Collaboration yields supply chain efficiency: strengthening the links in the logistics system through better communication is the most effective way to bring grocery distribution into the 21st century.

The goal is a highly efficient, seamless supply chain from manufacturer to distribution center to store and back again. It has been a pipedream of logistics executives for decades. While not yet completely realized, the seamless flow of products into the distribution center and onto retail shelves is closer to fruition than ever. One of the biggest reasons for optimism is that all the parties involved are learning to really communicate with each other. Verbal communication has given way to electronic communication, often with little or no human intervention.

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"You've heard about the glass pipeline," says Tillman Estes, senior director of product management at Atlanta-based Manhattan Associates. "A lot of companies have tried to do this as a stand-alone process, which is very difficult. But working in collaboration with each other supply chain company's execution systems makes a lot of sense."

To provide maximum visibility along the supply chain, all information should flow through one central platform or management system. From order through shelf placement, the information about each shipment needs to flow even more smoothly than the goods themselves. Providing these centralized logistics data platforms has become one of the growth opportunities of the decade with several companies at the forefront of providing the integrating services.

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"All sides of the supply chain are more interested than ever in collaborating with each other," says Rick Finkbeiner, president of Eden Prairie, Minn.-based Advantage Logistics, a part of Supervalu. "The amount of noise coming from all sides of the distribution system is tremendous, so it's our job to help them understand what each is saying. We've become the facilitator of the exchange of information.

"In order to lower a retailer's costs in the supply chain, technology, transportation and third-party logistics companies all need to be involved. We're in the middle of all this and are able to piggyback on some of the very successful programs from Supervalu," he adds. "We're seeing an interest in new technologies like warehouse management systems (WMS) that give true real-time information so the user has an immediate picture of what's going on."

According to Finkbeiner, retailers and suppliers are particularly interested in cost-to-service technology. This helps retailers determine what it costs to service their stores and lets them know if a store is ordering efficiently. The same technology lets manufacturers determine the costs to service inefficient retailers or wholesalers. These costs can be determined for each product line.

"Nothing can be done in isolation," he says. "All the partners have to be able to exchange quality information. The challenge is getting quality information, and the key is first getting all the partners to the table."

SYNCHRONIZED DATA

For grocery retailers, the problem with sitting down at the same table with suppliers is that it has to be an extremely large table. Developing separate communication standards for data going between a retailer and each of its major suppliers would be overwhelming. The same is also true for a manufacturer communicating data to each of its retailing partners. Several years ago, the Uniform Code Council formed a data synchronization division, UCCnet, to facilitate the standardization of data flow between trading partners. One of the earliest retailer users of UCCnet was West Bridgewater, Mass.-based Shaw's Supermarkets.

Shaw's officials quickly found that many of the items in their database had some attributes that differed from the data coming from their suppliers. This led to extra difficulties in communication and more inefficiencies. Shaw's turned to Vista Retail, now owned by Scottsdale, Ariz.-based JDA Software Group, to help interpret the messages coming from UCCnet. The first supplier to work with Shaw's on this collaborative system was Kraft, which was followed by other suppliers during the past four years.

"Today, we can actually take an item database from a supplier and run it against our existing database to see if we carry the item," says James Sheehan, Shaw's strategic process leader of business-to-business initiatives. "We do an analysis of it, and Vista reports back to the supplier on the status of the item based on how well we match the data. It's all done machine to machine."

This approach has greatly reduced problems with communicating data across the supply chain and has simplified the incorporation of new items into the system. The accuracy of the data communicated makes collaboration much more successful. "What this does in terms of data synchronization is allow retailers the ability to have manufacturers manage their own data within the retailer's system," Sheehan says. "We're talking about a giant step in collaboration because what we're saying to the supplier is 'You're responsible for making the data right. You're accountable for it.'"

Vista Retail is not the only logistics management tool that can make use of UCCnet data. In fact, there are many programs that have been developed to help synchronize data and enhance collaboration across the supply chain. Most systems are middleware that builds on the retailer's existing WMS operating system.

"One of the basic building blocks for all supply chain software vendors and certainly us at SAP is for people across the supply chain to have the same type of master data management. If you don't have that foundation, it gets extremely hard to collaborate," says Mohamed Amer, solutions manager, grocery, at Newtown Square, Pa.-based SAP Retail Supply Chain. "We're investing heavily in that and working with UCCnet and its Global Product Registry in the grocery arena."

Amer sees a trend that retailers are beginning to pick up data from an exchange, such as UCCnet, and enhancing that data on their own operating systems. This has the effect of building a full-blown supply chain and merchandising management system. The SAP platform offers an integrated suite of products that aids collaboration between partners by helping to synchronize data and offering solutions for supply chain event management, merchandise management, an Exchange Infrastructure (SAP's middleware) and a radio frequency identification node to help synchronize data from tag readers either in the store or in the warehouse. These elements can be either integrated into a single collaborative platform or operated as standalone pieces.

CPFR PAYS OFF

Shaw's uses its connections with its suppliers through UCCnet to increase the accuracy of collaborative planning, forecasting and replenishment (CPFR) and scan-based trading. These are the foundations of any substantial improvement in supply chain efficiency. More accurate forecasts of when, where and how many products are needed lead to a more streamlined ordering process, greater efficiency through the logistics system and better merchandising at the store.

Traditionally, manufacturers have done much of the CPFR work for retailers because the accuracy of the forecasts was so vital to their production planning. Obviously, before the collaborative exchange of accurate data, the suppliers' forecasts were very one-sided.

"Even a 5% increase in forecasting accuracy may drive millions of dollars toward savings for a manufacturer," says Karin Bursa, vice president of marketing at Atlanta-based Logility. "You're also seeing a lot of efficiency gains in the actual shipment and delivery of products. Right now, we are focusing on reducing logistics costs. GMA recently released a logistics study that showed there's been a 12% increase between 1999 and 2002 in logistics costs as a percentage of sales. In 1999, logistics costs were about 6.6% of net sales, and in 2002, they were up to 7.7% of net sales despite a rising awareness among trading partners of the need to decrease these costs."

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Bursa says there is a substantial focus in the market today to be able to control and optimize distribution costs. All parties are trying to consolidate partial truckload shipments into full truckload shipments, to improve on-time delivery to the retailer and to allow the carrier to become an equal part in the collaborative process. Knowing the status of a load along the way to the delivery point has facilitated some significant savings in logistics costs.

Logility developed the Voyager Solutions Suite that reduces costs throughout the supply chain. The company looks at the concept of collaborative transportation management (CTM) as an independent yet concurrent process with CPFR. CTM builds on the CPFR relationship between suppliers and retailers and extends the data to the distribution side to include carriers and other 3PL providers. There are 14 separate steps in the

CTM process, each building on the collaborative exchange of accurate data to all parties involved in the supply chain.

"Collaboration is creating significant value in the relationship along the supply chain. CMT extends collaboration to a new level beyond CPFR, filling the void between forecasting and supply chain execution," says Bursa.

The glass pipeline in grocery distribution has gotten much clearer in recent years with the advent of data synchronization and retailers' increased willingness to allow trading partners to view sensitive operational data. When electronic data interchange was first introduced and used mainly as a replenishment and promotion planning tool, many operators were reluctant to share their data. However, once the possibility of real distribution cost savings became apparent, more suppliers and retailers began to re-think their stance on sharing data, which is the first step to meaningful supply chain collaboration.