Description
The overall "order fulfillment process" between manufacturers and their wholesale/retail customers. The overarching goal of this study is to improve the understanding of retailers' expectations -both current and in the future -of the requisites of order fulfillment.
May 1997 R.B.97-08
Retail Logistics &
Merchandising
Requirements in the Year 2000
Edward W. McLaughlin
Debra J. Perosio
John L. Park
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Food Industry Management Program
Department of Agricultural, Resource, and Managerial Economics
College of Agriculture and Life Sciences
Cornell University, Ithaca, NY 14853-7801
..
•
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Food Industry
Copies may be purchased ($25) from:
Management Program
Food Industry Management Program
113 Warren Hall
Cornell University
Phone:
Fax:
607/255-1622
607/255-4776
CORNELL UNIVERSITY Ithaca, NY 14853-7801
Retail Logistics &
Merchandising
Requirements in the Year 2000
Edward W. McLaughlin
Debra J. Perosio
John L. Park
May 1997
RETAIL LOGISTICS & MERCHANDISING
Executive Summary
This report addresses the overall "order fulfillment process" between manufacturers and their
wholesale/retail customers. The overarching goal of this study is to improve the understanding of
retailers' expectations - both current and in the future - of the requisites of order fulfillment. As
employed in this report, ~ h order fulfillment process" refers to all logistical and distribution functions
beginning with the placement of an order by a retailer and concluding with the delivery of the order by
the vendor to the retailer distribution center and/or stores.
A review of the trade press and academic journals identified the relevant distribution practices, trends,
and technologies as well as the key retail companies that appear to be leading the way with important
new order fulfillment initiatives. The subsequent analysis of these issues involved the collection of
primary data in a two-part methodology. From a national, representative sample of retailers in three
classes of trade (food, drug and mass merchandising) primary data were collected in two distinct and
reinforcing waves: 1. personal interviews; and 2. two written mail surveys targeted toward
merchandising and distribution personnel within retail firms.
In total, the research study included 54 different retail respondents, from the three principal retail trade
channels: mass merchandising, drug and grocery. Together, these retail companies supply over
28,000 stores in all 50 states, and represent 1996 industry sales of approximately $320 billion.
As retailers look ahead toward 2000, their expectations of suppliers continue to intensify.
Technological readiness will drive virtually all retailer expectations of suppliers. The use of Electronic
Data Interchange (EDI) will become an industry mandate; those vendors who want to be the number
one or two partner in a category will be technologically sophisticated. This technological readiness
will dramatically reduce order time while improving invoice accuracy - an edict clearly voiced by
retailers. Communication via computers and phone lines will not, however, preclude human contact.
Within the retail organization, multifunctional teams are quickly becoming the norm in an attempt to
create a more seamless flow of communication between the merchandising and distribution functions
of the business. Finally, as suppliers and retailers look ahead, the formation of mutually beneficial
partnerships will dominate. Collaborative problem solving culminating in jointly profitable solutions
within the order fulfillment process will improve efficiency, add value, and lower costs for retailers,
vendors, and ultimately consumers.
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p"
RETAIL LOGISTICS & MERCHANDISING
Acknowledgments
Over 50 leading retail companies participated in this study. Many "best practices" retailers are
building a competitive advantage by developing innovative distribution systems and efficient logistics
practices sooner or better than their competitors. Accordingly, we assured all interview and survey
respondents complete confidentiality. Thus we have not identified the sources of many comments
and information presented in this report.
This report, however, could not have been completed without the endless patience of hundreds of
retail industry executives. We are grateful for their interest, cooperation, and genuine concern for
improving their industry performance.
Lastly, we wish to thank the sponsor of this study, Bausch & Lomb. From the onset of the project,
Bausch & Lomb executives emphasized the importance of conducting an independent and objective
analysis illuminating issues which retail companies are considering, or should be considering, as they
develop future logistics, merchandising, and distribution strategies. We appreciate the high level of
support and confidence shown by these executives in the conduct of this research project.
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II
RETAIL LOGISTICS & MERCHANDISING
Table of Contents
Executive Summary 1
Acknowledgments 11
Table of Contents 111
List of Tables IV
List of Figures IV
List of Exhibits VI
1 Introduction 1
Background 1
Study Goals & Objectives 2
2 Methodology.............•.............................................•.......................•••......•....••......••...5
Respondent Profile 5
3 Empirical Results, Analyses, & Strategic Implications 9
The Order Fulfillment Process 9
Responsibility in Order Fulfillment.. 9
Multifunctional Teams 11
Characteristics of the Order Fulfillment Process 13
Strategic Implications & Perspectives 14
Information Systems & Order Fulfillment 17
Current & Expected Use of Technology 17
Strategic Implications & Perspectives 20
Transportation, Carrier, & Inventory Practices 22
Transportation Arrangements 22
Invoice Problems 24 -
Less than Full Loads 26
Strategic Implications & Perspectives 26
III
RETAIL LOGISTICS & MERCHANDISING
Overall Vendor Performance Expectations 28
Guidelines & Services 28
Strategic Implications & Perspectives 30
Benchmark Companies and Partnerships in Order Fulfillment 32
Creating Customer Value 32
Strategic Implications and Perspectives 34
4 Summary- & Conclusions ••...................•....•.....••...............................................•......37
The Order Fulfillment Process 37
Information Systems: Their Role in Order Fulfillment... 37
Transportation, Carrier, and Inventory Practices 38
Overall Vendor Performance Expectations 38
A Trade Association Sponsors 41
B Excerpts From a Major Retailer's Statement 43
C Merchandiser Survey....•.........................................................................................47
D Distributor SUrY'ey••••••••••••••••••••••••••••••••••.••••••••••••.••••••.......•••••••...••••••••••••••.........•••••61
List of Tables
Table 1. Selected criteria on which performance is evaluated, by position 12
List of Figures
Figure 1. Merchandisers' indications of product ordering responsibility by order type 9
Figure 2. Distributors' indications of product ordering responsibility 11
Figure 3. Percentage of merchandising and distribution executives who report
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having multifunctional teams 12
Figure 4. Degree of automation of the "reorder fulfillment" process 13
IV
RETAIL LOGISTICS & MERCHANDISING
Figure 5. Order cycle time by type of item; 1996 and year 2000 14
Figure 6. Preference for product movement data ; 14
Figure 7. Use of technology as a percentage of total company volume; 1996 and
year 2000 17
Figure 8. Utilization of EDI transmission as a percentage of total company volume;
1996 and year 2000 18
Figure 9. Product demand forecasting responsibility 19
Figure 10. Use of source tagging 19
Figure 11. Who pays for source tagging? 20
Figure 12. Retailers' views on who will apply source tags 20
Figure 13. Who pays the freight? 23
Figure 14. Distributors' preferences for who schedules appointments 23
Figure 15. Distributor indications of who selects transportation carriers 24
Figure 16. Percentage of HBC orders delivered with specific problems as indicated
by merchandisers 24
Figure 17. Causes for late orders as indicated by distributors 25
Figure 18. Current and expected policies regarding when to pay supplier invoices 25
Figure 19. Distributor indications of who traps loads 26
Figure 20. Does your company have formal vendor performance guidelines? 29
Figure 21. Merchandiser requirements for specific vendor services 29
Figure 22. Distributor requirements for specific vendor services 30
Figure 23. Benchmark companies in order fulfillment. 34
Figure 24. Importance of supplier attribute to merchandisers for determining
benchmark status 35
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v
RETAIL LOGISTICS & MERCHANDISING
List of Exhibits
Exhibit 1. Organizational Chart Depicting Relevant Marketing/Merchandising
and Distribution Functions for a Typical Retail Company 7
Exhibit 2. Flow Diagram for New Product Decisions for a Typical Retail Company 10
Exhibit 6. Vendor Distribution Evaluation Criteria as Given by a
Exhibit 7. Vendor Marketing Evaluation Criteria as Given by a
Exhibit 3. Actual Vendor Scorecard for Multi-Region Retailer XYZ 16
Exhibit 4. Standard Vendor Agreement Non-Compliance Fee Schedule 28
Exhibit 5. Vendor Responsibilities as Given by a Major Retail Company 31
Major Retail Company 31
Major Retail Company 32
Exhibit 8. Example of a Vendor Scorecard 33
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VI
1
INTRODUCTION
Section
Introduction
As changing consumers and changing technology alter the way consumer product manufacturers
and retailers go to market, conventional theory and practice at every stage of the evolving distribution
systems are being critically re-evaluated. At the retail level, increasing competition for often no-
growth markets has emerged from a variety of non-traditional grocery operators - mass
merchandisers, deep discount drug stores, warehouse clubs and supercenters, to name a few. Such
blurring of traditional channels has led retail operators and suppliers alike to review many of the basic
assumptions underlying their businesses in search of cost reduction and profit enhancement
opportunities. These initiatives have become especially important given the increasing consolidation
and management sophistication of both manufacturing and distribution companies coupled with the
greater demands placed on individual item performance as a result of new product proliferation and
various category management initiatives.
The majority of retailers have adopted two general, often opposed, categories of response:
strategies to add value and strategies to reduce costs. The stakes are large. The best retailers
recognize that they are not capable of achieving their strategic goals alone. Manufacturer partners
are essential. Two key questions remain: on what criteria will retailers select these leading business
partners, and what are the expectations that retailers place on these partners, now and in the future?
This report addresses these key strategic questions, particularly with respect to the overall "order
fulfillment process" between manufacturers and their wholesale/retail customers. As employed in this
report, the order fulfillment process refers to all logistical and distribution functions beginning with the
placement of an order by a retailer and concluding when the order is delivered by the vendor to the
retailer distribution center and/or stores.
The order fulfillment process is central to the grocery industry initiative, Efficient Consumer Response
(ECR), which attempts to eliminate unneeded and redundant costs from grocery distribution
channels. As such, an enhanced understanding of current order fulfillment practices and
expectations regarding how they will change in the future will make an important contribution to both
retailer and supplier efforts to make their distribution systems more responsive, more efficient and to
improve the overall performance of the grocery distribution system.
Background
Although consumer product companies have clearly been concerned with minimizing the costs of
their distribution systems since at least the beginning of the 20th Century, it wasn't until the early
1990s that industry leaders formed the Efficient Consumer Response (ECR) working group. In
January 1994, the results of their first investigation was formally announced at the Food Marketing
Institute Mid-Winter meeting. At that time, it was estimated that as much as $30 billion dollars could
be eliminated from the grocery distribution system through more coordinated retailer-supplier efforts.
Much of this $30 billion was being wasted, the report indicated, because of inefficiencies in product
assortment, product introductions, promotions, and replenishment.
The industry response to the call for ECR has been overwhelming. Virtually every major grocery
industry company has re-examined its own internal and external practices to determine the
opportunities for greater efficiencies. An interindustry committee was convened - The Joint Industry
Project on ECR, whose philosophy was to provide better value to the consumer by improving
1
INTRODUCTION
products and assortment while lowering cost. The committee's specific long run goal was to provide
individual companies with tools and information on ways to deliver increased consumer value.
Resultantly, the joint industry committee commissioned a series of reports, each overseen by a
subcommittee, to identify and document best practices in a wide range of activities that would
contribute to a more efficient grocery pipeline: from continuous replenishment and integrated
electronic data interchange (EDI) to transportation and computer assisted ordering (CAD). The many
publications resulting from these projects are available from any of the trade associations which
together sponsor the Joint Industry Project on ECR (see Appendix A).
J
As the overall ECR effort is a vast attempt to align raw material sourcing and manufacturing decisions
at the beginning of the grocery distribution pipeline with consumers' purchase decisions at its end, the
project requires many separate components. This particular study focuses on the middle links of the
chain: all those functions involved with order fulfillment as defined above. Whereas many of the
reports issued by various industry committees provide useful guidelines and examples of "best
practices," they often do not provide specific benchmarks, nor do they attempt to project the status of
certain key practices for the future. Yet if the industry is to progress - this is partiCUlarly true for
individual companies - information is needed regarding both the current state of ECR practices
across the industry and how these specific requirements are likely to evolve in the future.
A great deal of attention has been given to the important topic of "customer satisfaction" in recent
years. Most analyses agree that for highest levels of customer satisfaction, buyer-seller partnerships
are needed that address the totality of the business relationship. This study contributes directly to
goal of improving customer satisfaction, specifically retailers' satisfaction with vendor performance,
but its focus is limited to order fulfillment only, not on the entire business relationship. Many important
dimensions of the business relationship--product quality, consumer advertising, in-store promotion,
etc.--are explicitly excluded from this study.
Study Goals & Objectives
The study upon which this report is based had the overarching goal of improving the understanding of
retailers' expectations, both current and in the future, of the requisites of order fulfillment. A number
of specific objectives are enumerated:
1) to describe the typical corporate hierarchies internal to retail organizations in which the order
fulfillment must take place;
2) to identify the individuals in retail organizations who influence the order fulfillment process, both in
the merchandising and distribution divisions;
3) to identify how retail organizations typically measure the performance of these key decision
makers;
4) to identify the extent of retailers' preferences for various performance enhancing distribution
practices and use of electronic technologies now and in the future;
5) to document how retailers measure suppliers' performance relative to order fulfillment;
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6) to forecast how retailers expect all of these key factors to change in the future.
This report should provide value for both retailers and their vendors. Retailers, on one hand, have an
interest in comparing what they currently do, and how they expect to change with the benchmarks
2
INTRODUCTION
that this report establishes for other retailers in other marketing channels. Vendors, on the other
hand, need to know what their customers require in terms of order fulfillment protocols and, more
importantly, they need to know how these customers are expecting to change these requirements in
the future. Such information is essential for much needed firm-level planning. Leading vendors will
begin now to prepare for the changes that this report identifies.
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3
INTRODUCTION
4
2
METHODOLOGY
Section
Methodology
Review of the current trade press and academic journals identified relevant distribution practices,
trends, and technologies, as well as the key retail companies that appear to be leading the way with
important new order fulfillment initiatives. The subsequent analysis of these issues involved the
collection of primary data in a two-part methodology. From a national, representative sample of
retailers in three classes of trade (food, drug, and mass merchandising) primary data were collected
in two distinct and reinforcing waves:
1) Personal visits were made to the headquarters and/or warehouse location of 15 key
wholesale/retail customers. The goal of these visits was to develop an in-depth understanding of
the entire order fulfillment process in that organization and industry segment, including the
identification of the key actors and especially their current and future expectations of suppliers. In
each of these companies, a full day of executive interviews with individuals representing multiple
functional levels was conducted. Top tier firms were selected in roughly equal numbers from
each of the food, drug and mass merchandising channels. These personal interviews, which
took place throughout the research process were instrumental not only in identifying the relevant
topics and issues of current concern to retailers, but also in interpreting the results from the mail
survey below.
2) Two similar mail questionnaires were developed: one with questions relevant for retail distribution
personnel, and the other with questions more appropriate for retail merchandising personnel.
These surveys were conducted with a nationally representative sample of retailers, again
selected from food, drug, and mass merchandising classes of trade. Names of key contacts
within each retail organization came principally from Cornell's mailing lists of grocery industry
executives, as well as the industry trade directory, Retailers and Wholesalers, '95 (Fairchild
Publications, New York). The objective of this instrument was to develop an understanding of the
processes and the individuals internal to each retail company that exert an influence on order
fulfillment procedures and performance. These results will amplify and validate the information
gathered from step 1 in the personal interviews but from the perspective of the more
"representative" companies around the country. The questionnaire employed several incentives:
a copy of the subsequent research report detailing the study findings as well as a selection of
other Cornell University Management Studies, and, lastly, an opportunity for one participant to
win a full scholarship to Cornell's Food Executive Program. The surveys were mailed in the
summer of 1996.
Respondent Profile
In total, our research included 54 different retail respondents, from the three principal retail trade
channels: mass merchandising, drug and grocery. The size distribution of respondents is quite
representative of the retailing industry. Our sample is dominated by large retailers from each trade
channel and, although the confidentiality assured the participants prevents our disclosing their
company name, many smaller retailers are included as well. Together, these retail companies supply
over 28,000 stores, in all 50 states, and represent 1996 industry sales of approximately $320 billion.
Thus it is clear that the views and forecasts documented in this report capture the directions, both
-
current and projected, of the majority of U.S. retailing industries for mass merchandise, grocery, and
drug related products.
5
METHODOLOGY
The individuals responding to our survey come in nearly equal parts from the distribution and the
merchandising divisions of their companies. Exhibit 1 shows the formal relationship that the
merchandising and distribution professionals have wtthin the organizational hierarchy for a typical
retail organization. The marketing/merchandising and distribution functions relevant to our study are I
,
highlighted in bold on the exhibit. Of the respondents, their average age is 44, 96 percent of them
are male, and 79 percent of them have at least a four-year university degree (15 percent of these
I
possessing a graduate degree).
"
I
J
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6
-Exhibit 1. Organizational Chart Depicting Relevant Marketing/Merchandising and Distribution Functionsfor aTypical Retail Company
Group VP IT &
VP Distribution
Store Devel.
...
I L.I
. -
I LJ
. -
'-I
Director Field HR
Di rector Loss
IH
Di rector Diversity
Prevention & Employment
VP Groc. & VP Meat,
II H
VP Const. & Store Director Sales
Seafood, & Deli Planning & Marketing Logistics
Manager Human
Operations
Director
Resources
VP Prof. Serv., Director
II H
Director Appl. Director
Produce Development HBC, & Log. Advertising
IN
Manager Service Manager Comm.
Operations &CBT
Director PR & Director Floral Director System
Product Safety Planning
Support Services Manager HR
Administration
Director
VP Controller Manager Cons.
Specialty Foods
Affairs
Director Bakery VP Treasurer
Manager Direct
Marketing
VP Legal
VP Prepared
Director Food
Foods Production
Service
s::
m
:J:
o
o Director Risk
o
Management r
o
G>
-< .....
I
--l
I
METHODOLOGY
i"
r
"..
-
....
8
EMPIRICAL RESULTS. ANALYSES. & STRATEGIC IMPLICATIONS
Section
3 Empirical Results, Analyses, &
Strategic Implications
The Order Fulfillment Process
Responsibility in Order Fulfillment
The retail merchandising personnel in our survey indicated that the buyer is a key contact responsible
for new product orders, re-orders, and promotional orders (Figure 1). Seventy-five percent of all
merchandisers agreed the buyer has responsibility for new product orders. The flow of the typical
decisions that impact the new product once presented to the retail buyer/category manager is
illustrated in Exhibit 2. Seventy-five percent of all merchandisers also indicated the buyer has primary
responsibility for promotional orders, and 65% indicated the buyer's duties include re-orders. This is
in stark contrast to other responsible positions, namely the buying clerk, category manager, and
director of merchandising. On average, 60% of merchandisers suggested that the buying clerk has
responsibility for re-orders. On the other hand, the category manager has primary responsibility for
ordering new products and promotional items with 50% of merchandisers indicating each of these
responsibilities. Furthermore, merchandisers indicated the director of merchandising has relatively
little responsibility for product ordering. In fact, in the case of re-orders, no merchandisers indicated
that the director of merchandising is responsible. In regards to supplier interaction, the director of
merchandising tends, in most retail organizations, to deal with policy and strategic issues rather than
day-to-day issues.
• Figure 1. Merchandisers' indications of product ordering responsibility by order type.
Director of
Merchandising ••••
50%
Category Manager
50%
••••••••••75%
Buyer
65%
•••••••••• 75%
60%
Buying Clerk
--::-=c::-;----------'
0% 20% 40% 60% 80%
Percent Indicating Responsibility
II Promotions
ORe-Orders
II New Products
-
On the distribution side of the business, the warehouse manager seems to play the key role in order
fulfillment responsibility (Figure 2). Ninety-three percent of the distribution personnel responding to
our survey said the warehouse manager has the primary responsibility for the order fulfillment
process. The traffic manager and director of distribution also play significant roles with 86% and
..
9
m
:i:
\l
CI
-Exhibit 2. Flow Diagram for New Product Decisions for aTypical Retail Company.
:Ii
o
»
r
:II
Supplier presents new product to buyer and/or Buyer and/or category manager view product
OR
category manager. at a trade show.
m
en
c
!:j
sn
»
z
»
en
m
.en
Il"
... accept the item for immediate
en
-i
inclusion in a category.
:II
m
G>
o
• applies ABC to items
• chosen by
manufacturer
or retailer
• reviews product
source
review. Often, deletes
an existing item.
... pick up the product at time of category
• reviews cube \l
r
o
6
z
en
Buyer initiates a new item form developed by category manager, which is
• reviews product mix
• generates initial order
electronically sent to...
• sets up reorder
...place item in
inventory.
... send item to picking
line.
I
I
l
EMPIRICAL RESULTS, ANALYSES. & STRATEGIC IMPLICATIONS
66% of distributors indicating their responsibility, respectively. The logistician, however, was a distant
fourth with only 31 % of distributors indicating that this position has responsibility for the order
fulfillment process.
Survey respondents indicated the criteria by which these various positions are evaluated in retail
organizations. Among merchandisers, service level and inventory turns are the primary criteria in
evaluating the buying clerk, buyer, category manager and director merchandising. In addition, the
category manager's evaluation hinges on total category performance. Service level is, once again, a
primary performance criteria for most distribution positions. Further, evaluative criteria for the
logistician, traffic manager, and warehouse manager have a collective sense of timely and efficient
distribution of products. Evaluation of the director of distribution seemingly hinges on the overall
performance of this process with such criteria suggested as expenses, labor efficiencies, and total
coordination. Table 1 provides a detailed compilation of the principal positions in both merchandising
and distribution and the criteria employed to evaluate the performance these positions.
• Figure 2. Distributors' indications of product ordering responsibility.
Director Distribution
Warehouse Manager 93%
Traffic Manager
Logistician
Percent Indicating Responsibility
-
0% 20% 40% 60% 80% 100%
Multifunctional Teams
Whether on an informal or a formal basis, many companies have multifunctional teams organized to
address order fulfillment issues. However, there is a discrepancy among merchandisers and
distributors as to the presence of those teams within their respective companies (Figure 3). Among
merchandisers, 75% indicated their company has a multifunctional order fulfillment team. This is in
contrast to only 40% of distributors who felt similarly. Responses indicating the make-up of these
teams further exemplifies this discrepancy. According to merchandisers who indicated they use a
multifunctional team, marketing positions primarily compose the team. Conversely, their distributor
counterparts indicate a decidedly more distribution oriented team. In only a minority of retailers do the
multifunctional teams genuinely integrate functions across merchandising and distribution divisions.
Differences persist when one examines how often these groups meet. Merchandisers reported that
multifunctional teams meet an average of 23 times per year, approximately twice per month.
Distribution personnel however, reported that multifunctional teams meet an average of 44 times per
year.
11
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Table 1. Selected criteria on which performance is evaluated, by position.
Performance Evaluation
Merchandising Positions Distribution Positions
Buying Buyer Category Director Logistician Traffic Whse. Director
Criteria Clerk
p'
Mgr.
P P
Merch.
P P
Mgr. Mgr.
S2
P
Distr.
P Service level
Inventory tums P P S M' M
Costs M S M
l e ~ e v e n u e M S S M M M
Gross profit M M
Retum on assets M M
Weekly promotions M
Category performance M P
Customer satisfaction M
Category strategy M
Lead times S
On-time receipts M P S M
Transportation efficiency M S M
Labor efficiency M M M
Reet management M
Order quality M M S
Freight claims M
Equipment efficiency M M
Backhauls M
Appointment times M
Distribution scheduling S M
Order processing accuracy P
Unloading efficiency M
Cost'mile, cost'case M M M
Customer service M
Cube and weigh! M
Total distribution sequence M P
Distribution center productivity P M
Notes: 1. Principle criterion on which performance is evaluated.
2. Secondary criterion on which performance is evaluated.
3. Minor criterion on which performance is evaluated.
• Figure 3. Percentage of merchandising and distribution executives who report having multifunctional
teams.
Merchandising Distribution
No
60%
Yes
Yes
75%
40%
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In the absence of a multifunctional team, among merchandisers, the most frequent communication t .
occurs with other merchandising personnel: buyers, category managers, and warehouse managers,
each with an average 156 contact points per year. Distribution personnel however, indicated that
most communication occurs with the traffic manager, meeting 260 times per year on average,
12
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
leading the director of distribution (234 times per year on average) and the logistician and buying clerk
(each with 225 times per year on average).
A strongly held belief in the vendor community is that many of the system wide efficiency lapses in
grocery marketing and distribution occur intemal to the retail organization - specifically as an alleged
result of poor communication channels between the retail merchandising department and the
retailer's own distribution center. To a surprising extent, retailers agreed with this assessment as
historically accurate but most were quick to add that the situation is rapidly changing as illustrated by
the growing number of retailers employing multifunctional teams. Today, many retailers estimate,
perhaps only 40 percent of all system "disconnects' occur as a result of miscommunication between
buyer/merchandiser and the distribution center (DC). The other 60 percent occur, retailers believe,
as a function of poor performance by the vendor. Typical examples cited include: a vendor sales rep
not fUlly communicating small changes to a buyer on promotions or special packs; vendors being
out-of-stock; incorrect vendor forecasts; and poor communication with carriers.
In an effort to improve internal communication and bridge the gap between merchandising and
distribution functions within their organizations, retailers finally reported breaking with the decades-old
tradition of keeping their logistics departments decentralized and far-flung. Not only are logistics
being consolidated at headquarters but many retailers are actively developing executive career paths
so that individuals gain experience and training in both merchandising and distribution tracks.
Characteristics of the Order Fulfillment Process
Merchandisers evaluated the degree of automation in the order fulfillment process specifically with
respect to reorders. In 1996, on average, they indicated partial automation with a score of 2.15 on a
three-point scale (1=not automated, 3=completely automated). However, by the year 2000, they
anticipate moving toward complete automation of the "reorder fulfillment" process (Figure 4).
• Figure 4. Degree of automation of the "reorder fulfillment" process.
2.84
Completely Automated 3
2.15
2
Not Automated 0
1996
Year
-
2000
Merchandisers also evaluated order cycle time now and in the future for three types of items, namely,
seasonal items, promotional items, and everyday items. Order cycle time is defined here as the
number of business days on average that reflects the elapsed time from the retail placement of the
order with the supplier until the order is received at the retail DC. Figure 5 shows that in 1996,
seasonal items have the largest order cycle time with 15.3 days on average, followed by promotional
items (10.95 days) and everyday items (8.3 days). This ranking was unchanged as merchandisers
13
EMPIRICALRESULTS, ANALYSES,&STRATEGICIMPLICATIONS
reported theircompany goals forordercycle time in the year2000, generallyexpecting ordercycle
timetodiminishforeachitemtypeby3to5daysonaverage.
•Figure5. Ordercycletimebytype ofitem;1996andyear2000.
15.3
16
14
12
10
.1996
EJ2000
8
III
Q
6
4
2
0
Seasonal A"orrotional Everyday
Type of Item
Merchandisers also revealed they rely upon and prefer to use their own product movement data
(Figure 6). Although farbehind the retailer's own data in ranking, there was aslight preference for
syndicateddata(e.g., IRI,ACNielsen)overamanufacturer'sdata.
•Figure6. Preferenceforproductmovementdata.
3
PreferMost
2.67
2
PreferLeast 0
Syndicated Manufacturer My Own
Data Type
Strategic Implications & Perspectives
I
-
• Often,vendorcompaniesareuncertainwho in theirretail accountshasspecificresponsibilityfororder
fulfillmentand howthe responsibilities aredivided. Both merchandiseranddistributorrespondentsto
our survey shed valuable light on this question. The product buyer has the greatest overall
responsibilityfororderfulfillmentwith respecttomerchandising issueswhile the warehousemanager
has the greatest overall influence in the distribution area. However, the responsibilities differ
14
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
somewhat depending on the product type. Buying clerks, for example, play relatively minor roles
regarding promotions or new product introductions but playa pivotal role when it comes to reordered
product. Similarly, although the Director of Merchandising has overall responsibility for all categories,
he or she rarely intervenes in the day-to-day operations of buying and ordering.
• The true marketing orientation, and keystone to business success, involves total customer
satisfaction. Accepting this notion means assisting your customers in accomplishing their goals,
achieving his or her objectives. However, this requires first knowing against what goals, objectives
and incentives your customers are measuring themselves. Understanding on what basis your
customers are evaluated (by their superior) helps you, the supplier, identify the critical levers
important to the customer.
"Service levels" were reported to be one of the most important primary criteria on which retail
merchandisers' performance is evaluated. In fact, this was true for each of the principal
merchandising positions. "Inventory turns' was also identified to be a primary measurement criterion
for buyers and clerks but not for the merchandising positions. The implications of this result are clear:
a supplier who wishes to enhance its position with a particular retailer must above all else excel in
ensuring that the retailer's own service levels - both to the distribution center and to the stores -
are superior.
Similarly, suppliers must be cognizant of the incentives for which retailers' distribution personnel are
working. Table 1 shows, again, that the primary criteria on which performance is evaluated for most
distribution personnel are service levels and inventory turns. In fact, Exhibit 3, taken from the vendor
manual of one large multi-region retailer, displays the actual scorecard with which this particular
retailer tracks the performance of all its vendors with respect to these two important criteria (see
strategic implications in Overall Vendor Performance Expectations for a more
complete discussion of scorecards). However, many more logistics-related factors also surface. Not
surprisingly, for example, the traffic manager is primarily evaluated based on the efficiency of
transportation, and to a lesser degree loading/unloading labor. The warehouse manager has a
similar interest in labor efficiency but is additionally judged by overall distribution center (DC)
efficiency with such indicators as cosVmile, cosVcase and equipment efficiencies.
• Our. survey shows that the majority of retailers now have regular meetings of multifunctional groups,
incorporating both merchandising and distribution personnel. However, our disaggregated results
reveal that communication still is not seamless. When asked if multifunctional teams existed, three-
quarters of all merchandising personnel agreed but only forty percent of distribution personnel
believed this was true. Some distribution personnel shared the belief that the distribution function still
does not appear to have the status of the merchandising function and, resultantly, distribution
be more easily overlooked. As such, system disconnects can occur. For instance,
retailbuyerslcategory managers typically reported "obtaining optimal packing configurations subject
to obtaining the lowest price brackef' as their overall guiding objective. This goal can lead to system
inefficiencies. FollOWing such a directive from a retailer may lead a vendor to build a pallet or load a
truck· only with space efficiency in mind in order to qualify a buyer for "maximum volume thus
minimum price." Yet in so doing, he may inadvertently be sacrificing time efficiency for space
efficiency, This is one illustration of how actions taken by merchandisers without full knowledge of
how such actions may impact the distribution part of his business may result in a breakdown in overall
system wide efficiency.
To the extent that this perception continues, it appears to be true at fewer and fewer companies.
Indeed, the trend is decidedly the opposite. Many of the major retailers interviewed in this study
-
described a complex schedule of separate weekly and monthly meetings not just between senior
executives but working committees of personnel from entire departments devoted to replenishment,
traffic, inventory management, and forecasting. There has clearly been a move away from
theerawpen all logistics functions were lumped together into one monolithic department.
15
EMPIRICALRESULTS, ANALYSES, & STRATEGICIMPLICATIONS
J
• Exhibit 3. Actual Vendor Scorecard for Multi-Region Retailer XVZ
"
. J
Period: To: -===7/::131::9::6==-
97.001 95.971 -1.031
0.001 7.301 7.301
0.00\ 11.201 11.201
14.851 23.221 8.371
3.401 2.241 -1.161
$ 1,697,456.341
$
(579,541.29)1
1,
1
35.041
5,914,8201 $ 13,979,051.781
5,516,2631 $12,980,110.561
495.4
80
1
$ 1,117,915.
05
1
12345
I
r
!
c::=J
D
• As sophisticated information technology has become a requirement for doing business today, it
should perhaps be no surprise that the majority of all retailers report that in 1996 their re-ordering
process is alreadypartiallyautomated. However, retailers were virtually unanimous in predictingthat
re-ordering will be nearlycompletely automated by the year2000, Of course, supplierswillneedto
possess similar technological readiness by the year 2000 if they expect to continue abusiness
relationship.
Thetimethat retailersallowsupplierstofill an orderisdependenton ordertype, Lead timesororder
cycle times are expected to be longer for seasonal and special promotional items than for everyday
items, both nowand inthefuture. Butsuppliersshouldtake note: retailersexpecttocunheaverage
lead timeforeveryday itemsby greaterthanone-haij(from 8,3daysto 3,75days) between1996and
the year2000. Althol.1gh afewvendors are already atthis standard, in general, meetingthisretailer
expectation will require enormous additional operational streamlining and coordination overthe next
fewyearsfromthemajorityofproductsuppliers,
Theexigenciesofthese reduced leadtimesforsuppliers has itsbrightside, however, Retailerspoint
out that the magnitude of the expected lead time reductions cannot be accomplished alone.
Improvedpartnershipswith suppliersareessential. Sowhiletheburden ofreacting toshortened lead
times and the resulting lowerlevelsofsafetystock at retailers' Deswill be borne largelybyvendors,
-
these same vendors will now playamore critical role with each retail account. Each retailer will be
thrustintoaposition ofrelyingmoreontheperformancelevelofeach ofthe (remainingfew) vendors.
16
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
Information Systems & Order Fulfillment
Cunent & Expected Use of Technology
Merchandisers and distributors described the extent of technology use in their organizations as a
percentage of total company volume. While a few forms of technology seemed to have extensive
use, all forms project a healthy growth by the year 2000 (Figure 7). Automated purchase orders were
the most pervasive form of technology with 65% of total company volume transacted this way in
1996, expected to grow to 79% of total company volume by the year 2000.
Another significant use of technology was electronic data interchange (ED!) with a reported 54% of
total company volume transacted this way, expected to grow to 88% by the year 2000. Although
radio frequency technology showed an average use of 18% of total company volume, its projected
use by the year 2000 was 64%, indicating a growth of over 250%. Results are similar for continuous
replenishment (CRP) with 19% use in 1996 projected to 42% use in the year 2000. Vendor managed
inventory (VMI) showed 15% use in 1996 projected to approximately double (28%) in use by the year
2000. Reportedly, 7% of total company volume used cross docking in 1996, expected to rise to 21 %
in the year 2000. Finally, although only 5% of total company volume used source tagging in 1996, it is
expected to rise to 28% in the year 2000.
• Figure 7. Use of technology as a percentage of total company volume; 1996 and year 2000.
Source Tagging
Cross Docking
:m:::::tmW'bVH:Hwn::
_7%
21 %
Vendor Managed nliiJli@@111@j%\WNW1:: 28%
Inventory
-l
15%
Radio Frequency WliU;:W::U%L:W:;;:::::L:iH%Hkl:::::W;WliXiLt%;: 64%
Il3 2000
l1li 5%
.1996
-lh"",==============="",
Electronic DatadwWiidw6MmMll:wW1Ml::10m;iM:::mimwwwwmwmnm::::i::i@lWm::Ml:i::::l:::NN 88%
••••••••••rS40
0
%" o-----
Interchange .r 1<
:;:;l 79%
Automated PO 65%
0% 20% 40% 60% 80% 100%
Percent of Total Company Volume
Continuous
Replenishment
18%
A more in depth analysis of the projections surrounding these various uses of technology could be
instructional. To this end, several of the specific technologies ranked above were separated into their
component parts. EDI, for example, is explored first. Merchandiser indications of EDI usage as a
percentage of total company volume (Figure 8) are characterized by an overwhelming expectation of
growth. We find that purchase orders are a primary use of EDI technology; 71% of total company
volume utilized EDI in purchase ordering in 1996, rising to 93% by the year 2000. Purchase order
acknowledgment was another significant activity for use of this initiative. Purchase order
-
acknowledgments utilized EDI transmission for 50% of total company volume in 1996, rising to 81%
by the year 2000. Invoices utilized EDI transmission for 26% of total company volume in 1996, rising
to 83% by the year 2000. Forecasts utilized EDI transmission for 18% of total company volume in
1996, rising to 56% by the year 2000. Product activity detail utilized EDI for only 15% of total
company volume in 1996, but is expected to rise to 52% by the year 2000. Carrier shipment status
17
L .
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
utilized EDI for 14% of total company volume in 1996 rising to 68% by the year 2000. Finally,
advanced ship notification utilized EDI transmission for only 11% of total company volume in 1996,
but will rise to an astounding 74% in the year 2000.
Forecasting product demand is one dimension of a company's CRP environment often split between
vendors, category managers, and buyers. On average, merchandisers indicated 45% of the
responsibility for product demand forecasting lies with the buyer, 40% with the vendor, and 10% with
the category manager (Figure 9).
Electronic Article Surveillance (EAS), often referred to as source tagging, is an issue of growing
concern to many retail sectors. In 1996, 41 % of surveyed merchandisers indicated they require
source tagging (Figure 10). However, source tags are only applied to selected items so that the
actual dollar volume, as shown in Figures 9 and 10, is still quite small. By the year 2000, expectations
of use rise to 50%. Of those requiring, or expecting to require source tagging, 78% indicate the dollar
value of an item is the determining factor of which items receive source tags. On average, the
minimum dollar amount needed was $6.83. Furthermore, those requiring or expecting to require
source tagging indicate a range of payment arrangements (Figure 11). When asked to indicate who
currently (1996) pays for source tagging, 45% indicated the retailer pays, 33% indicated the retailer
shares the cost with the supplier, and 22% indicated the supplier pays. Merchandisers involved in
source tagging also indicated who is responsible for applying the source tag (Figure 12). In 1996,
45% indicated retailers, 33% indicated suppliers, and 22% indicated both are expected to apply the
tag. However, merchandisers apparently expect a significant change in tagging responsibility to
occur by the year 2000, as 87% of them indicated the supplier would be responsible for that activity in
the future. In 1996, 56% of respondents involved in source tagging use the Checkpoint system and
33% use Sensormatic. These figures change only slightly for expectations of the year 2000 with
Checkpoint use up to 57% and Sensormatic up to 43%.
• Figure 8. Utilization of EDI transmission as a percentage of total company volume; 1996 and year 2000.
Advanced Ship
Notification
Carrier Shipment
Status
Product Activity Detail
Forecasts
Invoices
PO
Acknowledgments
Purchase Orders
:::::::::::::::J 93%
71%
0% 20% 40% 60% 80% 100%
1212000
.1996
Percent of Total Company Volume
..
,
-
18
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 9. Product demand forecasting responsibility.
Category
Manager
10%
Buyer
45%
Vendor
40%
• Figure 10. Use of source tagging.
"Do you currently, or expect to, require source tagging?"
60%
Of these, approximately
-Ill
78% indicated the dollar
GI
50%
.
>
value is the determinant
50%
Cl
for which items receive
c
:;::
III source tags.
:c
u
.s
40%
c
-
GI
e
GI
l:l.
30%
1996 2000
Year
-
19
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 11. Who pays for source tagging?
Supplier
22%
Shared Cost
33%
• Figure 12. Retailers' views on who will apply source tags.
1996 Year 2000
Supplier
Supplier
87%
Retailer
45%
13%
Strategic Implications & Perspectives
• Although historically, the retailing industry has lagged behind most other industries in its use of
technology, that condition can no longer said to be true in the latter part of the 1990s. All of the
retailers in this study reported already using various new and, many times, innovative technologies
especially in their distribution activities. But what's more is the growth they expect to generate in only
the next three years. Of the seven major procurement and distribution technologies in Figure 9, every
one is expected to grow in use by the year 2000, in some cases by over 300 and 400 percent.
A number of specific technologies were isolated for special elaboration with retailers. For example,
retailers reported that 88% of their total company volume would be transacted by means of electronic
data interchange (EDI) in their companies by the year 2000. After in-depth probing, we learned that
retailers forecast that over half of all volume will be transacted by means of at least seven major EDI
technologies by the year 2000. In order for this to actually happen, several of the currently employed
technologies will have to grow three and four-fold between now and the year 2000: cross docking,
advanced shipping notice, carrier shipment status, product activity detail, and electronic invoicing.
-
22%
20
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
Other technologies, whHeprojectedto grow, apparently do not have the growth potential expected by
retailers, as above. Vehdor managed inventory (VMI), for one, although expected to approxlrnafely
double by the year 2000, apparently is not expected to experience the growth rates of, say, electronic:
invoicing. The reasons can be explained by differing retailer beliefs regarding the proper role olthe
vendor. Certain retailers viewthe process taking responsibility for managinginventory as
the naturaL evolution of shifting functions and their attendant costs backward in the supply chain
toward manufacturers.
Others see such a shift as risky: what evidende, they ask, leads to the expectation that suppliers can
manage the inventory any better, as the retailer? Moreovet;how can suppliers
manage inventory when they will never be privy to all the retailer-controlled information such as the
cost of capital, what other competing products retailers may be planning to put on promotion, what
new stores might be opening,and what. other items the retailer may discontihue? Yet these latter
possibilities will certainly alter the demand for other products in the category over which the
manufacturer has inventory responsibility. To minimize such a possibility yet still take of
the potential efficiency gains involved in having supplier managed inventory, a few retailers are going
so far as to offer regular training courses in Which suppliers are expected to. enroll to learn precisely
how retailers want their inVentory managed and to qualify as "partner-experts" in the retailer's
information technologies and operating systems.
Most of the major suppliers have not only clearly heard the warning of this electronic imperatiVe, it is
they, in many cases, leading the innovation. In fact, larger suppHersappearto be aware of the
advantages that technological leadership confers upon them relatiVe to their small and mid-sized
competitors. There is an important structural implication to this retailerdemandJor greater and
greater levels of information technology: small. and medium sized suppliers may possess neither the
resources nor the expertise to compete. Although virtually all retailers in our interviews maintained
that niche suppliers will always have a place in the industry, it appears increasinglyJikely that
suppliers will be bifurcated into two groups: a dominant group of principal,. techhologically
sophisticated companies and asecond group of local, fringe suppliers.
One company's statement on vendor performance standards B) reveals the dilemma:
although in explaining its policies of "vendor accountability for electronlceommerce," this retailerpays
lip service to allowing specific exceptions for smaller vendors volume dries not
exceed $100,000"), it states unambiguously .latElr ·in .the same set OfgWdelines (Appendix. a), tha.t
these exceptions are temporary only. Simply stated: in the future, suppliers will either have the
resources to compete with expensive and sophisticated technologies or they will exit theindustry.
Most retailers interviewed acknOWledged that they are studying. ways to triple their cross.docking
activity before the year 2000. Drug store· retailers were more cautious, however, since they are
generally not able to send pallets!ze loads,normally associated with cross-docking feasibility, to store
level. However, even drug store. to attempts· to increase. cross-aockinQi9f
products for promotional as display-ready (e.g.,
packages and clearly marked • Shipping cartons) as possible from the vendor•... Veryife,!,
retailers, however, were so committed to reductions .in handling (like those associated
docking)ithat they were encouraging direct store delivery (OSD)•. Most retailers look. unfavorably on
the loss in delivery contrOl that they believe inevitably occurs when there is no proper paper trail on
record at the disttibutioncenter;
• Most retailers recognize that better demand forecasting is fundamentaLto necessary cost reductions.
-
Furthermore, moslunderstand that alliances with suppliers is the only sensible way to achieve such
improvement. Indeed, slightly over half of all retailers surveyed believe that demand forecasting is
their responsibility, Nearly as many, however, maintain that it isthe vendor who should properly take
over that function, Suppliers must be vigflantinidentifying whether retail accounts expect toJake over
21
I
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
demand forecasting responsibility themselves or whether they expect it to be a natural service
provided by vendors.
• ElectronicarticJesurveUlance (EAS) , generally referred to as source tagging in industry jargon, is the
processwherebye!ectronic .anti-theft labelS are .applied to consumer products. Our respondents
forecast that it will be employed by approximately one-half of all retailers by the year 2000, up from
about 41 percent today. Retailers currently report using source tagging to address the alarming
shrinkage. and loss of high value items, particularly in economically disadvantaged store locations.
The candidates most. ~ e n i t e for inclusionin source tag programs are batteries, cigarettes, OTC
drugs, various GM/HBCproducts (PreparationHand contraceptives. for example, are some of the
highestshrinkage items)al'ld·Uquor.
Although source tagging has traditionally been conductedin the retail store environment, according to
several leading retailersinithis study, its application can be conducted more economically by the
manufacturer. Indeed, our survey suggests that whereas only about a third of source tags are
applied by suppliers in 1996, retailers expect nearly 90 percent of all tags to be affixed by suppliers by
the year 2000.
Retailers continuing to resist source tagging systems mentioned four leading constraints: 1) their
inability to select only. one of the two currently available yet incompatible technologies; 2) current
level offirst-generclltion technology; 3) current lack of incorporation of the tagging technology into the
UPC bar code; and 4) perceptions of current prohibitive costs, Despite these retailer insights, tagging
technology appears to be spreading. Until recently, source tagging had been limited primarily to drug
and mass merchandise channels, but in the past year several major grocery chains on both coasts
have added EAS systems in all of their stores.
Although some retailers (and suppliers) voiced an unfavorable opinion of source tagging because
they view it strictly as an increase in costs, others have suggested an alternate view. Not only might it
reduce overall costs, as losses are more effectively controlled, but some pointed out that source
tagging makes the products so much more secure· that many more merchandising options become
available that were formerly foreclosed. One retailer suggested that cross-merchandising batteries
with various electric devices that require batteries will result in a dramatic increase in batteries sold,
not stolen. Studies show increases in sales volume of several hundred percent by openly displaying
impulse items in high traffic areas.
Transportation, Carrier, & Inventory Practices
Transportation Anangernents
Our survey shows 63% of retail distributors report that manufacturers pay the freight for incoming
orders. Another 17% said the retailer pays for freight, and 10% indicated that the retailer and
manufacturer pay together (Figure 13). In regards to transportation arrangements, 63% of
distributors indicated they require appointment scheduling with advanced notification. While the
majority of distributors indicated they currently prefer the carrier to schedule appointments with the
distribution center, this attitude shifts toward suppliers making arrangements in the year 2000 (Figure
14). While the majority of distributors indicated manufacturers select transportation carriers for their
pre-paid products, they also indicated they make that selection for products shipped free-on-board
(Figure 15).
J
J
-
22
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 13. Who pays the freight?
Both
10%
Manufacturer
63%
• Figure 14. Distributors' preferences for who schedules appointments.
100%
90%
CII
90%
u
l:
80%
CII
..
CII
70%
';
..
.1996 Q.
60%
01
I:J 2000 l:
50%
;::
C1l
u
40%
:c
.E
30%
-
l:
20% CII
CII
10%
Q.
0%
Carrier Supplier Other
Preference
-
23
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 15. Distributor indications of who selects transportation carriers.
Retailer
Manufacturer
lEI FOB Ship Point
• Pre-Paid 1
J
i
J
\
0% 20% 40% 60% 80%
Percent Indicating Response
Invoice Problems
Of course, the order fulfillment process is not without its problems. On average, retail merchandisers
indicated 29% of all invoices have a "problem" and a slightly higher 32% of HBC invoices have a
"problem." The three most common problems with HBC orders are 1) late deliveries, 2) product
pricing inaccuracy, and 3) shortages, with 19%, 17%, and 13% of orders affected, respectively
(Figure 16). Moreover, distributors indicated on average, 24% of all deliveries and 28% of HBC
deliveries are not on time. The reasons for late deliveries revealed a dichotomous response between
food retailers and drug stores in the sample. On average, food retailers indicated 37% of late
deliveries are due to the carrier not arriving on time, and 29% of late deliveries due to the vendor not
shipping on time. Meanwhile, drug store companies indicated an average 56% of late deliveries are
due to the vendor not shipping on time and another 10% are due to the vendor not shipping the order
at all (Figure 17). Retailers indicated a mean acceptable margin of error on delivery time of 52
minutes. However, only 8% of distributors indicated they levy a non-compliance fee for late
deliveries.
• Figure 16. Percentage of HBC orders delivered with specific problems as indicated by merchandisers.
2%
Terms Incorrect 2%
Damages ••••
4%
Item Not Ordered ••••• 5%
Mispicks •••••
5%
Improper Pallet Configuration ••••••• 7%
Allowance Miscalculations ••••••••••
9%
Short-Dated Product
-
Co-op OfflNot On Invoice •••••••••••
10%
Shortages ••••••••••••••
13%
Product Pricing Inaccuracy ••••••••••••••••••
17%
Late e l i e r y ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
19%
0% 5% 10% 15% 20%
Percent of Orders With Specific Problem
24
Distribution Center Did
Not Schedule Slot
Carrier Did Not
Arrive On Time
Buyer Did Not Provide
Enough Lead Time
•••••• 37%
IlEI Drug Stores
• Food Retailers
Vendor Did Not Ship
Order 1liil1iIIII••••••• 50%
Vendor Did Not Ship
On Time
••••ilI
56
%
0% 10% 20% 30% 40% 50%
Resulting Percent of Late Deliveries
60%
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
Currently, 65% of merchandisers indicate they pay supplier invoices when goods are delivered.
However, a dramatic shift is predicted in the year 2000; they expect to pay invoices when goods are
sold, as indicated by 75% of merchandisers (Figure 18). Perhaps one of the most dramatic shifts
predicted by retailers in this study relates to invoice payments terms. Two changes are relevant.
First, in the food channel, where practices in the grocery section tend to dominate and dictate to other
sections, payment terms may be changing. Some vendors have already departed from the historical
"2% 10 net 30" terms for a longer payment schedule such as "2% 17 net 30" (that is, the 2 percent
discount is good for 17, not just 10, days) in order to be more consistent with dry grocery practices.
A second significant change in payment terms has to do with a practice beginning to develop with a
few retailers of paying supplier invoices when the goods are sold from the retail store, contrary to
historical payment practices as described above. Although only a few retailers (about 10 percent)
have actually implemented this new practice, according to our survey, fully three-quarters of ali
retailers expect to shift to this payment scheme by the year 2000. While retailers explain that this
• Figure 17. Causes for late orders as indicated by distributors.
Figure 18. Current and expected policies regarding when to pay supplier invoices.
Other
1lEI2000
75%
When Goods Are .1996
Sold
When Goods Are
Delivered
0% 20% 40% 60% 80%
.' '
Percent Indicating Response
25
EMPIRICALRESULTS, ANALYSES,&STRATEGICIMPLICATIONS
will encourage suppliers to take more complete responsibility for their products until the "sell-thru,"
instead of simplyabdicating responsibility once the product is dropped off at the retail DC, such a
departurefrom historicalpaymentpracticeswill havesubstantial impactnotonlyonthelengthoftime
beforepaymentis initiatedtothe supplierbutpotentiallyon vendorin-storemerchandisingactivityas
well. Inbothcases,thisappearstoberetailers'exactmotivation.
Less than Full Loads
Increasing retailer consolidation has given rise to greater retail interest in eliminating less-than-full
truck load shipments (LTLs) from suppliers. In general, retailers prefer full truck load shipments
because of the manyefficiencyopportunities in off-loading, occupying dock space, separating and .
segregating in the assemble area and ease in scheduling carrier appointments. On average,
distributors indicated lessthan full loadsare aslight problem with regard to HBC products. Further,
theyindicated23%ofHBCarrivalsare"trapped",thatis, holdingapartial loadatan intermediatesite
until a full load is obtained. Furthermore, retailers tend to be of the opinion that most loads are
trappedbythetransportcarrier(Figure19).
•Figure19. Distributorindicationsofwhotrapsloads.
Other
15%
Carrierand
Carrierand
Other
7%
Strategic Implications & Perspectives
• Larger, multi-regionretailersaregenerallyabletoacceptstraightloadsofproductfromthemajorityof
their suppliersand, in so doing, qualify for the lowest price brackets from suppliers and capture the
above effiCiency gains althe same time. An important consequence of this trend is that smaller
suppliers and suppliers without a broad product line are increasing their use of third party
consolidatorsin orderto consolidate loadsin acentral assemblypointbefore final arrivalthe retailer's
DC. The majorityof industrymembers feel thatthe introduction of this additional element into the
distributionsystem hasactuallyincreasedefficiencyratherthan reduced it.
There isacautionary note,however, for some suppliers. Retailersadmitted that retail consolidation
alsomeansreductionofduplicatenon-essentialSKUs, Oneretailerexplained: "Afteranalyzingmany -
categories, especlallyin HBC, we found that our different divisions were carrying many different
brandsand formulationsin the samecategorywithoutanyconsumeror regionaljustification. In such
cases,we wereableto reduce the SKUsso thatwe onlycarrythe leading 1or2 in agiven category
Such practices are increasingly becoming standard at many recently
consolidated wholesalersand retailers. Suppliersmustconsiderwhethertheyneed to attain number
•
-
26
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
one or two status in their categories or risk being de-listed by efficiency-seeking retail category
managers.
• Although currently nine of every ten retailers prefer to schedule their own carrier appointments at their
DC, it should be noted that two-thirds of the time the manufacturer still pays for the freight. However,
in the next few years it is expected that carrier scheduling will shift to the supplier. As part of the
larger trend of shifting functions and costs backward in the distribution system, over half of all retailers
say they prefer their supplier to takeover responsibility for carrier schedUling by the year 2000.
• Many retailers have specified their interest in playing a greater role in controlling the transport
function, particularly when there are apparent efficiency gains. This appears to be true in at least two
principal areas: 1) more retailers are endeavoring to increase the volume of business for which they
may have the transportation responsibility whenever backhauling opportunities present themselves;
and 2) a growing number of retailers now prefer to specify who the carrier will be. Indeed, this is true
for the great majority of retailers when it concerns FOB price shipping. Many retailers provide
suppliers with a list of authorized or preferred carriers, sometimes with as few as five or six
companies listed.
Although there is a belief in the supplier community that "preferred carrier" is a thinly veiled attempt to
force the supplier to use more expensive, yet ironically often less reliable, carriers, cost was never
given as a reason by retailers. Perhaps this is predictable, yet this trend is developing, retailers
explain, to take advantage of several efficiency opportunities. First, working more closely with a
selected few trusted carriers allows both carriers and retailers more flexibility. Carriers can simply
drop off trailers for later unloading when the DC is less busy. Second, by limiting arrivals to selected
carriers only, retailers can more easily assign dock times and schedule standing appointments at their
DC for their preferred carriers. This in turn allows carriers more flexibility in consolidating loads,
reduces LTLs and thus reduces or eliminates trapping. Survey results indicated that nearly one-
quarter of all HBC loads are trapped at some intermediate site between manufacturer and retailer DC
and approximately two-thirds of retailers believe it is the carrier who is responsible for such trapping
as they frequently hold small loads until sufficient quantities have built up to justify a full load delivery
to the DC. In some cases, this may result in a delay of several weeks with the consequent disruption
of continuous replenishment and drain on system wide efficiency.
• Retailers cited several additional areas commonly associated with efficiency loss. Their own
demands for more frequent deliveries from vendors has resulted in considerable increase in the
number of LTLs and the number of SKUs on a pallet. As a consequence, despite new technology,
the unloading and dock handling tasks have grown more complicated. The "sorting and segregation"
function alone can account for one-quarter of all distribution center labor costs. Similarly, many
retailers in the grocery channel more accustomed to high volume SKUs, complained that HBC
products are often packed in non-optimally large shipping cartons. After all, approximately 90 percent
of all picks in the HBC assembly process are "by the each." Instead, many called for half pallets and
smaller shippers ( "3's and 6's"). Moreover, too much packaging sometimes impedes efficiency as
well. Several retailers estimated that "more time is spent cutting off plastic wrap than in actual
picking." Retailers reported that efforts taken by suppliers to streamline these activities are likely to
result in "preferred supplier" status.
• About one.-third 01all invoices (only slightly higher with HBC products (32%) than with overall grocery
arrivals (29%» exhibit some type of "problem" according to the retailers in this survey. The largest
single category of problems with invoices (with the order in general) identified by retailers was '1ate
deliveries." In fact, in the non-compliance fees that most retailers have developed to cover deviations
from their specified order practices, an assessment for late deliveries always figures
prominently, either with aflat rate or, as found in Exhibit 4, an hourly rate. ,..
Retail distribution executives cited five leading reasons why merchandise arrives late, perhaps
ironically the first two of which are primarily retailers' retail failure to give the vendor
adequate lead time, in particular for large promotions; 2) a backup of traffic at the DC; 3) trapping
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27
•
J
,
,
I
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
I
J
of loads, by the carrier or other; 4) vendor is out-of-stock at the factory orlate in shippipg; and5)
vendor is shipping from multiple sources and loses control of logistics. Virtually every company .
interviewed, however, reported improvement on late deliveries in recent years, in particular wttn
preferred carrier programs. Nevertheless, each of the eleven problems specified in Figure 16
represent an opportunity for vendor involvement and system-wide performance improvement
• Exhibit 4. Standard Vendor Agreement Non-Compliance Fee Schedule
J
$100
HQijrfyFee
$35
FlatFee*
$1,000
$100
$500
$100
$500 plus all extra outbound
transportation costs
$500
$500
$500
$500
$500
Fee Collection
Per Incident
Per Hour
UPC Violations
Packing List ErrorsINo Packing List
Case Pack Errors
Case Labeling Errors
Late Ad Merchandise
ASN incorrect or not provided
Improper application of hangers
Unapproved backorder
..
Merchandise shipped r l y ~ t (shipped before ship on date or shipped after cancel
i
date)
Hazardous materials labeled
will deduct the amount due from any outstanding invoice.
If there are monies due to which have not been deducted within ninety (90)
days, Vendor shall pay by check.
Note: Vendor agrees that all amounts set forth in this fee schedule are reasonable
liquidated damages and do not constitute apenalty.
Overall Vendor Performance Expectations
Guidelines & Services
Merchandisers are more or less evenly divided between those who do and those who do not have
formal vendor policy performance guidelines. One-third reported having such guidelines, 28% did not
have formal guidelines, and 39% plan to have them in 3 to 5 years. These responses were
somewhat different for the distributors' policies. According to distributors, 41 % report having formal
guidelines, 56% plan to have them in 3 to 5 years, leaving 4% who do not have formal policy
I
guidelines and have no long-term plans for any (Figure 20).
-
Merchandisers and distributors also have both differing and shifting opinions about specific services
they require from their vendors. Currently, 21 % of merchandisers indicate they require customer
specific labeling on outercases, 21 % indicate they require part number marking, 16% indicate they
require customer specific labeling on displays, 16% indicate they require price marking on individual
28
•
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
items, and 11% indicate they require supply labels. Two major changes seem to be in store by the
year 2000, however. In the year 2000, fUlly 72% of merchandisers indicate they will require customer
specific labeling on displays, and 67% indicate they will require customer specific labeling on
outercases (Figure 21).
• Figure 20. Does your company have formal vendor performance guidelines?
Merchandisers Distributors
Yes
Yes
33%
41%
Yes, In 3 to 5
Years
55%
Yes,ln 3 to 5
Years
39%
Among distributors, 48% indicate they require customer specific labeling on displays, 38% indicate
they require customer specific labeling on outercases, 34% indicate they require part number
marking, 14% require supply labels, and 10% require price marking of individual items. Significantly,
in the year 2000, 76% will require customer specific labeling of outercases, 72% will require customer
specific labeling on displays, and 60% will require part number marking (Figure 22).
• Figure 21. Merchandiser requirements for specific vendor services.
Supply Labels
Price Marked
Individual Items
Customer Specific
Labeling on Displays
Part Number Marking
Customer Specific
Labeling on
Outercases
0% 20% 40% 60% 80%
Percent Requiring
•••••••11••11. 72% m2000
.1996
••24%
12%
••1
16
%
-
4%
29
•
EMPIRICALRESULTS,ANALYSES, &STRATEGIC IMPLICATIONS
•Figure22. Distributorrequirementsforspecificvendorservices.
PriceMarked
••• 28%
Individual Items
SupplyLabels
132000
PartNumberMarking
.1996
CustomerSpecific
••••••76%
Labelingon
i
Outercases
i
J
r
CustomerSpecific
Labelingon Displays
0% 20% 40% 60% 80%
PercentRequiring
Strategic Implications & Perspectives
;
•
ofwholesalers and retailers either already have orsoon will have formal vendor
performancepoliciesthatdictatelogisticalterms,insomecases, in considerabledetail. Results from
thisresearchdemonstrate unequivocallyhow retailersplantoincreasetheir requirements ofvendors
with respect to awide range of distribution and merchandising activities in the near future. The
percentageofmerchandiserscurrentlyrequiring ·customerspecific labeling.on displays'isonlyabout
16percEmtbutwillgtQwtothree-quarters bytheyear2000. Likewise,therequirementsfor"customer
specificJabelingonoutercases" will grow by approximately the same proportion between 1996 and
the morestringentretail requirervents willplace newchallengeson vendors: more
individual. price marking, greaternumberoflabelsneeded to be forthcoming from vendors, and more
partnumbermarking.
Severalretailers have already developed "Vendor Information Manuals' providing explicit technical
specifications for distribution performance, that run over 100 .pages. Exhibit 5 is the list of
responsibilities of all vendors provided by one oUhe retailers in our study. An examination of this
exhibit shows how potentially invasive of amanufacturer'soperations and strategy such retail "rules
for doing business'can be. What's more, failure to meet any and all ofthese standards results in a
penalty fee at the leastoreven loss of business entirely. The vast majorityof retailers in our report
have formal pUblished lists of so-called non-compliance fees because they feel that such penalties
will quicklyconvey the message that they, the retailers, are verycommitted to theirstated goals. A
few retailers, however,didvoicetheopinionthatover-relianceon such feesmaybe misplaced. They
believefhatfocusingon thepenalty, oreven attemptingto make penaltyfees amounttoitsown profit
centermisses the point ofworking collaborativelywith suppliersto improve overall system efficiency
and performance.
Another retailer publishes two lists of the criteria on which vendors will be evaluated, one for
distribution criteria (see Exhibit 6) and another for merchandising/marketing criteria (see Exhibit 7).
Although·thisretaileridentifiesten separatedistributioncriteria, mostretailersagreedthatthe toptwo
-
goals are achieving '1he highestservice levelsand the lowestinventorypossible." Yetmanyretailers
in the interview process explained acertain frustration with their perception that vendors hear this
messagebutoveremphasizethe laterovertheformer. This isbecausereductionin inventoryis easy
for vendors to demonstrate and quantify in economic terms, but service levels are not so easily
•
30
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
validated. To measure the impacts of out-of-stocks, for example, requires estimating the potential
retail sales lost due to the out-of-stock situation which is an inexact science to say the least.
• As the vast majority of retail companies move towards becoming more rigorous and comprehensive in
their evaluation of their suppliers, records and scorecards on each vendor are quickly becoming the
order of the day. Currently, many of these scorecards are preliminary, often somewhat informal, even
a little crude. Many retailers admitted that at the present they only monitor the performance of their
leading vendors, perhaps the top twenty or so who account for the vast majority of all sales: most
retailers subscribe to the "80-20" rule that roughly 20% of their vendors account for 80% of their
business.
• Exhibit 5. Vendor Responsibilities as Given by aMajor Retail Company
• Provide current 'financial statements
• Notification of orders which are >20% of annual sales
• EDI (PO and Invoice) on 100% of orders
• Lowest price guarantee
• Compliance with all PO and carton marking conditions
• Non-compliance penalty, vendor pays 10
%
of problem
• Exhibit 6. Vendor Distribution Evaluation Criteria as Given by a Major Retail Company
• Service levels • Inventory turns
• Margins/profitability
• Lead time
• Fill rate
• EDI acknowledgment
• Forecast error of +/- 5% • Invoice match rate of 99%
• Zero back orders • Carton marking &shipping
label compliance
-
,.
31
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Exhibit 7. Vendor Marketing Evaluation Criteria as Given by aMajor Retail Company
• Vendor reacts to our corporate needs
• Customer service - delivery and lead times
• Promotional program variety
• Overall consumer marketing and advertising support
• Promotional flexibility given our objectives
• Extent of vendor strategy compatibility with our
company/industry
• Solves problems in timely and efficient manner
• Extent to which vendor develops and markets new products
• Maintains highest product quality levels
• Reliable and cooperative sales representation
Other retailers are pursuing sophisticated information management systems to track the performance
of their vendors in excruciating detail. In Exhibit 8 from one major retailer, for example, performance
is reported on a monthly basis and compared both to past performance and to the performance of
other vendors for each supplier to the retail organization. This includes over 1,000 different vendors.
Exhibit 8 documents performance in six principal categories - purchase order performance,
invoicing, DC performance, transportation, store performance, and EDI performance - and then
weights the importance of each of these categories to arrive at an overall "consolidated score." This
score is then used to rank every vendor serving the particular retailer from first to last.
·t
Benchmark Companies and Partnerships in Order Fulfillment
Creating Customer Value
Both merchandisers and distributors were asked to identify the firms they consider benchmark
companies in order fulfillment. Responses overwhelmingly indicate Procter & Gamble is highly
respected in this regard. P&G was the top ranked answer among both merchandisers and
-
distributors, whether speaking of all categories or just HBC. Other ranking benchmark companies
are exhibited in Figure 23.
....
"
•
32
• Exhibit 8. Example of aVendor Scorecard
m
5:
"U
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fi
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r
:Xl
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l>
Z
l>
r
-<
(j)
m
.(j)
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?!
-i
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(j)
fi
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(5
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•
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---,. ----
PO Perlormance Transportation
Receiving
Productivtty
Month YTD
On Time Delivery %
Month YTD
99%
99%
Forecast
Accuracy
12
7
9
7
15
eceiptlPO Overage %
YTD Month YTD YTD
1 1 5%
3 0
2 0
3 0
3 0
2 0
3 0
PO Quantity Fill % 1# 01 R
Month YTD Month
99% 99%
98.7 94.6
97.2 93.3
97.3 92.6
98.6 90.7
99.2 99.2
97.9 I 93.5
7 9
7 7
7 8
7 6
7 7
Lead Time
Goal Actual
29
40
50
60
70
Total
Shortage %
Month
5%
VENDOR: XYZ CORP MONTH: MAY PIPELINE:
Invoice EDI
On Hand WOS lin Stock Level %
Month YTD Month YTD
Store Preformance
15
10
14
9
12
FE REPLENISHMENT
13
Match Rate Outbound Trans Inbound Trans PO Pickup
Month YTD Month YTD 10AM 8PM
Goal 98% Errors 0 o Errors 0 0 2HR 90% 50%
Rejects 0 o Rejects 0 0 4HR 5% 50%
Actual Partials 0 o Partials 0 0 6HR 5%
QIy 82% 8HR
Price 100% On Time 90% 97% 10HR
Late 5% 3% 12HR
Total 98% Not Rove 0% 0%
CONSOLIDATED SCORE
PO Perlormance
Invoice
DC Perlormance
Transportation
Store Perlormance
ED'
TOTAL
Ranking J
EMPIRICALRESULTS, ANALYSES, &STRATEGICIMPLICATIONS
"
•Figure23. Benchmarkcompaniesinorderfulfillment.
Respondents also rated the importance of given supplier attributes that classify a vendor as a
benchmark company. Although merchandiser and distributor responses differ slightly, one should
note the top three attributes ranked by each group included 1) accuracy in order fulfillment, 2)
technological preparation, and 3) a strong trust between retailer and supplier. Innovative services
ranked nextin both groups. Onedifferencebetweenmerchandiserand distributorresponses isthat
distributors placed a slightly higher importance on a positive reputation of the supplier. Average
responses showed that all given attributes are considered at least moderately important to
merchandisersanddistributors(Figure24).
Onlyaftercertainefficiencygainshavebeenrealized doesthefocusofthepartnershipshifttoinclude
creating customer value. Retailers reported certain "advanced" partnerships that included joint
forecasting of consumer demand, meshed planning cycles, rationalized product assortments and
joint product development. In these advanced partnerships, retailers not only meet more regularly
withtheirsuppliers, theyactivelyseekoutopportunitiestointeractwith multiple levelsof the supplier
organization. Multi-functionalvisitsarearrangedtothesupplierfactorybymixed retailerteamsand,
conversely, mixed function supplier teams are invited to review retail store practices and DC
operations. Severalleadingretailcompaniesadmittedthattheysimplydonothavethetimetovisitall
companies,socurrentlytheylimitsuchvisitstotheirlargersupplierpartners. Again, "thetop20"was
a phrase often invoked to describe which suppliers may be visited - perhaps four to six different
supplierseachyear.
StrategicImplicationsandPerspectives
• After discussing all of the above-mentioned merchandising and logistics trends and requirements,
retailers were asked which vendors were currently the companies upon whom others should be
"benchmarked." Over 75 separate companies were mentioned at feast once by retailers, This
impressive number of companies is one indication of the exemplary performance that different
companies are capable of delivering, at least to certain customers some of the time. On the other
hand,some individualmanufacturingcompanieswere listedbymanydifferentretailers, with Procter&
Gambleleadingthe listforbothoverallgrocerysuppliersand forHBGsuppliersin particular.
1 Procter&Gamble
.J
i
I
2 General Mills
I
-J
3 Kimberly-Clark
'I
4 Quaker, Ralston Purina(Tie)
-
34
-
•
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 24. Importance of supplier attribute to merchandisers for determining benchmark status.
I_ werchandisers lEI Distributors 1
Customized Packaging
WA
l=';:;::::======:::J 3.72
Consolidated Shipments
WA
Positive Supplier
Reputation
Strong Personal
Relationships With Retailer
One Point Order of Entry
Flexibility to Tailor Product
Offerings
Innovative Services
Strong Trust Between
Retailer And Supplier
Technologically Prepared
Accuracy in Order
Fulfillment 4.60
3.00 3.50 4.00 4.50 5.00
Moderately Important Very Important
The objective of this study was not to conduct in-depth analyses of the best practices employed by
leading suppliers. However, retailers were asked to identify the criteria that led them to identify
certain suppliers as benchmark companies. On both the distribution and merchandising sides of the
retail business, there was widespread agreement on the four most important factors: accuracy in
order fulfillment, technological preparation, strong trust level, and innovative services. Furthermore,
for the suppliers that were perceived as the leaders in these criteria, retailers indicated the willingness
and, often, eagerness to engage in partnership relationships. When discussing retailers' overall
inclination for forming partnerships, one senior executive offered the following perspective: 'We
always say that 'willingness to listen' to our real needs is essential for our partners but that needs to
be combined with a firm's 'ability to respond.' A firm may have heard our message but if it does not
have the resources necessary to respond, it does little good to listen well."
It is true that most partnerships begin with a focus on efficiencies: everybody, after all, is in favor or
reducing unneeded costs. Most retailers acknowledged that their partnerships with suppliers started
by agreements to cut costs, time, inventory and other distribution-related items through enhanced
information and product flow. In practice, enhanced efficiency has been the primary goal of such
programs as quick response and efficient consumer response (ECR.)
-
35
•
1
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
.. "
!
.
,
"
..
-
"..
•
36
I
4
SUMMARY& CONCLUSIONS
Section
Summary & Conclusions
The overarching goal of this studyis to improvethe understanding of retailers' expectations- both
current and in the future - of the requisites of orderfulfillment. The study investigated five major
themes relative to the order fulfillment process. Below, each is enumerated along with the study
findingswhichilluminateanddescribeeachtheme.
The Order Fulfillment Process
• Primaryresponsibilityfororderfulfillmentwithinmerchandisingpersonnellieswiththebuyerwhile
the warehouse manager and traffic manager hold the major responsibilities on the distribution
sideofthebusiness.
• Retail corporate hierarchies are becoming more complex as new layers are being created,
bridging the merchandising and distribution functions. New positions such as "logistician" and
"shelf landedcostanalyst" aretypical. Ratherthan viewthese additional positionsas expanded
bureaucratic layers, vendors will do well to regard them as critical links in the order fulfillment
process.
• In an attempt to bridge an often voluminous gap between the merchandising and distributions
functions of the retail business, retailers are increasinglyforming internal multifunctional teams
consisting of individualsfrom merchandisinganddistributionwho playakeyrole in someaspect
oftheorderfulfillmentprocess.
• While multifunctionalteamsareon the increase- presumablyimprovingcommunication within
the retail organization- retailers concede that 40% of orderfulfillment problems are a result of
miscommunication between their own buyers and distribution center personnel. However,
retailers blame vendors for the majority of problems, citing poor vendor performance along a
numberofspecificdimensions.
• Retailers are demanding adecrease in "ordercycletime," that is, thetimefrom when the buyer
placestheorderwith avendoruntilthe productis deliveredtothe retail distributioncenter. While
thiscertainlyplacesgreaterpressureonvendors, italsotranslatesintogreaterretailerrelianceon
theirvendorpartners.
• Suppliers need to deliver on the criteria that matter most to retailers. These include: service,
inventory levels, productivity, and category management. Anytime vendors can work with key
retail personnel to improvetheirindividual companyperformance, vendor-retail partnerships will
certainlybestrengthened.
Information Systems: Their Role in Order Fulfillment
-
Extraordinarygrowth in electronic technology seems destined to dramaticallychangethe traditional
orderfulfillmentprocess. Specifically:
37
•
SUMMARY& CONCLUSIONS
• Useofsourcetagging will growbythe year2000- half of all respondents reported theyexpect
to use source tagging in just a few years. The majority of retailers expect vendors to apply
sourcetagsinthefuture.
I
• The use of cross-docking and radio frequency technology will increase three-fold from 1996
levels, resultinginsignificantoperationalchangesat retaildistributioncenters.
• Electronic Data Interchange (EDI) is expected to become an industrymandate by 2000. Those
dominant,technologicallysophisticatedfirms will prevail as smallerniche players are likelytofall
bythewayside.
• Vendor Managed Inventory (VMI) apparently faces several obstacles in retailers' eyes. In
particular, theycite problems regarding forecasting demand in the wake of newstore openings,
deleting/adding new items, and especially planning promotions with competing suppliers. In
short, most retailers simply believe that theycan still manage their own inventorybetterthan a
suppliercan.
Transportation, Carrier, and Inventory Practices
• Although, currently, mostcarriers schedule theirown appointments at retail distribution centers,
retailerspredictthat, in afewyears,thisfunctionwillshifttosuppliers.
• Retailers believe the majority of late orders are the combined responsibility of the vendor and
carrier.
• Retailers place the blame for invoice problems in the laps of vendors and carriers. Retailers'
demandforimproved EDI andtheuseoftheirown preferred carriers appearto betwo solutions
tothisperenniallyvexingproblem.
• Ashiftin paymentofinvoicesisexpected. Themajorityofretailerssaidthatby2000 theyexpect
topayforgoodswhentheyaresold ratherthanwhengoodsaredelivered.
• Studyfindings also indicate trends toward retailer consolidation of LTL loads, increased use of
preferredcarriers, andincreaseduseofretailerbackhaul.
Overall Vendor Performance Expectations
• Themajorityof retailersexpecttohaveformalizedvendorguidelinesby2000. Along with vendor
guidelines, vendor scorecards have already become a reality at many retail companies. With
scorecards, retailers havetheabilityto rank/ratevendorson avarietyof performancestandards.
Further, as retailers fully implement their vendor guidelines, penalties for non-compliance are
projectedtogrow.
• Retailers will continue to demand more of vendors, including activities like customer specific
labelingonoutercasesanddisplays, andtailoredpricemarking.
-
• When considering individual vendor performance, specifically for the order fulfillment process,
retailers repeatedlyupheldProcter&Gambleasamodel"bestpractices"company.
• In determining superior vendor performance in order fulfillment, "accuracy in order fulfillment,"
"technology prepared," and "strong trust between supplier and retailer" were cited as the most
38
•
. ,
SUMMARY & CONCLUSIONS
important supplier attributes. This is one more indication of the importance of technology in the
development of future retail-vendor partnerships.
• In general, as retailers ponder the optimal retail-vendor partnerships, they cite shared objectives
like cutting costs, reducing order times, reducing inventory, and improved information and
product flow.
Several clear trends emerge regarding retailer expectations relative to the order fulfillment process as
we approach 2000. Based on information like that contained in this report, vendors should strive to
invest in the performance improvement measures which matter most to retailers. Such initiatives will
clearly require improved communications both electronically and personally. The findings presented
in this report provide strong support for the trend that retailers will continue to shift responsibilities
(e.g., custom labeling, pricing, and source tagging) and their related costs toward vendors while
shifting payment practices increasingly towards consignment selling. Finally, retailers' new demands
for support, advice, and collaboration will drive supplier value from the product and service
orientation of today to the provision of complete business solutions.
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39
•
SUMMARY & CONCLUSIONS
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40
APPENDICES
Appendix
A Trade Association Sponsors
of the Joint Industry Project on Efficient Consumer Response
American Meat Institute
1700 North Moore Street
Arlington, VA 22209
703-841-2400
703-527-0938 (fax)
Food Marketing Institute
800 Connecticut Avenue, NW
Washington, DC 20006
202-452-8444
202-429-4529 (fax)
General Merchandise Distributors Council
1275 Lake Plaza Drive
Colorado Springs, CO 80906
719-576-4260
719-576-2661 (fax)
Grocery Manufacturers of America
1010 Wisconsin Avenue, NW
Suite 900
Washington, DC 20007
202-337-9400
202-337-4508 (fax)
Grocery Products Manufacturers of Canada
855 Don Mills Road
Suite 301
Don Mills, Ontario M3C1 V9
416-510-8087
416-510-8043 (fax)
International Dairy Foods Association
1250 H Street, NW
Suite 900
Washington, DC 20005
202-737-4332
202-331-7820 (fax)
National-American Wholesale Grocers'
Association
201 Park Washington Court
Falls Church, VA 22046
703-532-9400
703-538-4673 (fax)
National Association of Chain Drug Stores
413 North Lee Street
Alexandria, VA 22314
703-549-3001
703-836-4869 (fax)
National Association of Convenience Stores
1605 King Street
Alexandria, VA 22314-2792
703-684-3600
703-836-4564 (fax)
National Food Brokers Association
2100 Reston Parkway
Suite 400
Reston, VA 22091
703-758-7790
703-758-7787 (fax)
National Grocers Association
1825 Samuel Morse Drive
Reston, VA 22090
703-437-5300
703-437-7768 (fax)
Private Label Manufacturers Association
369 Lexington Avenue
New York, NY 10017
212-972-3131
212-983-1382 (fax)
Uniform Code Council, Inc.
8163 Old Yankee Road
Suite J
Dayton, OH 45458
513-435-3870
513-435-4749 (fax)
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41
•
I
r
"j
APPENDICES
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r;,
•
42
APPENDICES
Appendix
B Excerpts From a Major
Retailer's Statement
on Vendor Performance Standards
VENDOR ACCOUNTABILITY
" is fUlly committed to constantly and consistently delivering the highest quality
products at the best value to our customers. We are determined to reduce, if not eliminate,
inefficiencies and non-value added activities in the supply chain."
"Given these two very focused objectives, those trading partners who have developed a
comprehensive program with on expanding the ever widening use of electronic
commerce to conduct efficient replenishment; developing pallet configurations that are conducive to
efficient freight and minimal multiple product handling; and restructuring the traditional merchandising
strategies have met our objectives. We expect that our organizations will not rest on our laurels, but
will continue to innovate on the successes that we have achieved."
"We also recognize that our perishable business - produce, meat, deli, and bakery - operates in a
much more dynamic environment. Our perishable business continues to grow and expand to new
heights, a trend evident across our industry. As we continue to work with our perishable trading
partners to identify areas of efficient opportunities, we will establish mutual expectations. At this time,
the Vendor Performance Standards does not include our perishable trading partners."
"Lastly, we acknowledge that a handful of small, local trading partners has been instrumental in
providing our organization with unique product offerings at various times of the year. These unique
offerings have added to the local flavor of our individual divisions. We recognize that certain
requirements called for in the Vendor Performance Standards will require investments, that to the
larger trading partners represent routine cost of doing business, yet to the small local trading partners
represent a significant cost."
"Our intention is not to inflict excess economic hardships on our small, local trading partners.
Therefore, those vendors whose purchase order volume neither exceed 10 purchase orders annually
nor whose dollar volume exceed $100,000 will not, at this time, be held accountable for conducting
electronic commerce with ."
"However, since the cost of technology decreases over time and with demand, and since further
efficiencies in the supply chain will be dependent upon the continual and expanded use of electronic
data interchange, if it is determined at a future time that conducting business in a manner other than
through electronic data interchange perpetuates inefficiencies in the supply chain, will
require that all business be conducted via electronic commerce."
-
"Although these trading partners are, at this time, exempt from the technology requirements set forth
in the Vendor Performance Standards, we do expect them to observe those requirements that do not
require excessive investment. These include requirements such as shipping on good wooden GMA
pallets, 15 minute on time delivery, 2 hour trailer unload, accurate cost and deal information, etc."
43
•
I
)
APPENDICES
SHIPMENTS TO ARIVE ON THIRD PARTY 4-WAY ENTRY PALLETS
"Although we are not requiring, at this time, that all products be shipped into our distribution centers
on third party leased 4-way entry pallets, we do strongly encourage that our trading partners begin to
explore the use of more efficient shipping platforms. Over the course of the next year, we will expect
our vendors to migrate towards the use of third party leased 4-way entry pallet."
"All vendors, including those whose annual purchase order volume does not exceed 10 purchase
orders and whose annual dollar volume does not exceed $100,000 are expected to ship all products
on good GMA wooden pallets. Over the course of the next calendar year, all vendors, excluding
those whose annual purchase orders do not exceed 10 purchase orders and whose annual dollar
volume do not exceed $100,000, will be expected to migrate toward the use of third party leased 4-
way entry pallet as their shipping platform."
Compliance Time Table: 1997
Non-Compliance Fee Schedule: TBD
TWO HOUR UNLOADING
"All product shipments from our trading partners will be unloaded within two hours. With the
alignment of our trading partners' pallet configurations and those of our distribution centers, along with
palletization of all shipments, unloading a delivery within two hours is certainly achievable."
"All vendors, including those whose annual purchase order volume does not exceed 10 purchase
orders and whose annual dollar volume does not exceed $100,000, are expected to satisfy this
requirement."
Compliance Time Table: June 30,1996
Non-Compliance Fee Schedule: $65 for each half hour beyond the designated two hour window (fee
based on half hour increments)
15 MINUTE ON-TIME DELIVERY
"All scheduled deliveries from our trading partners are to arrive at the respective
divisional distribution center within 15 minutes of their appointment times."
"In the event of backhaul shipments, our trading partner will be held accountable for delays in the
carrier loading process if it is determined that the trading partner is at fault for not having our
shipments ready for either our private fleet or third party contracted carriers. Example of these
situations include, but are not limited to the following:"
• Unscheduled plant shutdown without notification to the respective Traffic
division(s) affected.
• Unscheduled plant and/or distribution center holiday without notification to the respective
Traffic division(s) affected.
• Delay in product selection and loading readiness.
"We recognize that delays may occur. Given reasonable justification for a late delivery, the respective
Traffic division will exercise appropriate discretion on assessing non-compliance."
-
, -
•
44
APPENDICES
"All vendors, including those whose annual purchase order volume does not exceed 10 purchase
orders and whose annual dollar volume does not exceed $100,000 are expected to satisfy this
requirement."
Compliance Time Table: June 1996
Non-Compliance Fee Schedule: $75 for each half hour carrier is late.
-
45
•
APPENDICES
-
•
46
C
APPENDICES
Appendix
Merchandiser Survey
-
47
•
Participate in a nationwide research study and...
Optimal· Practices
in Order
Fulfillment
The objective of this study is to document how retailers measure
manufacturers' performance relative to the order fulfillment
process specifically for the health and beauty care category.
WHY PARTICIPATE???
IS2f'You will receive the complete results of this project which
will be critical to the success of your company. By acting on the
measures important to you, your suppliers will be able to deliver
superior performance.
IS2f'You will be able to benchmark your company against other
leading companies in all three classes of trade: food, drug and
mass.
IS2f'You will have an opportunity to win a full tuition
scholarship (a $7,000 value!!) to Cornell's renown Food Executive
Program as well as receive, free of charge, several recent research
reports from the Food Industry Management Program at Cornell
University.
-
conducted by:
Food Industry Management Program
Cornell University
Ithaca, New York
•
Order Fulfillment includes all those functions associated with placing an order to a supplier: buying, logistics,
merchandising, warehousing, distribution and delivery.
SECTION I: THE ORDER FULFILLMENT PROCESS
There are several positions within a retail organization which may influence the order fulfillment process.
Typically, these positions are from the buying/merchandising and distribution/warehouse sides of the
business. We are interested in learning who in your organization specifically has responsibility for
MERCHANDISING/BUYING i.e., placing orders for new products, re-orders and promotional orders.
la. Please place a check beside each of the positions in your company which have specific responsibility for 1)
ordering NEW PRODUCTS, 2) RE-ORDERS AND 2) PROMOTIONAL ORDERING.
NEW PRODUCTS RE-ORDER OF PRODUCTS PROMOTIONAL
ORDERS
a. buying clerk
b. buyer
c. category manager
d. director merchandising
e. other _
f. other _
lb. For each of the positions listed below which have responsibility for some aspect of the order fulfillment
process, what are the two most important criteria by which the performance of these individuals is
evaluated in your company?
PERFORMANCE CRITERIA (E.G. SERVICE LEVEL, INVENTORY TURNS ETC.)
a. buying clerk
1. 2. _
1. _
2. _
b. buyer
1. _
2. _
c. category manager
d. director merchandising
1. _ 2. _
e. other _ 1. _ 2. _
1. _
f.other _
2. _
lc. To what degree, today and by the year 2000, is the order fulfillment process for RE-ORDERS in your
organization automated?
please check one for each; TODAY and YEAR 2000
TODAY YEAR 2000
COMPLETELY
-
PARTIALLY
NOT AUTOMATED
•
Order Cycle Time
ld. On average, what is the order cycle time in your company for the following items:
Note: order cycle time is defined as the number of business days on average which reflects the elapsed time
from the time an order is placed until an order is received.
place a check under the number of business days which best describes the order cycle
time for seasonal, promotional and everyday items
TYPE OF ITEM less than 1 day 1-3 days ~ days 7-10 days 11-14 days More than 14 days
a. Seasonal Items
b. Promotional Items
c. Everyday Items
1
What is your COMPANY GOAL for order cycle time for the year 2000?
TYPE OF ITEM less than 1 day 1-3 days 4-6 days 7-10 days 11-14 days More than 14 days
a. Seasonal Items
b. Promotional Items
c. Everyday Items
Ie. In your retail organization, is there a multifunctional team (may consist of merchandisers, category
managers, distribution, logistics etc.) which meets regularly to address order fulfillment issues?
____ No, please skip to if on next page.
____ Yes
L a. Please list the team members' job titles
MEMBERS' JOB TITLES OF YOUR MULTIFUNCTIONAL ORDER FULFILLMENT TEAM:
1. . _
2. _
3. _
4. _
5. _
6. _
1
b. How frequently does this team meet?
-
___________________ please go to 19 on next pate.
-
•
only answer question If if you answered NO to question Ig on page 3
If. If you do NOT have a multifunctional team, how often do you formally communicate with each of the
individuals assigned to the order fulfillment process?
FUNCTIONAL POSITION FREQUENCY OF FORMAL TYPE OF COMMUNICATION
WITH WHOM COMMUNICATION (e.g. phone, meeting, e-mail, etc.)
I COMMUNICATE (indicate days/wk OR days/month)
MERCHANDISING:
a. buying clerk
b. buyer
c. category manager
d. director merchandising
e.other _
f.other _
DISTRIBUTION:
a. logistician
b. traffic manager
c. warehouse manager
d. director distribution
e. other _
f. other _
19. Data on product movement is available from several sources. Indicate 1) your reliance on the following data
types and 2) which data source you prefer. Please rank your "reliance" and "preference" using a scale
from 1 to 3 with 1 = most and 3= least. Please indicate your "reliance" and "preference" for each by circling
once response on each scale.
RELIANCE on Data Type DATA TYPE PREFERENCE for Data
Rely on Rely on MOST LEAST
MOST LEAST Prefer Prefer
1 2 3 a. syndicated data 1 2 3
1 2 3 b. my own retail data 1 2 3
1 2 3 c. manufacturer data 1 2 3
-
1h. If possible, please attach a schematic that illustrates the organizational chart of your management structure.
•
----
SECTION II: INFORMATION SYSTEMS
Current and Expected Use of Technology
1. Please estimate the current and expected percent of your TOTAL COMPANY SALES VOLUME and HBC
SALES VOLUME that is transacted via the following initiatives for the years indicated:
1996 2000
Total Total
Company HBC Company HBC
a) Electronic Data Interchange (ED!)
b) Source Tagging (security)
c) Cross Docking
d) Continuous Replenishment (CRP)
e) Vendor Managed Inventory (VMI)
f) Automated purchase order system
g) Radio Frequency/bar coding
Electronic Data Interchange (EOI):
% %
%
0/0
% %
% %
% %
% %
% %
% %
% %
% %
% %
% %
0/0
%
%
0/0
2a. Please estimate the current and expected percent of your TOTAL COMPANY VOLUME and HBC
VOLUME for which EDI transmission is utilized in your company.
a) Purchase orders
b) P.O. acknowledgements
c) Product activity detail
d) Forecasts
e) Advanced ship notification
f) Invoices
g) Carrier shipment status
Total
Company HBC
%
--_%
%
--_%
%
--_%
%
--_%
%
--_%
%
--_%
%
--_%
2000
Total
Company HBC
% %
% %
% %
% %
% %
%
0/0
% %
-
•
2b. Currently, what are the two leading issues associated with EDI transmission for your company and how
significant are they? (please indicate two issues and beside each circle the description which best describes
the significance of each issue)
ISSUE VERY MODERATELY MODESTLY
SIGNIFICANT SIGNIFICANT SIGNIFICANT
a. _
1 2 3
b. _
1 2 3
Continuous Replenishment (CRP)
3a. In the CRP environment in your company, what percentage of the responsibility for forecasting product
demand is held or shared by the following?
___%vendor
___% category manager
___%buyer
___% other, please explain _
100%
3b. Currently, what are the two leading issues associated with CRP for your company and how significant are
they? (please indicate two issues and beside each circle the description which best describes the significance
of each issue)
ISSUE VERY MODERATELY MODESTLY
SIGNIFICANT SIGNIFICANT SIGNIFICANT
a. _
1 2 3
b. 1 2 3
-
•
I
}
i
)
/
VendorManagedInventory(VMI)
4a. Whattypesofinformation,withwhatfrequency,andinwhatformdoyouRECEIVEinformationfromyour
VMIvendorpartners?
TYPEOFINFORMAnON FREQUENCY FORMAT(written document,
e-mail, phone, personal contact)
4b.Currently,whatarethetwoleadingissuesassociatedwithVMIforyourcompanyandhowsignificantare
they?(pleaseindicatetwoissuesandbesideeachcirclethedescriptionwhichbestdescribesthesignificance
ofeachissue)
j
ISSUE VERY MODERATELY MODESTLY
SIGNIFICANT SIGNIFICANT SIGNIFICANT
a. _
1 2 3
b. _ 1 2 3
4c. Whattypesofinfonnation,withwhatfrequencyandinwhatformdoyouSUPPLYinformationtoyourVMI
vendorpartners?
TYPEOFINFORMAnON FREQUENCY FORMAT(written, document,
e-mail, phone, personal
contact)
-
4d.Pleaseidentifythetop5suppliers(overallandHBC)whoyouconsidertobethe"benchmark"companiesin
orderfulfillment.
SUPPLIERS: OVERALL HBCSUPPLIERS
1. _ 1. _
2. _ 2. _
3. _ 3. _
4. _ 4. _
5. _ 5. _
•
-i
4e. Howimportantarethefollowingsupplierattributestoyouindecidingwhichvendorstoconsideras
"benchmark"companies?(please circle ONE response per attribute)
SUPPLIERATIRIBUTE NOT VERY
IMPORTANT IMPORTANT
a. positivereputationofsupplier 1 2 3 4 S
b. strongtrustbetweenretailerandsupplier 1 2 3 4 S
c. flexibilityofsuppliertotailorproduct
offeringsspecificallytoretailerneeds 1 2 3 4 S
SUPPLIERATIRIBUTE NOT
IMPORTANT
VERY
IMPORTANT
d.innovativeservices 1 2 3 4 S
e. technologicallyprepared(e.g. EDI,eRP,VMI) l 2 3 4 S
f. strongpersonalrelationshipsbetween
retailerandsupplier 1 2 3 4 S
g. onepointoforderentry 1 2 3 4 S
h.accuracyinorderfulfillment 1 2 3 4 S
i. other,pleasespecify l 2 3 4 S
SourceTagging(security)
Sa. Doyoucurrentlyorexpecttorequiresourcetagging?
please complete for both "Currently" and "Year 2000"
CURRENTLY YEAR2000
(check one) (check one)
YES NO YES NO
___go to Sec III, la. ___go to Sec III,1a.
1 1
go to 5b go to 5b
Sb. Whatcriteriadoyouemploytodecideuponwhichproductstoplacesourcetagging?(checkall that
apply)
-
____dollarvalueofitem,pleasespecifywhattheminimumdollarvalueis$
____sizeofpackage
____other,pleasespecify .
•
5c. Who currently pays for source tagging? (please check one)
____ retailer
____ supplier
____ retailer and supplier shared expense
____ other, please specify _
5d. What source tagging system do you currently and/or
expect to use? (please check all that apply)
CURRENTLY YEAR 2000
a. Sensormatic
b. Checkpoint
c. other, please specify
5e. Who is expected to apply the source tag on the product? (check all that apply)
CURRENTLY YEAR 2000
a. supplier
b. retailer
c. other, please specify
SECTION III: INVOICE & SHIPPING REQUIREMENTS
1a. Often the functions associated with invoicing and shipping are performed incorrectly. On average, what
percentage of your 1) HBC and 2) TOTAL invoices have some type of "problem?"
____% of ALL Invoices have a "problem"
____% of HBC Invoices have a "problem"
lb. On an annual basis, 1) what percentage of all HBC orders are delivered with the following problems and 2)
what, if any penalty is levied if a supplier is out of compliance?
FUNCTION PERCENTAGE OF ORDERS PENALTY
a. product pricing inaccuracy
b. co-op off invoice, not on invoice
c. other off invoice allowance miscalculations
d. shortages
e. damages
f. short-dated product
g. mispicks
h. terms incorrect
i. late delivery
j. item not ordered
-----_%
-----_%
-----_%
----_%
%_----
-----_%
-----_%
-----_%
-----_%
-----_%
•
______%
k. shipment: improper pallet/case configuration
1. other, please specify below:
-----_%
Ie. During a typical week, what percentage of HBC orders are"out of stock" both at the distribution center
and retail store?
_____% at retail
_____% at distribution center
Id. What is your current and expected policy regarding payment of supplier invoices? (check all that apply)
CURRENTLY POLICY YEAR 2000
a. payment is made when
goods are delivered
b. payment is made when
goods are sold
c. other, please specify
Ie. Does your company have a set of formal vendor policy performance guidelines? (please check on
response)
_____ No, not currently
_____ No, but anticipate having them in the next 3-5 years
_____ Yes (if possible, please attach a copy with your completed survey)
Customer Specific Services
2a. Do you currently or expect to require your vendors to provide the following services specifically for HBC ?
SERVICE CURRENTLY YEAR 2000
YES NO YES NO
a. customer specific labeling on
outercases
b. customer specific labeling on
displays
c. price mark individual items
d. part number marking
e. supply labels
-
r .
•
SECTION IV: COMPANY & PERSONAL BACKGROUND
Please answer as many of the following as possible...
1. What is your present job title?
j
J
,
2. How many stores does your company operate?
______________ stores
'I
3. What are the approximate 1995 sales for your company?
$------------
4. What is the highest educational degree you have received? (circle one)
a. High school diploma
b. Two year college degree
c. Four year college degree
d. Graduate degree
5. How old were you on your last birthday?
______________ years old
6. Are you: a. Female b. Male
-
r
,.."0
1
I
I
I
•
THANKS!!
FOR YOUR HELP IN THIS IMPORTANT STUDY!
PLEASE ENCLOSE THE COMPLETED QUESTIONNAIRE IN THE ENVELOPE PROVIDED
AND MAIL IT TO US TODAY.
Upon receipt of your completed questionnaire, you will:
• Become eligible to win a full tuition scholarship to Cornell's world renown Food Executive Program
held annually for two weeks in July. Please see the enclosed brochure for additional details regarding
the Food Executive Program.
• Receive, free of charge, any of the research studies listed below as well as a copy of the survey results. If
you would like us to send you either the survey results or recent Cornell research studies, please
provide the following information. (This page will be separated from the questionnaire to ensure the
anonymity of your response.)
Name: _
Company Name: _
Address: _
CORNELL FOOD INDUSTRY MANAGEMENT RESEARCH REPORTS
(please check those of interest and we will enclose them with the survey results)
__What's In Store for Home Shopping? Kristen Park, Debra J. Perosio, Gene A. German and Edward W.
McLaughlin, May 1996.
__Dairy Department Procurement Dynamics, Edward W. McLaughlin and Debra J. Perosio, May 1996.
__Fresh Fruit and Vegetable Procurement Dynamics: The Role of the Supermarket Buyer, Edward W. McLaughlin
and Debra J. Perosio, February 1994.
__ Supercenters: The Emerging Force in Food Retailing, Gene A. German, Gerard F. Hawkes and Debra J.
Perosio, October 1993.
If you have any questions regarding the study or this questionnaire, please contact:
Debra J. Perosio
-
Food Industry Management Program
Warren Hall, Cornell University
Ithaca, New York 14853
Phone (607) 255-1588
Fax (607) 255-4776
e-mail djp7@ cornell.edu
•
I
APPENDICES
!
j
-!
'#
I
I
-
•
60
APPENDICES
Appendix
D Distributor Survey
-
61
•
1
Participate in a nationwide research study and...
,
Optimal Practices
in Order
Fulfillment
The objective of this study is to document how retailers measure
manufacturers' performance relative to the order fulfillment
process specifically for the health and beauty care category.
WHY PARTICIPATE???
You will receive the complete results of this project which
will be critical to the success of your company. By acting on the
measures important to you, your suppliers will be able to deliver
superior performance.
You will be able to benchmark your company against other
leading companies in all three classes of trade: food, drug and
mass.
You will have an opportunity to win a full tuition
scholarship (a $7,000 value!!) to Cornell's renown Food Executive
Program as well as receive, free of charge, several recent research
reports from the Food Industry Management Program at Cornell
University.
-
conducted by:
Food Industry Management Program
Cornell University
Ithaca, New York
SECTION I: THE ORDER FULFILLMENT PROCESS
There are several positions within a retail organization which may influence the order fulfillment process.
Typically, these positions are from the buying/merchandising and distribution/warehouse sides of the
business. We are interested in learning who in your organization specifically has responsibility for the order
fulfillment process on the DISTRIBUTION side of your business.
la. Please place a check beside each of the positions in the distribution area of your company which have
responsibility for the order fulfillment process and indicate their specific responsibilities.
POSITION RESPONSIBILITY IN ORDER FULFILLMENT
PROCESS
a. logistician
b. traffic manager
c. warehouse manager
d. director distribution
e. other _
f. other _
lb. For each of the positions listed below which have responsibility for some aspect of the order fulfillment
process in distribution, what are the two most important criteria by which the performance of these
individuals is evaluated in your company?
PERFORMANCE CRITERIA (E.G. SERVICE LEVEL. INVENTORY TURNS ETC.)
a. logistician 1. 2.
b. traffic manager 1. 2.
c. warehouse manager 1. 2.
d. director distribution 1. 2.
e. other 1. 2.
f. other 1. 2.
lc. In your retail organization, is there a multifunctional team (may consist of merchandisers, category
managers, distribution, logistics etc.) which meets regularly to address order fulfillment issues?
___ No, please skip to Id.
____ Yes
-
L a. Please list the team members' job titles on the next page
•
MEMBERS' JOB TITLES OF YOUR MULTIFUNCTIONAL ORDER FULFILLMENT TEAM:
6. _
1.
7. _
2.
8. _
3.
9. _
4.
5.
10. _
!
b. How frequently does this team meet?
___________ please go to Ie
only answer question Id. if you answered NO to question Ie on page 2
1d. If you do NOT have a multifunctional team, how often do you formally communicate with each of the
inviduals assigned to the order fulfillment process?
FUNCTIONAL POSITION FREQUENCY OF FORMAL TYPE OF COMMUNICATION
WITH WHOM COMMUNICATION (eg. pllOne, meeting, e-mail etc.)
I COMMUNICATE (indicate days/wk OR days/month)
MERCHANDISING:
a. buying clerk
b. buyer
c. category manager
d. director merchandising
e. other _
f. other _
DISTRIBUTION:
a. logistician
b. traffic manager
c. warehouse manager
d. director distribution
e. other _
f. other _
Ie. If possible, please attach a schematic that illustrates the organizational chart of your management structure.
-
•
1£. Pleaseidentifythetop5suppliers(overallandHBC)whoyouconsidertobethe"benchmark"companiesin
orderfulfillment.
SUPPLIERS: OVERALL ABC SUPPLIERS
1. _ 1. _
2. _ 2. _
3. _ 3. _
4. _
4. _
5. _ 5. _
19.Howimportantarethefollowingsupplier attributes toyouindecidingwhichvendorstoconsideras
"benchmark"companiesinorderfulfillment?(please circle ONE response per item)
SUPPLIER ATfRIBUTE NOT VERY
IMPORTANT IMPORTANT
a. positivereputationofsupplier 1 2 3 4 5
b.strongtrustbetweenretailerandsupplier 1 2 3 4 5
c. customizedpackaging 1 2 3 4 5
d.innovativeservices 1 2 3 4 5
e. technologicallyprepared(eg. EDI,CRP,VMI) 1 2 3 4 5
f. strongpersonalrelationshipsbetween 1 2 3 4 5
retailerandsupplier
g. consolidatedshipments 1 2 3 4 5
h.accuracyinorderfulfillment 1 2 3 4 5
i. other,pleasespecify
________ 1
2 3 4 5
-
•
---
I
SECTION II: INFORMATION SYSTEMS
Current and Expected Use of Technology
1. Please estimate the current and expected percent of your TOTAL COMPANY SALES VOLUME and HBC
SALES VOLUME that is transacted via the following initiatives for the years indicated:
1996 2000
Total Total
Company HBC Company HBC
a) Electronic Data Interchange (EDI)
b) Source Tagging (security)
c) Cross Docking
d) Continuous Replenishment (CRP)
e) Vendor Managed Inventory (VMI)
f) Automated purchase order system
g) Radio Frequency/bar coding
% %
% %
% %
% %
% %
% %
% %
SECTION III: WAREHOUSING & TRANSPORTATION
I
% %
r
r
% %
% %
DID
%
DID
%
DID DID
% %
-
1a. Who typically pays the freight for an incoming order?
retailer
manufacturer
___ other, please specify _
lb. Which of the following do you require regarding transportation arrangements? (check all that apply)
___ appointment scheduling
___ advanced notification
___ other, please specify _
1c. Who selects transportation carriers for your pre-paid and your EO.B. products? (please check all that apply)
Pre-paid EO.B. Ship Point
currently we do
______ do not currently select the carrier
but plan to in 3 to 5 years
manufacturer
other, please explain
•
ld. Currently, and in the future, who do you prefer to schedule appointments with the distribution
center?
CURRENTLY PREFERENCE YEAR 2000
a. carrier
b. supplier
c. other, please specify
Ie. On average, what percentage of all deliveries AND HBC deliveries to your distribution center are NOT "on
time?"
% of Deliveries NOT on time:
____ all deliveries
____ HBC deliveries ONLY
1£. What percentage of the time are late orders the responsibility of each of the following?
____% - the vendor did not ship on time
____% - the vendor did not ship the order at all
____% - personnel in the distribution center did not schedule a slot for the carrier
____% - the buyer did not provide enough lead time for "on time" delivery
____% - the carrier did not arrive "on time"
____% - other, please specify _
100%
19. What is the maximum acceptable "margin of error" allowed for either an early or late delivery of an HBC
order at your distribution center?
____minutes
lh. Do you levy a non-compliance fee for "late" deliveries?
___NO
___YES
L Please explain the nature of the penalty [please attach a penalty schedule if
available}
-
•
Ii. In your opinion, how big a problem are "less than full loads" (LTL) with HBC products? (please circle one)
NOT A PROBLEM SLIGHT PROBLEM MAJOR PROBLEM
1 2 3
If you answered either "2" or "3" to the above question, please briefly explain the exact nature of the
problem:
1j. Approximately what percentage of your HBC arrivals are "trapped?" (i.e., hold a partial load until a full
load is obtained) __%
1k. In order to minimize LTLs who "traps" loads? (please check all that apply)
____carrier
____retailer
____ other, please specify
11. During a typical week, what percentage of HBC orders are"out of stock" both at the distribution center
and retail store?
_____% at retail
_____% at distribution center
1m. Does your company have a set of formal vendor policy performance guidelines?
_____ No, not currently
_____ No, but anticipate have them in the next 3-5 years
_____ Yes (if possible, please enclose a copy with your completed survey)
In. Currently, what are the two leading issues associated with warehousing and transportation for your
company and how significant are they? (please indicate two issues and beside each circle the description
which best describes the significance of each issue)
..
ISSUE VERY MODERATELY MODESTLY
SIGNIFICANT SIGNIFICANT SIGNIFICANT
a. 1 2 3
b. 1 2 3
",.
-
•
Customer Specific Services
2a. Do you currently require or expect to require your vendors to provide the following customer service
functions?
FUNCTION CURRENTLY YEAR 2000
YES NO YES NO
a. customer specific labeling on
outercases
b. customer specific labeling on
displays
c. price mark individual items
d. part number marking
e. supply labels
SECTION IV: COMPANY & PERSONAL BACKGROUND
Please answer as many of the following as possible...
1. What is your present job title?
2. How many stores does your company operate?
______________ stores
3. What are the approximate 1995 sales for your company?
$ -----------
4. What is the highest educational degree you have received? (circle one)
a. High school diploma
b. Two year college degree
c. Four year college degree
d. Graduate degree
5. How old were you on your last birthday?
years old
6. Are you: a. Female b. Male
-
•
Food Industry
Management Program
CORNELL UNIVERSITY
Available Publications
The following publications are available at $25 each. Discounts are available on
multiple copies of any individual report. Direct orders to:
Food Industry Management Program Phone: 607/255-1622
Cornell University Fax: 607/255-4776
113 Warren Hall
Ithaca, NY 14853-7801
Supermarket Development in China, Gene A. German, Jane Wu, and Ming Li Chiao E.B. 96-
20, December 1996.
The Feasibility of a Mid-Hudson Valley Wholesale Fresh Produce Facility: A Buyer
Assessment, Craig R Kreider and Edward W. McLaughlin. RB. 96-09, August 1996.
What's i.n Store for Home Shopping? Kristen Par1
The overall "order fulfillment process" between manufacturers and their wholesale/retail customers. The overarching goal of this study is to improve the understanding of retailers' expectations -both current and in the future -of the requisites of order fulfillment.
May 1997 R.B.97-08
Retail Logistics &
Merchandising
Requirements in the Year 2000
Edward W. McLaughlin
Debra J. Perosio
John L. Park
-
Food Industry Management Program
Department of Agricultural, Resource, and Managerial Economics
College of Agriculture and Life Sciences
Cornell University, Ithaca, NY 14853-7801
..
•
-
Food Industry
Copies may be purchased ($25) from:
Management Program
Food Industry Management Program
113 Warren Hall
Cornell University
Phone:
Fax:
607/255-1622
607/255-4776
CORNELL UNIVERSITY Ithaca, NY 14853-7801
Retail Logistics &
Merchandising
Requirements in the Year 2000
Edward W. McLaughlin
Debra J. Perosio
John L. Park
May 1997
RETAIL LOGISTICS & MERCHANDISING
Executive Summary
This report addresses the overall "order fulfillment process" between manufacturers and their
wholesale/retail customers. The overarching goal of this study is to improve the understanding of
retailers' expectations - both current and in the future - of the requisites of order fulfillment. As
employed in this report, ~ h order fulfillment process" refers to all logistical and distribution functions
beginning with the placement of an order by a retailer and concluding with the delivery of the order by
the vendor to the retailer distribution center and/or stores.
A review of the trade press and academic journals identified the relevant distribution practices, trends,
and technologies as well as the key retail companies that appear to be leading the way with important
new order fulfillment initiatives. The subsequent analysis of these issues involved the collection of
primary data in a two-part methodology. From a national, representative sample of retailers in three
classes of trade (food, drug and mass merchandising) primary data were collected in two distinct and
reinforcing waves: 1. personal interviews; and 2. two written mail surveys targeted toward
merchandising and distribution personnel within retail firms.
In total, the research study included 54 different retail respondents, from the three principal retail trade
channels: mass merchandising, drug and grocery. Together, these retail companies supply over
28,000 stores in all 50 states, and represent 1996 industry sales of approximately $320 billion.
As retailers look ahead toward 2000, their expectations of suppliers continue to intensify.
Technological readiness will drive virtually all retailer expectations of suppliers. The use of Electronic
Data Interchange (EDI) will become an industry mandate; those vendors who want to be the number
one or two partner in a category will be technologically sophisticated. This technological readiness
will dramatically reduce order time while improving invoice accuracy - an edict clearly voiced by
retailers. Communication via computers and phone lines will not, however, preclude human contact.
Within the retail organization, multifunctional teams are quickly becoming the norm in an attempt to
create a more seamless flow of communication between the merchandising and distribution functions
of the business. Finally, as suppliers and retailers look ahead, the formation of mutually beneficial
partnerships will dominate. Collaborative problem solving culminating in jointly profitable solutions
within the order fulfillment process will improve efficiency, add value, and lower costs for retailers,
vendors, and ultimately consumers.
-
p"
RETAIL LOGISTICS & MERCHANDISING
Acknowledgments
Over 50 leading retail companies participated in this study. Many "best practices" retailers are
building a competitive advantage by developing innovative distribution systems and efficient logistics
practices sooner or better than their competitors. Accordingly, we assured all interview and survey
respondents complete confidentiality. Thus we have not identified the sources of many comments
and information presented in this report.
This report, however, could not have been completed without the endless patience of hundreds of
retail industry executives. We are grateful for their interest, cooperation, and genuine concern for
improving their industry performance.
Lastly, we wish to thank the sponsor of this study, Bausch & Lomb. From the onset of the project,
Bausch & Lomb executives emphasized the importance of conducting an independent and objective
analysis illuminating issues which retail companies are considering, or should be considering, as they
develop future logistics, merchandising, and distribution strategies. We appreciate the high level of
support and confidence shown by these executives in the conduct of this research project.
-
II
RETAIL LOGISTICS & MERCHANDISING
Table of Contents
Executive Summary 1
Acknowledgments 11
Table of Contents 111
List of Tables IV
List of Figures IV
List of Exhibits VI
1 Introduction 1
Background 1
Study Goals & Objectives 2
2 Methodology.............•.............................................•.......................•••......•....••......••...5
Respondent Profile 5
3 Empirical Results, Analyses, & Strategic Implications 9
The Order Fulfillment Process 9
Responsibility in Order Fulfillment.. 9
Multifunctional Teams 11
Characteristics of the Order Fulfillment Process 13
Strategic Implications & Perspectives 14
Information Systems & Order Fulfillment 17
Current & Expected Use of Technology 17
Strategic Implications & Perspectives 20
Transportation, Carrier, & Inventory Practices 22
Transportation Arrangements 22
Invoice Problems 24 -
Less than Full Loads 26
Strategic Implications & Perspectives 26
III
RETAIL LOGISTICS & MERCHANDISING
Overall Vendor Performance Expectations 28
Guidelines & Services 28
Strategic Implications & Perspectives 30
Benchmark Companies and Partnerships in Order Fulfillment 32
Creating Customer Value 32
Strategic Implications and Perspectives 34
4 Summary- & Conclusions ••...................•....•.....••...............................................•......37
The Order Fulfillment Process 37
Information Systems: Their Role in Order Fulfillment... 37
Transportation, Carrier, and Inventory Practices 38
Overall Vendor Performance Expectations 38
A Trade Association Sponsors 41
B Excerpts From a Major Retailer's Statement 43
C Merchandiser Survey....•.........................................................................................47
D Distributor SUrY'ey••••••••••••••••••••••••••••••••••.••••••••••••.••••••.......•••••••...••••••••••••••.........•••••61
List of Tables
Table 1. Selected criteria on which performance is evaluated, by position 12
List of Figures
Figure 1. Merchandisers' indications of product ordering responsibility by order type 9
Figure 2. Distributors' indications of product ordering responsibility 11
Figure 3. Percentage of merchandising and distribution executives who report
-
having multifunctional teams 12
Figure 4. Degree of automation of the "reorder fulfillment" process 13
IV
RETAIL LOGISTICS & MERCHANDISING
Figure 5. Order cycle time by type of item; 1996 and year 2000 14
Figure 6. Preference for product movement data ; 14
Figure 7. Use of technology as a percentage of total company volume; 1996 and
year 2000 17
Figure 8. Utilization of EDI transmission as a percentage of total company volume;
1996 and year 2000 18
Figure 9. Product demand forecasting responsibility 19
Figure 10. Use of source tagging 19
Figure 11. Who pays for source tagging? 20
Figure 12. Retailers' views on who will apply source tags 20
Figure 13. Who pays the freight? 23
Figure 14. Distributors' preferences for who schedules appointments 23
Figure 15. Distributor indications of who selects transportation carriers 24
Figure 16. Percentage of HBC orders delivered with specific problems as indicated
by merchandisers 24
Figure 17. Causes for late orders as indicated by distributors 25
Figure 18. Current and expected policies regarding when to pay supplier invoices 25
Figure 19. Distributor indications of who traps loads 26
Figure 20. Does your company have formal vendor performance guidelines? 29
Figure 21. Merchandiser requirements for specific vendor services 29
Figure 22. Distributor requirements for specific vendor services 30
Figure 23. Benchmark companies in order fulfillment. 34
Figure 24. Importance of supplier attribute to merchandisers for determining
benchmark status 35
-
v
RETAIL LOGISTICS & MERCHANDISING
List of Exhibits
Exhibit 1. Organizational Chart Depicting Relevant Marketing/Merchandising
and Distribution Functions for a Typical Retail Company 7
Exhibit 2. Flow Diagram for New Product Decisions for a Typical Retail Company 10
Exhibit 6. Vendor Distribution Evaluation Criteria as Given by a
Exhibit 7. Vendor Marketing Evaluation Criteria as Given by a
Exhibit 3. Actual Vendor Scorecard for Multi-Region Retailer XYZ 16
Exhibit 4. Standard Vendor Agreement Non-Compliance Fee Schedule 28
Exhibit 5. Vendor Responsibilities as Given by a Major Retail Company 31
Major Retail Company 31
Major Retail Company 32
Exhibit 8. Example of a Vendor Scorecard 33
-
VI
1
INTRODUCTION
Section
Introduction
As changing consumers and changing technology alter the way consumer product manufacturers
and retailers go to market, conventional theory and practice at every stage of the evolving distribution
systems are being critically re-evaluated. At the retail level, increasing competition for often no-
growth markets has emerged from a variety of non-traditional grocery operators - mass
merchandisers, deep discount drug stores, warehouse clubs and supercenters, to name a few. Such
blurring of traditional channels has led retail operators and suppliers alike to review many of the basic
assumptions underlying their businesses in search of cost reduction and profit enhancement
opportunities. These initiatives have become especially important given the increasing consolidation
and management sophistication of both manufacturing and distribution companies coupled with the
greater demands placed on individual item performance as a result of new product proliferation and
various category management initiatives.
The majority of retailers have adopted two general, often opposed, categories of response:
strategies to add value and strategies to reduce costs. The stakes are large. The best retailers
recognize that they are not capable of achieving their strategic goals alone. Manufacturer partners
are essential. Two key questions remain: on what criteria will retailers select these leading business
partners, and what are the expectations that retailers place on these partners, now and in the future?
This report addresses these key strategic questions, particularly with respect to the overall "order
fulfillment process" between manufacturers and their wholesale/retail customers. As employed in this
report, the order fulfillment process refers to all logistical and distribution functions beginning with the
placement of an order by a retailer and concluding when the order is delivered by the vendor to the
retailer distribution center and/or stores.
The order fulfillment process is central to the grocery industry initiative, Efficient Consumer Response
(ECR), which attempts to eliminate unneeded and redundant costs from grocery distribution
channels. As such, an enhanced understanding of current order fulfillment practices and
expectations regarding how they will change in the future will make an important contribution to both
retailer and supplier efforts to make their distribution systems more responsive, more efficient and to
improve the overall performance of the grocery distribution system.
Background
Although consumer product companies have clearly been concerned with minimizing the costs of
their distribution systems since at least the beginning of the 20th Century, it wasn't until the early
1990s that industry leaders formed the Efficient Consumer Response (ECR) working group. In
January 1994, the results of their first investigation was formally announced at the Food Marketing
Institute Mid-Winter meeting. At that time, it was estimated that as much as $30 billion dollars could
be eliminated from the grocery distribution system through more coordinated retailer-supplier efforts.
Much of this $30 billion was being wasted, the report indicated, because of inefficiencies in product
assortment, product introductions, promotions, and replenishment.
The industry response to the call for ECR has been overwhelming. Virtually every major grocery
industry company has re-examined its own internal and external practices to determine the
opportunities for greater efficiencies. An interindustry committee was convened - The Joint Industry
Project on ECR, whose philosophy was to provide better value to the consumer by improving
1
INTRODUCTION
products and assortment while lowering cost. The committee's specific long run goal was to provide
individual companies with tools and information on ways to deliver increased consumer value.
Resultantly, the joint industry committee commissioned a series of reports, each overseen by a
subcommittee, to identify and document best practices in a wide range of activities that would
contribute to a more efficient grocery pipeline: from continuous replenishment and integrated
electronic data interchange (EDI) to transportation and computer assisted ordering (CAD). The many
publications resulting from these projects are available from any of the trade associations which
together sponsor the Joint Industry Project on ECR (see Appendix A).
J
As the overall ECR effort is a vast attempt to align raw material sourcing and manufacturing decisions
at the beginning of the grocery distribution pipeline with consumers' purchase decisions at its end, the
project requires many separate components. This particular study focuses on the middle links of the
chain: all those functions involved with order fulfillment as defined above. Whereas many of the
reports issued by various industry committees provide useful guidelines and examples of "best
practices," they often do not provide specific benchmarks, nor do they attempt to project the status of
certain key practices for the future. Yet if the industry is to progress - this is partiCUlarly true for
individual companies - information is needed regarding both the current state of ECR practices
across the industry and how these specific requirements are likely to evolve in the future.
A great deal of attention has been given to the important topic of "customer satisfaction" in recent
years. Most analyses agree that for highest levels of customer satisfaction, buyer-seller partnerships
are needed that address the totality of the business relationship. This study contributes directly to
goal of improving customer satisfaction, specifically retailers' satisfaction with vendor performance,
but its focus is limited to order fulfillment only, not on the entire business relationship. Many important
dimensions of the business relationship--product quality, consumer advertising, in-store promotion,
etc.--are explicitly excluded from this study.
Study Goals & Objectives
The study upon which this report is based had the overarching goal of improving the understanding of
retailers' expectations, both current and in the future, of the requisites of order fulfillment. A number
of specific objectives are enumerated:
1) to describe the typical corporate hierarchies internal to retail organizations in which the order
fulfillment must take place;
2) to identify the individuals in retail organizations who influence the order fulfillment process, both in
the merchandising and distribution divisions;
3) to identify how retail organizations typically measure the performance of these key decision
makers;
4) to identify the extent of retailers' preferences for various performance enhancing distribution
practices and use of electronic technologies now and in the future;
5) to document how retailers measure suppliers' performance relative to order fulfillment;
-
6) to forecast how retailers expect all of these key factors to change in the future.
This report should provide value for both retailers and their vendors. Retailers, on one hand, have an
interest in comparing what they currently do, and how they expect to change with the benchmarks
2
INTRODUCTION
that this report establishes for other retailers in other marketing channels. Vendors, on the other
hand, need to know what their customers require in terms of order fulfillment protocols and, more
importantly, they need to know how these customers are expecting to change these requirements in
the future. Such information is essential for much needed firm-level planning. Leading vendors will
begin now to prepare for the changes that this report identifies.
-
3
INTRODUCTION
4
2
METHODOLOGY
Section
Methodology
Review of the current trade press and academic journals identified relevant distribution practices,
trends, and technologies, as well as the key retail companies that appear to be leading the way with
important new order fulfillment initiatives. The subsequent analysis of these issues involved the
collection of primary data in a two-part methodology. From a national, representative sample of
retailers in three classes of trade (food, drug, and mass merchandising) primary data were collected
in two distinct and reinforcing waves:
1) Personal visits were made to the headquarters and/or warehouse location of 15 key
wholesale/retail customers. The goal of these visits was to develop an in-depth understanding of
the entire order fulfillment process in that organization and industry segment, including the
identification of the key actors and especially their current and future expectations of suppliers. In
each of these companies, a full day of executive interviews with individuals representing multiple
functional levels was conducted. Top tier firms were selected in roughly equal numbers from
each of the food, drug and mass merchandising channels. These personal interviews, which
took place throughout the research process were instrumental not only in identifying the relevant
topics and issues of current concern to retailers, but also in interpreting the results from the mail
survey below.
2) Two similar mail questionnaires were developed: one with questions relevant for retail distribution
personnel, and the other with questions more appropriate for retail merchandising personnel.
These surveys were conducted with a nationally representative sample of retailers, again
selected from food, drug, and mass merchandising classes of trade. Names of key contacts
within each retail organization came principally from Cornell's mailing lists of grocery industry
executives, as well as the industry trade directory, Retailers and Wholesalers, '95 (Fairchild
Publications, New York). The objective of this instrument was to develop an understanding of the
processes and the individuals internal to each retail company that exert an influence on order
fulfillment procedures and performance. These results will amplify and validate the information
gathered from step 1 in the personal interviews but from the perspective of the more
"representative" companies around the country. The questionnaire employed several incentives:
a copy of the subsequent research report detailing the study findings as well as a selection of
other Cornell University Management Studies, and, lastly, an opportunity for one participant to
win a full scholarship to Cornell's Food Executive Program. The surveys were mailed in the
summer of 1996.
Respondent Profile
In total, our research included 54 different retail respondents, from the three principal retail trade
channels: mass merchandising, drug and grocery. The size distribution of respondents is quite
representative of the retailing industry. Our sample is dominated by large retailers from each trade
channel and, although the confidentiality assured the participants prevents our disclosing their
company name, many smaller retailers are included as well. Together, these retail companies supply
over 28,000 stores, in all 50 states, and represent 1996 industry sales of approximately $320 billion.
Thus it is clear that the views and forecasts documented in this report capture the directions, both
-
current and projected, of the majority of U.S. retailing industries for mass merchandise, grocery, and
drug related products.
5
METHODOLOGY
The individuals responding to our survey come in nearly equal parts from the distribution and the
merchandising divisions of their companies. Exhibit 1 shows the formal relationship that the
merchandising and distribution professionals have wtthin the organizational hierarchy for a typical
retail organization. The marketing/merchandising and distribution functions relevant to our study are I
,
highlighted in bold on the exhibit. Of the respondents, their average age is 44, 96 percent of them
are male, and 79 percent of them have at least a four-year university degree (15 percent of these
I
possessing a graduate degree).
"
I
J
-
6
-Exhibit 1. Organizational Chart Depicting Relevant Marketing/Merchandising and Distribution Functionsfor aTypical Retail Company
Group VP IT &
VP Distribution
Store Devel.
...
I L.I
. -
I LJ
. -
'-I
Director Field HR
Di rector Loss
IH
Di rector Diversity
Prevention & Employment
VP Groc. & VP Meat,
II H
VP Const. & Store Director Sales
Seafood, & Deli Planning & Marketing Logistics
Manager Human
Operations
Director
Resources
VP Prof. Serv., Director
II H
Director Appl. Director
Produce Development HBC, & Log. Advertising
IN
Manager Service Manager Comm.
Operations &CBT
Director PR & Director Floral Director System
Product Safety Planning
Support Services Manager HR
Administration
Director
VP Controller Manager Cons.
Specialty Foods
Affairs
Director Bakery VP Treasurer
Manager Direct
Marketing
VP Legal
VP Prepared
Director Food
Foods Production
Service
s::
m
:J:
o
o Director Risk
o
Management r
o
G>
-< .....
I
--l
I
METHODOLOGY
i"
r
"..
-
....
8
EMPIRICAL RESULTS. ANALYSES. & STRATEGIC IMPLICATIONS
Section
3 Empirical Results, Analyses, &
Strategic Implications
The Order Fulfillment Process
Responsibility in Order Fulfillment
The retail merchandising personnel in our survey indicated that the buyer is a key contact responsible
for new product orders, re-orders, and promotional orders (Figure 1). Seventy-five percent of all
merchandisers agreed the buyer has responsibility for new product orders. The flow of the typical
decisions that impact the new product once presented to the retail buyer/category manager is
illustrated in Exhibit 2. Seventy-five percent of all merchandisers also indicated the buyer has primary
responsibility for promotional orders, and 65% indicated the buyer's duties include re-orders. This is
in stark contrast to other responsible positions, namely the buying clerk, category manager, and
director of merchandising. On average, 60% of merchandisers suggested that the buying clerk has
responsibility for re-orders. On the other hand, the category manager has primary responsibility for
ordering new products and promotional items with 50% of merchandisers indicating each of these
responsibilities. Furthermore, merchandisers indicated the director of merchandising has relatively
little responsibility for product ordering. In fact, in the case of re-orders, no merchandisers indicated
that the director of merchandising is responsible. In regards to supplier interaction, the director of
merchandising tends, in most retail organizations, to deal with policy and strategic issues rather than
day-to-day issues.
• Figure 1. Merchandisers' indications of product ordering responsibility by order type.
Director of
Merchandising ••••
50%
Category Manager
50%
••••••••••75%
Buyer
65%
•••••••••• 75%
60%
Buying Clerk
--::-=c::-;----------'
0% 20% 40% 60% 80%
Percent Indicating Responsibility
II Promotions
ORe-Orders
II New Products
-
On the distribution side of the business, the warehouse manager seems to play the key role in order
fulfillment responsibility (Figure 2). Ninety-three percent of the distribution personnel responding to
our survey said the warehouse manager has the primary responsibility for the order fulfillment
process. The traffic manager and director of distribution also play significant roles with 86% and
..
9
m
:i:
\l
CI
-Exhibit 2. Flow Diagram for New Product Decisions for aTypical Retail Company.
:Ii
o
»
r
:II
Supplier presents new product to buyer and/or Buyer and/or category manager view product
OR
category manager. at a trade show.
m
en
c
!:j
sn
»
z
»
en
m
.en
Il"
... accept the item for immediate
en
-i
inclusion in a category.
:II
m
G>
o
• applies ABC to items
• chosen by
manufacturer
or retailer
• reviews product
source
review. Often, deletes
an existing item.
... pick up the product at time of category
• reviews cube \l
r
o
6
z
en
Buyer initiates a new item form developed by category manager, which is
• reviews product mix
• generates initial order
electronically sent to...
• sets up reorder
...place item in
inventory.
... send item to picking
line.
I
I
l
EMPIRICAL RESULTS, ANALYSES. & STRATEGIC IMPLICATIONS
66% of distributors indicating their responsibility, respectively. The logistician, however, was a distant
fourth with only 31 % of distributors indicating that this position has responsibility for the order
fulfillment process.
Survey respondents indicated the criteria by which these various positions are evaluated in retail
organizations. Among merchandisers, service level and inventory turns are the primary criteria in
evaluating the buying clerk, buyer, category manager and director merchandising. In addition, the
category manager's evaluation hinges on total category performance. Service level is, once again, a
primary performance criteria for most distribution positions. Further, evaluative criteria for the
logistician, traffic manager, and warehouse manager have a collective sense of timely and efficient
distribution of products. Evaluation of the director of distribution seemingly hinges on the overall
performance of this process with such criteria suggested as expenses, labor efficiencies, and total
coordination. Table 1 provides a detailed compilation of the principal positions in both merchandising
and distribution and the criteria employed to evaluate the performance these positions.
• Figure 2. Distributors' indications of product ordering responsibility.
Director Distribution
Warehouse Manager 93%
Traffic Manager
Logistician
Percent Indicating Responsibility
-
0% 20% 40% 60% 80% 100%
Multifunctional Teams
Whether on an informal or a formal basis, many companies have multifunctional teams organized to
address order fulfillment issues. However, there is a discrepancy among merchandisers and
distributors as to the presence of those teams within their respective companies (Figure 3). Among
merchandisers, 75% indicated their company has a multifunctional order fulfillment team. This is in
contrast to only 40% of distributors who felt similarly. Responses indicating the make-up of these
teams further exemplifies this discrepancy. According to merchandisers who indicated they use a
multifunctional team, marketing positions primarily compose the team. Conversely, their distributor
counterparts indicate a decidedly more distribution oriented team. In only a minority of retailers do the
multifunctional teams genuinely integrate functions across merchandising and distribution divisions.
Differences persist when one examines how often these groups meet. Merchandisers reported that
multifunctional teams meet an average of 23 times per year, approximately twice per month.
Distribution personnel however, reported that multifunctional teams meet an average of 44 times per
year.
11
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Table 1. Selected criteria on which performance is evaluated, by position.
Performance Evaluation
Merchandising Positions Distribution Positions
Buying Buyer Category Director Logistician Traffic Whse. Director
Criteria Clerk
p'
Mgr.
P P
Merch.
P P
Mgr. Mgr.
S2
P
Distr.
P Service level
Inventory tums P P S M' M
Costs M S M
l e ~ e v e n u e M S S M M M
Gross profit M M
Retum on assets M M
Weekly promotions M
Category performance M P
Customer satisfaction M
Category strategy M
Lead times S
On-time receipts M P S M
Transportation efficiency M S M
Labor efficiency M M M
Reet management M
Order quality M M S
Freight claims M
Equipment efficiency M M
Backhauls M
Appointment times M
Distribution scheduling S M
Order processing accuracy P
Unloading efficiency M
Cost'mile, cost'case M M M
Customer service M
Cube and weigh! M
Total distribution sequence M P
Distribution center productivity P M
Notes: 1. Principle criterion on which performance is evaluated.
2. Secondary criterion on which performance is evaluated.
3. Minor criterion on which performance is evaluated.
• Figure 3. Percentage of merchandising and distribution executives who report having multifunctional
teams.
Merchandising Distribution
No
60%
Yes
Yes
75%
40%
-
In the absence of a multifunctional team, among merchandisers, the most frequent communication t .
occurs with other merchandising personnel: buyers, category managers, and warehouse managers,
each with an average 156 contact points per year. Distribution personnel however, indicated that
most communication occurs with the traffic manager, meeting 260 times per year on average,
12
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
leading the director of distribution (234 times per year on average) and the logistician and buying clerk
(each with 225 times per year on average).
A strongly held belief in the vendor community is that many of the system wide efficiency lapses in
grocery marketing and distribution occur intemal to the retail organization - specifically as an alleged
result of poor communication channels between the retail merchandising department and the
retailer's own distribution center. To a surprising extent, retailers agreed with this assessment as
historically accurate but most were quick to add that the situation is rapidly changing as illustrated by
the growing number of retailers employing multifunctional teams. Today, many retailers estimate,
perhaps only 40 percent of all system "disconnects' occur as a result of miscommunication between
buyer/merchandiser and the distribution center (DC). The other 60 percent occur, retailers believe,
as a function of poor performance by the vendor. Typical examples cited include: a vendor sales rep
not fUlly communicating small changes to a buyer on promotions or special packs; vendors being
out-of-stock; incorrect vendor forecasts; and poor communication with carriers.
In an effort to improve internal communication and bridge the gap between merchandising and
distribution functions within their organizations, retailers finally reported breaking with the decades-old
tradition of keeping their logistics departments decentralized and far-flung. Not only are logistics
being consolidated at headquarters but many retailers are actively developing executive career paths
so that individuals gain experience and training in both merchandising and distribution tracks.
Characteristics of the Order Fulfillment Process
Merchandisers evaluated the degree of automation in the order fulfillment process specifically with
respect to reorders. In 1996, on average, they indicated partial automation with a score of 2.15 on a
three-point scale (1=not automated, 3=completely automated). However, by the year 2000, they
anticipate moving toward complete automation of the "reorder fulfillment" process (Figure 4).
• Figure 4. Degree of automation of the "reorder fulfillment" process.
2.84
Completely Automated 3
2.15
2
Not Automated 0
1996
Year
-
2000
Merchandisers also evaluated order cycle time now and in the future for three types of items, namely,
seasonal items, promotional items, and everyday items. Order cycle time is defined here as the
number of business days on average that reflects the elapsed time from the retail placement of the
order with the supplier until the order is received at the retail DC. Figure 5 shows that in 1996,
seasonal items have the largest order cycle time with 15.3 days on average, followed by promotional
items (10.95 days) and everyday items (8.3 days). This ranking was unchanged as merchandisers
13
EMPIRICALRESULTS, ANALYSES,&STRATEGICIMPLICATIONS
reported theircompany goals forordercycle time in the year2000, generallyexpecting ordercycle
timetodiminishforeachitemtypeby3to5daysonaverage.
•Figure5. Ordercycletimebytype ofitem;1996andyear2000.
15.3
16
14
12
10
.1996
EJ2000
8
III
Q
6
4
2
0
Seasonal A"orrotional Everyday
Type of Item
Merchandisers also revealed they rely upon and prefer to use their own product movement data
(Figure 6). Although farbehind the retailer's own data in ranking, there was aslight preference for
syndicateddata(e.g., IRI,ACNielsen)overamanufacturer'sdata.
•Figure6. Preferenceforproductmovementdata.
3
PreferMost
2.67
2
PreferLeast 0
Syndicated Manufacturer My Own
Data Type
Strategic Implications & Perspectives
I
-
• Often,vendorcompaniesareuncertainwho in theirretail accountshasspecificresponsibilityfororder
fulfillmentand howthe responsibilities aredivided. Both merchandiseranddistributorrespondentsto
our survey shed valuable light on this question. The product buyer has the greatest overall
responsibilityfororderfulfillmentwith respecttomerchandising issueswhile the warehousemanager
has the greatest overall influence in the distribution area. However, the responsibilities differ
14
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
somewhat depending on the product type. Buying clerks, for example, play relatively minor roles
regarding promotions or new product introductions but playa pivotal role when it comes to reordered
product. Similarly, although the Director of Merchandising has overall responsibility for all categories,
he or she rarely intervenes in the day-to-day operations of buying and ordering.
• The true marketing orientation, and keystone to business success, involves total customer
satisfaction. Accepting this notion means assisting your customers in accomplishing their goals,
achieving his or her objectives. However, this requires first knowing against what goals, objectives
and incentives your customers are measuring themselves. Understanding on what basis your
customers are evaluated (by their superior) helps you, the supplier, identify the critical levers
important to the customer.
"Service levels" were reported to be one of the most important primary criteria on which retail
merchandisers' performance is evaluated. In fact, this was true for each of the principal
merchandising positions. "Inventory turns' was also identified to be a primary measurement criterion
for buyers and clerks but not for the merchandising positions. The implications of this result are clear:
a supplier who wishes to enhance its position with a particular retailer must above all else excel in
ensuring that the retailer's own service levels - both to the distribution center and to the stores -
are superior.
Similarly, suppliers must be cognizant of the incentives for which retailers' distribution personnel are
working. Table 1 shows, again, that the primary criteria on which performance is evaluated for most
distribution personnel are service levels and inventory turns. In fact, Exhibit 3, taken from the vendor
manual of one large multi-region retailer, displays the actual scorecard with which this particular
retailer tracks the performance of all its vendors with respect to these two important criteria (see
strategic implications in Overall Vendor Performance Expectations for a more
complete discussion of scorecards). However, many more logistics-related factors also surface. Not
surprisingly, for example, the traffic manager is primarily evaluated based on the efficiency of
transportation, and to a lesser degree loading/unloading labor. The warehouse manager has a
similar interest in labor efficiency but is additionally judged by overall distribution center (DC)
efficiency with such indicators as cosVmile, cosVcase and equipment efficiencies.
• Our. survey shows that the majority of retailers now have regular meetings of multifunctional groups,
incorporating both merchandising and distribution personnel. However, our disaggregated results
reveal that communication still is not seamless. When asked if multifunctional teams existed, three-
quarters of all merchandising personnel agreed but only forty percent of distribution personnel
believed this was true. Some distribution personnel shared the belief that the distribution function still
does not appear to have the status of the merchandising function and, resultantly, distribution
be more easily overlooked. As such, system disconnects can occur. For instance,
retailbuyerslcategory managers typically reported "obtaining optimal packing configurations subject
to obtaining the lowest price brackef' as their overall guiding objective. This goal can lead to system
inefficiencies. FollOWing such a directive from a retailer may lead a vendor to build a pallet or load a
truck· only with space efficiency in mind in order to qualify a buyer for "maximum volume thus
minimum price." Yet in so doing, he may inadvertently be sacrificing time efficiency for space
efficiency, This is one illustration of how actions taken by merchandisers without full knowledge of
how such actions may impact the distribution part of his business may result in a breakdown in overall
system wide efficiency.
To the extent that this perception continues, it appears to be true at fewer and fewer companies.
Indeed, the trend is decidedly the opposite. Many of the major retailers interviewed in this study
-
described a complex schedule of separate weekly and monthly meetings not just between senior
executives but working committees of personnel from entire departments devoted to replenishment,
traffic, inventory management, and forecasting. There has clearly been a move away from
theerawpen all logistics functions were lumped together into one monolithic department.
15
EMPIRICALRESULTS, ANALYSES, & STRATEGICIMPLICATIONS
J
• Exhibit 3. Actual Vendor Scorecard for Multi-Region Retailer XVZ
"
. J
Period: To: -===7/::131::9::6==-
97.001 95.971 -1.031
0.001 7.301 7.301
0.00\ 11.201 11.201
14.851 23.221 8.371
3.401 2.241 -1.161
$ 1,697,456.341
$
(579,541.29)1
1,
1
35.041
5,914,8201 $ 13,979,051.781
5,516,2631 $12,980,110.561
495.4
80
1
$ 1,117,915.
05
1
12345
I
r
!
c::=J
D
• As sophisticated information technology has become a requirement for doing business today, it
should perhaps be no surprise that the majority of all retailers report that in 1996 their re-ordering
process is alreadypartiallyautomated. However, retailers were virtually unanimous in predictingthat
re-ordering will be nearlycompletely automated by the year2000, Of course, supplierswillneedto
possess similar technological readiness by the year 2000 if they expect to continue abusiness
relationship.
Thetimethat retailersallowsupplierstofill an orderisdependenton ordertype, Lead timesororder
cycle times are expected to be longer for seasonal and special promotional items than for everyday
items, both nowand inthefuture. Butsuppliersshouldtake note: retailersexpecttocunheaverage
lead timeforeveryday itemsby greaterthanone-haij(from 8,3daysto 3,75days) between1996and
the year2000. Althol.1gh afewvendors are already atthis standard, in general, meetingthisretailer
expectation will require enormous additional operational streamlining and coordination overthe next
fewyearsfromthemajorityofproductsuppliers,
Theexigenciesofthese reduced leadtimesforsuppliers has itsbrightside, however, Retailerspoint
out that the magnitude of the expected lead time reductions cannot be accomplished alone.
Improvedpartnershipswith suppliersareessential. Sowhiletheburden ofreacting toshortened lead
times and the resulting lowerlevelsofsafetystock at retailers' Deswill be borne largelybyvendors,
-
these same vendors will now playamore critical role with each retail account. Each retailer will be
thrustintoaposition ofrelyingmoreontheperformancelevelofeach ofthe (remainingfew) vendors.
16
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
Information Systems & Order Fulfillment
Cunent & Expected Use of Technology
Merchandisers and distributors described the extent of technology use in their organizations as a
percentage of total company volume. While a few forms of technology seemed to have extensive
use, all forms project a healthy growth by the year 2000 (Figure 7). Automated purchase orders were
the most pervasive form of technology with 65% of total company volume transacted this way in
1996, expected to grow to 79% of total company volume by the year 2000.
Another significant use of technology was electronic data interchange (ED!) with a reported 54% of
total company volume transacted this way, expected to grow to 88% by the year 2000. Although
radio frequency technology showed an average use of 18% of total company volume, its projected
use by the year 2000 was 64%, indicating a growth of over 250%. Results are similar for continuous
replenishment (CRP) with 19% use in 1996 projected to 42% use in the year 2000. Vendor managed
inventory (VMI) showed 15% use in 1996 projected to approximately double (28%) in use by the year
2000. Reportedly, 7% of total company volume used cross docking in 1996, expected to rise to 21 %
in the year 2000. Finally, although only 5% of total company volume used source tagging in 1996, it is
expected to rise to 28% in the year 2000.
• Figure 7. Use of technology as a percentage of total company volume; 1996 and year 2000.
Source Tagging
Cross Docking
:m:::::tmW'bVH:Hwn::
_7%
21 %
Vendor Managed nliiJli@@111@j%\WNW1:: 28%
Inventory
-l
15%
Radio Frequency WliU;:W::U%L:W:;;:::::L:iH%Hkl:::::W;WliXiLt%;: 64%
Il3 2000
l1li 5%
.1996
-lh"",==============="",
Electronic DatadwWiidw6MmMll:wW1Ml::10m;iM:::mimwwwwmwmnm::::i::i@lWm::Ml:i::::l:::NN 88%
••••••••••rS40
0
%" o-----
Interchange .r 1<
:;:;l 79%
Automated PO 65%
0% 20% 40% 60% 80% 100%
Percent of Total Company Volume
Continuous
Replenishment
18%
A more in depth analysis of the projections surrounding these various uses of technology could be
instructional. To this end, several of the specific technologies ranked above were separated into their
component parts. EDI, for example, is explored first. Merchandiser indications of EDI usage as a
percentage of total company volume (Figure 8) are characterized by an overwhelming expectation of
growth. We find that purchase orders are a primary use of EDI technology; 71% of total company
volume utilized EDI in purchase ordering in 1996, rising to 93% by the year 2000. Purchase order
acknowledgment was another significant activity for use of this initiative. Purchase order
-
acknowledgments utilized EDI transmission for 50% of total company volume in 1996, rising to 81%
by the year 2000. Invoices utilized EDI transmission for 26% of total company volume in 1996, rising
to 83% by the year 2000. Forecasts utilized EDI transmission for 18% of total company volume in
1996, rising to 56% by the year 2000. Product activity detail utilized EDI for only 15% of total
company volume in 1996, but is expected to rise to 52% by the year 2000. Carrier shipment status
17
L .
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
utilized EDI for 14% of total company volume in 1996 rising to 68% by the year 2000. Finally,
advanced ship notification utilized EDI transmission for only 11% of total company volume in 1996,
but will rise to an astounding 74% in the year 2000.
Forecasting product demand is one dimension of a company's CRP environment often split between
vendors, category managers, and buyers. On average, merchandisers indicated 45% of the
responsibility for product demand forecasting lies with the buyer, 40% with the vendor, and 10% with
the category manager (Figure 9).
Electronic Article Surveillance (EAS), often referred to as source tagging, is an issue of growing
concern to many retail sectors. In 1996, 41 % of surveyed merchandisers indicated they require
source tagging (Figure 10). However, source tags are only applied to selected items so that the
actual dollar volume, as shown in Figures 9 and 10, is still quite small. By the year 2000, expectations
of use rise to 50%. Of those requiring, or expecting to require source tagging, 78% indicate the dollar
value of an item is the determining factor of which items receive source tags. On average, the
minimum dollar amount needed was $6.83. Furthermore, those requiring or expecting to require
source tagging indicate a range of payment arrangements (Figure 11). When asked to indicate who
currently (1996) pays for source tagging, 45% indicated the retailer pays, 33% indicated the retailer
shares the cost with the supplier, and 22% indicated the supplier pays. Merchandisers involved in
source tagging also indicated who is responsible for applying the source tag (Figure 12). In 1996,
45% indicated retailers, 33% indicated suppliers, and 22% indicated both are expected to apply the
tag. However, merchandisers apparently expect a significant change in tagging responsibility to
occur by the year 2000, as 87% of them indicated the supplier would be responsible for that activity in
the future. In 1996, 56% of respondents involved in source tagging use the Checkpoint system and
33% use Sensormatic. These figures change only slightly for expectations of the year 2000 with
Checkpoint use up to 57% and Sensormatic up to 43%.
• Figure 8. Utilization of EDI transmission as a percentage of total company volume; 1996 and year 2000.
Advanced Ship
Notification
Carrier Shipment
Status
Product Activity Detail
Forecasts
Invoices
PO
Acknowledgments
Purchase Orders
:::::::::::::::J 93%
71%
0% 20% 40% 60% 80% 100%
1212000
.1996
Percent of Total Company Volume
..
,
-
18
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 9. Product demand forecasting responsibility.
Category
Manager
10%
Buyer
45%
Vendor
40%
• Figure 10. Use of source tagging.
"Do you currently, or expect to, require source tagging?"
60%
Of these, approximately
-Ill
78% indicated the dollar
GI
50%
.
>
value is the determinant
50%
Cl
for which items receive
c
:;::
III source tags.
:c
u
.s
40%
c
-
GI
e
GI
l:l.
30%
1996 2000
Year
-
19
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 11. Who pays for source tagging?
Supplier
22%
Shared Cost
33%
• Figure 12. Retailers' views on who will apply source tags.
1996 Year 2000
Supplier
Supplier
87%
Retailer
45%
13%
Strategic Implications & Perspectives
• Although historically, the retailing industry has lagged behind most other industries in its use of
technology, that condition can no longer said to be true in the latter part of the 1990s. All of the
retailers in this study reported already using various new and, many times, innovative technologies
especially in their distribution activities. But what's more is the growth they expect to generate in only
the next three years. Of the seven major procurement and distribution technologies in Figure 9, every
one is expected to grow in use by the year 2000, in some cases by over 300 and 400 percent.
A number of specific technologies were isolated for special elaboration with retailers. For example,
retailers reported that 88% of their total company volume would be transacted by means of electronic
data interchange (EDI) in their companies by the year 2000. After in-depth probing, we learned that
retailers forecast that over half of all volume will be transacted by means of at least seven major EDI
technologies by the year 2000. In order for this to actually happen, several of the currently employed
technologies will have to grow three and four-fold between now and the year 2000: cross docking,
advanced shipping notice, carrier shipment status, product activity detail, and electronic invoicing.
-
22%
20
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
Other technologies, whHeprojectedto grow, apparently do not have the growth potential expected by
retailers, as above. Vehdor managed inventory (VMI), for one, although expected to approxlrnafely
double by the year 2000, apparently is not expected to experience the growth rates of, say, electronic:
invoicing. The reasons can be explained by differing retailer beliefs regarding the proper role olthe
vendor. Certain retailers viewthe process taking responsibility for managinginventory as
the naturaL evolution of shifting functions and their attendant costs backward in the supply chain
toward manufacturers.
Others see such a shift as risky: what evidende, they ask, leads to the expectation that suppliers can
manage the inventory any better, as the retailer? Moreovet;how can suppliers
manage inventory when they will never be privy to all the retailer-controlled information such as the
cost of capital, what other competing products retailers may be planning to put on promotion, what
new stores might be opening,and what. other items the retailer may discontihue? Yet these latter
possibilities will certainly alter the demand for other products in the category over which the
manufacturer has inventory responsibility. To minimize such a possibility yet still take of
the potential efficiency gains involved in having supplier managed inventory, a few retailers are going
so far as to offer regular training courses in Which suppliers are expected to. enroll to learn precisely
how retailers want their inVentory managed and to qualify as "partner-experts" in the retailer's
information technologies and operating systems.
Most of the major suppliers have not only clearly heard the warning of this electronic imperatiVe, it is
they, in many cases, leading the innovation. In fact, larger suppHersappearto be aware of the
advantages that technological leadership confers upon them relatiVe to their small and mid-sized
competitors. There is an important structural implication to this retailerdemandJor greater and
greater levels of information technology: small. and medium sized suppliers may possess neither the
resources nor the expertise to compete. Although virtually all retailers in our interviews maintained
that niche suppliers will always have a place in the industry, it appears increasinglyJikely that
suppliers will be bifurcated into two groups: a dominant group of principal,. techhologically
sophisticated companies and asecond group of local, fringe suppliers.
One company's statement on vendor performance standards B) reveals the dilemma:
although in explaining its policies of "vendor accountability for electronlceommerce," this retailerpays
lip service to allowing specific exceptions for smaller vendors volume dries not
exceed $100,000"), it states unambiguously .latElr ·in .the same set OfgWdelines (Appendix. a), tha.t
these exceptions are temporary only. Simply stated: in the future, suppliers will either have the
resources to compete with expensive and sophisticated technologies or they will exit theindustry.
Most retailers interviewed acknOWledged that they are studying. ways to triple their cross.docking
activity before the year 2000. Drug store· retailers were more cautious, however, since they are
generally not able to send pallets!ze loads,normally associated with cross-docking feasibility, to store
level. However, even drug store. to attempts· to increase. cross-aockinQi9f
products for promotional as display-ready (e.g.,
packages and clearly marked • Shipping cartons) as possible from the vendor•... Veryife,!,
retailers, however, were so committed to reductions .in handling (like those associated
docking)ithat they were encouraging direct store delivery (OSD)•. Most retailers look. unfavorably on
the loss in delivery contrOl that they believe inevitably occurs when there is no proper paper trail on
record at the disttibutioncenter;
• Most retailers recognize that better demand forecasting is fundamentaLto necessary cost reductions.
-
Furthermore, moslunderstand that alliances with suppliers is the only sensible way to achieve such
improvement. Indeed, slightly over half of all retailers surveyed believe that demand forecasting is
their responsibility, Nearly as many, however, maintain that it isthe vendor who should properly take
over that function, Suppliers must be vigflantinidentifying whether retail accounts expect toJake over
21
I
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
demand forecasting responsibility themselves or whether they expect it to be a natural service
provided by vendors.
• ElectronicarticJesurveUlance (EAS) , generally referred to as source tagging in industry jargon, is the
processwherebye!ectronic .anti-theft labelS are .applied to consumer products. Our respondents
forecast that it will be employed by approximately one-half of all retailers by the year 2000, up from
about 41 percent today. Retailers currently report using source tagging to address the alarming
shrinkage. and loss of high value items, particularly in economically disadvantaged store locations.
The candidates most. ~ e n i t e for inclusionin source tag programs are batteries, cigarettes, OTC
drugs, various GM/HBCproducts (PreparationHand contraceptives. for example, are some of the
highestshrinkage items)al'ld·Uquor.
Although source tagging has traditionally been conductedin the retail store environment, according to
several leading retailersinithis study, its application can be conducted more economically by the
manufacturer. Indeed, our survey suggests that whereas only about a third of source tags are
applied by suppliers in 1996, retailers expect nearly 90 percent of all tags to be affixed by suppliers by
the year 2000.
Retailers continuing to resist source tagging systems mentioned four leading constraints: 1) their
inability to select only. one of the two currently available yet incompatible technologies; 2) current
level offirst-generclltion technology; 3) current lack of incorporation of the tagging technology into the
UPC bar code; and 4) perceptions of current prohibitive costs, Despite these retailer insights, tagging
technology appears to be spreading. Until recently, source tagging had been limited primarily to drug
and mass merchandise channels, but in the past year several major grocery chains on both coasts
have added EAS systems in all of their stores.
Although some retailers (and suppliers) voiced an unfavorable opinion of source tagging because
they view it strictly as an increase in costs, others have suggested an alternate view. Not only might it
reduce overall costs, as losses are more effectively controlled, but some pointed out that source
tagging makes the products so much more secure· that many more merchandising options become
available that were formerly foreclosed. One retailer suggested that cross-merchandising batteries
with various electric devices that require batteries will result in a dramatic increase in batteries sold,
not stolen. Studies show increases in sales volume of several hundred percent by openly displaying
impulse items in high traffic areas.
Transportation, Carrier, & Inventory Practices
Transportation Anangernents
Our survey shows 63% of retail distributors report that manufacturers pay the freight for incoming
orders. Another 17% said the retailer pays for freight, and 10% indicated that the retailer and
manufacturer pay together (Figure 13). In regards to transportation arrangements, 63% of
distributors indicated they require appointment scheduling with advanced notification. While the
majority of distributors indicated they currently prefer the carrier to schedule appointments with the
distribution center, this attitude shifts toward suppliers making arrangements in the year 2000 (Figure
14). While the majority of distributors indicated manufacturers select transportation carriers for their
pre-paid products, they also indicated they make that selection for products shipped free-on-board
(Figure 15).
J
J
-
22
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 13. Who pays the freight?
Both
10%
Manufacturer
63%
• Figure 14. Distributors' preferences for who schedules appointments.
100%
90%
CII
90%
u
l:
80%
CII
..
CII
70%
';
..
.1996 Q.
60%
01
I:J 2000 l:
50%
;::
C1l
u
40%
:c
.E
30%
-
l:
20% CII
CII
10%
Q.
0%
Carrier Supplier Other
Preference
-
23
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 15. Distributor indications of who selects transportation carriers.
Retailer
Manufacturer
lEI FOB Ship Point
• Pre-Paid 1
J
i
J
\
0% 20% 40% 60% 80%
Percent Indicating Response
Invoice Problems
Of course, the order fulfillment process is not without its problems. On average, retail merchandisers
indicated 29% of all invoices have a "problem" and a slightly higher 32% of HBC invoices have a
"problem." The three most common problems with HBC orders are 1) late deliveries, 2) product
pricing inaccuracy, and 3) shortages, with 19%, 17%, and 13% of orders affected, respectively
(Figure 16). Moreover, distributors indicated on average, 24% of all deliveries and 28% of HBC
deliveries are not on time. The reasons for late deliveries revealed a dichotomous response between
food retailers and drug stores in the sample. On average, food retailers indicated 37% of late
deliveries are due to the carrier not arriving on time, and 29% of late deliveries due to the vendor not
shipping on time. Meanwhile, drug store companies indicated an average 56% of late deliveries are
due to the vendor not shipping on time and another 10% are due to the vendor not shipping the order
at all (Figure 17). Retailers indicated a mean acceptable margin of error on delivery time of 52
minutes. However, only 8% of distributors indicated they levy a non-compliance fee for late
deliveries.
• Figure 16. Percentage of HBC orders delivered with specific problems as indicated by merchandisers.
2%
Terms Incorrect 2%
Damages ••••
4%
Item Not Ordered ••••• 5%
Mispicks •••••
5%
Improper Pallet Configuration ••••••• 7%
Allowance Miscalculations ••••••••••
9%
Short-Dated Product
-
Co-op OfflNot On Invoice •••••••••••
10%
Shortages ••••••••••••••
13%
Product Pricing Inaccuracy ••••••••••••••••••
17%
Late e l i e r y ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
19%
0% 5% 10% 15% 20%
Percent of Orders With Specific Problem
24
Distribution Center Did
Not Schedule Slot
Carrier Did Not
Arrive On Time
Buyer Did Not Provide
Enough Lead Time
•••••• 37%
IlEI Drug Stores
• Food Retailers
Vendor Did Not Ship
Order 1liil1iIIII••••••• 50%
Vendor Did Not Ship
On Time
••••ilI
56
%
0% 10% 20% 30% 40% 50%
Resulting Percent of Late Deliveries
60%
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
Currently, 65% of merchandisers indicate they pay supplier invoices when goods are delivered.
However, a dramatic shift is predicted in the year 2000; they expect to pay invoices when goods are
sold, as indicated by 75% of merchandisers (Figure 18). Perhaps one of the most dramatic shifts
predicted by retailers in this study relates to invoice payments terms. Two changes are relevant.
First, in the food channel, where practices in the grocery section tend to dominate and dictate to other
sections, payment terms may be changing. Some vendors have already departed from the historical
"2% 10 net 30" terms for a longer payment schedule such as "2% 17 net 30" (that is, the 2 percent
discount is good for 17, not just 10, days) in order to be more consistent with dry grocery practices.
A second significant change in payment terms has to do with a practice beginning to develop with a
few retailers of paying supplier invoices when the goods are sold from the retail store, contrary to
historical payment practices as described above. Although only a few retailers (about 10 percent)
have actually implemented this new practice, according to our survey, fully three-quarters of ali
retailers expect to shift to this payment scheme by the year 2000. While retailers explain that this
• Figure 17. Causes for late orders as indicated by distributors.
Figure 18. Current and expected policies regarding when to pay supplier invoices.
Other
1lEI2000
75%
When Goods Are .1996
Sold
When Goods Are
Delivered
0% 20% 40% 60% 80%
.' '
Percent Indicating Response
25
EMPIRICALRESULTS, ANALYSES,&STRATEGICIMPLICATIONS
will encourage suppliers to take more complete responsibility for their products until the "sell-thru,"
instead of simplyabdicating responsibility once the product is dropped off at the retail DC, such a
departurefrom historicalpaymentpracticeswill havesubstantial impactnotonlyonthelengthoftime
beforepaymentis initiatedtothe supplierbutpotentiallyon vendorin-storemerchandisingactivityas
well. Inbothcases,thisappearstoberetailers'exactmotivation.
Less than Full Loads
Increasing retailer consolidation has given rise to greater retail interest in eliminating less-than-full
truck load shipments (LTLs) from suppliers. In general, retailers prefer full truck load shipments
because of the manyefficiencyopportunities in off-loading, occupying dock space, separating and .
segregating in the assemble area and ease in scheduling carrier appointments. On average,
distributors indicated lessthan full loadsare aslight problem with regard to HBC products. Further,
theyindicated23%ofHBCarrivalsare"trapped",thatis, holdingapartial loadatan intermediatesite
until a full load is obtained. Furthermore, retailers tend to be of the opinion that most loads are
trappedbythetransportcarrier(Figure19).
•Figure19. Distributorindicationsofwhotrapsloads.
Other
15%
Carrierand
Carrierand
Other
7%
Strategic Implications & Perspectives
• Larger, multi-regionretailersaregenerallyabletoacceptstraightloadsofproductfromthemajorityof
their suppliersand, in so doing, qualify for the lowest price brackets from suppliers and capture the
above effiCiency gains althe same time. An important consequence of this trend is that smaller
suppliers and suppliers without a broad product line are increasing their use of third party
consolidatorsin orderto consolidate loadsin acentral assemblypointbefore final arrivalthe retailer's
DC. The majorityof industrymembers feel thatthe introduction of this additional element into the
distributionsystem hasactuallyincreasedefficiencyratherthan reduced it.
There isacautionary note,however, for some suppliers. Retailersadmitted that retail consolidation
alsomeansreductionofduplicatenon-essentialSKUs, Oneretailerexplained: "Afteranalyzingmany -
categories, especlallyin HBC, we found that our different divisions were carrying many different
brandsand formulationsin the samecategorywithoutanyconsumeror regionaljustification. In such
cases,we wereableto reduce the SKUsso thatwe onlycarrythe leading 1or2 in agiven category
Such practices are increasingly becoming standard at many recently
consolidated wholesalersand retailers. Suppliersmustconsiderwhethertheyneed to attain number
•
-
26
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
one or two status in their categories or risk being de-listed by efficiency-seeking retail category
managers.
• Although currently nine of every ten retailers prefer to schedule their own carrier appointments at their
DC, it should be noted that two-thirds of the time the manufacturer still pays for the freight. However,
in the next few years it is expected that carrier scheduling will shift to the supplier. As part of the
larger trend of shifting functions and costs backward in the distribution system, over half of all retailers
say they prefer their supplier to takeover responsibility for carrier schedUling by the year 2000.
• Many retailers have specified their interest in playing a greater role in controlling the transport
function, particularly when there are apparent efficiency gains. This appears to be true in at least two
principal areas: 1) more retailers are endeavoring to increase the volume of business for which they
may have the transportation responsibility whenever backhauling opportunities present themselves;
and 2) a growing number of retailers now prefer to specify who the carrier will be. Indeed, this is true
for the great majority of retailers when it concerns FOB price shipping. Many retailers provide
suppliers with a list of authorized or preferred carriers, sometimes with as few as five or six
companies listed.
Although there is a belief in the supplier community that "preferred carrier" is a thinly veiled attempt to
force the supplier to use more expensive, yet ironically often less reliable, carriers, cost was never
given as a reason by retailers. Perhaps this is predictable, yet this trend is developing, retailers
explain, to take advantage of several efficiency opportunities. First, working more closely with a
selected few trusted carriers allows both carriers and retailers more flexibility. Carriers can simply
drop off trailers for later unloading when the DC is less busy. Second, by limiting arrivals to selected
carriers only, retailers can more easily assign dock times and schedule standing appointments at their
DC for their preferred carriers. This in turn allows carriers more flexibility in consolidating loads,
reduces LTLs and thus reduces or eliminates trapping. Survey results indicated that nearly one-
quarter of all HBC loads are trapped at some intermediate site between manufacturer and retailer DC
and approximately two-thirds of retailers believe it is the carrier who is responsible for such trapping
as they frequently hold small loads until sufficient quantities have built up to justify a full load delivery
to the DC. In some cases, this may result in a delay of several weeks with the consequent disruption
of continuous replenishment and drain on system wide efficiency.
• Retailers cited several additional areas commonly associated with efficiency loss. Their own
demands for more frequent deliveries from vendors has resulted in considerable increase in the
number of LTLs and the number of SKUs on a pallet. As a consequence, despite new technology,
the unloading and dock handling tasks have grown more complicated. The "sorting and segregation"
function alone can account for one-quarter of all distribution center labor costs. Similarly, many
retailers in the grocery channel more accustomed to high volume SKUs, complained that HBC
products are often packed in non-optimally large shipping cartons. After all, approximately 90 percent
of all picks in the HBC assembly process are "by the each." Instead, many called for half pallets and
smaller shippers ( "3's and 6's"). Moreover, too much packaging sometimes impedes efficiency as
well. Several retailers estimated that "more time is spent cutting off plastic wrap than in actual
picking." Retailers reported that efforts taken by suppliers to streamline these activities are likely to
result in "preferred supplier" status.
• About one.-third 01all invoices (only slightly higher with HBC products (32%) than with overall grocery
arrivals (29%» exhibit some type of "problem" according to the retailers in this survey. The largest
single category of problems with invoices (with the order in general) identified by retailers was '1ate
deliveries." In fact, in the non-compliance fees that most retailers have developed to cover deviations
from their specified order practices, an assessment for late deliveries always figures
prominently, either with aflat rate or, as found in Exhibit 4, an hourly rate. ,..
Retail distribution executives cited five leading reasons why merchandise arrives late, perhaps
ironically the first two of which are primarily retailers' retail failure to give the vendor
adequate lead time, in particular for large promotions; 2) a backup of traffic at the DC; 3) trapping
-
27
•
J
,
,
I
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
I
J
of loads, by the carrier or other; 4) vendor is out-of-stock at the factory orlate in shippipg; and5)
vendor is shipping from multiple sources and loses control of logistics. Virtually every company .
interviewed, however, reported improvement on late deliveries in recent years, in particular wttn
preferred carrier programs. Nevertheless, each of the eleven problems specified in Figure 16
represent an opportunity for vendor involvement and system-wide performance improvement
• Exhibit 4. Standard Vendor Agreement Non-Compliance Fee Schedule
J
$100
HQijrfyFee
$35
FlatFee*
$1,000
$100
$500
$100
$500 plus all extra outbound
transportation costs
$500
$500
$500
$500
$500
Fee Collection
Per Incident
Per Hour
UPC Violations
Packing List ErrorsINo Packing List
Case Pack Errors
Case Labeling Errors
Late Ad Merchandise
ASN incorrect or not provided
Improper application of hangers
Unapproved backorder
..
Merchandise shipped r l y ~ t (shipped before ship on date or shipped after cancel
i
date)
Hazardous materials labeled
will deduct the amount due from any outstanding invoice.
If there are monies due to which have not been deducted within ninety (90)
days, Vendor shall pay by check.
Note: Vendor agrees that all amounts set forth in this fee schedule are reasonable
liquidated damages and do not constitute apenalty.
Overall Vendor Performance Expectations
Guidelines & Services
Merchandisers are more or less evenly divided between those who do and those who do not have
formal vendor policy performance guidelines. One-third reported having such guidelines, 28% did not
have formal guidelines, and 39% plan to have them in 3 to 5 years. These responses were
somewhat different for the distributors' policies. According to distributors, 41 % report having formal
guidelines, 56% plan to have them in 3 to 5 years, leaving 4% who do not have formal policy
I
guidelines and have no long-term plans for any (Figure 20).
-
Merchandisers and distributors also have both differing and shifting opinions about specific services
they require from their vendors. Currently, 21 % of merchandisers indicate they require customer
specific labeling on outercases, 21 % indicate they require part number marking, 16% indicate they
require customer specific labeling on displays, 16% indicate they require price marking on individual
28
•
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
items, and 11% indicate they require supply labels. Two major changes seem to be in store by the
year 2000, however. In the year 2000, fUlly 72% of merchandisers indicate they will require customer
specific labeling on displays, and 67% indicate they will require customer specific labeling on
outercases (Figure 21).
• Figure 20. Does your company have formal vendor performance guidelines?
Merchandisers Distributors
Yes
Yes
33%
41%
Yes, In 3 to 5
Years
55%
Yes,ln 3 to 5
Years
39%
Among distributors, 48% indicate they require customer specific labeling on displays, 38% indicate
they require customer specific labeling on outercases, 34% indicate they require part number
marking, 14% require supply labels, and 10% require price marking of individual items. Significantly,
in the year 2000, 76% will require customer specific labeling of outercases, 72% will require customer
specific labeling on displays, and 60% will require part number marking (Figure 22).
• Figure 21. Merchandiser requirements for specific vendor services.
Supply Labels
Price Marked
Individual Items
Customer Specific
Labeling on Displays
Part Number Marking
Customer Specific
Labeling on
Outercases
0% 20% 40% 60% 80%
Percent Requiring
•••••••11••11. 72% m2000
.1996
••24%
12%
••1
16
%
-
4%
29
•
EMPIRICALRESULTS,ANALYSES, &STRATEGIC IMPLICATIONS
•Figure22. Distributorrequirementsforspecificvendorservices.
PriceMarked
••• 28%
Individual Items
SupplyLabels
132000
PartNumberMarking
.1996
CustomerSpecific
••••••76%
Labelingon
i
Outercases
i
J
r
CustomerSpecific
Labelingon Displays
0% 20% 40% 60% 80%
PercentRequiring
Strategic Implications & Perspectives
;
•
ofwholesalers and retailers either already have orsoon will have formal vendor
performancepoliciesthatdictatelogisticalterms,insomecases, in considerabledetail. Results from
thisresearchdemonstrate unequivocallyhow retailersplantoincreasetheir requirements ofvendors
with respect to awide range of distribution and merchandising activities in the near future. The
percentageofmerchandiserscurrentlyrequiring ·customerspecific labeling.on displays'isonlyabout
16percEmtbutwillgtQwtothree-quarters bytheyear2000. Likewise,therequirementsfor"customer
specificJabelingonoutercases" will grow by approximately the same proportion between 1996 and
the morestringentretail requirervents willplace newchallengeson vendors: more
individual. price marking, greaternumberoflabelsneeded to be forthcoming from vendors, and more
partnumbermarking.
Severalretailers have already developed "Vendor Information Manuals' providing explicit technical
specifications for distribution performance, that run over 100 .pages. Exhibit 5 is the list of
responsibilities of all vendors provided by one oUhe retailers in our study. An examination of this
exhibit shows how potentially invasive of amanufacturer'soperations and strategy such retail "rules
for doing business'can be. What's more, failure to meet any and all ofthese standards results in a
penalty fee at the leastoreven loss of business entirely. The vast majorityof retailers in our report
have formal pUblished lists of so-called non-compliance fees because they feel that such penalties
will quicklyconvey the message that they, the retailers, are verycommitted to theirstated goals. A
few retailers, however,didvoicetheopinionthatover-relianceon such feesmaybe misplaced. They
believefhatfocusingon thepenalty, oreven attemptingto make penaltyfees amounttoitsown profit
centermisses the point ofworking collaborativelywith suppliersto improve overall system efficiency
and performance.
Another retailer publishes two lists of the criteria on which vendors will be evaluated, one for
distribution criteria (see Exhibit 6) and another for merchandising/marketing criteria (see Exhibit 7).
Although·thisretaileridentifiesten separatedistributioncriteria, mostretailersagreedthatthe toptwo
-
goals are achieving '1he highestservice levelsand the lowestinventorypossible." Yetmanyretailers
in the interview process explained acertain frustration with their perception that vendors hear this
messagebutoveremphasizethe laterovertheformer. This isbecausereductionin inventoryis easy
for vendors to demonstrate and quantify in economic terms, but service levels are not so easily
•
30
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
validated. To measure the impacts of out-of-stocks, for example, requires estimating the potential
retail sales lost due to the out-of-stock situation which is an inexact science to say the least.
• As the vast majority of retail companies move towards becoming more rigorous and comprehensive in
their evaluation of their suppliers, records and scorecards on each vendor are quickly becoming the
order of the day. Currently, many of these scorecards are preliminary, often somewhat informal, even
a little crude. Many retailers admitted that at the present they only monitor the performance of their
leading vendors, perhaps the top twenty or so who account for the vast majority of all sales: most
retailers subscribe to the "80-20" rule that roughly 20% of their vendors account for 80% of their
business.
• Exhibit 5. Vendor Responsibilities as Given by aMajor Retail Company
• Provide current 'financial statements
• Notification of orders which are >20% of annual sales
• EDI (PO and Invoice) on 100% of orders
• Lowest price guarantee
• Compliance with all PO and carton marking conditions
• Non-compliance penalty, vendor pays 10
%
of problem
• Exhibit 6. Vendor Distribution Evaluation Criteria as Given by a Major Retail Company
• Service levels • Inventory turns
• Margins/profitability
• Lead time
• Fill rate
• EDI acknowledgment
• Forecast error of +/- 5% • Invoice match rate of 99%
• Zero back orders • Carton marking &shipping
label compliance
-
,.
31
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Exhibit 7. Vendor Marketing Evaluation Criteria as Given by aMajor Retail Company
• Vendor reacts to our corporate needs
• Customer service - delivery and lead times
• Promotional program variety
• Overall consumer marketing and advertising support
• Promotional flexibility given our objectives
• Extent of vendor strategy compatibility with our
company/industry
• Solves problems in timely and efficient manner
• Extent to which vendor develops and markets new products
• Maintains highest product quality levels
• Reliable and cooperative sales representation
Other retailers are pursuing sophisticated information management systems to track the performance
of their vendors in excruciating detail. In Exhibit 8 from one major retailer, for example, performance
is reported on a monthly basis and compared both to past performance and to the performance of
other vendors for each supplier to the retail organization. This includes over 1,000 different vendors.
Exhibit 8 documents performance in six principal categories - purchase order performance,
invoicing, DC performance, transportation, store performance, and EDI performance - and then
weights the importance of each of these categories to arrive at an overall "consolidated score." This
score is then used to rank every vendor serving the particular retailer from first to last.
·t
Benchmark Companies and Partnerships in Order Fulfillment
Creating Customer Value
Both merchandisers and distributors were asked to identify the firms they consider benchmark
companies in order fulfillment. Responses overwhelmingly indicate Procter & Gamble is highly
respected in this regard. P&G was the top ranked answer among both merchandisers and
-
distributors, whether speaking of all categories or just HBC. Other ranking benchmark companies
are exhibited in Figure 23.
....
"
•
32
• Exhibit 8. Example of aVendor Scorecard
m
5:
"U
:Ii
fi
l>
r
:Xl
m
(j)
c
l>
Z
l>
r
-<
(j)
m
.(j)
Qo
?!
-i
m
(j)
fi
"U
r
fi
(5
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(j)
•
I
---,. ----
PO Perlormance Transportation
Receiving
Productivtty
Month YTD
On Time Delivery %
Month YTD
99%
99%
Forecast
Accuracy
12
7
9
7
15
eceiptlPO Overage %
YTD Month YTD YTD
1 1 5%
3 0
2 0
3 0
3 0
2 0
3 0
PO Quantity Fill % 1# 01 R
Month YTD Month
99% 99%
98.7 94.6
97.2 93.3
97.3 92.6
98.6 90.7
99.2 99.2
97.9 I 93.5
7 9
7 7
7 8
7 6
7 7
Lead Time
Goal Actual
29
40
50
60
70
Total
Shortage %
Month
5%
VENDOR: XYZ CORP MONTH: MAY PIPELINE:
Invoice EDI
On Hand WOS lin Stock Level %
Month YTD Month YTD
Store Preformance
15
10
14
9
12
FE REPLENISHMENT
13
Match Rate Outbound Trans Inbound Trans PO Pickup
Month YTD Month YTD 10AM 8PM
Goal 98% Errors 0 o Errors 0 0 2HR 90% 50%
Rejects 0 o Rejects 0 0 4HR 5% 50%
Actual Partials 0 o Partials 0 0 6HR 5%
QIy 82% 8HR
Price 100% On Time 90% 97% 10HR
Late 5% 3% 12HR
Total 98% Not Rove 0% 0%
CONSOLIDATED SCORE
PO Perlormance
Invoice
DC Perlormance
Transportation
Store Perlormance
ED'
TOTAL
Ranking J
EMPIRICALRESULTS, ANALYSES, &STRATEGICIMPLICATIONS
"
•Figure23. Benchmarkcompaniesinorderfulfillment.
Respondents also rated the importance of given supplier attributes that classify a vendor as a
benchmark company. Although merchandiser and distributor responses differ slightly, one should
note the top three attributes ranked by each group included 1) accuracy in order fulfillment, 2)
technological preparation, and 3) a strong trust between retailer and supplier. Innovative services
ranked nextin both groups. Onedifferencebetweenmerchandiserand distributorresponses isthat
distributors placed a slightly higher importance on a positive reputation of the supplier. Average
responses showed that all given attributes are considered at least moderately important to
merchandisersanddistributors(Figure24).
Onlyaftercertainefficiencygainshavebeenrealized doesthefocusofthepartnershipshifttoinclude
creating customer value. Retailers reported certain "advanced" partnerships that included joint
forecasting of consumer demand, meshed planning cycles, rationalized product assortments and
joint product development. In these advanced partnerships, retailers not only meet more regularly
withtheirsuppliers, theyactivelyseekoutopportunitiestointeractwith multiple levelsof the supplier
organization. Multi-functionalvisitsarearrangedtothesupplierfactorybymixed retailerteamsand,
conversely, mixed function supplier teams are invited to review retail store practices and DC
operations. Severalleadingretailcompaniesadmittedthattheysimplydonothavethetimetovisitall
companies,socurrentlytheylimitsuchvisitstotheirlargersupplierpartners. Again, "thetop20"was
a phrase often invoked to describe which suppliers may be visited - perhaps four to six different
supplierseachyear.
StrategicImplicationsandPerspectives
• After discussing all of the above-mentioned merchandising and logistics trends and requirements,
retailers were asked which vendors were currently the companies upon whom others should be
"benchmarked." Over 75 separate companies were mentioned at feast once by retailers, This
impressive number of companies is one indication of the exemplary performance that different
companies are capable of delivering, at least to certain customers some of the time. On the other
hand,some individualmanufacturingcompanieswere listedbymanydifferentretailers, with Procter&
Gambleleadingthe listforbothoverallgrocerysuppliersand forHBGsuppliersin particular.
1 Procter&Gamble
.J
i
I
2 General Mills
I
-J
3 Kimberly-Clark
'I
4 Quaker, Ralston Purina(Tie)
-
34
-
•
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
• Figure 24. Importance of supplier attribute to merchandisers for determining benchmark status.
I_ werchandisers lEI Distributors 1
Customized Packaging
WA
l=';:;::::======:::J 3.72
Consolidated Shipments
WA
Positive Supplier
Reputation
Strong Personal
Relationships With Retailer
One Point Order of Entry
Flexibility to Tailor Product
Offerings
Innovative Services
Strong Trust Between
Retailer And Supplier
Technologically Prepared
Accuracy in Order
Fulfillment 4.60
3.00 3.50 4.00 4.50 5.00
Moderately Important Very Important
The objective of this study was not to conduct in-depth analyses of the best practices employed by
leading suppliers. However, retailers were asked to identify the criteria that led them to identify
certain suppliers as benchmark companies. On both the distribution and merchandising sides of the
retail business, there was widespread agreement on the four most important factors: accuracy in
order fulfillment, technological preparation, strong trust level, and innovative services. Furthermore,
for the suppliers that were perceived as the leaders in these criteria, retailers indicated the willingness
and, often, eagerness to engage in partnership relationships. When discussing retailers' overall
inclination for forming partnerships, one senior executive offered the following perspective: 'We
always say that 'willingness to listen' to our real needs is essential for our partners but that needs to
be combined with a firm's 'ability to respond.' A firm may have heard our message but if it does not
have the resources necessary to respond, it does little good to listen well."
It is true that most partnerships begin with a focus on efficiencies: everybody, after all, is in favor or
reducing unneeded costs. Most retailers acknowledged that their partnerships with suppliers started
by agreements to cut costs, time, inventory and other distribution-related items through enhanced
information and product flow. In practice, enhanced efficiency has been the primary goal of such
programs as quick response and efficient consumer response (ECR.)
-
35
•
1
EMPIRICAL RESULTS, ANALYSES, & STRATEGIC IMPLICATIONS
.. "
!
.
,
"
..
-
"..
•
36
I
4
SUMMARY& CONCLUSIONS
Section
Summary & Conclusions
The overarching goal of this studyis to improvethe understanding of retailers' expectations- both
current and in the future - of the requisites of orderfulfillment. The study investigated five major
themes relative to the order fulfillment process. Below, each is enumerated along with the study
findingswhichilluminateanddescribeeachtheme.
The Order Fulfillment Process
• Primaryresponsibilityfororderfulfillmentwithinmerchandisingpersonnellieswiththebuyerwhile
the warehouse manager and traffic manager hold the major responsibilities on the distribution
sideofthebusiness.
• Retail corporate hierarchies are becoming more complex as new layers are being created,
bridging the merchandising and distribution functions. New positions such as "logistician" and
"shelf landedcostanalyst" aretypical. Ratherthan viewthese additional positionsas expanded
bureaucratic layers, vendors will do well to regard them as critical links in the order fulfillment
process.
• In an attempt to bridge an often voluminous gap between the merchandising and distributions
functions of the retail business, retailers are increasinglyforming internal multifunctional teams
consisting of individualsfrom merchandisinganddistributionwho playakeyrole in someaspect
oftheorderfulfillmentprocess.
• While multifunctionalteamsareon the increase- presumablyimprovingcommunication within
the retail organization- retailers concede that 40% of orderfulfillment problems are a result of
miscommunication between their own buyers and distribution center personnel. However,
retailers blame vendors for the majority of problems, citing poor vendor performance along a
numberofspecificdimensions.
• Retailers are demanding adecrease in "ordercycletime," that is, thetimefrom when the buyer
placestheorderwith avendoruntilthe productis deliveredtothe retail distributioncenter. While
thiscertainlyplacesgreaterpressureonvendors, italsotranslatesintogreaterretailerrelianceon
theirvendorpartners.
• Suppliers need to deliver on the criteria that matter most to retailers. These include: service,
inventory levels, productivity, and category management. Anytime vendors can work with key
retail personnel to improvetheirindividual companyperformance, vendor-retail partnerships will
certainlybestrengthened.
Information Systems: Their Role in Order Fulfillment
-
Extraordinarygrowth in electronic technology seems destined to dramaticallychangethe traditional
orderfulfillmentprocess. Specifically:
37
•
SUMMARY& CONCLUSIONS
• Useofsourcetagging will growbythe year2000- half of all respondents reported theyexpect
to use source tagging in just a few years. The majority of retailers expect vendors to apply
sourcetagsinthefuture.
I
• The use of cross-docking and radio frequency technology will increase three-fold from 1996
levels, resultinginsignificantoperationalchangesat retaildistributioncenters.
• Electronic Data Interchange (EDI) is expected to become an industrymandate by 2000. Those
dominant,technologicallysophisticatedfirms will prevail as smallerniche players are likelytofall
bythewayside.
• Vendor Managed Inventory (VMI) apparently faces several obstacles in retailers' eyes. In
particular, theycite problems regarding forecasting demand in the wake of newstore openings,
deleting/adding new items, and especially planning promotions with competing suppliers. In
short, most retailers simply believe that theycan still manage their own inventorybetterthan a
suppliercan.
Transportation, Carrier, and Inventory Practices
• Although, currently, mostcarriers schedule theirown appointments at retail distribution centers,
retailerspredictthat, in afewyears,thisfunctionwillshifttosuppliers.
• Retailers believe the majority of late orders are the combined responsibility of the vendor and
carrier.
• Retailers place the blame for invoice problems in the laps of vendors and carriers. Retailers'
demandforimproved EDI andtheuseoftheirown preferred carriers appearto betwo solutions
tothisperenniallyvexingproblem.
• Ashiftin paymentofinvoicesisexpected. Themajorityofretailerssaidthatby2000 theyexpect
topayforgoodswhentheyaresold ratherthanwhengoodsaredelivered.
• Studyfindings also indicate trends toward retailer consolidation of LTL loads, increased use of
preferredcarriers, andincreaseduseofretailerbackhaul.
Overall Vendor Performance Expectations
• Themajorityof retailersexpecttohaveformalizedvendorguidelinesby2000. Along with vendor
guidelines, vendor scorecards have already become a reality at many retail companies. With
scorecards, retailers havetheabilityto rank/ratevendorson avarietyof performancestandards.
Further, as retailers fully implement their vendor guidelines, penalties for non-compliance are
projectedtogrow.
• Retailers will continue to demand more of vendors, including activities like customer specific
labelingonoutercasesanddisplays, andtailoredpricemarking.
-
• When considering individual vendor performance, specifically for the order fulfillment process,
retailers repeatedlyupheldProcter&Gambleasamodel"bestpractices"company.
• In determining superior vendor performance in order fulfillment, "accuracy in order fulfillment,"
"technology prepared," and "strong trust between supplier and retailer" were cited as the most
38
•
. ,
SUMMARY & CONCLUSIONS
important supplier attributes. This is one more indication of the importance of technology in the
development of future retail-vendor partnerships.
• In general, as retailers ponder the optimal retail-vendor partnerships, they cite shared objectives
like cutting costs, reducing order times, reducing inventory, and improved information and
product flow.
Several clear trends emerge regarding retailer expectations relative to the order fulfillment process as
we approach 2000. Based on information like that contained in this report, vendors should strive to
invest in the performance improvement measures which matter most to retailers. Such initiatives will
clearly require improved communications both electronically and personally. The findings presented
in this report provide strong support for the trend that retailers will continue to shift responsibilities
(e.g., custom labeling, pricing, and source tagging) and their related costs toward vendors while
shifting payment practices increasingly towards consignment selling. Finally, retailers' new demands
for support, advice, and collaboration will drive supplier value from the product and service
orientation of today to the provision of complete business solutions.
-
39
•
SUMMARY & CONCLUSIONS
-
40
APPENDICES
Appendix
A Trade Association Sponsors
of the Joint Industry Project on Efficient Consumer Response
American Meat Institute
1700 North Moore Street
Arlington, VA 22209
703-841-2400
703-527-0938 (fax)
Food Marketing Institute
800 Connecticut Avenue, NW
Washington, DC 20006
202-452-8444
202-429-4529 (fax)
General Merchandise Distributors Council
1275 Lake Plaza Drive
Colorado Springs, CO 80906
719-576-4260
719-576-2661 (fax)
Grocery Manufacturers of America
1010 Wisconsin Avenue, NW
Suite 900
Washington, DC 20007
202-337-9400
202-337-4508 (fax)
Grocery Products Manufacturers of Canada
855 Don Mills Road
Suite 301
Don Mills, Ontario M3C1 V9
416-510-8087
416-510-8043 (fax)
International Dairy Foods Association
1250 H Street, NW
Suite 900
Washington, DC 20005
202-737-4332
202-331-7820 (fax)
National-American Wholesale Grocers'
Association
201 Park Washington Court
Falls Church, VA 22046
703-532-9400
703-538-4673 (fax)
National Association of Chain Drug Stores
413 North Lee Street
Alexandria, VA 22314
703-549-3001
703-836-4869 (fax)
National Association of Convenience Stores
1605 King Street
Alexandria, VA 22314-2792
703-684-3600
703-836-4564 (fax)
National Food Brokers Association
2100 Reston Parkway
Suite 400
Reston, VA 22091
703-758-7790
703-758-7787 (fax)
National Grocers Association
1825 Samuel Morse Drive
Reston, VA 22090
703-437-5300
703-437-7768 (fax)
Private Label Manufacturers Association
369 Lexington Avenue
New York, NY 10017
212-972-3131
212-983-1382 (fax)
Uniform Code Council, Inc.
8163 Old Yankee Road
Suite J
Dayton, OH 45458
513-435-3870
513-435-4749 (fax)
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41
•
I
r
"j
APPENDICES
-
r;,
•
42
APPENDICES
Appendix
B Excerpts From a Major
Retailer's Statement
on Vendor Performance Standards
VENDOR ACCOUNTABILITY
" is fUlly committed to constantly and consistently delivering the highest quality
products at the best value to our customers. We are determined to reduce, if not eliminate,
inefficiencies and non-value added activities in the supply chain."
"Given these two very focused objectives, those trading partners who have developed a
comprehensive program with on expanding the ever widening use of electronic
commerce to conduct efficient replenishment; developing pallet configurations that are conducive to
efficient freight and minimal multiple product handling; and restructuring the traditional merchandising
strategies have met our objectives. We expect that our organizations will not rest on our laurels, but
will continue to innovate on the successes that we have achieved."
"We also recognize that our perishable business - produce, meat, deli, and bakery - operates in a
much more dynamic environment. Our perishable business continues to grow and expand to new
heights, a trend evident across our industry. As we continue to work with our perishable trading
partners to identify areas of efficient opportunities, we will establish mutual expectations. At this time,
the Vendor Performance Standards does not include our perishable trading partners."
"Lastly, we acknowledge that a handful of small, local trading partners has been instrumental in
providing our organization with unique product offerings at various times of the year. These unique
offerings have added to the local flavor of our individual divisions. We recognize that certain
requirements called for in the Vendor Performance Standards will require investments, that to the
larger trading partners represent routine cost of doing business, yet to the small local trading partners
represent a significant cost."
"Our intention is not to inflict excess economic hardships on our small, local trading partners.
Therefore, those vendors whose purchase order volume neither exceed 10 purchase orders annually
nor whose dollar volume exceed $100,000 will not, at this time, be held accountable for conducting
electronic commerce with ."
"However, since the cost of technology decreases over time and with demand, and since further
efficiencies in the supply chain will be dependent upon the continual and expanded use of electronic
data interchange, if it is determined at a future time that conducting business in a manner other than
through electronic data interchange perpetuates inefficiencies in the supply chain, will
require that all business be conducted via electronic commerce."
-
"Although these trading partners are, at this time, exempt from the technology requirements set forth
in the Vendor Performance Standards, we do expect them to observe those requirements that do not
require excessive investment. These include requirements such as shipping on good wooden GMA
pallets, 15 minute on time delivery, 2 hour trailer unload, accurate cost and deal information, etc."
43
•
I
)
APPENDICES
SHIPMENTS TO ARIVE ON THIRD PARTY 4-WAY ENTRY PALLETS
"Although we are not requiring, at this time, that all products be shipped into our distribution centers
on third party leased 4-way entry pallets, we do strongly encourage that our trading partners begin to
explore the use of more efficient shipping platforms. Over the course of the next year, we will expect
our vendors to migrate towards the use of third party leased 4-way entry pallet."
"All vendors, including those whose annual purchase order volume does not exceed 10 purchase
orders and whose annual dollar volume does not exceed $100,000 are expected to ship all products
on good GMA wooden pallets. Over the course of the next calendar year, all vendors, excluding
those whose annual purchase orders do not exceed 10 purchase orders and whose annual dollar
volume do not exceed $100,000, will be expected to migrate toward the use of third party leased 4-
way entry pallet as their shipping platform."
Compliance Time Table: 1997
Non-Compliance Fee Schedule: TBD
TWO HOUR UNLOADING
"All product shipments from our trading partners will be unloaded within two hours. With the
alignment of our trading partners' pallet configurations and those of our distribution centers, along with
palletization of all shipments, unloading a delivery within two hours is certainly achievable."
"All vendors, including those whose annual purchase order volume does not exceed 10 purchase
orders and whose annual dollar volume does not exceed $100,000, are expected to satisfy this
requirement."
Compliance Time Table: June 30,1996
Non-Compliance Fee Schedule: $65 for each half hour beyond the designated two hour window (fee
based on half hour increments)
15 MINUTE ON-TIME DELIVERY
"All scheduled deliveries from our trading partners are to arrive at the respective
divisional distribution center within 15 minutes of their appointment times."
"In the event of backhaul shipments, our trading partner will be held accountable for delays in the
carrier loading process if it is determined that the trading partner is at fault for not having our
shipments ready for either our private fleet or third party contracted carriers. Example of these
situations include, but are not limited to the following:"
• Unscheduled plant shutdown without notification to the respective Traffic
division(s) affected.
• Unscheduled plant and/or distribution center holiday without notification to the respective
Traffic division(s) affected.
• Delay in product selection and loading readiness.
"We recognize that delays may occur. Given reasonable justification for a late delivery, the respective
Traffic division will exercise appropriate discretion on assessing non-compliance."
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•
44
APPENDICES
"All vendors, including those whose annual purchase order volume does not exceed 10 purchase
orders and whose annual dollar volume does not exceed $100,000 are expected to satisfy this
requirement."
Compliance Time Table: June 1996
Non-Compliance Fee Schedule: $75 for each half hour carrier is late.
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45
•
APPENDICES
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•
46
C
APPENDICES
Appendix
Merchandiser Survey
-
47
•
Participate in a nationwide research study and...
Optimal· Practices
in Order
Fulfillment
The objective of this study is to document how retailers measure
manufacturers' performance relative to the order fulfillment
process specifically for the health and beauty care category.
WHY PARTICIPATE???
IS2f'You will receive the complete results of this project which
will be critical to the success of your company. By acting on the
measures important to you, your suppliers will be able to deliver
superior performance.
IS2f'You will be able to benchmark your company against other
leading companies in all three classes of trade: food, drug and
mass.
IS2f'You will have an opportunity to win a full tuition
scholarship (a $7,000 value!!) to Cornell's renown Food Executive
Program as well as receive, free of charge, several recent research
reports from the Food Industry Management Program at Cornell
University.
-
conducted by:
Food Industry Management Program
Cornell University
Ithaca, New York
•
Order Fulfillment includes all those functions associated with placing an order to a supplier: buying, logistics,
merchandising, warehousing, distribution and delivery.
SECTION I: THE ORDER FULFILLMENT PROCESS
There are several positions within a retail organization which may influence the order fulfillment process.
Typically, these positions are from the buying/merchandising and distribution/warehouse sides of the
business. We are interested in learning who in your organization specifically has responsibility for
MERCHANDISING/BUYING i.e., placing orders for new products, re-orders and promotional orders.
la. Please place a check beside each of the positions in your company which have specific responsibility for 1)
ordering NEW PRODUCTS, 2) RE-ORDERS AND 2) PROMOTIONAL ORDERING.
NEW PRODUCTS RE-ORDER OF PRODUCTS PROMOTIONAL
ORDERS
a. buying clerk
b. buyer
c. category manager
d. director merchandising
e. other _
f. other _
lb. For each of the positions listed below which have responsibility for some aspect of the order fulfillment
process, what are the two most important criteria by which the performance of these individuals is
evaluated in your company?
PERFORMANCE CRITERIA (E.G. SERVICE LEVEL, INVENTORY TURNS ETC.)
a. buying clerk
1. 2. _
1. _
2. _
b. buyer
1. _
2. _
c. category manager
d. director merchandising
1. _ 2. _
e. other _ 1. _ 2. _
1. _
f.other _
2. _
lc. To what degree, today and by the year 2000, is the order fulfillment process for RE-ORDERS in your
organization automated?
please check one for each; TODAY and YEAR 2000
TODAY YEAR 2000
COMPLETELY
-
PARTIALLY
NOT AUTOMATED
•
Order Cycle Time
ld. On average, what is the order cycle time in your company for the following items:
Note: order cycle time is defined as the number of business days on average which reflects the elapsed time
from the time an order is placed until an order is received.
place a check under the number of business days which best describes the order cycle
time for seasonal, promotional and everyday items
TYPE OF ITEM less than 1 day 1-3 days ~ days 7-10 days 11-14 days More than 14 days
a. Seasonal Items
b. Promotional Items
c. Everyday Items
1
What is your COMPANY GOAL for order cycle time for the year 2000?
TYPE OF ITEM less than 1 day 1-3 days 4-6 days 7-10 days 11-14 days More than 14 days
a. Seasonal Items
b. Promotional Items
c. Everyday Items
Ie. In your retail organization, is there a multifunctional team (may consist of merchandisers, category
managers, distribution, logistics etc.) which meets regularly to address order fulfillment issues?
____ No, please skip to if on next page.
____ Yes
L a. Please list the team members' job titles
MEMBERS' JOB TITLES OF YOUR MULTIFUNCTIONAL ORDER FULFILLMENT TEAM:
1. . _
2. _
3. _
4. _
5. _
6. _
1
b. How frequently does this team meet?
-
___________________ please go to 19 on next pate.
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only answer question If if you answered NO to question Ig on page 3
If. If you do NOT have a multifunctional team, how often do you formally communicate with each of the
individuals assigned to the order fulfillment process?
FUNCTIONAL POSITION FREQUENCY OF FORMAL TYPE OF COMMUNICATION
WITH WHOM COMMUNICATION (e.g. phone, meeting, e-mail, etc.)
I COMMUNICATE (indicate days/wk OR days/month)
MERCHANDISING:
a. buying clerk
b. buyer
c. category manager
d. director merchandising
e.other _
f.other _
DISTRIBUTION:
a. logistician
b. traffic manager
c. warehouse manager
d. director distribution
e. other _
f. other _
19. Data on product movement is available from several sources. Indicate 1) your reliance on the following data
types and 2) which data source you prefer. Please rank your "reliance" and "preference" using a scale
from 1 to 3 with 1 = most and 3= least. Please indicate your "reliance" and "preference" for each by circling
once response on each scale.
RELIANCE on Data Type DATA TYPE PREFERENCE for Data
Rely on Rely on MOST LEAST
MOST LEAST Prefer Prefer
1 2 3 a. syndicated data 1 2 3
1 2 3 b. my own retail data 1 2 3
1 2 3 c. manufacturer data 1 2 3
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1h. If possible, please attach a schematic that illustrates the organizational chart of your management structure.
•
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SECTION II: INFORMATION SYSTEMS
Current and Expected Use of Technology
1. Please estimate the current and expected percent of your TOTAL COMPANY SALES VOLUME and HBC
SALES VOLUME that is transacted via the following initiatives for the years indicated:
1996 2000
Total Total
Company HBC Company HBC
a) Electronic Data Interchange (ED!)
b) Source Tagging (security)
c) Cross Docking
d) Continuous Replenishment (CRP)
e) Vendor Managed Inventory (VMI)
f) Automated purchase order system
g) Radio Frequency/bar coding
Electronic Data Interchange (EOI):
% %
%
0/0
% %
% %
% %
% %
% %
% %
% %
% %
% %
% %
0/0
%
%
0/0
2a. Please estimate the current and expected percent of your TOTAL COMPANY VOLUME and HBC
VOLUME for which EDI transmission is utilized in your company.
a) Purchase orders
b) P.O. acknowledgements
c) Product activity detail
d) Forecasts
e) Advanced ship notification
f) Invoices
g) Carrier shipment status
Total
Company HBC
%
--_%
%
--_%
%
--_%
%
--_%
%
--_%
%
--_%
%
--_%
2000
Total
Company HBC
% %
% %
% %
% %
% %
%
0/0
% %
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•
2b. Currently, what are the two leading issues associated with EDI transmission for your company and how
significant are they? (please indicate two issues and beside each circle the description which best describes
the significance of each issue)
ISSUE VERY MODERATELY MODESTLY
SIGNIFICANT SIGNIFICANT SIGNIFICANT
a. _
1 2 3
b. _
1 2 3
Continuous Replenishment (CRP)
3a. In the CRP environment in your company, what percentage of the responsibility for forecasting product
demand is held or shared by the following?
___%vendor
___% category manager
___%buyer
___% other, please explain _
100%
3b. Currently, what are the two leading issues associated with CRP for your company and how significant are
they? (please indicate two issues and beside each circle the description which best describes the significance
of each issue)
ISSUE VERY MODERATELY MODESTLY
SIGNIFICANT SIGNIFICANT SIGNIFICANT
a. _
1 2 3
b. 1 2 3
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/
VendorManagedInventory(VMI)
4a. Whattypesofinformation,withwhatfrequency,andinwhatformdoyouRECEIVEinformationfromyour
VMIvendorpartners?
TYPEOFINFORMAnON FREQUENCY FORMAT(written document,
e-mail, phone, personal contact)
4b.Currently,whatarethetwoleadingissuesassociatedwithVMIforyourcompanyandhowsignificantare
they?(pleaseindicatetwoissuesandbesideeachcirclethedescriptionwhichbestdescribesthesignificance
ofeachissue)
j
ISSUE VERY MODERATELY MODESTLY
SIGNIFICANT SIGNIFICANT SIGNIFICANT
a. _
1 2 3
b. _ 1 2 3
4c. Whattypesofinfonnation,withwhatfrequencyandinwhatformdoyouSUPPLYinformationtoyourVMI
vendorpartners?
TYPEOFINFORMAnON FREQUENCY FORMAT(written, document,
e-mail, phone, personal
contact)
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4d.Pleaseidentifythetop5suppliers(overallandHBC)whoyouconsidertobethe"benchmark"companiesin
orderfulfillment.
SUPPLIERS: OVERALL HBCSUPPLIERS
1. _ 1. _
2. _ 2. _
3. _ 3. _
4. _ 4. _
5. _ 5. _
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4e. Howimportantarethefollowingsupplierattributestoyouindecidingwhichvendorstoconsideras
"benchmark"companies?(please circle ONE response per attribute)
SUPPLIERATIRIBUTE NOT VERY
IMPORTANT IMPORTANT
a. positivereputationofsupplier 1 2 3 4 S
b. strongtrustbetweenretailerandsupplier 1 2 3 4 S
c. flexibilityofsuppliertotailorproduct
offeringsspecificallytoretailerneeds 1 2 3 4 S
SUPPLIERATIRIBUTE NOT
IMPORTANT
VERY
IMPORTANT
d.innovativeservices 1 2 3 4 S
e. technologicallyprepared(e.g. EDI,eRP,VMI) l 2 3 4 S
f. strongpersonalrelationshipsbetween
retailerandsupplier 1 2 3 4 S
g. onepointoforderentry 1 2 3 4 S
h.accuracyinorderfulfillment 1 2 3 4 S
i. other,pleasespecify l 2 3 4 S
SourceTagging(security)
Sa. Doyoucurrentlyorexpecttorequiresourcetagging?
please complete for both "Currently" and "Year 2000"
CURRENTLY YEAR2000
(check one) (check one)
YES NO YES NO
___go to Sec III, la. ___go to Sec III,1a.
1 1
go to 5b go to 5b
Sb. Whatcriteriadoyouemploytodecideuponwhichproductstoplacesourcetagging?(checkall that
apply)
-
____dollarvalueofitem,pleasespecifywhattheminimumdollarvalueis$
____sizeofpackage
____other,pleasespecify .
•
5c. Who currently pays for source tagging? (please check one)
____ retailer
____ supplier
____ retailer and supplier shared expense
____ other, please specify _
5d. What source tagging system do you currently and/or
expect to use? (please check all that apply)
CURRENTLY YEAR 2000
a. Sensormatic
b. Checkpoint
c. other, please specify
5e. Who is expected to apply the source tag on the product? (check all that apply)
CURRENTLY YEAR 2000
a. supplier
b. retailer
c. other, please specify
SECTION III: INVOICE & SHIPPING REQUIREMENTS
1a. Often the functions associated with invoicing and shipping are performed incorrectly. On average, what
percentage of your 1) HBC and 2) TOTAL invoices have some type of "problem?"
____% of ALL Invoices have a "problem"
____% of HBC Invoices have a "problem"
lb. On an annual basis, 1) what percentage of all HBC orders are delivered with the following problems and 2)
what, if any penalty is levied if a supplier is out of compliance?
FUNCTION PERCENTAGE OF ORDERS PENALTY
a. product pricing inaccuracy
b. co-op off invoice, not on invoice
c. other off invoice allowance miscalculations
d. shortages
e. damages
f. short-dated product
g. mispicks
h. terms incorrect
i. late delivery
j. item not ordered
-----_%
-----_%
-----_%
----_%
%_----
-----_%
-----_%
-----_%
-----_%
-----_%
•
______%
k. shipment: improper pallet/case configuration
1. other, please specify below:
-----_%
Ie. During a typical week, what percentage of HBC orders are"out of stock" both at the distribution center
and retail store?
_____% at retail
_____% at distribution center
Id. What is your current and expected policy regarding payment of supplier invoices? (check all that apply)
CURRENTLY POLICY YEAR 2000
a. payment is made when
goods are delivered
b. payment is made when
goods are sold
c. other, please specify
Ie. Does your company have a set of formal vendor policy performance guidelines? (please check on
response)
_____ No, not currently
_____ No, but anticipate having them in the next 3-5 years
_____ Yes (if possible, please attach a copy with your completed survey)
Customer Specific Services
2a. Do you currently or expect to require your vendors to provide the following services specifically for HBC ?
SERVICE CURRENTLY YEAR 2000
YES NO YES NO
a. customer specific labeling on
outercases
b. customer specific labeling on
displays
c. price mark individual items
d. part number marking
e. supply labels
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•
SECTION IV: COMPANY & PERSONAL BACKGROUND
Please answer as many of the following as possible...
1. What is your present job title?
j
J
,
2. How many stores does your company operate?
______________ stores
'I
3. What are the approximate 1995 sales for your company?
$------------
4. What is the highest educational degree you have received? (circle one)
a. High school diploma
b. Two year college degree
c. Four year college degree
d. Graduate degree
5. How old were you on your last birthday?
______________ years old
6. Are you: a. Female b. Male
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r
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1
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THANKS!!
FOR YOUR HELP IN THIS IMPORTANT STUDY!
PLEASE ENCLOSE THE COMPLETED QUESTIONNAIRE IN THE ENVELOPE PROVIDED
AND MAIL IT TO US TODAY.
Upon receipt of your completed questionnaire, you will:
• Become eligible to win a full tuition scholarship to Cornell's world renown Food Executive Program
held annually for two weeks in July. Please see the enclosed brochure for additional details regarding
the Food Executive Program.
• Receive, free of charge, any of the research studies listed below as well as a copy of the survey results. If
you would like us to send you either the survey results or recent Cornell research studies, please
provide the following information. (This page will be separated from the questionnaire to ensure the
anonymity of your response.)
Name: _
Company Name: _
Address: _
CORNELL FOOD INDUSTRY MANAGEMENT RESEARCH REPORTS
(please check those of interest and we will enclose them with the survey results)
__What's In Store for Home Shopping? Kristen Park, Debra J. Perosio, Gene A. German and Edward W.
McLaughlin, May 1996.
__Dairy Department Procurement Dynamics, Edward W. McLaughlin and Debra J. Perosio, May 1996.
__Fresh Fruit and Vegetable Procurement Dynamics: The Role of the Supermarket Buyer, Edward W. McLaughlin
and Debra J. Perosio, February 1994.
__ Supercenters: The Emerging Force in Food Retailing, Gene A. German, Gerard F. Hawkes and Debra J.
Perosio, October 1993.
If you have any questions regarding the study or this questionnaire, please contact:
Debra J. Perosio
-
Food Industry Management Program
Warren Hall, Cornell University
Ithaca, New York 14853
Phone (607) 255-1588
Fax (607) 255-4776
e-mail djp7@ cornell.edu
•
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APPENDICES
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60
APPENDICES
Appendix
D Distributor Survey
-
61
•
1
Participate in a nationwide research study and...
,
Optimal Practices
in Order
Fulfillment
The objective of this study is to document how retailers measure
manufacturers' performance relative to the order fulfillment
process specifically for the health and beauty care category.
WHY PARTICIPATE???
You will receive the complete results of this project which
will be critical to the success of your company. By acting on the
measures important to you, your suppliers will be able to deliver
superior performance.
You will be able to benchmark your company against other
leading companies in all three classes of trade: food, drug and
mass.
You will have an opportunity to win a full tuition
scholarship (a $7,000 value!!) to Cornell's renown Food Executive
Program as well as receive, free of charge, several recent research
reports from the Food Industry Management Program at Cornell
University.
-
conducted by:
Food Industry Management Program
Cornell University
Ithaca, New York
SECTION I: THE ORDER FULFILLMENT PROCESS
There are several positions within a retail organization which may influence the order fulfillment process.
Typically, these positions are from the buying/merchandising and distribution/warehouse sides of the
business. We are interested in learning who in your organization specifically has responsibility for the order
fulfillment process on the DISTRIBUTION side of your business.
la. Please place a check beside each of the positions in the distribution area of your company which have
responsibility for the order fulfillment process and indicate their specific responsibilities.
POSITION RESPONSIBILITY IN ORDER FULFILLMENT
PROCESS
a. logistician
b. traffic manager
c. warehouse manager
d. director distribution
e. other _
f. other _
lb. For each of the positions listed below which have responsibility for some aspect of the order fulfillment
process in distribution, what are the two most important criteria by which the performance of these
individuals is evaluated in your company?
PERFORMANCE CRITERIA (E.G. SERVICE LEVEL. INVENTORY TURNS ETC.)
a. logistician 1. 2.
b. traffic manager 1. 2.
c. warehouse manager 1. 2.
d. director distribution 1. 2.
e. other 1. 2.
f. other 1. 2.
lc. In your retail organization, is there a multifunctional team (may consist of merchandisers, category
managers, distribution, logistics etc.) which meets regularly to address order fulfillment issues?
___ No, please skip to Id.
____ Yes
-
L a. Please list the team members' job titles on the next page
•
MEMBERS' JOB TITLES OF YOUR MULTIFUNCTIONAL ORDER FULFILLMENT TEAM:
6. _
1.
7. _
2.
8. _
3.
9. _
4.
5.
10. _
!
b. How frequently does this team meet?
___________ please go to Ie
only answer question Id. if you answered NO to question Ie on page 2
1d. If you do NOT have a multifunctional team, how often do you formally communicate with each of the
inviduals assigned to the order fulfillment process?
FUNCTIONAL POSITION FREQUENCY OF FORMAL TYPE OF COMMUNICATION
WITH WHOM COMMUNICATION (eg. pllOne, meeting, e-mail etc.)
I COMMUNICATE (indicate days/wk OR days/month)
MERCHANDISING:
a. buying clerk
b. buyer
c. category manager
d. director merchandising
e. other _
f. other _
DISTRIBUTION:
a. logistician
b. traffic manager
c. warehouse manager
d. director distribution
e. other _
f. other _
Ie. If possible, please attach a schematic that illustrates the organizational chart of your management structure.
-
•
1£. Pleaseidentifythetop5suppliers(overallandHBC)whoyouconsidertobethe"benchmark"companiesin
orderfulfillment.
SUPPLIERS: OVERALL ABC SUPPLIERS
1. _ 1. _
2. _ 2. _
3. _ 3. _
4. _
4. _
5. _ 5. _
19.Howimportantarethefollowingsupplier attributes toyouindecidingwhichvendorstoconsideras
"benchmark"companiesinorderfulfillment?(please circle ONE response per item)
SUPPLIER ATfRIBUTE NOT VERY
IMPORTANT IMPORTANT
a. positivereputationofsupplier 1 2 3 4 5
b.strongtrustbetweenretailerandsupplier 1 2 3 4 5
c. customizedpackaging 1 2 3 4 5
d.innovativeservices 1 2 3 4 5
e. technologicallyprepared(eg. EDI,CRP,VMI) 1 2 3 4 5
f. strongpersonalrelationshipsbetween 1 2 3 4 5
retailerandsupplier
g. consolidatedshipments 1 2 3 4 5
h.accuracyinorderfulfillment 1 2 3 4 5
i. other,pleasespecify
________ 1
2 3 4 5
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•
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I
SECTION II: INFORMATION SYSTEMS
Current and Expected Use of Technology
1. Please estimate the current and expected percent of your TOTAL COMPANY SALES VOLUME and HBC
SALES VOLUME that is transacted via the following initiatives for the years indicated:
1996 2000
Total Total
Company HBC Company HBC
a) Electronic Data Interchange (EDI)
b) Source Tagging (security)
c) Cross Docking
d) Continuous Replenishment (CRP)
e) Vendor Managed Inventory (VMI)
f) Automated purchase order system
g) Radio Frequency/bar coding
% %
% %
% %
% %
% %
% %
% %
SECTION III: WAREHOUSING & TRANSPORTATION
I
% %
r
r
% %
% %
DID
%
DID
%
DID DID
% %
-
1a. Who typically pays the freight for an incoming order?
retailer
manufacturer
___ other, please specify _
lb. Which of the following do you require regarding transportation arrangements? (check all that apply)
___ appointment scheduling
___ advanced notification
___ other, please specify _
1c. Who selects transportation carriers for your pre-paid and your EO.B. products? (please check all that apply)
Pre-paid EO.B. Ship Point
currently we do
______ do not currently select the carrier
but plan to in 3 to 5 years
manufacturer
other, please explain
•
ld. Currently, and in the future, who do you prefer to schedule appointments with the distribution
center?
CURRENTLY PREFERENCE YEAR 2000
a. carrier
b. supplier
c. other, please specify
Ie. On average, what percentage of all deliveries AND HBC deliveries to your distribution center are NOT "on
time?"
% of Deliveries NOT on time:
____ all deliveries
____ HBC deliveries ONLY
1£. What percentage of the time are late orders the responsibility of each of the following?
____% - the vendor did not ship on time
____% - the vendor did not ship the order at all
____% - personnel in the distribution center did not schedule a slot for the carrier
____% - the buyer did not provide enough lead time for "on time" delivery
____% - the carrier did not arrive "on time"
____% - other, please specify _
100%
19. What is the maximum acceptable "margin of error" allowed for either an early or late delivery of an HBC
order at your distribution center?
____minutes
lh. Do you levy a non-compliance fee for "late" deliveries?
___NO
___YES
L Please explain the nature of the penalty [please attach a penalty schedule if
available}
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•
Ii. In your opinion, how big a problem are "less than full loads" (LTL) with HBC products? (please circle one)
NOT A PROBLEM SLIGHT PROBLEM MAJOR PROBLEM
1 2 3
If you answered either "2" or "3" to the above question, please briefly explain the exact nature of the
problem:
1j. Approximately what percentage of your HBC arrivals are "trapped?" (i.e., hold a partial load until a full
load is obtained) __%
1k. In order to minimize LTLs who "traps" loads? (please check all that apply)
____carrier
____retailer
____ other, please specify
11. During a typical week, what percentage of HBC orders are"out of stock" both at the distribution center
and retail store?
_____% at retail
_____% at distribution center
1m. Does your company have a set of formal vendor policy performance guidelines?
_____ No, not currently
_____ No, but anticipate have them in the next 3-5 years
_____ Yes (if possible, please enclose a copy with your completed survey)
In. Currently, what are the two leading issues associated with warehousing and transportation for your
company and how significant are they? (please indicate two issues and beside each circle the description
which best describes the significance of each issue)
..
ISSUE VERY MODERATELY MODESTLY
SIGNIFICANT SIGNIFICANT SIGNIFICANT
a. 1 2 3
b. 1 2 3
",.
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•
Customer Specific Services
2a. Do you currently require or expect to require your vendors to provide the following customer service
functions?
FUNCTION CURRENTLY YEAR 2000
YES NO YES NO
a. customer specific labeling on
outercases
b. customer specific labeling on
displays
c. price mark individual items
d. part number marking
e. supply labels
SECTION IV: COMPANY & PERSONAL BACKGROUND
Please answer as many of the following as possible...
1. What is your present job title?
2. How many stores does your company operate?
______________ stores
3. What are the approximate 1995 sales for your company?
$ -----------
4. What is the highest educational degree you have received? (circle one)
a. High school diploma
b. Two year college degree
c. Four year college degree
d. Graduate degree
5. How old were you on your last birthday?
years old
6. Are you: a. Female b. Male
-
•
Food Industry
Management Program
CORNELL UNIVERSITY
Available Publications
The following publications are available at $25 each. Discounts are available on
multiple copies of any individual report. Direct orders to:
Food Industry Management Program Phone: 607/255-1622
Cornell University Fax: 607/255-4776
113 Warren Hall
Ithaca, NY 14853-7801
Supermarket Development in China, Gene A. German, Jane Wu, and Ming Li Chiao E.B. 96-
20, December 1996.
The Feasibility of a Mid-Hudson Valley Wholesale Fresh Produce Facility: A Buyer
Assessment, Craig R Kreider and Edward W. McLaughlin. RB. 96-09, August 1996.
What's i.n Store for Home Shopping? Kristen Par1