Magazine Article | October 20, 2008

Is Collaborative Commerce Coming Of Age?

Source: Innovative Retail Technologies

We asked retail veterans from IBM, afterBOT, Smart & Final, and  Green Hills market what they’re doing to achieve real-time, collaborative commerce.

Integrated Solutions For Retailers, November 2008

The buzzwords 'real-time retailing' and 'collaborative commerce' have been around for a while, but what are retailers doing to achieve them, and how is the vendor community assisting? We asked some insiders to put industry jargon aside and answer a few of our questions on the matter. Here, Raymond Swain, VP of corporate procurement at Smart & Final; Jim Nadler, VP of marketing at afterBOT; Rob Garf, associate partner/global retail industry strategy leader at IBM; and Gary Hawkins, CEO at Green Hills market weigh in.

Share a brief synopsis of your vision for true 'real-time retailing' and its potential impact on collaborative commerce.
Real-time retailing is the implementation of beneficial actions through access to instant information shared between retailer and supplier. These actions include the functional processes engaged in our daily business, such as supply chain efficiencies, retail perpetual inventory, promotional planning, distribution void, and out-of-stock analysis.  The benefits of real-time information come from integrating information flow into process improvements.  This should not be looked at as project management.

Nadler: Our belief is that a real-time retailing environment will fundamentally change the customer shopping experience. For example, we have proven that with direct store delivery vendors, the combination of an alert subsystem and the sharing of sales by SKU by store helps lower operations costs, improves in-stock positions, and increases overall customer loyalty. The industry has had a problem with out-of-stocks and distribution voids at the store level since the Coca Cola Research Council initially quantified the number at 8.2% (and 17% for promoted items) in the late 1980s. By focusing on store-level execution, a real-time retailing solution will drive results and enhance the shopping experience.

Garf: With advancements in areas like the Internet and broadband, any retailer can move information throughout its enterprise in real time. The real value is obtained when retailers, along with partners in their ecosystem, employ a  sense of demand at the point of consumer interaction, streamline processes to translate that demand into action, and react to the insight in a timely and efficient manner.

Hawkins: Real-time retailing must encompass both supply chain activities (having the right product in the right place at the right time) and marketing activities (communicating the right message to the right customer at the right time in the right place). To move towards this vision requires extraordinary levels of collaboration across the supply chain, from manufacturing to distribution to stores. This collaboration must extend beyond a product focus to encompass the consumer and coordination between marketing and product supply. What good is communicating the right message to the shopper at the right time and place if the product is not available? Likewise, having product, especially an oversupply of product, can be inefficient without the proper capabilities to market that product to the most relevant shoppers in a timely manner.

Real-time retailing implies increased visibility and transparency across the supply chain (from manufacture of product to shopper purchase) along with the capability of communicating relevant and timely information and promotions to shoppers.

What barriers exist to achieving that vision, and how are they brought down?
A retailer's philosophy regarding shared data versus data as a revenue stream could impact supplier participation in some programs. Any change to a current process can create resistance.   A project management approach to the opportunities is shortsighted and marginalizes the potential benefits.  Retailers need an executive sponsor to internally advocate these programs in order to effect structural and process integration.

Nadler: There appear to be two primary barriers — technology and people. The first is no longer an issue; the technologies exist today to implement a very cost-effective infrastructure to enable this vision. The largest barrier appears to be a resistance to change. The industry has always been very cautious in its approach to data sharing, in some cases monetizing the initiative. I don't know if it is mistrust between retailer and supplier, but we believe the transformation will happen when effective business process changes are defined that allow for specific ROI models to validate the effect of that change.

Garf: Technology is really not the barrier. Because computing power is more than sufficient and packaged software applications are on the market, the constraint is cultural. Trading partners must move to an environment of joint value creation, where measures are understood and accepted by every stakeholder. The key indicator, from my perspective, is consumer service and sell-through at the shelf. If we can't hit that goal, all other measures are moot.

Hawkins: One of the largest barriers is the lack of systems that provide a real-time view into DC and store-level stock levels and product movement and a lack of real-time capability for taking action on that information. For example, a retailer should be able to create a special promotion on the fly to reduce inventory of a perishable product, communicate that promotion instantly to customers (email, mobile, Web, kiosks, etc.), and then deliver the promotion value into the transaction automatically when the customer makes the appropriate purchase. o

What are retail tech vendors doing to bring the vision to fruition?

Nadler: We have seen a very real interest in the topic in the past 6 -12 months and the support of the major technology providers like IBM and Teradata will raise awareness of the benefits. Further, with some help from our customers we are attempting to better define the business process changes and the results achieved.

Garf: Beyond the technology innovation, we are able to bring clients across the value network together to share ideas on how to collaborate more effectively. For example, we just hosted a workshop at a major grocer, which included several of their main suppliers, to discuss the Global Commerce Initiative (GCI) and how to more effectively plan promotional activities.

When 'collaborative commerce' is firing on all cylinders, what kind of results statements can retailers and their suppliers make?

Swain: The distribution void analysis provided the information that allowed us to identify and then fix a number of voids within our stores.  This has the potential impact of reclaiming lost sales. Shared sales data in this category allowed the DSD (direct store delivery) supplier to adjust distribution routes and schedules to more effectively service our stores and reduce overall costs.

Nadler:  We see 'results' happening in several areas of the business. The first are the operational benefits derived from lowering operational costs, reducing or eliminating OOS, and streamlining the communications between the retailer at both store and headquarters with the vendor and its support team. These results are more tactical in nature and are repeatable once the proper business process changes are defined and executable. The second is a bit subtler and requires the retailer and its chosen vendor(s) to work together to analyze the information and engage in a strategic discussion about what products, at what price, and/or in what location(s) products or categories fit. This changes the nature of the sales call from the vendor to the retailer — they come prepared to have a business discussion about driving sustainable business benefits; a discussion that will drive change in many areas including what and how products are promoted.  

Garf: The key goal is customer service. Retailers and suppliers achieve this by reducing out of stocks through collaborative demand planning, promotional execution, and flexible replenishment. There is a lot of noise you can throw out there, but at the end of the day the focus should be on the consumer.

Hawkins: Improved stock levels result in higher sales and profits for the vendor and retailer and higher levels of shopper satisfaction (through reducing out of stocks).   More timely deliveries of product at store level equate to improved efficiencies garnering cost reductions and/or improved margins.  Improved and timely marketing, delivering relevant promotions to the shopper result in higher spending (more sales for retailer and vendors), improved margins, and improved shopper retention over time. 

What retailers do you see moving toward truly collaborative commerce?

Nadler: I am not privy to all the details but I believe there are several that are at the top of the scale. Wal-Mart began its Retail Link initiative 15 years ago; Tesco is well known for it's collaborative commerce initiatives and retailers like Food Lion, Giant Eagle, Wegmans, SuperValu, Safeway and others have had published articles regarding their initiatives. From our perspective retailers like Green Hills market and Smart & Final have made a very real commitment and we see the industry as a whole paying more attention. 

Hawkins: I don't think any retailer is anywhere close to the true vision of real time retailing but several are moving in the right direction.  Kroger, through its partnership with Dunnhumby USA, has taken store-specific merchandising to new levels, working to have the right product assortment in the store for the customer base the store serves.  A key part of this initiative is partnering with its vendors to help ensure the right products are in the right stores.

Smart & Final is leveraging technology with its key vendors to improve delivery efficiency, resulting in lower costs (improved margins), improved stock positions (reduced out of stocks = improved sales), and higher shopper satisfaction.

Green Hills is perhaps closest to true "marketing collaboration" with its customers, leveraging its technology to provide highly relevant and timely promotions to each of its individual shoppers via a personalized ad flyer. 

What lessons can other retailers learn from those retailers that are doing it right?

Nadler: We believe that the retailers doing it right are doing so because of a clear focus on customer service. It starts at the top with an executive commitment to making it happen and driving change through the organization. To do it right, we believe a steering committee process being put in place up front is important. Together they define the goals, detail the business process changes and the resultant ROI models while ensuring that all communities of interest all collectively involved in defining and driving success. Participants should include finance, IT, marketing, merchandising and store operations on the retail side and sales, operations and field merchandising on the vendor side. 

Garf: To do this right, retailers must show commitment at the highest level. Regular top-to-top meetings between trading partners ensure the focus remains on the right activities. This also forces organizations to focus on collaborative relationships, not just collaborative tactics.

Hawkins: Moving towards real time retailing implies greater visibility into the supply chain and marketing practices.  Any progress across the supply chain towards this end brings with it some mix of improved cost efficiencies, greater sales and profits, and increased shopper satisfaction that in turn grows sales, profits, and retention over time.  There are significant benefits resulting from a focus on developing and putting in place real time retailing capabilities.