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RETAILERS URGED TO BEWARE VENDOR-MANAGED INVENTORY

TAMPA, Fla. -- A top executive with Kash n' Karry Food Stores here advised retailers to be cautious about letting manufacturers order products for them as part of doing business using Efficient Consumer Response strategies.Joe Bullara, senior vice president of marketing, said this practice will eliminate forward buying and diverting, which are not the "systems inefficiencies" that ECR proponents claim."Forward

TAMPA, Fla. -- A top executive with Kash n' Karry Food Stores here advised retailers to be cautious about letting manufacturers order products for them as part of doing business using Efficient Consumer Response strategies.

Joe Bullara, senior vice president of marketing, said this practice will eliminate forward buying and diverting, which are not the "systems inefficiencies" that ECR proponents claim.

"Forward buying is a very efficient use of capital in a purchasing environment characterized by relatively deep deals," he said. "The suggestion that it's inefficient implies that the retailers who practice forward buying don't really understand their costs.

"In fact, the opposite is true. Because we understand the costs, we forward-buy. Forward-buy is far from inefficient and often allows retailers to pass along savings due to substantially reduced acquisition costs," he said.

Bullara spoke here last week

at MarkeTechnics, the Food Marketing Institute's annual convention on integrating technology with merchandising and operations. He made these comments during a speech that was otherwise supportive of ECR and the role of category management.

The efficient replenishment part of ECR calls for vendors to take over product ordering. However, vendor-managed inventory has developed into an issue, since some retailers are resisting this part of ECR, while embracing the other segments of the strategy.

Bullara questioned why vendors would want to take over the order-taking aspect of the category sales manager's job. He glossed over the conventional reason -- to clean up the distribution system -- and pointed out that it would eliminate forward buying and diverting, which manufacturers originated.

"They want to spend money on systems to make efficient replenishment work when we already have reorder systems in place," he said. "The problem is the system doesn't work with their inflated list costs and unrealistic deals."

Bullara said his company prefers to do its own ordering because they have the ordering systems, category sales managers and reorder buyers for that purpose.

"To my knowledge, the suppliers' ordering systems are no more sophisticated than our own," he said. "Plus, it's extremely difficult to fathom that a manufacturer would be able to design ordering programs for every single retailer with which it deals."

Bullara said it's important to cling to any edge in this competitive industry.

"But with razor-thin gross margins and diminishing resources to combat inefficiencies, how great a cost are we willing to incur for marginal gains in efficiency if the allocations of savings are not fair and equitable between the retailer and the manufacturer?

"In other words, don't take away the one dollar we can make by forward buying or diverting if it's only going to save us 75 cents when we eliminate it," he said.

Kash n' Karry operates nine conventional supermarkets, 102 multidepartment supermarkets, three superwarehouse stores and 36 liquor stores in West Central Florida.

At Kash n' Karry, the category sales managers are not traditional buyers, according to Bullara. They are "businesslike negotiators" who decide what items to carry, how to merchandise them, what retail price to offer and how to advertise. They also design planograms, oversee shelf management and direct the activities of reorder buyers who carry out the actual ordering process.

"After all is said and done, our category sales managers analyze the results of their efforts so they will be able to do even better tomorrow," said Bullara. "Most importantly, the focus of our category sales managers is to maximize dollar contribution within their categories."

He said nothing beats "win-win negotiations" between category sales managers and vendors. This can result in cooperative efforts that breed operational efficiencies, and more sales and profits for both.

"Together we can accomplish cost-containing goals right away," he said. "Kash n' Karry has already struck six-month to one-year agreements with many of our vendors. To date, all of these agreements have been 100% successful in increasing penny profits for both parties."

Bullara said the way his company accomplishes category management will continue to evolve with the help of ECR.

"I'll be embracing ECR with both caution and great interest," he said