Keeping e-faith High expectation has led to disillusion with B2B net collaborations. But three giants have signalled go. Belinda Gannaway reports They are not easy to get a handle on, at up to £200m they don't come cheap, and most worryingly for their chief executives, their partners are beginning to question their value. One year on from inception and the industry's B2B net exchanges are having to prove their mettle and, frustrated by the timeframes of the GlobalNetXchange, WorldWide Retail Exchange, Transora and the rest, founding members are developing parallel internal exchanges. So hats off to Sainsbury, Unilever and Kimberly-Clark, Europe. Just when the global grocery industry wanted to see some action from its offspring, the three got busy. By putting their collaborative planning, forecasting and replenishment onto the GlobalNetXchange, they are the first companies to adopt this level of exchange functionality and, by doing so, pointedly signifying their faith in the electronic marketplace. Covering health, beauty, baby care and household products, GNX's CPFR pilot standardises and shares Sainsbury's real time sales projections with key suppliers downstream, while Unilever and Kimberly-Clark Europe provide supply-side information back upstream. It's about creating an e-enabled collaborative environment where stakeholders actively participate in the entire supply chain. Where efficient consumer response opened up the idea of collaboration, the e-market takes it a step further, making it more rigorous, automatic and efficient. Sainsbury's e-commerce director Patrick McHugh explains: "The aim is to reduce inventory without stocking out of products. This is very important stuff. We're talking about inventory reductions and per cent savings in the supply chain, and in this business a per cent or so has a huge impact." But is this really such pioneering work? Not according to Accenture partner Jeff Beech who points out that Wal-Mart's private exchange ­ one managed by and for a single company ­ ran a similar project with Sara Lee as far back as 1998. For Laura Pilz, vice president, marketing, of GNX, the point is that unlike private exchanges, GNX facilitates many-to-many interaction. The pilot will be rolled-out later in the year to GNX's equity partners and then to the group of 11 subscription paying early adopters. But however revolutionary collaborative planning on GNX proves to be, the exchanges' promises are still failing to materialise as quickly as some would like and retailers are jealously eying Wal-Mart's Retail Link as an example of what can be achieved. Retail Link claims to have more than 70% of the supply chain functionality that other trading exchanges hope to have next year and is fully integrated into Wal-Mart's systems and processes. Updated eight times a day, Retail Link allows suppliers to download purchase orders, check the status of their invoices, determine how many products were sold at each store the previous day and upload reports and updates. Take such a textbook example and couple it with last year's overload of expectation, and the impatience among the industry consortia's ranks is not surprising. At the end of 1999 supermarket chiefs were wondering how to stop shareholders defecting to sexy and lucrative new economy stocks. What they wanted was a big idea, and a slice of new economy action seemed just the thing. The birth of the industry consortia exchanges was more an instinctive move than a piece of well crafted business planning. Speed was key and announcements from the competing camps were rushed out in a matter of weeks. And so the on-line grocery exchanges were born in a flurry of global collaboration and high-octane briefings. As one insider remarks: "These companies needed impactful statements for their investors ­ the exchanges were very powerful to that effect." Now those same executives are facing the consequences of their exuberance. The IGD's director of research Jon Woolven says: "These industry exchanges were a major deal and a lot of excitement was created, but people forgot how long it takes to deliver on the initial promise and create the sort of global systems we're talking about." WWRE ceo Colin Dyer says: "The development of any new software system never happens quickly. The concept was easily arrived at, but the practicalities of putting it together were always going to take a year." He denies that WWRE is lagging behind GNX ­ the first out of the blocks ­ because of its unwieldy structure of 53 founding members to GNX's eight. Meanwhile, the private exchanges have been quietly getting on with it. Some 90% of B2B e-commerce is on mature private exchanges. And there are the public exchanges too, happily delivering substantial efficiency gains regionally and across sub-sections of the industry ­ Freightmatrix the logistics marketplace for example ­ with minimal noise. So is the frustration among the members of the industry consortia understandable? According to PriceWaterhouseCooper's retail and consumer products leader Bill Gilmour, equity partners and early joiners are right to push for evidence of progress as they prepare to integrate exchanges' full functionality into their business processes. But the work required to build global new economy companies from scratch was never going to happen overnight. Lee Gill is the retail industry director of i2, the WorldWide Retail Exchange software provider. He says it is necessary to stagger the release of WWRE's various solutions to prevent "technological indigestion". Each stage represents a sizeable "product" in its own right, he points out, and would take a single retailer several weeks or months to integrate into existing in-house systems. He adds: "This is a brand new approach to the supply chain. The priority for WWRE right now is defining the functionality of each of its seven solutions in order to obtain value from the investment. The scope, definition and, importantly, the timetable for implementation is what's taking the time." Likewise, agreement on common standards has proved elusive although progress towards that industry holy grail has been speeded up by the exchanges' arrival. Bar-coding, product descriptions, and categorisation have long been a problem. Retailers and suppliers believe they can halve the staff dealing with order management by eliminating error dogged paperwork. Then there's the sizeable task of integrating the new exchanges into the business process of member companies. GNX's Pilz says even original partners who were fully committed from the start face a nine to 12 month ramp up period' for training and adoption. A totally new skill set is required. Buyers, for instance, suddenly become stock market brokers and a new culture of information sharing changes the nature of the game. Pilz acknowledges not everyone is happy with the time taken developing GNX's capabilities. "If there is frustration, it's because companies can see so much benefit in what we're doing that they want it all now," she says. i2's Lee Gill agrees. "WorldWide Retail Exchange has woken people up to the next generation of supply chain solutions. There is some very clever stuff and some of the members are talking to us about getting that sooner. WWRE will be used to pilot and demonstrate the benefit of these services. Companies will then decide if they want to wait or go outside of the exchange and fast track." So what, if anything, have the industry consortia exchanges achieved to date? Crucially, member companies are now some way towards part-ownership of leading edge trading platforms at a vastly lower investment than if they'd done it alone ­ i2 puts the cost of achieving just some of the functionality of WWRE within a single business at £20m plus. And then there's the long-term prospect of an equity stake in a public company following the exchanges' anticipated flotation. WWRE's Dyer also says involvement from day one will make a huge contribution to their own e-business strategies. "It's the difference between being involved in and influencing the building of a telephone exchange and joining at a later date. All that learning can now be fed back into companies themselves." In more immediate financial terms, GNX alone has facilitated $500m of reverse auctions where a retailer publishes an electronic request for a particular product or category. This, however, only represents 300 actual trades. GNX partners are committed to sourcing up to 70% of their goods via the exchange ­ it is currently about 1%. Independent exchange efoodmanager, with 1,000 registered customers, has trading of one million euros a month. The benefit of exchange procurement is both in reduced transaction costs, from hundreds of pounds to pence in some cases, and broadening the supplier base. Alongside fellow equity partners Sears and Carrefour, Sainsbury ­ believed to have invested about £12m in GNX ­ has already covered its investment. Tesco too has covered its commitment and all of WWRE's members "have had the opportunity to do so", according to CEO Dyer. That's quite an achievement and will not all be accounted for by high profile, but relatively inconsequential cheese auctions. Procurement of goods not for resale is more prevalent at this stage with procurement and unit costs considerably cheaper via the exchange. But auctions are the easy wins -- described by one insider as "over-hyped and largely irrelevant"­ not the stuff of collaborative substance the exchanges need. Supply chain collaboration is the big win and manufacturers' exchange Transora has shifted attention to collaborative gains, including transportation and logistics. There are numerous collaborative trading pilots going on across all the exchanges and it is vital that their scope and number continue to increase rapidly as partners seek hands-on proof that the large exchanges will work for them. The challenge over the next few months is to give more members the opportunity to experience the benefits of collaboration on a sustained basis. That's when the exchanges will really start to attract new members. Accenture's Beech says: "The industry consortia need to work hard to provide sceptics with a clear and compelling value proposition at the operating level, not just the vision level, service by service. "This execution capability in the exchange is the absolute pivot point that will ultimately determine the success or failure of the industry consortia." The next pilots will allow advanced forms of planning of own-label new product development. The exchanges will cut down development time, reduce errors and minimise waste. Synchronisation rather than straightforward hosting of catalogues will come next. But it will be at least two years before the exchanges reach today's vision of the optimum level of functionality. To reap the benefits, participating companies will have to integrate exchange functionality into their business. Drivers of the exchanges have employed specialist teams to leverage internal resources, people and the commercial side of the business. GNX's Pilz says members are signing up now because they want to share in the intellectual learning generated by early users. And winning new members will be vital in the coming months. But new members won't just sign up to one exchange. As the barriers to entry come down ­ founding partners are anxious not to price members out of the market ­ suppliers and second tier retailers will shop around for the right exchange or exchanges for them. The will to do it rather than the price will be the issue, but exchanges that aren't competitively priced won't work. For the exchanges, transactional fees alone are not a sustainable economic model. Competition between exchanges and complications involving revenue sharing alliances will see these fees quickly head towards zero and simpler subscription and flat rate service fees take over. Other revenue streams, including advertising and data mining, will contribute to a variety of mixed revenue models among the different exchanges. While smaller retailers may be reluctant to sign up with their arch-rivals in the industry consortia and instead opt for independent public exchanges, too much consolidation within countries may also raise eyebrows among competition watchdogs ­ suppliers will participate in a number, and many larger manufacturers will have their own private exchanges on top. So companies will shop around for the right exchange services at the right price, but while there is no common approach among potential members, they will demand a common set of standards from the exchanges and a common way of dealing with one another and other exchanges. Transora and GNX are working on a Megahub to allow the seamless transition and translation of data between exchanges. The Megahub will act like a wholesaler, selling services to the exchanges, and companies will go to their exchanges to buy. The WorldWide Retail Exchange has had discussions with the Megahub, and all the exchanges are talking to one another to ensure compatibility. In the coming year there will be consolidation in the number of public and industry exchanges as some merge and others fail to get the revenue models right or attract enough members. But there will be a place for all the exchange models as long as they add value to the supply chain. As the IGD's Woolven says: "There will be some disappointment around now and the exchanges will have to manage expectations carefully. "But they will add tremendous value to the supply chain. The original idea is spot on and there is a lot of scope to make things more responsive. The vision is right and all the major players have faith in the vision, but it won't be a smooth and easy ride." Accenture's Beech adds: "It's easy to understand the market frustration but the exchanges have to go through all these steps. It's not business as usual or a simple task to complete, this is uncharted territory. Truly creating a sustainable economic model is a moving target." Exchanges - the promise - Improved efficiency and communication across the entire supply chain - End-to end supply chain visibility - Lower supply chain costs and lower inventory levels - Access to new markets and sources globally and locally - Reduced EDI and third party costs, especially for small/medium sized suppliers - Enhanced business intelligence and management information - Shared investment in technology - Increased speed to market for new products - Collaboration on standards for e-commerce {{COVER FEATURE }}