Cost-efficient optimisation of the supply chain is any food retailer's core priority, in a world where most goods are not only fast moving but also produce relatively low profit margins. Internet-based E-procurement can turn all kinds of possibilities into reality - and at the touch of a button.
Elsevier Food International, Vol. 4, Number 2, May 2001
Claire Rowan and Pascal Kuipers

Compared to all the time and effort it's taken to finally reach an agreement on global standards for EDI, companies are currently pushing global E-procurement forward at an inconceivably fast pace. Because the number of founding members in industry E-marketplaces like World Wide Retail Exchange (WWRE) and GlobalNetXchange (GNX) are limited, and because new members and clients have to conform, it's easier to reach a consensus. Moreover technology is developing at a very rapid pace, constantly providing E-marketplaces with new objectives to meet and new barriers to break through.
"The use of new technologies and the Internet, whether to improve ad-hoc communication such as Emails or data messages between businesses, will have an impact on all business, in all parts of the supply chain," says Jonathan Merry, head of E-business and technology at Coca-Cola Enterprises. "Exactly how it will effect the supply chain is the issue that everyone has a view on. Everyone is looking at the benefits, and E-business is at a very early stage of development. Because it is a fairly pioneering area, there does seem to be a bewildering choice of options available. However, there is a lot of repetition and the best approach is to get out and talk to people." Merry acknowledges that the human factor may cause some delay. "At the moment, technology is growing faster than processors' or businesses' ability to use that technology. It's quicker to write the software than it is to train the people to operate the new systems. The people process will take longer to develop."
Human obstacles such as insufficient skills, unprepared company culture and insufficient management commitment are the main hurdles on the road to implementation of E-commerce. Yet skills will come with experience and, as with mechanical automation, E-business will ultimately change daily trading operations in the food industry.

'Mega' and beyond
WWRE and GNX are both retailer driven industry exchanges.
Their equals from the suppliers' side are Transora.com and CPGMarket.com. All exchanges are designed to facilitate transactions in the food industry over the Internet -transactions such as procurement, reverse auctions, storage of catalogue information, online ordering, communications facilities, and financial and related services. But promises run high and expectations may well move beyond human comprehension. GNX and Transora were established in February 2000 and April 2000 respectively. Though still at an embryonic stage, both E-marketplaces have already announced the joint formation of a 'megahub' (January 2001). And they have even moved beyond the boundaries of the food industry by inviting similar exchanges with other industries, making this initiative even more 'mega'. In addition, two suppliers joined the retail exchange GNX as members last March, following GNX's commitment to establishing itself as a neutral exchange that offers value to a membership base consisting of both retailers and suppliers. "Inter-operability between companies is key and these megahubs are pushing this forward. There must, however, be a balance between going faster and faster on the one hand and avoiding the disaster of proliferation of communication standards on the other," comments Enrico Toja, vice president of Johnson & Johnson Consumer International. "In my view, competition accelerates developments in this early stage. This is good because it leads to a steep learning curve."

"By 2004, I envisage one central exchange, one exchange more upstream oriented and one exchange that's aimed at the last, shelf part of the chain."

As a board member of both ECR Europe and the Global Commerce initiative (GCI), Toja is heavily involved in synchronising electronic languages and procedures to optimise global supply chain efficiency.
"All marketplaces agree to work on common data standards within the GCI. With one standard in place, it is still possible that different E-marketplaces will exist, but of course no four or six exchanges are needed. Looking at suppliers' exchanges, there are differences in focus. CPGmarket is more procurement-oriented, while Transora focuses more on the supply chain. By 2004, I envisage one central exchange, one exchange more upstream-oriented and one exchange that's aimed at the last, shelf part of the chain.
AJI these will be operating to one common, global data standard."
Jeff Smith, managing partner of E-commerce at Accenture, agrees with Toja. "The reality will be multiple E-marketplaces for the next couple of years, although we're seeing a rapid shakeout and consolidation already beginning."
In Smith's view the characteristics that will ensure the survival of certain exchanges are:

• Liquidity commitments from a dominant partner or investor (eg, Cargill's stake in Novopoint.com)

• Geographic advantages in participants, logistics and language (eg, cpgmarket.corn in Europe, china-resources. com in China and bayantrade.com in the Philippines)

• Consortium-based funding and liquidity commitments (eg, WWRE and Transora)

• Equity backing

"So far technology has not been the key differentiator, as most exchanges have similar transaction engine software," concludes Smith. "Interesting differentiators are to be seen on the content/community side of the exchanges."

Globalising forecasts
One area of development that the trading exchanges are accelerating is the concept of Collaborative Planning, Forecasting and Replenishment (CPFR), which allows purchasers and vendors to share information in order to improve their forecasting of sales. Retailers and manufacturers enter their forecasts for sales of a particular product into a CPFR system. This then uses software to identify anomalies in the forecasting figures and forces communication between the two parties in order to agree the forecast figures. As the sales are taking place across the globe and are subject to promotions at different intervals and at different locations, the data is valuable in allowing manufacturers to increase or reduce production levels, and the retailer to determine stock orders.
"The main focus of the CPFR project is to review CPFR methodology for European Union use," says Fred Kernpkes, internal supply chain consultant at Unilever. "In the EU, we think there are some differences between the CPFR tool needed in the USA and that needed here, especially in the area of promotions, which are carried out more frequently and in more various ways in the US than they are in the EU. Furthermore, lead times are shorter in the EU and inventories are lower. These are real differences, which need to be included in the CPFR tool before it comes into the EU. The trading exchanges are just selecting their software for CPFR, so it is more important than ever to establish some common methodology. Only the larger companies will use CPFR methodologies initially. But service providers on the Internet are very useful for smaller companies in providing visibility and for the exchange of all kinds of data, and without having to enter into the CPFR processes. We currently have a lot of material suppliers who are struggling to give us the data we require, so if we use Transora it's easier - they will benefit and we will benefit."
Both Smith and Toja think that not joining an exchange is business suicide for a company. "It will be mandatory for consumer companies over the coming 18 to 24 months," says Smith. "The economic advantages will be significant, which certainly counts for something given the increasingly competitive pressures on all companies' bottom lines." Toja quantifies the gains: "A total of 4.4 per cent of costs can be saved by B2B E-commerce. A company that neglects this is bound to be out of business by 2005, simply because it has 4.4 per cent more costs than its competitors."

Integrating extra nets
Apart from the industry exchanges and the creation of the 'Megahub', many retailers have also set up their own extra net systems on a local level to share information with their individual trading partners. Suppliers can key in daily to their partner's extranet site on the Internet, and enter a password to extract data concerning their product's stock levels, daily sales figures and availability on shelves. The UK is currently Europe's leader in this form of 'transparent' communication between supply-chain players. However, although such availability of information is designed to allow for more efficient response to demand and thereby to more accurate production planning, it is also very time consuming for manufacturers to have to tap into the individual retailer sites in order to gather information. IT supplier Eqos wants
to solve this problem with its Retail Extranet Optimizer (REO). This is an E-business portal allowing companies to extract data automatically from any number of their retail customers' extranets. "Many suppliers are tracking hundreds of different product lines across multiple retail sites on a daily basis," said Chris Foulkes, products and services director at Eqos. "With REO, companies can set-up the reports they want, and extract the relevant data very quickly. In the future, everyone will be consolidating data and integrating it into their own systems." "Integration between applications is key; the collaborative marketplace would not have advanced as it has without integration," says Sam Brown, European product manager of software provider Manugistics. "Efficient EAI [enterprise application integration] or 'gateway' systems, which will be key to intra and inter-company communication, take the complexities out of the system. They allow one trading partner to use a different system from another. No vendor has the best ERP, SCM [supply chain management] or CRM [continuous replenishment] system, so companies are choosing 'best-of-breed' systems for their individual applications. Now that EAI is becoming stronger, companies can proceed without worrying about integration with all of their customers."