NEWS & SOLUTIONS 1996-10-14

MARC MILLSTEIN

MINNEAPOLIS -- Managing the entire supply chain and implementing computer systems to handle the immense amounts of data necessary to drive advanced logistics practices are just two of the critical challenges wholesalers face today.

Tapping into the potential of activity-based costing for analyzing all aspects of supply chain costs, and in some cases implementing new pricing programs, are also keys to the future health of the industry, said Steve Lumsden, vice president of warehousing and transportation at Nash Finch Co. here.

Lumsden spoke with SN about the most crucial issues -- from forward buying and continuous replenishment programs to advanced communications protocols and the Internet -- facing wholesalers today in an interview shortly before this year's Joint Industry Productivity Conference, Oct. 26 to 30 in Miami. Lumsden is conference chairman of this year's event.

The conference, sponsored by Food Distributors International, Falls Church, Va., and Grocery Manufacturers of America, Washington, along with 14 other leading trade associations, is expected to a draw attendees from major companies throughout the supermarket industry. The title of this year's conference is "Leading Change in Integrated Supply Chain Logistics."

Here are highlights of what Lumsden had to say about today's wholesaling industry:

SN: As we head into this year's conference, what do you see as the most critical challenge facing wholesalers today?

LUMSDEN: The issue of managing the entire supply chain, such as continuous replenishment, slow moving items, warehouse consolidation, cross docking and all the other elements involved in warehousing today.

SN: How would you characterize the progress of wholesalers with regard to Efficient Consumer Response?

LUMSDEN: The most basic success that has emerged from ECR is standardized electronic data interchange transactions. Important progress has been made in this area. Category management is also coming into play and will continue to be a very high priority for companies. In addition, activity-based costing is being used by a growing number of companies as a means to monitor costs and develop pricing programs.

Continuous replenishment programs also are a high priority for many companies. Certainly, it has a higher priority for some distributors than others, but there are companies moving along at a very fast rate with CRP.

SN: There was talk early on that wholesalers were being left out of the ECR loop -- that the initiative represented a threat to their business. Is that still true? Is there still some tension?

LUMSDEN: I don't know how much tension there is, but I also don't necessarily believe everyone shares the same beliefs about the value of every aspect of ECR. A big issue in the beginning involved independents and how the ECR program was initiated from their point of view. That's where most of the dissatisfaction came from early on. I don't hear much of that anymore.

SN: How important is activity-based costing and unbundling of costs for wholesalers heading forward?

LUMSDEN: It has to be done. As an industry, we're just beginning to get our arms around ABC. If one thing is slowing us all down, it's availability of good information. ABC is alive, living, breathing and growing.

SN: There are a growing number of ABC pricing programs now being tested, such as Supervalu's Denver division menu pricing program. Is this how you see the industry going?

LUMSDEN: How people use what they gain out of ABC is a marketing tool. I would rather not comment on how specific players go to market with that information. But people need to go with ABC to understand their costs, their business and their customers. How they use it is a different issue.

SN: Could we talk a little about the forward buying and diverting and wholesaler involvement in continuous replenishment programs?

LUMSDEN: Forward buying is changing, and has been changing for the last three to five years. If that trend continues, continuous replenishment will become more realistic, more palatable, at the wholesaler level. But if the different cost structures for goods remain as now, then forward buying and diverting will continue. As long as the value of goods changes from market to market, those practices will continue. The practices of forward buying and diverting have been decreasing, but in no way, shape or form are they gone. SN: What about cross-docking and flow-through logistics? How important are these practices for the industry?

LUMSDEN: One thing slowing us down in this area, in my opinion, are the computer systems to handle the information. It's not a simple matter when you start analyzing how to efficiently manage cross docking. I think we're still missing some systems today to fully handle the product properly.

SN: Do you mean systems for predicting product need or more integrating the data already there?

LUMSDEN: It's more integrating the necessary data. To make cross docking work properly involves integrating information and coordinating all segments of the business, which includes forecasting, ordering and warehousing. There are so many pieces involved, and that's one reason we as an industry haven't taken cross docking to where it should or will be in the future.

But cross docking is still a priority. There are a number of companies working to put the systems in place to handle cross docking, and there will be more and more progress made in this area over time.

SN: What about some of the changes involving handling of slow-moving items and consolidated ordering programs?

LUMSDEN: Programs for handling slow-moving items have been around for a while in categories such as general merchandise and health and beauty care. But we see these types of programs playing an even bigger role in the future. The industry is looking closely to see how slow-moving items fit into a market and what the best means for gaining efficiencies might be.

SN: Do you see these types of programs extending beyond just the largest players?

LUMSDEN: I think anyone who can consolidate their business will do so as long as it makes economic and geographic sense. So yes, that will happen. But what you are also seeing is chains buying the service from other suppliers and concentrating more on their core business.

SN: Why hasn't use of EDI moved forward more rapidly? Will we also soon see greater use of Standard Interface Language?

LUMSDEN: That's a big question. One problem early on with the development of EDI was lack of payback. That appears to be changing. There are now many more incentives being built into the system by manufacturers to make it more worthwhile to use EDI. I believe we'll see a lot more progress in this area. In terms of SIL, that appears to be the method that will become the standard, but again, only if there's a value for distributors in taking advantage of it.

SN: What about the 128 extended bar code?

LUMSDEN: At this point, I don't know how many companies have the systems in place to use 128. But in the next year or two I think you will see it used more and more extensively not only for variable weight items such as meat, but also for cross docking and other distribution practices. It appears to be the way to go.

SN: Is there still an issue in terms of independent retailers acquiring the necessary hardware and software?

LUMSDEN: There are and will continue to be many independent retailers who are eager and willing to take advantage of these technologies. They understand they need to participate for their own good. But I don't think every retailer will ever be involved in that type of program.

SN: Talk to me about the Internet.

LUMSDEN: The question in the wholesaling business is how do we use the Internet. Do we use it as a tool to sell product to the end consumer? Or is it a mode of communications? At this point, using the Internet as a mode of communication makes sense. But I don't necessarily have an answer as far as selling the end consumer.

SN: Finally, are there any major changes at this year's conference?

LUMSDEN: For one thing, the Grocery Manufacturers of America is a full partner this year. There will also be the Food Service 2000 track on Sunday presenting findings of a major distribution and consumer trends study. In addition, there will be a new track on human resources issues. It's the first time we've pulled the human resource segment into the show. This is also the first year we've had the international logistics forum, which will be held on Friday and Saturday before the show.