Independent Trading Exchanges by hilen

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									FROM THE REGULAR AND SPECIAL EDITIONS

2001

Supermarket Strategic Alert Special Report

January through December 2000

Independent Trading Exchanges

FROM THE 2000 REGULAR AND SPECIAL EDITIONS

Special Report: 2001

Independent Trading Exchanges

© Pollack Associates, 2001 P. O. Box 331 New York, NY 10021-0331 Phone (212) 734-0753 • Fax (212) 202-3501 E-mail info@supermarketalert.com

T able of Contents
Intranets to link buyers and sellers Independent Trading Exchanges GMA enters the field World Retail Exchange formed Trade associations form trading exchanges Trading exchanges: Not as easy as it looks Buzz on trading exchanges Evolution of functionality Wal-Mart's cautious approach Proliferation, scrutiny, survival Impact on trade relations Separating winners from losers: not yet! Joiners and wallflowers among retailers Heads up: A dot-com that isn’t WWRE: Plans and partners WWRE grows Predictions from Forbes Roadblocks remain Forrester predictions New efficiency through exchanges Wal-Mart’s Own Trading Exchange Benchmarking begins Skepticism among distributors Spotlight on Transora B2B exchanges to disappear 1 2 3 3 4 4 4 5 5 5 6 7 7 7 8 8 8 8 9 9 10 10 11 11 12

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Independent Trading Exchanges
B2B trading exchanges were the hot topic of the year 2000. Every company that predicts business processes agrees that trading over the Internet is the wave of the future. Large companies and groups can leverage their clout; smaller companies have access to new customers. That, however, is where the agreement ends. With results as yet unproven, the B2B exchange picture changed dramatically from the beginning of the year to the end of the year. In early 2000, everyone, including the trade associations, was rushing to get into the act. This interest was motivated by the belief that the technology was available and that the exchanges would generate income quickly from a percentage of the sale. The glow soon faded as competitive concerns surfaced and the cost of setting up operations came down to hard dollars. Outside the grocery industry a trend emerged: consortia that had been set up among competitors began dissolving as individual companies realized they could use the technology for competitive advantage. By year end, there were two leading retail exchanges (one with open membership, another by invitation only) and a major manufacturer exchange (primarily to buy services and raw materials) that emerged as potential survivors. Still, skeptics remind the industry that Dell and WalMart remain examples of market leaders who operate their own exchanges— suggesting that eventually the technology-non-sophisticates will move to this single-company model.

Intranets to link buyers and sellers

Boston Consulting Group estimates that 25% of all business-to-business transactions will be done online by 2003, totaling $2.8 trillion. In 1998, the total was $671 billion—most of which was handled using electronic data interchange over private networks. By 2003 in the US, six sectors (retail, motor vehicles, shipping, industrial equipment, high tech and government) will account for 65% of all online purchases. Two online marketplaces for perishables are currently attracting clients. ProduceOnline.com offers a database of 400,000 products by brand, product, variety, grade, pack and other criteria. The site uses the

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Internet to automate the entire produce procurement process in a single electronic location. Globally, grocery, restaurant and other fresh produce wholesalers can buy from growers, shippers and other suppliers real-time. Buyers have the option of contracting purchases with specific vendors or requesting bids from multiple suppliers. The site offers electronic purchase orders, invoices, bills of lading and payment. Gofish.com offers similar services for the seafood industry. It also offers weather reports and other industry news. Other intranets are in development for alcoholic beverage retailers, distributors and suppliers within the existing regulatory system. Eskye.com looks to link the 550,000 licensed alcoholic beverage retailers with 4500 distributors. Benefits of such transactions are: (1) order tracking from inception to delivery, including monitoring for satisfaction and payment, (2) less elapsed time between ordering and delivery, (3) 24-hour, 7-day-a-week operation, (4) more customization available, (5) lower marketing and administrative costs and, (6) better integration of pre- and post-sales activities.
Source: Progressive Grocer, February 2000. Building the better intranet, by Barry Janoff, p. 67-70. Supermarket Business, February 2000, Point and Click Perishables, by Meg Major, p. 110-6.

Independent Trading Exchanges

ITEs (independent trading exchanges) are proliferating in the grocery industry, as well as in other retailing channels. They are designed to make trading easier among retailers and partners by reducing costs and improving the collaboration process. Riding the crest of the B2B wave of Internet companies, these exchanges need critical mass to survive and prosper. They make their money in two ways: Most charge a percentage (1-15%) of the cost of the transaction that passes across their hub. Others charge a monthly subscription fee. There are two types of exchanges: vertical and horizontal. The jury is out on the most efficient. Vertical exchanges are designed for similar groups of buyers and sellers in a particular industry. Horizontal exchanges offer services and functions across a group of industries. All hype their ability to help parties work better together by tracking orders and product flow electronically, with the added benefit of easy-to-use tools for collaboration and communication. These electronic marketplaces promise to streamline distribution. They offer real-time access to information and cut down on the number of times a product changes hands in the entire supply chain. Independently operated, Internet-based trading exchanges are particularly well-suited to the highly-fragmented, broker-intensive perishable food industry. Currently, these exchanges are not total solutions. Many identify buyers and sellers, but final deals must be consummated over the phone and entered into internal systems. As exchanges become better integrated into the supply chain, they will be even more valuable. Current advantages to buyers include more sourcing and negotiating opportunities, while sellers gain access to many more potential buyers. The more global the exchanges become, the greater the need for integrated logistics solutions. Two exchange models are popular in the food industry today: (1) catalog, where buyers browse for the products and price they want without negotiation. This model is prevalent where product demand is steady and prices rarely fluctuate. (2) auction, where buyers bid and negotiate—particularly suited to perishables . Some exchanges are a hybrid, detailing prices but willing to negotiate. Three formats will evolve: (1) seller networks that hold inventory, (2) buyer networks that aggregate purchases and (3) neutral markets that create infrastructure, services and trust. Fees range from 0.5% to 3.0% of the transaction. Those seeing promise in the electronic solutions say they eliminate lengthy negotiations over long distances, allow for the elimination of countless meetings and streamline the overall supply chain. Skeptics remind everyone that it takes critical mass for these services to work, that they streamline only part of the process and still often require hands-on activity between partners, and they represent reintermediation: more hands in the process. Given the local nature of the grocery industry and its penchant to watch as others experiment, it is likely that such exchanges will catch on sooner in other retail segments.

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Source: Stores, March 2000. B2B Comes to Retail, by Susan Reda, p. 28-32.Source: RetailTech, March 2000. Emarketplace Hubs Hit Retailing, Promising Supply Chain Efficiencies, by Deena Amato-McCoy, p. 46-7. Food Logistics, March 2000. E-GADS!, by Katherine Doherty, p. 35-42. SN, March 6, 2000. New E-Commerce Site for Seafood, p. 38. SN, March 13, 2000. E-Commerce Revolution Examined, by Robert Vosburgh, p. 44. Grocery Headquarters, March 2000. Trading in cyberspace, p. 13. The Wall Street Journal, March 16, 2000. Over 50 Consumer-Products Concerns To Forge Industry Web Marketplace, by Shelly Branch, p. B20. Advertising Age, March 20, 2000. Online Bazaar, by Jack Neff & Stephanie Thompson, p. 8, 80-1. Grocery Headquarters, March 2000. Online auctions: Coming soon to your industry? by Patrick Kiernan, p. 64.

GMA enters the field

Grocery Manufacturers Association (GMA), 50 of its consumer packaged goods members and PricewaterhouseCoopers are creating an as-yet unnamed global marketplace for sourcing the $200 billion they spend annually on goods and services to support their businesses worldwide. This means commodity supplier, packagers, travel providers and small suppliers of specialty ingredients will be integrated in a system that includes a catalog, purchasing, bidding, price quotes and online auctions—all designed to produce supply chain savings. The exchange will be a separate company with its own board and management. Current group leaders will determine its structure and financing. The goal of the marketplace early on is to develop a set of standards so that members can benefit from online transactions sooner. Wall Street analysts note that the timing is not a minute too soon, with old-line companies struggling for sales growth and watching their stock prices stagnate and drop. Optimists say this is an example of the old economy embracing the new. The alliance has created a backlash already: Advertising Age reports that media buying, although not a priority at this time, is a candidate for the marketplace. With 20 of the 100 top national advertisers on the list of 50, the possibility is likely—despite current protestations of confidentiality and varying value of media depending on the buyer. Media gurus point out that the price of media has been driven up by dot.coms, drug companies and telephone companies, and that the consortium could be a useful tool.
Source: SN, March 20, 2000. Vendors, GMA Set Net-Based Market, by Elliot Zwiebach, p. 4, 58.

World Retail Exchange formed

Tesco , Marks & Spencer and Kingfisher of the UK; Auchan and Casino of France; Royal Ahold of the Netherlands; and Albertson’s, CVS, Kmart, Safeway and Target of the US formed an exchange on the Internet to enable cheaper and more efficient trading between retailers and 100,000 suppliers and distributors. Called the Worldwide Retail Exchange, it will be operating by mid-year, although a software supplier is yet to be named. Analysts said these 11 retailers and others worldwide are having to pool together their buying resources to avoid being dwarfed by the huge purchasing power of Wal-Mart. Analysts do not foresee any regulatory difficulty or allegation of cartel risks with the alliance, since it is an open forum and may improve efficiencies, which could be passed on to the consumer. The announcement came shortly after Sears, Carrefour and Oracle announced they would form GlobalNetXchange, subsequently joined by Kroger, Metro (Germany) and Sainsbury (UK). The two exchanges differ: Membership in GlobalNetXchange is by invitation only. The new exchange will be an open, free-trade forum which is open to new participants and in which the 11 founding partners (in exchange for contributing $100 million) will each hold 5% of the share capital. The remaining 45% will remain available for new members who wish to join. After the initial announcement, Belgian Cora and Delhaize and US Walgreens and JCPenney joined the exchange.
Source: Dow Jones Newswires, March 31, 2000. Retailers Form Online Exchange To Rival GlobalNetxchange, by Paul Jarvis & Lucy Farndon. The Wall Street Journal Interactive, March 31, 2000. Big U.S., European Retailers Form E-Commerce Exchange. The Wall Street Journal, April 3, 2000. Big Retailers in US, Europe Form Exchange, by Calmetta Coleman & Ernest Beck, p. B19. Dow Jones Newswires, April 4, 2000. Walgreen, 11 Others Form Worldwide Retail Exchange. SN, April 10, 2000. 12 Retailers in Global Exchange for B2B on

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Web, by Jon Springer, p. 1, 74. PG Daily News, April 18, 2000. Delhaize, J.C. Penney Join B2B Worldwide Retail Exchange. RetailTech, April 2000. The New Online B2B Marketplaces: Reconfiguring the Retailer as Consumer, by Andee Joyce, p. 53-4.

Trade associations form trading exchanges

Food Distributors International (FDI) and Food Marketing Institute (FMI) will form a business-to-business online exchange for non-consumer goods and services—specifically buying, fully integrated with logistics services, coordinated backhaul, and cooperative planning; forecasting, and replenishment. The exchange is designed for foodservice, wholesaler, retailers and independent operator members of FMI and FDI— representing the approximately $800 billion North American food industry. FMI and FDI selected IBM as the solutions coordinator, managing alliance partners including i2 Technologies, Ariba, viaLink and Ernst & Young. Both FDI and FMI endorse common standards for the underlying technologies whenever possible and intend to coordinate their efforts with the Uniform Code Council (UCC).
Source: SN, April 17, 2000. FMI and FDI Plan B2B Exchange On Internet , by Elliot Zwiebach, p. 1, 74. Business Week E.BIZ, April 3, 2000. A bloodbath, by Robert Hof, p. EB 138.

Trading exchanges: Not as easy as it looks

ITE (independent trading exchange) warning: new alliances are being announced daily and few will survive. Investors in them may be the big losers. According to Business Week E.BIZ there are one dozen B2B publicly traded marketplaces valued today at over $100 billion, with dozens more planning IPOs. Most will fail because they underestimate the time it takes to get running and the wrenching changes in corporate cultures required. Experts agree that one or two per industry are all that are necessary—especially as big buyers and sellers gravitate to those doing the most business. Described as a ‘chicken and egg dilemma,’ buyers are needed to attract sellers and vice versa. This confirms the proposition that critical mass is more than critical, it is vital. Big companies have an edge as they claim their turf, but may find it tough to share technology and a marketplace with archrivals. Some observers believe that independent management is the key to mediation and survival—along with valuable new services to streamline the supply chain…something unlikely to be delivered in what is now called Internet time. SN-Supermarket News suggests that vast number of perishables exchanges are ripe for fallout, given the two exchanges announced by industry leaders.
Source: The Wall Street Journal, April 17, 2000. Let’s Build an Online Supply Network! by Claire Ansberry, p. B1, B10. SN, April 24, 2000/ Dot-coms Courting New Retail Groups, by Robert Vosburgh, p. 1,82.

Buzz on trading exchanges

Trading exchanges are making news in the supermarket industry. The recent publicity about trading exchanges in the supermarket industry is attributable to activity among key players: GlobalNetXchange includes Sears, Carrefour, Metro, Sainsbury and Kroger. Worldwide Retail Exchange includes Ahold, Albertson’s, Casino, Kmart , Target , Tesco , CVS, Safeway, Walgreens, Delhaize. Second, Wal-Mart is extending its private exchange to the total grocery business. All members hope to achieve reduced paperwork, reduced time and improved order accuracy. Realists believe the savings will come from products used in the stores well before products sold in the stores. Skeptics say that in 12-18 months there will be merger among all the exchanges to create a digital marketplace. Logical integration is among exchanges that sell products and those that provide the logistics for funds transfer and delivery. Already there has been fallout. FMI and FDI had announced the formation of an exchange for members offering non-consumer goods and services. By the end of the month they had scrapped plans citing: (1) the investment of $80 to $100 million, (2) lack of preparation for ongoing operations, (3) belief that other exchanges would become more open. FMI says it will “work with the existing retail industry exchanges, to be

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more supportive of their efforts, and to help educate and recruit for them.’ FDI said it has no plans to establish a separate entity and that ‘any operation…will be operated by FDI through its own Web site.’
Source: Progressive Grocer, May 2000. The next killer app, by Len Lewis, p.135-130. SN, May 29, 2000. FMI, FDI Scrap B2B Exchange Plans, by Anne Hollyday, p. 4.

Evolution of functionality

The reality is that announcing the formation of an exchange is barely the first step. The GMA exchange proves the premise since its announcement almost two months ago—it has yet to select a name, management team and concrete business plan. Other exchanges have achieved order-taking capability, but have not yet reached their goal of hosting live deals between multiple buyers and sellers. According to AMR Research of Boston, exchanges move through four levels of functionality to deliver economies to members: information, facilitation, transaction and integration. Because basic practices (merchandise planning, product design, product sourcing, logistics , replenishment, surplus inventory disposal and trade allowance management) are inefficient today, these exchanges can offer competitive advantages. These retail exchanges will ultimately provide content, community, commerce and connectivity. Content (product information, market trends, other data) and community (access to the exchange by buyers, sellers, service providers) are easily established as evidenced by the two major exchanges and the critical mass they have achieved. Commerce (public, private, reverse, open bid auctions, requests for quotes, reserving and scheduling, links to financial institutions, handling accounts receivables for settlement) and connectivity (integration of back-end systems among exchange members) are far more difficult. In reality, these exchanges will require organizational and cultural changes within retail organizations. In the long run they will provide efficiencies, but to get there retailers and manufacturers will have to overcome longstanding attitudes against sharing information with suppliers. In the short term, the exchanges most likely to flourish will sell surplus inventory. There are seven of these exchanges already. However, the AMR report suggests that one or two such exchanges will be long-run survivors.
Source: Supermarket Business, May 15, 2000.Business on the Dot, by Kelly Beamon, p. 1, 10-14.

Wal-Mart's cautious approach

Kevin Turner, svp-cio/Wal-Mart, warned that exchanges are not a cure-all in a speech at Retail Systems 2000. At present Turner considers the exchanges more hype that action. Turner believes that the first priority of companies looking to streamline their procurement and logistics is to adopt standards. Once standards are in place, the role of exchanges is questionable. Turner notes that Wal-Mart will be ready to adopt XML as the standard and is willing to participate in exchanges once they are operational. However, he questions the appropriateness of an exchange of competitors where members would have to consult each other to make changes to the exchange.
Source: SN, May 15, 2000. Wal-Mart Exec Urges Caution On Net Trade Exchange, by Dan Alaimo, p. 23, 26.

Proliferation, scrutiny, survival

B2B e-commerce totaled $145 billion in 1999, with US sales accounting for over 60%. By 2004, Gartner Group estimates e-commerce will total more than $7 trillion, with North America accounting for almost $3 trillion. As worldwide acceptance grows, exchanges will proliferate. The proliferation is already attracting attention because these exchanges often unite competitors. The FTC is already investigating GlobalNetXchange and WorldwideRetailExchange (supermarket exchanges), as well as the one formed by the Big Three auto firms. A hearing is scheduled for June 29. The Justice Department has issued ‘Antitrust Guidelines for Collaboration Among Competitors.’

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Key areas of government scrutiny will include: (1) Exchange sponsorship or membership: is it exclusionary? (2) Price setting or fixing: Is there collusion among members to set prices that would be detrimental to consumers? (3) Marketplace domination: Are dominant retailers using these exchanges to gain an unfair etailing edge? Whether formed by industry giants or entrepreneurs, exchanges face the same challenges: building liquidity, staying neutral and bringing enough buyers and sellers together to survive and gain critical mass. Technology and talent are two high-priced parts of these exchanges—perhaps explaining why some trade associations have retrenched and put off further development until there is some shakeout. Observers believe that there will be a shakeout, citing no real need for multiple exchanges within an industry if they are properly run. Already the upstarts are claiming victory. The upstarts announce and go live very quickly. Consortiums among industry leaders get bogged down in selecting names and setting up management structures. Although they are sincere in their desire to cut costs, they have entrenched corporate culture that prevent moving quickly. Some of the upstarts go as far as saying that major players make big announcements to scare smaller players off. According to a report from The Yankee Group, there are three types of marketplaces that will likely survive: (1) Power Players, formed by one or more top companies—such as the two grocery exchanges, (2) Intermediaries, auction hubs for buyers and sellers in multiple vertical markets, and (3) Market-based commodity exchanges where buyers can purchase goods where prices vary with demand. Consolidation is most likely to hit the non-power player exchanges—probably between 40% and 70% of the exchangesbecause barriers to entry are low and competition fierce. Early success, however, is attainable. Wal-Mart, functioning independently since 1991, now has 9000 suppliers participating. Fleming has just spun its Visionet (linking 4000 retail stores and 150 manufacturing companies) off to a standalone company, cerespan.com, to ensure its independence Skeptics believe that supply chain collaboration—long term relationships between buyers and sellers built around collaborative, planning , forecasting and replenishment will be the real survivors. Dubbed’ trading partner exchanges,’ these are likeliest to survive because they do not rely on sharing tactics beyond partners which provide a competitive advantage. These exchanges have the benefit of history and support ongoing feedback—two critical factors that provide for continuous improvement that can be reflected in future plans.
Source: Progressive Grocer, June 2000. New economy, by Barry Janoff, p. 18-28. Red Herring.com, June 23, 2000. B2B exchanges arm for food fight, by Paul Elias.

Impact on trade relations

Retailers, manufacturers, wholesalers and founders of trading exchanges are all cautiously optimistic about the influence of the exchanges on trade relations. The founders of the exchanges have everything to gain once they gain participation. Distributors like the idea of getting real-time information on new products, promotions, sizes, schematics and more. They like the idea of net cost, but recognize there may be a human cost. With technology doing so much of the work, human talents may become less valued. Trade associations believe that with both sides having access to the same information there will be a foundation for better understanding and dialogue, perhaps changing the orientation from lower costs to growing together. Further, miscommunication of details—long a sore point—will be minimized. There is consensus that sales personnel will not disappear, but rather be redeployed with greater emphasis on the merchandising role. E-mail will become a critical tool for relaying information through attached spreadsheets, charts and in-depth analyses. Retailers like the idea of fewer calls, but more information. Manufacturers and brokers acknowledge there will be fewer sales calls as well, but foresee additional pressures to get product out faster and increased workloads. Many observers argue that there will be a power shift in both directions: as manufacturers begin to analyze which channels are the most profitable for them to

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deal with, their power will grow. And since it is the retailer who ultimately puts products where consumers can buy them, increased power will come from consolidation and clout.
Source: Progressive Grocer, June 2000. Death of a salesman? by Steve Weinstein, p. 33-8. Food Logistics, June 15, 2000. Trading Exchange Survival, by Chris Sellers, p. 60

Separating winners from losers: not yet!

Forbes notes that among the food and beverage exchanges to date there are no clear winners or even parties that have achieved significant scale—but there are losers, in part because of government regulation and perishability of product. The risk to the ten ‘small fish’ profiled (Bevaccess, buyproduce, ECFood, eskye, foodtrader, foodUSA, GlobalFoodExhange, gofish.com, ICSFoodOne and Produceonline) is that major companies may form their own exchanges and devour them. Vertical exchanges tout their category expertise in matching buyers and sellers. Horizontals dream of a single system for all perishable departments. Some verticals do not rule out moving horizontal or being bought by horizontals. Many predict that grocery B2B activity will go the way of other industries: although market leaders join group exchanges, they also open their own. So it is no surprise that Nestle introduced NestleEZorder.com, a business-to-business site for customers to connect directly with Nestle rather than through other trading exchanges, including Transora—of which Nestle is a member. Nestle USA hopes to have 2,500 retail customers conducting transactions over the Internet within a year.
Source: Forbes/Best of the Web, July 17, 2000. Retailing, by Julie Gold, p. 183-4. Grocery Headquarters, July 2000. Inside the B2B bonanza, by Megan Ladage, p. 45-50. Bloomberg News, June 28, 2000. Nestle’s U.S. division unveiled a Web site allowing retailers to place and track orders over the Internet .

Joiners and wallflowers among retailers

Forbes reiterates its observation that although many retailers are banding together to form trading exchanges, technology-savvy Wal-Mart and Costco are going it alone. Retailer exchanges profiled include 7thOnline, E7thshoes, Egarden, ForRetail, GemConnection, GlobalNetXchange, HomePoint, USGift. Still, six additional companies have joined the World Wide Retail Exchange, bringing the total to 25: Dairy Farm International (Hong Kong), Dansk (Denmark), El Corte Ingles (Spain), Rite Aid and Supervalu (US) and Safeway (UK).
Source: Dow Jones Newswires, July 13, 2000. Ahold: Six New Additions To Online Retail Exchange. PG Daily News, July 12, 2000. Rite Aide, Safeway U.K. Among New Members of E-Commerce B2b WorldWide Retail Exchange. Forbes/Best of the Web, July 17, 2000. Food & Beverage, by Doug Donovan, p. 148-9.

Heads up: A dot-com that isn’t

FoodUSA.com may sound like a Web startup and it is—sort of. Founded by a former food broker who believes in simplicity, FoodUSA establishes a neutral market for slaughterhouses and packers of meat and their customers. Knowing his market (people who if told ‘to put the mouse at the top of their screen…would perch it on top of their monitor’), Rod Heller did not create a highly automated system. Half of the 46 employees are ‘trade facilitators’ who man the phones to close deals. Most of the customers are more comfortable using the company’s 800 number than its Web site. Since April FoodUSA has sold $10 million of meat, taking a 0.5% commission from sellers…that does not cover the payroll, but the company continues to plug away using non-geek techniques.
Source: Forbes/Best of the Web, July 17, 2000. Slaughterhouse Blues, by Matthew Schifrin, p. 84.

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WWRE: Plans and partners

WWRE (Worldwide Retail Exchange) will begin its operation in waves. The first wave—to be completed a about one month—will be assembling software tools and for e-procurement, supply chain management and category management. Communications functions will include e-mail and calendars. Phase two—90 days out—will include tools for collaborative planning, forecasting and replenishment; vendor managed inventory and additional functionality. This phase will depend on member plans and needs. Wave three—in about six months—will include customization capabilities for members. If partners elect to do customization in-house, they will still able to use the exchange for transmission. Technology partners in the exchange include IBM which will be responsible for overall system integration and hosting. Ariba and i2 will provide platforms and tools including access to logistics services and calculations, financial services including e-payment, retail collaboration, etc. Syncra Systems will provide CPFR capabilities and vialink will provide the electronic price book for product, price and promotion data. QRS and Retek are providing additional services.
Source: SN, July 24, 2000. WorldWide Exchange To Hold 1 st Auction, by Dan Alaimo, p. 21-2, 5.

WWRE grows

The WorldWide Retail Exchange has added the following members: Dansk Supermarked (operator of 700 supermarkets, hypermarkets and discount/convenience stores in Denmark, Germany, Poland and Britain), Dixons Groups (1500 electronics stores across Europe), Edeka (a retail and wholesale food cooperative of 11,000 food stores in Europe), Publix Super Markets, Longs Drugs, Seibu Department Stores (Japan), Kesko (Finland), Boots (UK) and Wooltru Ltd (South Africa).
Source: SN Online, August 8, 2000/SN, August 21, 2000.. B2B Exchange Adds Three European Retailers. PG Daily News, August 10, 2000. Publix, Longs Drugs Among New Members of B2B WorldWide Retail Exchange. PG Daily News, August 22, 2000. U.K.’s Boots Newest Member of B2B WorldWide Retail Exchange.

Predictions from Forbes

Forbes argues that today’s B2B exchanges are primitive and makes the following predictions about where they will end up: (1) Surviving Web market makers will become full-service providers. Today’s models are often single-service (auction, catalog, RFQ, etc.) and already 75% say they plan to add services. Because these exchanges will become commodities, even vertical and horizontal market makers will offer additional services. (2) Open and closed exchanges will blur as it becomes clear that the full advantage of such exchanges is more participants rather than fewer. (3) E-commerce will become the entire supply chain, with software companies with supply chain management applications becoming the winners because they can link marketplaces. (4) Today’s B2B marketplaces will no longer exist. Winners will be sites with the best technology, partnerships and content/community.
Source: Forbes ASAP , August 21, 2000. 4 Predictions, by Clint Willis, p. 133.

Roadblocks remain

Forbes identifies the primary roadblocks to an Internet economy as: (1) Language—despite the fact that English is the primary language of business, successful operators will need to have multi-lingual call centers before really becoming global. (2) Enemies—many companies refuse to compete on price, and as long as they do, goods and services not comparable by price compromise the value, efficiency and effectiveness of the marketplace. (3) Trust—Personal relationships and trustworthiness have not yet found Web counterparts. For critical products and services, until the Web equivalent is established, full transactions will not take place. (4) Lack of standards—With no established computer language standard, most of today’s marketplaces still rely on faxes and phone calls for some part of their transaction completion. This primitive and inefficient operation must be replaced by a single standard for broadscale adoption.

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Source: Forbes ASAP , August 21, 2000. 4 Roadblocks, by Andrew Freiburghouse, p. 135.

Forrester predictions

Forrester’s latest report ‘The eMarketplace Shakeout,’ predicts that although online trading will increase, the number of exchanges will fall dramatically. The report was compiled from interviews with 50 purchasing executives from companies with sales of more than $1 billion and executives at venture capital firms, technology vendors, e-marketplaces, and e-commerce consultants. Forrester says that the e-marketplace trade will expand rapidly, but be unable to support all players. Companies will steer business toward those few sites that meet specific needs, leading to three phases of shakeout: (1) ‘The Purge’ will last through 2001. Currently there will not be enough online trade to go around, and cash-guzzling startups will not make it. (2) ‘The Fortification’ phase will then last through 2002, leaving standing those B2B exchanges that serve participants’ specific needs without jeopardizing privacy. Forrester predicts dot-coms will consolidate to try and compete with the industry-specific partnerships. (3) ‘The Reconciliation’ phase begins after 2002, when rational business practices set in and online markets reach critical mass. Successful e-marketplaces will evolve into one of four models: procurement mall, industrial facilitator, commodity mart or vertical hub.
Source: E-Commerce Times, August 18, 2000. Report: B2B Shakeout Yet To Come, by Lori Enos.

Editorial Alert: For background on trading exchanges, see PROMO magazine’s insert. It provides a brief overview of Internet trading exchanges, their members and their goals. Grocery Headquarters 'shopped' six exchanges (both vertical and horizontal) and describes their ease of use, speed, fees and more in its cover story.(PROMO/i.promote, August 2000. Meeting in the back office, by Betsy Spethmann, p. 1-3. Grocery Headquarters, August 2000. Test Driving the Web, by Megan Ladage, p. 25-30.)
New efficiency through exchanges

The Internet has enabled transportation and logistics trading exchanges to be part of a sophisticated supply chain management system. These exchanges can achieve three supply chain management goals: (1) create market and transaction efficiency, (2) optimize assets within the supply chain and (3) coordinate activities of an extended trading community under one process. In truth, the trading exchanges have been around for more than 18 months and larger carriers made use of the technology early on. Those in the food industry with large fleets and warehouse commitments have become enamoured of the potential more recently. The idea of using these exchanges to fill a truck deadheading or filling less-than-truckload shipments and getting paid makes sound business sense. Food industry transportation has long been managed through a fixed cost structure. Using exchanges, the pricing is a function of yield management—a radically new concept in this industry. For the food industry, yield management is trickier because of perishability and temperature requirements. Still, the exchanges can yield incremental recovery. Truckers and fleet owners are most likely to realize gains first under this scenario; later, third-party logistics providers can sell their expertise in this area. Challenges remain: (1) Exchange users must learn to deal with immediacy. Liquidity—transaction volume— is currently low, and this is a niche market. For the system to catch on, those who are looking at it must begin using it and proving it works. (2) Collaboration is needed—not something the supermarket industry is historically very good at. This means that retailers as well as manufacturers need to embrace the concept of trucks carrying competitors’ merchandise. (3) Communication—also not a historical strength in the industry—must be improved. The Internet exchanges offer an opportunity for better communication and inclusion of more players. This is a reality in Britain, where all the major players transport their prepared foods through a third-party logistics service. They have realized the competitive advantage is not in having a dedicated truck.

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Source: Grocery Headquarters, September 2000. Transportation and logistics exchanges: Paving the way to productivity, by Amy Hardgrove, p. 87-100.

Wal-Mart’s Own Trading Exchange

Wal-Mart will build an online private exchange to connect its global supplier network. The exchange will hopefully further cut costs and improve efficiency. More noteworthy, however, is that Wal-Mart’s decision to build its own exchange raises questions about the long-term viability of industry-sponsored online public marketplaces. Up until now, World Wide Retail Exchange and Transora (open exchanges set up by the retail and consumer package-goods industries) have courted Wal-Mart. Instead Wal-Mart will use its technology platform as a source of competitive advantage. Atlas Commerce, a closely held software firm, will build the Wal-Mart exchange. Wal-Mart is prohibiting Atlas from selling its private exchange software to any of its major rivals ensuring its technology edge. Atlas’ early focus will be on improving global sourcing for Wal-Mart’s international buyers who currently use phone, fax and email to collect and aggregate spending forecasts for merchandise. AMR Research predicts that 75% of B2B sales over the next two years will come from such private exchanges and that public marketplaces will sell excess inventory and non-strategic goods.
Source: UpsideToday, October 16, 2000. Wal-Mart to build private Net marketplace, by Adam Feuerstein.

Editorial Alert: RetailTech notes that over 100 trading exchanges in the grocery industry have emerged over the last year and that survival depends on their ability to attract critical mass. Observers say they need to show revenue within 18 months or fall by the wayside. Early entrants are close-lipped about results, divulging only that they have attracted little volume and use a lot of ‘old culture’ techniques (telephone calls, and bank checks) to complete sales. In the long run, system integration beyond just connecting buyers and sellers will be critical. This is not an easy task for an industry with so many buyers, sellers and third-part intermediaries, including logistics providers. Legacy systems and proprietary software are further roadblocks to quick success. In this industry where trust is limited, security and privacy are among the top concerns cited by skeptics who want to be sure the competition can not learn what they are buying/selling and how much is being paid. (RetailTech , October 2000. eB2B Feeding Frenzy, by Andee Joyce & Deena Amato-McCoy, p. 38-44.)

Benchmarking begins

During the first six months of 2000, eMarketer reports that over 700 trading exchanges were opened, most by third parties or consortia of members. In reality, however, currently most e-commerce takes place through the private networks of companies such as Dell Computer and Wal-Mart. The supermarket industry has seen the establishment of more than its share of exchanges, both vertical (with specific product focus) and horizontal (offering business services). Today’s exchanges provide some of the following services: auctions, catalogs, collaborative product development, collaborative forecasting, financial services, information services, logistics management, applications services or transaction management. Experts predict that exchanges providing multiple services will be the most likely to survive and thrive long term. This month Grocery Headquarters includes benchmark ratings of nine exchanges. To be included in the ratings, exchanges must (1) exist primarily for the grocery channel, (2) be a vertical service provider, (3) have achieved a minimum membership size and (4) service multiple trading partners. The nine exchanges included in the benchmarking are: Global Food Exchange, GlobalNetXchange, Worldwide Retail Exchange, INC2Inc, Foodtrader, Transora, Novopoint, efoodmanager and Agribuys. The exchanges are rated between 0 and 10 based on member revenues, funding, value of monthly transactions, revenues to date, site functionality and profitability.

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Out of a possible score of 70, only two achieved a score over 20: Global Food Exchange at 30 and GlobalNetXchange at 27. All scores were hampered by zeroes in profitability, since none of the exchanges are showing a profit. Only three cited any revenue to date, although two declined to report. Transactions per month vary from 0 to more than 4000. Site functionality varied and is likely constantly changing. Although these exchanges are considered to be among the best, they derive their membership from many of the same companies, suggesting some redundancy. GobalNetXchange, Worldwide Retail Exchange and Transora are worthy of close following since they have so many committed members—who have paid handsomely to join. Grocery Headquarters promises quarterly reports on the players’ progress.
Source: Grocery Headquarters, November 2000. Private exchanges: Model of Choice, p. 11. The Arena Report: Scoring the exchanges, by Jack Haedicke, p. 33-8.

Skepticism among distributors

According to a survey sent to attendees of the FDI Conference in Minneapolis after the fact, food distributors are skeptical of B2B exchanges. Only 16% of the 103 food and food service wholesaler and selfdistributing respondents said they are currently involved in trading exchanges. Only 24% of those not involved plan to begin using them in the coming year. Trading exchange users cite the following potential advantages: new sources of supply, new product information and increasing efficiencies. The primary concern was confidentiality. Few believe the exchanges will have any daily impact on operations. Other findings: 74% communicate with customers via the Internet. Three-quarters of the 26% who currently do not, do not plan to in 2001 62% currently communicate with vendors over the Internet and seven in ten of those who do not have no plans to next year. 75% of those who use the Internet use it with only 25% of customers.
Source: SN, November 6, 2000. Distributors Skeptical of Internet B2B—FDI Study, by Dan Alaimo, p. 37, 42.

Spotlight on Transora

Transora, with $250 million in funds from Procter & Gamble, Coca-Cola, General Mills, Kellogg, Kraft Foods, Nabisco, Nestle, Quaker Oats and others, is in the midst of a global road show, showcasing the company and its capabilities to investors and their raw materials suppliers. Its goal is to be a ‘global, open standards, industry-led marketplace.’ Key areas of potential for Transora investors include reverse auctions, sourcing aggregation and CPFR. Transora now has more than 30 pilot programs under way, rolling out core offerings as available. These include: procurement; logistics ; consumer services, such as market research ; supply chain management; retail services, such as promotions management; and financial services. It has a deal with UCCnet to support location registry services and item data standards across its entire service offerings and deals with two independent ingredient Net markets, Novopoint and Foodtrader.com. Still, nothing is a sure bet despite strong turnouts at road shows. Pilot auctions for honey and printed materials drew 25 and 27 participants respectively. Suppliers to the 50+ investors are watching carefully: some see a huge opportunity to get access to new business; others see an attempt by CPG buyers to cut supplier margins. In reality, Transora is as much of a culture shock to its investors as it is to their suppliers. Many are keeping their options open by participating in other exchanges as well. Although P&G plans to use Transora services when they become available, it has already conducted more than a dozen pilot auctions with other marketplaces—saving $40 million. A P&G

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representative say P&G wants Transora to be successful, but it is a service provider and must be competitive. Some market leaders, Coke for example, has not done any pilots yet, waiting to evaluate Transora’s service offerings as they go live. Coke representatives say they already achieve economies of scale and are looking for more cutting-edge services, such as deep demand forecasting. For smaller companies, Transora offers the hope of leveling the playing field and by giving them access to channels they might not have had before. Browser-based online order management suitable for smaller retailers is being tested outside the US, where smaller stores are more plentiful.
Source: Btobonline.com: Ad Age’s newspaper of the marketing revolution, November 6, 2000. Transora trumpets itself. But some parties reluctant to base all on one exchange, by Richard Karpinski.SN, November 13, 2000. Transora Starts Tests of B2B Retail Services, by Elliot Zwiebach, p. 23-4. November 27, 2000. Pilot Internet Auctions Demonstrate B2B Cost Savings, Transora Says, p. 15.

B2B exchanges to disappear

Forecasters: Take out your crystal balls! It has already happened in the air conditioner parts market. Emarketer predicts that by 2004, 93% of all B2B e-commerce will be handled through private exchanges, not the open exchanges that have proliferated—especially in the grocery industry. AMR Research says within three years, there will only be two or three open exchanges in each industry. The reasons: (1) It takes much of the same work for a company to gear up to join an consortium exchange as to build its own. (2) Private emarketplaces can offer perks including volume pricing, instant inventory checks and online customer service. (3) There is no need to build consensus among rivals about business practices or standards. (4) Private exchanges allow for more brand identification, less dilution than when a company’s products and services are displayed among rivals. In some cases, analysts agree that it is not all or nothing, but where there is an open exchange, there are likely to be private ones as well.
Source: Business Week, December 4, 2000. Let’s Keep This Exchange to Ourselves, by Darnell Little, p. 48.

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