Transora, the b2b online grocery
exchange, is confident it will not face the wrath of the Federal Trade Commission
and other regulatory bodies looking for signs of anti-competitive behaviour, even
though it now has 53 member companies which between them account for over half
of the consumer packaged goods industry’s turnover.
Recently appointed Chief
Executive Officer Judy Sprieser, speaking exclusively with just-food.com said:
“We are working with the regulatory bodies. We are making it obvious to
them that Transora is not about pricing. It is a full service offering spanning
the whole of the supply chain within the consumer packaged goods industry.”
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That’s news the industry
will want to hear. Spencer Marlow, Marketing Manager, Retail Supply Chain, EMEA,
General Electric Global eXchange Services says: “All exchanges are in dread
of being seen as market fixers. They will not want to be seen as a closed club.
They will be going under regulatory scrutiny and will want to demonstrate the
correctness of their processes.”
Just what Transora’s
offering will comprise will be unveiled in a number of phases over the next
nine months. It is currently carrying out pilot studies to develop and test
linkages throughout the system. This extends further afield than its own exchange
and includes pilot transactions with members of GlobalNetXchange – a retailer
marketplace which represents key customers such as Carrefour, Sears and Metro
– and other retailer groups.
Its initial service offerings,
being procurement and product catalogue, will be launched early in the fourth
quarter of this year, to be followed by more comprehensive services such as
online order management and financial services, and then collaborative planning,
forecasting and replenishment.
Equity window closed
for now…
Sprieser, who joined Transora from her position as CEO of Sara Lee’s US$8bn
Food and Foodservice Group, considers that, while the equity window has now
closed, it will not be the organisation’s policy to refuse anybody access
to trading. The 53 member companies have each made an investment determined
by their turnover. No one company will have more than a 5% share which will
entitle them to a percentage of the profits. She said: “We would like to
have everybody join the exchange, but this is not for financial reasons. We
have enough money to build Transora.”
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By GlobalDataNot all the initially interested
parties became equity investors in the exchange – but more than 80 of the world’s
leading consumer products companies have signed expressions of interest to participate.
Sprieser explained: “Some of these companies were not in a position to
make an equity investment decision quickly enough. We could only hold the equity
window open for a certain time. Some were smaller companies who knew there was
enough funding for the exchange to go ahead. Although they didn’t become
equity investors they have said that they will trade on the exchange. Companies
don’t have to be investors to be able to trade with us.”
…but could reopen
|
“facilitating
industry-wide supply chain integration” |
Sprieser did not rule out
the possibility that the ‘equity window’ could be opened once again
at a later date for more companies to become members. She added: “Members
get a share of the returns, but that is not the issue here. Those who have become
members have done so because they want Transora to be a success. They recognise
it is the way forward for the industry.”
That way forward has the
potential to cut a vast amount of costs throughout the supply chain, incurred
as a result of what Transora considers are “outmoded processes and the
lack of industry-wide communication and co-operation”. They cite as examples
inflated procurement costs, excessive unwarranted administrative costs, large
‘safety stock’ inventory expenses, and expensive media purchases.
The exchange’s aim is to facilitate industry-wide supply chain integration
and in the long term to provide innovative, problem-specific solutions to these
inefficiencies.
Swathe of potential cost
efficiencies
Sprieser can reel
off many impressive examples of cost savings. She said: “The consumer packaged
goods industry spends trillions of dollars on safety stock just in case its
predictions are wrong. Being able to reduce that investment in the supply chain
alone will provide a lot of cash release.”
She also has a stash of
statistics at the ready, stating that the traditional way of ordering products
involving price negotiation, the passing of paperwork back and forth, getting
the supplies out and the money in, can typically add US$120-US$150 per transaction.
“Move it on line,” she says, “and those figures drop to an estimated
US$15-US$20.”
The system will also ensure
that the right supplies are in the right place at the right time. In theory
when a consumer buys Coke at Tesco in Manchester that transaction will automatically
transcend the supply chain, not only informing the manufacturer, but also the
sugar supplier and grower.
It will also help with new
product development. Manufacturers will be able to tell in real time how its
products are performing in trials and select the data it needs to draw comparisons,
rather than depend on information supplied by the seller.
Seamless integration
vital – but can it be achieved?
This is fine in theory. A utopia for the retailing, manufacturing and supply
industries. But what are the realities? It is at this stage that some might
come down from
|
“A
utopia for the retailing, manufacturing and supply industries. But what are the realities?” |
cyberspace with a bump.
Marlow considers that one of the major issues to be faced will be that of system
integration. He said: “Transora will quickly realise that the key to driving
costs out of the procurement process and delivering the full value of e-procurement
lies in the end-to-end integration of the process.
“A wholly integrated
system for the transfer of information will be essential – and it will be needed
fast. It will be no good if people within the supply chain have to look at a
screen and re-key the information into their own systems. Apart from the sheer
waste of time it will be costly and error prone. Integration is, along with
critical mass, the key to achieving liquidity, and securing the long-term survival
of the exchange.”
Jeff Beech, partner and
b2b expert at Andersen Consulting agrees. He says: “The integration of
the participant’s systems with the exchange will set the pace. There has
been a lot of oversimplification – that companies will be able to access and
interact with an exchange through a web browser. Technology has come quite a
way in enabling different systems to integrate. But the challenge is that when
you start multiplying the number of exchanges with the immense amount of systems
between manufacturers, their suppliers and their customers, it becomes a daunting
task. Many manufacturers, especially in Europe, will have 10-30 different business
systems of their own, alone. If you multiple that across the exchange a massive
number of integration points will have been created. People have thought about
this but not many have dealt with it.”
There is still a tremendous
amount of work to be done according to Beech to build what he terms an Enterprise
Application Integration layer to facilitate these compatibilities.
Good housekeeping the
order of the day
Marlow also considers that all those involved with online exchanges will need
to have their housekeeping in order. For efficiency, he says, exchanges need
a wide base of suppliers and an up-to-minute catalogue of product. It is no
good having a catalogue listing your product, only for purchasers to find it
is not available. It is essential that goods and services are in the place where
they can be ordered from.
“They will need standards
to decide how their systems will be expressed,” he said. “It will
not work if a supplier thinks it has to provide 10,000 widgets to one site in
|
“Transora
will quickly realise that the key to driving costs out of the procurement process and delivering the full value of e-procurement lies in the end-to-end integration of the process.” |
Germany, when the purchaser
requires 1,000 in the UK this month and 2,000 in France the next month. This
information has to be encapsulated in the order requisite. For this, e-procurement
systems must encompass the wider process of requisition – managing requests
for proposals and requests for quotations – as well as just price settlement.”
But the issues do not only
come down to systems and technology. Beech raises concerns about the aspect
of neutrality. In his view a good exchange will not be supplier or seller-based,
but independent. He said: “It will be a marketplace where buyers and suppliers
of all types can come together to conduct business. It will not be set up by
a group of buyers to create leverage against sellers or their customers.
“If you are creating
an online buying club you are not likely to have a sustainable economic model
and you will not be one of the survivors. The challenge is to provide everyone
with the incentive to participate, based on the value proposition and not one
of solely leverage.”
Can neutrality only be
ensured with outside help?
To achieve this neutrality he considers that it is important to create an independent
entity that manages the exchange. In his view, it will involve setting up a
new business with top executives that have the skills to run that type of business.
“It is not,” he says, “about big companies trying to manage a
new business together, like an exchange. This is not a formula for success.”
Without this neutrality he questions whether an exchange can run itself as a
standalone business and provide the returns expected by the owners, while creating
a value proposition that is attractive to all its constituents.
|
“Integration
is, along with critical mass, the key to achieving liquidity, and securing the long-term survival of the exchange.” |
“There has been a lot
of hype about these exchanges, but their success will come back to economic
realities. It does not matter how large a market place starts out and who is
involved. If it does not have neutrality it will have a difficult time surviving
in the long term.
Just how acute this will
be is reflected in some of Andersen Consulting’s predictions. It points
out that the existing number of exchanges worldwide of around 2,000, will rise
to between 5,000 and 10,000 in the next one to two years. But Andersen Consulting
believes consolidation will follow, taking the figures down to 500 or fewer
in two and a half years from now.
Beech said: “We will
see an exciting combination of marketplace joint forces, combining together
to create a more powerful proposition across the value chain. This could involve
alliance partnerships or mergers.”
Head honcho Sprieser
keen to work with members of the supply chain
Sprieser is only too aware that integration is an issue. “We are not just
building a marketplace and putting it out there. We are working with members
of the supply chain to build something that will work in their best interests.
We have enlisted the support of major systems integration companies to integrate
customers with the exchange and are certifying them when they are capable of
achieving this. This is a distinguishing part of Transora. We are focusing on
tightness of integration to achieve the next level of applications and efficiency
in all trading applications.
|
“an
exciting combination of marketplace joint forces, combining together to create a more powerful proposition across the value chain” |
“It is a complex business.
We have several service offerings being developed simultaneously and we are
getting great feedback. But we have to be able to deal with first things first.”
Sprieser believes that it
is the fact that Transora is run by the consumer packaged goods industry for
its own industry which will make it work. She said: “We are different from
the others who are owned by major technical application providers or venture
capital companies. We know our business and its demands.
“No one will be able
to approach our scale. We have over half the industry in our exchange. We will
be a full service provider and will not exclude anyone. We have even got companies
outside of our industry wishing to join us.”
So do the industry pundits
consider this a good move for the grocery business? Marlow says: “The long
term value of Transora and other exchanges will be to significantly lower the
cost base within the global retail supply chain, while actually boosting performance
and service levels. The key driver of this sea change will not be price deflation
through demand aggregation and e-procurement, but efficiency gains driven by
data standardisation and process streamlining.”
But he envisages more exchanges
will be created which will affect the grocery trade. “I predict there will
be one more big retailer and possibly another manufacturer exchange. They will
have different propositions and each will be looking to interconnect. That ability
to interconnect will be key for future success.”
In the meantime Sprieser,
while focusing on cyberspace, is not taking her eye off her manufacturing roots.
She said: “It is going to be the companies which move fastest which will
take advantage of e-commerce. They will be the winners.”
By Sue Barnard (an independent
business journalist and consultant specialising in the retailing and manufacturing
industries worldwide. She is based in the UK. Email address: sue.barnard@virgin.net)
