CHANDLER, Ariz. -- The future of B2B e-commerce has arrived at Bashas'.
While many retailers wait for the big online business-to-business trade exchanges to evolve, Bashas' here has been using Internet procurement for nearly two years. Thus, it was one of the first anywhere to use reverse auctions, and the clear leader in using the technology on an ongoing basis for replenishment in the meat category, said industry observers.
Bashas' now buys about 70% of its meat through twice-weekly reverse auctions hosted by intesource, Phoenix, said Tom Buttes, category manager at Bashas'. By doing so, the retailer has achieved a significant cost savings, which Buttes would not specify, and a time savings that he estimates at 60%.
"I believe that it is an efficient, economic way of achieving cost savings on procuring goods," Buttes said. "The more that the industry uses it, the more savings are going to be realized. You are going to see it expand throughout the entire industry," he said.
One of the most remarkable aspects of the Bashas' program is that it was started independently of the information technology department by Buttes in the meat department. Because all the systems and software are maintained by intesource, all that was needed was a computer with a browser and an Internet connection. The program costs Bashas' nothing to use, with the suppliers compensating intesource on either a flat fee per transaction or by an annual subscription.
"Any good idea needs to be pursued if it brings value to the organization" regardless of where in the company it originates, said David Thompson, vice president and chief information officer at Bashas'. Thompson came to Bashas' after the reverse auction program was under way, but he noted, "the biggest challenge for any organization is to be receptive to counterintuitive ideas instead of discounting them too quickly as being 'uninformed,"' he said.
"If it's a zero footprint on the client and it is just browser-based access, the IT shop doesn't have much to worry about," noted analyst Greg Girard, vice president, retail application strategies, AMR Research, Boston.
"IT shouldn't be driving the business. The business should be driving IT," said consultant Ken Fobes, chairman, Strategy Partners Group, Ponte Vedra Beach, Fla. However, Fobes cautioned against business units starting their own business-to-business programs. "In many chains, we've noticed there are a lot of initiatives going on, but they are happening in their own silos."
To be truly effective, B2B must be coordinated chainwide, he said. Nonetheless, Fobes commented, "this is an excellent example of how technology enables business."
Only now is the intesource program being integrated into Bashas' back-office systems. The retailer will then be able to automate the creation of purchase orders so they can be generated as soon as business is awarded to suppliers following an auction, noted Oren Davis, president and chief executive officer, intesource.
Among intesource's other retailer clients are Winn-Dixie Stores, Jacksonville, Fla., which has used the system in about 10 categories or departments and is also working on a back-office integration project, and Foodland Supermarket, Honolulu, which is in an earlier stage of use, Davis said. Giant Eagle, Pittsburgh, has been using a similar service, FreeMarkets, Pittsburgh, for about a year and a half for a variety of procurement needs. While FreeMarkets serves a number of different industries, intesource is focused on the grocery trade, Davis said.
Bashas' is intesource's oldest client, starting on Nov. 15, 1999, long before the exchanges got started, making it a pioneer in the area of online procurement. Bashas', well known in the industry as a solid but conservative operator, "has become an early adopter and really demonstrated a leadership role in the entire process," Davis said. After an initial presentation at Bashas' on using reverse auctions for supplies and other goods, Buttes approached Davis about using it for commodity meat replenishment. Forty-five days later the initiative was under way.
Besides meat, Bashas' has used the reverse auctions for supplies, grocery, service deli and produce, and is considering it for transportation services and diesel fuel, Davis said. A recent strategic partnership with Cleartrack Information Network, Brentwood, Tenn., will add logistics services to intesource's capabilities, he added. "But our core competency is reverse auctions," he said.
"This arrangement has proven very beneficial for selected categories, with the auction process most helpful in what might be considered commodity-like items," Thompson said. "Perishables, meat, supplies, private label and related goods have all been part of this initiative, and with good success."
Within the meat area at Bashas', the main focus has been on beef, which is Buttes' primary responsibility, but the program was recently extended to pork. This year, for the first time, Bashas' used reverse auctions for all its holiday turkey needs, Buttes said. Buttes would not discuss Bashas' plans for pricing the turkeys, but many retailers use them as loss leaders -- if not as loyalty program giveaways -- around Thanksgiving. "Any time you are going to have a very aggressive marketing strategy for turkeys in November, you need to get the best cost of goods possible on those turkeys. We found that using the reverse auction allowed us to obtain some savings on turkeys this year vs. 2000," he said.
Cost of goods is important, but the 60% in total time savings for Buttes has been equally beneficial. Looking at just the time he spent on replenishment buying, Buttes said he used to spend about 24 hours a week and now it takes only three hours a week.
"Within the first eight weeks, we were achieving that kind of savings in time, and it has continued to improve ever since," Buttes said. "The system has had several enhancements over that time, which have manifested themselves in more time savings for us and the manufacturers."
Many think that using reverse auctions causes retailers to lose personal contact with their suppliers and potentially compromises quality control. Tom Buttes, category manager, Bashas', Chandler, Ariz., has almost two years of experience that disproves these notions.
"From our standpoint, we believe it has enhanced our relationships with our vendors," Buttes said.
For example, in the past, the main point of discussion in buying meetings was price. The auctions -- which take place twice a week on Mondays and Wednesdays at 9:30 a.m. -- eliminate this, and buyer and seller can instead focus on improving efficiencies when they talk.
After the auctions (which up to seven suppliers participate in), the two sides still need to be in contact to work out quantities and shipping details. "You still have to build the trucks. You still have to do those kinds of things that create an efficient delivery system," he said.
For example, in the auction, Buttes may agree to buy 150 cases of something, but it takes 170 cases for the seller to have a profitable shipment. "We want to be a good partner and a good customer to the supplier. There is some give and take there. That's why I say that a lot of times the relationship becomes stronger," Buttes said.
Another source of good relationships is new vendors that were previously unable to compete for Bashas' business. "This electronic purchasing tends to level the playing field. Now every vendor has an equal opportunity to procure your business based on quality and price," Buttes said.
Quality is assured through a prescreening process where Bashas' approves all vendors that want to participate in the auctions. "We use only the major packers across the United States. Before we allow a supplier to come on and bid for our business, we evaluate their product through live samples that they send us," he said
And the lowest bidder does not always get the order. "Certain manufacturers will have closer standards or better specs than others. That's where I have to use my judgment on who is awarded the business. But the process is pretty simple; it's not complicated at all," he said.
Bashas', Chandler, Ariz., is not waiting for the big business-to-business exchanges to get their acts together. The reverse auctions it runs through intesource, Phoenix, are fulfilling the retailer's online purchasing requirements now.
"We have found that the reverse auction is the most appropriate way for us to procure product for Bashas'," said Tom Buttes, category manager.
Twice a week, the retailer posts its needs and up to seven suppliers bid on the business. "So our auction event is tailor-made for our needs. It's not just an exchange where you go online and view what is available, and then make decisions on what may or may not coincide with your needs at the time," he said.
"While exchanges seem to capture a lot of press and industry visibility, I'm not as sold on them as others may be," said David Thompson, vice president and chief information officer, Bashas'. "I'm still looking for a compelling business argument as to how they will solve a problem. I have a nagging suspicion that this is technology searching for the problem that it is the solution to. I think this area has been way oversold and way underdelivered," he said.
Meanwhile, Thompson pointed out, the intesource online procurement model with its reverse auctions between a retailer and multiple suppliers has "a proven track record."
Such online procurement companies are more focused on specific areas than the exchanges, which are attempting to deliver a broad array of services, said Oren Davis, president and chief executive officer, intesource. "In the grocery industry categories we are in, we are a mile deep, not a mile wide," he said.
"We zeroed in on the negotiation process and the award of business process. We are not an exchange. We don't walk or talk like an exchange. We have positioned ourselves as a buyer's negotiating tool," Davis said.