Finding New Ways

MICHAEL GARRY

At the U Connect conference in Dallas earlier this month, Wegmans Food Markets executive Marianne Timmons reminisced about the genesis of “New Ways of Working Together,” which has grown to be a global initiative aimed at fostering better retailer-supplier collaboration.

It started more than a year ago with a conversation between Danny Wegman, chief executive officer of Wegmans, Rochester, N.Y., and his daughter Colleen Wegman, president of the chain.

“We were getting Colleen ready to do a presentation on data synchronization,” said Timmons, Wegmans' vice president, supply chain and global business-to-business. “Danny speaks about data synchronization with uncommon passion. He really believes it's the underpinning of everything we aspire to do in the future.

“But Colleen said, ‘Dad, can't we talk about the business — about things people can really understand and really excite people? Can't we talk about what data synchronization can do for our business?’ And that's really where New Ways of Working Together at Wegmans was born.”

Few retailers have leveraged the Global Data Synchronization Network (GDSN) as much as Wegmans to ensure that its product data is accurate and shares the same attributes as its trading partners' product data. But beginning last year, Danny and Colleen Wegman began speaking about how accurate and synchronized data, by removing disruptions like faulty invoices and delayed deliveries, can also help create more productive sales meetings between retailers and their suppliers — what they called the “New Generation Sales Call.” It showed that the technical jargon of data sync could translate into real-world business gains.

That concept soon evolved into New Ways of Working Together, a broader vision to make the supplier-retailer relationship a more harmonious and productive one. Timmons has crisscrossed the country this year speaking about New Ways at conferences ranging from the Food Marketing Institute Supply Chain Conference in March to the FMI Show in May to U Connect. Its primary mantra: Eliminate disruptions and enable growth.

Another key emphasis is for trading partners to focus less on self-interest and more on satisfying consumer needs through joint long-term planning and agreeing on common goals. “We had to stop talking about the technology and start shifting the conversation to the consumer,” said Timmons. “That's when the light bulb goes off and people really start to understand what you're talking about.”

Wegmans has so far limited its New Ways collaborative efforts to five retailers: Coca-Cola, J.M. Smucker, Procter & Gamble, Kraft and Frito-Lay. In order to collaborate in this way, Timmons noted, companies need to cultivate what is often an elusive component: trust. “Often, trading partners don't trust one another,” she said. “We don't aspire to use this framework with every trading partner.”

Wegmans is not the only retailer pursuing a New Ways agenda with suppliers. Others now include Kroger and Safeway. The initiative is also being supported by GS1 US, FMI, the Grocery Manufacturers Association, the National Association of Chain Drug Stores, the Global Commerce Initiative (GCI) and VICS.

Timmons noted that while New Ways is an industry initiative, it is being designed to have two tracks. One, the Trading Partner Track, is set up to ensure the privacy of trading partners and protect their competitive advantage; the other, the Industry Track, will enable companies to share results in order to drive the development of standards.

In transitioning to a New Ways mind-set, companies will need to reward employees differently so they are not at cross-purposes, said Timmons. “Some people are rewarded if there are no out-of-stocks, while others are rewarded for keeping distribution expenses low, but the two are not aligned, and that's unproductive.” This also prevents people in retail and supplier organizations from working together.

A new white paper from GCI, Cologne, Germany, called “Preparing People for Change,” outlines the “structures, measures and incentives that facilitate, or create barriers to, long-term [collaborative] business planning,” said Jim Flannery, director, global customer marketing, P&G, Cincinnati.

The New Ways framework also calls for greater integration by retailers and manufacturers of their supply chains, to promote both efficiency and sustainability. That might include consolidating freight across multiple suppliers, a process Timmons acknowledged was “really hard.” Sometimes ingrained “emotional barriers” to working with competitors will get in the way, she added.

COLLABORATIVE ORDERING

Wegmans and Coca-Cola have collaborated in the New Ways initiative to boost the accuracy of Coke's product data from 30% to 100%. More recently, the companies have worked on collaborative store ordering.

As a direct-store-delivery vendor, Coke is responsible for store ordering of its products. But under the New Ways umbrella, Coke partnered with Wegmans to leverage store sales data to create “the perfect order,” said Kraig B. Adams, director, collaborative industry development, for Coca-Cola, Atlanta, who spoke about the project earlier this month at the U Connect conference. The companies tested this concept at eight stores in the Rochester, N.Y., area in a trial that ran from last November through May.

The New Ways initiative asks manufacturers and retailers to establish mutually beneficial goals. In the case of collaborative ordering, the overall mission set by Coke and Wegmans was “balancing inventory to fulfill shopper demand,” said Adams.

Within that mission were a number of specific objectives: to enhance the order process, optimize store inventory, improve in-stock position, improve sales and optimize account manager effectiveness.

Coke and Wegmans were able to get the project off the ground within 30 to 45 days, said Adams, because they adopted the “diamond” approach to company collaboration, whereby counterparts in each organization, such as IT and marketing, interact directly with one another rather than through a central intermediary (the more traditional “butterfly” scenario).

One of Wegmans' roles in the collaborative ordering tests was to provide Coke with historical and daily POS data on sales of Coke products — data that the beverage maker had not used in the past to calculate orders. “POS information was the foundation of the project,” said Adams. That data was fed into the Demand View system, from Market6, Walnut Creek, Calif., which used it to calculate a forecast of future sales.

In what was essentially an example of collaborative computer-assisted ordering, Coke merged the sales forecast with data from several other sources, including its promotional calendar, order frequency and delivery schedule, as well as a store's inventory capacity and status (perpetual inventory). The Market6 system used this blend to generate a suggested order, which was provided to the Coke account manager for each store. The calculation was done on a special handheld device employed by the account manager.

Coke became more acquainted with Wegmans' in-store procedures as a result of the pilot. For example, the company gradually recognized that the potential misuse by cashiers of the POS quantity key could impact inventory measures. Item authorization was also found to be important to the process.

In an assessment of the test, summarizing its last two months, Adams said that test stores generated higher sales than the control stores. In addition, days of supply in the test stores were lower than in control stores. “We were able to use facts as the basis for our decision-making in replenishing the shelves,” Adams said. “This was a great opportunity for Wegmans and Coca-Cola to get closer to store operations as a team.”

The assessment also revealed that Coke's account manager made adjustments to the system's suggested order about 60% of the time. “Human nature and old ways of doing things did sway the judgment of account managers at times,” said Adams. There were also instances where the system's sales forecast was higher than the actual sales that subsequently occurred.

“So, in many cases, having the account manager review and modify the order was key to ensuring the highest level of in-stocks to meet shopper demand,” said Adams. “Data is key to understanding the facts, but turning that data into actionable information often requires human intervention from an expert.”

In some cases, Coke found that out-of-stocks were higher in test stores. “This indicated that we needed to reevaluate our merchandising and/or deliveries, but we could react immediately so that out-of-stocks did not impact the shopper,” said Adams.

Overall, Adams said, the collaborative ordering tests have so far been considered a success, helping to “balance inventory to fulfill demand.”

STANDARD MEASURES

While the New Ways initiative emphasizes the need to focus on the business and consumer side of trading partner collaboration, it is still based on technical components such as data synchronization, the electronic product code and information sharing. Another new technical standard under development is Trading Partner Performance Management (TPPM), which defines GS1-based measures used by retailers and manufacturers to rank their performance and chart their progress toward mutually determined goals.

A TPPM working group under the auspices of GS1, Brussels, has come up with definitions for 16 commonly used measures (see box, below), ranging from sales (sales growth, retail item gross margin), to operations (order change, invoice accuracy), to supply chain (out-of-stocks, days of supply, on-time delivery) to data accuracy (data synchronization and data accuracy).

To determine the best way to define various measures, “we have looked at all the public sources and talked to people about what they do today,” said Matt Johnson, senior director, consumer goods industry strategy, for Oracle, which has helped lead the TPPM project. “These details have not been written down, so there was no common place to look.”

In the case of on-time delivery, for example, the working group recommends that the industry use “first appointment time” as the measurement basis rather than “purchase-order need-by date” or “last appointment time.”

Coke's Adams described the TPPM standard as the “Webster dictionary” definitions of trading partner measures. “We want retailers and manufacturers to look at it as an even playing field.”

“TPPM is intended to create standards that can eliminate wasteful discussions and make sure retailers and manufacturers are on the same page,” said Jeff Bornino, manager, supply chain initiatives, Kroger, Cincinnati.

Without standards, Bornino said, a measure like on-time delivery can be defined one way by a retailer and another way by a manufacturer, resulting in different calculations of a manufacturer's on-time delivery performance by each party. “The supplier might come in expecting a pat on the back, but instead the meeting turns into an unproductive dialogue about why the retailer calculated on-time delivery in a less favorable way,” he said.

During June, the working group was incorporating industry feedback into a specifications document. A document with final definitions is expected to be available in September, said Johnson.

In the next phase of the project in 2009, the working group will develop and pilot electronic messaging standards (possibly based on XML) to allow trading partners to share data needed to calculate the standard measures, Johnson said. “Then each side can work with the same data and independently calculate results.” Retailers, for example, would share POS data for sales and margin calculations while suppliers would share order-change information. The final technical standard will be published in the spring of 2009, Johnson said.

In its collaboration with Wegmans over the past year, Coke and the retailer agreed to look at inventory availability, cycle time, quantity, sales and invoice payment as some of the common scorecard measures by which the partnership would be assessed.

For any measure, Coke and Wegmans agreed that achieving or exceeding a goal would constitute a green mark on the scorecard; coming within 10% of the goal would earn a yellow mark; and being more than 10% off the goal would result in a red mark.

Measures Used in Trading Partner Performance Management

SALES

OPERATIONS

SUPPLY CHAIN

DATA ACCURACY