Several trading-partner initiatives -- some new, others not so new -- are gaining momentum in the supermarket industry, promising lower supply-chain costs, reduced inventories, fewer out-of-stocks and greater overall efficiency.
While SN's Executive Roundtable participants are optimistic about the potential such programs represent, they note that technology improvements are only one piece of the puzzle. Increased levels of trust among trading partners and serious re-evaluations of business practices, from the store to the corporate level, are required to make all the players winners.
SN: Which technologies or systems are going to be most important to make these advanced trading-partner relationships work?
RON WALDBILLIG: I think the two major technologies are effective communications and shared data, be it through extranets, intranets, third-party "mail boxes" or bulletin boards. Whatever method is used, it needs to be quick, and provide information on an as-needed basis, in real time.
Shared data is really important because to have a good relationship with your trading partners, you need to look at the same information. To have two totally separate databases and attempt to keep them in sync is virtually impossible. It could be that we need to look directly to a manufacturer's database, or we allow manufacturers to look at our database. If you are looking at the same information, there is no disagreement or confusion of data.
MIKE HUBERT: The biggest thing is implementing a real-time environment to talk together. It is here today, as the Internet's business-to-business capability ties into this area.
BOB SCHOENING: We need to continue toward greater implementation of all the electronic data interchange transactions within the supermarket industry. One of the realities we have, however, is that Giant, along with many people in my peer group, are not going to establish EDI relationships with all of our business partners. Sheer size and cost may be the factors that keep some from embracing this technology. It just may be unaffordable for small vendors to do direct-store-delivery, for example.
JACK SCOTT: We've been trying to put electronic DSD using NEX/DEX [network exchange/direct exchange] transactions in the grocery back office for years, and there's still not a lot of penetration. It's not that the technology is missing -- handheld and back-door devices are pretty good. It's that the information flow of the business process has so many missing links to it.
The DSD vendor, for example, provides costing information at the back door in so many different ways, and then the grocer has to validate that against perceived cost, then look at margins and determine the retail price. Retailers go through these mostly manual processes to manage the margin of DSD product, which can account for 40% of sales in some stores. The cost and sell functions may also be processed manually. Invoice match is very old technology, even with handhelds and electronics.
SN: What are some of the benefits of programs like scan-based trading and CPFR for retailers, and how can they be measured?
HUBERT: There are huge returns in the magazine area with SBT. If we can pay on scan, there can be big benefits for us and the vendors. However, we need trust in this area. Data can be manipulated, and we need to understand our costs and real shrink. SBT could be used on a wide scale tomorrow, but we really need to trust each other.
JOHN GRANGER: I always try to separate fads from advancements in different programs and uses of technology. The last thing we want is a dead end where we have limited benefits. Obviously, EDI is here to stay in some form or fashion, and there are advantages there.
In the SBT area, it is really hard to tell. It takes a lot of work to make it happen, but it is a benefit, and not one taking place in the far-off future -- we have vendors that would like to participate in this type of program.
SCOTT: As we get closer to SBT, the companies pioneering it -- Dreyer's, Earthgrains, Frito-Lay -- will set a de facto standard that will change the way the industry runs. It will dramatically change inventory totals, the value of the margins we're running with and the accuracy of information flowing through the supply chain. We can measure the difference in supply-chain efficiencies.
WALDBILLIG: We measure the impact in increased sales and/or decreased cost. If we can attain this and have fresher product and full-stock conditions, then we know the activity has been successful.
SN: Do these new trading-partner programs signal larger shifts in the vendor/distributor relationship?
SCOTT: Most companies would say the manufacturer is driving all of this. The brand development funding and the initiatives that Procter & Gamble have been putting out there increase their volume, shelf and market presence. That's a classical, historical process. With the advent of newer technologies, though, there has been a subtle, decade-long shift that says the register is king, which means the consumer is king. Manufacturers have always addressed what the consumer wanted. When the day was over, if they were unable to convince the consumer to buy something, they figured something else out.
For distributors, however, the new implication is that once I know what's going on at the front end, I can deal with the consumer more effectively in my marketing strategies. This is a key change as technology integrates and as we get more and better information about supply-chain dynamics.
with SBT. If we can pay on scan, there can be big benefits for us and the vendors. However, we need trust in this area. Data can be manipulated, and we need to understand our costs and real shrink. SBT could be used on a wide scale tomorrow, but we really need to trust each other.
JOHN GRANGER: I always try to separate fads from advancements in different programs and uses of technology. The last thing we want is a dead end where we have limited benefits. Obviously, EDI is here to stay in some form or fashion, and there are advantages there.
In the SBT area, it is really hard to tell. It takes a lot of work to make it happen, but it is a benefit, and not one taking place in the far-off future -- we have vendors that would like to participate in this type of program.
SCOTT: As we get closer to SBT, the companies pioneering it -- Dreyer's, Earthgrains, Frito-Lay -- will set a de facto standard that will change the way the industry runs. It will dramatically change inventory totals, the value of the margins we're running with and the accuracy of information flowing through the supply chain. We can measure the difference in supply-chain efficiencies.
WALDBILLIG: We measure the impact in increased sales and/or decreased cost. If we can attain this and have fresher product and full-stock conditions, then we know the activity has been successful.
SN: Do these new trading-partner programs signal larger shifts in the vendor/distributor relationship?
SCOTT: Most companies would say the manufacturer is driving all of this. The brand development funding and the initiatives that Procter & Gamble have been putting out there increase their volume, shelf and market presence. That's a classical, historical process. With the advent of newer technologies, though, there has been a subtle, decade-long shift that says the register is king, which means the consumer is king. Manufacturers have always addressed what the consumer wanted. When the day was over, if they were unable to convince the consumer to buy something, they figured something else out.
For distributors, however, the new implication is that once I know what's going on at the front end, I can deal with the consumer more effectively in my marketing strategies. This is a key change as technology integrates and as we get more and better information about supply-chain dynamics.
SCHOENING: I've always been a strong supporter of the whole Efficient Consumer Response movement, and I believe the evolution of these different improvements in supplier relationships, and the technologies that go along with them, are all part of the whole program. I'm very enthusiastic about what the potential is.