SCANNING THE HORIZON

ADAM BLAIR

Scan-based trading, while accounting for only a small percentage of products sold, has the potential to reshape significant elements of the manufacturer-retailer relationship. It requires both parties' commitment to exchanging information electronically, for example, and could also be the spur to developing automated perpetual inventory systems at the store level.

SBT, sometimes called pay-on-scan, involves tying retailers' payment for products directly to front-end sales, rather than to the store's back-door acceptance of, for example, a case of products.

The SBT programs in operation are limited to direct-store-delivery products, with participating retailers and manufacturers agreeing to open delivery-window times, to honor check-ins of products and mutual shrink control.

Some of SBT's immediate benefits include reductions in out-of-stock levels and increased sales, mainly due to freeing DSD drivers to perform in-store merchandising. For manufacturers, more flexible delivery times allow more efficient use of their fleets, especially if they can achieve a "critical mass" of SBT programs in a given metropolitan area.

Bread manufacturer Earthgrains Co., St. Louis, is a strong proponent of SBT. "We're active with five chains now, and we hope to double our number of active stores by mid-1999," said Martha Uhlhorn, vice president of Efficient Consumer Response and sales technologies at Earthgrains.

"To date, all the time savings [from SBT] have been reinvested in additional merchandising at the store," she said. Such efforts are not negligible; Earthgrains has seen sales increases averaging 3% at its SBT retailers, she added.

Those participating in SBT programs, however, warn that both retailers and manufacturers must have a top-level commitment to making the program work, as well as a strong information technology infrastructure.

Most SBT programs employ electronic data interchange, for example, to alert retailers that a delivery has been made, or to identify exactly how much product was sold on a given day to determine payment.

SBT also requires daily, store-specific, Universal Product Code-specific data from the store's front end. The lack of such clean data has been one of the major hurdles to wider adoption of SBT programs, sources told SN.

Beyond the need for flawless scan data on a daily basis, "manufacturers and retailers need to integrate EDI," for SBT programs to work, said Bill James, vice president of industry affairs at the Grocery Manufacturers of America, Washington. The GMA's DSD Committee helped organize a successful test of SBT at H.E. Butt Grocery Co., San Antonio, in 1997.

SBT participants must agree on EDI transaction sets, and "there has to be a marrying of information in the database. Whatever we call the data, and our numbers, must be identical to [the manufacturer's]," said a source at a major retailer, who asked not to be identified.

"This has to be done at the store level, and it has to be reconciled on a daily basis, if not more often," the source added, noting that more frequent data updates can push a store's in-stock levels to percentages in the "high 90s."

For example, if a store does a large portion of its business in the afternoon and evening, sending sales information during the day could prompt the DSD vendor to send an additional truck to that store, the source explained.

SBT can provide DSD vendors the ability to "micromerchandise," in this way, according to Dan Raftery, vice president of the consulting firm Prime Consulting, Bannockburn, Ill. "Consumer takeaway drives sales, so if the 'wrong' items are on the shelves, they won't be taken away," he said.

Dreyer's Ice Cream, Oakland, Calif., has made SBT part of its strategic initiative, according to Mike Corby, director of DSD development at Dreyer's. The manufacturer is running SBT programs with five chains at a total of more than 600 stores, and said that access to the data has improved its in-store service levels.

"It's allowing us to use the scan data to model our data for each store. We can adjust the product facings based on consumer demand."

Some retailers are equally enthusiastic about SBT's possibilities. "Service levels soar when you do it right, and in-store labor should go down," said the retailer source. "Freshness of product should go up as well. SBT can also get some paperwork out of the store's back room, and take it up to a host computer level."

To get the most advantage from SBT, some retailers believe they will need a true perpetual inventory system, where a scanned product would immediately be deleted from the store's inventory and a transmission from a vendor saying products had been delivered would immediately be added to inventory.