CIES SUPPLY CHAIN CONFERENCE

JAMES FALLON

DUSSELDORF, Germany (FNS) -- Lack of communication and coordination -- both internal and external -- have been the biggest stumbling blocks for several supply-chain initiatives undertaken by British food retailers Safeway plc and Tesco. Nevertheless, both companies have been able to make significant improvements in areas including transportation control and establishing closer ties with vendors.

Safeway, Hayes, England, for example, has instituted more accurate measurements of in-stock percentages in its stores, and been able to improve its performance by 10 percentage points. Among its supply chain activities, Tesco, Cheshunt, England, began nationwide load planning, scheduling and monitoring last year, allowing the retailer to optimize all truck movements at any point during the day.

Safeway discovered that one reason for its poor in-stock performance was that its information technology and logistics departments were not communicating effectively, with the result that neither took responsibility in this area. To deal with the problem, the retailer established a joint working party of its logistics and IT departments to demonstrate that both play a role in product availability, according to Lawrence Christensen, the retailer's logistics director. Safeway has also set up a business unit that covers both supply chain functions and category management, he said.

Christensen and Barry Mills, supply chain business consultant for Tesco, outlined their companies' ambitious supply chain activities at "The Intelligent Supply Chain" conference sponsored by CIES: The Food Business Forum, Paris. The meeting, held here March 25-26, attracted more than 200 attendees from 21 countries, with a mix of 60% suppliers and 40% retailers.

Safeway's activities are part of its move to integrate its upstream and downstream supply chains after implementing sales-based ordering, category management, onboard personal computers on its delivery trucks and back hauling, which has become a $6.4 million profit center for the company, Christensen said.

"We've now squeezed the system as far as it can go, so the next revolution is to merge the upstream and downstream systems into one," he said. However, he warned the organization must be capable of dealing with the increasing complexity of the supply chain.

Safeway found this out the hard way when it had a 12-hour outage of its central computers in October 1997. The retailer's order processing system was lost and the distribution centers had to switch to manual picking of orders. "For two weeks we weren't sending the right stocks to the stores, we lost consumer confidence and we lost sales and market share," Christensen said. "It took us 12 months to recover."

"Safeway realized that accountability wasn't shared between the logistics departments and the stores in terms of wastage and stock shortages," and that there was inadequate training throughout the system, he added.

The retailer's overall aim is to have a totally integrated supply chain both vertically and horizontally. One result of the new structure has been a new measure of product availability in stores, called Fill That Gap, which showed that actual in-stock percentages averaged 86% rather than the 99% and higher that existing measures indicated.

Safeway's traditional measures simply looked at what was ordered and the percentage of that order that was shipped from the warehouse, said Christensen. Fill That Gap, however, looks at expected product gaps or shortages in the stores, based on the store manager's stock file. In addition, the retailer has established a working relationship between the logistics team and the store managers to ensure that the correct products are being shipped to the stores at any given time.

By working with the IT department and the store managers, Safeway has improved its availability measure under Fill That Gap to 96%, Christensen said. At the same time, the supply chain and category management team is trying to take $9.6 million of non-food inventory out of Safeway stores while still maintaining in-stock positions on those items.

The retailer is also increasing direct links with its major suppliers. For example, Safeway recently held a promotion with Pepsi during which the manufacturer's machinery broke down. Pepsi was able to go directly into the Safeway system to identify the location of Pepsi product throughout the supply chain, and shift stock around to cover the shortage while Pepsi's machinery was repaired, Christensen said.

Tesco's supply chain improvements have included instituting nationwide load planning, scheduling and monitoring so it can cost optimize all truck movements at any point in a given day, said Mills. To minimize the risks and costs involved in this undertaking, Tesco has linked up with a technology vendor's shipping management system.

The retailer also decided to become involved in a trial project using this system under the auspices of the United Kingdom's Efficient Consumer Response initiative. The Transport Optimization project was planned to determine the benefits of cooperative shipments and deliveries among most of the major U.K. retailers and suppliers, as well as how these trading partners could work together to optimize benefits, deal with growing environmental concerns and avert potentially hostile legislation. The plan was for a trial to evolve into a full production service managed by the consortium.

Under the plan, retailers and suppliers would pool their resources to create a truly national supply chain in the food-retail industry. However, the test has been stalled since September 1998 because of difficulties in moving from the theoretical to the practical stage, Mills said. Retailers were reluctant to invest in the project, pointing to other investments needed for Year 2000 issues and other backlogged projects.

"I don't believe the problem is cooperation vertically in channels because most of us already are working with our suppliers," Mills said. "It gets difficult with horizontal integration. We can all see it makes sense but it still requires a huge cultural change and leap of faith that we can work together as retailers, and to understand that Tesco's deliveries might be late one day because of problems at Sainsbury's and vice versa. The problems are surmountable but it's very, very difficult."