Fixing Automation’s Achilles’ Heel
In the early ’90s, retailers were eagerly implementing all sorts of automation. The primary objective was to scan so we could see what our customers were buying, not just what we were buying from our suppliers. Also, the prevailing thought was that we could fully automate the retail merchandise supply chain, but it would be some time before we could automate the fuel supply chain. As so often is the case, our assumptions were wrong.
For years, automating the fuel supply chain seemed doomed, because fuel suppliers would not supply pricing information in a format that computers could digest. Companies such as DTN made a living untangling these documents and then adjusting them as fuel suppliers changed the formats. In addition, fuel suppliers could not deliver a clean bill of lading (BOL), and it took several days to get an electronic invoice.
On the retail side, things were a bit more optimistic. Wholesalers such as McLane Co. had been automating with their suppliers and larger retailers for years, and progressive convenience retailers quickly adopted these practices. As wholesaler automation moved forward, it quickly became obvious that the direct store delivery (DSD) community would take a long time to reach the same levels of sophistication. Only a few DSD suppliers could provide electronic invoices, which were usually available only days past the delivery.
To our great surprise, over the next few years the fuel supply chain automated quickly. Everything from pricing to BOLs and invoices are now available electronically. The only remaining challenge is freight. Carriers are slow to automate as a result of acquisitions and because smaller companies have a hard time justifying the added investments in systems. One of the interesting ways retailers are getting around this is entering into “self-billing” arrangements, wherein retailers create their own electronic invoices for freight.
The DSD community has seriously delayed retail automation projects. There have been some bright spots, with Coca- Cola, PepsiCo and Anheuser-Busch leading the way. However, the vast majority of DSD suppliers are not able to provide retail pricing or invoices in a timely fashion. Also, the idea of a preorder is not on the radar for most DSD suppliers. Today, PDI has one (and only one) very large customer that has fully automated the receipt of electronic invoices from trade suppliers.
So while the fuel supply chain has dramatically improved in efficiency, the retail supply chain looks pretty much like it did 10 years ago. Retailers need to be able to receive price updates, create orders and receive timely electronic invoices so they can fine-tune their inventories and minimize investment while maximizing sales. The mechanical process is quite simple, and item-level inventories could improve inventory visibility for all parties, giving rise to even more efficiencies.
A Possible Solution
While it appears that smaller DSD suppliers are not prioritizing these needs, retailers are increasingly adopting the “self-billing” system that they have found quite useful with fuel carriers. Several variations of this movement exist, and scan-based trading (SBT) is the most prominent. For many years, SBT had been relegated to newspapers and magazines. This category has been very difficult to manage, with inventory generally being consigned to the retailer. SBT allows retailers to pay for what they sell through their scanning systems. SBT service providers keep track of supplier and retail data feeds to manage the contract relationships for payment and shrink calculations.
With the persistence of DSD supplier issues and an increase in systems investment by SBT service providers, retailers are looking to implement SBT on categories other than newspapers and magazines. SBT allows the retailer to know exact daily costs without attempting to implement automation with lagging suppliers. Some retailers have also entered into direct self-billing agreements with suppliers, avoiding third-party involvement.
Retailers agree on the need to manage inventories by item. The question is how to do so efficiently. Fortunately, creative solutions can now help us achieve the next level of sophistication. To do so will require a relentless focus on improving the flow of goods and information at the lowest possible cost. As automation suppliers, our role is to facilitate doing business electronically. Are you ready? Your competitors are.