Friday, June 15, 2012
Suppliers have several major issues that will be obliterated by implementing an Automated Store Replenishment (ASR) relationship with their customers. Here are but a few, with a brief explanation of each:
Excessive Warehouse Stock:
I readily admit and humbly confess one of my previously, flawed assumptions. After years of watching excess inventory pour into stores, I naturally assumed suppliers were purposely contributing to overstock. A large majority of clients agreed with me. In my defense, presales people helped me to jump to that conclusion; nevertheless, I was wrong—dead wrong. Surely, some sales people are guilty of overstocking retailers to pad their commissions; however, if you go back to the source, to the suppliers themselves, they truly get it—overstocking retail stores is not in their best interest. Why? because overstock can be as damaging to wholesalers as out-of-stocks are to both of you.
Not knowing what retailers have in their stores affects a supplier’s ability to forecast future needs, so they have to resort to stocking excessive amounts of inventory in their warehouses in the case their retailers might run short. As inventory piles up in warehouse, the tendency is to get rid of it as quickly as possible. If suppliers knew ahead of time what retailers would most likely be able to sell next week, next month, or six months down the road, taking into account seasons and holidays, they would not need to invest so much of their working capital in overstock. If you will demonstrate your willingness to help your suppliers cut costs, they will bend over backwards to help you.
Frequency of Deliveries:
Yes, I was wrong again. Common sense led me to believe more frequent deliveries would benefit retailers, as it would help reduce unneeded stock and make retailers lean and mean. However, while actually working in the stores and with their suppliers, I have seen the real world and it brought me to the opposite conclusion resulting in unseen advantages to both, but only if it is done with a high degree of accuracy. The reason I belabored for so long under the wrong assumption can be attributed to the vast amount of overstock present in most retail stores. Eliminate that and old assumptions become unsustainable.
It costs suppliers money to deliver inventory to your stores. By extending the period between deliveries and bringing to the store only what can be sold within 1.5 to two delivery cycles, there will be huge reductions in stock with longer delivery cycles, resulting in less delivery expense to suppliers, allowing suppliers to offer deeper discounts to retailers, thereby giving both distinct competitive advantages.
POSSIBILITIES AND ADVANTAGES OF CONSIGNED INVENTORY:
If you have read my previous book, ‘Retail Is Detail’, you’re most likely familiar with my ideas regarding consigned inventory, based upon taking the wholesaler’s point of view that retailers are merely conduits to get their inventory into the hands of consumers. I explain in great detail, how it will double suppliers profits and increase retailers’ use of working capital by over 60%.
DEALING WITH INDIVIDUAL STORES:Suppliers can’t possibly get ASR to work while dealing with hundreds of different interface requirements used by a multitude of retailers. A third-party provider could easily be employed to standardize Retailer/Supplier integration providing overstock and out-of-stock solutions for both. And the cost? How about zero?
Posted by Bill Scott at 8:33 AM
We have talked about 12 and 13-digit UPCs, but before leaving the issue behind, there is one other I would like to tell you about—the 8-digit UPC. This UPC is nothing more than a 12-digit UPC converted to a compact size to fix neatly on smaller items. Using our previous example, a Snickers UPC can be represented in one of two ways; as ‘040000001027’ or ‘04010207’. Both UPCs identify the same product and both are valid.
In our system, we found it more convenient to store only 12-digit UPCs, as it would be wasteful and unnecessary to have two UPCs for each item. Therefore, when encountered by our system, the system automatically converts 8-digits to 12-digits. All scanners can be programmed to perform this conversion as well.
Having a common repository of UPCs gives us the ability to share this information with every company who uses our system. Being on the Cloud, when one of our customers encounters a new UPC, it immediately becomes available to everyone else using the system. And since there is no global UPC database on the Internet that is trustworthy, having a master list that everyone can share saves everybody time and money. Our hope is to convince manufacturers to send us new UPCs as they are created.
I began writing my system in 1978—thirty-four years ago. I don’t have to tell you; a lot of changes have occurred since then. However, the one advantage we had that most others did not, was that programs written decades ago are still usable today; even with the latest operating systems. There is one disadvantage as well, and I will talk about that now.
When I wrote our initial system, I designed it for my first customer. When I took on a second one, I had to redesign it to address the new customer’s requirements. As I added more clients, fewer and fewer rewrites were needed. Somewhere in 1986, having modified the system for forty clients, it became apparent that I had covered practically everything that might come up in the near, foreseeable future.
In 1989, a major change occurred in data processing and it became advisable to redesign our system to take advantage of the new and more powerful IBM computers. By then, we had about 360 different companies using our system, and we rolled changes we had made during the previous three years into the new design. In 1992, we added our Satellite system and in the year 2000, we put everything on the Cloud. In 2004, we began working on our POS service. By then, the system was at least 10-times larger than what I had in the early days and probably 20% was just hanging out there with nothing to do.
This is a common problem with all computer software. We have it, our competitors have it, you have it, and your suppliers MOST CERTAINLY have it. If you do not stay on top of the situation, after a period of years, as old programmers leave and new programmers arrive, you end up with what the data processing industry calls, ‘spaghetti code’. If anyone denies it, they are either lying through their teeth, or they have not been in the business long enough to face reality. The purpose of software versions are an attempt at cleaning up spaghetti code and introducing efficiency and new functionality, but unless you throw everything out and start over again from scratch, spaghetti code will continue to grow and continue to have a negative impact on the efficiency and functionality of any system.
Most of your suppliers have software systems that are decades old. The term ‘legacy code’ does not even begin to express the real mess they have to deal with. They designed their systems to control their warehouses, their offices, and to send retailers a bill. Adding functionality to support Automated Store Replenishment has never been high on their list—UNTIL NOW!
Posted by Bill Scott at 8:31 AM
Tuesday, June 12, 2012
(Continued from previous page)
Two items wrapped together to make a single product is not as common as it used to be, because retailers learned the hard way, in many cases, the clerk can never figure out which of the three barcodes to scan.
Occasionally, suppliers will use part of the UPC code to create a VIN. For example, some cola vendors strip off the first and last digits and use the middle ten digits to identify the product. Some vendors just make up one that is not a valid UPC code at all. This is a common occurrence with shippers. Trapping all the possible errors is a nightmare, and it has taken us years to figure out how to catch them all. Still, we get a new situation every now and again.
We worked with one vendor that striped the check digit off the UPC (the last number), and used it to signify the pack size using their own cryptic system. For example, a valid UPC for a single Snickers candy bar is ‘040000001027’. The carton the Snickers come in is something entirely different, but the vendor would change the check digit of the single bar to ‘1’ to signify a carton, ending up with ‘040000001021’ which is not a valid UPC at all. Of course, if the check digit on the product was already a ‘1’, they would chose a different number. We can always strip off the check digit and generate a valid one, but how they ever kept things straight always amused me.
I’ve even had suppliers try to convince me that the first and last digits are superfluous information. They obviously have never tried to use a scanner to identify a product. If you’ve ever been in a check-out line at the grocery store and the clerk had to scan and item four or five times before the system accepted it, it was usually because the scanner read the check digit incorrectly and they had to scrape the ice off the ice cream container to get it to scan properly.
Some items arrive in stores with a UPC number that eludes all efforts of figuring what they meant to put there. In this case, we resort to calling the supplier and obtaining the correct information. European/Asian 13-digit UPC’s occasionally get into a store. For a time, the accepted solution to convert a 13-digit UPC to 12 digits was simply to ignore the first digit altogether. This method stopped working when ‘0’ was not the first digit, because the absence of the first digit (being non-zero) made the check digit invalid. In America, products with 13-digit barcodes are seldom re-ordered, because they will generally outlive the store. Up until European and Asian markets decided to expand the UPC to 13 digits, they were reserved as ISBN numbers for books, but because it is no longer possible to convert 12 digit UPCs to 13 digits, we may have to learn to live with it.
The first digit of twelve-digit American bar codes were originally meant to denote packaging and is often referred to as the ‘preamble’, but that position has been hi-jacked by manufacturers and now they are just part of the other digits. The last (12th) digit is the ‘check digit’, and determined by running the first eleven numbers through a computer algorithm. If any of the first eleven digits are changed, the check digit will change. The 2nd through the 6th digit are reserved for the manufacture’s code. Referring to our example above, for Snickers ‘040000001027’, ‘0’ is the preamble, ‘400000’ is reserved for the Mars Candy Company, the next five numbers ‘00102’ signifies Snickers and the last digit ‘7’ is the check digit. Manufacturers may change UPC codes permanently or temporarily without notice. The usual reason is to track items sold by geographical areas. To us, we have no alternative but treat it as a brand new item. As of today, we have recorded 40,652 unique UPCs in our system.
Posted by Bill Scott at 2:44 PM
What can your suppliers do to help you? I would like to be able to tell you that your suppliers are ready and willing. They may be willing, but they probably won’t be ready. Someone will need to help them help you.
The main difficulty your suppliers will have is ADDRESSING & fixing their problems first. Having thousands of stores to service, with many of those stores using a wide variety of systems, they are being asked to deal with all types of interfaces, including paper invoices, faxes, EDI, PCATS, XML, FLAT ASCII, CSV, XLS, DB400… the list appears to be endless. Our initial objective is to provide suppliers with a common link between themselves and their retailers. For example, it does not matter what type of interface they are using today, our system handles the conversations between suppliers and their retail customers’ systems. However, this is only an interim step. Our goal is to integrate suppliers with their retail store customers, so suppliers may peer into certain attributes of the store inventory in real-time to determine how to load the trucks. At present, we are creating suggested orders and sending them to the supplier using File Transfer Protocol. It takes only a few seconds for the process to complete.
Over a year ago, we formed a relationship with a large grocery supplier to automate grocery, food and drink purchases. We have made great strides in our efforts. (We had already automated fuel purchases four years ago.) The following situations are only a few of the problems you may run up against during your Automated Store Replenishment project.
For us, the first stumbling block was not all suppliers have a handle on UPC codes yet. They continue to use a Vendor Identification Number (VIN) that they assign to identify products. This is a requirement for them, as identical products come in various sizes. Our system uses one VIN and several levels of packaging to identify a unique product in multiple sizes. However, instead of using ‘123456’ for a package of twelve, and the same number, but a different size to signify a single unit, your supplier may identify a single unit with a different number entirely, like ‘345678’ being a package of twelve ‘123456’ items. They expect the store manager to use the proper VIN when ordering a specific product in a particular size. Some vendors accept single-size orders; for example, you may be able to order three cans of beans out of a case of twenty-four, but you pay a premium for that service. This leads to interesting mistakes such as ordering six-gallons of antifreeze and receiving six-cases instead, or worse; ordering six-gallons, receiving the proper amount and being billed for six-cases.
Some suppliers persist in specifying sizes as BOX, CTN, PACK, CASE, EACH, etc.; which means absolutely nothing to a computer, unless someone tells the system what is in a box, carton, or a case. Sometimes they get the sizes mixed up, especially with cartons of cigarettes that have two packs sold together as one, salable unit. There are five two-pack units in those cartons, not ten.
Items within a box that may be in different sizes and shippers create more headaches; such as three, three-packs of cigarettes and one-single in a carton. Shippers may contain multiple products in various sizes. We had to develop a program to explode packages into items so they could be processed as individual products, and we had to figure out a way to assign ‘costs’ to the items as well. We don’t always get the contents of new shippers until after the order has been shipped, so we have to contact the supplier to get that information. Luckily, we receive the orders by 4:30AM on the morning the order is due to arrive at the stores, so we have time to fix the problem before the merchandise reaches its destination. Having a third-party partner to catch and correct these problems has proven to be a great asset for our clients.
Suppliers take heed! Things are about to change. If small to medium-sized retailers go under, suppliers will be competing for business from smart, well financed, ‘take-no-hostages’ monsters like Walmart, 7-Eleven, Target, Alimentation Couche-Tard, and Costco. What happens when it becomes too expensive for smaller companies, the ones that make up the backbone of America find it too difficult to remain in business? Yes, I know about the latest SBA reports and all the new jobs that were created during the past three years. If you believe that, then I suppose you are buying into the current US inflation rate of 2.3 percent.
In today’s business environment, companies must grow in order to survive. This puts business acquisitions high on a company’s plans for expansion. For those businesses who feel they are approaching the end of their rope, selling out seems to be their only option. Every day, we are seeing smaller companies gobbled up by larger ones, larger ones selling out to even larger ones still, and so on, and so forth. Be honest! Have you not entertained the idea of selling out to the next The Pantry or 7-Eleven that comes along? We don’t really need an MBA to see what is happening, do we? The gradual decline in the number of independent retailers, the ones the trade magazines do not care or even know about—these are ‘the canaries in the coal mines.’
Where are all the clothing tailors of the fifties? What has happened to the small independent banks, restaurants, even the baby-bells, independent Internet service providers, the small software providers, the shoemaker, the local drug stores? The only thing that is saving small retailers that have not sold out, is the fact that Big-Box has not yet figured out how to service their smaller markets and make a profit.
For years, Walmart has been trying to wipe out the independent retailer, and in many ways they have succeeded. Should it make any difference to consumers who provides them with services if someone larger can do it better, cheaper and faster? It should, but it appears it does not.
Customer Relationship Management is a good thing, but it is not enough to stop the average consumer from jumping ship. Remember the hundreds of small TV stores that were literally, wiped out during the seventies by Sears and other similar big-box boys? Circuit City liquidated their last retail store in 2009. Montgomery Ward is history. Walmart is doing to Sears and Best Buy what Sears did to local TV and appliance stores nearly four decades ago.
You may think you provide better choice, higher quality, better service, with a killer CRM program in place; but you know what? It doesn’t matter. To quote an old cliché, “You might be in the process of rearranging the deck chairs on the Titanic”.
Long-term survival has nothing to do with the temporary fixes you have invested your hard-earned capital into, or plan to initiate in the near future. Don’t misunderstand, all of the things I just mentioned have the potential to increase your business for now, but until you have plugged up the gaping hole in your own Titanic, you may be merely ‘whistling past the graveyard’.