This piece was written to accompany the feature: "strike Up the Brand" in the June 2001 issue of CRM magazine.
The CPG/retail industry spends in excess of $200 billion every year on ingredients, goods, services and packaging. Procurement auctions could provide significant value to this industry in terms of lowering material costs and streamlining business processes between trading partners. As such, they are expected to play a major role in the Transora CPG e-marketplace.
Late in 2000, Transora released positive results from two pilot procurement auctions. The pilots were held to test the infrastructure of the marketplace and to prove the theory that not only do auctions bring value, but also that Transora could support multiple auction platforms. As an e-marketplace, it plans to offer not just one such application, but also a best-of-breed selection of several auction structures ranging from basic self-service platforms to integrated full-service options where Transora itself or third-parties might contact potential suppliers and conduct the auctions. "We can connect different auction platforms to allow participants to pick the auction platform they are the most comfortable with," says Gary Byram, chief marketing officer of Transora. "So for whatever reason, if they like eBreviate, FreeMarkets or Ariba, they can work across any one of those."
In the first test, more than 25 suppliers from North America and Europe participated in a honey-selling auction for companies including H.J. Heinz, Procter & Gamble and Sara Lee. The auction was conducted by FreeMarkets, a Pittsburgh, Pa., company that offers a global sourcing database of some 7,000 active suppliers. In this case, suppliers were culled by FreeMarkets based on the participant requirements to bid on contracts to deliver millions of pounds of honey in their respective regions. In the auction, suppliers competed in real time for the aggregated purchase orders of these large CPG companies, submitting and lowering bid prices until the auction closed.
The pilot yielded average savings of nearly one million dollars on the buy, a total value of just over four million dollars for the auction. It proved a win for both sides of the trading relationship. Suppliers were able to participate in efficient online procurement processes and Transora was able to help its members access and established wider supplier pools.
In a second trial, an auction was conducted for printed materials. This time, twenty-seven suppliers participated in an auction conducted by eBreviate, an EDS company in Walnut Creek, Calif. Using multicurrency tools to bid in their own currency, suppliers from seven European countries placed more than 450 bids. All told, spending was $2.3 million and produced expected savings of some 22 to 25 percent for the CPG companies.
While these pilots proved the value of Transora's planned integration of auction services, they also give Transora a chance to test capabilities of the different auction systems prior to launch, and to determine whether they could indeed handle the volume required. "As with all of our service offerings, we go through and aggressively kick at the players that are out there today--what the technology looks like, what the platforms look like," says Byram.
While the company describes the execution of the auctions as "flawless," they are doing more integration work to streamline the process for members, as Byram indicates. "We're doing a lot of joint development work with each one of those partners to extend their platforms considerably to be able to meet what we think the participants' requirements are going to be."