SCOTTSDALE, Ariz. -- Electronic data interchange is a lot more than just a buzzword at Kroger Co.
It is credited with saving the chain millions of dollars in operating expenses, according to Dan Andrew, manager of corporate financial and EDI systems at Kroger, Cincinnati.
Since implementing EDI aggressively, Kroger has virtually eliminated all manual processing of business documents, resulting in a paperless company-to-company communications environment.
The impact of EDI, though, goes well beyond that. It also has enabled the chain to launch several key programs under the Efficient Consumer Response umbrella.
"We are now doing purchase orders, price changes, promotions and various other transaction sets. We are also doing invoicing, electronic funds transfer, continuous replenishment and advance shipping notices. We even have a receipt-settlement system coupled with EDI that is providing us with some benefits," he said.
Andrew described the extensive role EDI is playing at Kroger at an information systems and logistics-distribution conference here sponsored by the Grocery Manufacturers of America.
Specifically, he outlined key areas in which Kroger is saving money and increasing operational efficiency using EDI. Among the chief benefits he cited:
"First, EDI is reducing costs, and I am not just talking about miscellaneous mailing costs, such as postage, paper and printing. There are considerable manual, administrative and clerical
expenses that can be eliminated. In the 1990s, we are doing more for less and more with less. EDI is a part of that," Andrew said.
EDI is also boosting lead time. "We are sending purchase orders quicker, and response time [from manufacturers] is more efficient. The result has been reduced out-of-stocks and increased sales. We also have been able to reduce our inventory by the number of days we reduced the lead time," he said.
Promotions can be implemented much more swiftly and accurately. "At Kroger, we can now process five electronic promotions in the time it used to take to process one manually, and we can do it more effectively."
EDI has also helped greatly reduce administrative expenses. "Just as we are now able to process five promotions in the same time it took to process one manually before, I would suggest there are similar administrative savings to be gained on purchase orders, invoicing, item maintenance, price changes, electronic funds transfer and other areas," Andrew said.
"If you reduce the time spent on clerical or administrative tasks, you can then eliminate some staffing positions totally or use employees in a more productive fashion for value-added activities," he added.
To take complete advantage of the benefits of EDI, though, requires a lot more than just implementing a basic EDI hardware and software infrastructure, Andrew stressed.
The full benefits of EDI will probably not be reached without a full-fledged move toward an open, or integrated, systems environment. Further, installing an EDI system is also a prime opportunity to consider business process re-engineering.
"EDI is like dynamite without a wick. That wick, I would suggest, is business process re-engineering. One of the keys for integrated EDI, coupled with business process re-engineering, is systems integration. That's absolutely critical.
"EDI alone, just by itself, has some benefit. But if you want to provide a quantum leap benefit, you have to integrate EDI with your existing systems. If you couple that with business process re-engineering, you can truly provide some quantum leap benefits," he said.
Andrew cited three examples of how Kroger has taken EDI and matched it with business process re-engineering and systems integration to provide significant benefits to the chain.
One example involved direct-store delivery. Under the old system, DSD tickets and statements were manually sorted and matched, sent to the accounting department to be manually entered and then sent again to accounts payable for the same process. The chain only then issued a hard-copy check for the vendor.
"It was very labor intensive, with an excessive amount of clerical and administrative time solely devoted to this non-value-added activity," Andrew said.
Kroger now has eliminated that manual process entirely. "It is now a completely paperless process. We have also eliminated all staffing relating to that function. That is an example where we took EDI as a tool, as a weapon, and hooked it up with systems integration and business process re-engineering to provide us with millions of dollars of savings every year," he said.
A second example was a warehousing project called closed-loop. It involved eliminating the printing of receipts, purchase orders and invoices that were already being sent electronically but were still being recorded and entered in Kroger's system manually.
"We tried to do this about three years ago, but failed. We couldn't do it without senior management support. But we put the systems together, provided the automation needed to accomplish this and we have eliminated millions of dollars in clerical and administrative expense. That has had a significant impact on senior management," he said.
The last program involved electronic funds transfer and stopping the practice of sending hard-copy checks.
"This was the last piece in closing the entire loop and making it a completely paperless environment, from purchase orders, invoices, receipts and price changes to promotions, item maintenance and electronic funds transfer. It now involves the entire cycle."