January 20, 2003

Getting Store Orders Right - Supermarkets are bringing greater levels of automation to store ordering to reduce out-of-stocks and shrink, especially in perishables
by Michael Garry

One of the most basic of all retailing processes is replenishing products in the store after they are sold to consumers. Yet, despite the advent of scanning and communication systems, retailers are still striving to fully automate these processes to make them more accurate and efficient, so that consumers can find what they're looking for and retailers don't stock more product than they can sell.

Needless to say, a great deal of money is at stake. Shrink and out-of-stocks continue to cost the food industry billions of dollars. According to a study issued last year by the Grocery Manufacturers of America, Washington, consumers still fail to find desired products between 5% and 10% of the time.

While reordering and forecasting systems, along with computer-assisted ordering applications have been around for many years, most consumer goods are still manually ordered, said Peter Abell, research director, retail, AMR Research, Boston, in a white paper last year. The reasons, he said, are many: store discipline, sparse data for slow movers, planograms not maintained, merchandising resistance, and multiple promotional causal factors, among others.

However, said Abell, new systems are emerging that address these issues by reducing store labor requirements via alerts, developing special routines for sparse data, creating accurate forecasts and taking promotional factors into account. Companies marketing these systems, he said, include DCM Solutions, IMI, Supply Science, SAF, JDA Software, NCR's Teradata division, among others.

Indeed, observers say, retailers are starting to upgrade their store-ordering systems, especially for their most frequently ordered and most vulnerable products -- their perishables.

More people are trying to get to the store level with better replenishment," said Peter Charness, senior vice president of marketing. JDA Software, Scottsdale, Ariz., at the National Retail Federation show last week. "They've gotten cost out of [DC replenishment], now it's time for the stores."

One company that has been getting a tighter grip on its store data is Smart & Final, Commerce, Calif. Taking a novel approach, the chain is testing an extension of its digital receipt program that will provide near-real-time POS sales data to its primary produce supplier, Ready Pac, Irwindale, Calif., which markets over 200 varieties of packaged produce.

With real-time POS data at its disposal, Ready Pac will be able to more effectively negotiate and order product for Smart & Final, take inventory out of the pipeline, and ultimately reduce shrink, said Robert A. Graham, vice president, stores technology, for the 230-store chain of warehouse grocery stores.

Smart & Final's produce data derives from its digital receipt program, rolled out last May, which provides online receipts to the chain's many high-volume business customers. The software underpinning of the receipt program is provided by AfterBOT, Norcross, Ga.

The new produce sales data program is scheduled to go live Jan. 27, said Jim Nadler, senior vice president, AfterBOT. Produce data will also be made available to the chain's buyers and store managers, said Nadler. The data will reveal "buying patterns at the store by hour by day," he said.

Another company starting to leverage its POS data to improve perishables ordering is PW Markets, a 10-store chain based in San Jose, Calif., that is opening two new stores this quarter. The chain plans to roll out a demand-based foodservice and perishables management system to its stores over the next few months, said Ray McCammon, executive director of technology and procurement. "The industry has lagged behind in controlling inventory in service areas, where there is a lot of variability in ingredients and finished goods," he said.

The headquarters-based system, EatecNetX, from Eatec, Emeryville, Calif., will be used initially for ordering, costing and gross-profit analysis in the meat department, and then for deli and bakery in the second quarter, McCammon said.

By analyzing past demand by time period (down to the hour), the system is designed to prevent over-ordering of ingredients for foodservice and perishables production, thereby reducing shrink, and also to order enough to meet demand, according to Eatec. It also helps tailor labor to production needs. McCammon said a "reasonable" estimate of ROI is between six months and one year.

In the deli and bakery arenas, the system will be employed to not only control orders but also calculate costs of recipes in order to come up with retail prices, McCammon said. In addition, PW plans to set up target gross margins which will trigger reviews when they are not reached.

In its meat department, for which PW is highly regarded, store associates will use Symbol PDA devices to order product, factoring in historical sales and orders.

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