Retailers and Suppliers, Learning to Get Along

June 1, 2003
Collaboration was the talk of the Retail Systems 2003 Conference and Exhibition in Chicago.

The loudest buzz was attributed to Wal-Mart’s latest announcement to suppliers. Wal-Mart’s senior vice president/CIO of the Information Systems Division, Linda Dillman, outlined steps towards wider deployment of radio frequency identification (RFID) technology throughout its global supply chain.

It will start with its top 100 suppliers, who will be expected to start deploying RFID technology at the pallet level in January 2005. Over the next five years there will be a phased roll-out, from pallets to cases to items. Before that, there will be several briefings with suppliers as well as implementation trials. Dillman also challenged RFID tag suppliers to bring the cost of their products down: five cents or less for item-level applications and 25 cents or less at the case/pallet level.

This long-awaited announcement is viewed as powerful validation of RFID technology, and a crucial jumpstart for the industry. It is expected to increase RFID volumes, reduce costs and accelerate adoption. Although this was a major topic of conversation at the show, so were the challenges to achieving such a level of supply chain collaboration. One attendee of a session on Collaborative Planning, Forecasting and Replenishment (CPFR) told MHM that manufacturing is still the missing link.

“You can have the perfect collaborative relationship between the supplier and the customer, but when it comes time to translate that into production, there’s a broken link there,” he said. “Not one company that I’ve worked for on the supply side has had a manufacturing department or process that accounts for forecast variability. They just pick their number one product and make it all day. We need to deliver based on forecasts, and unless the forecasts are really good , we’re not going to use them. That’s a huge hole I see.”

Ace Hardware made a convincing case that such holes can be filled. Brent Parrino, Ace’s collaborative commerce inventory manager, said that when it comes to collaboration, the manufacturer sees everything Ace sees, thanks to its Internet-based Electronic Dynamic Agreement forecasting system supplied by JDA.

“There’s nothing that they can’t see about their own products that we can see,” he explained. “How can you perform as a team when one part of the team knows something the other partner doesn’t? The most important part of this is ensuring your collaborative forecasting is tying to order execution. Unless you execute on that information you won’t see the full benefit of CPFR.”

Some of the results suppliers have seen in Ace’s collaborative program include:

--3% service level increase with 21% less inventory

--6.5% sales increase with 18% less inventory

--28% reduction in distribution costs

--18% reduction in freight costs.

In addition, Ace’s collaborative suppliers saw an annual increase in sales of 10.3% versus a flat performance for non-collaborative partners.

“Where we haven’t had much success is trying to get into the manufacturer’s production schedule,” Parrino explains. “We have 40 manufacturers set up on the score card process, but none of them bring production scheduling into that part of the scorecard. That’s where our next horizon needs to be. There will be a lot of work at Ace on the consumer end, and at the same time we need work on the manufacturing end.”

Joe Andraski, co-chair of the Voluntary Interindustry Commerce Standards (VICS) sub-committee on CPFR and founder of the Collaborative Commerce Standards Institute, cites three essential elements of collaboration.

“The technology is there, but what’s needed is leadership, change management and education,” he explains. “Some retailers out there have merchandising organizations with only a handful of people that have more than a year’s experience. It’s difficult to get someone talking about getting into a collaborative relationship when they’re still issuing orders for unit loads when it really should be cases.”

During a panel discussion on inventory management, executives from some of the leading solutions providers explained their take on these challenges.

“A lot of retailers are more manual because they don’t have a huge influx of inventory coming in,” said Edward Dupee, director of demand chain solutions for Teradata, a division of NCR. “That’s starting to change. The trend is to have more warehouse type capabilities in terms of receiving and doing store replenishment and being able to direct people from the back room to the store shelf.”

Prashant Bhatia, director of product management for Manhattan Associates, described the role wireless technologies play in timely response to supply chain emergencies.

“We have a number of customers going down the wireless path based on proof of delivery,” he said. “They actually know that not only did they ship a particular set of product and sent the invoice to the customer, but it got to the dock and someone signed for it. Wireless technology is crucial whether you’re RFID enabled or PDA enabled.”

Jiri Nechleba, president and CEO of 4R Systems, concluded that the less information you share, the harder it will be for you as a supplier to give an accurate set of inventory data to your retail customer. You also need to provide that picture to your raw material suppliers.

Various RFID trials were discussed at the show. CHEP, the pallet pool provider, is testing the performance of RFID tags from Matrics in its Davenport, Iowa Innovation Center. For pallet loads passing a stationary reader at 9 mph, CHEP requires pallet reads in a sixty-fourth of a second. Intermec introduced an RFID “Ready-to-Go” kit, which includes a variety of tags, a portable reader/bar code scanner and other components so companies can do their own RFID trials.

This is all expected to lead to adoption of the Electronic Product Code (EPC). If successful, you’ll be able to put an RFID tag — which is basically a microchip with an antenna — on a can of soda or a bottle of shampoo and computers in the supply chain will be able to see it. Put a tag on a case of soda or a pallet of shampoo and you’ll be able to automate inventory counts and share that data up and down the supply chain.

The first demo of the EPC network will be this September15-17 at the Auto-ID Center’s EPC Symposium at Chicago’s McCormick Place. The symposium will make the case for adoption, discuss implementation and outline the EPC technical architecture. Call 800-669-1668 or go to for more information. Look to page 44 for more on RFID.

— Tom Andel, chief editor

Lessons From Siemens

Siemens Dematic is so large and diverse that there’s some lesson in material handling or supply chain management to be learned from every sector. So when three sectors — material handling automation, postal automation and electronics assembly systems — sponsored Siemens Dematic Talks Americas 2003 recently, the presentations centered on what lessons could be learned from the solutions involved.

“Information is going to be a key to managing the customer’s business,” said Pete Metros, a member of the management board of Siemens Dematic. Information throughout the supply chain is critical, he said. Customers will require more information in the future.

Prashant Ranade, recently appointed president and CEO of Siemens Dematic Material Handling Automation in the Americas, said RFID will play a major role in that respect. “RFID is an information technology that must be integrated with material handling,” he added. “The influence of information technology and material handling changes the rules of the game.”

Heribert Stumpf, CEO and president, Postal Automation, said that mail handling is another major influence on state-of-the-art. He pointed to the newly developed iSort, which brings postal automation to large mailers and commercial presort houses. The iSort replaces the traditional “casing” approach to mail sortation; iSort is able to process mail of different sizes.

MHM readers who travel encounter Siemens Dematic via airport automation. Steven Axelrod, executive vice president for Siemens Dematic Material Handling Automation in the Americas, explained that their baggage inspection machines and material handing equipment are the result of a contract from the Transportation Security Administration that partnered Siemens with Boeing.

However, said Axelrod, the baggage inspection machines have been deployed as standalone equipment; next step is to move them “behind the wall” and hook them up with take-away conveyors.

— Bernie Knill, contributing editor

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