Magazine Article | October 1, 2002

Optimized Supply Chain Helps Grocer Grow The Green

Source: Innovative Retail Technologies

Shaw's Supermarkets aligned the product exchange among its suppliers, two distribution centers, and 187 stores by eliminating intuition in favor of analytical decision making.

Integrated Solutions For Retailers, October 2002

SCM (supply chain management) can get pretty tricky for grocers. As opposed to specialty retail, where the bulk of SKUs (stock keeping units) handled often come from a limited number of manufacturers, tier one grocery stores stock thousands of SKUs that come from thousands of suppliers all over the globe. The challenge is compounded by thin margins in the grocery industry, making efficient SCM systems imperative. New England grocer Shaw's Supermarkets, based in Bridgewater, MA, operates 187 stores, employs nearly 30,000 people, and tallies annual sales of $4 billion. The grocer implemented i2 Technologies' (Dallas) Supply Chain Strategist in an effort to better align its retail stores with its two distribution centers. Mike Griswold, strategic process leader at Shaw's, and Razat Gaurav, director of solutions marketing at i2, recently discussed the advantages of modern SCM solutions for grocers.

1. What kind of demand is there from large grocers for SCM solutions?

Gaurav: Increasingly, food retailers are looking to cut costs by optimizing their supply chains. This is a complicated chain that must deal with perishable goods that have to move rapidly through the supply chain and off the shelves. Grocers are realizing that modern supply chain solutions can help them minimize waste, which is costly.

Griswold: We realized that for a company our size, we needed this tool to help guide us in making high-level decisions. Improvements to our internal efficiencies that have a positive impact on customer service are wise investments. With a more efficient supply chain, we can lower our costs, which will benefit customers.

2. What kinds of SCM problems can grocers eliminate thanks to advances in modern SCM solutions?

Gaurav: Grocers don't need to rely on instinct to guide merchandising and replenishment decisions. The grocery store's success depends on having the right product in the right place at the right time. Achieving this is impossible without optimizing the supply chain by linking grocers directly to their customers and vendors. These communication and information-sharing hurdles are cleared with modern SCM solutions.

Griswold: The software we've implemented allows us to create different replenishment scenarios, run them independently, and compare them to each other. This allows us to determine the optimized supply chain scenarios in a matter of minutes. In the past, trial and error would take weeks, even months, and resulted in waste.

3. What kind of theoretical results statements can a grocer using a modern SCM solution make a year after implementation?

Gaurav: Simply knowing which supply chain scenarios will be the most efficient for your store in advance of making these decisions will result in savings. As inventory is reduced and stock-outs are minimized, sales should increase, too. But again, these advantages are best realized when the "value chain" includes the grocer's customers and vendors. A healthy supply chain sees the grocer collaborating with vendors on planning, forecasting, and assortment. Adding a dynamic that improves the vendor's performance also helps to improve the grocer's performance.

Griswold: Instead of doing a little sales and inventory analysis, calling on intuition and experience, and hoping replenishment decisions work out, grocers can now make SCM decisions that are based on historical facts. Where once there was educated guessing, there is now analytical decision-making. We anticipate realization of a full return on our investment within a year of implementation.

4. Besides sheer volume of SKUs, what factors go into determining a good fit for a grocery SCM solution?

Gaurav: Transportation modeling is a big part of efficient supply chain execution. While any grocer can benefit to some degree, grocers like Shaw's, which have many stores to service from limited distribution centers, can benefit most from the logistical part of the solution.

Griswold: We run a legacy system, and it was relatively easy to integrate the SCM software. When you have 187 stores, two distribution centers handling 12,000 SKUs, and a partnership with a third-party wholesaler, there are a lot of possible combinations to determine which distribution center is going to support which store. Without a tool like Supply Chain Strategist, it is difficult to manage that.