Bring EBusiness to the Worlds Largest Flower Auction: The Case of Aalsmeerlsmar

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Bring E-Business to the Worlds Largest Flower
Auction The Case of Aalsmeer(älsmar)

• 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-business initiatives
• Case study different-business initiatives and
  the responses from suppliers, customers,
  managers, and other stakeholders

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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)

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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

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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 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)

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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

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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

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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 complementary
  financial, IT, housing and logistics services
• Developments electronic networks, changing
  customer needs, mergers, acquisitions of buyers
  and professionalization of growers

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Organizational BackgroundStructure of Aalsmeer
Flower Auction
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 the products
• 6AM buyers group together in one of 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 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

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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

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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

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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 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

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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

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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

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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 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

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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 systems and lines of business
• Diverse cultures of both units
• These systems cost millions of Euros proven
  revenues remained unclear

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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