November 1, 2001

Making the Connection
An interview with eConnections' Rob Rodin
By David Blanchard

eConnections (www.econnections.com) may look like a consortium-based trading exchange for electronics distributors, but don't tell Rob Rodin that. As chairman and CEO of eConnections, Rodin is quick to point out that his company is a community and a solutions provide, but not an exchange - at least, not in the traditional, failed dot-com mode of other exchanges that came and went.
In addition to the three biggest distributors - Arrow Electronics Inc., Avnet Inc. and Pioneer-Standard Electronics Inc., eConnections participants also include chipmaker giant Intel Corp. as well as the likes of Fujitsu, Hitachi, NEC and Toshiba. With Investment capital of nearly $100 million, Rodin has set his sights on staying in the game for the long haul.
Formerly the CEO and president of Marshall Industries, a $1.7 billion industrial electronics distributor until its acquisition in 1999 by Avnet, Rodin has also served as president of the National Electronics Distribution Association's (NEDA) education foundation, and sits as a director of RosettaNet, CommerceNet and Roxio. Somehow he also found the time to write Free, Perfect and Now: Connecting to the Three Insatiable Customer Demands (Simon & Schuster, 1999), a chronicling of his years at Marshall.

SCTN: A year ago we would have described eConnections as a trading exchange [AMR Research Inc., for instance, used exactly that terminology in one of its reports], but you've rejected that description as inaccurate. How then does eConnections differ from a consortium-based exchange?

Rodin: There is no auction function, and there never has been. We've always been a private, explicit-permission-based community of companies choosing who they want to do business with. There's never been any talk of public access. You might say we're exchange-like because we have buyers and sellers on either side, but everyone knows who the other company is. From day one we asked people to not use the word "exchange" when they talked about us - not for semantic reasons, but for what that definition meant.

SCTN: What does a company like Intel get from eConnections that it can't get from its own private exchange?

Rodin: Intel moves something like $4 billion worth of traffic through its channel, and what they get is a community of people trading through authorized, traceable, reliable connections, supported by warranties, Six Sigma quality levels and proper handling of products. That's important because 18-24 months ago, trading exchange proponents were saying, "Just shout out what you want, and we'll find you 10,000 of the parts you need." Well it matters where the parts come from, and it matters who handles them.
So one of the things Intel and other OEMs participants get from eConnections is the consistency of a relationship with their channel.

SCTN: How does eConnections make money?

Rodin: Everybody in our network pays a subscription fee on a monthly basis, based on what solution modules they use. We have no volume motivation, and we don't worry about average selling price. We don't care who people buy from and sell to. Everybody in our network pays a subscription fee on a monthly basis.
As for the suppliers, they pay a fee to be connected to the system, and if we have to set up the connections or integration, there's a fee per location. But basically, once they're online, the traffic isn't monitored.

SCTN: Given some high-profile inventory disasters within the electronics industry - Cisco Systems being an obvious example - how would participation in a trading community directly benefit a company?

Rodin: Cisco is a terrific company, but as you say, they did write off $2.2 billion worth of inventory. Even if you found a perfect company out there, what's next? The problems aren't getting any easier - forecasts are terrible in the electronics industry and they're not getting better, outsourcing is getting more complicated, and so on.
A system like eConnections provides instant access to a community. I think Cisco could've gotten its signals out to its trading partners a lot faster. Cisco is a perfect example of a company that has something like 10,000 suppliers and maybe 2,500 of them are the bulk of its business, and most of them are already attached to our system in some way.

SCTN: Is that part of your plan - to expand eConnections beyond the distributors to include companies like Cisco, Dell, HP and IBM to get a larger share of the high-tech business?

Rodin: It turns out that some of these big companies want to create their own private hubs. However, while they have the purchasing power to often coerce their suppliers to connect to these hubs, the suppliers are concerned about how many different formats and hubs and signals and costs are involved in all of these separate functions.
When you're one of the biggest companies in the world, you get to do what you want to do, and that's great, but there's a whole community of companies that don't have that kind of leverage. Suppliers don't want to see a million different hubs to connect to, and that's why they want to drive traffic through communities like ours. I don't know what a Dell or a Cisco is going to do next; they have the power to do whatever they want to.
We would encourage companies big and small to truly look at what collaboration means, and if you find a way to collaborate with suppliers - to have a dialogue with them, to collaborate and not coerce them into accommodating you; if you allow people to find ways to move, reduce and eliminate cost, then everybody benefits. If companies spent time with their suppliers, they'd hear then cry - "Help us be better" - because you can only take so much out of the price of the part itself, so the ultimate leverage is in process improvement. That's where the real money comes out.

SCTN: What does collaboration within a community really mean?

Rodin: When I was sitting on the board of NEDA or the board of RosettaNet - companies would sit at the table that hated each other, and they'd ask, "What can we do together that will help everybody?" What about standard packaging? What about standard contracts with suppliers? What about security procedures? What about handling consistency? What about relationships with freight forwarders?
These are the things that everybody has to deal with, so we learned a lot about what companies care about - their independence, their uniqueness, their brands, their competitiveness, but they also want to make it easy to communicate, coordinate and collaborate. And a supply chain is made up of all these people. So these companies have to work together because the converse is to work in silos where you end up spending money and wasting time, producing inventory that nobody needs.