The News Ė 06/01/01
Thereís a revolution a-brewing in retail. Itís called
Scan-Based Trading, and if it really gets off the ground, every aspect of
the supply chain of businesses involved in retail will be changed.
PriceWaterhouseCoopers defines SBT this way:
If you could somehow marry the retailerís goal
of not wanting to own inventory with the manufacturerís goal of a
just-in-time, no excess inventory supply chain, then you would have
something. The key to this marriage would be to allow market demand to
dictate the supply. And probably the best proxy we have in the market today
for demand is capturing real-time consumer purchase activity.
In this union of marital bliss, a manufacturer
would produce a product according to demand. It would be transported to the
retailerís shelves just in time to be picked up by a customer who would
take the item to the checkout. The item would be scanned, the customer
would pay, the manufacturer would be paid automatically, and a replacement
order would be placed electronically. The retailer has no inventory
investment, the manufacturer has optimized its supply chain, and a consumer
transaction controls settlement all along the supply chain. That is the
essence of scan-based trading, or SBT for short.
This is a drastically different world than the one weíre
living in today. Supply chains today are relatively inefficient, resulting
in overstocks, out-of-stocks, excess inventory (and subsequent markdowns),
and money lost to out-of-date merchandise. SBT intends to address these
various inefficiencies by extending the just-in-time concept to the
retailerís shelf. Donaldson, Lufkin & Jenrette put it this way:
We believe that the next wave in supply chain
management or B2B is about to be rolled out. We expect the next wave to reduce
retailers net investment in inventory to near zero, pull inventory out
of the channel reducing markdown pressures and transaction costs, and
substantially reduce out of stocks.
Basically, in SBT, retailers pay the manufacturer for the
merchandise only after it has been scanned at the point-of-sale cash
register. The retailer doesnít own the goods in its stores, or its warehouses.
Obviously, there are many issues to solve, not the least of which is, what
to do about shoplifting? Alert SNS reader John Gehring asked the following
questions about SBT. I provide what answers I can.
suppliers actually get paid 30-60 days after the sale is made?
Payment is generally made a good deal more quickly after the sale
using SBT. Thatís part of the upside for the supplier. There are
actually three concepts involved in SBT: Scan-based Settlement,
Scan-based Replenishment, and Scan-based Promotion. Each speeds up the
ability of the supply chain to respond to events at retail such as
out-of-stocks and promotions, while getting money to the supplier much
faster. See the PWC white paper link at the end of this article for
there finally be a backlash against retailers adopting this policy?
to say. The retailers own the customer and that wonít change. Thatís a
pretty big hammer. I think, however, that if the supply chain can get
efficient enough and responsive enough, there will be upside for
everyone. The key is going to be the demand chain info flowing back to
the supplier. This info is gold, gold that ACNielsen has been selling for
years. If retailers can make it work in their supply chains, and
manufacturers can use it to plan demand, everyone will be happy. But
this is by no means a slam dunk. There was a lot of activity back in
í99 on SBT, with pilots and tests, but now I think folks are waiting
to see what WalMart does with it before going crazy on it. Nonetheless,
grocery retailers such as H. E. Butt, A&P, Safeway and Schnucks,
and consumer packaged goods (CPG) manufacturers, including Proctor
& Gamble, Gillette, PepsiCo, and Coca-Cola have all tested SBT.
Plus thereís plenty of savings for the manufacturer. Dreyerís Grand
Ice Cream uses SBT in more than 1,500 stores, and has been since 1994.
But they havenít had to add any vehicles in spite of recording 10
percent to 15 percent increases in volume each year. Hereís what the Grocery
Manufacturers of America pilot tests found:
the resulting margin erosion make sales to some retailers
unprofitable, especially for lower-volume suppliers?†
work for everyone, initially. But I think it will eventually be the
way of the world. The key to making SBT work is for there actually to
be no margin erosion. Manufacturers make up for any price pressure by
becoming more efficient. In addition, there is a recognition that
several of the traditional retailersí costs need to be rolled in to
the manufacturersí margin.
will the huge increase in accounts receivable days outstanding look to
have to be clued in for SBT to work. The point of SBT is to reduce the
number of days between manufacturer and sale, so this could make
things better, accounts-receivable-wise, rather than worse.
is the opportunity to make money on this "pain" being
inflicted by retailers?
While at first blush it may seem to be all pain for suppliers, I donít
think it will necessarily be a one-sided proposition. Both sides have
to win for SBT to take over the world. Nonetheless, supply chain
enablers are going to be the big growth B2B firms, because of SBT and many
other factors. In order for SBT to work, all kinds of new accounting,
tracking, financing, logistics, and decision support systems need to
be implemented. All that needs consulting and applications.
It all really boils down to WWWD: What Will Wal-Mart
Do? The secretive retailing giant is playing it close to the vest, but
indications are that, after a rocky start, its SBT experiment is yielding
double-digit same-store sales growth. The company has said selling 100 percent
of its inventory before paying suppliers is a reasonable three-year goal.
Regardless of how the gorillas go, there are many
obstacles to SBT, some technological, some process-oriented, and some
trust-oriented. Nonetheless, businesses that sell into retail need to be
aware of this trend, especially for products that are direct
store-delivered, a segment where SBT seems to be taking hold.
- Iíve just
re-ranked my list of important Internet trends in the TrendSpot.
speaking at the Designing a Handheld Computing Strategy for Your
in Rosemont, IL, Tuesday, June 19. My topic is The Next Wireless
Killer Apps: Will You Have to Have It?
been pretty down on the Internet appliance market because I just donít
see the appeal with cheap PCs and new Net devices on the horizon.
Nonetheless, Cahners In-Stat Group predicts a 101 percent compound
annual growth rate between 2000 and 2005 for sales of 20 million units
and a total of $1.3 billion by 2005. Most of the growth will be
outside of North America and Europe, where the PC market is
- Alert SNS
reader Mike Todey sent along a reference to incredible data base
research at the University of Rochester (NY). At a recent conference
on lasers and optics in Baltimore, researchers reported that they had
invented a way to use light to do a database search of 50 items in a
way that can't be duplicated in any particle-based computer. Rather
than relying on a digital system that uses strings of 1s and 0s to
encode data, the Rochester machine is analog. It works on a simple
principle discovered in the 19th century: When different waves of
sound or light combine, they create unique patterns, called
Research says small and medium-sized businesses really want fixed
broadband wireless services, and projects revenues will reach $3
billion next year, 93 percent from small and medium-sized businesses.
Canít Get Enough of ME?
In the unlikely event
that you want more of my opinions, Iíve started a Weblog. Itís the
fashionable thing for pundits to do, and Iím doing it too. A Weblog is a datestamped
collection of somewhat random thoughts and ideas assembled on a Web page.
If youíd like to subject the world to your thoughts, as I do, you can
create your own Weblog. You need to have a Web site that allows you FTP
access, and the free software from www.blogger.com.
This allows you to right click on a Web page and append your pithy thoughts
to your Weblog.
Iíve dubbed my Weblog
entries ďStratletsĒ, and they are available at www.stratvantage.com/stratlets/.
Let me know what you think. Also check out the TrendSpot for ranking of
the latest emerging trends.
to Mikeís Take