FMI MARKETECHNICS 1999-03-08 (1)

ADAM BLAIR

NEW ORLEANS -- Achieving exact synchronization of price, promotion and item maintenance data between retailers and direct-store-delivery vendors remains one of the thorniest issues in implementing scan-based trading programs. It's one reason SBT's expansion has been limited, despite strong indications that the process can decrease out-of-stocks, increase sales and cut a retailer's backroom labor costs.

A two-retailer, multivendor SBT pilot program, scheduled to begin in May, will explore the viability of solving the synchronization issue by using a third-party shared communications network as a common repository for data.

While the participating retailers have not yet been selected, interested manufacturers include industry leaders such as Nabisco, Frito-Lay, American Greetings, Coca-Cola, Kraft Pizza and Miller Brewing.

"We're hoping one of the retailers will be an independent with less than 20 stores, and the other will be a large chain," said Doug Adams, vice president of Prime Consulting Group, Bannockburn, Ill., which will monitor the pilot. "I believe the process is very viable for small and medium-sized retailers," he added.

Adams spoke at a Scan-Based Trading workshop at the MarkeTechnics Convention, held here Feb. 26 to 28 and sponsored by the Food Marketing Institute, Washington. He expects to identify the retailer participants later this month, with a four- to five-month pilot beginning by Memorial Day, he told SN.

Based on results from a 1997 SBT pilot involving seven manufacturers and H.E. Butt Grocery Co., San Antonio, Adams provided an industrywide projection of the potential benefits to retailers if half their DSD business were conducted via SBT. "It would add one to two points of margin, and the inventory reduction would add two points to the retailer's return on assets," he said.

For every 100 stores, such results would translate into an additional $4 million in annual profit and a $7 million inventory reduction. "This could provide a competitive advantage for the grocery channel overall, because mass merchandisers and chain drug stores use less DSD product," than supermarkets, noted Adams.

So far, however, SBT has not achieved the critical mass that would make it attractive to large numbers of retailers and manufacturers. One reason has been daunting information technology requirements for both trading partners.

Accounting-level daily scan data delivered on a daily basis is a "requirement to play," said Martha Uhlhorn, vice president of Efficient Consumer Response and sales technology at bread manufacturer Earthgrains Co., St. Louis, who also spoke at the workshop.

The reason such clean data is needed is that SBT moves the payment point of DSD product from the supermarket's back room to the retail point-of-sale. "If it's not scanned, it's shrink," said Uhlhorn, noting that SBT replaces the traditional DSD invoice with the retailer's scan data.

Potential problem areas with SBT include bread taken off a store shelf to be used in a supermarket's deli department and beverages sold via vending machines, all of which need to be scanned within an SBT system.

In addition to clean, daily POS movement data, SBT "requires major IT system and business process changes, a new level of trust [between retailers and manufacturers] and new electronic data interchange transactions" to get exact synchronizations of product and price data, she added.

In the H-E-B pilot, participants used UCS II transaction sets to synchronize prices, said Uhlhorn. However, since that time, "no one is using UCS II, including H-E-B; it's too cumbersome."

Uhlhorn is enthusiastic about the new pilot's use of a third-party data network, provided by AIG/viaLink, Edmond, Okla. "Retailers will match all their electronic data interchange transactions to viaLink once, and then the company will translate them to each manufacturer's language needs," she explained. "Electronic commerce typically shuttles data back and forth," said Adams. "Only a few systems put data into a common repository, which allows each trading partner to access and check their data against a common database."

Currently, Earthgrains uses SBT with "five large, sophisticated customers, using EDI," she noted. "For us to reach critical mass we have to reach smaller customers, and we hope this network will enable more customers and suppliers" to participate in SBT.

The new pilot will allow for three levels of participation. The first level will test the scalability of using the common network for price and item maintenance functions. Uhlhorn reported that Earthgrains has this level of functionality "up and running with several of our customers."

The pilot's second level will test the functionality of using POS data to reduce out-of-stocks and to create more accurate product orders and more effective planograms. Participants at this level will also test the data's use in creating sales forecasts, in what Adams called "an early DSD version of collaborative planning, forecasting and replenishment."

Only three or four manufacturers will participate at the third pilot level, which will involve the most advanced SBT functions. These include capturing nonscanned consumer sales, conducting physical inventories and providing partnership reporting on shrink.