What Scan-Based Trading Means to the CPG Supplier
By Randy Fields
When scan-based trading (SBT) became widely adopted, benefits appeared to heavily favor the retailer. The supplier – who may have made a hefty investment in buying back existing inventory – was not paid until the product was scanned at the register and purchased by the consumer.
At first glance, suppliers might think this practice is harmful to their cashflow and bottom line. But the truth is quite different because payment cycles are often expedited. The added visibility to shopper selection and reduced out-of-stocks result in added sales volume, increased shopper engagement and many other benefits.
Let’s take a step back and review exactly what SBT is and what it isn’t. SBT is a change in distribution process that aligns supply and demand at the retailer’s point-of-sale (POS) to create operational savings for both retailer and supplier. It is a proven procurement strategy that improves sales results and minimizes excess inventory. It is preferred by many direct-store delivery (DSD) suppliers and is being adopted by an increasing number of non-traditional categories. SBT provides retail trading partners with a distinct competitive advantage via scan sales visibility, goods tracking and collaborative functionality.
As a business process, SBT goes beyond a typical consignment trading arrangement in which suppliers keep ownership of physical inventory until products are sold at the point-of-sale. By deploying SBT, trading partners have shared visibility of store/item-level daily POS data, invoicing and perpetual inventory. Invoices based on scan data and shrink-share calculations are created with 100% accuracy, reducing the accounting nightmare for both retailer and supplier.
With SBT, retailers experience greater efficiencies in receiving, lower operating expenses, no-hassle payments and increased sales. Suppliers see more efficient delivery processes, wider receiving windows, more time for in-store merchandising, zero invoice deductions and increased sales. In addition, SBT:
- Reduces discrepancies and deductions due to lack of agreement on products, prices, and promotions.
- Reduces or eliminates time spent on invoice discrepancies.
- Increases promotion effectiveness by relaying timely information simultaneously to all retailers.
- Helps control rising IT costs by using a common data format to communicate critical product, price, and promotion data as well as retailer authorizations and de-authorizations.
- Increases sales force effectiveness and accelerates speed to market by eliminating redundant paperwork.
- Reduces time spent entering and re-entering product, price and promotion data into internal systems and manual retailer forms.
There are a few challenges suppliers can face when moving to an SBT program, including culture change and data synchronization between trading partners. Still, both retailers and suppliers are finding significant benefits – particularly with DSD items – and are aggressively moving ahead.
One leading DSD supplier told me that when scan-based trading is done right, it’s a collaborative, mutually-beneficial relationship between retailer and supplier. By implementing SBT, route drivers and merchandising employees at his company are not tied to a truck. They can do their own jobs without worrying about delivery deadlines. The executive said that implementing SBT has resulted in a wide range of benefits, including increased sales, improved route efficiencies, reduced delivery time and invoice discrepancies, and improved retailer relationships.
Another manufacturer, this one in the ice cream category, has been using SBT with many of its retail customers for almost two decades and continues to support the program because the technology changes the relationship between the retailers and supplier for the better. It removes the drudgery of operations (pricing, synchronization, back door receiving, inventory concerns) and allows both parties to focus on what matters most – sales. SBT also enables the company to realize operational efficiencies and reduce invoice discrepancies.
On the retail side, Weis Markets, a 206-store supermarket chain operating in the Mid-Atlantic states, deployed SBT to increase sales and streamline its supply chain operations, while reducing costs and improving inventory management. Weis moved to SBT because it enables the retailer to stock less, be more efficient and sell more while enjoying the working capital benefits. Donna Banks-Ficcio, vice president of Center Store Sales & Merchandising at Weis Markets, said when they started their SBT program that “to remain competitive in our market, we realize there’s a significant opportunity for us to leverage their programs and solutions to drive profitable sales, improve inventory management and substantially enhance our supply chain performance.”
Bottom line: SBT can increase sales by 3 to 4 percent for both trading partners. In addition, SBT has reported reductions in returns from 15 to 50 percent, a decrease in backroom delivery time by 20 to 25 minutes per stop, and a decrease safety stock by as much as 50 percent.
Randy Fields is Chairman & CEO of Park City Group, a cloud-based software company that uses big data management to help retailers and their suppliers sell more, stock less and see everything. He is a co-founder of ReposiTrak, a cloud-based solution that enables all participants in the farm-to-table supply chain to easily manage records and regulatory compliance. Fields can be reached at firstname.lastname@example.org.