SCAN BASED TRADING SBT FOR RETAILERS

SCAN BASED TRADING SBT FOR RETAILERS Quick Start Prgram PUBLISHED OCTOBER 2005 Written by M.W. Cbban Directr Operatins and Supprt SftCare HealthCare Slutins 1-888-SftCare (1-888-763-8227) www.sftcare.cm 1

INTRODUCTION Scan Based Trading (SBT) is defined as the prcess where suppliers maintain wnership f inventry within retailers' warehuses r stres until items are scanned at the pint f sale. Traditinally Scan Based Trading prgrams use EDI as the key cmpnent t synchrnize infrmatin n stre lcatins (Organizatinal Structure 816), items (Price/Sales Catalg 832), daily sales (Prduct Activity Data 852), receiving's (Receiving Advice 861), billings (Invice 810) and payments (Remittance Advice 820) between a retailer and its Scan Based Trading suppliers. While at first blush it wuld seem that the benefits f Scan Based Trading are mainly derived frm savings fr the retailer, in actual fact, the Scan Based Trading supplier is usually the driver f Scan Based Trading as they receive huge benefits. In the magazine industry alne, the full implementatin f SBT has been estimated t prvide peratinal savings t the retailers and suppliers f $220 millin per year.4 The benefits t the supplier t implement SBT include: Imprved Retailer Relatinships: The greatest cmpetitive advantage fr a supplier is increased cllabratin and visibility within its retail-trading partner's rganizatin. With partners agreeing n details like item, price, prmtin and shrink at the nset f an SBT relatinship, suppliers are able t better service accunts and reduce billing and invice issues. Sara Lee reprted a 60% reductin in invice errr crrectin csts by the implementatin f SBT at an average cst f $70.00 per disputed invice, the savings are substantial.1 The imprved relatinships als allw suppliers t use SBT as a cmpetitive weapn t gain exclusivity at retailers. SBT suppliers are becming increasingly aggressive in appraching retailers and ffering t use SBT n all f their prducts in exchange fr exclusivity in the retailer's stres. Increased sales SBT suppliers have estimated that their increase in sales by switching t a Scan Based Trading mdel is frm 1% - 5% Imprved visibility f prduct sales - As a part f SBT prgrams, suppliers receive sales by item by stre by date. This infrmatin prvides the supplier with an up-t-date view n the sales f prduct which is invaluable in sales frecasting and inventry management. Reduced cst f inventry - In the supply chain fr supplier merchandized prduct retailers will experience a reductin in cst f inventry. With SBT, prduct deliveries are based n actual stre inventry f individual items. There is a dramatic reductin in prduct held in the supply chain typically held by suppliers agents, merchandisers,jbbers by implementing SBT. Reductin in nn-sellable prduct. Suppliers use SBT t lwer the csts assciated with nn-sellable prducts (i.e. discntinued, damaged r ut-f-cde prducts that retailers return). SBT prvides greater visibility int scan-sales data, allwing suppliers t better understand the demand chain s that they can anticipate and reduce bslescence and imprve verall prfitability. Reduced Time T Market - SBT allws suppliers t put new prducts int retail utlets at n risk t the retailer, since the supplier cntinues t wn the inventry until it is scanned at the pint f sale. This allws the supplier t determine new item perfrmance and adjusting selectin prir t wide scale rllut t all retail lcatins. The result is increased selectin f timely prducts which results in a better shpping experience fr 2012 SftCare Slutins Inc. 2

the cnsumer and increased sales fr bth the retailer and supplier because the "expert" n prduct, the supplier, is in charge f inventry selectin. Fr retailers, the implementatin f SBT has been seen as a gal as it saves mney and imprves custmer satisfactin. 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 mre time in the stre t merchandise its prduct, fill hles, and maintain plan--gram integrity. In additin, several retailers mentined suppliers were able t make an additinal stp at each stre during the week t merchandise prducts and prevent ut-f-stcks. Salmn and Assciates reprted that "a grcery retailer's sales increased in every prduct categry it tested - frm bread t ice t magazines. Sales increases ranged frm 1% t 5%, based n prduct categry" Schnuck Markets reprted a 4% increase in sales fr its SBT pilt Reduced Invice/Order Prcessing Csts - Retailers have reprted that the cst t prcess SBT suppliers is much less than "nrmal" suppliers as items, price, prmtins, and allwance disputes are greatly reduced by pre-set agreements and the use f EDI t synchrnize Item infrmatin between suppliers and retailers. Schnuck Markets reprted a nearly 70% reductin in invice deductins with time spent reslving item and price discrepancies cut in half. At an average cst f $70.00 per disputed invice, the savings are substantial Lwered Cst f Inventry - As SBT changes inventry wnership t the supplier, the retailer experiences a reductin in retailer-wned inventry. Imprved Financial Metrics - Once inventry levels were reduced, all financial metrics that incrprate inventry levels, such as wrking capital required, return n assets (RONA), and quick ratis, shwed imprvement: wrking capital can be reduced as much as 15%, RONA increased as much 4%, and the quick rati increased as much as 7%.2 Scan Based Trading Case Study The fllwing is an example f hw a retailer and supplier have implemented Scan Based Trading using SftCare's Quick Start prgram fr Scan Based Trading: Discvery f the Desired Business Prcess and Implementatin Apprach Upn cmpletin f a Scan Based Trading agreement between the retailer and the supplier specifying rles and respnsibilities, cst adjustments, shrink calculatins etc, the retailer emplyed SftCare EC t prvide the sftware and services, required t implement an effective SBT prgram fr the retailer. The SftCare Slutin's Grup prvided necessary cnsulting services t determine: 2012 SftCare Slutins Inc. 3

What infrmatin and which business prcesses wuld be emplyed t implementatin f Scan Based Trading? Where the required item infrmatin resided (internally and externally)? What transfrmatins were required t frmat the infrmatin t their and their trading partners needs? What frmat the infrmatin needed t be t cmmunicate the desired infrmatin t facilitate SBT between the retailer and the supplier? What was the mst cst effective methd t cmmunicate infrmatin t/frm its SBT suppliers? What was the business prcess t mve/receive the infrmatin t/frm the retailer's supply chain? THE FOLLOWING IS A DESCRIPTION OF THE FLOW OF INFORMATION CREATED TO IMPLEMENT SCAN BASED TRADING Synchrnizing Stre Lcatins Once the business prcess was defined and the EDI guidelines defined, the first step was t identify all f the retailers stre lcatins t the supplier. The retailer accmplished this by sending its SBT suppliers an initial Organizatinal Relatinships EDI (816) dcument at the initiatin f the prgram. This ensured that the SBT supplier knew all f the retailer's crprate lcatins, warehuses and stre lcatins. T ensure synchrnizatin in the future, the retailer will send a cmplete list f all stres which will be used by the supplier t as a cmplete re-lad f all stres, crprate lcatins and warehuses. Changes include, name changes, address changes, new stres r deletins f stre lcatins. The retailer will als send a cmplete list f lcatins via the EDI 816 upn request frm its SBT suppliers. Synchrnizatin f Item Infrmatin The retailer used the EDI Price/Sales Catalg (832) dcument t send and receive item infrmatin t/frm its SBT suppliers t ensure item synchrnizatin as withut item synchrnizatin, Scan Based Trading is nt pssible. The initial step was having the retailer exprt its item infrmatin t its SBT suppliers as an EDI Price/Sales Catalg (832). The utbund 832 prvided details n what items the retailer had in its item database. It was critical that the SBT supplier reviewed this item infrmatin as prper item synchrnizatin was critical t the SBT business prcess. The next step was fr the supplier t send back a detailed EDI Price/Sales Catalg (832) t the retailer. The inbund 832 frm the SBT supplier cntained infrmatin used by the retailer t identify/categrize/price item infrmatin t facilitate the SBT prcess. The infrmatin sent included: POS item descriptins Lng frm item descriptins Unit Cst Price 2012 SftCare Slutins Inc. 4

Retail Cst, Supplier Supplier Classificatin cdes Lgistics infrmatin T aid in the nging synchrnizatin f items, the SBT supplier sent the retailer any item changes (mdificatins, additins, deletins) as sn as pssible t ensure that the retailer's item database was fully synchrnized t the supplier's item database. If there were any "issues" with item synchrnizatin, they were addressed prir t the implementatin f any further EDI dcuments. Advanced Shipment Ntificatin Upn synchrnizing lcatins and items, the next step in the prcess was t enable SBT suppliers t infrm the retailer f all Direct t Stre (DSD) deliveries fr SBT based prduct t speed receipt f shipments at the stre receiving dck. The supplier used an EDI Advanced Shipment Ntificatin (856) dcument t ntify the retailer that merchandise fr a specific stre had been shipped. The 856 transactin set cntained infrmatin infrming the retailer abut the vendr's shipment, including infrmatin used t track items shipped at the cartn level. This cartn "license plate" was the UCC-128 Serial Shipping Cntainer Cde. Use f the UCC-128 barcde n cartns expedited receiving f merchandise at the retailer's stres enabling rapid verificatin f receipt and expeditius sending f receipt f shipment t the supplier. As the ASN was tailred t the needs f Scan Based Trading, rder infrmatin was nt required as there was n "riginal" Purchase Order t reference. Althugh there are varius frmats fr an ASN, there are tw predminant methds f merchandise packaging within the retail industry. These are cmmnly knwn as:! Pick and Pack - where different items are packed within each shipping cntainer < /li>! Standard Cartn Pack - where identical items are packed within the same shipping cntainer Fr Scan Based Trading ASN's, the retailer supprted the use f either "Pick and Pack" r "Standard Pack" frmats and specified the timing f when the ASN must arrive (prir t delivery) t ensure that the retailer's systems culd prcess the ASN the infrmatin, validate it and deliver it t the receiving stre withut delay t reduce the time t receive the shipment. Receipt Ntificatin The retailer used the EDI Receiving Advice (861) dcument t reprt the receipt f shipments at the retailer's stres t their SBT suppliers. The retailer sent "Cartn Receiving" infrmatin t ntify the supplier f the cntainer ID numbers, (e.g., UCC/EAN-128 cartn label ID) fr each shipment. This ntificatin prvided an exact receipt date and which cartns were received t the supplier wh used this infrmatin fr its internal labur scheduling / replenishment prcesses. 2012 SftCare Slutins Inc. 5

Synchrnizatin f Item Sales Infrmatin The next step in the prcess was fr the retailer t daily send its SBT suppliers its daily sales as scanned at POS by stre fr each item in a Prduct Activity Data (852) dcument. The Prduct Activity data was primarily used by the supplier t supprt stck replenishment prgram, t prvide input t sales analysis and frecasting systems and t calculate the ttal dllar vlume by stre fr Invicing. The retailer gruped all sales fr an item by stre using the SDQ (Stre Destinatin Quantity) frmat. Invicing The retailer and supplier agreed t have the supplier send a separate weekly EDI Invice (810) fr each stre's SBT sales (fr the purpses f Scan Based Trading, a "week" is all sales frm Mnday thrugh Sunday f any week). The Invice specified, by line item, the sales fr the week and the Unit Cst price fr each item. This infrmatin was used by the retailer t recncile the Invice t its wn sales reprting prir t sending payment t the supplier. The supplier was nt required t specify Terms, Allwances r Charges in their SBT Invices as the agreement between the tw had already defined all Terms, Allwances and Charges. Payment Remittance The retailer sent weekly EDI Remittance Advice (820) after each transfer f funds t its SBT suppliers. The retailer Remittance Advice was fr infrmatin nly as the actual transfer f funds was dne via Electrnic Funds Transfer (EFT) r via cheque. The Lndn Drugs Remittance Advice specified payment fr multiple Invices r a single Invice. It prvided a simple methd fr the retailer and its suppliers t "clse the lp" t recncile sales t remittances. RETAILER QUICK START PROGRAM FOR SCAN BASED TRADING SftCare recgnizes that fr many retailers invlved in the implementatin f Scan Based Trading, there are simply t many things t d t effectively implement the apprpriate business prcesses and technical prcesses. With this in mind, SftCare has created its Retailer Quick Start Prgram fr Scan Based Trading, which is a cmprehensive prgram fr retailers t link and utilize their infrmatin t send and receive business dcuments electrnically t/frm its supply chain fr SBT. It leverages SftCare's experience in retailing and implementatin f thusands f EDI trading partners t create a "Best Practices" apprach t SBT. 2012 SftCare Slutins Inc. 6

SftCare's Retailer Scan Based Trading Quick Start Prgram prvides the sftware and services required t implement and effective SBT prgram fr a retailer. The SftCare Slutin's Grup prvides necessary cnsulting services t determine: What infrmatin and which business prcesses will be emplyed t implementatin f Scan Based Trading? Where the required item infrmatin resides (internally and externally)? What transfrmatins are required t frmat the infrmatin t their and their trading partners needs? What frmat the infrmatin needs t be t cmmunicate the desired infrmatin t facilitate SBT between the retailer and the supplier? What is the mst cst effective methd t cmmunicate infrmatin t/frm its SBT suppliers? What is the business prcess t mve/receive the infrmatin t/frm the retailer's supply chain? Once the implementatin "radmap" is cmpleted, the next step is t implement the slutin t exprt/imprt business infrmatin frm/t a cmpany's back-end systems, transfrm it and cmmunicate-it-t/receive-itfrm yur supply chain using the OpenEC TradeLink EDI Management System. This step invlves wrking with a retailer's staff t cnfigure TradeLink t meet their business needs. Once cmpleted, the Slutins Grup will test with a cmpany's trading partners and train internal staff n hw t implement future partners within TradeLink. The Slutins Grup can train yur internal staff r can be cntracted t implement new trading partners as necessary. The key t SftCare's Retailer Quick Start Prgram fr Scan Based Trading is t prvide a "ne stp shpping" apprach fr the sftware and services required t implement "Best Practices" fr SBT. References Cyclne Cmmerce - Case Study - Sara Lee Bakery Grup Kurt Salmn and Assciates - Fall 2004 - Secrets t Develping a Successful Scan Based Trading Prgram ecllabratin Standards - Benefiting frm the EAN.UCC System 1999 - Mercer Management Cnsulting Study 2012 SftCare Slutins Inc. 7