Bring E-Business to the Worlds Largest Flower Auction: The Case of Aalsmeer(ls`mr)

Yu-Hui Tao

Case Structure
Executive Summary Organizational Background
History Auctions Current Situation Value Chain and Industry Structure of Aalsmeer Flower Auction Auction and Mediating Processes at the Aalsmeer Flower Auction

Setting The Stage Case Description

Current Challenges and Problems Facing the Organization

E-Business Phase I: Flower Access E-Business Phase II: Flower XL Phase 3: Electronic Trading Place Technical Aspects of Different E-Business Systems Organizational and Cultural Implications Summary of the Case Description

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

Organizational Background
History

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)

Organizational Background
History (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

Organizational Background
Auctions
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)

Current 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

Organizational Background

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

Organizational Background
Current 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

Organizational Background
Value 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 breakbulk 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

Organizational Background
Structure of Aalsmeer Flower Auction
Board

Supervisory board
Cultural difference competitors

General management
Managing director

Commercial Operational director director

Auctioning

Mediation E-selling

Logistics

IT

Finance

HRM

Organizational Background
Auctioning 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

Auctioning and Mediating Process at the Aalsmeer

Organizational Background

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

Auctioning and Mediating Process at the Aalsmeer

Organizational Background

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

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 multiple channels

New Technological Opportunities the needs of customers

Increase Power of Retailers not addressing

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

Case Description
Phase 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

Case Description
Phase 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

Phase 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

Case Description

Technical 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

Case Description

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

Organizational 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

Case Description

Diverse cultures of both units These systems cost millions of Euros proven revenues remained unclear

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