THE PROMISE OF THE NEW

Scan-based trading has seen several successful pilots and now retailers are starting to look forward to the extension of this program, where suppliers are paid when the product is scanned.

e SBT after the pilot and is in the process of expanding its use.

Along with SBT, executives identified CPFR (Collaborative Planning, Forecasting and Replenishment) and XML (eXtensible Markup Language) as two promising technologies. CPFR has had a rocky start so far in the supermarket trade, but the retailers see large potential in XML, particularly as an eventual successor technology to EDI, for electronic data interchange, although it is actually capable of doing much more in the long run.

SN: What potential do you see for scan-based trading?

MILLER: For both sides of the supply chain, the primary benefit is going to be cost savings, primarily through labor. When critical mass is achieved, then the savings will be optimized. Our savings at the store level are with the store receivers, and at the office level -- assuming you are at a synchronized data environment, like we are -- with the data entry people and category managers.

The suppliers have terrific efficiencies with their labor on their routes, especially when they can get an entire truck on an SBT route, that what they could define as a critical mass.

We had an initial expectation of the value of SBT being a better use of the carrying cost of money because we don't get invoiced for the product until we sell it, and it turns out that that is important, but it is not the key driver. The key driver is the cleanup of the business process and the reduction of labor. And our shrink has been outstanding.

BUTLER: I have paid attention to some of the pilots. It is something that we are going to look at. I am very excited about the possibilities for scan-based trading on warehouse product. That could just move the industry in a hurry if that type of program works out. That is really just like buying items on consignment. That could mean a lot. You don't need as big a warehouse. It doesn't tie up your money.

The other side of it is the manufacturers are going to gain knowledge in this process. Because, all of a sudden, they are shipping cases to the warehouse, and now they are going to know what store is selling it when, and they don't know a lot of that today. They don't really know what market the item is selling in. They just know it is selling in this region and through this retailer or wholesaler. In many cases, they don't even know the county or city it is selling in. There are some things that suppliers are really going to gain from it.

But it's a risk, but I think it is going to continue to move forward. A lot of our management here thinks it is worth the risk and in our particular case, we just have to find the right opportunity to crank that type of project up.

HERMAN: There is a huge opportunity for scan-based trading, but it demands a level of discipline in file maintenance and scanning integrity that not all retailers are capable of achieving. Trying to solve these problems will be the most important consideration affecting the speed of implementation of scan-based trading.

PINK: I've heard other retailers describe their experiences. I think the idea is incredible. There is an element of trust in SBT and I think it has a tremendous potential. As I've talked about it with our operating board, they are excited about it. I've heard the reports on the pilots and I think that the next generation of DSD will have to seriously consider SBT as a way to make that happen.

SN: What opportunities does CPFR (Collaborative Planning, Forecasting and Replenishment) have for the supermarket trade?

MILLER: We see CPFR as a great opportunity because of our data environment for scan-based trading. For example, we pull movement every night instead of just once per week. We have some very robust movement data, and that kind of information is valuable to suppliers, especially when they have production facilities, and perhaps some seasonality, and they can make better production runs as a result. If we can achieve that critical mass of participating suppliers and retailers, and allow that data to move, and if we have enough trust between the parties to share that data, then we drive further costs out of the system and perhaps offer a better product to the customer.

PINK: As a technology guy, I think CPFR is really neat. But the only people I have heard that are making it work is Wal-Mart, and Wal-Mart can pretty much tell their suppliers what they are going to do and when they are going to do it. So I'm not sure how that plays down into the smaller environments that we are in. We made it very clear to [Tomax Technologies, Salt Lake City] as we went into their back-office systems that they have to be capable of doing CPFR and they are. So we would like to get to at least computer-assisted ordering, but preferably to a CPFR environment. But we see that as a long-term project for us.

HERMAN: I believe we are still at the wait-and-see stage with CPFR. It appears to hold promise, but the tests so far have been very limited in scope. I suspect that the Internet will solve one of the biggest challenges, which is being able to easily send data between retailers and suppliers.

SN: XML is being talked about as the eventual successor to EDI, and more. What does the future hold for XML?

PINK: XML is a revolution. Obviously it is an evolution of HTML and DHTML, but I think that XML, because it is being incorporated by so many of the software vendors, like Oracle and Lotus -- people we are concerned with -- it gives us the opportunity to do more of the EDI stuff on our own without VANs (value-added networks), and that is going to take the cost down low enough that XML will really explode.

HERMAN: XML is a key Internet technology and its utilization will depend on the B2B initiatives, and it will require standards to be set, probably by UCC. For a long time, XML will work in parallel with EDI, and long-term, it probably will replace EDI.