Food brokers have devised a strategy for 1995 to ensure that they remain "in the loop" as Efficient Consumer Response moves from theory to practice.
In response to ECR pilots that cry out for a massive upgrade in information technology, brokers have adopted that cause as their New Year's resolution. To most effectively demonstrate that they add value -- and not cost -- to the process, brokers say they will invest in training and systems that drive profitability for their retail customers and principals.
Brokers have labeled such efforts as priorities as they prepare to meet in San Francisco for the 1994 Convention and Marketplace Expo of the National Food Brokers Association Dec. 2 to 6.
"Brokers have to gear up, dramatically, in many cases. Not only do they have to have the hardware and the software, but they have to train their people to be proficient in the ECR technology so they can interface properly with their retail customers," said Dave Herriman, vice president of grocery operations at Giant Food, Landover, Md.
Ron Wright, senior vice president of procurement at C&S Wholesale Grocers, Brattleboro, Vt., agreed that brokers invest in technology. "Brokers need to make a decision as to the kind of software packages they're going to need and what they want to be when ECR grows up." Among the key areas that observers cited as especially important for brokers to develop to emerge as key players for the future are:
· Shelf space management: Retailers are looking to brokers to invest in costly computerized space management systems to increase profits by the square foot and down to the stockkeeping unit. At the same time, some are questioning whether the tedious task of manual shelf resets could be conducted more efficiently, perhaps by the retailer instead of the broker.
· Electronic data interchange: Food brokers need to become information brokers, retailers and brokers told SN. Those who commit to EDI technology and training to help trading partners effectively share data will outlast those who don't.
"We're not so much becoming a sales force, but managers of information," said Gloria Montuori-Watts, management information systems manager at Morris Alper Inc., a Framingham, Mass., broker.
"The 'Willy Lomans' of the world are dying another death. We have to upgrade our skills. It's a major investment but the right thing to do," she said during a presentation on continuous replenishment earlier this month.
· Continuous replenishment: By investing in CRP software on behalf of both vendors and distributors, progressive brokers are emphasizing their strong local market knowledge to better manage inventory.
"We are all going to be under the microscope to truly bring added value services to both our principals and our [distributor] customers," said Robert Schwarze, president of NFBA, Reston, Va.
Determining what those "value-added" services are will vary greatly from market to market and customer to customer, he said. "That's one of the things that's making the whole ECR process so difficult. We have different manufacturers at different stages of implementing or not implementing ECR, and the same situation on the retailer side."
It is here, through investments in technology and analysis services, that brokers can distinguish themselves and bridge that gap. Rather than serving as mere order-takers and invoice-deduction mediators, leading brokers are offering services to enhance profitability and efficiency.
Giant Food's Herriman contends that computerized space management is a particularly important service for brokers to develop for their customers who couldn't otherwise afford it.
Andre Martin, chief executive officer of LogicNet, a division of Information Resources Inc., Chicago, agrees. "I see significant opportunities for the sales broker who is a forward thinker because people will discover that a lot of emphasis is to be placed on how we manage square footage at the store level. This brings into account such things as shelf management, category management and how to maximize profitability per square foot," he said. "I see brokers as becoming the perfect bridge between a manufacturer and retailer in those areas."
Jerrold Chadwick, executive vice president of grocery at RMI & Associates, Columbia, Md., said brokers have invested in technology in the past, but now it's become more important than ever.
"For many retailers and wholesalers, the first time they ever saw a [computerized] planogram system was when a local food broker brought it into their local buying and merchandising staff," he said.
Chadwick said forward-thinking brokers are also working to become effective category managers and are investing in software for continuous replenishment programs.
Earlier this year, RMI brought its newly acquired continuous replenishment capability to link up Giant Food with Ocean Spray Cranberries, Lakeville-Middleboro, Mass. After going live with CRP in May, the retailer reduced inventory by 20%, said Giant's Herriman.
But some observers question whether food brokers are the right choice for managing a continuous replenishment program.
"Some may ask, 'Are brokers capable of performing CRP?' We feel they are," said RMI's Chadwick. He also said brokers' local market knowledge can offer an important value-added service for CRP.
"The speed with which we can handle problems is typically much greater than the manufacturer doing replenishment on their own," he added.
Chadwick said brokers' ability to involve smaller industry players in CRP is necessary to arrive at critical mass and fully exploit the potential of continuous replenishment. "Some major manufacturers that are doing CRP have said they feel their limit would be two-dozen shipping points, not customers, but shipping points," he said.
Austin Bill, director at Sales Mark, Little Rock, Ark., agreed. "Smaller manufacturers -- and even small lines within major manufacturers -- really don't want to do CRP. You're going to find the major manufacturers concentrating on the major retailers, the ones that do the bulk of their business.
"All of the other retailers, wholesalers and a lot of small to medium-size manufacturers are going to have great difficulty in doing [CRP] on their own, and that's where a broker can come in and provide that capability," he continued.
Another important technical capability that brokers can provide is electronic data interchange, which allows retailers and manufacturers to share electronic invoices, purchase orders and promotional information.
Victor DelRegno, president of Morris Alper, said all industry players -- manufacturers, distributors and brokers -- are woefully behind and must commit to EDI before making meaningful progress in ECR.
"EDI is really the locomotive pulling the ECR train," he said But for some wholesalers, like C&S Wholesale Grocers, that train is stuck in the station.
"Right now, [brokers] offer a smattering of services, such as order-taking," but lack EDI capabilities to handle electronic invoices and other data communications, said C&S's Wright.
"For example, we are EDI [capable] with 850 of our vendors, but less than 5% can give us back an invoice [electronically], and that's where a broker could step in and it would be an excellent value-added service," he said.
"It would help us immensely and they need to do that," Wright added. "The problem stems from the manufacturers, but the broker could take the initiative vs. standing around waiting for the manufacturer to do something."
Sales Mark's Bill said the leading brokers are pushing for broader use of EDI transactions.
As a broker for Kroger Co.'s Delta KMA Division, Memphis, Tenn., Sales Mark is using EDI to communicate 95% of all promotional information for various departments, including confection, general merchandise/health and beauty care, dry grocery and frozen-dairy.
"That's an example of where a broker, a single entity, can bring a lot of manufacturers into the loop for a customer," Bill said. "If a broker wasn't involved, Kroger, in order to achieve that same level with the manufacturers, would have to deal one on one, and go through the testing process with each one of them."
Bill said many brokers are recognizing such opportunities, but others have not.
"There are too many brokers that are simply in the midstream and either don't accept, understand or simply aren't making the investments today in people and technology. So unfortunately, what that means is there will be fewer of us in the future. But the ones that survive will be significantly stronger organizations," he said.