Online Supply Chains Creating Buzz, Concerns

CHICAGO (04/22/2000) - A new type of business-to-business trading exchange is arising that not only allows a buyer to place a purchase order with a supplier, but also keeps an electronic trail of the items ordered through the entire shipping, logistics and billing processes.

Online supply chains were a hot topic at this week's Retail Systems 2000 conference in Chicago, where thousands of retailers from around the world convened to share stories and wander among the vendor booths.

Among the dozen or so online supply chains that have recently sprung up are NonStopRX.com for the pharmaceutical industry and Retail.com for apparel manufacturers and buyers. But the most ambitious may be UCCnet, set to go live this July with a half-dozen food industry giants, including Proctor & Gamble Co., Supervalu Inc., Ralston-Purina Co. and PepsiCo.

The Internet-based exchange is designed to allow the sharing of synchronized, real-time updates on prices and shipment information by swapping data according to XML structures set by the Uniform Code Council (UCC). The UCCnet technical standards, backers say, are intended for open use by all supply-chain exchanges so they can be linked. Although started by the food industry, UCCnet is expected to spawn exchanges to serve other vertical industries.

"These other exchanges popping up do not in any way compete with UCCnet," says Scott Williams, senior manager for global e-business development at Proctor & Gamble. "The key is to have these industries linked somehow through a common set of standards."

The virtual catalog hosted by UCCnet will push and pull data directly from corporate back-end enterprise resource planning and database systems in order to synchronize supply-chain information and flag errors before problems multiply on the production and shipping end.

"If you don't have the right trading partner data, nothing works," says Williams, who noted that about 30% of the information P&G maintains on its retailers is wrong on any given day. This is particularly true when electronic data interchange is not in use between P&G and its trading partners. EDI is the most widely used commerce technology today, although small companies tend to find it expensive and hard to use.

When there are errors, a lot of time and money is spent trying to rectify the mistakes. UCCnet is meant to automate this supply-chain process by industry through format-neutral XML, which can be mapped to EDI or other data formats.

As a creation of the UCC, a standards organization in Princeton, New Jersey, UCCnet brings the steady voice of an experienced business community to the business-to-business marketplace mania. Investment money is fueling hundreds of Web-based trading exchanges, many of which don't have many users.

In addition to UCCnet's first six corporate sponsors, 30 other UCC members from the food industry intend to use the exchange by year-end.

UCCnet is being built by the Bethesda, Maryland, firm AppNet Systems with General Electric Information Services, ViaLink, Sun Microsystems Inc. and Hewlett-Packard Co., among others. The first services will track purchase order history through product shipping, receiving, billing and payment. Sometime in the future, UCCnet will take on the tougher task of online collaborative planning, forecasting and replenishment, called CPFR for short.

Subscription access to Internet-based UCCnet will start at $1,500 per year for small companies to hundreds of thousands for industry giants. UCCnet will not charge a percentage of each sales transaction, as many exchanges plan to do.

Supervalu, which has a $20.3 billion business in food distribution as well as being an $8 billion grocery retailer, will use XML-based UCCnet to extend its electronic trading community beyond what's feasible with its installed EDI systems.

"EDI isn't dead, but it isn't going to take us far down the road," says Greg Zwanziger, Supervalu's director of e-commerce. However, his company experienced 300% growth in use of EDI in the past year and projects the same level of growth this year. "We've seen success with EDI, but we're embracing XML," he says.

XML is much easier to understand, which should benefit smaller companies that shy away from EDI, Zwanziger says. Importantly, XML schemas - which describe XML data content - support Internet-based real-time interactions far better than batch-oriented EDI. Many vendors, including Supervalu's EDI software provider Harbinger Corp., have developed products that translate EDI into XML to support coexistence between the old and the new.

No other online supply chain has yet embraced UCCnet's exact model, but some analysts say UCC's contribution to online business-to-business commerce will be important.

"There's a fair amount of confusion in the market right now," says Janet Suleski, industry analyst for retail advisory services at the Boston consultancy AMR Research. She pointed out that the need for standards is going to become clearer as the number of exchanges proliferates. UCC's track record makes it a good candidate to lead the charge, she says.

Nonetheless, not all corporations are welcoming business-to-business supply-chain-style exchanges.

According to Chief Information Officer Kevin Turner, Wal-Mart is in favor of operating an exchange for itself, but is reluctant to join one that includes competitors.

"We would have to ask our competition every time we wanted to make a change," Turner said during his keynote address at Retail Systems 2000. "It's not something we care to do." In addition, Wal-Mart worries that competitors might somehow seize important business information if it were stored or transacted through a shared business-to-business exchange.

Today, Wal-Mart manages a large number of its buyer and supply relationships through an EDI-based extranet called RetailLink.

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