Transora Confident of FTC Approval and Longterm Success
Recently appointed Chief Executive Officer Judy Sprieser, speaking exclusively with just-food.com said: "We are working with the regulatory bodies. We are making it obvious to them that Transora is not about pricing. It is a full service offering spanning the whole of the supply chain within the consumer packaged goods industry."
That's news the industry will want to hear. Spencer Marlow, Marketing Manager, Retail Supply Chain, EMEA, General Electric Global eXchange Services says: "All exchanges are in dread of being seen as market fixers. They will not want to be seen as a closed club. They will be going under regulatory scrutiny and will want to demonstrate the correctness of their processes."
Just what Transora's offering will comprise will be unveiled in a number of phases over the next nine months. It is currently carrying out pilot studies to develop and test linkages throughout the system. This extends further afield than its own exchange and includes pilot transactions with members of GlobalNetXchange - a retailer marketplace which represents key customers such as Carrefour, Sears and Metro - and other retailer groups.
Its initial service offerings, being procurement and product catalogue, will be launched early in the fourth quarter of this year, to be followed by more comprehensive services such as online order management and financial services, and then collaborative planning, forecasting and replenishment.
Equity window closed
Sprieser, who joined Transora from her position as CEO of Sara Lee's US$8bn Food and Foodservice Group, considers that, while the equity window has now closed, it will not be the organisation's policy to refuse anybody access to trading. The 53 member companies have each made an investment determined by their turnover. No one company will have more than a 5% share which will entitle them to a percentage of the profits. She said: "We would like to have everybody join the exchange, but this is not for financial reasons. We have enough money to build Transora."
Not all the initially interested parties became equity investors in the exchange - but more than 80 of the world's leading consumer products companies have signed expressions of interest to participate. Sprieser explained: "Some of these companies were not in a position to make an equity investment decision quickly enough. We could only hold the equity window open for a certain time. Some were smaller companies who knew there was enough funding for the exchange to go ahead. Although they didn't become equity investors they have said that they will trade on the exchange. Companies don't have to be investors to be able to trade with us."
...but could reopen
"facilitating industry-wide supply chain integration"
Sprieser did not rule out the possibility that the 'equity window' could be opened once again at a later date for more companies to become members. She added: "Members get a share of the returns, but that is not the issue here. Those who have become members have done so because they want Transora to be a success. They recognise it is the way forward for the industry."
That way forward has the potential to cut a vast amount of costs throughout the supply chain, incurred as a result of what Transora considers are "outmoded processes and the lack of industry-wide communication and co-operation". They cite as examples inflated procurement costs, excessive unwarranted administrative costs, large 'safety stock' inventory expenses, and expensive media purchases. The exchange's aim is to facilitate industry-wide supply chain integration and in the long term to provide innovative, problem-specific solutions to these inefficiencies.
Swathe of potential cost
Sprieser can reel off many impressive examples of cost savings. She said: "The consumer packaged goods industry spends trillions of dollars on safety stock just in case its predictions are wrong. Being able to reduce that investment in the supply chain alone will provide a lot of cash release."
She also has a stash of statistics at the ready, stating that the traditional way of ordering products involving price negotiation, the passing of paperwork back and forth, getting the supplies out and the money in, can typically add US$120-US$150 per transaction. "Move it on line," she says, "and those figures drop to an estimated US$15-US$20."
The system will also ensure that the right supplies are in the right place at the right time. In theory when a consumer buys Coke at Tesco in Manchester that transaction will automatically transcend the supply chain, not only informing the manufacturer, but also the sugar supplier and grower.
It will also help with new product development. Manufacturers will be able to tell in real time how its products are performing in trials and select the data it needs to draw comparisons, rather than depend on information supplied by the seller.
vital - but can it be achieved?
This is fine in theory. A utopia for the retailing, manufacturing and supply industries. But what are the realities? It is at this stage that some might come down from
"A utopia for the retailing, manufacturing and supply industries. But what are the realities?"
cyberspace with a bump. Marlow considers that one of the major issues to be faced will be that of system integration. He said: "Transora will quickly realise that the key to driving costs out of the procurement process and delivering the full value of e-procurement lies in the end-to-end integration of the process.
"A wholly integrated system for the transfer of information will be essential - and it will be needed fast. It will be no good if people within the supply chain have to look at a screen and re-key the information into their own systems. Apart from the sheer waste of time it will be costly and error prone. Integration is, along with critical mass, the key to achieving liquidity, and securing the long-term survival of the exchange."
Jeff Beech, partner and b2b expert at Andersen Consulting agrees. He says: "The integration of the participant's systems with the exchange will set the pace. There has been a lot of oversimplification - that companies will be able to access and interact with an exchange through a web browser. Technology has come quite a way in enabling different systems to integrate. But the challenge is that when you start multiplying the number of exchanges with the immense amount of systems between manufacturers, their suppliers and their customers, it becomes a daunting task. Many manufacturers, especially in Europe, will have 10-30 different business systems of their own, alone. If you multiple that across the exchange a massive number of integration points will have been created. People have thought about this but not many have dealt with it."
There is still a tremendous amount of work to be done according to Beech to build what he terms an Enterprise Application Integration layer to facilitate these compatibilities.
Good housekeeping the
order of the day
Marlow also considers that all those involved with online exchanges will need to have their housekeeping in order. For efficiency, he says, exchanges need a wide base of suppliers and an up-to-minute catalogue of product. It is no good having a catalogue listing your product, only for purchasers to find it is not available. It is essential that goods and services are in the place where they can be ordered from.
"They will need standards to decide how their systems will be expressed," he said. "It will not work if a supplier thinks it has to provide 10,000 widgets to one site in
"Transora will quickly realise that the key to driving costs out of the procurement process and delivering the full value of e-procurement lies in the end-to-end integration of the process."
Germany, when the purchaser requires 1,000 in the UK this month and 2,000 in France the next month. This information has to be encapsulated in the order requisite. For this, e-procurement systems must encompass the wider process of requisition - managing requests for proposals and requests for quotations - as well as just price settlement."
But the issues do not only come down to systems and technology. Beech raises concerns about the aspect of neutrality. In his view a good exchange will not be supplier or seller-based, but independent. He said: "It will be a marketplace where buyers and suppliers of all types can come together to conduct business. It will not be set up by a group of buyers to create leverage against sellers or their customers.
"If you are creating an online buying club you are not likely to have a sustainable economic model and you will not be one of the survivors. The challenge is to provide everyone with the incentive to participate, based on the value proposition and not one of solely leverage."
Can neutrality only be
ensured with outside help?
To achieve this neutrality he considers that it is important to create an independent entity that manages the exchange. In his view, it will involve setting up a new business with top executives that have the skills to run that type of business. "It is not," he says, "about big companies trying to manage a new business together, like an exchange. This is not a formula for success."
Without this neutrality he questions whether an exchange can run itself as a standalone business and provide the returns expected by the owners, while creating a value proposition that is attractive to all its constituents.
"Integration is, along with critical mass, the key to achieving liquidity, and securing the long-term survival of the exchange."
"There has been a lot of hype about these exchanges, but their success will come back to economic realities. It does not matter how large a market place starts out and who is involved. If it does not have neutrality it will have a difficult time surviving in the long term.
Just how acute this will be is reflected in some of Andersen Consulting's predictions. It points out that the existing number of exchanges worldwide of around 2,000, will rise to between 5,000 and 10,000 in the next one to two years. But Andersen Consulting believes consolidation will follow, taking the figures down to 500 or fewer in two and a half years from now.
Beech said: "We will see an exciting combination of marketplace joint forces, combining together to create a more powerful proposition across the value chain. This could involve alliance partnerships or mergers."
Head honcho Sprieser
keen to work with members of the supply chain
Sprieser is only too aware that integration is an issue. "We are not just building a marketplace and putting it out there. We are working with members of the supply chain to build something that will work in their best interests. We have enlisted the support of major systems integration companies to integrate customers with the exchange and are certifying them when they are capable of achieving this. This is a distinguishing part of Transora. We are focusing on tightness of integration to achieve the next level of applications and efficiency in all trading applications.
"an exciting combination of marketplace joint forces, combining together to create a more powerful proposition across the value chain"
"It is a complex business. We have several service offerings being developed simultaneously and we are getting great feedback. But we have to be able to deal with first things first."
Sprieser believes that it is the fact that Transora is run by the consumer packaged goods industry for its own industry which will make it work. She said: "We are different from the others who are owned by major technical application providers or venture capital companies. We know our business and its demands.
"No one will be able to approach our scale. We have over half the industry in our exchange. We will be a full service provider and will not exclude anyone. We have even got companies outside of our industry wishing to join us."
So do the industry pundits consider this a good move for the grocery business? Marlow says: "The long term value of Transora and other exchanges will be to significantly lower the cost base within the global retail supply chain, while actually boosting performance and service levels. The key driver of this sea change will not be price deflation through demand aggregation and e-procurement, but efficiency gains driven by data standardisation and process streamlining."
But he envisages more exchanges will be created which will affect the grocery trade. "I predict there will be one more big retailer and possibly another manufacturer exchange. They will have different propositions and each will be looking to interconnect. That ability to interconnect will be key for future success."
In the meantime Sprieser, while focusing on cyberspace, is not taking her eye off her manufacturing roots. She said: "It is going to be the companies which move fastest which will take advantage of e-commerce. They will be the winners."
By Sue Barnard (an independent business journalist and consultant specialising in the retailing and manufacturing industries worldwide. She is based in the UK. Email address: email@example.com)
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