Supermarkets

Chain Store Age

New York

Dec 2000

 Abstract:

When it comes to managing their inventories, supermarkets have been slow

to automate and slow to collaborate with vendors. In fact, 17% of those

polled this year say they do not share inventory data with suppliers. However,

this historical tendency shows signs of change: Nearly all of the supermarkets

polled (96%) say they expect to make greater use of technology to manage

their inventories within the next few years, with one of the greatest changes

coming in the area of using the Internet to link with suppliers.

Copyright Lebhar-Friedman, Inc. Dec 2000

Full Text:

When it comes to managing their inventories, supermarkets have been slow

to automate and slow to collaborate with vendors. In fact, 17% of those

polled this year say they do not share inventory data with suppliers. Similarly,

more collaborative programs, such as CAO (Computer Assisted Ordering),

VMI (Vendor Managed Inventory) and CPFR, have realized slow adoption rates.

However, this historical tendency shows signs of change: Nearly all of

the supermarkets polled (96%) say they expect to make greater use of technology

to manage their inventories within the next few years, with one of the

greatest changes coming in the area of using the Internet to link with

suppliers.

Competition, in particular, is driving change. For example, supermarkets

are steadily moving in the direction of maintaining perpetual inventories,

a strategy already employed by supercenters-the general merchandise/supermarket

combination stores run by Wal-Mart, Kmart and others-which are taking

automatic-replenishmentstrategy

success in general merchandise categories and translating it to their food

and grocery departments.

For the moment, however, this is still a business that depends on employees

walking up and down store aisles to see what has been sold to determine

what needs reordering-rather than allowing vendors to perform this function

or using point-of-sale information to automatically generate replenishment

orders with suppliers. More than a third of survey respondents (38%) say

reordering at their companies is done manually; 42% report reordering is

semi-automated with human judgment a key factor in the process.

That change is on the horizon may be seen in the choice of the metrics

used to calculate inventory movement. Today, the metric of choice is gross

profit percentage, followed by gross margin dollars, inventory turnover,

weeks of available supply, customer-service levels as a percentage of time

product is in stock and average transaction dollars per customer.

This was not always the case. As recently as two years ago, supermarkets

said in this annual survey that their primary performance measure was sales

per linear foot, with gross profit percentage ranking a distant fifth behind

four other metrics: GMROI, weeks of available supply, inventory turns and

gross margin.

[IMAGE GRAPH] Captioned as: Trends Supermarkets Say Will Emerge in the

Next One to Three Years

[IMAGE GRAPH] Captioned as: Performance Metrics: What Supermarkets Measure

 Captioned as: (mean numbers)*

[IMAGE GRAPH] Captioned as: Most Widely Use Replenishment Programs

While at the moment supermarkets and department stores are far more likely

to use gross profit percentage measures than retailers in other sectors,

this trend is likely to accelerate as companies search for ways to calculate

the profitability of a particular item or category by delineating the

transportation

and labor/handling costs associated with selling it.

Clearly, stepped-up competition on all fronts, from alternate formats to

specialty stores to online grocers, is forcing supermarkets to look more

closely at every item they carry and to search for ways to wring increased

performance and profits from each one. That supermarkets are heightening

their scrutiny of individual items is evident in the sector's strong interest

in maximizing spending per customer transaction, which is greater here

than in any other sector. However, as a corollary to persuading customers

to buy more merchandise on each shopping trip, supermarkets will have to

enhance their in-stock positionswhich will necessarily force them to work

more closely with suppliers and break down what has been the most significant

barrier of all: reluctance to share information.

[IMAGE GRAPH] Captioned as: Top Technology Enhancements Supermarkets Use

[IMAGE GRAPH] Captioned as: Maintaining Inventory Integrity: Major Obstacles

for Supermarkets (mean numbers)*

[IMAGE GRAPH] Captioned as: What Supermarkets Say Is Effective in Eliminating

Data-Integrity Problems

Reproduced with permission of the copyright owner.

Further reproduction or distribution is prohibited without permission.