August 29, 2001, 12:00 AM

Filling the Pipeline

The web is revolutionizing how retailers buy goods, how vendors supply the goods and how both replenish the merchandise.

In 1999, Manco Inc. , a provider of tapes, glue and kitchen and bath products, came to Ace Hardware Corp. with a problem: The software that Manco used to link to Ace’s supply chain system was not Y2K compliant with little prospect of becoming Y2K compliant; it also was getting old and Manco’s vendor was no longer supporting it. Manco had been participating in Ace’s vendor-managed inventory, EDI-based supply chain program and didn’t want to return to a paper-based relationship. But it didn’t know how to address its software problem.

At the same time, Ace had been contemplating moving to a web-based supply chain after seeing Eckerd Corp.’s drugstores and pharmaceutical manufacturer Schering-Plough Healthcare Products implement such a system. “We told Manco they could go back to having us cut a traditional purchase order for them, or they could do it this other way,” says Scott Smith, department manager, inventory, for Oak Brook, Ill.-based Ace Hardware. “In my mind, going to the web system was a no-brainer. I had no concern that it wouldn’t work.”

Avon, Ohio-based Manco was the first vendor to move to Ace’s web-based supply chain system from Atlanta-based E3 Corp. Now, two years later, nine suppliers are participating in it. Those nine already represent more than 10% of the goods that Ace buys, and Ace is on the verge of bringing two more online. Ace deals with over 2,000 suppliers and Smith sees no reason that all would not want to be part of the web-based supply chain. “Who wouldn’t want to dial into their customer and cut themselves a purchase order?” Smith says.

Using the web to automate the supply chain is the latest development in an effort that extends back to the 1970s to get inventory out of warehouses. The just-in-time inventory movement developed along with EDI through the 1980s and 1990s, but in the retail sector began to stall as both smaller retailers as well as small and mid-sized suppliers balked at the cost and effort of installing software and hiring tech staff to maintain it. Furthermore, so many standards for trading information via EDI were fielded that cross-industry trading became confusing and many companies elected not to adopt standards. And there was never a good way of knowing whether a trading partner could even accept EDI transactions, and if so, which transactions a partner could support and in what format. While believed to hold much promise as systems developed throughout the ‘80s and ‘90s, EDI in retrospect was cumbersome and expensive.

The facilitator

But the failure of EDI to answer the issues related to automating the supply chain did not mean the death of those automation efforts or the death of EDI. In fact, EDI standards are embedded in certain web-oriented trading languages-and the rise of the web itself gave new life to automating the supply chain. “The Internet is the facilitator,” says Todd Hartz, chief technology officer of supply chain software vendor EXE Technologies Inc. of Dallas. “It’s a pervasive network, it gives everybody shared access and it’s a set of de facto standards for people to talk to each other.”

The ultimate goal of web-based supply chain systems is what the Voluntary Interindustry Commerce Standards Association has dubbed Collaborative Planning, Forecasting and Replenishment. CPFR lets manufacturers into a retailer’s inventory control system so the manufacturer can see directly how its products are selling in that retailer’s stores. Using guidelines agreed upon by the retailer and the manufacturer, the manufacturer generates its own purchase orders to replenish the retailer’s stock.

Such a seamless connection between retailers and manufacturers is to the supply chain what catching the Road Runner is to Wile E. Coyote-much to be desired, much pursued, but not yet achieved. “While there’s a lot of interest on the part of retailers and manufacturers in CPFR, there’s a very steep learning curve they have to go through,” says Janet Suleski, senior analyst, retail applications for Boston-based AMR Research Inc. Suleski produced AMR’s “Beyond CPFR: Retail Collaboration Comes of Age” report in April (See box, p. 16).

Short of full-blown CPFR, the web has already generated benefits in the form of increased sales for participants who are using it only for basic applications in the supply chain. By speeding the exchange of information, web-based systems have increased sales by making products more available when the demand for them exists, retailers say. And one of the ways it is doing so is by moving inventory through warehouses and distribution centers faster. “It used to be the warehouse was a black hole-an order would go into the warehouse, then not come out until days later,” says Chris Heim, president and CEO of Eden Prairie, Minn.-based HighJump Software Inc., which provides what it calls a supply chain execution system that uses the web to monitor the status and location of inventory. “Now with orders getting smaller and smaller, expectations have gone up that the inventory will be where it’s needed when it’s needed.”

In fact, that benefit is why Pacific Sunwear of California Inc., a $600 million retailer of casual apparel for teens and young adults based in Anaheim, Calif., is implementing a web-based supply chain system in which the retailer and the supplier trade the purchase order, advance ship notice and invoices electronically. There’s no collaboration of the type envisioned by CPFR. But because of the efficiencies that the electronic format creates, Pacific Sunwear has dramatically improved the flow of merchandise through distribution centers.

Reacting faster

Merchandise is now in and out of the centers in one day vs. three days previously. “The merchandise doesn’t sell until it gets to the store selling floor and if you can reduce the time it takes by two days, you get those two extra days on the selling floor,” says Ron Ehlers, vice president of information services. “That means you get to re-order two days earlier if it’s a hot style-and that can help you beat your competitors.” PacSun and its suppliers use an ASP system created by St. Paul, Minn.-based SPS Commerce Inc.

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