INTEGRATING INVENTORY INITIATIVES

MINA WILLIAMS

Savvy inventory-management initiatives have already proven to help retailers increase sales and reduce out-of-stocks. Now operators are turning their eyes to the next generation of warehouse- and data-management systems as they continue to streamline operations to squeeze inefficiencies out of their inventory.

Retailers report that streamlining inventory practices is a never-ending task on the road to continual replenishment and that best practice methods are key to ongoing improvements.

Warehouse management systems have become a mainstay operational tool in the supermarket arena. However, a host of applications, including voice technology for order selection and inventory-control systems, are being added onto basic systems to enable wholesalers and retailers to improve the flow of information in the warehouse.

New warehouse-management systems that can support radio-based technology are becoming an industry standard as operators look to remove paper. At Wegmans Food Markets, Rochester, N.Y., RF technology coordinates delivery of goods on pallets from the distribution center to the designated truck to the specific store. Raley's Supermarkets, West Sacramento, Calif., has put RF to work to increase levels of accuracy and replenishment in perishables areas.

Now operators such as Kroger Co., Cincinnati; Super Store Industries, Stockton, Calif.; and Roundy's, Pewaukee, Wis., are using forms of voice technology that allow for hands-free picking and picking efficiency.

Other operators, including Supervalu, Minneapolis, and Associated Wholesale Grocers, Kansas City, Kan., are additionally demanding real-time information to stay competitive and maximize their technology investments even further.

Supervalu is taking a comprehensive approach to keeping its distribution centers dynamic and fluid with the recent implementation of an inventory-control system and radio frequency scanning. At the wholesaler's Hopkins, Minn., facility the system has improved inventory accuracy as well as reduced the time needed to make product available for sale by providing real-time inventory updates.

Associated Wholesale Grocers has also entered the real-time control arena at three of its facilities with the installation of a new warehouse-management system.

The power of these new warehouse-management systems lies in integration, industry sources say. Integration of warehouse-management systems with other systems used throughout the supply chain is viewed as a means to provide more accurate cost data as well as the potential to further streamline operations.

"The grocery industry is moving to more of an integrated suite approach, as opposed to an assembled product that has been modified. This is the system many operators have been operating with over a long time," says Ken Walker, principal in LSA, an Atlanta-based consultancy. "Over time, these systems have interfaced to look like an inventory-management system, but now new suites streamline the process and provide savings. They have much more sophistication and more research and development behind them than the home-grown systems have had."

G&R Felpausch Co., Hastings, Mich., is yet another retailer that is applying integration in an effort to reduce overall costs. The operator is integrating its inventory and management applications.

While these advancements are making inroads, industry observers continue to report that it is the operator that applies best practices to inventory management that will reap the most rewards. These methods include:

Embrace technology and work toward an integrated system throughout the distribution system.

Look to the individual units as a site to manage inventory.

Continue to stay the course in incremental improvements to increase operational efficiencies.

Manage inventory throughout the total supply chain.

Recognition of the source of costs is changing, according to Arnold Maltz, Ph.D., assistant professor of supply-chain management at Arizona State University, Tempe. Errors in inventory, order processing and shipping are expensive to correct. Inventory is expensive to carry and costly to transfer when it is in the wrong place. Using technology, operators will continue to reduce costly inventory, limit forecast errors and increase inventory velocity.

It is these factors that Maltz says he believes are opening the doors for collaborative forecasting and electronic commerce methods.

Systems integration is the practice retailers are employing in their quest to best manage inventory. Sharing data among departments, such as access to frequent-shopper data, can assist retailers in spotting trends to ensure the right product mix on shelves.

Associated Grocers, Seattle, is integrating the financial and supply-chain systems to make it easier to run detailed cost analysis of supply-chain practices and afford a better overall picture of the costs of inventory. Albany, N.Y.-based Andronico's has also made a move to coordinate financial and supply-chain management through software applications. The chain expects this move to ease the flow of data between stores and headquarters, especially in the area of direct-store-deliveries. This aspect of the program is particularly important as Andronico's moves forward on its scan-based-trading pilot.

Other operators are looking to apply distribution-center inventory-management best practices to the individual store level. Some experts say they believe that this is the key to completing the circle of inventory management.

"Ninety-seven percent of out-of-stocks are attributed to store-level failures, and only 3% can be attributed to warehouse operations," says Steven Love, partner in Arthur Andersen, Chicago. "By focusing on four key areas -- planning; allocation and replenishment; sourcing, and buying -- and sales performance measurements, retailers can significantly improve inventory productivity."

Associated Food Stores, Salt Lake City, is one wholesaler that is taking a hard look at inventory management at the store level.

"We are trying to use as many tools as possible to eliminate the guess work of what happens at retail," says Glen Ferguson, inventory buying supervisor. "We know what our retailers buy and what the shelf looks like during an ad. We want to move toward shelf replenishment with our stores. This will be a true value-added service to our members and would help us to achieve service levels and controls."

Ferguson sees the biggest benefit in maintaining an adequate overstock level. "When you guess stocking levels, you want to over-guess," he says.

Associated Food Stores has worked with its members to determine store-level needs more accurately. "Our retailers are 60% driven by promotion. We have proven to them that we have a good idea of what inventory they will need and they have become more apt to take our advice."

Excess inventory at the store level costs money. According to a report issued by Arthur Andersen, a supermarket with weekly grocery-department sales of $174,000 has about $108,000 of dry grocery product in the back room. Typically, that would represent more than 5,500 cases of product in an area smaller than 2,000 square feet. Back-room dairy and frozen-food items average $41,100, or more than 2,000 cases. It is not surprising that during peak sales periods retailers can't even close the back-room freezer and storage-cooler doors.

Despite the promise that store-level management might hold, industry observers caution that not keeping on track improving operational efficiencies would be courting disaster.

"Improving operational efficiencies is key to inventory turnover and pushing down inventory levels," says a Midwestern operator. "Simple inventory-counting and receiving errors continue to be principal obstacles."

While report-based programs -- including vendor-managed inventory -- appear to be on the forefront of inventory-management systems, retailers are hesitant to share sales and forecasting reports with vendors or even their wholesalers.

"In today's collaborative environment, retailers are reluctant to turn over raw POS data," says one industry source. "The result is that retailers and manufacturers are looking at order forecasting and shared demand instead."

"When we collaborate with manufacturers we find that they have a better understanding of our lead times and safety-stock needs," says Ferguson. "We can all better look at what needs to be replenished."

CPFR uses systems to coordinate promotions and sales data between retailers and vendors, creating a single, agreed-upon forecast.

At Raley's, the operator would like to upgrade its operations to include real-time capabilities, for example. This enhancement is not available with the current warehouse-management system. As a result, the retailer ponders whether to upgrade and enhance or scuttle the system, opting for a new one.

Still other challenges remain constant battles, operators report.

"Logistical challenges, driver shortages and fuel prices are all out of our control, yet they impact ultimate inventory management," says Associated's Ferguson. "Our facilities are miles apart, some are housed in outmoded buildings."