GNX SPECIALTY EXCHANGE ALLIANCE

SAN FRANCISCO -- As the Internet business-to-business train gathers steam, GlobalNetXchange here has become the first of the two big retailer consortiums to outsource certain buying functions to a smaller, specialized exchange.GNX's alliance with TradingProduce.com, Livermore, Calif., is said by industry watchers to be the first of many more such partnerships as GNX and its competitor, the WorldWide

SAN FRANCISCO -- As the Internet business-to-business train gathers steam, GlobalNetXchange here has become the first of the two big retailer consortiums to outsource certain buying functions to a smaller, specialized exchange.

GNX's alliance with TradingProduce.com, Livermore, Calif., is said by industry watchers to be the first of many more such partnerships as GNX and its competitor, the WorldWide Retail Exchange, trade off direct control for speed to market. The same day as the TradingProduce announcement, the Kroger Co., Cincinnati -- which has an equity stake in GNX -- said it would be the first to take advantage of the new relationship.

"The alliance between GlobalNetXchange and TradingProduce.com should help reduce costs for both Kroger and our perishables suppliers by improving the supply-chain process and automating certain functions that currently are handled manually," said Derrick Penick, group vice president of perishables merchandising and procurement at Kroger. Among other prominent members of GNX are Sears, Carrefour, Metro and Sainsbury.

Kroger expects the information system platform provided by GNX and TradingProduce to allow it and its suppliers to operate more efficiently. For instance, the retailer eventually will be able to monitor the progress and expected delivery time of a perishables shipment on the way to one of its warehouses. The system also will allow Kroger to identify potential discrepancies between purchase orders and invoices in "real time." "We ultimately expect to be able to eliminate 90% of the discrepancies between invoices and receipts that we experience today," said Horace Hamilton, Kroger's vice president of produce merchandising and procurement.

This follows by a few weeks the news that Safeway, Pleasanton, Calif., a prominent member of the WWRE, had signed an agreement with TradingProduce competitor Agribuys, Torrance, Calif. Observers expect WWRE to soon announce its own alliances with specialized exchanges like these and it would surprise few if Agribuys were among them.

"We have a process in place within the WWRE to evaluate alliances from all sources with the WWRE," said Pat Steele, executive vice president, information systems and technology, Albertson's, and WWRE's head of technology and operations. "As solutions are presented that make sense, then alliances will be reviewed and recommended. The key issue is integration, with the main product sets being developed for the members of WWRE."

Other members of WWRE include Albertson's, Ahold, Supervalu, Delhaize, CVS/pharmacy, Target, Kmart, JCPenney, Walgreen, CVS, Rite Aid, Best Buy and Gap. International members include Safeway PLC, Auchan, Tesco, Casino, and Marks and Spencer.

Meanwhile, Wal-Mart Stores, Bentonville, Ark., reportedly tested a similar on-line exchange this month that will integrate with the retailer's SupplierLink supply chain infrastructure. "It's a major issue for us to find suppliers to handle our volume worldwide," Kevin Turner, chief information officer, was quoted as saying. "This will allow us to go broader and deeper and include more suppliers."

The addition of more specialty exchanges to the big vertical retailer exchanges will probably come soon. "There's no question that there are more to come," said Thomas D. Murphy, president, Peak Tech Consulting, Colorado Springs, Colo., and a former Kroger executive. "A lot of people have known that the big exchanges have been negotiating with the specialty exchanges for a number of months now, and nobody should be surprised by that. On the other hand, this will probably set off a little bit of a feeding frenzy," he said.

Transora, the exchange formed by the packaged goods manufacturers, is doing the same thing, he added. "I believe Transora also is going to have to source some of these pure-plays in order to make headway very quickly. It's smart. It would be stupid to build this stuff from the ground up," he said.

"It makes logical sense for them to get to mass as quickly as possible so that the benefits of these exchanges get to the members as quickly as possible," said Ken Fobes, chairman, Strategy Partners Group, Point Vedra Beach, Fla. Both GNX and WWRE are looking at the specialty exchanges as a way to speed their growth, he said.

"There are certain core competencies that they have to deal with, like setting the standards and setting the way deals are published. But when you start getting into the specifics of whether you are ordering fish or replenishing the cleaning supplies in the store, in a lot of cases, this can best be handled by these niche players who specialize in these areas," Fobes said.

Murphy expects the industry cooperative WWRE to select different partners than the for-profit GNX. "The two of them haven't done anything similarly since they were formed, including their technology partners and of course their membership. My guess is, each will continue to source these types of services from the people they feel can best deliver and I would expect to see very little overlap," he said.

In a recent interview with SN, Dhruba Kalita, executive vice president, co-founder and chief technology officer of Agribuys.com, would not say directly that his company is working with WWRE, but he said he expects announcements about partnerships to come within a few months after initial testing is concluded.

"The WWRE and GNX are competing with each other and time is of the essence. They can build the food-specific solutions that will take nine months or whatever, or they can find one of these companies that have built the technologies from the ground up for food and adopt, and bring them into the exchange," Kalita said.

"It's no longer, 'I am me and you are you,' but now it's 'how can we work together?' The more you collaborate, the more have cost savings," he said.

At TradingProduce.com, Rob Bonavito, chief executive officer, was cautious about saying anything about his company's relationship with GNX or Kroger. The alliance of specialty exchanges with the retailer consortiums "could be a trend. Our expertise is in perishable products. That's where we have focused our development efforts in the last two years, and it just played in well with GNX's strategy," he said.

It's hard to say at this point just how far the big exchanges will take the partnership concept, Fobes said. "It depends on whether they take the attitude they want to control it all, and build it all themselves, or whether they want to get the benefit of the B2B buying power and collaborative planning and planning power. If they want to get the benefits out there as quickly as possible, then they need to partner. But if they want to reserve it all for themselves, then there customers are going to pay the price in terms of lengthier time to the benefit," he said.