Exchanging Value

When grocers Wegmans Food Markets Inc. and Supervalu Inc. participated with their suppliers in a pilot project earlier this year to share synchronized data over the Internet on meat and poultry products, there was more at stake than tasty burgers and tender chicken. One package of chicken wings may look similar to another, but chances are its size is slightly different, causing its package weight and price to differ from other packages as well. The pilot, using product information maintained in data pools hosted by industry trading exchanges Agentrics Inc. and 1SYNC, a unit of GS1-U.S., proved that the Internet could serve as a base for sharing data on such product categories, which have been notoriously difficult for retailers to process with accurate and up-to-date information from suppliers.

The project’s results showed that the early promises of the Internet—serving as a medium for retailers and manufacturers to collaborate in ways that would make them more efficient and productive than ever before—is reaching milestones that until now have been elusive largely due to the difficulty in working with multiple versions of product information.

A significant step
“This is a significant step for retailers,” says Richard Vander Horst, manager of business solutions and implementation services for Wegmans. “Synchronization allows trading partners to match product information in their back-end information systems.”

That synchronization of product data means that buyers at Wegmans, Supervalu and other grocers can order products from Tyson Foods and other participating suppliers without the problems that have long plagued retailers—inconsistent and inaccurate product data that have led to inaccurate purchase orders and invoices, the delivery of the wrong products and missed opportunities to display the right products at the right time. The consumer products industry can save billions of dollars a year by avoiding such problems, according to a widely cited study by consultants A.T. Kearney Inc.

The mpXML project is still in its early stages. Having proved the concept of sharing consistent product data on meat and poultry (the “mp” of the name) products via Internet-transacted XML, or Extended Markup Language, the industry still needs to establish common standards for such transmissions and elicit broader participation among retailers and manufacturers.

But the mpXML project also has broader implications, experts say. Like other developments in Internet-based communications and commerce among retailers and manufacturers, it has helped to prove the value to both retailers and manufacturers of participating in Internet-based exchange services, leading to broader support of web-based collaboration among retail industry trading partners, says Christopher Sellers, CEO of Agentrics.

More benefits
“We’re seeing more benefits every day on a case-by-case basis in data synchronization and other forms of collaboration,” Sellers says.

The level of activity in Internet-based products and services that Agentrics is offering—including its three primary areas of supplier sourcing, product lifecycle management and supply chain collaboration—he adds, has made the organization profitable since it was formed in November 2005 through the merger of the GlobalNetXchange, or GNX, and the WorldWide Retail Exchange, or WWRE, two organizations that had struggled financially as they tried to build a critical mass of participants.

Bill Swanton, an analyst who follows b2b e-commerce at AMR Research Inc., says Agentrics has found profits because it has focused more on services that bring value to retailers and manufacturers. “It’s profitable because it has finally gotten core competencies up and running,” he says.

1SYNC, formed earlier this year as the merger of Transora, an Internet trading exchange centered on helping consumer products goods manufacturers synchronize their product data with retailers, and UCCnet, a data standards organization, is also hitting a more positive course, it says. 1SYNC has gained users this year to expand its total to more than 4,000 manufacturers and about 50 retailers.

Confirming the case
By increasing its data synchronization services among more companies, 1SYNC is helping to prepare retailers and manufacturers to participate in the Global Data Synchronization Network, which supports the ability of trading partners to share product data over the Internet.

“As major manufacturers continue to join this effort, it confirms the business case that data synchronization provides value to retailers and manufacturers alike,” says Bob Noe, CEO of 1SYNC. “By working together to achieve end-to-end supply chain accuracy, the industry will be able to reduce costs and delays.”

The turn of the trading exchanges toward stronger market positions follows a fundamental change in their goals, Swanton says. The original charges of the retail industry exchanges were to realize early promises of the Internet to serve as a grand meeting place for buyers and sellers, and reap revenue and profit in transaction fees that, theoretically, retailers and manufacturers would gladly pay for the chance to trade online. “The original idea was that, in setting up an exchange, the operators would get rich taking fees for transactions—like an early eBay,” Swanton says.

But that model never really worked, as the exchanges were unable to build the expected critical mass of participants. A big reason for the unmet expectations: A lack of perceived value on the part of many trading partners, and the lack of industry standards for synchronizing and sharing product data.

Greater value
But following reorganizations and mergers in the past several months, Agentrics and 1SYNC can more effectively meet their goals of fostering commerce, their top executives say.

Agentrics, by combining the memberships and resources of the former GNX and WWRE, has created more of a critical mass to push progress within particular retail categories, Sellers says. In the grocery industry, for example, Agentrics’s clients now include The Kroger Co., which had been a member of GNX, and former WWRE members Safeway Inc. and Albertson’s Inc. “Bringing those three together gives us critical mass in the grocery business,” Sellers says.

IRCE 2008 Conference Multi-Media CD-ROM

Agentrics has also formed critical masses in other retail categories, including pharmacies with both CVS Corp. and Walgreen Co. “In most areas, we have the top three or four retailers working on our platform,” Sellers says. Agentrics now directly serves about 50 retail companies, including 17 of the largest 25 worldwide. Adding in the manufacturers it serves, Agentrics has about 250 paying customers but works with more than 80,000 companies, many of them manufacturers it helps to connect with retailers, Sellers says.

Agent of change
Agentrics, moreover, has modified its strategy to serve as an “agent of change” in the retail industry, rather than simply a provider of technology, Sellers says. Now, in addition to providing Internet technology systems that help retailers and suppliers to communicate and trade, Agentrics is taking a more active role, for example, in helping retailers find more suppliers in a particular product category or geographic area, Sellers says.

Agentrics also is helping companies improve their internal product data management through its web-based product lifecyle management software and services, Sellers says. In turn, having better management of internal data will support efforts to then share that data with trading partners, he adds.

“This is one of our areas of fastest growth potential,” says Cedric Guyot, vice president of strategy and marketing. Driving demand for Agentrics’s web-based PLM application is growth in retailers’ private label programs, which require retailers to maintain complex records of product details along with information on the multiple vendors that may be involved in any one product, he adds.

Using PLM enables both retailers and manufacturers to benefit from using single versions of product data within their own systems, bringing more consistency and value to the way they process data internally among merchandising, marketing, logistics, accounting and other operations.

Guyot cites one UK grocer, whom he declines to name, that each year launches thousands of fresh-chilled products. “These products can have highly complex recipe labeling, and the retailer may decide to promote recipes with low carbohydrates and low fat,” he says. With PLM, the retailer can look across all of its fresh-chilled products, identify the ones with low carbohydrates and low fat, and see the vendors who provide those products, he adds.

More challenges
In spite of the progress made by the retail industry trading exchanges, significant challenges remain.

Some retailers and manufacturers are still holding off getting involved in data synchronization because the quality of product data is so low among many companies that data synch projects appear too costly, Swanton says. “Retailers are waiting for the pioneers among them to force more manufacturers to clean up their data,” he says.

Moreover, companies are also waiting for more useful data synchronization standards. “So far, the exchanges are still not hitting everything that retailers and manufacturers want to communicate about,” Swanton says. “For example, there are still no standards for sharing information on pricing and promotions.”

But as retailers and manufacturers continue to work on product data quality both internally and externally with their trading partners, they’ll be better prepared to take advantage of new standards when they arrive, Sellers says. Agentrics and 1SYNC both participate in multiple data standards pilot projects each year. However, the much-awaited pilot on pricing and promotional data is set for the first quarter of next year.

Retailers and manufacturers have multiple options for contributing product data to the exchanges. While large organizations often use automated XML-based transmissions, others with small amounts of data might send a spreadsheet or other document through web-based forms, e-mail or an FTP file transfer. Once data are synchronized, notices of any discrepancies are sent to the owners of the data through automated e-mail or software alerts.

Agentrics charges an annual fee that can range from several hundred to hundreds of thousands of dollars, depending on the number of products and trading partners a company works with. 1SYNC bases its fees on a client’s annual sales. Companies with sales of up to $1 million pay $100 a year for a self-implemented connection with 1SYNC or $600 if they want an assisted implementation. Companies with annual sales between $100 million and $500 million pay under similar terms annual fees of $10,000 or $13,875.

Pricing nitty-gritty
Agentrics is moving ahead with projects designed to assist collaboration in demand forecasting and pricing/promotional data outside of established data standards. For example, it has worked with VeriSign Inc., the provider of online data authentication and security tools, to offer the web-based Demand Signal Management application which lets retailers and suppliers collaborate on store-level POS data to better manage demand and production.

The coming data standard on pricing will provide a common means for manufacturers to post pricing information to their web-based product catalogs for view by retailers. But that only supports the starting point of pricing, Sellers says. “No retailer-supplier relationship is based solely on the catalog price,” he says.

But working in Agentrics’ web-based Online Negotiations application, retailers and manufacturers work out the actual pricing under their contracts, then synchronize the pricing along with other product data. “We’re trying to meet the needs of price collaboration,” Sellers says.