Retailers are preparing to make Internet business-to-business -- or B2B -- services a central part of their procurement strategies.
to buy products or synchronize information. As the executives spoke to SN, their strong interest in doing business on-line with suppliers was evident.
They see B2B as a great opportunity to improve efficiencies and also to level the playing field between small and large companies. They also praised the UCCnet project of the Uniform Code Council for bringing needed standards and data synchronization, among other benefits, to the field.
SN: What opportunities do you see for business-to-business applications over the Internet?
PINK: To me, B2B in supermarket is where the action has got to be. Supermarkets have been slow to pick it up because, at least in my opinion, the traditional supplier-retailer relationships and the way the different deals and contracts flow through the systems are pretty entrenched in supermarkets. However, we have started to look at some of these on-line produce and perishable consortiums, and the standard supplier relationship is going to be taxed by the business-to-business area.
The big problem with B2B has been the expense of trying to create the tools that you need to do the business-to-business communications. The VAN [value-added network] concept was so expensive to supermarkets because of the number of small transactions that you have. It never made any financial sense. It could cost you more money than you make on the product to do it electronically. Now, with the advent of XML [eXtensible Markup Language] type tools and Internet business-to-business technology, the price of that is dropping through the floor.
So we are working hard on that area to make sure that we can leverage business-to-business. Our wholesalers have been slow to step up to that plate, but I think they are being forced there as well.
HERMAN: Now that we have finally gotten past the year 2000, taking advantage of the Web and using the Web technologies are going to have the biggest impact on the IT departments for our industry going forward. Using the exchanges and B2B is probably the highest priority project, at least right now.
We are going through a detailed review and trying to determine exactly which ones we want to get involved with. We expect that will happen pretty quickly.
I believe the greatest opportunities exist in sharing information among retailers, wholesalers and suppliers. From new items and promotions to category management, these Internet solutions should help the industry gain some of the promised benefits from EDI [electronic data interchange] that were never attained.
If we can reduce the administrative cost from the buying process, hopefully the buyers and the supplier reps can spend more time on category management and developing customer-focused promotions.
BUTLER:: We think business-to-business is important enough that we just recently designated a full-time, senior-level person from our IT staff to focus on it. We are really just getting into the details on what the benefits are, what the return on investment is, what the costs are, and we are trying to sort through all the hype.
So rather than everybody looking at it and going off in different directions, we are going to have a focal point in our organization to look at this and present the positives and negatives so we can decide whether and how we should participate. I don't think there is any doubt that we will participate, it is a question of which alliances, which marketplaces, what areas of the company.
B2B is exciting to me. From what I know so far, it looks like a great opportunity for independents and medium-sized grocery chains to get the same economies that some of the giants have.
MILLER:: A major opportunity for business-to-business is enhancing the DSD environment -- synchronizing the data for new items, for promotional programs. Because of that enabling technology, scan-based trading is going to be a benefactor. It is going to be one of the few new initiatives that will make a big difference in this industry.
Business-to-business is a prerequisite to a successful scan-based trading program. The retailers and suppliers have to synchronize with their price files before you can engage in a scan-based trading program. Before the introduction of the web-based business-to-business solutions, the traditional EDI environment was required, which was very costly and it prohibited the widespread implementation on both sides of the supply chain.
SN: What difference will UCCnet make for the supermarket industry?
MILLER: The greatest potential for UCCnet will probably be its critical mass of participating suppliers and retailers. Our electronic catalog is connected to UCCnet through viaLink and that opens up a universe of participating suppliers to us. So I am very enthusiastic about that. I like some of the other features that they offer.
HERMAN: UCCnet is still going through a defining process. It isn't clear if their role is going to be primarily as a facilitator, as a vendor or as a standard-setting body. Given all the other exchanges that are out there, I think there is a likelihood UCCnet will turn more into a standards body.
PINK: I think UCCnet is one of the coolest ideas on the face of the planet. The hardest thing for a grocery chain to do is to deal with item information. What it is, what is the description, what is it supposed to be -- all of that information to date is required by our back-office systems, and some of it for point of sale. That has all been handled mostly by manual entry to date.
But I think UCCnet is going to give us the ability to deal with changes in what is going on out in the world. Changes happen fast in our business. The amount of items flowing into and out of a supermarket in terms of the sheer volume of news, discontinueds, out-of-stocks -- granted, some of that is the suppliers' responsibility, but a lot of that needs to be managed centrally, and UCCnet has got the perfect idea to make that happen. I really think it is a great thing.
As I look at marketplaces like buyproduce.com and Agribuys.com, I'm not sure how well the auction type B2B exchanges are going to fit in to grocery yet, although there is probably a place for them. But to me, the big hitters are going to be the consortiums, and they are going to put a lot of pressure on the traditional wholesaler. The information will be there at a pretty reasonable price to do worldwide shopping rather than a retailer having to shop with a wholesaler.
Our development people are working with our smaller vendors so they will be able to come in through the Internet and do their own item maintenance on-line. We have vendors who only have five or six or 10 items that are locally handled, and they are as much work sometimes as a vendor with 1,000 or 2,000 items. So we are working on extensions for the small vendors so they can use their Internet connection with password protection and go in and do their own item maintenance. To us, that is a big labor savings. We see the whole invoicing, purchase order, purchasing process as being greatly affected in the next three years by the explosion of XML and Internet technology.
SN: Some say supermarkets have been slow to pick up on business-to-business trading. What do you think?
BUTLER: I disagree. From my perspective, I think the supermarkets are leading other industries in that direction. Many of the exchanges are food related. There are a lot of other industries that are coming along real quickly, but the grocery industry is a little skeptical sometimes.
Our margins are tight, so we've got to be careful about where we spend our money. But this year, there are going to be more and more people saying, "Yes, we are going to participate."
SN: What are the barriers to taking advantage of B2B marketplaces? HERMAN: Right now, it's hard to separate hype from reality. The offerings are very fragmented, and it is not yet clear who the winners will be in the B2B marketplace for the supermarket industry. To me standards are the key for industry success.
Companies must be able to communicate with an exchange with the same internal systems to minimize development costs and complexity. This will be necessary to achieve sufficient market penetration of suppliers, wholesalers and retailers, so that we can obtain the promised benefits.
SN: Which of the various B2B models existing today holds the most promise for retailers?
BUTLER: We are going to investigate the WorldWide Retail Exchange and GlobalXchangeNet. And Agribuys is coming to see us in the next couple of days, as well as buyingproduce.com, so we are looking at it, but I don't know enough about it to tell which ones are going to succeed.