WHITE SULPHUR SPRINGS, W.Va. -- For the first time in recent memory, a slight price deflation in the mix of goods sold by Supervalu, Minneapolis, was registered in May, according to Jeff Noddle, Supervalu chairman, president and chief executive officer. The issue of price deflation is looming large now throughout the food-distribution industry. Noddle's observation about declining prices was made in response to a question posed after his presentation to a workshop session at this month's Grocery Manufacturers of America executive conference here.
In reply to a manufacturer's question -- the burden of which went to reasons for perceived declines in dollar and tonnage volume of product shipments throughout the industry -- Noddle said, "We're seeing a very important shift toward trading down in the total consumer arena. Last month, for the first time, we showed actual deflation on our mix of goods -- on everything we sell -- including perishables and general merchandise [and other goods]."
Noddle didn't specify May's rate of price deflation at Supervalu, although it's apparently miniscule and likely the fulfillment of a trend that's been under way for many months. Historically, he said, packaged goods register inflation at the annual rate in the range of 1% to 1.25%, which dropped to 0.5% last year. General merchandise, which typically chalks up an inflation rate of 2%, slumped to no inflation at all. He didn't identify the inflation characteristics of perishables.
Noddle also said there is another important reason why manufacturers have noticed declining shipments, that being more efficient turn rates.
"In order to become more efficient, we know we've got to turn our inventories faster," Noddle said in reply to the question. "Last year, we took two days' supply out of our inventories. That was worth somewhere over $100 million in inventories on the ground to us. Last year was one of our best years, but in each of the past four years we've taken a day out, at least. We'll continue to do that.
"It used to be that half of our inventory was made up of forward or investment buying. Those days are long gone."
Noddle said that as the industry moves to greater use of just-in-time distribution, it's reasonable to suppose that the declines in shipments seen by manufacturers will flatten out.
During his presentation, Noddle also spoke of a different sort of efficiency, one that leverages from a method to reduce picking errors at Supervalu's distribution centers. Noddle said Supervalu has experienced a surprising 85% reduction in picking errors -- coupled with an increase in productivity -- in a two-location test of the system that gives voice direction to warehouse pickers. Plans now call for rolling out the system to all Supervalu depots in a year's time.
The voice-directed system, a product of Vocollect, Pittsburgh, increases picking accuracy because it lessens warehouse workers' dependence on written instructions, and it also bridges language barriers.
"We're installing Vocollect, which is a voice-directed system," Noddle said. "We get rid of all paper in the selection process. It's hands- and paper-free selection. Selectors wear a harness, and it talks to them. It tells them what to select. It's got multiple languages, so we can program it for Spanish or English, for example. We have already bought it and are installing it through our entire network this year and early next year.
"We found, in our two test locations, our rate of error went down 85% by using this voice-directed system. Errors are very costly. We were surprised that our productivity rate went up at the same time our error rate went down."
The reason? "Let me tell you something: People can't read very well today."
Vocollect's technology is used with some frequency throughout the food-distribution industry, including by such companies as Wal-Mart Stores, Fleming Cos., Price Chopper, Wegmans Food Markets, Roundy's and Campbell Soup Co. It has application elsewhere too, such as in automobile manufacturing by Ford Motor Co. and Saturn.
On another topic, Noddle issued a heartfelt appeal to the industry to reduce the current slate of three Internet-based trading exchanges in favor of allowing UCCnet to manage the process. The existing exchanges are WorldWide Retail Exchange, GlobalNetXchange and Transora.
"I remember being here three years ago pleading that we don't invest in separate exchanges; pleading that we use UCCnet because it was a way to have the exchange done once by the industry, just like we did the UPC [process], instead of having all these exchanges with CEOs and administrative staff. I think we've burned through half a billion dollars.
"We've got value to use [in the exchanges], but as an industry we should have an electronic highway we could use together, just as we have pavement highways we can all use."
UCCnet, Lawrenceville, N.J., is a subsidiary of the not-for-profit Uniform Code Council.
A similar appeal to winnow the multiplicity of trading exchanges was issued during another GMA workshop session here by Jerry Storch, vice chairman, Target Corp.