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Consumer firms team for business e-commerce

Product companies such as Proctor & Gamble, Kraft Foods and H.J. Heinz will team up to create an online marketplace to cut purchasing and inventory costs.

A number of major consumer products manufacturers today said they are joining forces to create an online marketplace in an effort to drive down purchasing and inventory costs.

More than 50 consumer products companies, including Proctor & Gamble, Kraft Foods, H.J. Heinz, Nestle USA, Bestfoods, PepsiCo and Colgate-Palmolive, plan to participate in the new open marketplace that will connect the companies to their suppliers and partners via the Internet.

Industry trade group Grocery Manufacturers of America (GMA) and Big Five management consulting firm PricewaterhouseCoopers are also participants in the new initiative, the companies said in a statement. The latter will provide the consulting support for the initiative, including strategy, design and consulting services.

Initially, the marketplace will allow multiple buyers and sellers in the industry to conduct catalog purchasing, bidding and pricing, and auctions for raw materials, packaging supplies, and other goods and services.

"It's a realization that to be truly effective, an e-marketplace needs to have broad industry participation," said Gretchen Briscoe, a spokeswoman for Proctor & Gamble. "The ultimate goal here is to drive further value to our customers and dramatically reduce the cycle time of our supply chains."

The move comes on the heels of a similar play made by the Big Three in the automotive industry. Last month, General Motors, Ford and DaimlerChrysler teamed on an industrywide online marketplace. GM and Ford said they agreed to merge their separate online trading exchanges--GM's TradeXchange and Ford's AutoXchange--to link some 30,000 suppliers with a view to cutting costs by eliminating the paperwork and time needed for thousands of transactions.

Such business-to-business exchanges or online marketplaces typically match buyers with sellers in a specific industry or for individual companies. Companies participating in online exchanges hope to decrease the cost of doing business drastically through volume buying, thereby increasing profits and making new, more economically sound ventures possible.

A number of leading research firms have projected that the market for business-to-business e-commerce will be worth between $2.7 trillion and $7.3 trillion by 2004--a big driver for several technology providers, manufacturers and professional services firms that have all recently made a big push into the market.

Participants of the new consumer products manufacturing exchange said they hope to eventually realize more cost-cutting efforts in their $460 billion industry by offering other supply-chain processes via the Internet, such as collaborative planning and demand management, which automates warehousing and inventory processes, as well as order fulfillment and customer service.

GMA, which has been working closely with the industry to set business standards, said that the industry currently spends in excess of $200 billion on goods and services to support its operations. The trade group has appointed representatives from itself, Kraft Foods, Bestfoods, Proctor & Gamble, Nestle USA and Unilever North America for an executive committee in charge of reaching an agreement on the specific terms of the new marketplace. These include choosing a name, determining ownership of the joint venture, choosing technology providers to build and run the marketplace, and setting up a revenues model.

The companies said they hope to reach an agreement within the next six weeks.