SAN DIEGO — Sears, Roebuck & Co. will spend $5 billion to $7 billion to procure supplies via the Internet, making arguably the highest purchases for a U.S. retailer on a retail business-to-business exchange.
The Chicago retailer will ramp up purchases made via GlobalNetXchange just as the BTB site next month starts allowing supply-chain process transactions beyond auctions and spot purchases.
“We eventually intend to get 75 percent of our spend through the exchange,” said Jerry Miller, senior vice president and chief information officer at Sears, the third-largest retailer in the country.
Participants in the exchange at www.globalnetxchange.com are expected to transact $10 billion to $12 billion by year-end. The exchange will allow member retailers and more than 50,000 trading partners to communicate, transact and manage their supply chains.
Sears will take the lead among members, buying from suppliers participating in the exchange. Hard and soft goods are the focus. Since the exchange launched in February, Sears has purchased items such as plastic wrap, toner for printers, personal computers, printers and VCR tapes.
Recently Sears bought $37 million worth of trucks through GlobalNetXchange, Miller said yesterday at the National Retail Federation's NRF.com conference in San Diego.
“It will take us to the next level where we can be real-time online with our suppliers and we can exchange real-time information pertaining to the movement of product through our stores, and the forecasting and planning of future purchases for our supply chain,” he said.
Other retailer participants of the exchange include France's Carrefour SA and Pinault-Printemps-Redoute SA, Germany's Metro AG, Britain's J. Sainsbury PLC, Australia's Coles Myers and the Kroger Co. Along with Sears, these retailers account for an estimated $250 billion in revenue.
The exchange is an improvement over the current method of buying supplies, Miller said.
“Today's electronic data interface is a batch-oriented transaction,” he said. “So it's not real time and it's also very difficult to use. It has fixed formats and it's very unforgiving. … Web-based transactions are much more flexible and easier and less expensive to use.”
Herb Kleinberger, partner and global retail consulting leader at PricewaterhouseCoopers, said Sears is participating actively in the exchange because it sees added value whose benefits percolate to the consumer level.
“It's not imperative for retailers to do this because Sears is doing this,” Kleinberger said. “It's because money's to be made and there's value to be added. So Sears is actually being a pioneer in some respects by supporting the development of technology and innovation of concepts, but they're not alone in that.”
GlobalNetXchange's biggest competitor in the retail BTB area is the WorldWide Retail Exchange, which launched this summer.
At last count, the WWRE had 32 retailers worldwide with combined sales of $537 billion. U.S. members include Safeway Inc., Target Corp., Walgreen Co., CVS/pharmacy, Best Buy Co., Albertson's, JCPenney Co. and Gap Inc.
But the key to success is gaining the confidence of suppliers or vendors who feel threatened by the squeeze these exchanges will put on their margins. And getting suppliers to buy into the concept is not the only challenge.
“[It's] dealing with regulatory concerns, adequately addressing privacy and security issues, and getting the technology to work,” PricewaterhouseCoopers' Kleinberger said. “We're developing new stuff, and there's no guarantee that it's going to do what we want it to do.”
Forrester Research said in a July report that more than 1,000 new BTB exchanges have sprung up in the past year. While these exchanges are meant to streamline the supply-chain process, trim costs and increase efficiencies for the participants, it also has attracted the attention of the Federal Trade Commission for potential monopoly situations.
Sears, however, does not view the BTB exchange as a monopolistic tool. For the retailer, GlobalNetXchange is about quicker and more efficient purchases that ultimately will increase inventory turnarounds.
“If we can increase our inventory turns across our company, we will take out over $1 billion of on-hand inventory,” Miller said. “It means that our inventory will be turning faster, and we'll have less inventory in stores and storage.”