The End of An AuraBy Deborah Gage Print
Large corporations are demanding just one electronic marketplace per industry. Even Transora, the big consumer packaged goods exchange must merge, according to Target's CIO.
The CIO of the one of the nation's largest discount merchandisers is calling on the major online retail exchanges, which aspire to provide everything from auctions to collaborative sales forecasting, to combine and improve their performance as a result.
Signifying growing frustration with the exchanges' failures to justify the investments made in them, Target's CIO Paul Singer says the retail industry simply can't afford to support multiple exchanges. Given the tough economy, manufacturers and retailers are under pressure to cut administration costs, eliminate stocking errors and dramatically speed the time it takes to get new products onto the shelves.
"There's a lot of money being spent in three different areas with three different exchanges. The industry can't support three," said Singer, at the Retail Systems technology show in Chicago. Singer's sentiment was first expressed by another Target executive, Vice Chairman Gerry Storch, at that same show a year ago. "They should get together," Singer added.
Impatient corporations have spent tens and hundreds of millions of dollars on the formation of these marketplaces. And despite the promise of "friction-free'' transactions, the idea of using the Internet to create seamless, efficient sales among businesses has sputtered. Covisint, a high-profile exchange for automakers and their suppliers, last month replaced chairman Kevin English, installed new managers, cut jobs and scaled back the sweep of its operations. Now, the squeeze may be on for Trans-oraa well-funded exchange backed by consumer packaged goods com- panies such as Sara Lee, Wm. Wrigley Jr., Kellogg's and Hershey Foods, firms that represent more than $600 billion in annual sales.
The pressure is on for Transora and other exchanges to collaborate with their competitors, under the watch of federal regulators. Orbitz, a travel Web site owned by five big airlines, is still being closely eyed by the Departments of Transportation and Justice, for instance.
Target's push is being joined by Procter & Gamble, whose director of global customer e-business, Milan Turk Jr., points out that half of all electronic orders processed by P&G contain faulty data and require manual correction, lengthening the time it takes to stock Procter & Gamble products onto the shelves of retailers like Target.
"This isn't about the trade exchanges," Turk says. "It's about a supply network that can put detergent on the shelf when our customer wants it."
Dozens of exchanges have gone under since the summer of 2000, when Transorawhose name combines the Latin "trans" with the Greek "ora" to convey the idea of "crossing boundaries"formed advisory committees in North and South America, Europe and the Pacific to guide its growth into a global network. Transora partner Novopoint, a food and beverage exchange funded by the agricultural processor Cargill and the venture capital firm Crosspoint Venture Partners, was shuttered just a few weeks ago.
Other exchanges have curbed their ambitions. Transora and GlobalNetXchange (GNX) scuttled a highly publicized joint venture, called MegaHub, which was supposed to allow all exchanges to interconnect and swap orders. The two one-time partners can't even agree on what went wrong.
But other marketplaces still appear to be growing in influence. In May, Nestlé FoodServices invested in Electronic Foodservice (EFS) Network, a marketplace (see Case Dissection, p. 26) that is tackling a subset of what Transora originally set out to do. Other Transora investors, including Kraft Food Service and Hormel, have recently moved to invest in EFS as well.
Consolidation, though, has not been taking place as quickly as investors, vendors or customers would like. Transora, for instance, raised over $250 million two years ago from Procter & Gamble, Colgate-Palmolive, and other Fortune 500 companies. Yet it still is working with its archrival, the WorldWide Retail Exchange (WWRE), and with standards organization UCCnet to enable Procter & Gamble to publish product data in WWRE's catalog. Just as Procter & Gamble has invested in Transora, Target has invested in WWRE.
"Technology is the easy part," says Transora Chief Marketing Officer Ken Fleming. "The major issue is governanceit's not in the interests of either manufacturers or retailers to be able to dictate how data is being used to the benefit of one party."
Collaboration, though, naturally piques the interest of federal regulators. The Federal Trade Commission (FTC), which oversees these types of exchanges, will act to prevent abuses of market power should any exchange become large enough that market power becomes an issue. And, both the FTC and the U.S. Department of Justice want to ensure compliance with guidelines for collaboration among competitors that were produced in 2000 after an FTC investigation of the auto manufacturers' consortium Covisint. Forbidden are fixing prices, dividing markets, controlling product supply and sharing information on business plans that would provide competitive advantage.
Though neither agency will talk in specifics, both say they are looking hard at Internet combinations in a variety of industries. FTC Commissioner Mozelle Thompson says the industry is developing the way he expected, so far.
"As part of the initial stage of the whole B2B thing, the people who were putting together marketplaces thought they could do things smarter and more efficiently," says Thompson. "But then it's also smarter to say, if there's efficiency out there, I'm not going to pay it to the marketplace. I'll pay it to me. I'll bring those features in-house."
Wal-Mart, for example, is building its own exchange, and is large enough to pressure its partners to conform to Wal-Mart standards. Thompson says Target aspires to do the same. But that solution does not help a manufacturer like Procter & Gamble, which must trade with thousands of retailers.
At SAP's recent SAPPHIRE 2002 show in Orlando, Procter & Gamble's associate director for global logistics, Jake Barr, called for a turnaround time of no more than 24 hours between the time a product is manufactured and the time it's sold to consumers. Barr said Procter & Gamble can't afford to wait three days to know what is selling, and called for a supply chain run half by forecasting and half by data generated in real time, telling the company when a box of detergent disappears off a retailer's shelf.
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