EDI: TAKING THE NEXT STEP

Electronic data interchange represents the future: reduced paperwork, a streamlined labor force, fewer processing errors and substantial operational savings.So far, the benefits of EDI have been limited to a few strategic areas, primarily purchase orders and invoices. Now it is time to extend EDI to a much wider range of industry initiatives, executives interviewed by SN said. "I do see EDI as significant,

Electronic data interchange represents the future: reduced paperwork, a streamlined labor force, fewer processing errors and substantial operational savings.

So far, the benefits of EDI have been limited to a few strategic areas, primarily purchase orders and invoices. Now it is time to extend EDI to a much wider range of industry initiatives, executives interviewed by SN said. "I do see EDI as significant, but we've got to get beyond just purchase orders and invoices. We need the whole distribution chain on line so we know what's being delivered and when from the manufacturer. We need to get to where we can totally eliminate the paper," said Bonnie Van Overbeke, management information services director at Kash n' Karry Food Stores, Tampa, Fla.

"We've got to get more people on it and we've got to have a full end-to-end system. But you have to learn how to walk before you run. EDI's just going to expand a little more each year as we keep refining it," she added.

Joe Holtgrewe, management information systems director at Dierbergs Markets, Chesterfield, Mo., said EDI use should expand substantially in the next few years. "EDI is having an impact. It's starting out slow, but I think within the next two to three years there'll be some dramatic changes in the industry."

Retailers, whether they already use EDI or plan to in the future, are working to improve several links in the manufacturer-to-retailer pipeline:

Purchase Orders and Invoices: Some retailers are cutting their teeth by using EDI to eliminate paper invoices and purchase orders. Although cost and labor savings are fairly marginal, EDI's applications in this area are important first steps for any expansion.

Price Changes and Promotions: Retailers are forging alliances with manufacturers, wholesalers and direct-store-delivery vendors to transmit price changes and promotional information electronically. Some wholesaler-retailer partnerships have resulted in automated weekly transactions of promotional discounts.

Continuous Replenishment: Although still on the drawing board for many retailers, EDI functions such as advanced shipping notices and automated receiving form the foundation of enhanced continuous replenishment programs.

Pueblo Xtra International, Pompano Beach, Fla., has begun an EDI-based partnership with the Puerto Rico branch of Procter & Gamble, Cincinnati. Last fall the chain began sending purchase orders electronically. The next step, electronic invoices, will be on line by the end of the year.

"What we're doing with EDI today is that we've formed an informal working relationship with Procter & Gamble to implement electronic transactions," said Larry Elias, senior vice president of MIS. "We've implemented purchase orders primarily because it was the simplest to do, not necessarily because it had the biggest payback."

The purchase orders are sent to and transmitted from the chain's Puerto Rico-based warehouse, which handles the bulk of Pueblo's business. "I think both parties learned from that experience," he said. "We eliminated sending paper purchase orders by replying electronically." Pueblo sees the purchase order transactions as the first step in a partnership it eventually hopes will expand to more complex initiatives, Elias said. Pueblo is meeting "with technical people and business partners to hammer out business issues and the expectations of our working relationships," he said.

The next step will be electronic invoicing, which the chain hopes to have rolled out by the end of the year or early 1995. Electronic invoicing will provide "a fairly substantial financial benefit for us in terms of [increased] processing efficiency," Elias said.

C.B. Ragland Co., a wholesaler based in Nashville, Tenn., plans to begin its EDI initiatives with electronic purchase orders, although it sees the real savings in more expansive programs.

"We've had a good number of manufacturers requesting what our plans are, whether we're planning on getting into EDI and, if so, when," said Robert Agee, vice president of electronic data processing. A growing number of DSD vendors have expressed interest in partnerships, he said.

"Purchase orders would be the first thing we do," Agee said. But "the payoff for us as a wholesaler is mainly in price changes and invoices, rather than purchase orders." Agee said EDI pilots and test programs have helped "get the bugs out of the system. EDI is like the universal product code. It's here and we might as well accept it. We have to move in our industry to do it."

Other retailers have undertaken more comprehensive EDI initiatives, including transmission of price changes and promotional data.

Furr's Supermarkets, Albuquerque, N.M., has conducted an extensive EDI program with its wholesaler, Fleming Cos., Oklahoma City, since Fleming began supplying the retailer three years ago.

"We've been transmitting costs, deals, invoices and orders electronically between us," said Dennis Wisdom, MIS and EDP director. "We're ready to do EDI with other vendors now because it's worked so well." Furr's plans some EDI pilot programs with its DSD vendors by the end of the year. Wisdom said the retailer plans to use the system for price changes and promotional data, along with invoices and purchase orders. Furr's currently conducts electronic transactions with about 10 small DSD vendors, but is not using standardized EDI computer languages. "These are not even our high-volume vendors. That's why we want to get on EDI: We want to do Frito-Lay and Borden, our high-volume vendors," he said.

Several major DSD vendors have expressed interest in starting pilot programs, Wisdom said. "It saves us all money, so it's a win-win situation really."

Dierbergs Markets has been

using an EDI link with its wholesaler, Supervalu, Minneapolis, for the last six months. Supervalu can send weekly cost reductions to the retailer electronically, making promotions more efficient and timely.

"After we put [the reductions] into our system, we base our temporary price reductions on those allowances and cost changes. It's all done electronically," Dierbergs' Holtgrewe said. "Now somebody physically doesn't have to go through and evaluate the allowances. It has saved our buyers six to eight hours a week of analyzing cost reductions and seeing if we want to pass them on to the consumer."

Kash n' Karry has implemented a similar program with a small number of its DSD vendors. The DSD vendors transmit price and proposed promotional changes into a file monitored by Kash n' Karry buyers. If the buyers approve the changes, the information is downloaded into the chain's POS system.

"It's really going to benefit us when EDI can go end to end, where we not only send off invoices but also get them back from the vendor when it's been shipped," Kash n' Karry's Van Overbeke said. It's "something that gets the paper totally out of the loop."

A retailer who asked not to be named said his chain wants EDI transactions to replace the process currently used for DSD vendor price changes. When a vendor proposes price changes, it sends a letter to the store POS department. "If the vendor sends us the form, we can go out on a daily basis to change the retail price on our POS system."

EDI would drastically simplify the process. "The vendors would download price changes that they'd like to put in place," he said. "We would bring the changes up on screen, check off the ones we approve of, and it will automatically flow through the system." The proposed EDI system, which is only in its early planning stages, also would increase pricing accuracy. Currently, the DSD vendor price changes are done manually, but with an electronic download, the need for manual POS changes will be gone. If Pueblo and Procter & Gamble's partnership develops further, the retailer sees initiatives like item maintenance and advanced shipping notices coming in the next two years.

The item maintenance program would serve as an electronic regulation of data accuracy, Elias said. "For example, when a UPC changes, rather than going through the rather cumbersome manual procedures that exist today, [P&G] would send us the information electronically. That idea appealed to both parties in terms of keeping data accurate."

Some of the more ambitious EDI initiatives, including advanced shipping notices, automated receiving and sending inventory movements, are still fairly rare.

But wholesalers, retailers and manufacturers are developing EDI-based partnerships to form a streamlined data exchange system as a foundation for programs like continuous product replenishment.

Fleming Cos. has begun using EDI for advanced shipping notices at two of its divisions this year. The wholesaler sees advanced shipping as a key step toward continuous replenishment.

"The manufacturer transmits information about a shipment to us, at about the time he's closing the doors on a truck to ship to us," said Rick Rowan, manager of EDI communications. The manufacturer will transmit if any products are short and if there have been any substitutions, he added.

"We have six or seven manufacturers who are transmitting [advanced shipping notices] to us today," Rowan said. "But it hasn't reduced that much receiving time yet."

Fleming plans to take another step toward continuous replenishment next year. Using EDI, manufacturers will transmit data detailing product numbers and information for each pallet sent.

Schwegmann Giant Super Markets, a 17-store chain based in New Orleans, currently is negotiating an EDI exchange with Campbell Soup Co., Camden, N.J. The program, which will use inventory movements and shipping notices, will help begin a continuous replenishment program.

"We now have to decide if we're going to be doing training or have [Campbell] come in right away," said John Detillier, director of MIS and EDP. Under the program, Schwegmann will send daily inventory movement of Campbell products electronically to the manufacturer. Campbell will then use that information to ship the exact amount of merchandise needed at the chain's warehouse.

Dierbergs is also working with manufacturers and DSD vendors to begin automated replenishment programs with EDI, but, as at Schwegmann, the programs are still in the planning stages.

"We are working with some of the vendors to do electronic [transmissions] of our sales data and to do automatic ordering. So far there are three different vendors interested in the program. We'll send them our sales movement weekly and they'll utilize that information for replenishment," Holtgrewe said.

"I see [the industry] expanding into automated replenishment," he added. "A lot of the vendors are dabbling in that now, moving from a standard replenishment to an automatic replenishment system."