Safeway Leverages Efficiencies Through Trade Portal

MICHAEL GARRY

MIAMI — Safeway and Kraft Foods reported eliminating huge volumes of paperwork, saving thousands of labor hours and cutting out numerous invoicing errors as a result of transitioning from a paper-based process to a Web-based portal for the transmission and management of trade promotions.

Safeway now uses its four-year-old portal, dubbed eDeals, to facilitate the transmission of about 500,000 trade deals annually from almost all of its suppliers, said Stuart Arnott, director of marketing systems and processes for Safeway, Pleasanton, Calif. Arnott described the portal last week at the Grocery Manufacturers Association's Information Systems/Logistics Distribution Conference here during a session entitled “A Business Case for Collaborative Deal Management.”

Arnott said the system enables the electronic preparation, submission, negotiation and archiving of all vendor deal sheet contracts. “We're pumping a lot of volume through,” he said. “The direct financial benefits have been huge.”

From the standpoint of a supplier that channels “tens of millions of trade dollars” to Safeway annually, Kraft, Northfield, Ill., considers eDeals “a major cornerstone of the way we operate,” said Chuck Eckman, customer vice president for Kraft, who shared the stage with Arnott at the conference. He said the system saves Kraft 1,600 man-hours annually in such activities as deal preparation and data entry, transporting deal sheets to Safeway headquarters, following up on the status of contracts, and printing and matching paper invoices.

The eDeals portal is maintained by DemandTec, San Carlos, Calif., which charges Safeway a “nominal” software-as-a-service fee annually, said Armen Najarian, senior director of consumer product industry marketing for DemandTec, who also participated in the conference session. The portal is free to suppliers, noted Najarian, who added that DemandTec markets “upgraded [portal] capabilities” to manufacturers such as Kraft.

DemandTec takes care of signing up suppliers, large and small, to submit trade deals via the portal, providing “turnkey vendor onboarding and training services,” as well as “end-user support,” Arnott said.

Najarian said DemandTec operates similar portals — which all operate via its TradePoint Network — for eight other retailers that have rolled out the system to their suppliers and four that are in partial rollout; he said two of these retailers are Kroger and Food Lion, both of which are receiving trade deals electronically from Kraft, noted Eckman. In 2005, Safeway became the first retailer to leverage the TradePoint Network.

In total, retailers operating trade promotion portals via DemandTec account for one-third of total U.S. grocery volume, said Najarian. Other retailers, such as Supervalu and Hannaford Bros., operate their own online portals, which are designed to receive trade promotions and handle other applications.

THE HUMAN ELEMENT

During the session's question-and-answer period, the speakers were asked about whether eDeals met any resistance from manufacturers concerned that the electronic process removed the “human element” from deal negotiations and engendered a “reverse auction atmosphere.” Eckman answered that the time saved by the portal “increased the quality of the human interaction” because it allowed Kraft to engage in more “collaboration, strategy and category management” with Safeway. “We have a better conversation now.” He added that Kraft has not found the portal to be like a reverse auction.

Arnott contrasted Safeway's former paper-based protocols with the eDeals electronic process. Paper trade deals — as well as revisions — were formerly sent to Safeway via the mail or delivered by courier, whereas now online forms are submitted electronically and revisions made the same day. Negotiations were conducted via phone, fax or email; now they are handled via workflow-based approvals, with visible status notifications.

In the past, Safeway would print and mail an invoice to a manufacturer to recover the cost of promotions. Now it transmits an electronic bill matched to a contract. Previously, the chain would store all of its paper documents in countless boxes stored offsite; now it's all archived digitally.

The electronic process has proved far more accurate. “If a category manager is expecting a 50-cent allowance, and the vendor sends 45 cents, we can say we talked about 50 cents,” said Arnott. “We've basically eliminated errors in the allowance process.”

Arnott was able to explain what eDeals was like as a broker submitting trade deals to Safeway — a role he played during a hiatus from Safeway that ended in 2006. “When I faxed deals to other retailers, I never knew [for a period of time] if the deal was accepted,” he recalled. “With Safeway, I never had that issue. It allowed me as an account rep not to have to worry about day-to-day stuff, and I could focus on growing the business.”

Eckman also described the “black hole” that exists between the time a deal is submitted to a retailer and the time a commitment is made, which can result in revisions and confusion about terms. “But we know the commitment at Safeway, so we can make a real-time decision and move forward.”

In terms of the direct financial benefits derived from eDeals, Arnott cited a 3% gain in billing efficiencies, a reduction in paper printing and postage costs, a drop in post-audit recovery fees and the elimination of the cost of transporting and storing paper files. Indirect benefits included better vendor relationships, a more consumer-centric promotion planning process, and environmental gains.

Safeway is now looking at ways to integrate eDeals with some of its other corporate systems, Arnott said.