MANY WAYS SEEN TO LINK UP FOR SUPPLY-CHAIN SYNERGIES

KIM ANN ZIMMERMANN

Enterprise integration is a goal of many retailers, but the paths they are following to get there are as varied as their organizational structures.

But no matter how supermarkets are achieving synergies among their varied systems, it is apparent that the supply chain is a crucial part of the equation, according to retailers and industry observers.

"Clearly, retailers need a foundation for e-commerce, whether it is consumer-to-consumer or business-to-business," noted Glenn Hershey, principal in Kurt Salmon Associates, Los Angeles. "System integration is crucial to success moving forward. As new business needs emerge, so with the need for enterprise integration within the organization as well as with outside partners," Hershey noted during a presentation at the FMI IT Leadership Forum held in Monterey, Calif., last month, and sponsored by the Food Marketing Institute, Washington.

"With efforts such as scan-based trading and category management, many supermarkets are asking 'what should my architecture look like to take full advantage of this?' especially as more data moves upstream to the supplier," he said.

Retailers agree that the method of enterprise integration clearly depends on the organization's current systems structure as well as future business plans. For example, if the company has aggressive expansion plans, that must be taken into consideration when establishing systems strategy.

"How you approach enterprise integration really should be based on what is happening within your own company, not what is the latest, hottest trend," said John Lauderbach, vice president of information technology for Wild Oats Markets, Boulder, Colo. "There is no one right answer. You have to take a look at your resources. Best-of-breed can allow you more flexibility, can take a lot of resources to maintain. ERP is holistic, and it can be more generic, but may make sense if the system addresses your company's particular needs," he said.

One retailer, who asked not to be identified, said that making a decision on enterprise resource planning vs. best of breed has become increasingly difficult as presidents and chief executive officers become more involved in the process.

"This is not a systems strategy you develop overnight. But a consultant will get hold of a CEO and tell him about one approach, and then he comes to the CIO and asks 'why aren't we doing it this way?' These things have major implications not just within the organization, but for the retailer's business partners as well," the retailer said.

This retailer said that instituting a common database structure in all the systems is a key to achieving data synergy throughout the organization. "If every application is accessing and maintaining the same basic data with the same format, it is easier to snap applications on and off," the retailer noted.

He said that transmitting data electronically between retailers and suppliers is not as much of a technical challenge as it is a cultural one. "The technology exists. The common database structures exist. We can exchange data on a technical level. We've just got to raise the amount of activity. The industry is moving to more collaboration between distributors, retailers and manufacturers. But right now, it is more of a business practice and issue than it is a technical issue," he said.

Hershey pointed out that it is not simply a debate of ERP systems vs. a best-of-breed approach. "All too often this is narrowed down to a specific argument about two points of view, which doesn't really give a complete picture," he said.

According to Hershey, there are at least five models for enterprise integration. One of the most common among the supermarket industry, he said, was the approach of a custom-built solution, which brings together various solutions for functions such as store systems and warehouse operation. "This approach is being used by about half of the grocery stores by number, and 67% of the retailers if you base it on volume," he said.

He pointed out that some of the drawbacks of this approach include increased support costs and a lack of flexibility. "As systems get built up over time, the care and feeding costs rise," he said.

Another approach, which is being used by roughly half of the other supermarkets by number, involves a core solution, which is purchased from a software vendor, along with some custom solutions and then applications for individual functions.

Using this model, he noted, purchasing functions often drive the core systems and warehouse needs.

The true ERP systems are a few years off in the industry, Hershey noted. "ERP, even as roughly defined, doesn't exist today in the grocery industry and I think it is two to four years from ready for prime time," he said.

Another approach -- one that is a year or two away, according to Hershey -- involves using systems designed for general retail buying and merchandising and adapting them to the industry. These applications can serve as the retailer's core system, which acts as a point of connection for other applications, such as store and distribution systems. This approach is only used by a very small percentage of retailers, he said.

The fifth strategy involves middleware, which is software sitting between the various applications to ensure integration. "This approach is starting to gain attention. The advantage is that as you add or change applications, you have a backbone in place."

Whatever solution satisfies your business needs, don't expect an inexpensive fix or a quick return on the investment, Hershey cautioned. "The rule of thumb on cost is 1% to 1.5% of revenue, and that can be 2% of revenue if you are replacing your point-of-sale at the same time."

He also said not to expect a cost reduction. "Don't expect this to reduce your IT costs. Less than 15% of companies that have tackled this issue have realized a cost reduction."

To minimize the risk and the cost, some retailers are taking on enterprise integration in smaller chunks.

Wegmans Food Markets, Rochester, N.Y., has identified space planning and planogram data sharing as a key area where the retailer can gain efficiencies in the supply chain.

"As a support service, our goal is to help bring category merchants closer to our customers," according to Wegmans' space-management coordinator Tim Mahan. "This system will enable us to efficiently develop, execute and maintain more customized planograms for our stores."

The goal of the system, according to a source familiar with the project, is to closely integrate space management with category management. The system is built with a standard database, so information can be easily shared.

"The idea is that this will make Wegmans category management even more efficient. This information will make Wegmans more efficient in their buying, so they can continue to work closely with suppliers as to what their exact needs will be for products in the future," according to the source.