THE DIVIDENDS OF EFFICIENCY

CHRIS O'LEARY

ROCHESTER, N.Y. -- For Wegmans Food Markets here, the quest to reach a higher level of supply chain efficiency is a lot more than just talk. The 46-store chain here is well along the road to implementing substantial continuous replenishment programs with almost 40 of its vendors, and has succeeded in cutting inventory levels and reducing operating costs dramatically.

About 50% of Wegmans' total grocery warehouse inventory is now involved in vendor-managed CRPs.

The chain also is taking an aggressive stance in rolling out cross-docking and other distribution and technology-driven programs involving both high-volume and slow-moving merchandise.

The retailer's progress in implementing enhanced supply-chain practices, many of which fall under the industry's much-touted Efficient Consumer Response initiative, prompted Arthur D. Little Co., the Cambridge, Mass.-based international consulting firm, to present the chain with its "Best of the Best: Supply Chain Management" award last month.

Wegmans was one of just 20 recipients to win the prize this year, and the only supermarket to make the list.

"The award has to do with the fact that we've taken a lead in partnering with our suppliers to reduce costs in the system," Jack DePeters, director of grocery, dairy, frozen and bulk foods operations, told SN in an interview.

The number of Wegmans' CRP partnerships, the first of which began in late 1991, is steadily increasing, added Tom Adelsberger, manager of inventory management systems. "We're up to around 40 suppliers -- and there are about twice that many ship points -- involved with CRP relationships," he said.

The award placed Wegmans in the company of such international giants as Procter & Gamble, Cincinnati; Ford Motor Co., Dearborn, Mich.; General Electric Co., Fairfield, Conn.; Volvo, Gothenberg, Sweden, and Xerox Corp., Rochester, all of which also won the award this year.

Wegmans has seen substantial savings and efficiencies from its CRPs, and is pursuing several goals to enhance its supply chain management practices even further, Adelsberger said.

"We're interested in reducing our warehouse days of supply by 50%, improving our service level to our stores by reducing out-of-stocks by 50%, and having a more responsive buying system by reducing purchase order lead time by 50%," he said.

"Those are realistic goals," Adelsberger said. "You don't meet them in one week, but I guarantee that anyone who signs up for these [CRP] relationships should have very high expectations for improvement."

Both Wegmans and its manufacturer partners recognized the need to make substantial investments in technology. Because of the time, commitment and costs involved with the programs, partnerships need to be thoroughly researched and completely secured before CRP begins, DePeters said.

"It's important our partners have the same goals as we have," he said. To ensure suitability of prospective CRP partners, Wegmans conducts extensive interviews with manufacturers. "We have to make sure we're traveling down the same road before we turn the switch on."

The search for efficiency doesn't end when manufacturers' products land at Wegmans' receiving dock. Efforts at the warehouse level to improve delivery time to stores has fueled growth of such programs as cross-docking and manufacturer-assembled pallets.

Through electronic data interchange, Wegmans keeps manufacturers abreast of the status of their products in the distribution center on a daily basis, Adelsberger said.

"That includes the balance on hand, the balance on order, the number of cases we shipped to our stores on the previous day, and the number of out-of-stocks," he said. Based on that information, manufacturers create a suggested purchase order and electronically transmit it to Wegmans, where it is fed into a specially designed data base.

"Manufacturers are totally controlling purchase orders and Wegmans' warehouse inventories," Adelsberger said, adding he estimates more than 50% of grocery warehouse volume is controlled by vendors.

Having manufacturers control warehouse inventory is beneficial to both parties, DePeters said. "They know better what they've got available than we ever did."

But Wegmans still has the final call on purchase orders, DePeters noted. Category managers can make any adjustments they deem necessary and they retain complete control of all promotions.

Efficiencies are not only found in the manufacturer-to-warehouse loop, however. Wegmans is also improving operations at the warehouse-to-store level by encouraging more innovative delivery methods and improving communications within the company.

Wegmans said communications between the corporate level and the distribution center have drastically improved. "Before, [warehouse personnel] often felt like an outside service," DePeters said. "We'd order all these products and all this stuff would show up there -- they'd have little control over it."

Members of the distribution and traffic departments now help make up a team that initially meets with prospective manufacturers, allowing them to voice concerns about any proposed CRP procedures. "We made a major commitment to pull our whole company internally together, and our distribution and traffic departments have stepped up to the plate and hit home runs," he said.

Mike Bargmann, Wegmans' director of distribtion, added, "Our program has its foundation in the commitment and support we have received from our Information Systems group, who were responsible for developing the systems and applying the technology which paved the way to improved supply chain management."

Better communication between divisions has enabled Wegmans to experiment with ways to ship merchandise to stores.

"We're shipping products in all different fashions and formats than we've ever done before. We're doing much more cross-docking and prebuilt pallets," DePeters said. "We're not sitting with a lot of product in our warehouse anymore; it really has reduced our lead time."

Though many of the products that are cross-docked are high-volume, full-pallet merchandise, the smaller items, such as health and beauty care, could be shipped in the same manner, he said. "We used to deliver directly to our stores all these little bits and pieces. Now some are cross-docked out and it's lowered the [manufacturer's] operating costs as well."

Pallets built by manufacturers and shipped directly to stores also have demonstrated good potential for growth. "We can have a manufacturer build a pallet and ship it, and we can cross-dock that," he said.

Such innovations may only be the first wave, as Wegmans said it is going nowhere but forward with the improvement of its supply chain.

"This is not a project, this is a new way of life," Adelsberger said. Recalling Wegmans' pre-CRP days, DePeters said the value of close manufacturer relationships was not clearly evident. Prior to November 1991, when the chain began its first CRP partnership with Procter & Gamble, "we didn't see the need to partner on the supply side," he said.

"But after six months [of preparation], we were running the program with P&G, and reducing our inventories. We had very aggressive goals between the two of us."

The success of the P&G partnership rapidly led to relationships with dozens of other manufacturers, he said. "Now most of the people we do CRP with will tell you their volume is doing very well with us."