Strategic B2B Initiatives in Retailing

Retailers Series

“To Live the Impossible Dream” - Introduction

The “Impossible Dream” of retailing is to be able to offer the right product at the right price at the right place for the right price to the consumer. Since consumers have no obligation to present forecasts to retailers, it means retailers need to create ways to see and sense, in real-time, product consumption, as well they must evolve their product offerings, to continue to meet the needs of an ever more sophisticated and demanding consumer. The consumer supply chain is ultimately a partnership between retailers and their suppliers, both win if they have the right selections, price points and freshness on the shelf. Some forward thinking retailers are using technology to zero in on attaining this dream. This paper describes how technology changes are being used by forward thinking retailers to attain this goal and how all retailers no matter what their size will have to consider these changes to retailing because if attained, these changes will dramatically reduce the cost of their competitors who implement these changes.

Prior to the mid 1990’s most Retailers devoted the majority of their I.T. budgets on development of internal systems (financial accounting and merchandising systems) and rarely devoted their energies to “supply chain management” initiatives.

The rare except was Electronic Data Interchange (EDI). Most large retailers (with Sears being the first proponents) recognized the value in electronically sending documents to their supply chain and put I.T. efforts to implement EDI for existing business processes, primarily purchasing and invoicing. Some innovators (most notably Sears) chose to extend the implementation of EDI to new business processes such as having suppliers send Purchase Order acknowledgments, advanced ship notifications and to send Purchase Order changes via EDI.  During this phase of EDI implementation, the retailers focus was to reduce their costs not on reducing the costs for the entire supply chain. The result was that retailers expanded their use of EDI not with the co-operation of their suppliers but by the “intimidation”. Typical approaches were to send “EDI or Die” letters to suppliers to comply or run the risk of losing a retailer as a customer. The result of this approach was to greatly reduce the implementation of business to business communications as only suppliers who believed that the retailer would stop trading with them or in rare cases, the suppliers who understood the value in trading electronically would reduce the time and effort to trade with a retailer implemented EDI. Commonly smaller suppliers comply with retailers mandates by employing a manual “rip and read” approach to EDI. In this scenario, Purchase Orders were received electronically and printed off and hand entered into their sales order applications. Invoices were generated and manually re-keyed to create EDI Invoices. This lead to a situation where there were far more errors in the implementation of EDI than should be the case.

Starting in the late 1990’s, retailers (most notably Wal-Mart), recognized that to further reduce their order processing costs, they required a renewed emphasize to deploying I.T. resources to work on strategic initiatives to increase the flow of information between themselves and their supply chain which would ultimately reduce the cost of goods sold.

While retailers don’t wish to admit it, strategic initiatives of market leaders such as Wal-Mart do affect their strategies for dealing with their supply chain. This paper defines the strategic B2B initiatives that forward thinking retailers are looking to deploy to their supply chain and how SoftCare’s technology can be used to provide real measurable benefits to an organization (either retailer or supplier). These benefits include helping companies reduce operating costs, increase competitiveness, accelerate business processes and increase their ability to respond to changing business requirements.
 

“Why didn’t we think of this first” – The road to Data Synchronization

It seems as clear as a bell today but the initial attempts at cross company communications such as EDI were implemented without attempts to synchronize data between retailers and their suppliers. Part of the reason was that both retailers and suppliers didn’t realize that for years the two were not communicating the same numbering scheme when Purchase Orders and Invoices were exchanged. The retailer tracked items structured on their SKUs using relatively simple Department/Class “Smart SKUs” as this structure fit into their merchandizing/buying structures. Suppliers used their own item numbering schemes based on their internal needs. For decades retailers Purchase Orders were interpreted by their suppliers to determine how each line item was related to their internal item numbers.  

In the late 1980’s services such as QRS and GXS’s Catalog tried to implement data synchronization for retailers on a very limited scale (mainly to feed retailer’s item master for ordering purposes), but it didn’t attack the ongoing need for more information to feed other internal systems. As retailers changed their internal systems to track UPC’s, and their needs to feed other systems (not just their item master for ordering purposes), such as logistics, warehousing, transportation etc, forced them to rethink data synchronization to try to determine a business process to electronically receive and update business systems with a wide variety of information from their suppliers about their products.

Out of this need for a business process to implement data synchronization came UCCNET and other data pools. UCCNET facilitates the standardization of what information to synchronize and a business process for suppliers to send item information to retailers and for retailers to respond to those suppliers on the receipt of the item information. For example, in the hard lines industry in the U.S., 151 possible attributes may be sent from suppliers to retailers describing their product. Each industry will have different information requirements and one of UCCNET’s mandates is to facilitate the description of which items are required for which industry.

For the supplier, data synchronization is less of why should they implement it and more to when they can implement data synchronization as retailer such as Wal-Mart are simply forcing the issue and demanding compliance to data synchronization or the supplier will be “de-listed”. The forward thinking supplier is the one that recognizes the value of data synchronization and works to implement a solution which also provides real value to them. Suppliers use products such as SoftCare’s Trade Catalog to create a central repository of item information which is pulled from multiple data sources in a suppliers systems and then exported to retailers via data pools such as UCCNET. These products also handle the receipt of retailers responses and provide the ability for ongoing updates though its central data repository.  

The real issue in data synchronization is at the retailer side. As the recipient of item information, the retailer must determine how to update their systems based on the information received and from which supplier the information is received. The retailer needs to put a business process and application to determine through a series of business rules, determines what action should be done when information is received. For example, if a supplier changes a products size from 28 oz to 24 oz, should that item be accepted willy nilly without consultation to the buyer? It may depend on the source of the information and the particular product and buyer involved. There needs to be a system where a business system user can determine the business rules when item modifications are received. Some retailers have “demanded” data synchronization compliance and now have backed off that request as they do not have the business processes and systems in place to automatically process item information from suppliers.  SoftCare recognizes that for many retailers, the complexity involved in the implementation of UCCNET can be a very daunting task. In order to maximize the potential benefits, there must be a way to easily compare and validate large volumes of product information, and then format and import that data into the retailers systems.

SoftCare’s Retail Quick Start Product Information Management Program is a comprehensive program for retailers to fully utilize the information available from suppliers. The solution provides a way to receive product information from their suppliers, determine the validity of the information and then update the appropriate internal systems based on user defined business rules. It provides for full control and audit of product information from external sources such as UCCNET, enhances the ability to publish information both internally throughout the enterprise as well as providing a solution for category managers to receive information on updates on existing and new products.

“In the beginning there was light” – Electronic Data Interchange (EDI) and ebXML   

The first widespread use of integration technology between companies was Electronic Data Interchange (EDI). EDI is a series of standards that allow companies to exchange business documents electronically. The communication of business information traditionally was through Value Added Networks (VAN’s) and has now migrated to communication via multiple communications methods with the Internet using the AS2 communications protocol being the newest “hot button” as retailers eliminate their VAN connections altogether. Although it does not garner much attention, EDI is still a critical part of the integration equation as most Fortune 500 companies utilize EDI formatted business documents to communicate with their partners. It is doubtful that companies such as Wal-Mart, Sears, Ford, GM etc., which have built EDI interfaces into their back end applications will abandon them in the near future for the sake of being “leading edge”.  This is not to say that XML based formats will not eventually take hold as large supplier such as Dow Chemicals and Weyerhaeuser are committed to both EDI and XML to transfer business information to their trading partners.  

Problems with traditional EDI solutions are that they are focused on document exchange and not focused on the processes which allow companies to process and integrate the business documents. They have not “taken off” to all areas in the supply chain because the cost to implement an EDI solution precludes smaller trading partners to use EDI. Additionally to implement EDI effectively, a business requires highly structured data to be effective and internal resources to integrate the information effectively into their business systems.

Some visionaries have said that combining XML formatting with a way to publish business process is the way. The first implementation of this approach (Rosetta Net in the Electronics industry) has netted great results. The move to a formalized approach for all industry is called ebXML. ebXML combines data structure with the ability for organizations to register their business processes to process the data in a publicly accessible repository. While still a ways off in its implementation, this approach may in the future provide the key to longer term implementation of structured data transfer between retailers and their suppliers.  

SoftCare’s traditional business focus was in the development and implementation of EDI systems. Its “TradeLink EDI Management System” manages EDI and XML documents from inception until received by the trading partner. It’s optional XMAPPER component manages and transforms business documents from one format to another and provides a complete audit of the tasks required to create, transform, validate and send documents to your trading partners no matter what the format (EDI, XML etc.). It’s fully integrated AS2 communications module allows a retailer or supplier to eliminate the cost of transmitting EDI documents while ensuring that all transactions sent or received are secure, audited and if there are any errors, the end user is alerted via an email.

“Toto, this isn’t Kansas anymore” – the evolution from EDI to CFPR

As previously noted, Data Synchronization ensures that companies can communicate using the same basic terminology. EDI allows companies to transfer business information in a format that both parties can understand. CFPR (Collaborative Planning, Forecasting, and Replenishment) is the next logical step to integrate the business processes of suppliers and retailers. CFPR is an attempt for retailers to provide suppliers with valuable sales and inventory information to use in the planning and forecasting business process. In other industries (most notably automotive), CFPR is a well established business process which reduces the overall cost of goods by supplying all members of the supply chain with visibility to where all items are. In retailing, as with many initiatives, the concept is great for all involved, it’s the execution which lacks completion. CFPR is not a new concept at all as retailers have provided sales information in one form or another for years. Wal-Mart with its “Retail-link” product has been sending sales information for years to their supply chain. Transora, a consortium of consumer products manufacturers, have been pushing for CFPR since its inception. The Transora approach is to try to get sales and planning information in a consistent format from all retailers to all suppliers. While this goal is admirable, the issue is standardizing the approach and having all members of the supply chain follow the same approach is the problem. 

As retailing resident “800 pound gorilla”, Wal-Mart’s approach to CFPR, “Retail-link” is a very important concept to consider for all retailers. Wal-Mart chose to provide sales information to its suppliers on a weekly basis by store. While this information is very important to suppliers, the issue with CFPR is getting all retailers to send the information and to standardize what time frame the information is being sent. At present, there has been no industry initiative to send sales and item information from all retailers. This presents a problem for all members of the supply chain. For the supplier, a lack of consistent information does not allow them to properly plan and track items. Wal-Mart’s item information is useful but not useful enough to reduce their costs as Wal-Mart is a large portion of many suppliers businesses, their sales information is only a part of the solution for suppliers to create an automated way to apply sales data to production models. For retailers who do not send item sales information or send item information that is not consistent with the general trends in retailing, there are no changes in the cost structure from their suppliers as the suppliers don’t benefit from the information. For Wal-Mart who has spent considerable money and effort to design a CFPR solution for their suppliers, the benefits are limited except in cases where Wal-Mart represents a vast majority of a suppliers business so the sales figures can be associated with their production schedules.

SoftCare’s consulting services plus their Trade Manager product can help retailers and suppliers who are contemplating the implementation of CFPR initiatives. Our expertise in retailing, EDI and Data Synchronization allows an organization to obtain the maximum value from a CFPR initiative.

“Space The Final Frontier” - Scan Based Trading (SBT)

The “Holy Grail” for a retailer is to be able to offer the right product at the right price at the right place for the right price to the consumer and for the goods to be paid for when the consumer pays for it. For the supplier, this emerging technology needs all of the other technologies and it needs an assurance that it won’t cause them pain. Scan-based trading (SBT) is not so much about coordinating data as it is about shifting financial risk from seller to supplier. Not only must a vendor pay for the inventory that will sit on the retailers' shelves right up until the moment of sale—such vendors also must bear the burden of making sure there are no holes in the tracking of products and transactions.

In March 13, 2004 article “Scan Based Trading a Work in Progress – a Case Study on American Greetings, Sean Gallagher writes “The negative effects of initial scan-based training systems were made painfully evident last year. American Greetings, the nation's second largest card supplier, reported that the scan-based trading initiative it launched in the November 2002 quarter with Target and Wal-Mart meant it would have to reduce sales by $65.5 million. That was due to the fact it had to take back into its own inventory the value of cards already booked as sold to retailers”.

The concept of SBT is very simple, rather than paying for products from suppliers as they are brought into the store, the supplier retains "ownership" of products on the shelf. Once sold, the retailer automatically send payment to the supplier and the supplier creates another order to replace the sold merchandise.

In order for SBT to work, all of the “leaks” in the system must be plugged. This is where all of the initiatives form Data Synchronization to EDI, to CFPT to RFID are required to ensure that product is not “lost”. Small SBT pilots have worked extremely well in the past. The issue is when implementation is expanded to mass SBT initiatives through the entire supply chain without the technologies required to implement this business process. Suppliers rightly point out that all of the technologies need to be in place to implement SBT on a wide scale or they will not participate.  

SoftCare’s Trade Manager in combination with TradeLink and XMAPPER controls the flow of information from all four core technologies (Data Synchronization, EDI, and CFPR) to ensure that a retailer or supplier can track, transform and control  the movement of information between themselves and their trading partners thereby facilitating all of the technologies to implement company wide SBT.

“Out on the edge” – Radio Frequency Identification (RFID)

The new buzzword in the e-business world is RFID. Radio Frequency Identification of auto parts has been in place for many years. In retailing, large companies such as Wal-Mart, Tesco, Target and Albertson’s have all announced RFID pilots. The most widely reviewed pilot is that of Wal-Mart who are piloting the use of RFID tags on pallets and cases for suppliers to three of their Texas warehouses. Radio Frequency tags provide the ability to scan tags without using “line of sight”. The actual RFID “tag” is encoded with item information and is called an EPC (Electronic Product Code). This information can be as limited as the UPC and a serial code or it can contain multiple pieces of information on the product. The types of information on the EPC is dependant on the specification for each implementation. At present, each “application” of RFID is its own standard. As with EDI and other standards, eventually, there will be a specific standard for the information kept on an EPC. For retailing, there are five implementations of RFID which are being considered:

Logistics and Warehousing. This first implementation of RFID in retailing is being headed by Wal-Mart and Tesco at the Pallet and Case Level (the Department of Defense while not a retailer is also pushing its vendors to tag at the pallet and case levels).  This is essentially an approach to reduce the labor processing costs in their warehouses by RFID for tracking and controlling goods. It has limited value as warehousing costs while significant are less than 3% of the total cost of goods. While simple in its approach, the cost of RFID is staggering as RFID tags are fairly expensive at present and requires integration of the entire supply chain (which includes suppliers, transportation, 3PL warehouses and retailers). The most interesting point is that the largest retailers are looking at this first implementation as a proof of concept, in the long term, RFID will be pushed out to many other areas of their businesses.

Perishable Items.   While implementing RFID at the Case and Pallet Level is important, one area of significant savings is in the perishable arena. To implement Perishables, RFID tags would be applied at the pallet and case level. The theory is that the “EPC” would include information on the item and the “Best Before or “Manufactured” Dates. The first step in this implementation will be the development of appropriate EPC standards that take into effect “Best Before” or “Manufactured” Dates. When “Perishables” were implemented, the savings would be huge as suppliers and retailers could immediately identify products reaching their perishable date and then determine how to “sell them off”. The inclusion of outside supply chain members (3PL warehouses) allows for goods to be “viewable” from wherever they are in the supply chain and makes perishables a logical first step to really using the technology.

Expensive Items. It is no stretch to be able to add an item “RFID” tag on an expensive item as the cost of adding the tag is outweighed by the potential gain in utilizing RFID technology.  The key is defining the relevant EPC standard and bringing every member in the supply chain to implement an “Item” level RFID tag. The key is that for expensive items being able to track goods from the time of manufacture to time of sale is very powerful. Although not fully defined, the tag could be passive (once application of the tag and no reference to where it has traveled until the goods arrive at the consumer) or could be active (where each time the goods are moved in the supply chain, the tag is updated. At present most retailers have announced that due to privacy concerns, tags will be “shut off” at the POS. It is thought that this first implementation of RFID at the item level will allow forward thinking retailers to “get their feet wet” when moving to item level RFID tags.  

Loss Prevention and Fraud Prevention in the whole supply chain is extremely costly but in the case of Pharmaceuticals, very dangerous. This is a perfect application for RFID in retailing. While loss prevention is a “mom’s apple pie” issue where everyone would agree that RFID would help through out the supply chain, Fraud Prevention in Pharmaceuticals is very important. The U.S. FDA has stated

“Use of mass serialization to uniquely identify all drug products intended for use in the United States is the single most powerful tool available to secure the U. S. drug supply. Mass serialization involves assigning a unique number (the electronic product code or EPC) to each pallet, case, and package of drugs and then using that number to record information about all transactions involving the product, thus providing an electronic pedigree from the point of manufacture to the point of dispensing. This unique number would allow each drug purchaser to immediately determine a drug's authenticity, where it was intended for sale, and whether it was previously dispensed.“

By 2007, the FDA would like to see mass serialization of pallet, case and package of drugs.   Companies such as McKesson and Cardinal, have strict “fraud prevention” guidelines and are rigorous in their application of it. In the “grey” market where smaller distributors sell product, the whole issue of “fraudulent product” and “stale dated” product is key. As this is a very limited application of RFID at the item level, it also seems to be a logical first step to item level RFID application.

Mass use of item level RFID tags. This is where all products in the retail supply chain are tagged with an RFID tag. This enables any product in the retail supply chain to be viewed. For example, inventory at a warehouse or a store can be done within seconds by turning on a switch. Product recalls would be quick an efficient at any place in the supply chain. For the suppliers to know what is actually at each store is “the Holy Grail” of retailing. Item level RFID allows retailers to know what is in each store (and to judge loss) but far more important for the entire supply chain is to give this information to the suppliers. This is where all retailers should be thinking (not just Wal-Mart) as they can provide the suppliers a 100% view of their product in the supply chain. Once established, item level RFID facilitates the “Final Frontier” Scan Based Trading. 

Continue to: Retailer EDI Quick Start Program

SoftCare’s consulting services plus their Trade Manager product plus its TradeLink and XMAPPER modules provide retailers and suppliers the tools for a successful  implementation of RFID initiatives. Our expertise in retailing, EDI and Data Synchronization allows an organization to obtain the maximum value from a RFID initiative.

For more information about SoftCare, TradeLink EDI Management System,
and the SoftCare Solutions Group please contact us at:

Web: www.softcare.com

Tel : 1-888-SoftCare   (604) 983-8083

email: info@softcare.com

EDI for Retailers

Retailer EDI Quick Start Program

Retailing Scan Based Trading Quick Start Program

Customer Case Study

    London Drugs

SoftCare EC Solutions for Retailers

    Narrated presentation for Retailers

Introduction to EDI