E-COMMERCE IS TIGHTENING STORE, VENDOR COLLABORATION

DENISE POWER

PHILADELPHIA -- Tighter collaboration between retailers and manufacturers in managing the supply chain is becoming more urgent as consumer expectations continue to rise and new electronic-commerce fulfillment challenges intensify.

Customers are getting acclimated to the instant gratification of clicking on a Web site's "submit order" button and having goods delivered to the home without having to visit a store. That convenience is driving service and product-availability demands to record levels in all classes of trade.

"How many of you were in a grocery store on Dec. 24th?" Thomas Schaumburg, vice president of supply-chain initiatives for Ahold USA, asked attendees at a supply-chain management workshop session here last month. "People are waiting later and later to buy their holiday goods and, without the right systems, we wouldn't be able to respond effectively to our customer needs."

Ahold USA, which is part of the $35 billion Ahold organization based in the Netherlands, operates five U.S. supermarket chains that generated about $20 billion in revenues in 1998.

Speaking at the National Retail Federation's four-day conference, held in conjunction with NRF.com, Schaumburg teamed with Tony Blasetti, partner at KPMG, New York, to explore trends in supply-chain management and the incredible effect the Internet is having in shaping consumer expectations.

Noting that the average item ring in a supermarket is $1.55 and "fulfillment" activities are carried out for free in large part because consumers are the ones who remove merchandise from store shelves and transport it to their homes, Schaumburg wondered aloud how supermarkets can turn a profit with on-line home shopping and delivery.

"I heard a comment earlier that the fulfillment channel is an iceberg. It's the seven-eighths you don't see that's tough," he said. "I'm not aware of anybody making any money at this."

The key to satisfying consumer demands lies in the ability to sharpen logistics and that relies on tighter retailer-supplier partnerships, said Blasetti.

"The future really is going to depend on true collaboration. The precursor to this was vendor-managed inventory and that was a step in the right direction," he said. "Now we're talking about true collaboration and that's based on trust between trading partners. The technology is already there. It's about sharing more than information -- sharing decisions, and in some cases it's going to mean sharing investments" in technology when both the retailer and supplier stand to gain efficiencies.

Blasetti outlined a few predictions that supply-chain players should be mindful of as they shape their initiatives going forward. Among them:

Twenty percent of consumer purchases will occur through Internet-enabled manufacturer-direct channels within three to five years.

Twenty-five percent of consumable goods manufactured will be made-to-order as opposed to those picked from stock.

Thirty percent of all direct-store-delivery will consist of merchandise from more than one vendor by 2003. "Even competitors will collaborate to optimize their supply-chain performance," Blasetti said. "Think about Budweiser and Coca-Cola arriving on the same truck."

Forecast accuracy will improve by 50% or more through reducing information latency and improving trading-partner collaboration.