"May you live in interesting times," says the ancient Chinese proverb. Whether they agree with that sentiment or not, most food distributors would concur that these are indeed interesting times.
lesalers up at night. But then there are all the supply chain issues and opportunities, including old chestnuts like unsaleables and invoice deductions as well as the many new opportunities like EDIINT (Electronic Data Interchange-Internet Integration), RFID (radio frequency identification) and longer data structures in bar codes.
And the questions regarding trading partner collaboration, represented by such matters as CPFR (collaborative planning, forecasting and replenishment), UCCnet and electronic exchanges, continue to challenge food distributors.
As the industry gears up for the 2002 Food Industry Productivity Convention and Exposition, which takes place Oct. 20-23 at the Georgia World Congress Center in Atlanta, SN assembled a panel of food wholesaler executives to take stock of some of these key supply chain issues.
The panel includes: Gary S. Herman, vice president and chief information officer, Unified Western Grocers, Los Angeles; John Keeley, vice president, information technologies, Bozzuto's, Cheshire, Conn.; Richard Hardy, vice president, procurement, and Doug Carlile, EDI coordinator, Associated Food Stores, Salt Lake City.
In addition, representing the consulting and manufacturing communities is Jack Haedicke, president, Arena Consulting Group, Eden Prairie, Minn. Haedicke is former vice president of finance and ECR for Kraft and former director of activity-based costing at Coca-Cola. Finally, representing UCCnet, Lawrenceville, N.J., is Jennifer Roberts, public relations manager.
Herman: The biggest overriding issue is the impact of Wal-Mart. That's especially true for us, being on the West Coast and getting hit hard in the Pacific Northwest, Northern California and on down. You can't beat Wal-Mart on pricing, but you may need to reduce some pricing differences. It's important for our independents to use technology, such as scan data and back-door receiving, to become more efficient and reduce some of that discrepancy.
Keeley: The economy, particularly the impact it's having on consumers, as well as consolidation among retailers and manufacturers are key issues for us. The growth of private label, the increasing role and cost of technology, and of course, Wal-Mart are major issues as well.
Haedicke: The most important issue is, was, and will be providing value to your customers and the consumer. It's illustrated by the fact that Wal-Mart has an operating expense to sales percentage of 18.1% (a five-point advantage over every other major distributor) and that the majority of these savings are passed onto consumers in the form of lower prices.
Herman: The biggest change was putting in a new warehousing system (Triceps, from OMI International, Dallas), which we've installed in our Portland facility first. It's a significant upgrade from our legacy system. We'll not only gain efficiencies because it's a real-time system, but also because we can leverage other technologies to extend the cost efficiencies.
Keeley: We have installed and implemented GPS (global positioning system) technology to enhance communications with our drivers, which in turn helps us provide better service to our customers. It also helps us maximize the equipment utilization.
SN: How important is it for your company and companies in general to collaborate with trading partners in a CPFR-type scenario?
Herman: The huge benefit of CPFR is in promotion planning, and today our promotion planning is at the retail level not the wholesale level. As we try to do more corporate ad planning, we'll leverage off that.
Keeley: It's very important to Bozzuto's. Collaboration with suppliers ensures more consistent and timely delivery of product, which in turn helps our customers ensure they have the right product at the right time to offer consumers. The electronic delivery of information is merely a tool to enable both partners to mechanize and standardize agreed-upon procedures.
Haedicke: Collaboration occurs between manufacturers and distributors every day, and there is a direct relationship between the strength and depth of that relationship to the health of the distributor. The reality is that a classic nine-step CPFR process has only been implemented by a few selected vendors (Kraft, P&G, Kimberly Clark, Georgia Pacific) with even fewer distributors.
But implementing CPFR as a practice really isn't the point anyway. The point is in believing that by working together with your trading partners you will increase the value to the consumer.
Herman: We just signed onto UCCnet last month. We believe as an industry concept UCCnet is critical and we support it. To be successful, UCCnet requires everyone in the industry to get behind it. If only a handful do, it's not going to be very effective.
We're anxious to hook up our systems and trade electronic data. We hope to pilot in the next couple of months, but that depends on our pilot vendor's ability to send us data. (We have not selected a vendor yet.) We have already made modifications for our back-end systems and architected it in such a way that electronic data is easy to integrate. We think we'll be able to leverage this technology once we start bringing up manufacturers.
Keeley: Bozzuto's has been exploring UCCnet, but before we make any decisions we will need a better understanding of the current value and potential the program can offer. Haedicke:. Unfortunately, we've created mass confusion in the industry by having multiple competing exchanges (GNX, WWRE, Transora, UCCnet) all trying to do the same thing. When people are confused, they don't adopt.
My belief is that the leaders of this industry will sort those roles shortly and the path forward will become clear. Once that happens, my belief is that adoption will accelerate dramatically with both distributors and manufacturers. There's just too much value there to ignore. If not, it's a little embarrassing to think that as an industry we just wasted $500 million trying to get these things started.
Carlile: To this point UCCnet has been very secretive about suppliers who are actually providing data. In the absence of hard information we cannot make a justification for the time and investment it would take. Through the grapevine we have determined that most of the participant list is really a wish list and very few (less than a dozen) companies are actually exchanging data. That's just too small for us to make the investment at this time.
Roberts: UCCnet has 204 subscribers as of the week of Sept. 30, and we have 26 trading partners in production. The suppliers range in size from small suppliers (Falcon Rice, MidState Mills) to industry leaders (Kraft, Kellogg, Procter & Gamble and Wyeth Consumer Healthcare). In addition, there are more than 30 partners actively testing in the UCCnet certification environment, and we expect a majority of these partners to move into production by the end of October. Also, Food Lion is stepping up its activity and is planning a UCCnet Forum in Orlando in November to bring their suppliers on board.
The active trading partners used 10 alliance partners to on-board to UCCnet, and with more than 40 alliance partners in the program (including WWRE and Transora), we expect production to increase exponentially between now and the end of the year.
SN: Are you preparing your company for the Jan. 1, 2005, Sunrise Date that calls for acceptance of 13- and 14-digit data structures in bar codes?
Herman: From an internal standpoint, we've changed our corporate systems to support the change. The issue for us is with retailer costs; many have outdated POS systems that will require a technology upgrade that they avoided for Y2K. We're concerned because of the large financial commitment. But we're also positive about it because it will help build a technology infrastructure in stores that will help them operate more effectively.
We have preferred POS vendors, and we're advising retailers on going through a POS upgrade if they deem it appropriate. We're encouraging them to do it if their systems are five or more years old. It's not just about the longer numbers; it's also the RSS (reduced space symbology) codes and other functionality in POS that they're doing without, from a marketing and data analysis standpoint.
Herman: We believe that is a viable way of doing EDI. It's not as critical on a cost basis for us because we go directly to vendors and not via VANs. But we are changing to a Web infrastructure and will be set up to support EDI over the Internet. We expect over the next couple of years to see a significant number of our partners go to that (EDIINT). Keeley: This is something that Bozzuto's is presently testing, given the widespread use of the Internet and the potential reduction of costs for VANs. However, we see this as a way to expand the use of EDI to include our smaller suppliers, who typically have Internet access yet are not likely to get involved with the big VANS.
Carlile: We have watched Internet EDI but at this time we are realizing greater savings by expanding our existing (VAN-based) trading partner base and adding new capabilities such as financial EDI. We do refer suppliers who are not EDI capable to companies such as GroceryEC, Owens, etc., which I believe are using some type of Internet capability to facilitate those companies' (EDI usage).
SN: How significant are the developments in RFID technology being pursued at the Auto-ID Center at MIT?
Keeley: This is huge! RFID technology is as big, in my opinion, as the development of the front-end scanner-scale. This is a technology that will have a profound impact on retail store owners. The technology has a long way to go, but good progress has been made to date. The key will be to make it cheap.
SN: Do you see the unsaleables situation becoming better or worse, and if the latter, what can be done about it?
Keeley: I think that unsaleables has and always will be a challenge for our industry. Our objective should be to understand unsaleables at their source, and to seek alternative approaches to support the final disposition of the product.
Carlile: We are currently experiencing problems with our unsaleables provider. In light of that, we would have to say it is getting worse. The only solution is for better quality control over systems by providers.
Herman: We've not gotten into exchanges, but we do see B2B as very important to our organization. We've developed an infrastructure to allow an extranet between vendors and Unified for new items and promotions, and we're extending that out to our member retailers. We see that as strategic to allow our retailers to have access to information on new items and getting new items into their stores. We're piloting the extranet over the next couple of weeks with a few vendors.
Herman: Our biggest challenge is to be able to effectively communicate electronically with all of our members. We're using our extranet as one way, but we're trying to promote electronic data interchange for POS and promotional information. For our organization to succeed, it's critical that we have the same data as the large chains. Today, we collect limited POS data but we're launching a voluntary program with ems (Efficient Market Services, Deerfield, Ill.) to start capturing that information.