ATLANTA -- Scan-based trading is working in pilots at Schnuck Markets and Wal-Mart Stores, and these retailers plan to expand the test to more categories and vendors.
Despite greater than expected challenges, particularly in the area of synchronizing data with manufacturers, scan-based trading is resulting in improved customer service, better in-stock positions and assortments, higher sales and operational savings, all contributing to greater profits.
So said Craig Schnuck, chairman and chief executive officer of Schnuck Markets, St. Louis, and Nick White, until recently executive vice president of Wal-Mart Stores, Bentonville, Ark. Both spoke at the Efficient Consumer Response conference here last month.
"The pilot experience for us has been very positive," Schnuck said. "Synchronization and scan-based trading take more effort than we had projected, and everyone should be aware of that getting into it, but we are convinced that it is well worth that effort," he said.
"We believe though that the effort required will be genuinely justified by the results and opportunity potential that is there. We are very positive about scan-based trading and we are going to continue the scan-based trading program beyond the pilot phase and expand it to other DSD [direct-store delivery] vendors once the pilot is over," he said.
"Our early results were not outstanding. They were just OK," said White. "Quite honestly, we struggled in the beginning to get this thing going. But we became much more comfortable, we are now much further along and we have a much larger test going on today."
Scan-based trading represents a radical shift in the way retailers and suppliers do business, said Doug Adams, vice president of Prime Consulting Group, Bannockburn, Ill. It currently eliminates back-door check-in of direct-store delivery products, and the inventory remains the property of the manufacturer until it is scanned at the point of sale, when ownership passes quickly through the retailer to the consumer.
About 12 retailers are now using scan-based trading daily, two manufacturers have scan-based trading operations in more than 1,500 stores each, and more than a dozen others are in pilots or regular operations with one or two retailers, Adams said. "There is a lot of experimentation, a lot more than is publicly known," he said.
The pilots, under the auspices of the DSD committee of the Grocery Manufacturers of America, Washington, were due to conclude at the end of March, with a final report to be issued at the GMA's annual meetings in White Sulphur Springs, W.Va., in June. The Schnuck pilot began in September, along with a similar test at Andronico's Market, Albany, Calif.
"In general, the experiences of those doing scan-based trading have been a sustainable 5% to 12% sales increase and about a one to two margin-point improvement," he said. A pilot conducted at H.E. Butt Grocery Co., San Antonio, in 1997 yielded a two-point return-on-assets improvement, he added.
Wal-Mart's pilots have been run separately from the GMA by the giant retailer, mostly in its supercenters and regular Wal-Mart stores, White said. "Sales growth is clearly what is driving our activity. The bottom line has been double-digit sales growth in our scan-based trading categories, and we are talking same-store sales, not our overall sales," he said.
Because of the challenge of getting operations and loss-prevention people to buy into scan-based trading, there are variations in Wal-Mart's tests. "We have different stores doing different things as a part of this test to see what is the best way to do it, what happens to shrinkage, sales and other financial measurements with the different types of store practices," White said.
One supplier that has been participating in all the pilots has been bread-maker Earthgrains Co., St. Louis. The Wal-Mart pilots have been expanded to include checkstand merchandise such as trading cards, and more recently patterns for the fabrics section. Suppliers in the Schnuck pilot are Earthgrains, Frito-Lay, Dreyer's and Tony's Pizza, and at Andronico's, Earthgrains, Dreyer's and Berkeley Farms, noted Adams. Others are participating with the retailers only in learning to synchronize price, item and promotion data.
"The synchronization activity needs to happen first," Adams said. "It's what sets the stage for the rest of scan-based trading to be effective and cost-efficient. Whether or not you are ever going to scan-based trading, synchronization has a value in and of itself. Think of that as the first destination on the road map," he said.
"Synchronization is really not an option," White said. "It has to happen prior to getting the pilot going, and then develop your systems interface." Regardless of whether a third party is involved in the data synchronization, Wal-Mart requires the attention of the suppliers themselves. "Third-party assistance is not a problem, but we want you to deal directly with us," he said.
Schnuck confirmed the importance of synchronization to the process. "It's an absolute prerequisite for success.
"Our goal was the seamless integration once the data was accepted and we wanted no rekeying. We wanted to take all the paperwork and all the manual labor and chances for error out of the system." Schnuck noted that his company is using viaLink, Dallas, to establish connections with its supply partners.
When Schnuck first approached the synchronization project, "we thought we were in better shape than most anyone in the industry, and we might have been, but it took us a lot of time and effort to get our files in synch with our suppliers. But we can tell you that even though it is a substantial effort, it is definitely worth the effort," he said.
High-quality scan data is another component in making scan-based trading successful. "Commerce is depending upon it," Adams said. "It is very important that it be accurate enough that suppliers can trust that they will be paid off the quantity of units that were scanned in and accounted for as being purchased in the store," he said.
Schnuck went so far as to disable the multiplier key at its checkouts to prevent cashiers taking shortcuts with similarly priced items. "We believe very strongly that it is the retailer's responsibility to provide quality scan data as part of this program," Schnuck said.
All three executives on the conference program emphasized the importance of getting senior management behind the scan-based trading initiative.
"Senior-management involvement is clearly a driver behind the whole thing," White said. "Scan-based trading forms a relationship with the suppliers, the buying teams and the operations teams, and frequently that really just doesn't happen in today's method of doing business."
Top management is needed to support the business process changes, Schnuck said. "It is not just a short-term process. It takes a very long-term commitment to accomplish the things that you need to do to get a successful scan-based trading program going," he said.
"The key is to focus on the end result, and that is to increase sales and also decrease costs at the same time by better aligning the whole supply of product more closely to the point in time when the actual consumer demand occurs. It is all about the consumer and that is what Efficient Consumer Response is supposed to be all about," Schnuck said.
But maximizing the benefits of scan-based trading will not happen until Schnuck gets a critical mass of vendors participating in the program, he said. "Right now we've picked up some incremental pieces of time in receiving savings, but the biggest opportunities for us are if we could go to scan-based trading with all of our vendors, and have the ability to eliminate an entire 40-hour-plus person in every one of our stores. That will represent a substantial savings to us," Schnuck said.
