Scan-based trading is a form of consignment trading where suppliers own physical inventory in retail stores until each product is scanned and sold. At the point of sale, the item is automatically retendered from the supplier to the retailer, and the payment is split, enabling faster processing of payments.
Scan-based trading programs have continued to grow over the years because they take the responsibility and ownership of goods off the retailer's back. Since retailers become accountable only for items that sell, they can cut down their inventory holding costs and reduce any risks of shrink liability and spoilage. This dynamic gives retailers more control over their relationship with their vendors, and makes them flexible to the ever-changing needs of their consumers.
Deciding If a Scan-Based Trading Program Is Right for Your Business
Scan-based trading programs offer several benefits to both the retailer and the vendor. The retailer benefits from not holding the cost of inventory, reducing their financial risk. Instead, they are only charged for items sold at the register instead of incurring inventory charges. Additionally, they risk less when dedicating shelf space to new and unproven goods.
On the other hand, the vendor benefits by gaining visibility of point-of-sale data at the item and store level —helping them more easily identify consumer purchasing habits. This results in more responsiveness, strategic promotion, and smart placement, enhancing the customer service experience. They gain more control over items purchased and stocked levels to maximize their potential sales and improve their in-stock positions. Scan-based trading programs also present opportunities to target assortments for specific locations.
Overall, scan-based trading programs help foster strong vendor-retailer relationships. Much of this is due to retailers being willing to experiment and give suppliers a chance to roll out more products in outlets and expand where their product is available to sell.
While merchandising reps manage the inventory at store level and restock, service, or remove discontinued or damaged items, scan-based trading programs make the process less intense and remove any potential clogs in the system.
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Optimal Consumer Packaged Goods Categories and Suppliers for Scan-Based Trading Programs
The main types of retailers who benefit from and use scan-based trading programs include those in:
- Drug and convenience
- And coffee
However, to put it simply, many consumer-packaged goods suppliers can benefit from scan-based trading programs. Consumer packaged goods refer to goods that consumers use up, replace or buy often, such as:
- Cleaning products
- And cosmetics
To exemplify this, even major retailers like Dollar General, Target, Walmart, Walgreens, and Kroger are turning to scan-based trading programs as a strategy to remain competitive.
Setting A Plan for Scan-Based Trading Programs
SBT has received praise from across the board, with retailers and suppliers reporting substantial savings since implementing it. If you're looking to start a scan-based trading program, there are several things you need to consider to facilitate the transition.
When beginning scan-based trading programs, suppliers may experience a strain in their cash flow as they buy back their inventory from their retailers. Although the vendors will be able to quickly generate sales with their scan-based trading program, they’re may be a lag in revenue after they’ve bought back their inventory.
Retailers can help ease the transition of their suppliers by being flexible with their buyback terms. A retailer who's open to multi-year buybacks will experience more success with implementing SBT than one who expects immediate buybacks with inventory that can be worth thousands and even millions of dollars.
Retailers can facilitate this transition with software by scheduling rolling store authorizations. For example, a retailer could begin scan-based trading in ten stores in the first week and 15 in the next. This also helps retailers and vendors develop a working plan for the future.
While the reduction of shrink liability for retailers is a huge benefit of adopting a scan-based trading program, it’s important to remember that this risk still transfers to the supplier. To maintain a successful scan-based trading program, a retailer can ensure that they’re offering their suppliers advanced data synchronization so they always have visibility into UPC levels and shrink. The data collected allows suppliers and retailers to effectively analyze all the factors that lead to shrink and collaborate to find tactics to reduce shrink or eliminate it altogether.
Automated Data Exchange
Another way of improving the transition to SBT is automating data exchanges between vendors and retailers. This enables retailers to preserve visibility of:
- Inventory counts
It also helps to hold vendors accountable for their inventory strategy and ensures that retailers and suppliers use a strategy that aligns with their shared objectives.
Your Scan-Based Trading Partner: iControl
The best way to start an efficient and successful scan-based trading program is to take advantage of one that offers advanced exception reporting that will immediately show both parties any red flags. This allows users to assess inventory levels, forecast demand, and calculate and predict out-of-stock items before they occur.
Accurate and efficient inventory management is in the best interests of all parties involved. Therefore, having the right SBT solution provider like iControl makes all the difference. With iControl, retailers only pay for inventory when a consumer checks out at the cash register. You'll also save time and money when integrating all your suppliers into a single system.
We work with vendors and suppliers in various categories, including, grocery, alcohol and beverage. Request a demo of iControl today to join the thousands of retailers and suppliers improving their financial transactions and margins, and learn how we can help you maximize your sales with scan-based trading.