Published October 2005 - (c)2005 SoftCare EC Solutions, Inc
Scan Based Trading (SBT) is defined as the process where suppliers maintain ownership of inventory within retailers' warehouses or stores until items are scanned at the point of sale. Traditionally Scan Based Trading programs use EDI as the key component to synchronize information on store locations (Organizational Structure 816), items (Price/Sales Catalog 832), daily sales (Product Activity Data 852), receiving's (Receiving Advice 861), billings (Invoice 810) and payments (Remittance Advice 820) between a retailer and its Scan Based Trading suppliers.
While at first blush it would seem that the benefits of Scan Based Trading are mainly derived from savings for the retailer, in actual fact, the Scan Based Trading supplier is usually the driver of Scan Based Trading as they receive huge benefits. In the magazine industry alone, the full implementation of SBT has been estimated to provide operational savings to the retailers and suppliers of $220 million per year.4 The benefits to the supplier to implement SBT include:
Improved Retailer Relationships: The greatest competitive advantage for a supplier is increased collaboration and visibility within its retail-trading partner's organization. With partners agreeing on details like item, price, promotion and shrink at the onset of an SBT relationship, suppliers are able to better service accounts and reduce billing and invoice issues. Sara Lee reported a 60% reduction in invoice error correction costs by the implementation of SBT at an average cost of $70.00 per disputed invoice, the savings are substantial.1 The improved relationships also allow suppliers to use SBT as a competitive weapon to gain exclusivity at retailers. SBT suppliers are becoming increasingly aggressive in approaching retailers and offering to use SBT on all of their products in exchange for exclusivity in the retailer's stores.
Increased sales SBT suppliers have estimated that their increase in sales by switching to a Scan Based Trading model is from 1% - 5%
Improved visibility of product sales - As a part of SBT programs, suppliers receive sales by item by store by date. This information provides the supplier with an up-to-date view on the sales of product which is invaluable in sales forecasting and inventory management.
Reduced cost of inventory - In the supply chain for supplier merchandized product retailers will experience a reduction in cost of inventory. With SBT, product deliveries are based on actual store inventory of individual items. There is a dramatic reduction in product held in the supply chain typically held by suppliers agents, merchandisers,jobbers by implementing SBT.
Reduction in non-sellable product. Suppliers use SBT to lower the costs associated with non-sellable products (i.e. discontinued, damaged or out-of-code products that retailers return). SBT provides greater visibility into scan-sales data, allowing suppliers to better understand the demand chain so that they can anticipate and reduce obsolescence and improve overall profitability.
Reduced Time To Market - SBT allows suppliers to put new products into retail outlets at no risk to the retailer, since the supplier continues to own the inventory until it is scanned at the point of sale. This allows the supplier to determine new item performance and adjusting selection prior to wide scale rollout to all retail locations. The result is increased selection of timely products which results in a better shopping experience for the consumer and increased sales for both the retailer and supplier because the "expert" on product, the supplier, is in charge of inventory selection. For retailers, the implementation of SBT has been seen as a goal as it saves money and improves customer satisfaction.
Increased Sales - Typically, the increase was driven by the supplier having more time in the store to merchandise its product, fill holes, and maintain plan-o-gram integrity. In addition, several retailers mentioned suppliers were able to make an additional stop at each store during the week to merchandise products and prevent out-of-stocks. Salmon and Associates reported that "a grocery retailer's sales increased in every product category it tested - from bread to ice to magazines. Sales increases ranged from 1% to 5%, based on product category" Schnuck Markets reported a 4% increase in sales for its SBT pilot
Reduced Invoice/Order Processing Costs - Retailers have reported that the cost to process SBT suppliers is much less than "normal" suppliers as items, price, promotions, and allowance disputes are greatly reduced by pre-set agreements and the use of EDI to synchronize Item information between suppliers and retailers. Schnuck Markets reported a nearly 70% reduction in invoice deductions with time spent resolving item and price discrepancies cut in half. At an average cost of $70.00 per disputed invoice, the savings are substantial
Lowered Cost of Inventory - As SBT changes inventory ownership to the supplier, the retailer experiences a reduction in retailer-owned inventory.
Improved Financial Metrics - Once inventory levels were reduced, all financial metrics that incorporate inventory levels, such as working capital required, return on assets (RONA), and quick ratios, showed improvement: working capital can be reduced as much as 15%, RONA increased as much 4%, and the quick ratio increased as much as 7%.2
Discovery of the Desired Business Process and Implementation Approach
Upon completion of a Scan Based Trading agreement between the retailer and the supplier specifying roles and responsibilities, cost adjustments, shrink calculations etc, the retailer employed SoftCare EC to provide the software and services, required to implement an effective SBT program for the retailer. The SoftCare Solution's Group provided necessary consulting services to determine:
What information and which business processes would be employed to implementation of Scan Based Trading?
The following is a description of the flow of information created to implement Scan Based Trading
Synchronizing Store Locations
Once the business process was defined and the EDI guidelines defined, the first step was to identify all of the retailers store locations to the supplier. The retailer accomplished this by sending its SBT suppliers an initial Organizational Relationships EDI (816) document at the initiation of the program. This ensured that the SBT supplier knew all of the retailer's corporate locations, warehouses and store locations. To ensure synchronization in the future, the retailer will send a complete list of all stores which will be used by the supplier to as a complete re-load of all stores, corporate locations and warehouses. Changes include, name changes, address changes, new stores or deletions of store locations. The retailer will also send a complete list of locations via the EDI 816 upon request from its SBT suppliers.
Synchronization of Item Information
The retailer used the EDI Price/Sales Catalog (832) document to send and receive item information to/from its SBT suppliers to ensure item synchronization as without item synchronization, Scan Based Trading is not possible. The initial step was having the retailer export its item information to its SBT suppliers as an EDI Price/Sales Catalog (832). The outbound 832 provided details on what items the retailer had in its item database. It was critical that the SBT supplier reviewed this item information as proper item synchronization was critical to the SBT business process. The next step was for the supplier to send back a detailed EDI Price/Sales Catalog (832) to the retailer. The inbound 832 from the SBT supplier contained information used by the retailer to identify/categorize/price item information to facilitate the SBT process. The information sent included:
To aid in the ongoing synchronization of items, the SBT supplier sent the retailer any item changes (modifications, additions, deletions) as soon as possible to ensure that the retailer's item database was fully synchronized to the supplier's item database. If there were any "issues" with item synchronization, they were addressed prior to the implementation of any further EDI documents.
Advanced Shipment Notification
Upon synchronizing locations and items, the next step in the process was to enable SBT suppliers to inform the retailer of all Direct to Store (DSD) deliveries for SBT based product to speed receipt of shipments at the store receiving dock. The supplier used an EDI Advanced Shipment Notification (856) document to notify the retailer that merchandise for a specific store had been shipped. The 856 transaction set contained information informing the retailer about the vendor's shipment, including information used to track items shipped at the carton level. This carton "license plate" was the UCC-128 Serial Shipping Container Code. Use of the UCC-128 barcode on cartons expedited receiving of merchandise at the retailer's stores enabling rapid verification of receipt and expeditious sending of receipt of shipment to the supplier. As the ASN was tailored to the needs of Scan Based Trading, order information was not required as there was no "original" Purchase Order to reference. Although there are various formats for an ASN, there are two predominant methods of merchandise packaging within the retail industry. These are commonly known as:
For Scan Based Trading ASN's, the retailer supported the use of either "Pick and Pack" or "Standard Pack" formats and specified the timing of when the ASN must arrive (prior to delivery) to ensure that the retailer's systems could process the ASN the information, validate it and deliver it to the receiving store without delay to reduce the time to receive the shipment.
Receipt Notification
The retailer used the EDI Receiving Advice (861) document to report the receipt of shipments at the retailer's stores to their SBT suppliers. The retailer sent "Carton Receiving" information to notify the supplier of the container ID numbers, (e.g., UCC/EAN-128 carton label ID) for each shipment. This notification provided an exact receipt date and which cartons were received to the supplier who used this information for its internal labour scheduling / replenishment processes.
Synchronization of Item Sales Information
The next step in the process was for the retailer to daily send its SBT suppliers its daily sales as scanned at POS by store for each item in a Product Activity Data (852) document. The Product Activity data was primarily used by the supplier to support stock replenishment program, to provide input to sales analysis and forecasting systems and to calculate the total dollar volume by store for Invoicing. The retailer grouped all sales for an item by store using the SDQ (Store Destination Quantity) format.
Invoicing
The retailer and supplier agreed to have the supplier send a separate weekly EDI Invoice (810) for each store's SBT sales (for the purposes of Scan Based Trading, a "week" is all sales from Monday through Sunday of any week). The Invoice specified, by line item, the sales for the week and the Unit Cost price for each item. This information was used by the retailer to reconcile the Invoice to its own sales reporting prior to sending payment to the supplier. The supplier was not required to specify Terms, Allowances or Charges in their SBT Invoices as the agreement between the two had already defined all Terms, Allowances and Charges.
Payment Remittance
The retailer sent weekly EDI Remittance Advice (820) after each transfer of funds to its SBT suppliers. The retailer Remittance Advice was for information only as the actual transfer of funds was done via Electronic Funds Transfer (EFT) or via cheque. The London Drugs Remittance Advice specified payment for multiple Invoices or a single Invoice. It provided a simple method for the retailer and its suppliers to "close the loop" to reconcile sales to remittances.
SoftCare recognizes that for many retailers involved in the implementation of Scan Based Trading, there are simply too many things to do to effectively implement the appropriate business processes and technical processes. With this in mind, SoftCare has created its Retailer Quick Start Program for Scan Based Trading, which is a comprehensive program for retailers to link and utilize their information to send and receive business documents electronically to/from its supply chain for SBT. It leverages SoftCare's experience in retailing and implementation of thousands of EDI trading partners to create a "Best Practices" approach to SBT.
SoftCare's Retailer Scan Based Trading Quick Start Program provides the software and services required to implement and effective SBT program for a retailer. The SoftCare Solution's Group provides necessary consulting services to determine:
Once the implementation "roadmap" is completed, the next step is to implement the solution to export/import business information from/to a company's back-end systems, transform it and communicate-it-to/receive-it-from your supply chain using the OpenEC® TradeLink EDI Management System. This step involves working with a retailer's staff to configure TradeLink to meet their business needs. Once completed, the Solutions Group will test with a company's trading partners and train internal staff on how to implement future partners within TradeLink. The Solutions Group can train your internal staff or can be contracted to implement new trading partners as necessary. The key to SoftCare's Retailer Quick Start Program for Scan Based Trading is to provide a "one stop shopping" approach for the software and services required to implement "Best Practices" for SBT.
References
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