The pressure is on direct-store delivery, but relief may be on the way in the form of standardized electronic communications between retailers and manufacturers.
DSD, the well-known process of delivering product from the supplier directly to the supermarket, bypassing the warehouse, is being challenged nowadays because of sheer volume. Over the last decade, DSD products have grown to become nearly a quarter of all sales in supermarkets. Included are such popular "staples" as soft drinks, beer, snacks and baked goods.
What was once an efficient process for the retailer is being strained by a parade of delivery trucks throughout the day and a logjam at the back door. A special report on DSD from the Grocery Manufacturers of America last year noted the issues confronting the industry, including large numbers of supply chain partners, multiple company systems, complicated data synchronization needs, store-level pricing and execution requirements, and various industry-specific and geographic legal restrictions. "There's an enormous opportunity for improvement," said Lance Jacobs, chief executive officer, TCI Solutions, a Tucson, Ariz.-based provider of software for DSD receiving and other applications.
The good news is that advances in e-commerce are on tap to provide manufacturers and retailers with ways to improve DSD efficiency. For example, data synchronization of item and price for DSD products would speed up back-door check-in and reduce invoice discrepancies and distribution of non-approved items.
In addition, an automated payment process would increase adoption of such existing processes as electronic remittance advice and electronic funds transfer, reducing administrative costs. Finally, automated and standardized customer outlet identification would enable trading partners to easily identify an outlet and more efficiently maintain individual store location changes, including those in management and ownership.
"The bulk of efficiencies that can be created for DSD categories are through expediting the back-door check-in process and eliminating invoice discrepancies," said Ann Dozier, director of e-business and customer systems for Coca-Cola Enterprises and a member of GMA's DSD e-commerce task force. "Our hopes are that one day, these transactions can be minimized through e-commerce processes such as data synchronization and electronic funds transfer. If we can synchronize data in our systems, we can then eliminate the invoice that is exchanged at the back door and receive payment directly from the synchronized data."
Thus, the key to all of these e-commerce advances is synchronization -- in other words, the alignment of supplier and retailer information systems and databases primarily in the areas of item authorization, price and promotional programs.
"The synchronization of price and item information, although difficult to manage in the DSD system, will produce significant benefits for retailers, brand owners and distributors," according to the GMA special report. "Since DSD suppliers must maintain pricing at the store, brand and package levels, difficulties arise between trading partners when full synchronization is not achieved. To date, there is not a wide-scale, universally adopted system or solution that delivers this type of detailed information or enables synchronization on a real-time basis."
But there will be soon. Global pricing synchronization standards are close to being approved by the standards bodies, according to Greg Zwanziger, director, electronic commerce, Supervalu, Minneapolis. A pricing standard, in turn, will help trading partners in such areas as DSD and scan-based trading, Zwanziger said.
"EAN-UCC pricing standards are virtually through the standards process. UCCnet has done some pilots on pricing, but they're waiting for the EAN-UCC standards to be finalized," he said, speaking earlier this year at National Retail Federation's convention in New York.
With pricing and DSD standards, Supervalu will be able to handle different pricing levels for chains based on their location, according to Zwanziger. "Manufacturers will be able to publish to me down to the store level. With DSD, you can't take [information] at the distribution level. You've got to go to the store level," he said.
The Global Commerce Initiative, an international standards-development group, is currently sponsoring a DSD Working Group focused on developing a standard process for DSD, according to Dozier of Coca-Cola. This working group has also been approved as the first sector group within the EAN.UCC Global Standards Management Process (GSMP), which is the accepted process for developing standards worldwide. This will enable a single group to focus on ensuring that technology standards are created to support the DSD process. The current focus on the GCI DSD group is synchronizing party (location), item and price information.
"Global standards will assist the industry in developing processes and technology standards that can be leveraged across the world," said Dozier. "These standards will enable the implementation of supply-and-demand chain solutions across all retailers and suppliers."
Kroger Enters Fray
Kroger Co., Cincinnati, will be the first retailer to participate in a DSD data synchronization project sponsored by Transora, the B2B Web exchange based in Chicago. The initiative aims to add standards-based functionality to Transora's data synchronization solution and UCCnet's Global Registry that DSD manufacturers and retailers need to facilitate the information exchange at the back door.
"Kroger supports the approach and objectives of the DSD Data Synchronization initiative that Transora is leading, and believes that retailers and manufacturers working together will bring this much-needed functionality to the market in the shortest possible time frame," said Michael Herschel, chief information officer, Kroger.
"Our plan is to utilize the standard processes defined in this initiative with the GNX data synchronization solution to improve data quality and reduce errors in our DSD supply chain processes," he said. Kroger is a founding member of GNX (GlobalNetXchange), a B2B retail exchange. Kroger will also begin implementing the item registration services of UCCnet, Lawrenceville, N.J.
Pittsburgh-based Giant Eagle is another retailer looking forward to more efficiency from data synchronization. By collaborating with suppliers to synchronize item data, the discrepancies that exist today due to UPC or item attribute information will be eliminated, according to Robert Garrity, senior vice president of information services.
"However, item synchronization for DSD items does pose a different level of difficulty due to the two- and three-tier structure of the process," he explained. "But these differences, and the issues they create, are being addressed through a UCCnet task group that Giant Eagle is participating in. We feel that it is only a matter of time before workable solutions are available for both two- and three-tier DSD vendors." (The two-tier model involves only manufacturer and retailer; the three-tier model adds a third party such as a beer wholesaler that delivers to stores.)
Meanwhile, to handle its DSD needs, Giant Eagle has used the ChainTrack software from SofTechnics for about eight years, and has had some form of electronic DSD for about 15 years. It currently uses the Direct Exchange of Business Information (DEX/UCS) and the Network Exchange (NEX/UCS) features of the DSD application with the limited number of vendors that also use them.
"Giant Eagle is pursuing a centralized DSD application and will most certainly consider e-commerce advances in the R&D effort, as well as the UCCnet possibilities," said Garrity.
Many companies have implemented Electronic Funds Transfer (EFT) for DSD, especially for those categories that have state regulations requiring cash at the back door. "But the real opportunity is to implement an automated receipts settlement process that will eliminate the need for an invoice," said Dozier of Coca-Cola. "This can occur once item and price information are synchronized between the DSD supplier and the retailer. This helps DSD by saving time at the back door or in the back office that is wasted on invoice discrepancies. It also reduces the number of transactions that have to be exchanged."
While most of the focus on DSD improvements has been product and pricing synchronization, location is also important, according to Scott Taylor, executive vice president and general manager of TDLinx, Wilton, Conn. Location is important, he noted, because of constant changes in buying and merchandising hierarchy, store openings and closings, changes in banner names, etc. To address this issue, TDLinx has created the Universal Language of Stores and Accounts (also called TDLinx), assigning one number to each store location and at every other level of retail hierarchy.
"Understanding a customer's location is very important for DSD," agreed Dozier. "Also, linking a customer's location to the appropriate DSD distributor is another very important step."
UCCnet's DSD task force will launch a pilot this summer to test a standard solution that will enable the retailer to provide customer location information once and have it distributed to the entire DSD community.