February 1, 2005, 12:00 AM

In Stock

(Page 2 of 2)

Garf cites Target Stores as one retailing giant using scan-based trading as a tool in its competition with Wal-Mart. In Target periodicals sections, for example, covers are no longer torn off of magazines and returned for refunds, thus reducing labor costs, he says. Now, publishers or wholesalers receive POS data and can assume that any publications that wasn`t scanned didn`t sell. Most of the advantages are harder to see but no less real. Persuading someone else to own the inventory frees capital for other purposes, says Garf.

Streamlined supply chain

Retailers and suppliers all benefit from one aspect of scan-based trading: the streamlining of the supply chain. Backdoor receiving functions are virtually eliminated. But suppliers are beginning to squawk over the handling of shrink, which is costing them more than they save in reduced receiving costs, says Jacobs of TCI. Typically, retailers and suppliers agree to a ceiling on how much the supplier has to pay to cover shrinkage. If costs exceed that amount, the retailer has the right to stop using scan-based trading.

The switch to scan-based trading can in itself cause accounting headaches for suppliers, says Kauffeld. If a store has two weeks of inventory, for example, and switches to scan-based trading, the supplier would lose two weeks of sales from the current quarter. "One of the deterrents to moving to SBT is how do we overcome that one-time cost to the supplier," he says. Changing payment terms to a shorter period would help compensate but might not overcome the issues a publicly traded manufacturer has with sales goals and reported sales.

Kauffeld maintains that the advantages of sharing POS information with suppliers, including cutting out-of-stocks, can be achieved without the difficulties of scan-based trading. "Capabilities development among players will come fairly quickly so we`re talking a two-to five-year time frame," he says. Why the speed? "The upside from this is big," Kauffeld says.

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