Data synchronization can change the business paradigm: the Grocery Manufacturers of America is working with retailers, suppliers and the Food Marketing Institute to determine the costs and benefits of data synchronization.
Many in the food, beverage and consumer goods industry believe that data synchronization will revolutionize how manufacturers and retailers do business in the 21st century: cutting costs, increasing supply chain efficiencies and adding value for consumers. The Grocery Manufacturers of America (GMA) and its members have been at the forefront of this movement, proselytizing on behalf of data synchronization and its benefits, as well as working on the foundations, such as common standards, that will turn this technological innovation into all everyday occurrence.
As we work with the Food Marketing Institute (FMI) and other industry organizations, one common theme we hear from executives is skepticism about the hard-dollar benefits of data synchronization. Where, they wonder, is the business-case proof that this investment will provide the necessary return to justify the expenditures?
To answer that question, the GMA-FMI Trading Partner Alliance asked A.T. Kearney to conduct a study of six pioneering companies--Ahold USA, Kraft Foods, Nestle Purina Petcare, Procter & Gamble, Shaws Supermarkets and Wegmans Food Markets--to quantify the costs and benefits of data synchronization.
Kearney first had to identify all the company processes affected by the existence of inaccurate data from paperwork errors and discrepancies. For retailers, those functions included merchandising, buying, logistics, warehouse, store, finance and information technology
In some cases, companies bad already conducted in-depth analyses to identify the time and resources expended, or the sales lost, from inaccurate information. In other cases, Kearney asked a sample of employees to track their activities to identify the frequency with which data-, information- and communication-related issues impacted their work and time spout on these issues.
In all cases, only the direct costs of item errors were taken into account. Costs associated with price and deal discrepancies (purchase orders, invoices and so forth) weren't included in any calculations. The results were quite remarkable.
For example, a 3% to 5% reduction occurred in out-of-stocks. The retailers also experienced a two-week reduction in speed-to-market and shelf for new items, which translated into an extra 14 days worth of sales of faster moving and higher margin items.
Labor costs also were significantly reduced for the retailers in the study. According to the Kearney audit, the companies saved 10,000 to 30,000 hours in store labor costs resulting from shelf-tag and scanner errors; 5,000 to 10,000 hours saved in merchandizing and data entry lime dealing with new item introductions and updates; and 1,000 to 2,000 hours saved in finance time dealing with invoice disputes related to basic item information (which also contributed to a reduction in invoice auditor fees).
In addition, the audit revealed that data synchronization provided a 0.5% to 1% reduction in inbound freight costs, 1,000 to 2,000 hours saved in warehouse and direct-store delivery (DSD) time dealing with item discrepancies and a 1% reduction in inventory levels.
For the three retailers, the total benefits were approximately $500,000 in additional earnings for every $1 billion in sales. Given that data synchronization currently is applied only to non-perishable grocery categories, this technology could provide benefits in the range of $1 million of additional earnings for every $1 billion in relevant sales. The study results indicated similar savings for manufacturers.
Furthermore, the Kearney audit showed that upfront investments ranged from $100,000 to $150,000 for every $1 billion in sales, while annual operating costs were $40,000 to $60,000 for every $1 billion in sales. So the answer to the ROI question is this: Even estimating the most conservative benefit ramp-up, data synchronization provided an ROI of more than 100% in every case. For each of the participating companies, the ROI was well in excess of 500%, and payback on the initial investment was less than one year.
At GMA, we will continue to sponsor research regarding the benefits of data synchronization and build the business case for implementation. So, as the innovation clock keeps ticking faster and faster, companies need to ask themselves this question: Will their clocks be in sync?
Mark Baum is executive vice president of the Grocery Manufacturers of America. He can be reached at 202-337-9400 or firstname.lastname@example.org.
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|Title Annotation:||industry talk|
|Date:||Sep 1, 2003|
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