SCARBOROUGH, Maine - Hannaford Bros. here is planning to roll out a computer-assisted ordering system for warehouse-delivered Center Store products as well as direct-store-delivery products over the next 18 months to its 150 stores.
Those plans, as well as the results of pilots for the system, were described last month at the Grocery Manufacturers Association's Information Systems/Logistics Distribution Conference in Tucson, Ariz.
CAO, which allows stores to shift from a manual store ordering process to a largely automated one, has been available to the grocery industry for many years but rarely used because of its exacting requirements. To calculate store orders, it employs frequent forecasts of demand for each item based on store-specific sales history (two years' worth in Hannaford's case), as well as a running tally of store inventory known as perpetual inventory.
Hannaford also factors in planograms, promotions, events, weather conditions and "anything that can affect the forecast," said Mike Foster, Hannaford's retail project manager, who spoke at the conference.
CAO is an application that, like price optimization, is driven by consumer demand. Retailers as a whole are becoming "more and more demand-driven," said Rob Garf, research director, retail practice, AMR Research, Boston. With CAO, "we're selling 100% demand, not 100% supply," Foster said. The CAO system was developed with Infosys, Bangalore, India, and incorporates forecasting software from SAF, Tagerwilen, Switzerland.
Hannaford is taking the process one step further with its plans to apply CAO to DSD products, taking over responsibility for ordering from manufacturer store reps. "All DSD vendors will get orders from us and that will be a win-win for everyone," said Bill Homa, Hannaford's CIO, who also spoke at the conference. "I suspect this will become a trend in the industry."
By taking most of the ordering function out of the hands of store associates and manufacturers' reps, CAO "leaves just stocking [responsibilities], which reduces out-of-stocks," Foster said. It also ensures consistency in order quality, which can suffer as experienced order associates and reps leave their positions.
Hannaford initially tested CAO six years ago with Lepage Bakeries, Auburn, Maine, for DSD orders of private-label and branded breads. This process is now in production.
More recently, the chain has been piloting the process for two years at two stores for all warehouse-delivered Center Store products in grocery, HBC, dairy and frozens; this now includes 40,000 items in 156 categories. On the DSD side, Hannaford has piloted CAO with Coca-Cola, Atlanta, at two stores since last year.
Foster noted that though CAO automates ordering, it also generates exceptions that allow store personnel to modify the order, using an RF scanner. "Store people just manage a handful of exceptions instead of scanning the majority of the items in the store," he said. Currently less than 10% of orders are modified, though store management has the ability to override any order for 18 hours after it is made.
Store associates did not protest giving up their ordering function "as long as we could prove [CAO] works," Foster said. "It takes time."
The system functions similarly for DSD ordering, though the manufacturer rep reviews all orders and handles exceptions using a Hannaford RF handheld. Orders are based on delivery schedules as well as forecasted sales. Once reviewed and accepted, orders are transmitted.
Foster reported that in the CAO pilot for Center Store products, out-of-stocks were reduced by 50%, slow-movers were pared, and product variety increased in the same shelf space. Potential benefits include optimized distribution center delivery schedules, smaller store footprints and smaller shelving.
The DSD pilot with Coca-Cola produced benefits similar to those of the Center Store pilot, Foster said. In addition, store service levels were improved and order cycle time reduced. Potential benefits include improved production plans for fresh food vendors, reduced transportation costs and improved turns.