The food industry has put a great deal of effort into advancing data synchronization over the past year, and it's beginning to pay off.
Why such interest in data synchronization? In a phrase, bad data. With the proliferation of new products, prices and promotions, retailers and manufacturers have increasingly found themselves on different pages, with different information about the same products. The result: faulty invoices, deductions, out-of-stocks and wrong scans, among other inefficiencies -- and lots of cost.
Facing a crisis last year, when little in the way of adoption was taking place despite several billion dollars of investment, industry leaders took action. It began in April, when Wal-Mart, Ahold, Wegmans Food Markets and other companies signed an open letter to the industry urging greater adoption of UCCnet, the Lawrenceville, N.J.-based data synchronization arm of the Uniform Code Council and the poster child for data synchronization.
Then, at the Food Marketing Institute's May 2002 conference, the importance of UCCnet in achieving more accurate data was trumpeted by such executives as Danny Wegman, president of Wegmans, and Ed Gropp, chief business and technology officer of Ahold USA. UCCnet also came under criticism, particularly that it was not defining its role clearly enough and not differentiating itself from the B2B exchanges.
As the UCC convenes its annual U Connect conference in Orlando, Fla., this week, UCCnet can rightfully claim some significant progress. It is increasingly recognized as the repository of a standardized Global Registry used as a clearinghouse for product information by retailers and manufacturers worldwide. UCCnet has been endorsed by organizations ranging from EAN International and the Voluntary Interindustry Commerce Standards (VICS) Association to FMI and the Grocery Manufacturers of America.
UCCnet is also opening its doors. While it is currently the sole synchronization engine linking trading partners to its registry, in a few months B2B exchange Transora plans to become the first service to offer a synchronization engine that is interoperable with
UCCnet, said Carole Comstock, vice president, product management, Transora, Chicago. And last week, UCCnet and the WorldWide Retail Exchange announced the start of a two-part launch of interoperability to be completed by the end of the year.
Meanwhile, membership in UCCnet, which had reached only about 70 companies a year ago, has soared to more than 500 companies; this includes 21 retailers/distributors that represent about 50% of North American ACV.
Perhaps most significant, a compelling business case for base-item data synchronization through UCCnet is beginning to emerge in the form of landmark case studies. On Thursday morning at U Connect, Simon Bell, principal, A.T. Kearney, Chicago, will discuss these case studies, which his company conducted. The case studies encompass three retailer companies (Ahold USA, Shaw's Supermarkets and Wegmans) and three manufacturers (Kraft, Nestle Purina and Procter & Gamble). While preliminary results of these case studies were initially presented at the Food Marketing Institute's Midwinter Executive conference in Boca Raton, Fla., in mid-January, Bell told SN recently that A.T. Kearney was very close to releasing written accounts of the case studies. "We are eager to spread the message within the industry," he said.
Among the benefits for retailers resulting from data sync activities in the studies were the following: 2% to 4% reduction in out-of-stocks; "thousands of hours saved" in shelf-tag and scan errors, as well as in warehouse and DSD receiving; 5% to 10% reduction in invoice reconciliation; 0.5% to 1% reduction in inventory; two-weeks-faster speed to market for new items; more than 1% reduction in logistics costs (such as fleet utilization); and a 5% to 10% reduction in paperwork associated with new item and existing item maintenance.
The overall bottom-line benefit of data synchronization to retailers as determined by the case studies: between $700,000 to $1 million in EBIT (earnings before interest and taxes) for every $1 billion in sales in relevant categories. Up-front investments cited in the studies amount to between $100,000 and $150,000 -- along with $40,000 to $60,000 in ongoing annual costs -- for every $1 billion in sales. In sum, "even with very conservative benefit ramp-up, ROI in every case exceeds 100%," Bell said earlier this month at the Food Marketing Institute's 2003 conference in Chicago.
Since the case studies were announced in January, representatives of Wegmans and Nestle Purina have been offering their perspective on the studies and the value of data synchronization at several industry events. "The good news is that there is a definite payback from just doing data synchronization and foundational services," said Mike Bargmann, senior vice president of distribution, Wegmans, Rochester, N.Y., in a presentation at the Logicon conference held in Miami in March.
Even with that ROI, Bargmann pointed out that the real payback from data synchronization comes after the foundation is laid. In the A.T. Kearney study, common data standards, a single item registry and item synchronization represent 10 basis points in benefits, setting the stage for later activities such as collaborative sales and promotion planning. The complete utilization of these e-collaboration technologies would result in 200 to 300 basis points in benefits, according to A.T. Kearney.
"This is not an expense reduction program for us," said Bargmann. "We believe this is going to drive sales for our company."
But laying the foundation for data synchronization is not easy, said Bargmann. "We've worked really hard on re-working our total back-end IT structure to accept this information," he said. Wegmans built its own connection to UCCnet rather than using a third-party service. A.T. Kearney's Bell points out that it can take up to 18 months to implement a data synchronization project.
A few weeks after Bargmann's presentation, Marianne Timmons, director of business to business for Wegmans, participated in a panel discussion on data synchronization at the Grocery Manufacturers of America's IS/LD conference in St. Petersburg, Fla.
"Data synchronization is not about technology; it's about our business," she said. "We're using data today to drive what the consumer sees on the shelf."
Following the GMA discussion, Timmons told SN that all of the savings cited in the A.T. Kearney study "applied in some way to Wegmans," though she declined to release specific numbers by category. She said that Wegmans currently works with 75 suppliers on item data synchronization and is "aggressively pursuing additional suppliers."
While most data synchronization activities currently focus on base-item data, Wegmans is looking at additional areas, including DSD, pricing and promotions. Already, the chain is putting DSD data into its back-end systems and running its business off this data, Timmons said at the GMA conference. "We'll have price very soon," she added. "Our president is very excited about price." Wegmans is also excited about the inclusion of perishables, she said.
Not everyone is convinced that UCCnet is necessarily the best option. Marc Schantz, president of Becton Schantz, an Atlanta-based software developer, argues that a lower-cost alternative is sending EDI documents via AS2-based encrypted e-mail. The real cause of invoice deductions, he said, is errant pricing and promotions, which UCCnet does not yet address but EDI does.
But Jolene Magruder, manager, supply chain optimization, Nestle Purina PetCare, Cape Girardeau, Mo., said that "current EDI initiatives are point-to-point proprietary solutions" for which "data integrity is still questionable." By contrast, she added, "UCCnet allows the synchronization process to be more standardized."
GETTING YOUR HOUSE IN ORDER
When it comes to data synchronization, Harrison A. Lewis believes that retailers have spent too much time on external synchronization with suppliers and far too little time on internal synchronization.
"Each of us needs to focus on getting our internal house in order," said Lewis, vice president, B2B e-commerce information systems, A&P, Montvale, N.J., in a presentation at the Logicon conference, held in Miami in March. Without achieving both internal and external synchronization, "we will not realize benefits," he said.
The key to internal synchronization, Lewis said, is to create a standards-based Master Data Repository (MDR), a "database of record." Through the MDR, retailers would create "business and technical rules concerning the use of data." Then they would identify other sources of data in the company and ensure that this data conforms with the business and technical rules. Lewis said A&P has implemented an MDR.
When synchronizing data in the MDR and other internal business systems, Lewis said to expect inconsistencies and correct them, even if there is a "disruption to the business during implementation."
The MDR can be a retailer's link to suppliers' data through integration with UCCnet and third-party data pools, Lewis said. Changes made from external sources to the MDR would then be reflected throughout the retailer's business systems.
