Scan-Based Trading: Critical to Future Growth, But “No Silver Bullet”

Scan-Based Trading: Critical to Future Growth, But “No Silver Bullet”

Karlene Lukovitz

* MRAC PLANS TO RELEASE SUGGESTED GUIDELINES, CONDUCT PILOT STUDIES.

There’s no disagreement that scan-based trading (SBT) promises large savings in time and resources, and would help enable sophisticated, timely in-store replenishment of magazines and other products. On the other hand, as several executives noted during the Retail Conference, it’s hardly going to happen overnight, and it won’t solve all of the industry’s problems.

Rich Jacobsen, president of Time Inc. Retail Sales and Marketing, said that he views SBT as one of many process and technology improvements that the industry needs to implement to create a supply chain whose economics support targeted replenishment “I think we need to think about how to convert a supply chain that’s still accustomed to a 14-day spread between magazine printing and on-sale–or worse yet, delivery–into a real-time response mechanism,” he said.

“We can start with scan-based trading, which I’ve always believed should be embraced–cautiously,” Jacobsen added. “Retailers say that if we’re looking for something dramatic to set this category apart from the others in a positive way, SBT is the way to go. But there are a lot of issues. I don’t think it’s as simple as willy-nilly running to SBT. There’s the issue of shrink, although I think that’s going to be the easiest one to solve. The bigger issues include data integrity, and financial issues like balance sheet transfers relative to inventory and what the movement of that inventory off of the wholesalers’ balance sheets will do to their cashflow. Still, I do think this is something we should move toward quickly.”

On that score, the Magazine Retail Advisory Council is doing its best, according to Rodale Magazine Division VP and MRAC chair Rich Alleger. Alleger reported that four subcommittees are working to complete a white paper on SBT, with a target release date of April. The paper will provide a framework and general, voluntary guidelines for publishers and trading partners who want to move toward SBT. He also reported that several SBT pilot tests will be conducted this year, including ones with Wal-Mart and the Schnucks convenience chain.

Alleger also seconded some of the points made by Dan Raferty, president of the Prime Consulting Group, which has been working with major manufacturers and retailers on SBT pilot tests. Raferty said that synchronization of data is a much bigger issue than either shrink or inventory-taking. He described two approaches to synchronization: a two-party model in which partners coordinate their databases, and a three-party model, in which partners share one database through an Internet connection.

Raferty also cautioned that SBT is not for every retailer, and that the process takes a lot of work and effort. “It’s not a silver bullet for problems, and it’s also not a slam-dunk,” he said. The key elements required for success, he said, are senior management commitment; a protocol agreement to document new roles and responsibilities, synchronized data systems (which require numerous internal systems changes); accurate and complete scan data delivered daily; perpetual inventory tracking; open windows with no receiving requirements, and electronic remittance advice and funds transfer.

Clearly, the newsstand channel has a long way to go before SBT is close to a reality. “Some retailers are not interested. Some are not ready,” said Alleger. “And we still need to see how it works and work out the kinks.” In addition, he noted, some companies will not realize the full benefits, because they will not be willing to invest in the technology and synchronization required for a “gold standard,” nor be willing to put adequate trust in the process.

Anderson News chair Joel Anderson said that his company will participate in SBT, but stressed that it would not want to have to set up dual, parallel systems that negate the savings. Chas. Levy president/CEO Carol Kloster echoed that concern, but added that, in addition to the major cost savings potential for wholesalers and retailers, SBT would please retailers by streamlining check-in and doing away with returns. “I think we could make a case that a simpler system could lead to additional space in stores,” she said.

“Beyond the initial gains realized through inventory shift from the retailer to other parties, SBT should capture issue code, and that data should be shared by all parties,” said Wal-Mart magazine and book buyer Marvin Deshommes. “SBT should also challenge each party to achieve [daily] replenishment, instead of having a system in which a monthly is in our stores for two weeks and is then replaced by another monthly. We should identify what stores are selling on a daily basis and replenish products as quickly as we can.”

But many believe that the industry will, for the foreseeable future, have to settle for striving to achieve the estimated $185 million that could be saved through improved business processes leading up to, but falling short of, SBT. “Some of the benefits of SBT can be gained very quickly without actually fully implementing SBT, through implementing perfect pick and reduced check-in times,” said Mike Roscoe, chairman of Distribution Services, Inc. Kloster, however, said that most wholesalers “have done that already.”

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