THE ELECTRONIC WHOLESALER

MICHAEL GARRY

Perhaps even more than a retail chain, a food wholesaler needs to be in constant communication with its key constituents -- the suppliers from whom it gets products on one side, and the independent retailers to whom it delivers those products.

To ensure that such communication runs seamlessly, today's wholesaler is increasingly relying on technological marvels like the Internet and computer systems that store, manage and transfer data.

One wholesaler that has begun to carve out a leading role in the use of electronic communications systems is Unified Western Grocers, an 81-year-old cooperative based in Commerce, Calif. (near Los Angeles). Unified grew significantly four years ago when its original entity, Certified Grocers of Los Angeles, acquired United Grocers. The cooperative is now in the process of implementing several ambitious programs that will form a smoother link across the supply chain that connects its suppliers with its retail customers.

Supporting some 3,000 stores, Unified operates three divisions -- Southern California, Northern California and the Pacific Northwest -- in a territory that stretches from the northern to the southern borders of the United States. In its most recent financial report, through the end of its third quarter (39 weeks) on June 28, Unified reported net earnings of $3.5 million, compared with losses a year ago. In fiscal 2002, its sales were $2.8 billion.

To support its far-flung network of distribution centers and retail customers, Unified has made a considerable investment in technology, overseen by Gary S. Herman, vice president and chief information officer, and his 150-person IS (Information Services) department. "A significant part of why we exist is to efficiently distribute products to retail customers, and technology certainly assists us in this process," he told SN in a recent interview. "We're always looking for systems solutions where appropriate to gain efficiencies."

Herman, 49, has been at Unified for three years, following 18 years at Ralphs (now Kroger-owned).

To develop and support systems for retail customers, Unified employs a Retail Technology Group. The group includes implementation and support staff in each of the three regions that directly serve stores, as well as employees in the Commerce and Portland, Ore., offices who manage systems and develop Unified's own customized applications.

As Western independents gear up for the major competitive threat posed by the expansion of Wal-Mart in their markets, those retailers "need to use technology to make their operations as efficient as they can," said Herman. Just as critical, he stressed, is to have access to the kind of information that can help them make informed decisions. "Information is just as important as the efficiencies you get from the technology," he said.

Herman's approach to providing Unified's retail base with strategic information is to develop a Web-based infrastructure as well as a "standard technology base" that will make it easier to support a wide variety of retailers.

Consultant and retail technology strategist Greg Girard, formerly with AMR Research, noted that Unified's IT program compares favorably to progressive systems initiatives undertaken by chains like Albertsons.

One of Herman's biggest initiatives in the past year has been the development of Memberlink, an extranet -- based on private connections using Internet technology -- for suppliers and retailers. "Its goal is to facilitate flexible supply chain relationships supporting many key functions, including new-product introductions, inventory management and marketing information management," he said.

Already in use by "two to three dozen" of its suppliers and many retailers, Memberlink will be rolled out to all suppliers and across all three of Unified's divisions over the next few months, said Herman. It's already in the Southern California and Pacific Northwest divisions, and is just getting started in Northern California. "We wanted to make sure it was working 100%, and we feel comfortable that is the case," he added. "Now, it's a question of training buyers to work with vendors and sign them up."

Herman thinks that the "most strategic" implementation of Memberlink is to improve speed-to-shelf for new items. Suppliers enter new-item information into Memberlink via a vendor portal on the Internet, and it's presented via Microsoft BIZTalk workflow software to Unified's buyers, who review it in back-and-forth conversation with suppliers. "It's all electronic," said Herman, "so when our buyers accept an item, they key in the unique data we need to update our corporate systems."

Once buyers accept a new item, it is presented to the retailers to review, and potentially authorize and order. "What we get from most of our vendors is not only the basic information, but also information to help retailers decide whether to carry an item -- what's unique about an item," noted Herman. "That's information that doesn't typically get to smaller retailers."

At about the same time that it was launching Memberlink last year, Unified also joined UCCnet, Lawrenceville, N.J., the nonprofit data synchronization registry and service operated by the Uniform Code Council. Unified is just the second food wholesaler, following Supervalu, to join UCCnet, which has 26 retailers/distributors and about 1,300 manufacturers.

Consultant Girard said that data synchronization "is a critical capability to be competitive as Wal-Mart enters the California market."

UCCnet allows distributors to validate and synchronize item information from participating manufacturers. As such, it complements, and ties into, Unified's Memberlink system, Herman noted. Suppliers who subscribe to UCCnet will be able to use the service to supply new-item information electronically to Unified, rather than manually entering the information at the vendor portal. "We're working with key brokers who have this information electronically and building interfaces with Memberlink to take the information in."

Herman pointed out that while UCCnet is still limited to item information, Memberlink is capable of also handling cost and deal information from manufacturers. "We think there's value in electronically capturing cost and deal information," he said.

Unified is "getting close" to initial tests of UCCnet with two vendors, Procter & Gamble and Nestle Purina, said Herman. In support of its UCCnet efforts, Unified will use a messaging/translation system from Microsoft called BIZTalk UCCnet Toolkit. Herman said Unified is the first distributor, or demand-side, company to pilot the Microsoft system, and will use an updated "schema" version that supports the 183 item attributes in the new version of UCCnet released in July. Unified has also installed Microsoft's .Net platform to support all of its e-commerce applications, including UCCnet, Memberlink and its corporate intranet.

Unified has also developed a mechanism, called U-Link, for getting information from its corporate systems to store databases. U-Link's primary function is to channel cost changes for promotions to retailers so they can decide what prices they want to set; it also enables them to produce signs and tags, and create batch files in the point-of-sale and back-office systems.

For about 400 stores, Unified operates a corporate pricing system from TCI Solutions, Tucson, Ariz., identifying about 2,500 "price opportunities" per week, including regular prices and temporary price reductions. This is one of the corporate services Unified offers retailers under its Vendorlink program (see story, this page).

Even if a retailer lets Unified set its prices via the TCI formulas, the retailer can use U-Link as a mechanism to execute the price changes and produce signs and tags.

Another communications tool developed by Unified is an RF (radio frequency) store ordering application that includes a PC, RF network and handheld device. The system provides near-real-time information on warehouse inventory status, letting stores know if an item is low or out of stock. The system also helps retailers create full truckload deliveries, an important consideration because "we charge them based on how efficiently they order," said Herman. Most of Unified's major retailers are using the ordering system.

Standard Base Sought

Herman acknowledged that for its retailers to fully leverage the advances in communications and technology Unified can offer, they need to share a standard technology base. To that end, Unified has started a "preferred POS" program, supporting two primary POS platforms, NCR and StoreNext (a partnership of Retalix and Fujitsu aimed at independents).

"Our retailers have a diverse assortment of POS systems, so we're trying to encourage them to move to the newer systems and limit the number of back-office store systems we need to support," said Herman. In addition, it's difficult to create interfaces between new applications and many disparate POS/back-office systems.

Unified had been gathering store POS data using a service from Percipient (formerly ems), Deerfield, Ill., until it ceased operations about a month ago. The cooperative replaced that with a similar service from Catalina Marketing, St. Petersburg, Fla., called RDOL. The Catalina service, which uses Catalina's checkout coupon system, helps create reports for scan-down promotions, price modeling and category management.

Unified is also making major changes in its distribution centers. In the past year, it has implemented the Triceps warehouse management system, from OMI International, Dallas, in all of its Portland DCs, across grocery, GM, frozens, deli, meat and produce. The real-time Triceps system has delivered efficiencies through the implementation of "very precise" labor standards for forklift operators and selectors, Herman said. Previous estimates of labor standards, based on averages, "tended to be a little conservative," he noted.

The cooperative plans to next install Triceps in 2004 in its grocery facility in Commerce, where voice selection will also be used for the first time (no voice supplier has been selected yet). "We're convinced voice selection will yield incremental selector efficiencies, though we don't plan to eliminate the selection case label," Herman said. "We have a mechanized warehouse, and still need the case label as part of the mechanization process."

The largest focus of Unified's IS organization over the next few years will be to keep finding ways to take advantage of the Memberlink extranet technology. "Our greatest opportunity is continuing to use the extranet to gain additional efficiencies and to develop a collaborative relationship with our suppliers and retailers," Herman said. "We see this as a project that's never done, and we keep coming up with new ideas."

The extranet, he added, will help Unified's retailers get away from paper-based communications so that the cooperative can operate "like a cohesive national chain."

Keeping Vendors in Mind

About a year-and-a-half ago, Unified Western Grocers created an umbrella program that encompasses many of the retail services it offers its retail customers. Though designed for retailers, the service is called Vendorlink.

Why Vendorlink? "We believe that we not only partner with retailers, but with the vendor community as well," said Dan Murphy, Unified's senior vice president, retail support services and perishables. "So we named it Vendorlink so they know we want to be efficient in dealing with them also."

Some of Vendorlink's programs existed prior to the formation of Vendorlink, but may not have been available in all geographic regions of the company, noted Gary S. Herman, vice president and chief information officer for Unified.

Murphy said that about 800 of Unified's 3,000 stores take advantage of parts of Vendorlink, and around 300 use all of it. "It's state-of-the-art stuff that is superior to their legacy systems," said Murphy. "A lot of our retailers are realizing that, and taking a look at it. It's sophisticated technology single-store operators couldn't purchase or develop themselves."

For example, about 550 stores are availing themselves of an ad support program, by which Unified negotiates deals with vendors, printers and distribution houses in putting together weekly ad circulars and coupon books.

Vendorlink also handles payroll and provides retail pricing support, using a system from TCI Solutions (see main story). It also offers category management and retail shelf management using POS data provided by Catalina Marketing and the Spaceman application from ACNielsen, Chicago. POS data, kept for two years, is also used for scan-down promotions and for market analysis "to see if the retailers are missing key items selling in a market area," said Murphy.