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Bring E-Business to

the Worlds LargestFlower Auction:

The Case ofAalsmeer(ls`mr)

Yu-Hui Tao

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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

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

Current Challenges and Problems Facing the Organization

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Executive Summary

Biggest flower auction of the world

Directors of Aalsmeer: an active & leading

position in applying electronic networks

End of 1990s, various e-businessinitiatives

Case study: different-business initiatives andthe responses from suppliers, customers,managers, and other stakeholders

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Organizational BackgroundHistory

Earlier 20th Century - a cooperativejoined 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)

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Organizational BackgroundHistory (count.)

Aalsmeer Flower Auction (AFS) merged onMarch 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 exportingcountry in the world controlling pricing,packaging, distribution, and quality control

Signals for change: new countries produce flowers

trading in Netherlands

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Organizational BackgroundAuctions

Different roles for the auctions Price discovery

Efficient allocation mechanism

Distribution mechanism

Coordination mechanism

Offer: a commitment of a trader to sell undercertain conditions (minimum price)

Bid: made by a trader to buy under the conditionsof the bids (commitment to purchase at aparticular price)

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Organizational BackgroundCurrent Situation

Globally-producing growers and globallyactive 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 in2002

Cut flowers around 1 billion Euro; plants 5

million Euro

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Organizational BackgroundCurrent Situation

55% market share in Dutch floriculturalexperts:

3.4 billion Euro in 2002 traded in Netherlands,

44% in Aalsmeer Products originating from other auctions

The exporting countries with highestgrowth shares in Eastern Europe Polandand Russia

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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 complementaryfinancial, IT, housing and logistics services

Developments: electronic networks, changingcustomer needs, mergers, acquisitions of buyersand professionalization of growers

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Organizational BackgroundStructure of Aalsmeer Flower Auction

Board

General management

Managing director

Commercialdirector

Operationaldirector

Supervisory board

Auctioning Mediation

E-selling

Logistics IT Finance HRM

Cultural

difference -competitors

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Organizational BackgroundAuctioning and Mediating Process at the Aalsmeer

PM prepares the products for next

day

5AM interested buyers check theproducts

6AM buyers group together in oneof the auction hall

Buyers from all over the world remote buying

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Organizational BackgroundAuctioning and Mediating Process at the Aalsmeer

For each cart: auctioneer sets a startingprice

Cart transported into the auction hall

passing the auction clock (3 meters indiameter)

Auctioneer starts the clock red lightsmoving fast from the start price toward aprice of zero

Buyer first to press the button become theowner of the cart

65% buyers physically present

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Organizational BackgroundAuctioning and Mediating Process at the Aalsmeer

Mediator for day trading and futuretrading

Exporters and wholesalers make

contract with the customers for months inadvance at a certain price

The mediating employees help the buyersto find growers to supply the products,draw up the contract

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Setting The Stage

Simultaneous changes in the environment

mid 1990s

Increasing Internationalization of theIndustry Russia & Poland; mergers and acquisitions led toa more formal way of doing business

Increasing trade Outside the Auction Africaand S. America; direct agreements with buyers by passing theauction; Dutch growers are obligated to sell via the auction withhigher costs for the buyers

New Technological Opportunities - multiplechannels

Increase Power of Retailers not addressingthe needs of customers

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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

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Case DescriptionPhase I: Flower Access

Ordering system directed to retailers

AFA had no relationship with retailers redefined the valuechain

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 tobe 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

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Case DescriptionPhase 2: Flower XL

Exclusively aimed at wholesalers

AFA had relationship with wholesalers complement andstrengthen the existing value chain and no threat toexisting parties

Transaction volumes of wholesalers much higher than those

of retailers. Sales figures were limited

Why? Personal and informal contacts were maintained atthe auction hall

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Case DescriptionPhase 3: Electronic Trading Place

2002 directed at exporters and wholesalers

Add service to support wholesalers and exporters in thecost-effectiveness of their transactions, and complementthe traditional auction

Background: reduce costs and transform the value chain

Pilot studies: issue of security and trust

High degree of competition sensitive and secure informationinvolved

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 tofulfill this need

6 months positive assessment from all parties involved

C D i i

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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 thefinancial 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 differentsystems of the auction

Basic information needs no need to be re-entered

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Case DescriptionOrganizational and Cultural Implications

P3 integrate e-selling unit with the mediation unit

E-business systems no longer perceived as separate systemsand lines of business

Diverse cultures of both units

These systems cost millions of Euros

proven revenuesremained unclear

C t Ch ll d

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Current Challenges andproblems Facing the

Organization FlowerAccess operational with Electronic Trading Place FlowerAccess

is increasing becoming a commercial success to thosewholesalers 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 andorders for the grower or exporters

Challenges see p. 336