There are many benefits of scan-based trading agreements (SBT) for both retailers and suppliers. The most important benefit to retailers is that it allows them to only be charged for goods when they are sold at the register, instead of having to incur inventory carrying costs and shrink liability. Suppliers also benefit from SBT since they no longer have to check in their deliveries at retail store locations, saving time and money. They also gain greater control over product ordering and stock levels to improve their in-stock positions and maximize potential sales.
Overall, scan-based trading helps make inventory control more accurate and increase sales – so what can hold back its successful adoption? Read on to learn the five ways to overcome pitfalls and embrace new scan-based trading agreements.
SEE ALSO: Hallmark Cards Expands Scan-Based Trading Partnership with iControl
Scan Based Trading Agreement Challenges - And How You Can Avoid Them
Overall, the adoption of scan based trading agreements has been widely welcomed by retailers. Still, supplier engagement has not kept pace despite many large suppliers reporting massive savings since its implementation.
Sara Lee reported a “60% reduction in invoice error correction costs by the implementation of SBT at an average cost of $70.00 per disputed invoice; the savings are substantial.”
Despite industry-wide praise and acceptance for the innovation of SBT, there are still several ways some scan-based trading agreements and solutions fall short and can be improved. These include:
1. Scan-based trading solutions that are one-size-fits-all are unable to maximize the benefits of data sharing.
For SBT to reach its true potential in the market, any solution needs to be customizable for both sides of the partnership. Expecting retailers and suppliers to implement a cookie-cutter solution that is not customizable will limit how effective these partners communicate and mutually benefit. This is especially relevant concerning data synchronization between retailers and suppliers, including critical information such as:
- Item and cost files
- Inventory counts
- Promotional activity
- Daily POS sales
- Invoices and payments
The most successful SBT agreements prioritize an advanced data sharing solution. One that can automate the exchange of data within a centralized, collaborative enterprise portal that can be customized to accommodate preferences such as:
- File exchange methods and formats
- EDI feed specifications
- Data management
- Filtering criteria
- Individual user settings
2. Retailers can lose visibility into essential supply chain data by moving to scan-based trading.
As suppliers assume control over their inventory using their own technologies, retailers accustomed to viewing orders, deliveries, credits, and inventory counts at the store and UPC level may lose that visibility. This potential lack of transparency can impact the collaboration between these partners. By utilizing a more advanced SBT solution, supply chain data can be aggregated directly from the supplier to be shared within a centralized portal that allows the retailer to maintain full visibility. Suppliers also benefit from viewing retailer data such as their daily POS sales by store and UPC. Both partners benefit from greater accountability to shelf integrity and product assortment, while also identifying new distribution opportunities that can grow sales.
3. Shrink may partially or fully transition to the supplier, but that doesn't mean it’s eliminated.
Certainly, one significant benefit to retailers deploying a scan-based trading agreement is the reduction or elimination of shrink liability as it is transitioned to the supplier. However, disregarding the impact this new liability can have on suppliers will certainly limit the adoption of a retailer's SBT program. Any successful SBT program will treat shrink as a shared liability regardless of whose P&L is impacted. This requires a robust scan-based trading platform that provides visibility into shrink down to store and UPC levels. This data allows retailers and suppliers to more effectively analyze the factors contributing to shrink and partner to implement ways to reduce that shrink.
4. Sales may increase with scan-based trading agreements, but supplier cash flow can be strained.
Several studies document positive results and increased sales after the implementation of scan-based trading agreements. This is primarily due to the supplier gaining complete control of inventory management–– especially the ordering and fulfillment process. However, most suppliers also experience a significant strain on their cash flow as they take back their inventory at the start of a scan-based trading agreement. They may be generating sales, but they are not able to recognize actual revenues while buying back their retailer's inventory. Retailers can help alleviate this strain (and improve SBT adoption) by being flexible with terms of buyback. Retailers open to multi-year buybacks will be much more successful with rolling out SBT than a retailer expecting immediate buyback of 100% of inventory that is often worth millions or tens of millions of dollars.
5. Supplier and retailer priorities shift when implementing a scan-based trading agreement.
Traditionally, retailers have always been most concerned with what consumers purchase in their stores, while suppliers are most concerned with selling cases and products to their retailers. When suppliers agree to participate in a scan-based trading agreement, they begin getting paid based on what sells at the register. This aligns their interests with that of the retailer, which can create more focus on growing their mutual business more collaboratively.
However, because suppliers now own inventory, they might be inclined to understock with the hope of selling out. On the other hand, retailers would rather not sell out of a product and have to deal with a disappointed customer. If that customer can’t buy it from them, they will buy it next door, along with any other products they would have purchased. The retailer loses out on the sale of the sold-out item and the other products that are bought along with it.
An excerpt from the white paper, Fact Finding and the Single Copy Newspaper Business: Picking Your Scan Based Trading Partner, describes both perspectives of this scenario.
“When distributors face risks, they respond by reducing the risk,” wrote Professor Bloom. “Other than raising the price to the retailer, the most common way to mitigate risk is to cut supply, aiming for a sell out.” By aiming for a sell out, a distributor remedies the reconciliation challenge of reverting scan sales into the “deliveries less returns equals sales” format of their route accounting software. The reason is simple – the sales nearly always equal the delivery, because the returns are zero.
Secure Successful Scan-Based Trading Agreements with Modern Solutions
The best solution to develop a successful scan-based trading agreement is to utilize a SBT solution that provides advanced exception reporting. Allowing users to quickly:
- Assess current inventory levels
- Forecasted demand
- And calculate projected out-of-stocks at the store and UPC levels before they happen
Efficient and accurate inventory management is in the best interests of both trading partners, and choosing the right solution provider can make all the difference to a scan-based trading agreement.
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