a trader to sell under certain conditions (minimum price) Bid: made by a trader to buy under the conditions of the bids (commitment to purchase at a particular price)

7. Organizational BackgroundCurrent Situation Globally-producing growers and globally active wholesalers and exports 55,000 transaction 19 million flower and 2 million plants 7,000 growers worldwide 1,375 wholesalers and exporters 44% market share 2,000 employees Annual turnover of over 1.5 billion Euros in 2002 Cut flowers around 1 billion Euro; plants 5 million Euro

8. Organizational BackgroundCurrent Situation 55% market share in Dutch floricultural experts: 3.4 billion Euro in 2002 traded in Netherlands, 44% in Aalsmeer Products originating from other auctions The exporting countries with highest growth shares in Eastern Europe � Poland and Russia

9. Organizational BackgroundValue Chain and Industry Initial suppliers - growers Demand � exporters, importers, wholesalers, cash & carries and retailers Auction mediating role � world market prices Increase the efficiency of transactions �break-bulk for a large number of complementary financial, IT, housing and logistics services Developments: electronic networks, changing customer needs, mergers, acquisitions of buyers and professionalization of growers

10. Organizational BackgroundStructure of Aalsmeer Flower Auction

11. Organizational BackgroundAuctioning and Mediating Process at the Aalsmeer PM � prepares the products for next day 5AM � interested buyers check the products 6AM � buyers group together in one of the auction hall Buyers from all over the world � remote buying

12. Organizational BackgroundAuctioning and Mediating Process at the Aalsmeer For each cart: auctioneer sets a starting price Cart transported into the auction hall � passing the auction clock (3 meters in diameter) Auctioneer starts the clock � red lights moving fast from the start price toward a price of zero Buyer first to press the button become the owner of the cart 65% buyers physically present

13. Organizational BackgroundAuctioning and Mediating Process at the Aalsmeer Mediator for day trading and future trading Exporters and wholesalers � make contract with the customers for months in advance at a certain price The mediating employees help the buyers to find growers to supply the products, draw up the contract

14. Setting The Stage Simultaneous changes in the environment � mid 1990s Increasing Internationalization of the Industry � Russia & Poland; mergers and acquisitions led to a more formal way of doing business Increasing trade Outside the Auction � Africa and S. America; direct agreements with buyers by passing the auction; Dutch growers are obligated to sell via the auction with higher costs for the buyers New Technological Opportunities - multiple channels Increase Power of Retailers � not addressing the needs of customers

15. Case Description Director of commercial affairs, John Stevens 1997 formed a group of 10 employees E-business applications IT, marketing, and logistics Manager of the group � Marrianne Groothuis Open minded, creative, and ambitious Located in a separate building

16. Case DescriptionPhase I: Flower Access Ordering system directed to retailers AFA had no relationship with retailers � redefined the value chain Initially led to 60 participating growers, 7 wholesalers, 1200 retailers Only 20% retailers regularly used the system Main problem � the amount of ordered flowers too small to be attractive Many growers were not accustomed to using computers Less than 1% of the total auction turnover N. European retailers from Denmark, UK, France, Switzerland, and Germany used to the Internet Dutch and Belgian retailers � cash-and-carry � Reasons: lack of personal contacts with competitors & impossible to touch or smell the products before buying

17. Case DescriptionPhase 2: Flower XL Exclusively aimed at wholesalers AFA had relationship with wholesalers � complement and strengthen the existing value chain and no threat to existing parties Transaction volumes of wholesalers much higher than those of retailers. Sales figures were limited Why? Personal and informal contacts were maintained at the auction hall

18. Case DescriptionPhase 3: Electronic Trading Place 2002 directed at exporters and wholesalers Add service to support wholesalers and exporters in the cost-effectiveness of their transactions, and complement the traditional auction Background: reduce costs and transform the value chain Pilot studies: issue of security and trust High degree of competition �sensitive and secure information involved Separating mediation employees into different teams, which are allowed to communicate about transactions of customer A wholesaler purchases plants or flowers from a grower Account managers help analyze permanent need, growers to fulfill this need 6 months � positive assessment from all parties involved

19. Case DescriptionTechnical Aspects of Different e-Business Systems P1: first Internet ordering application Not many standards � regularly causes technical problems FlowerAccess a stand-alone system � no connection with the financial systems of the auction Transactions had to be re-entered in the auctioning system P2: similar to FlowerAccess Except for the grower pages Only the ordering pages had to be adjusted (wholesaler need) A Web sever installed for FlowerXL P3: replaced FlowerXL Standards exist � shared technical platform Exchange of data by means of a connection to the different systems of the auction Basic information needs no need to be re-entered

20. Case DescriptionOrganizational and Cultural Implications P3 � integrate e-selling unit with the mediation unit E-business systems no longer perceived as separate systems and lines of business Diverse cultures of both units These systems cost millions of Euros � proven revenues remained unclear

21. Current Challenges and problems Facing the Organization FlowerAccess operational with Electronic Trading Place FlowerAccess is increasing becoming a commercial success � to those wholesalers working with it More and more retailers are ordering via FlowerAccess Retailers in Spain and Sweden offered to join it 800 retailers (200 in the beginning) Volume is still small relatively Returns of Electronic Trading Places are still quite small � for the same reasons mentioned Mediation department use the system internally to confirm orders on contract � a mediator makes the offerings and orders for the grower or exporters Challenges � see p. 336