NAPLES, Fla. -- There are both immediate and long-range paybacks for supermarkets that invest in the technology needed to participate in business-to-business exchanges, said Tig Gilliam, partner, Pricewaterhouse Coopers, New York.
Procurement applications, such as reverse auctions, can yield a swift payback, Gilliam said in an interview with Supermarket News following his presentation at last month's Global Exchange Summit here.
Efficiencies gained through changing business processes will also yield rapid benefits, he said.
"With the technology that becomes available through the e-markets on a hosted basis, retailers will not only have an opportunity to make investments in technology that they couldn't have made before, because it was cost prohibitive, but they will now be able to do that with a rapid return on their investment," Gilliam said.
"This is going to create a situation where the supermarkets are now able to enjoy the benefits of a lot of the technology and the automation, at a cost and at a return level that is very attractive to them."
Gilliam noted that over 1,000 e-marketplaces have already been formed. He predicted that greater than $438 billion of the $1.7 trillion predicted for B-to-B on-line transactions will be realized by the e-markets by 2003.
The e-markets will create value as costs decrease and top-line industry growth increases slightly. But, he noted, these improvements will not be shared equally among value chain participants.
E-markets represent a rapid evolution in business practices, moving from one-to-one relationships to many-to-many, and from point solutions to end-to-end solutions, he said.
"We are going to see some of the supermarkets come in and with great haste try to lead the development of the e-markets and figure out how they are going to best leverage their own internal changes to take advantage of those. And, like always, we are also going to see a few who are going to wait," Gilliam said.
However, Gilliam also predicted a big shakeout in the B-to-B e-market space will also occur.
"Those that have made the right decisions have learned along the way and have gotten in the right position over the course of this year. They are going to significantly improve their chances for next year in terms of being able to take advantage of the services that e-markets will offer," he said.
"It is largely a frequent replenishment situation. There are lots of branded products that require collaboration around promotions. So a lot of the services that are being offered by the marketplaces today are right in the sweet spot of what the supermarket company needs."
The diversity of categories and supply chain requirements within the supermarket industry makes integrating into a B-to-B environment a bigger challenge than in other fields, though, he said.
"There's everything from ambient temperature to frozen refrigerated types of requirements. You also have a great diversity of channel distribution mechanisms, from the self-distributing retailer to the DSD (direct store delivery) operation," Gilliam said.
"The solutions they are going to have to provide to make the DSD operation work are slightly different from what is going to be required in the normal wholesale delivery model. From that point of view, the grocery channel is a great one for e-markets to work with because it is one where they are going to learn a lot more quickly about how to meet those individual requirements," Gilliam added.
The key for supermarkets to integrate into marketplaces is "to move from experimental collaboration, either in CPFR (collaborative planning, forecasting and replenishment) or in the procurement area, to making that part of their normal order management process," he said.
Eventually, Gilliam predicted, e-business will just become part of standard operating procedure.
"That's a transition that is going to take place. We are emphasizing the 'e' in many cases now just to make people realize that there are some changes that have to happen.
"But quickly, those changes are going to become the standard way of doing business and it will be back to procurement, and supply chain management, instead of e-procurement and e-supply chain management."
Gilliam said the e-market creates the leverage for the smaller player that has previously only been available to the largest retailers.
"We've already seen that take place across things as diverse as procurement, where now by collaborating together, the small retailers are able to create a scale that they never had as individuals," he said.
While the P&Gs, the Krogers and the Wal-Marts were able to invest a lot of their own money to build that technology, relatively few of the smaller players have had the same ability.
In a world of Internet-based B-to-B marketplaces, wholesalers will continue to have a clear role in physical distribution, he said. "The economics of the distribution process are what they are, and there is a reason why the distributors provide value in that situation -- they are able to complete the total delivery cost of those products for less.
"The real challenge for wholesalers will be ensuring that the value-add that they create is not superceded by the value that the e-markets deliver in terms of access to information and the efficiency of the processes that take place between the trading partners," Gilliam said.
"So from a communications point of view, there is a chance that they are at risk for improving their performance and competing with the e-marketplaces on those services. From the physical point of view, I think they are going to stay," he added.
The challenges brought by B-to-B to small and large wholesalers will be different, he noted.
"The smaller wholesalers and distributors are going to have a harder time competing on the technology front. They are going to be dependent on the e-markets for a lot of the information exchange and transaction execution that takes place.
"The larger ones are going to be in a position where they can choose to use e-markets directly, or may choose as a sector to develop their own solution to compete with some of the e-markets that have been established already," Gilliam said.
For self-distributing chains, there is an opportunity with B-to-B to enhance the internal efficiencies of their operations.