Retailers in the Dark

Retailers in the Dark

Copyright 2004, Traffic World, Inc.







After all the effort put into improving supply-chain visibility, learning the status of a shipment is child''s play, right? Not in the retail industry.

Retailers are being blindsided by inadequate information on incoming shipments and many are trying to solve the problem by getting more control over inbound freight, according to Percite, an Atlanta-based supply-chain consulting firm.

Percite is working with dozens of major retailers to complete a study of inbound supply-chain best practices. Fifty-four companies with more than $600 billion in combined sales are participating in the study.

The study is being managed by The Soleus Group and overseen by a steering committee formed by Best Buy, The Home Depot, Office Max, Rite Aid and Target.

"Typically, studies of this kind do not address the full range of issues that are specific to a large retailer," said Target''s Steve Carter, former director of domestic transportation and now general manager of the retailer''s Minneapolis-based regional distribution center.

The study also gives retailers a rare opportunity to compare notes on best practices.

"You think that other folks are way ahead of you in some areas," said Bill Hutchinson, vice president of transportation at Rite Aid. For him it was reassuring to find that this is not the case, and the chance to exchange ideas with peers was a valuable benefit of participation, he said.



The study underlined the importance of supply-chain practices not only to retail distribution but also to these companies as a whole.

"The retail industry in general is not covering its cost of capital," said John Traendly, managing partner of Soleus. Supply-chain professionals can make a crucial contribution by speeding up cycle times and cutting inventory.

Also key is the issue of control. Retailers clearly want to take more control over inbound freight, said Traendly, even when they are not paying the freight bill themselves. Large players are exercising their "channel power" to achieve this, he said.

But channel power has its limitations. For instance, the study found "significant problems with the timeliness and accuracy of messages," Traendly said.

Electronic Data Interchange remains the dominant mode of communication, although many respondents regard a mix of EDI and web-based transactions as the best choice. Surprisingly "we find lots of folks still using phone and fax," he said.

"Quality of information is a challenge," agreed Hutchinson, even when it comes to basic exchanges such as finding out from a vendor when a shipment is ready. "EDI is probably not the answer," he said.

A mix of EDI and web-based systems is one solution although striking the right balance between the two can be tricky. Also EDI can be too slow. When picking up loads from a vendor, it can take a day or so for related EDI messages to get through "and the truck is already here," he said.

That can cause lots of problems at a retailer''s receiving dock. "It''s hard to plan staffing levels if you don''t know what''s coming in," Carter said.

Effective communications is an important element of vendor compliance programs, another area where there is much dissatisfaction, according to the study. These programs are designed to encourage suppliers to meet agreed performance targets.

"By and large we got very few people who said they are satisfied with their compliance programs," said Traendly. "We took it down deep to look at the components," he said, and there were multiple reasons for the shortcomings - such as not having the right technology or goals in place.

Another gray area was whether or not to penalize vendors that fail to meet program targets. "How to enforce compliance, we had great discussions on that," Traendly said.



Managing programs overseas can be an even tougher challenge.

Hutchinson said interacting with vendors in other countries and using letters of credit for payment increases the complexity of logistics. Rite Aid has "talked a lot" with 3PLs that are interested in managing these programs on behalf of the shipper, he said.

These issues tie into the changes in the type of inbound product that supply-chain managers are dealing with. There is a trend "to import a growing percentage of the product mix," said Traendly, and shippers are "looking at the best mix of services and strategies for imports."

Many are not satisfied with their current choices. This is reflected in attitudes towards managing growth.

A "significant number of participants characterize themselves as high-growth," said Traendly. And although a number have worked to redesign distribution networks "they are planning to re-do them" partly because they are unhappy with how their organizations are managing overseas expansions.

Another organizational issue is the internal alignment of goals. One area where "there are valid but conflicting objectives" is inventory management. For instance, merchandising departments want product on the shelves whenever customers are buying, transportation departments may balk at the cost of having inventory on tap whenever it is needed.

At Rite Aid, "inbound is in lock step with the replenishment group," said Hutchinson. And to cement these internal relationships the company is reengineering its import processes through a multidisciplinary team that brings more alignment to this side of its operations.