HIGH-TECH COLLABORATION

Michael Garry

Though marked by historical tensions and antagonisms, the relationship between retailers and their manufacturer trading partners has become increasingly collaborative in recent years.

Collaboration, at least, is a concept often bandied about at conferences, and this was certainly the case at the Logicon 2003 logistics and supply chain management conference held in Miami at the JW Marriott Hotel, March 11 to 14.

While several CPG manufacturers described their experiences with collaboration, retailers and wholesalers, including Supervalu, Hannaford Bros., A&P and Wegmans, also weighed in on the topic. Speakers from both Supervalu and Hannaford addressed the importance of trading partners collaborating on transportation and inventory control.

Mark Foster, vice president of supply chain in the distribution department at Supervalu, Eden Prairie, Minn., described a program the wholesaler launched nine months ago aimed at addressing the way Supervalu makes pickup and delivery appointments with its manufacturers and carriers.

Foster outlined the Byzantine method Supervalu has traditionally used to set up appointments with its carriers and vendors. It basically involves a series of phone calls from party to party trying to figure out acceptable pickup and/or delivery times. "This ugly practice has been going on for years," he said.

The effects of the current scenario, said Foster, include detention costs, driver turnover, poor service, added warehouse loading and unloading costs, and added scheduler head count. "As an organization, we have said we have a problem," observed Foster.

He said that Supervalu is attacking this problem at the source, which he said was the buying system. "The distribution center can only receive so many orders per day based on scheduling and dock-door availability," he explained. "So the buying system has to look at the receiving capabilities of the DC."

In its Minneapolis DC, Supervalu is piloting a scenario whereby the buying system looks at buyers' orders and then assesses the dock-door availability, seeking open slots. If open slots are not available, the system looks at the orders in the "buying bucket" and selects the ones considered most critical "in terms of service-level requirements," said Foster. Then it directs the DC to make sure that receiving slots are made available for those orders.

Foster said that under this pilot system, purchase orders are only released to manufacturers and carriers once the buying system is updated with available time slots for receiving at the DC. Those time slots are communicated to manufacturers and carriers. "So when the carrier receives the purchase order from us, at least they know there's an appointment preset on the receiving side," he said. "They're still required to confirm that they can take that load and deliver it at that time. But it gets one element on the receiving side out of the equation."

There are still other elements to address, however. For example, the carrier still has to arrange pickup times with the manufacturer. So in the second phase of its pilot, Supervalu plans to integrate its buying and dock-scheduling system with its manufacturers' shipping schedules. That integration would then generate a delivery solution based on a manufacturer's delivery schedule, the "criticality of the product," and the receiving schedule, said Foster. The carrier would accept the schedule -- for both shipping from the manufacturer and receiving at the distributor's DC -- via the Web.

While Supervalu is "in the process of rolling out" phase one of this program, Foster acknowledged phase two "is much more complex." Part of the problem, he noted, stems from technological issues, such as using batch (accumulated) data rather than real-time data, as well as a lack of standards. "We're trying to find ways from a technological standpoint to make this work on a real-time basis across a network of manufacturers," he said. The Internet offers a possible solution, which Supervalu is leveraging in load tendering to carriers. If the company can incorporate enough vendors to cover 60% of its products, "we'll eliminate huge issues," he said.

Phase three, the final phase of the project, which would make this "a fully collaborative network," would add the carrier's equipment availability, said Foster. He noted that a third-party company, such as Nistevo, Minneapolis, could help in this phase by tracking carrier movements.

Foster said that in its Minneapolis phase-one pilot, Supervalu has so far seen a 25% to 30% reduction in delays in loading and unloading at the receiving dock. In addition, the wholesaler has reduced its clerical scheduling staff by 20% and expects to see a 70% reduction in clerical functionality at its DCs, he said. Also, Supervalu expects to see a 20% improvement in on-time performance in receiving. "These numbers are real, and probably conservative," said Foster.

Beyond appointment scheduling, Supervalu has a vision for collaborative transportation that encompasses a wide range of changes. The wholesaler developed this vision in a joint study with two other companies based in Eden Prairie, Minn. -- the electronics retailer Best Buy and the third-party logistics provider C.H. Robinson, along with others. Trust among trading partners, said Foster, continues to be a "primary issue" in the collaboration area. "Are we capable of opening books between partners?" he queried. "In most cases, we aren't." But he said absolute trust was not necessary, just "reasonable" trust. "If you understand [a trading partner's] business, you can get a pretty good idea of their cost structure," he said. Still, this may require a "cultural change" in a company.

Cutting Inventory at Hannaford

Scott Craig, director of logistics for Hannaford Bros., knows firsthand about how the Scarborough, Maine-based chain collaborates with vendors. Prior to joining Hannaford, he spent 15 years at Procter & Gamble, the last five based at Hannaford, where he worked on a variety of projects.

"Hannaford's willing to try different things and share information with vendors," said Craig, at a Logicon presentation. "It's been a competitive advantage for them."

After joining Hannaford, Craig was asked by the vice president of merchandising to help figure out ways to cut millions of dollars in excess inventory. He explained how changes in supply chain practices and collaboration helped to accomplish that.

Craig's first initiative last June was to adopt a Web-based load-tendering system, from Elogex, Charlotte, N.C., which automated a manual, unscalable process, cut empty miles and reduced costs. "This provided visibility so that everybody can see where a product is and where it's moving," he said. Then in October of last year, the Elogex system was used to automate payment of freight bills. Craig said that adopting the Web-based system provided a visibility to information that enabled Hannaford's merchandisers to make better decisions.

Last fall, Hannaford launched collaborative programs with two manufacturers -- one a CPG firm, the other a perishables/trucking vendor. He declined to name the vendors.

The program with the CPG company amounted to CPFR (collaborative planning, forecasting and replenishment). In particular, it address new item introductions, execution of major events, order cycle time, forecasting and data synchronization. "We looked at every system that touched each other and identified areas where we could drive out costs," he said.

So far, the CPG vendor program has resulted in a 72% reduction in order cycle time that cuts "a couple of million dollars in inventory out of the system," said Craig. In addition, the vendor "had their most successful execution of a major merchandising event ever, during the Super Bowl season," he said. The CPFR process with this vendor "continues to evolve," he said.

Craig added that Hannaford expects to be able to roll out this type of CPFR initiative to other vendors, though the process is not yet scalable and is still "very work-intensive."

The program with the perishables vendor, which went live on Jan. 1 after running in pilot for four months, has enabled Hannaford to optimize perishables shipments; it saved "well into the seven figures" during the test, Craig said.

"Perishables buyers were in silos," he said. "Oranges and strawberries on the West Coast would be bought by individual buyers" and shipped individually. Working with the vendor, Hannaford was able to consolidate purchase orders and figure out the best way to ship goods across the country to reduce costs. The chain also knows ahead of time if deliveries will be late and thus can arrange alternative shipments.

The two programs have served as building blocks, he said. "They helped us gain credibility and trust with the organization and add staff." Craig helped make this happen by providing senior management at Hannaford with a weekly score card on what the perishables program was accomplishing financially. "We made it easy to read, showing them what we saved each week by optimizing loads," he said. "It really caught their attention."

Craig said that not all vendors are willing to invest the time and energy into collaborative programs like these. "We talked to a few vendors who didn't want to take people away from their regular work," he said. But it's not necessary to collaborate with everyone. "Ten to 15 of your top vendors would be enough," he said.