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Materials Purchasing: Grocer buys into online shopping

Grocery retailer H.E. Butt Co. procures packaging materials through the INC2inc Internet marketplace. Now it’s persuading its vendors to climb aboard.

Espino: No more paperwork.
Espino: No more paperwork.

On a Web site called www.inc2inc.com, Linda Espino orders resin used for blow-molding containers, labels for milk jugs, folding cartons for sour cream and ice cream, and other packaging materials. The manager of manufacturing procurement for H.E. Butt Grocery Co. says Internet procurement has delivered several benefits to her employer since it began ordering online this spring.

HEB is a San Antonio, TX-based company with 260 retail grocery stores located mainly in Texas. With 1998 sales of $7 billion in the U.S. and Mexico, the company touts itself as the 12th largest food retailer in the U.S. At its own facilities HEB produces dairy, bakery, meat and snack foods for sale in its own stores.

INC2inc is a business-to-business online food marketplace established in March to serve food and beverage manufacturers, conducting real-time transactions between them and packaging suppliers, brokers and raw- ingredients suppliers.

Espino is responsible for procuring packaging materials and food ingredients. The task requires meeting the procurement needs of the HEB stores, as well as 10 manufacturing facilities and three distribution centers. Until March, procurement was a manual task.

Streamlining procurement

“The traditional ordering method involved taking a piece of paper that would list all the items we would buy from a particular vendor, and checking off how many of each item we would need in a column on the right side of a paper form,” Espino explains. “We might need six of the 60 items on that list, so we would check them off and fax the order sheet to the supplier.”

Problem was, the paper could reside at the supplier’s fax machine for several hours. “People work at their computers nowadays,” she says. “They don’t check the fax machine that often. Also, we require the vendors to fax us a response to let us know they received our fax, so back and forth we go. Then they have to key that order into their system.” In the hours that it often takes to complete those steps, she says, “we can miss a shipment and not receive something we might have needed shipped to us today.”

The procurement process is much quicker now, she says. “By ordering over the Internet, the supplier receives an e-mail and can respond immediately. The company can deliver the order to us in the time frame we’ve requested.”

She says the Internet ordering process allows HEB to source packaging materials “in about half the time” as the traditional method. It also cuts down on paperwork.

With traditional offline ordering, “we have mountains of paperwork. Instead of matching our order receipts against the vendor’s purchase order and the trucker’s invoice, we can manage that process easier on the Internet,” she says. “I don’t have to dig through 100 papers on my desk to find paperwork. It’s a much neater and faster process. Traditionally I’ve given [vendors] more lead time than I do ordering on the Internet. [The time savings is] about a day or two, and that’s important.”

Online procurement “allows us to more quickly reach a 100-percent fill rate on orders to our customers, which are our distribution centers and stores,” Espino explains. “When a store orders something, we can cut down on potentially shorting products. That keeps them happy, as it does our plant people.”

How it works

To create an order, Espino, or another HEB purchasing representative, logs onto the INC2inc Web site using a unique user name and password.

The site is organized by vendor, so the HEB agent simply selects a vendor’s “catalog,” chooses product(s) and quantities as needed, reviews the purchase order and submits it.

No special software is necessary for ordering. INC2inc founder Chris Renner describes the process: “When HEB places an order for 100ꯠ bread bags, [the site] notifies the supplier via an e-mail. We create a stream of information summarizing the order to both the buyer and seller.” At the other end, suppliers “accept” an order via the Internet. The site notifies HEB that the order was accepted, providing confirmation of the transaction.

Renner explains, “Typically pricing is done on a contract basis,” and is negotiated by the two parties offline. “But we will be doing [negotiating prices online] in the near future.”

Vendors pick up tab

For packagers like HEB, there is no cost to use the INC2inc service. INC2inc charges suppliers on a monthly fee based on the volume of transactions. Renner says the fee usually averages out to 1% of sales.

Not surprisingly, that arrangement pleases HEB. Espino points out, “Change isn’t always easy, and change with a large capital outlay up-front is worse. Not having to buy software or pay an up-front fee were the most wonderful things about this system.”

INC2inc personnel train buyers and sellers how to use the site.

Espino reports that she now orders about 30% of HEB’s packaging materials online through the INC2inc site, which at press time included about 15 packaging vendors. Among them, she says, are Polytainers, Seal-Rite, Superior Label and Independent Packaging.

“We’ve worked with INC2inc for about a year-and-a-half preparing for Internet ordering,” says Espino, “and began actively ordering in March.”

Signing up vendors

Since February, Espino has discussed online procurement via INC2inc with 100 vendors, both packaging and food ingredient companies. “They’ll all be online within six weeks,” she predicted in June. Her goal is to incorporate 300 or more ingredients and packaging material suppliers onto the system.

While she admits, “a lot of vendors on the industrial or wholesale side are behind technologically for permitting Internet ordering, the system can benefit vendors tremendously. And for us it’s a wonderful answer to many of the complexities of procurement and paperwork issues.”

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