Transora.gif” vspace=5>Kate Ellerton looks at the new business platform for the likes of Heinz, Campbell Soups, Danone, Heineken International, and Cadbury Schweppes, and also the viability – and likelihood – of much smaller participants.
Transora, the new electronic private market, linking 49 of the greatest consumer products manufacturers – many of them in the food business – is expected to make life tough for traditional small suppliers and retailers for some years to come.
From this week, companies such as Bestfoods, Campbell Soups Co, Danone Foods Inc, Heineken International, the Hersche Food Corporation and Cadbury Schweppes will be able to conduct business electronically, using a common platform with shared standards.
Transora is designed for business to business transactions, it will eventually cover the supply chain from suppliers to manufacturers to retailers. It will host systems for procurement, vendor and product catalogues, online order management, and financial services.
The roll-call of companies participating is impressive. Coca Cola, Nestle, Unilever, Nabisco, Heinz, M&M’s, Kraft Foods, Sara Lee Corporation, General Mills Inc and Pepsicola are just a few of the blue chip food manufacturers who have lent their resources and cash to launch the system.
The consortium’s board members claim that all Transora companies win in this system. Suppliers access a vast customer base, and don’t have to spend money finding buyers; manufacturers provide a better customer service with wholesalers and retailers; and the wholesalers and retailers themselves get a simple, fast, accurate ordering system.
But not everyone in the industry will take part. Transora management is still formulating the rule book regarding which companies – retail and manufacturing – may join. Indeed managers are reluctant to discuss details.
Anthony Simon, a member of Transora’s Corporate Strategy Council – the main international executive body for the corporation – and corporate vice president of strategy and core businesses for Best Foods, said: “Of course there will be companies who don’t get the importance of e-commerce as fast as others, and there will be a hell of a scramble for anyone who recognises what’s going on to get involved.”
“We’ve already seen rivalry in our own industry, where one European consortium is doing its own thing. But we’re in a free economy, and it’s a dog eat dog world. That’s what makes this thing as vibrant as it is. We are looking at a highly dynamic market place and we have to face that everyone is not going to succeed.”
But smaller companies will be welcome to participate, he insists. “The shareholders are all product manufacturers. For people who transact on the exchange we can’t yet give precise rules, but we expect all suppliers of any relevance, all the relevant wholesaler and retailers to use it.”
Elizabeth Bramsom, western Europe regional manager for Pyramid, a division of The Economist Intelligence Unit, told just-food.com that the initiative is a typical example of how new economy is simply a new version of the old game of cutting costs.
She said: “An enourmous number of manufacturers and wholesalers have recognised that in order to reduce costs they need to go to the Internet, which enables them to interact without the friction of the old economy.
“They can very quickly make transactions and procurement on line: this is what the Internet enables and what the new economy is. E-business dramatically reduces costs and quickly turns round inventory (stock): and that’s great news for companies, which want to maintain healthy cash flow.”
MS Bramsom thinks that is the small family owned businesses who will lose out in the battle to compete with consumer giants.
She said: “Smaller organisations, little family owned companies are going to find it tough competing with giant corporations in this kind of situation. They won’t have the advantages because they don’t have the market power – that’s the case now but it’s probably going to exacerbate the situation.”
This contrasts with her forecast for the 49 Transora consortium members and other businesses who employ e-commerce in this way, whose business outlook will probably be rosy, she said.
“Although the scale is noteworthy, it is not a great surprise that these consumer goods companies have launched the consortium,” said Ms Bramsom. “This is an inevitable trend and I believe low costs and easier transactions are good for the economy overall.
“E-business can dramatically reduce costs and quickly turn round inventories. We have seen business to business arrangement work in the car industry – between GM Ford and Daimler Chrysler. Those are perfect examples of very expensive inventories that needs to be quickly exchanged.”
She added that the economies of scale and investment required to participate in such an electronic market will exacerbate the problems faced by “smaller family style” food supplier firms in competing with their larger rivals.
Nonetheless, E-commerce is not a closed-shop. “There are opportunities for those kinds of businesses as well,” she said.
As for the retail sector, Transora – being a business-to-business venture does not represent a direct short-term threat. Indeed, Bramsom also insisted that the long term picture for retailers is still reasonable, with direct sales to customers over the Internet remaining a niche market for some time to come. “I think talking about the demise of the retailer is exaggerated,” she said.
“I believe people will continue to go shopping although I think retailers are going to have a tough time initially competing on price, but they are eventually going to start to compete on service. It’s going to be less about buying at the cheapest price and more about getting a particular shopping experience.”
A lot will depend on how successful the system is and how inclined its members are to make full use of it. With such enormous companies involved and so many transactions to be processed, question marks remain over whether the consumer products industry can pull off such a revolution in their trading practices.
Peter Comley, managing director of specialist web site research agency Virtual Surveys Ltd, said: “We’re looking at a 1.3 trillion dollar industry – how much of that will go through the system, and how quickly the system will support contacts, it’s hard to say. There’s a lot of potential in these industry hubs but it takes a lot to get it right.
“Whose to say what will happen with this one. But it seems a good idea and it has the advantage of being the first to move.”
Despite these doubts, it is clear that most industry analysts consider Transora-style E-business arrangements to be the shape of things to come.
Anthony Simon voiced a common view that E-commerce will not so much affect this century’s economy: it will be its economy.
He said: “You will not be able to perform, compete and survive in our industry if you are not participating in an electronic market place. It’s that simple.”
As for the spin offs in terms of streamlining the whole supply chain, he said: “This will be a key example of the deflationary effect of e-commerce. This comes from a reduction in the amount of inventory which will sit in the supply chain.
“We will succeed where ECR (Efficient Consumer Response) failed. There was a lot of noise made about that in the industry but we had great problems creating an efficient, transparent supply chain. Now, electronically, we can make the linkages tighter.
“So we benefit the customer because they have fewer costs and there is less upward price pressure. The manufacturers will be procuring, doing deals and managing campaigns and promotions on a much more transparent basis, so we’re not wasting as much money as we were in inventory, customer promotions, efficiency and effectiveness.
“Retailers and consumers will benefit from this significant increase in efficiency, in the turnover of products, in the speed of decisions. It’s not a licence to print money, but it may become a game we all have to play.”
The manufacturers seem to think so. Individual partners have invested between US$500,000 and $15 million although no partner was allowed to take more than a five per cent stake to prevent anyone using financial muscle for influence.
Heinz was one of the first companies to sign up for the development of the industry-wide E-market. The company expects to be able to streamline it’s entire supply chain through participation in Transora using the consortium’s facailities for flow management, order fulfilment and logistics.
Its Chief Executive Officer and President, William R Johnson, said: “The Internet is transforming the way we do business, and Transora enables Heinz and other participants to leverage the power of new technology to offer our customers improved service, greater efficiency and reduced cost.
“It is a perfect example of the so-called ‘old economy’ using the new economy to generate greater value for customers, consumers and shareholders.”
One of the biggest surprises about Transora has been the speed in which the initiative was developed – a sign maybe of the increasing pace of business in an E-commerce dominated world.
It was not until March that the future Transora partners got together and signed an expression of interest. Now, in mid June, the project has been launched, the first board meeting held, with almost US$240 million being committed by the 49 participants.
Clearly the idea caught the imagination of some of the world’s leading business minds, who leapt at the chance of launching a global dot.com group, funded and owned by its members and key partners. Although, having launched the scheme with almost indecent haste, its development is being taken step by step.
The timetable is this: the body of manufacturers is in place. Talks are currently going ahead with key retailers. And for those Transora is not in dialogue with, retailers can keep their eyes on the headlines and contact the consortium.
Transora says that it anticipates producing a procurement and product catalogue by the end of the year.
Some future facilities will include auctions, private negotiations and requests for a quote and the manufacturers say they could save millions in processing costs by moving under Transora’s umbrella.
The consortium’s services will also provide strategic services including collaborative planning, forecasting and replenishment between manufacturers and retailers during the year 2001.
Cadbury Schweppes head of group public relations, Dora McCabe, said: “The first tranche of activity will not be until the last quarter and that will be in the area of procurement.
“It’s been put together in such a very short time scale. We became involved because we are very interested in the whole area of e-commence and its benefits for us as a global company. There is a clear advantage to global standards being set, and achieving a good base of suppliers linked into those standards will be a benefit.”
Transora claims its customers will benefit from a faster, better quality of service and cut costs. Procter and Gamble Company CIO and Transora board member, Stephen David, said: “Transora will dramatically change the way this industry conducts business.”
“Conducting transactions electronically on a common platform with shared standards will provide tremendous value to the supply chain. Simply put, it will increase the overall quality of service we deliver to our customers.”
And the Coca Cola Company executive vice president, James Chestnut, added: “A key benefit of our services will be in improving the speed and liquidity of transactions for participating companies. Transora will offer a single connection to a broad array of services and exchanges on the internet, providing ease of connectivity and associated cost efficiencies.”
Sarah Lee Corporation’s executive vice president Judy Sprieser was chairwoman of the early steering committee which led the early phase of the Transora formation.
She said: “It has been truly remarkable to witness an industry come together so rapidly to create a vision for transforming our current business practices.
“We are well financed and strategically positioned to shape our own destiny in a way other business to business exchanges cannot. With this venture, old economy companies are becoming new economy leaders.”
Mr Simon insists Transora cannot fail. As proof, he told just-food.com, that Rudi Markham has recently joined the consortium’s board from Unilever MV, where he has been an experienced strategy and techology director. “We will not allow Transora to fail,” he repeated. Time will tell whether his bullishness is justified.