Three days after a group of major auto makers announced the creation of a massive virtual marketplace to buy and sell auto parts, two of the world’s largest retailers, Sears, Roebuck & Co. and Carrefour, are creating their own online exchange to buy up to $80 billion a year in retail products for their stores.
GlobalNetXchange, which will be majority owned by Sears and Carrefour, will become the main conduit for the two companies to buy everything from towels to baby powder for their shelves.
Sears, the No. 2 retailer in the United States, and Carrefour, which is Europe and Latin America’s biggest retailer, expect to create a more streamlined buying system that would save money and speed product delivery, which could reduce prices for consumers.
The announcement of GlobalNetXchange on Monday is the latest sign of the sweeping migration of business-to-business commerce from the world of paper and globe-hopping salesmen to the new world of Internet commerce.
“With this new online marketplace, we will be able to exchange information with our suppliers in a much more efficient way,” Carrefour Chief Executive Daniel Bernard said in conference call. “There is no limitation to the product lines that can be traded on our exchange--food, apparel, hard goods, services, as well as our own supplies and assets,” he said.
On Friday, General Motors, Ford and DaimlerChrysler said they would join forces to create a new online company to eventually handle all of the three companies’ $250 billion in purchases each year--essentially moving online a large portion of auto parts suppliers.
Bruce Temkin, e-commerce research director for Forrester Research in Cambridge, Mass., said the Sears/Carrefour venture was not as significant as the auto deal because of the fragmented $5-trillion global retail market.
“They don’t control nearly as much of their markets as General Motors, Ford and DaimlerChrysler,” Temkin said. “They represent a tiny fraction of the retail world and so they don’t have the power to force a change in the markets.”
Sears, based in Hoffman Estates, Ill., and Paris-based Carrefour, have invited competing retailers to join the online marketplace. But Temkin said it was uncertain whether dominant players, like Wal-Mart, the world’s largest retailer, would join the venture.
“Wal-Mart distinguishes itself by how well it manages its supply chain,” Temkin said. “You’d be hard pressed to see Wal-Mart rushing to level the playing field for its competitors.”
While the Sears/Carrefour venture paled in comparison to the auto makers’ deal, it still marked a decisive move by businesses to take advantage of Internet communications.
Online marketplaces for business-to-business commerce have been sprouting with surprising speed over just the past few months.
Forrester Research estimates that business-to-business sales will hit $2.7 trillion by 2004, far outstripping the $39 billion in sales to consumers that year.
Buying and selling can be a complicated dance between dozens of suppliers that hinges on an often laborious back-and-forth process of negotiating by phone and fax. The online marketplaces use the Internet to create an electronic meeting place where all sides can gather regardless of their real locations. Transactions are fast and reliable since every move can be documented and stored in a computer database.
“This is a revolution in retail,” said Sears Chairman and CEO Arthur C. Martinez in a prepared statement. “It will forever redefine supply-chain processes, increase collaboration with suppliers and reduce supply-chain costs.”
GlobalNetXchange, which will make money by charging fees or commission on every transaction, will allow network members to buy, sell, trade and auction goods and services over the Internet. Members will be able to conduct what are known as “reverse auctions,” in which buyers list their needs and invite sellers to bid for the contract.
For buyers as large as Sears, with 850 department stores and annual revenue of $41 billion, and Carrefour, with over 8,000 stores worldwide and $80 billion in revenue, the savings are not necessarily in lower product prices but in savings from a more streamlined buying process.
One key benefit of moving procurement online will be to help members reduce expensive inventories by allowing them to make only what they sell instead of holding onto warehouses full of products.
Temkin gave the example of a consumer buying a book online versus physically going to several bookstores in search of a title. “Just multiply that out and you start to see what type of efficiencies there are in these types of exchanges,” he said. “Businesses can save time and process steps, and that’s where the savings are. Consumers will eventually extract some of the savings.”
The key to creating these virtual marketplaces is the database technology developed by companies such as Redwood Shores-based Oracle Corp., which has a minority stake in both the auto makers’ and the Sears/Carrefour ventures.
The databases are made up of massive collections of information--prices, bids, vendor names, product codes and countless other pieces that can be organized and retrieved by others.
Mary-Lou Smulder, Oracle’s vice president of product industries, said that in the past, only the largest buyers and sellers could afford to set up computer networks and database systems for product procurement.
But she said the Internet has changed that by providing an easy way for any company--even those with a just personal computers--to hook up to the network and start doing business.
“It’s automating the entire supply chain,” Oracle CEO Lawrence J. Ellison said Monday. “It will lower their inventory levels, lower their own manufacturing costs and allow them to offer lower costs in turn to Sears and Carrefour.”