Supplier Scan Based Trading
Quick Start Program

Retailers Series

Introduction

Scan Based Trading (SBT or sometimes referred to as pay for scan) is defined as the process where suppliers maintain ownership of inventory within retailers' warehouses or stores until items are scanned at the point of sale. Traditionally Scan Based Trading programs use EDI as the key component to synchronize information on store locations (Organizational Structure EDI 816), items (Price/Sales Catalog EDI 832), daily sales (Product Activity Data EDI 852), receiving’s (Receiving Advice EDI 861), billings (Invoice EDI 810) and payments (Remittance Advice EDI 820) between retailers and its Scan Based Trading suppliers.

While at first blush it would seem that the benefits of Scan Based Trading are mainly derived from savings for the retailer, in actual fact, Scan Based Trading suppliers are usually the driver of Scan Based Trading as they receive huge benefits. In the magazine industry alone, the full implementation of SBT has been estimated to provide operational savings to suppliers of $160 million per year.4 The benefits to the supplier to implement SBT include:

• Improved Retailer Relationships: - The greatest competitive advantage for a supplier is increased collaboration and visibility within its retail-trading partner's organization. With partners agreeing on details like item, price, promotion and shrink at the onset of an SBT relationship, suppliers are able to better service accounts and reduce billing and invoice issues. Sara Lee reported a 60% reduction in invoice error correction costs by the implementation of SBT at an average cost of $70.00 per disputed invoice, the savings are substantial.¹

• Reduction in competition - Improved supplier/retailer relationships allow suppliers to use SBT as a competitive weapon to gain exclusivity at retailers. SBT suppliers are becoming increasingly aggressive in approaching retailers and offering to use SBT on all of their products in exchange for exclusivity in the retailer’s stores.

• Increased sales. SBT suppliers have estimated that their increase in sales by switching to a Scan Based Trading model is from 1% - 5%²

• Improved visibility of product sales – As a part of SBT programs, suppliers receive sales by item by store by date. This information provides the supplier with an up-to-date view on the sales of product which is invaluable in sales forecasting and inventory management.

• Reduced cost of inventory - In the supply chain for supplier merchandized product retailers will experience a reduction in cost of inventory. With SBT, product deliveries are based on actual store inventory of individual items. There is a dramatic reduction in product held in the supply chain (typically held by suppliers agents/merchandisers/jobbers) by implementing SBT.

• Reduction in non-sellable product.  Suppliers use SBT to lower the costs associated with non-sellable products (i.e. discontinued, damaged or out-of-code products that retailers return). SBT provides greater visibility into scan-sales data, allowing suppliers to better understand the demand chain so that they can anticipate and reduce obsolescence and improve overall profitability.

• Reduced Time To Market - SBT allows suppliers to put new products into retail outlets at no risk to the retailer, since the supplier continues to own the inventory until it is scanned at the point of sale. This allows the supplier to determine new item performance and adjusting selection prior to wide scale rollout to all retail locations. The result is increased selection of timely products which results in a better shopping experience for the consumer and increased sales for both the retailer and supplier because the “expert” on product, the supplier, is in charge of inventory selection. On average, the time to rollout new CPG product is four weeks⁵, whereas the time to introduce new product with the “advanced” item synchronization business processes and the elimination of the item approval process inherent in Scan Based Trading, reduces the time by at least one half.⁵

• Reduced cost for sales staff to service retailers  - By using the co-ordinated “bi-directional item information synchronization approach inherent in SBT, suppliers have reported a 7% to 13% reduction in sales force time spent communicating basic item information to customers, following up, resolving queries.⁵

For retailers, the implementation of SBT has been seen as a goal as it saves money and improves customer satisfaction. The following is a list of the benefits derived by retailers switching to SBT:

• Increased Sales - Typically, the increase was driven by the supplier having more time in the store to merchandise its product, fill holes, and maintain plan-o-gram integrity. In addition, several retailers mentioned suppliers were able to make an additional stop at each store during the week to merchandise products and prevent out-of-stocks. Salmon and Associates reported that “a grocery retailer’s sales increased in every product category it tested — from bread to ice to magazines. Sales increases ranged from 1% to 5%, based on product category”.² Schnuck Markets reported a 4% increase in sales for its SBT pilot.³

• Reduced Invoice/Order Processing Costs – Retailers have reported that the cost to process SBT suppliers is much less than “normal” suppliers as items, price, promotions, and allowance disputes are greatly reduced by pre-set agreements and the use of EDI to synchronize Item information between suppliers and retailers. Schnuck Markets reported a nearly 70% reduction in invoice deductions with time spent resolving item and price discrepancies cut in half.³ At an average cost of $70.00 per disputed invoice, the savings are substantial.¹

• Lowered Cost of Inventory – As SBT changes inventory ownership to the supplier, the retailer experiences a reduction in retailer-owned inventory.

• Improved Financial Metrics – Once inventory levels were reduced, all financial metrics that incorporate inventory levels, such as working capital required, return on assets (RONA), and quick ratios, showed improvement: working capital can be reduced as much as 15%, RONA increased as much 4%, and the quick ratio increased as much as 7%.²

• Reduced Stock Outages – SBT forces the supplier to manage and merchandize its products to ensure that the right product is on the shelf at the right time or the supplier will see a loss of revenue. This provides a powerful incentive to reduce stock outages. As an example, during its SBT pilot, Rite-Aid, realized a 32 percent decrease in out-of-stocks.⁶

Scan Based Trading Case Study

The following is an example of how a supplier and retailer have implemented Scan Based Trading using SoftCare’s Quick Start program for Scan Based Trading:

Discovery of the Desired Business Process and Implementation Approach

Upon completion of a Scan Based Trading agreement between the retailer and the supplier specifying roles and responsibilities, cost adjustments, shrink calculations etc, the supplier worked with the retailer to implement an effective SBT program. The work included:

• What information and which business processes would be employed to implementation of Scan Based Trading?

• Where the required item information resided (internally and externally)?

• What transformations were required to format the information to their and their trading partners needs?

• What format the information needed to be to communicate the desired information to facilitate SBT between the supplier and its retail client(s)?

• What was the most cost effective method to communicate information to/from its retail client(s)?

• What was the business process to move/receive the information to/from its back end to its retail clients.?

The following is a description of the flow of information created to implement Scan Based Trading:

Synchronizing Store Locations

Once the business process was defined and the EDI guidelines defined, the first step was to identify all of the retailers store locations to the supplier. The retailer accomplished this by sending its SBT supplier an initial Organizational Relationships EDI 816 document at the initiation of the program. This document was the basis of synchronization of locations between the supplier and the retailer. To ensure synchronization in the future, the retailer will send a complete list of all stores which will be used by the supplier to as a complete re-load of all stores, corporate locations and warehouses. Changes include, name changes, address changes, new stores or deletions of store locations received automatically update the suppliers internal systems.

Synchronization of Item Information

The supplier and retailer used the EDI Price/Sales Catalog (EDI 832) document to send and receive item information to/from its SBT suppliers to ensure item synchronization as without item synchronization, Scan Based Trading is not possible. The initial step was having the retailer export its item information to its supplier as an EDI Price/Sales Catalog (EDI 832). The outbound EDI 832 provided details on what items the retailer had in its item database. It was critical that the SBT supplier reviewed against its own internal item database as proper item synchronization was critical to the SBT business process. The next step was for the supplier to send back a detailed EDI Price/Sales Catalog (EDI 832) to the retailer. The inbound EDI 832 from the SBT supplier contained information used by the retailer to identify/categorize/price item information to facilitate the SBT process. The information sent included:

• POS item descriptions;

• Long form item descriptions;

• Unit Cost Price;

• Retail Cost, Supplier;

• Supplier Classification codes;

• Logistics information.

To aid in the ongoing synchronization of items, the supplier sent the retailer any item changes (modifications, additions, deletions) as soon as possible to ensure that the retailer’s item database was fully synchronized to the supplier’s item database. If there were any “issues” with item synchronization, they were addressed prior to the implementation of any further EDI documents.

Advanced Shipment Notification

Upon synchronizing locations and items, the next step in the process was to enable the supplier to inform the retailer of all Direct to Store (DSD) deliveries for SBT based product to speed receipt of shipments at the store receiving dock. The supplier used an EDI Advanced Shipment Notification (EDI 856) document to notify the retailer that merchandise for a specific store had been shipped. The EDI 856 transaction set contained information informing the retailer about the vendor's shipment, including information used to track items shipped at the carton level. This carton "license plate" was the UCC-128 Serial Shipping Container Code. Use of the UCC-128 barcode on cartons expedited receiving of merchandise at the retailer’s stores enabling rapid verification of receipt and expeditious sending of receipt of shipment to the supplier. As the ASN was tailored to the needs of Scan Based Trading, order information was not required as there was no “original” Purchase Order to reference. Although there are various formats for an ASN, there are two predominant methods of merchandise packaging within the retail industry.  These are commonly known as:

• Pick and Pack – where different items are packed within each shipping container and

• Standard Carton Pack – where identical items are packed within the same shipping container.

For Scan Based Trading ASN’s, the supplier supported the use of either “Pick and Pack” or “Standard Pack” formats and specified the timing of when the ASN must arrive (prior to delivery) to ensure that the retailer’s systems could process the ASN the information, validate it and deliver it to the receiving store without delay to reduce the time to receive the shipment.

Receipt Notification

The retailer used the EDI Receiving Advice (EDI 861) document to report the receipt of shipments at the retailer’s stores to the supplier. The retailer sent “Carton Receiving” information to notify the supplier of the container ID numbers, (e.g., UCC/EAN-128 carton label ID) for each shipment. This notification provided an exact receipt date and which cartons were received to the supplier who used this information for its internal labor scheduling / replenishment processes.

Synchronization of Item Sales Information

The next step in the process was for the retailer to daily send sales as scanned at POS by store for each item in a Product Activity Data (EDI 852) document to the supplier. The Product Activity data was primarily used by the supplier to support stock replenishment program, to provide input to sales analysis and forecasting systems and to calculate the total dollar volume by store for Invoicing.

Invoicing

The retailer and supplier agreed to have the supplier send a separate weekly EDI Invoice (EDI 810) for each store’s SBT sales (for the purposes of Scan Based Trading, a “week” is all sales from Monday through Sunday of any week). The Invoice specified, by line item, the sales for the week and the Unit Cost price for each item. This information was used by the retailer to reconcile the Invoice to its own sales reporting prior to sending payment to the supplier. The supplier was not required to specify Terms, Allowances or Charges in their SBT Invoices as the agreement between the two had already defined all Terms, Allowances and Charges.

Payment Remittance

The retailer sent weekly EDI Remittance Advice (EDI 820) after each transfer of funds to the supplier. The retailer Remittance Advice was for information only as the actual transfer of funds was done via Electronic Funds Transfer (EFT) or via cheque. The Remittance Advice specified payment for multiple Invoices or a single Invoice. It provided a simple method for the retailer and the supplier to “close the loop” to reconcile sales to remittances.

Supplier Quick Start Program for Scan Based Trading

SoftCare recognizes that for many suppliers involved in the implementation of Scan Based Trading, there are simply too many things to do to effectively understand the process, implement the appropriate business processes and technical processes. With this in mind, SoftCare has created its Supplier Quick Start Program for Scan Based Trading, which is a comprehensive program for suppliers to link and utilize their information to send and receive business documents electronically to/from its retail clients for SBT. It leverages SoftCare’s experience in retailing and implementation of thousands of EDI trading partners to create a “Best Practices” approach to SBT.

SoftCare's Supplier Scan Based Trading Quick Start Program provides the software and services required to implement an effective SBT program for a supplier. The SoftCare Solution’s Group provides necessary consulting services to determine:

• What information and which business processes will be employed to implementation of Scan Based Trading?

• Where the required item information resides (internally and externally)?

• What transformations are required to format the information to their and their trading partners needs?

• What format the information needs to be to communicate the desired information to facilitate SBT between the retailer and the supplier?

• What is the most cost effective method to communicate information to/from its retail clients?

• What is the business process to move/receive the information to/from the supplier’s retail clients?

• What business metrics will the supplier use to determine actual ROI for their SBT system.

Once the implementation “roadmap” is completed, the next step is to implement the solution to export/import business information from/to a company’s back-end systems, transform it and communicate-it-to/receive-it-from your retail clients using the OpenEC® TradeLink EDI Management System and/or Trade Catalog. This step involves working with the supplier’s staff to configure TradeLink to meet their business needs. Once completed, the Solutions Group will test with a company’s trading partners and train internal staff on how to implement future partners within TradeLink. The Solutions Group can train your internal staff or can be contracted to implement new trading partners as necessary. The key to SoftCare’s Supplier Quick Start Program for Scan Based Trading is to provide a “one stop shopping” approach for the software and services required to implement “Best Practices” for SBT.

Notes: 

¹Cyclone Commerce - Case Study – Sara Lee Bakery Group

² Kurt Salmon and Associates – Fall 2004 – Secrets to Developing a Successful Scan Based Trading Program

³ eCollaboration Standards – Benefiting from the EAN.UCC System

⁴ 1999 – Mercer Management Consulting Study

⁵ A.T. Kearney, “Data Synchronization Proof of Concept: Case Studies from Leading Manufacturers and Retailers

⁶ The Benefits of Scan Based Trading by Line 56 – April 4, 2005

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