SCAN-BASED TRADING TEST AT H.E. BUTT HIKES SALES

ADAM BLAIR

SAN ANTONIO -- Final results of a scan-based trading pilot at H.E. Butt Grocery Co. stores here showed increased sales, fewer out-of-stocks and reduced shrink.

The retailer and several direct-store-delivery manufacturers told SN they would be expanding their use of SBT as a result of the positive test results, which were released last month.

Sales for the seven DSD vendors participating in the 20-week test outpaced their products' sales at control stores by 2.9%.

Retailer and manufacturer executives said the test showed SBT offers benefits to both parties, but it requires a significant commitment to technology and communications to be successful.

SBT's supporters say it represents a significant step in retailer-manufacturer partnering. It involves scan-based payment for DSD products and has the capacity to cut numerous inefficiencies out of the supply chain, including backroom check-in at stores.

SBT's use of daily point-of-sale data, Uniform Communications Standard transaction sets and electronic data interchange also helps integrate retailers' and vendors' interests.

The sales increases were mainly due to improved in-stock positions of direct-store-delivery products at the test stores, said Harvey McCoy, group vice president of corporate procurement at H-E-B here.

The three-store SBT pilot was conducted from January to May 1997, and preliminary results were released last June. The pilot involved seven DSD manufacturers: Coca-Cola, Atlanta; Dreyers Grand Ice Cream, Oakland, Calif.; Pepsi-Cola North America, Somers, N.Y.; Miller Brewing Co., Milwaukee; Frito-Lay, Plano, Texas; and Earthgrains, St. Louis. These companies account for $287 million in annual sales with H-E-B, representing nearly 50% of the retailer's DSD volume.

Among the most dramatic sales increases during the test was a 29% jump experienced by Earthgrains. H-E-B has already expanded its use of SBT chainwide with Earthgrains, and plans to initiate SBT with a salted snacks manufacturer in June, said McCoy.

Prime Consulting Group, Bannockburn, Ill., managed the project, which was sponsored by the Direct Store Delivery Committee of the Grocery Manufacturers of America, Washington.

While participants were pleased with the results, and some manufacturers are looking at expanding test programs, they warned that implementing SBT requires commitments of time, money and management support on all sides to succeed.

H-E-B was chosen for the pilot, for example, because it had already made a commitment to EDI and the use of UCS II transaction sets, but the SBT test required a level of data sharing that even H-E-B had not attempted before.

"One of the key pieces during the test was sending suppliers daily scan data. That's quite a bit of information, and we hadn't been doing that before," said McCoy. "The technical ability to perform the movement of information and have data integrity are going to be critical pieces" to the success of SBT programs.

For the test program, H-E-B implemented a number of business practice improvements to help ensure its POS data was clean. These included disabling the "multiple" key at registers, using a refund key for customer returns, discontinuing the use of product look-up codes for bar-coded items and training its cashiers on the changed practices.

"A lot of the reworking needed on the retail side is that the data collected from the consumer has to be accurate to the line item, on a daily basis," said Douglas Adams, vice president at Prime Consulting.

"Retailers must be able to have clean and accurate scan data and give daily store data as prerequisites to doing SBT," said Bill James, vice president of industry affairs at the GMA. "These are things a lot of retailers would be challenged to do right now."

Technological changes for vendors would also be significant. With SBT, "our revenue point, which is the most important line in the profit-and-loss statement, changes from the backroom check-in point to the checkout scanner," said Steve Conover, senior group manager of the supply chain at Frito-Lay. "All the systems we've been building for decades are based on the assumption that the revenue point is at the back door."

Shrink control, one of the biggest concerns for all parties, was kept to an acceptable level during the H-E-B test -- indeed, it was lower than in other product categories. Overall shrink in the test categories was 0.5%, compared with a shrink level of 0.7% in the test stores' grocery categories.

McCoy credits H-E-B's use of a perpetual inventory system and the need for it to provide accurate item-level data to the participating SBT vendors with keeping shrink under control.

Other positive test results included vendors saving 30 to 40 minutes per delivery, mainly by eliminating backroom check-in of products at the test stores.

"Delivery route productivity increased, so the drivers could spend more time merchandising product rather than waiting in the back room," said McCoy.

An open-window delivery system, part of the SBT pilot, allowed vendors to "service stores closer to their busy time," said Martha Uhlhorn, vice president of ECR and sales technologies at Earthgrains. "That's a good thing for the consumer, the retailer and the supplier."

The SBT test has aroused interest from both retailers and vendors. Frito-Lay will participate in an SBT test in 1998 "at least 10 times as large as the H-E-B test we just completed," said Conover. "H-E-B was by far the most successful test of SBT we've ever had, and we had been trying this for four years."

Besides expanding its SBT program with H-E-B, Earthgrains has "talked to other retailers" about initiating SBT programs, said Uhlhorn. "We've found the most important component for a retailer is top-management buy-in, because more often than not, they need to make major changes to legacy systems in order to pull off SBT."

"Since the test, there have been a number of other retailers interested in the process and how it might bring efficiencies into their organization," said Prime Consulting's Adams. "But resources have to be spent to prepare for it, and many retailers may not be ready for it."