SCAN-BASED TRADING

RANDY WEDDINGTON

While some chains are rapidly expanding their scan-based trading programs, others are still taking a wait-and-see approach.

After years of tests on scan-based trading, supermarkets continue to implement the practice. But the pace of these rollouts is varying greatly from one chain to the next.

Some retailers may be hesitant about using SBT because they don't fully understand it.

"The [electronic] exchange world made everyone freeze while trying to figure out SBT," said Doug Adams, vice president of Prime Consulting Group, Bannockburn, Ill.

Adams' group has been involved with SBT tests conducted by the Grocery Manufacturers of America, Washington.

"What is this thing? Who's going to connect it to whom? How do I sort all of that out?" Adams asked.

In this new business model, suppliers, initially DSD vendors, operate on consignment. They own the product they've stocked on store shelves until it's sold. They bill retailers from the sales data captured by scanning systems.

To do this effectively, retailers and suppliers must first synchronize data and establish an electronic exchange of all information pertinent to transactions.

"People either operate their own stand-alone systems on a one-to-one connection or they're with the viaLink Company [Dallas]," said Adams. "Those are the only methods that people are doing SBT on a broad scale today that we're aware of."

These same options are available to smaller operators like Andronico's Market, Albany, Calif. "We use viaLink and, as far as the process is concerned, it works very well," said Joe Goertemiller, merchandising systems manager at Andronico's. "That part does have value."

However, after testing SBT for more than one year, Andronico's has decided to temporarily suspend rolling out the project (see related story).

In GMA tests, SBT has already proven to have concrete benefits. Among them "were the sales volume increases for both the retailers and the manufacturers that participated," said Erin Harcourt, GMA senior manager, industry affairs.

"We also saw a very significant 69% reduction in invoice deductions." Suppliers saved 20 to 25 minutes per delivery and retailers saved 10 to 15 minutes by not having to deal with back-room check-ins, she said.

Some larger chains have already become clear leaders in adopting the process.

"The retailers who are engaged in SBT to a large degree include Wal-Mart [Bentonville, Ark.], Kroger [Cincinnati], H-E-B [ San Antonio], Meijer [Grand Rapids, Mich.], and Schnuck [St. Louis]," said Adams.

"SBT is in full deployment at Meijer," said Betsy Hill, viaLink's director of marketing. "Meijer has a number of partners and continues to roll out."

Meijer recently added SBT with Perfection Bakeries, Fort Wayne, Ind., after a brief 12-week setup period, viaLink announced Sept. 6.

"Perhaps the most important benefit of all is that our consumers get better service and experience fewer out-of-stocks," said Jim Postma, Meijer group vice president of distribution, manufacturing and supply chain officer, in a release about SBT. "ViaLink makes it work, so we and our suppliers can focus on the important things," he added.

As SBT moves forward, supermarkets grow more comfortable with the technology and then seek additional suppliers.

"The people who have the greatest experience continue to look for new trading partners with the capability," said Adams. "They've gotten sharper at knowing what works and what doesn't."

Meijer made the initial contact for this partnership, Perfection Vice President of Finance Judy Siegel told SN. And while this supplier is optimistic about the undertaking, "it's still too early to evaluate the results," she said.

Other chains, meanwhile, are on similar fast tracks.

"Winn-Dixie [Jacksonville, Fla.] is rolling out almost as aggressively as Meijer," said Bob Noe, viaLink president, consumer packaged goods and retail.

And other large players may be getting involved. "There's renewed interest being built at Safeway [Pleasanton, Calif.]," said Adams.

Although SBT's early adopters have mainly been bigger chains, small operators are also following the model's progress and awaiting their opportunities.

"We're not currently using SBT but we would definitely give it a try," said Marv Imus, vice president and owner, Paw Paw Shopping Center, Paw Paw, Mich. "Our DSD vendors haven't yet contacted me. Because we're a single store and not in a major metropolitan area, I don't know if anyone in our region is even doing it yet."

Retailers like this may now be positioned to begin.

Last year's GMA pilot, with Andronico's and Schnuck, "proved that SBT is applicable for both small and large retailers and manufacturers," said Harcourt.

One reason for SBT's increased feasibility in all sectors is the emergence of third-party data managers like viaLink. They can help provide cost-effective solutions.

In a 1996 GMA test, for instance, trading partners had to invest in that technology, said Harcourt. In the more recent pilot, "the retailers and manufacturers who participated just went online through viaLink's Web site and accessed information. They didn't need to invest at all."

This adds a viable synchronization and e-commerce tool for retailers currently without other connectivity.

"Only about 20% of the industry is actually operating an EDI infrastructure," said Emil Martinez, vice president of business development for UCCnet, a subsidiary of the Uniform Code Council, Lawrenceville, N.J. This organization, he said, "was developed to ensure that standards-compliant synchronized data was available to fuel" value-added applications like SBT.

One concern for those without data systems, however, is viaLink's August announcement of layoffs, salary cuts and other expense reductions.

But the company has "seen the value of what's going through our SBT invoicing increase tenfold between January and July," said Betsy Hill.

At any rate, intermediate service providers improve much of the industry's accessibility to SBT and its benefits. The benefits range widely, according to Doug Adams, "from what seems like the trivial, which is the reduced congestion in the back room, to the important, which are the reduced administrative costs and better in-stock position leading to incremental sales."

So, why isn't SBT penetrating faster?

One problem is that since suppliers retain ownership of their product in stores, SBT has more terms to agree upon, said Pete Able, research director, retail, AMR Research, Boston. "Shrink becomes a negotiated area," he said. "The negotiating process takes an enormously long period of time because neither side is aware of the values -- they have to earn each other's trust."

Another is that "it's taking longer for people to adapt their operations so that this is smooth and efficient," said Adams. "The systems' lead times have proven to be a bigger barrier than anticipated in the earlier studies."

And for some chains it's a matter of awaiting SBT's eventual penetration beyond DSD into traditional warehouse-based delivery systems.

"We've discussed ways that we can possibly implement SBT, but since most of our product is bought through wholesalers, that limits its availability to us," said Jim Antz, vice president, information systems, Harps Food Stores, Springdale, Ark.

This next phase, which the GMA has considered testing, will bring its own set of hurdles.

"It would certainly look different from the SBT version that you see for the DSD companies," said Harcourt, "given that warehoused products sit on the shelf a little longer. So it's a tougher sell for manufacturers or suppliers."