January 2002
EFR Matures - Since its inception, the role of efficient foodservice response (EFR) has changed significantly. How have e-commerce and the Internet changed the foodservice industry for operators, distributors and manufacturers?
By Megan Ladage
Rich Products has long understood the benefits of bar coding and standard product identification to the foodservice industry. And it has the data to prove it. "Rich Products has bar coded 100% of its cases allowing it to more accurately scan and keep track of its inventories," says Kevin Malchoff, executive vice president of sales and marketing, Rich's. "In addition, Rich's has begun vendor managed inventory with a few of its customers. This has resulted in exceptional service levels-better than our customers or we ever thought we could attain."
When the EFR initiative began five years ago, less than 50% of foodservice manufacturers bar coded their cases. Significant strides have been made over this time frame and today that number is over 70%. Thanks to initiatives such as Efficient Foodservice Response (EFR), alternately described as a philosophy or committee devoted to improving efficiencies in the foodservice supply chain, the foodservice industry is linking manufacturing plants to distribution warehouses to operator tables.
"There are two major 'table stakes' for EFR to be successful: Number one, manufacturers must put bar codes on their external cases and inner packs. While bar codes are heading in the right direction, EFR will not be successful until 90% to 95% of all cases in the industry are bar coded. And number two, the industry must develop and utilize agreed upon data and communication standards for e-commerce," says Malchoff. Rich's has agreed to put some of their associates on the EFR committees to help the industry create standards for e-commerce.
In early 1997, EFR's report, Enabling Profitable Growth in the Food-Prepared-Away-From-Home Industries, identified $14.3 billion in annual supply chain savings that could be achieved through five strategies: equitable alliances, supply chain demand forecasting, foodservice category management, electronic commerce and logistics optimization. Of the identified costs, $6.6 billion were caused by simple inefficiencies of shuffling paper, which e-commerce can combat.
Now nearly five years later, what progress has been made in using e-commerce and the Internet to simplify product, information and funds flow within the foodservice supply chain? Not much, say most industry officials. While new technologies are available, retail foodservice operations are not adopting these services as quickly as their own retail hosts.
"The fact that foodservice has been late to the technology game does mean that they are less vested in older technologies," says Charles R. Troyer, partner, consumer goods practice for New York-based CSC Consulting. "And therefore, the foodservice supply chain has an opportunity to leapfrog other channels, like retail, in their use of technology. They have more of a green field than a castle to tear down."
In the world of e-commerce, the food industry can no longer be content with business as usual. The reduction of food costs by even 1% can be equivalent to a 20% or more increase in revenue in the low-margin foodservice business, says Perry Fri, vice president of industry alliances for Instill Corporation, headquartered in Herndon, Va.
"Admittedly, divergent industries have been impacted differently by the changing technological environment-but all have been impacted," adds Steven Rosenberg, senior EC technical manager for the Uniform Code Council Inc. (UCC), based in Lawrenceville, N.J. "This cost-efficient access to the Internet has altered the business landscape. Competition for products and services is now even less geographically dependent thanks to faster, real-time communications capabilities."
However, the Internet may be to blame for slowing down foodservice's adoption of e-commerce strategies, says Troyer. Prior to the Internet, the foodservice and food industry had created a well-established and mature set of standards for electronic commerce using electronic data interchange (EDI), the prelude to EFR. And other retail initiatives such as ECR and EFR reinforced EDI's usage. "But starting three to five years ago, companies who were investing steadily in EDI applications brought their efforts to a halt," he says. "They said, 'Gee, there's a new technology on the horizon. It's the Internet. And I'd be foolish to spend any more money on 8-tracks when I can see that cassettes and CD's are the wave of the future, right?'"
Supply chain companies were reluctant to continue investing in EDI when the Internet could provide a cheaper transaction or bit of data since it didn't have to go through another value-added service provider. But while the Internet provides cost savings, it still lacks a mature set of standards for communications, which can be a long and tedious process to develop. "So a lot of e-commerce efforts-the B2B transactional nature of e-commerce-have kind of been on hold until the proper infrastructure is laid under the Internet," says Troyer.
About a year ago, EFR reached an important milestone when organizers announced that participants representing all levels of the foodservice supply chain had aligned item and price data through the use of an independent, trusted third party. While chain operators can partner with third-party providers to develop private B2B exchanges, the jury is still out on which exchange strategy will be a success. "Different companies have taken different approaches to technology, whether they join with an exchange or buy a niche business application," says Mark Allen, executive director of EFR, headquartered in Falls Church, Va. "That has really forced EFR to evaluate how to add value to the industry."
The advent of software, whether it's shrink-wrapped product hosted by the company that bought it or an Internet-enabled application, may have actually created a bigger impact than e-commerce. "The technology providers, I think, got to a state where they were going to bypass the slowness of EFR in terms of electronic commerce," Fri says. "I think EFR hasn't really reacted in an e-commerce phase because in a way it hasn't had to. A couple of companies, including the one I'm with, have made a practice of eliminating the core problem of lack of standards."
Integrating foodservice operations is the first step in getting in-store operators to stop running from a stand-alone, business-within-a-business mode. A complex series of procedures, represented by a labor-intensive process, is required to deliver perishables. "Typically, a bakery or deli in a grocery store has no way of knowing the quantities of items they need to order or prepare each day," says Karyl Toms, director of sales for Eatec Corp, based in Emeryville, Calif. "If they order or prepare too much of a perishable item, it might end up in the garbage at the end of the day. Or, if demand exceeds supply, sales and revenue are lost." With a foodservice management tool such as EatecNetX, purchasing and production can be managed proactively.
In trying to anticipate demand for product, sales history is usually available only as a weekly total. A foodservice management tool, on the other hand, would allow for a daily, and even an hourly, breakdown of sales. Using this sales history, a forecast can be created, which will display product requirements by day and day part. The in-store bakery and deli can then schedule production appropriately. This approach to just-in-time production not only helps reduce food costs, but also controls labor expenses.
Whether specializing in case ready, assembly only, part assembly/part scratch, or full prep operations, meeting in-store requirements necessitates the procurement of product from company bakeries and commissaries, or from outside vendors. Forecasted in-store quantities can be converted with a foodservice management tool to a shopping list of items, which is sent electronically to remote commissaries and bakeries, or to outside vendors. These entities can, in turn, electronically confirm an order. If an item cannot be delivered in time, the in-store personnel can order the product from another vendor.
A foodservice management tool can likewise assist the production process at centralized bakeries and commissaries. Orders from the stores can be combined to determine total requirements. This application will look at the shelf life of existing product and calculate a net total to produce. Through the use of such automated controls, manufacturing sites can maximize their food and labor cost savings.
"By having access to the stores' sales history, production facilities can also create forecasts to anticipate future product demands, and base their purchasing on these expectations. This is particularly important to ensure that raw materials are on hand during peak demand, such as holiday periods or on-ad specials," says Toms.
Traditional foodservice evidences a net profit of 10%. In comparison, according to supermarket industry studies, a typical retail foodservice operation has an average net loss of 2%. "A foodservice management systems approach, which facilitates both just-in-time production and purchasing, gives the managers a tool to control food and labor costs, in order to positively impact the bottom line," says Toms.
But e-commerce and the Internet can't work without the help of standard labels. In 2001, the foodservice industry made great strides in increasing its usage of bar codes on cases and inner packs, according to a recent survey by EFR. The September 2001 survey revealed that three-quarters of foodservice distributors with over $100 million in annual sales currently use bar code scanning technology, with 80% of those that don't scan today planning to be scan-enabled within the next 18 months.
In addition, a preceding September survey of six foodservice distribution facilities showed that case coding rose to 69%, up from 61% in 2000 and 54% in 1999, says Steven Arens, director of food & beverage, UCC. And 92% of inner packages assessed in the survey included a bar code. "If the foodservice value chain is going to achieve true supply chain excellence, we need standard product I.D.'s and bar codes as the fundamental building blocks," says Pamela Tann, senior manager of coding and standards for Sysco Corp., headquartered in Houston.
And quickly. "The distribution industry right now is at roughly 60% coding," says Fri. "Well if 60% of my cases come in coded to the warehouse, that means that 40% of my cases are not coded. That's a phenomenal number of exceptions. Is that ratio enough for me to invest in a bar code? Do I buy the bar code scanning system and motivate my trading partners, or do I wait until coding becomes more pervasive?"
To appeal to parties in the foodservice supply chain that haven't taken advantage of standard product identification or bar codes, EFR is building a business case for the benefits of coding. "Early on, EFR developed a bar code-naively thinking 100% of companies would comply if we just gave them a standard to follow," says Allen. "Within a short time, we realized that was not the case. With e-commerce, we are trying to help companies first understand the value proposition and then assist them with adopting the new standards."
Consequently, EFR is partnering with UCC to map out business requirements and standards for HTML. They have published a guideline, "Standard Product Identification and Bar Codes: The Cornerstones of EFR," to help steer the industry. "We are driving significant change and adoption on bar codes," says Allen.
For the next two to three years, EFR will be concentrating on improving critical features needed for the industry to operate efficiently with bar coding and electronic standards, says Allen. Unique product identification and trading partner identification will be critical to the accuracy of all processing.
Tyson Foods Inc., based in Springdale, Ark., is an active leader in EFR and is making the shift to "paperless" simple. Tyson's system supports over 30 EDI transaction sets, including order entry, shipment notification, invoicing and payment. Tyson hopes to finish bar coding on all products and be able to bar code pallets on shipments over the next several months. All Tyson poultry product information and specifications are available in the International Foodservice Distributors Association (IFDA) database format through Sales Partner Systems software. In addition, a satellite tracking system links Tyson's entire shipping fleet.
There are several other independent but critical efforts currently at work. The UCC is actively developing "business message standards" for its industry supply chain members. "Additionally, the foodservice industry continues its initiative focused on adoption of the bar code and expanded use of the UPC," says Arens. "As with any effort, achievement of critical mass and participation of the vendor community are key imperatives."
The key is to make sure that Internet connectivity is complete. Foodservice operators can utilize Internet technology to internally connect headquarters with common standards for external branches of their organization. Three sets of standards will need to be incorporated in the future: Global Trading Identification Number (GTIN), a universal identification of a product; Global Location Number (GLN), a geographic equivalent of a GTIN, which assigns a global location number to all units; and Extensible Mark-up Language (XML), which provides a common set of descriptors or tags of data elements for transaction so an organization can maintain its own internal business language but communicate with other languages for invoices, payments and pricing, says Troyer.
Indeed, new bar code symbologies, which can convert numbers into symbols, will be on the cutting edge of EFR technology, says Troyer. And current technologies such as Reduced Space Symbology (RSS) codes on produce and Radio Frequency Identification (RFID) devices might be used more often to communicate in three to five years, says Troyer.
Recent technologies can also assist with home meal replacements, a challenging market for foodservice operators. Customers' website orders, for example, can be connected to appropriate warehouses for production.
And that's the rub. While e-commerce will combine the best elements of the new and old economies, the traditional foodservice operation stands to benefit more from high-tech standards than newer models. "Some of what you would call new economy-type companies can catalyze change in the old economy, but it's the old economy that will succeed in any competition between old and new," says Troyer. "For example, there's nothing that Peapod could do in terms of service offerings that Dominick's couldn't do."
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