NOW IS THE TIME TO TAKE STOCK OF B2B EXCHANGES

David Orgel

There's a new chapter in the saga of the major food industry B2B exchanges.

They are taking steps to further define their directions and, just as importantly, highlight their staying power. This is the time for retailers, wholesalers and suppliers to pay close attention and figure out where they fit in.

But first, a brief recap. The exchanges were launched with a flurry of announcements earlier this year. Their selling point is the ability to use the Internet to facilitate trading among distributors and suppliers. They promise to reduce procurement costs, cycle times and data entry errors, while enabling the auctioning of products.

Often they began without personnel, headquarters, technology providers or growth timetables. They include the WorldWide Retail Exchange and GlobalNetXchange on the retail side and Transora on the supplier end, with UCCNet waving the banner for industrywide standards.

Gradually top executives were named and more details of plans were unveiled. Now the exchanges are making their biggest strides to date, including the testing of their models through auctions.

They are also expanding membership bases. While the largest companies were the first to join, medium-sized players are now getting on board, confirming the industrywide nature of the initiatives. The WWRE, whose first members included industry giants Albertson's, Safeway and Ahold, recently signed on midsized operators Meijer, Wegmans and Winn-Dixie.

Exchanges are also reaching out with partnerships. Transora announced an alliance last month with UCCNet that ensures all trading partners are speaking the same language. GNX has a new arrangement with TradingProduce.com that represents an early step to outsourcing by the big exchanges.

But even as some questions are answered about the strategies of the big exchanges, many aspects of their directions remain a mystery. Industry executives I've talked to have a lot of questions. Exactly how much savings will exchanges provide and where will it come from? Will there eventually be a merger of the major exchanges?

What about the role of smaller retailers in this new equation? Some observers believe exchanges will help level the playing field for smaller retailers, who can get the benefits of scale in buying that result from the participation of the largest companies.

If that's true, how will wholesalers operate in an environment in which their retail customers can make major purchases without them?

All the uncertainty shouldn't discourage companies from following the developments and taking an active role. More industry involvement would help strengthen the efforts of these consortiums at a time when they are far behind the advanced state of Wal-Mart's exchange, Retail Link.

So far the membership growth for the major exchanges has been primarily momentum-driven. A company joins because it doesn't want to be left out of the game.

I like what Danny Wegman, president of Wegmans Food Markets, Rochester, N.Y., said about that momentum game recently. He urged the industry to educate itself about technology and consider the business benefits of joining an exchange rather than just doing it for competitive reasons.

It's an important point. Consortiums like WWRE, GNX and Transora seem like good concepts worth supporting. But first executives need to understand how these new entities operate and how they will play into their companies' strategies. There's never been a better time to pay close attention.