Retailers still clinging to their manual back-door receiving operations are hearing a wake-up call they can no longer ignore: Those with automated systems are snatching gross margin points from those who don't.
Computerized direct-store-delivery systems are boosting retailers' gross profit margins by as much as 3%, with most reporting a minimum increase of 0.5%, retailers told SN.
And as one retailer put it, "The extra half a percent [profit margin increase] we picked up came from someplace" -- most likely the store down the road that mistakenly believes its manual receiving procedures are religiously followed, invoices are perfect and discounts always applied.
By bringing a computerized method to the madness that sometimes overtakes back-door receiving operations, retailers can precisely track what's being delivered, update their inventory instantly, avoid costly invoice errors and ensure that they receive the discounts they were entitled to all along.
Retailers configure their computerized receiving systems in different ways, but most check in deliveries with wireless handheld scanners
that communicate with the in-store computer to verify prices, costs, quantities and discounts negotiated by their buyers.
Automated systems give retailers more control in the receiving operations, whether by identifying unauthorized shipments or by flagging invoice errors, which can be reconciled on the spot, rather than weeks or months later.
"Computerized DSD has the effect of improving vendors' math," said Dale McCorkle, microsystems specialist at Minyard Food Stores, Coppell, Texas, which is rolling out an automated system to 80 stores at a rate of one store each week.
"The first day we have a new system operating in a store, we will hand back 50% of [vendor] invoices, primarily because they have math errors on them," he said. "In one week, that'll be down to 8% to 10%, and in two weeks, down to 3% to 4%."
Scott Merrill, senior manager of open systems development at Shaw's Supermarkets, East Bridgewater, Mass., strongly encouraged retailers to exercise the new leverage automated DSD brings.
"One of the policies we came up with was, if the vendor comes in and makes a mistake twice, he's out of here," Merrill said at a recent industry meeting. "We didn't necessarily tell the vendor that. We told his driver he was out of here, and that driver was no longer ever allowed in one of our Shaw's stores again.
"That forced the vendor to realize he had to tighten up his own ship," Merrill said.
Fewer invoice errors also mean less labor is needed for reconciliation.
Genuardi Super Markets, Norristown, Pa., saved up to 20 hours per week in clerical labor after introducing automated DSD to 23 stores this summer," said Mike Venazio, MIS director.
Ultra Mart, Menomonee Falls, Wis., also saw immediate efficiencies in clerical tasks. "In accounts payable, instead of spending our time, energy and resources on research and data entry, the staff is now getting into understanding more of the business side of it as opposed to the tedious details. They are doing things at a higher level," explained Scott Sylla, chief financial officer.
A six-store operation, Ultra Mart currently receives 75% of deliveries through the computerized DSD system installed about eight months ago.
However, "We still have some of the more difficult aspects that we're trying to get into, like random-weight items," Sylla said. "We want everything that comes through our back door to go through our DSD system. That's our eventual goal."
One of the more ambitious DSD programs is at Shaw's Supermarkets, which makes use of the DEX/UCS system. With DEX/UCS, or direct exchange/uniform communication standard, a delivery driver transmits his order electronically by plugging his handheld device into the store's computer.
"Every vendor who comes into Shaw's works with DEX/UCS in some way, shape or manner," Merrill said. Shaw's automated DSD system is ready to handle DEX/UCS, but also can communicate with vendors that don't have that capability. "That's for vendors who don't have their own routing system, or their own DEX handhelds."
Each Shaw's store provides two handheld DEX/UCS devices for vendors to use. "Instead of us incurring extra store labor, we wanted to put the onus on the vendor."
Merrill noted the new procedures initially met with some resistance from the occasional driver who says, "I'm not doing this." However, informing vendors of new receiving procedures in advance was critical to a smooth transition.
At G&R Felpausch Co., Hastings, Mich., introducing automated DSD was bumpy at first, but now it is accepted procedure. "Early on, it was an issue because drivers really felt it slows them down," said Mike Hubert, director of management information systems and electronic data processing. "But in all honesty, it takes away their opportunity for additional income by cheating the retailer.
"That extra half a percent [gross profit increase] we picked up came from someplace," he added.
The issue of vendor-retailer trust, Hubert added, is a complex one that varies from store to store.
Hubert said that to suddenly introduce a formal receiving procedure "is almost saying, 'I don't trust you.' But when you automate the system, you don't have that because the system requires it" of all drivers, regardless of any personal relationships.
While invoice accuracy, labor savings and maximizing discount opportunities top the list of incentives driving retailers to automated DSD, other "soft benefits" also are being exploited.
At Schwegmann Giant Super Markets, New Orleans, for example, local legislation requires that retailers pay vendors of certain alcoholic beverages the same day a delivery is made. With 17 stores faxing invoices to the main office, the accounts payable staff was often overwhelmed trying to process and cut checks within the prescribed time period, said John Detillier, director of MIS and EDP.
However, by integrating computerized DSD and linking all stores to the corporate office, Schwegmann consolidates the invoices and cuts one check at the end of the day, he explained. Another benefit identified by Minyard's McCorkle is the detailed product movement reports and analysis that automated DSD makes available. "Yeah, I'm going to make sure nobody overcharges me at the back door, but the movement, the turn and merchandising information you can get from that DSD system will let you do things that you've never had the tools to do in the past."