January 31, 2006, 12:00 AM

Beyond CPFR

(Page 2 of 3)

In those days, building data connections with suppliers would have meant developing separate one-to-one communications with each vendor, Krygier says. But now, Ahold connects only with Prescient’s hosted scan-based trading application, providing through an EDI network daily POS data that Prescient maintains in its web-based Advanced Commerce Repository, the core of its scan-based trading system.

However they want it

Prescient also collects inventory and pricing data from Ahold’s vendors, maintaining in its Advanced Commerce Repository up-to-date, synchronized records from both retailer and suppliers and the related pricing. Because the Prescient scan-based trading system operates as a hosted application, it can receive data from retailers and suppliers in multiple forms. “We look at their language and connect to them in their desired mechanism, whether it’s EDI, EDI over the Internet, FTP files or others,” says Karen Sickles, director of scan-based trading programs at Prescient.

Having Prescient in the middle has made it easier to get participation from vendors, Krygier says. “They act as a recruitment agent for us,” he says, adding that Prescient already has relationships with many suppliers in the grocery industry.

As goods are sold at retail, invoices are automatically sent to Ahold on behalf of the appropriate vendor, who also receives an alert of the invoice status. “We own the inventory only for a split second,” Krygier says.

In addition, both retailer and suppliers can access and analyze inventory records and pricing data in the Prescient system through a web browser to check that inventory levels and pricing are at expected levels. Ahold, for instance, will do periodic physical counts of store inventory and match them against inventory and POS records.

Automated e-mail alerts go out to Ahold’s merchandise buyers to inform them of things like price changes or special promotions entered by suppliers into the Advanced Commerce application. “It gets information quickly to the person in our organization who needs to know,” Krygier says, adding that the alerts confirm what buyers have already worked out with suppliers.

Placing more responsibility on suppliers for maintaining inventory and stock levels, along with the ability to analyze a common set of data, has brought multiple benefits, Krygier says. Vendors do a better job of stocking stores with the best merchandise, for example, and a common view of inventory and POS data has improved cooperation among retailer and supplier in controlling shrinkage.

“There’s an incentive on the part of vendors to optimize their product mix, because they’re getting paid based on sales,” Krygier says. “We’d like to think they were doing this all along, but there is more incentive to make sure they put the right product on the shelf to make sure they get paid for it.” Under conventional arrangements, vendors issue invoices at the time of delivery and expect to get paid within an agreed-upon term, say, 30 days, whether or not products have sold. Vendors would then apply credits for unsold items at the next delivery, creating more paperwork for retailers to review and increasing the chance for errors while making retailers outlay cash sooner, experts say.

Improving inventory management is more important than cash flow, however, to most retailers involved with scan-based trading, says Chandler of Kurt Salmon Associates. “A lot of people think SBT is all about cash flow, but it’s not,” he says. “You can improve cash flow with new payment terms.”

Scan-based trading can help retailers’ financial situation at annual report time, because they don’t have to show the cost of holding as much inventory, Chandler adds. “It makes the retailer’s return on assets look better,” he says.

But the real advantage, he and others say, is in the opportunity to improve overall inventory management to reduce the costs of handling it and to increase sales.

The benefits in inventory management extend to improved control over shrinkage. In conventional direct-to-store relationships, retailers have usually been responsible for shrinkage, since inventory is kept on their premises, even though they had to rely on a supplier’s records as well as their own to try to determine how products were lost.

But under scan-based trading, it’s more natural for retailers and suppliers to cooperate in determining and controlling shrinkage, experts say. “Today there’s more shrink responsibility sharing, because both the retailer and supplier have skin in the game,” Krygier says.

By using the analytical reports in Prescient’s Advanced Commerce system, he adds, Ahold and its suppliers can each try to identify the source of shrinkage by tracking POS data against inventory movement, using the same set of data. Another advantage of a hosted SBT system, experts say, is that it provides a neutral third party for maintaining a single set of POS and inventory data.

But while suppliers take on more responsibility for shrinkage and other parts of inventory management under scan-based trading, an effective SBT program still needs a high level of cooperation from retailers as well as suppliers, experts say.

Flexible schedules

Before retailers are accepted as a client of scan-based trading systems provider Retail Solutions Inc., for example, they must first prove that they have the proper infrastructure and policies in place, says Rich Head, director of operations for supply services.

Retail clients must show they have an effective item management system for direct-delivery products, so that all items will get recorded at the POS terminal; that they’re capable of transmitting accurate POS data to Retail Solutions; that they have adequate policies for preventing employee theft; and they must have accounting and bill-paying practices capable of paying invoices according to terms agreed upon with their suppliers.

Because direct-delivery vendors operating under a scan-based trading system don’t exchange business records at the point of delivery, and because invoicing is done automatically over the web, it’s not necessary for delivery drivers to be checked in or even observed by store employees. That frees up employees for other things like helping customers or tending to non-direct-delivery merchandise displays, Krygier says.

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