Computerized direct store delivery may be the first component of the grocery industry's Efficient Consumer Response initiative to be implemented on a widescale basis. And the results have been substantial.
It's saving retailers millions of dollars by reducing labor costs and eliminating paperwork. The systems also are helping ensure product payment accuracy and pricing consistency, said retailers and industry analysts interviewed by SN.
The advance is being propelled by a maturing technology that lets retailers exercise greater control
over their inventory from the time it comes into the store to its purchase. The information can be used for strategic planning, letting retailers take a proactive stance in an increasingly competitive environment.
"Going paperless is a trend. Most of the costs incurred in paying for the deliveries are in paper-handling costs. It's paying people to shuffle paper multiple times," said Molly Lindgren, project manager at Ralphs Grocery Co., Compton, Calif.
"Other savings would be that we have better control over what we're paying so that we catch a lot of unauthorized product and promotions that we missed in the past," she said.
"It's not just a question of eliminating paperwork, but of increasing accuracy," said Robert Schoening, senior vice president of information systems at Giant Food, Landover, Md. "Accuracy is one of the critical things, making sure we're only paying for goods that we are receiving. With us, and with everybody else, that's been a problem."
Harvest Foods, which is outsourcing its computerized DSD system, estimates the more efficient system is resulting in big savings for the retailer. "We feel it'll add a minimum of about half a percent to our total gross profit," said Roy Kipp, senior vice president of operations at the Little Rock, Ark.-based chain.
Propelling the trend is new software technology that turns the hundreds of thousands of invoices that typically inundate back offices into instantaneous electronic transmissions downloaded by vendors at delivery. Electronic-data-interchange proficiency is a prerequisite. The elimination of the paper trail means staff can be cut.
"We're still using paper, but we're not even requiring it to be sent into the main office. The only time we actually use paper is if we need it for research. The goal is to eliminate paper. We're completely paperless with a vendor at one store and we'll see where that goes," said Lindgren.
Ralphs finished equipping its 165 stores with the technology this past September. During the chainwide implementation, 18 staffing positions were able to be eliminated through attrition: three data entry clerks in the management information systems department and 15 in accounts payable. Prior to implementation, every document had been handled by eight people.
Other retailers told SN privately that they similarly anticipate eliminating personnel through attrition as the computerized systems are installed.
Ralphs' rollout, completed over the past several years, was one of the first in the industry, and Giant Food expects to finish its rollout to its 160 stores late next year. But the trend clearly is picking up speed with other retailers as well.
Among the other chains switching from manual to computerized DSD are Save Mart Supermarkets, Modesto, Calif., which will complete installation in its 95 stores at the beginning of next year; Hughes Family Markets, Irwindale, Calif., whose rollout to its 51 stores will be done by March 1994, and Harvest Foods, which just finished installing the systems in its 51 stores in the southern United States.
The procedures the stores use differ according to their software. Typically, in the direct exchange method, or DEX, a delivery or "route man" will transmit an electronic invoice for his shipment into the retailer's computer. The computer checks Universal Product Codes and costs.
The retailer then checks in the products using a wireless, portable handheld device that communicates with the in-store computer. Quantity differences will be immediately reconciled with the vendor and adjusted. The adjustments are then transmitted to the route man's handheld computer terminal.
At the end of the day, the invoices are transmitted to the home office where the vendor's costs are reconciled with the costs on the retailer's file. Discrepancies are subsequently settled with the vendor.
Vendors also have the option of "NEXing," or transferring the information on a network exchange, from the vendor's headquarters to the retailer's home office. The only DSD goods handled without the aid of scanning or EDI are variable-weight products such as meat and produce.
Retailers are requiring vendors not capable of DEXing or NEXing to input delivery information into the store's computer anyway. Since retailers capture this data in a variety of ways, vendors generally will have to do some key-entering.
"This key-entering is labor-intensive for the route driver," said Lindgren, pointing up one of the reasons vendors had balked at the new systems. Still, many are signing on to DEX to keep the retailers' business.
"At first there's a learning curve. It slows vendors down and us down also. But in the long term, I think the rewards are going to be beneficial for us both," said Harland Polk, senior vice president of sales at Hughes.
"We notified all of our vendors months in advance and told them what it is we would have to have from them," added Harvest's Kipp. "Since taking on this venture we've had minimal problems. I think you have to teach vendors that once you're on this system they must be responsive to your needs of receiving cost changes on a timely basis."
For the retailer, the advantages of computerized DSD clearly outweigh any resistance from suppliers. Not only does it trim paper and personnel costs, it eliminates a long-standing problem in the industry of reconciling what is ordered with what is received.
"My guess is that all companies will gain if they can assure themselves they are only paying for goods they in fact are receiving and only getting the goods they ordered. Lots of times companies are forced to take delivery of goods they don't expect to sell. [Computerized DSD] makes sure promotional allowances agreed to between the buyer and the vendor are properly accounted for," said Schoening.
Computerized DSD keeps promotional allowances and vendor prices consistent for all stores in a chain. That means one store manager won't be buying into a promotion not available to another.
"There's usually a lot of allowance, so capturing and controlling the costs is really critical," said Ed Martin, director of information systems at Save Mart.
"Here's where the payback comes," said Harvest's Kipp, whose chain operates stores in Arkansas, Texas, Louisiana and Mississippi. "We're supplied by the same vendors but through different plants and locations. We were finding that we were not receiving the same cost by the same vendor in all these market areas that we should be, so this enables us to always receive the correct costs.
"It also helps our management of our inventory because we always have the correct retail posted. It takes the pricing away from managers. This way we consistently follow the same retail throughout our price zones," he said.
Retailers surveyed by SN were reluctant to divulge how much money they were spending on the software, piggybacked on a hardware system used for other store functions. Naturally, installing computerized direct store delivery systems will be considerably more expensive if the hardware isn't already in place. Software costs per store could range from about $3,500 to $9,000, one software vendor said.
"A major obstacle is just the cost of getting the equipment in, getting your people trained," said Charles Collings, president of Raley's, Sacramento, Calif. "You have to do it chainwide, so you don't run into having two systems operating simultaneously." Raley's does not yet have a computerized DSD system, but is considering such a move.
Eventually, computerized backdoor operations are expected to be part of storewide inventory control programs. Daily inventory tallies, sales, labor and profitability would be available on such systems. Continuous replenishment could be instituted.
"This whole data explosion has come along in a relatively short period of time where now you can tie in with your supplier, feed back directly to them as you sell merchandise," said Collings.
"My vision is to get a daily profit and loss statement in every store," added Save Mart's Martin. "Our business is one where immediate action is critical. We have to be proactive, rather than reactive. Now we have to anticipate trends."