Trading exchanges working on kinks, hoping to win over suppliers

Drug Store News, June 17, 2002 by Liz Parks

It may be a case of over promising or it just might be trying to do too many complicated things at once. Nonetheless the WorldWide Retail Exchange, GlobalNetXchange and Transora-the trading consortiums that launched two years ago to, among other things, improve the supply chain-still are trying to p rove they have solutions that provide value across all segments of retail.

There's no doubt the three have made progress in creating programs that help trading partners take costs out of the supply chain, but there is skepticism about whether they each provide equal value for retailers and suppliers. In addition, there is confusion over which provides the most value, and there are questions about whether there are other alternatives, such as private exchanges or B2B marketplaces that, down the line, might provide better value.

Even industry analysts who have followed the progress of the three trading exchanges to date agreed that evaluating their level of success is not easy.

Christine Overby, a consumer packaged goods analyst at Cambridge, Mass.-based Forrester Research, said that with three exchanges competing in the marketplace, the issue is essentially "a question of viability."

"Who's really good? And at what? It's not clear to a lot of people," she said. "And you have Transora on one side of the market and WWRE and GNX on the other, so for suppliers there are still questions about which one, it any, to join."

"There was an awful lot of over-promising two years ago when these organizations all launched," added Peter Abell, a market research analyst for Boston-based AMR Research. "But today it's still not clear what all the benefits are. In general, auctions have been the prime application and the one with the most access to users. So far, auctions have generated the only sayings that the members can point to. But that hasn't created a value story that everyone can relate to."

Ironically, the auctions- primarily the reverse auction format-in which suppliers bid against each other to win a retailer's business, have clouded the icture for the two retailer-led exchanges, the WorldWide Retail Exchange and GlobalNetXchange. Many of the retailers who have participated in the reverse auctions, including such WWRE members as Walgreens and CVS and GNX member Kroger, have enjoyed what they describe as substantial and significant savings. "To date, the WWRE has conducted more than 1,100 auctions, generated $2.7 billion in transaction volume and saved more than $400 million," said Todd Andrews, a spokesman for CVS and one of WWRE's founding members. "We've seen savings as high as 22 percent. To us, that's very significant."

Auctions can either be for "indirect" goods-or goods and materials that a retailer uses in operating the business, such as cleaning supplies-or "direct" goods that are intended for resale. However, some retailers have further refined their definition of direct goods to include products such as cheese, sugar, envelopes and legal pads that could be e considered commodities rather than branded goods. The bulk of reverse auctions, as much as 70 percent to 80 percent, several sources said, have been for these types of non-branded products and indirect goods.

Some of the suppliers who have participated in reverse auctions are not as certain of their value. "Retailers who do online auctions will tell you that they value all the services that you, as a supplier, have to offer, whether you ship on time, how much you spend to pre-sell your brands, how much marketing intelligence you can provide to help them grow brands and categories," said Mark Davis, a senior vice president of sales for Dayton, Ohio based Mead Consumer and Office Products.

"But, for the most part, through the online auctions, [retailers] are making a purchase decision based on price, and that takes the professional evaluation traditionally done by buyers out of the equation. It gives limited credit to suppliers who are enhancing their brands. I have not seen significant value for suppliers.

Nervous suppliers

Barry Knichel, supply chain strategic director at Tesco, a WWRE founder, called "nervousness" on the part of the suppliers "one of the biggest issues we face. The question is how do we bring suppliers in and make them feel they have a significant part to play rather than a summary one?"

Jim Uchneat, a managing director at Boston-based supply chain consultant Surgency. said he believes it's critical to get suppliers participating with the exchanges. "You won't be able to create a lot of standards if suppliers don't participate with retailers," he noted.

In recent months, in an attempt to broaden their base of users by providing more value-added services, all three trading exchanges have been pouring more energy and money into programs that will lead to the evolution of global e-commerce standards. All three now have programs that, to various degrees, make it possible for retailers and suppliers to synchronize data and "e-collaborate," or work together electronically. Michael Polzin, a spokesman for Walgreens, emphasized that while Walgreens has seen big payoffs from reverse auctions, it also expects to see significant future savings as WWRE rolls out such sophisticated services as electronic collaboration.