Computer-assisted ordering is gaining momentum as a key strategy for retailers seeking to implement highly efficient product replenishment programs.
Under computer-assisted ordering, retailer-based point-of-sale scanning data, product inventory levels and other key sales variables such as promotion activity are fed into a computer software program over an extended period to form the basis for sophisticated replenishment programs.
The ordering programs are just now beginning to extend beyond initial test stages and are beginning to have an impact on industry practices.
But the potential of these programs in the next few years for revamping the way products are ordered and supplied throughout the supermarket industry is considerable.
Computerized ordering is also projected to play a key role in the industry's ambitious Efficient Consumer Response initiative to drive an estimated $30 billion in costs out of the supply pipeline within the next three years.
Already, a growing number of retailers are implementing or expanding tests of these types of programs, with considerable success.
Kevin Holt, vice president of data processing at Meijer, Grand Rapids, Mich., is decidedly upbeat about the potential of computer-assisted ordering for having a major impact on the supermarket industry.
All the tools necessary to implement computer-assisted ordering programs are already in place. The key now is to begin doing it, he said.
"Through computerized assistance in the reordering process, we have deployed the concept of continuous replenishment to some extent across all our reordering systems. I think that the ability to do [computerized ordering] on a widescale basis is already here today," Holt said.
"It is now a matter of us choosing how the processing is going to work. But I think that computer-assisted ordering, and continuous replenishment programs, will become more of a norm in our industry before long. To move competitively in our industry, we'll need systems that will enable us to act more quickly," he said.
Shaw's Supermarkets, East Bridgewater, Mass., for its part, is now testing a computer-assisted ordering program with two key suppliers, Campbell Soup Co. and Quaker Oats Co. The programs were launched in the second half of last year, said Paul Gannon, vice president of information technology services at the chain.
"Basically, the thrust of our continuous replenishment program is vendor-managed replenishment," Gannon said. "At the store level, though, the interface in the program is between warehouse shipments and supplies on hand. We then provide Quaker Oats and Campbell with our balances across all their product lines.
"From that, computer-generated forecasts are generated that are used to recommend to them how much of each product should be shipped to us and when," he said.
Another retailer now in the process of instituting computer-assisted ordering programs is Price Chopper Supermarkets. "We're running several computer-assisted ordering pilot programs formed in joint development with the relevant vendors," said Tom Nowak, vice president of management information systems at the Schenectady, N.Y.-based chain.
Among the retailer's pilot-partners are General Electric, for its light-bulb shipments, and both Campbell's and Nestle for several of their product lines, Nowak said.
While most retailers and wholesalers see computerized ordering programs playing a key role in spurring the development of more efficient replenishment programs, questions still linger about how rapidly the systems can be brought on-line industrywide.
Jerry Purdy, manager of retail automation at Certified Grocers of California, Los Angeles, cited the benefits of computer-assisted ordering. But he questioned how quickly the industry is prepared to move forward on a broad-scale basis.
"Computer-assisted ordering is going to happen, but there are too many chances to lose money if you don't have the right product. So for now, we're looking at a PC-based system at the store level that would be more of an order-enhancer," Purdy said.
"By the end of this year, though, we'll probably have about 200 items loaded in, and will use the software to recommend replenishment times and amounts for these products," he said.
Other retailers believe the systems can be rolled out quickly for a select group of primarily high-volume items supplied by key vendors. But computerized ordering may not work for all product lines with every vendor.
Shaw's computer-assisted ordering program has been on-line with Campbell since last July, and with Quaker since October, and the chain is pleased with the results so far, Gannon said.
According to the retailer, though, computer-assisted ordering may emerge more as a selective tool appropriate for use with a moderate number of product lines rather than an easily applicable, universally applied product replenishment system.
"The results have been favorable so far. Based on our experience to date, we think computer-assisted ordering is an available solution for fast-moving products. But frankly, it is not applicable for all vendors or all product lines," Gannon said.
There are still many potential logistical and growing-pain pitfalls to implementing computer-assisted ordering programs, he said. One critical factor is simply ensuring that the system is extremely well coordinated and involves the "right retailer and right well-prepared vendor.
"It can be somewhat disruptive at times, because the deliveries aren't preplanned. It can create some new difficulties for scheduling inbound transportation into our warehouses," Gannon said.
"Also, continuous replenishment tends to be based on full truckload quantities, and not all vendor lines are fast moving enough to be bought effectively in full truckload quantities. But for the fast-moving lines, the positives definitely outweigh the negatives," he added.
Howard Weisberg, vice president of management information systems at Quality Food Centers, Bellevue, Wash., agreed that computer-assisted ordering holds considerable attraction. But he also cited some potential obstacles to full-scale implementation of the systems.
One factor, he said. is that instituting a computerized ordering program can be a financial burden. The program may also be much less beneficial for a chain that doesn't own its own warehouse. Quality, therefore, has decided to wait before aggressively pursuing a computerized ordering program, although it is conducting some limited tests.
"We've recently incorporated some of our own sales pattern research into a scan track that will become a merchandise database system," Weisberg said. But at this point, the system will remain internal and not be tied in directly with any suppliers. "We're studying it, but at this point, it's basically wait-and-see for us. There's a big cost factor, especially when we look at the fact that there's no guarantee of benefit to a retailer that doesn't have its own warehouse. Before using such a system, we'd want to see enough manufacturers that would be willing to go up to the plate with us on this," he said.
"The cautious holdouts haven't jumped into the water yet, preferring for now to be using far older methods of analysis and ordering," he said.
Barry Boone, vice president of management information systems for Vons Cos., Arcadia, Calif., said that widescale use of fully automated computerized ordering programs, in particular, may still be a few years away.
"Right now, there isn't any computer-assisted ordering in our environment. We just have store ordering systems where [employees] walk the stores with hand-held computers and upload orders to the host for billing, which in turn is done out of our mainframe system," Boone said.
Boone did not furnish a date when Vons would employ the technology. Another industry executive, who asked not to be named, also cited some challenges in terms of how quickly the industry moves toward more advanced computerized ordering systems.
"The key for retailers is to identify the major areas of opportunity. But the learning curve can be steep at first. Once people become comfortable with these systems, though, they will begin to analyze their objectives better, and with the right amount of coordination with their vendors, the tangible results will begin to appear," he said.