Dairy produce can rarely have achieved so pioneering a place at the heart of the new economy. A fortnight ago, Sainsbury sourced its entire quarterly supply of economy mild cheddar using an internet auction.

A process that normally takes several weeks was whittled down to four hours. The auction used, an online exchange for retailers set up by Sears, Carrefour and Sainsbury.

The growth of industry-sponsored business-to-business (b2b) exchanges is accelerating. The automotive, airline, chemicals and textiles industries are already heading towards launching exchanges this year.

All around the world competitor companies are joining forces to harness the net's transparency and accessibility to cut procurement costs, reduce inventories and broaden supply networks.

The promise of b2b e-commerce is essentially that it can iron out inefficiencies in the supply chain. But there is also scope for buyers to get together to exert monopoly power in tight markets and force down supplier margins.

B2b became a watchword for discerning internet investment during the market's exuberant peaks. A survey by PriceWaterhouseCoopers showed that investment in b2b internet applications in Britain is now, for the first time, bigger than in business-to-consumer (b2c).

Using the internet in well-established businesses contrasts with the fickle world of business-to-consumer e-commerce, where factors such as 'sticky' page impressions, viral (word of mouth) marketing, content and brand strength are what drives stock market valuations of profitless and possibly revenue-free business models.

But b2b does not require the savage marketing costs that are beginning to floor consumer-facing companies.

B2b prospects have, however, fallen foul of statistical exuberance. The press releases announcing new industry exchanges compete to name the most staggering amount of business that might pass through the exchange.

Analysts predicted that a trillion dollars of transactions would be conducted in online exchanges by 2002. But this does not say anything about the future prospects of b2b ventures. As Morgan Stanley pointed out in a recent market report, the New York stock exchange supported transactions worth $7.3 trillion in 1998 - but the profit they earned was just $101m.

Far from being the 'next big thing', pure b2b companies, such as Ariba and Com merceOne, were affected by the recent market turmoil more than most, losing more than two-thirds of their market value since mid-March. Market jitters reflect doubts over exactly who will be the main beneficiaries of implementing b2b e-commerce.

The large manufacturing industry exchanges - for example in the automotive business, where Ford, DaimlerChrysler and GM have joined forces - all make a point of prospects for flotation. The partners generally have equity stakes alongside a technology partner. The assumption is that if a large volume of b2b transactions happen on an exchange, it has intrinsic value.

But prospects for revenue are limited - as the NYSE figures illustrate. Taking small percentages from these huge transactions may seem one revenue-raising possibility. But significant commissions would mean that users would lose any incentive to shift to online procurement. Exchanges are more likely to charge nothing at all to attract buyers and suppliers.

Buyers appear to be the likely winners from the intro duction of these exchanges: they can make savings by improving coordination with suppliers and coaxing their margins down.

After just six weeks of the GlobalNetXchange, Sainsbury has already seen benefits. 'We've seen some saving plus a broadening of our supply,' says Patrick McHugh, group e-commerce director. The auction for the cheese supply was open to invited companies only, with the final decision on the basis of quality.

Auctions will be a comparatively minor function for such exchanges, but they bring their own problems. How do you ensure quality standards are met, and what is to stop competing suppliers colluding to keep prices high?

The key benefit of exchanges lies in integrating procurement with demand forecasting, and exchanging information that could help to cut surplus inventory. In the European car industry alone, Morgan Stanley estimates there is the potential for saving $2,700 per car.

But much of this benefit is old hat. A large chunk of internet b2b is souped-up supply chain management and enterprise resource planning. What's new is the ability for competitors to pool their purchasing to buy more cheaply.

There are two types of purchase - direct and indirect. The distinction is crucial in overcoming regulatory hurdles. If competitors cooperate on components or supplies for resale they are likely to invite the attention of competition authorities. Inquiries from the US Department of Justice have already delayed the launch of the automotive industry exchange.

At the moment the nascent exchanges are tiptoeing around the prospect of coming together to source direct supplies. Supermarkets talk of joining forces to order trolleys or bags, rather than their baked beans.

It's not necessarily the buyers who will garner all the benefits of b2b. It depends on the market structure, says Professor Mohan Sawhney, Silicon Valley's leading b2b guru.

Three-quarters of the world's supply of palladium - a vital ingredient in catalytic converters for car exhausts - comes from Russia, which could set up its own b2b exchange to supply the metal.

'It is when the market is fragmented on both sides that a market-maker could capture the benefits of b2b,' says Sawhney.

In a pre-emptive effort to appease competition authorities, the airline and automotive exchanges will be 'independently' run and managed.

But Sawhney, who advises a number of exchanges, believes that the industry-sponsored exchange announcements are attempts to 'hijack liquidity' from more nimble independents. Either way, the concept of an exchange being as valuable as many of the suppliers who use it is a new idea.

It is based on the belief that value-added services can be sold alongside the goods themselves to facilitate transactions on an exchange.

Sawhney says: 'There are other elements - quality consideration, supplier standards certification, and settlement - that broaden the scope of the offering, providing an end-to-end service.'

Aside from legal challenges, the industry-sponsored exchanges will require cooperation between the strongest of competitors. It took the members of one large exchange six weeks to work out which company name would come first on the press release.

And for the dairy industry? As price pressures increase, there will be a need to increase supply efficiency and reduce surplus inventory.

So the next time a supermarket cashier registers a sale of economy mild cheddar, there will be a b2b e-commerce connection to a cow in Somerset.