The iControl Blog

Top 5 Ways to Embrace the New Scan Based Trading

29 April 2016

There are many benefits of Scan Based Trading (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 - which saves time and money. Suppliers also have greater control over product ordering and stock levels that can improve in-stock position and maximize potential sales.

Overall, scan based trading helps make inventory control more accurate and increase sales – so what can hold back successful adoption? Read on to learn the 5 ways to overcome pitfalls and embrace the new Scan Based Trading.

Top 5 Ways to Embrace the New Scan Based Trading

SEE ALSO: Hallmark Cards Expands Scan-Based Trading Partnership with iControl

Overall, the adoption of SBT had been widely welcomed by retailers, but 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 widespread praise and acceptance by the industry for the innovation of SBT, there are still several ways some Scan Based Trading programs and solutions fall short and can be improved: 

1. Scan Based Trading solutions that are one-size-fits-all are unable to maximize 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. This is especially relevant with regard to data synchronization between retailers and suppliers, including critical information such as item and cost files, deliveries, credits, inventory counts, promotional activity, daily POS sales, invoices and payments. The most successful SBT programs prioritize an advanced data sharing solution 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 and filtering criteria and even individual user settings. 

2. Retailers can lose visibility to essential supply chain data by moving to Scan Based Trading.

As suppliers assume control over their inventory using their own technologies, retailers that were accustomed to being able to view 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 and be shared within a centralized portal that allows the retailer to maintain full visibility. Suppliers also benefit from being able to view 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 is eliminated. 

Certainly one significant benefit to retailers deploying SBT 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 the visibility to shrink down to the 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.

SEE ALSO: ALON Selects iControl's Scan-Based Trading Solution

4. Sales may increase with SBT, but Supplier cash flow can be strained.

There are a number of studies that document positive results and increased sales after the implementation of SBT. 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 essentially must take back their own inventory. They may be generating sales, but are not able to recognize actual revenues while they are buying back the retailer's inventory. Retailers can help alleviate this strain (and improve SBT adoption) by being flexible with terms of buyback. Those 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 very often in the millions or tens of millions of dollars. 

5. Supplier and Retailer priorities shift when implementing SBT. 

Traditionally, retailers have always been most concerned with what consumers are purchasing in their stores, while suppliers are most concerned with selling cases and product to their retailers.  When suppliers agree to participate in a SBT program, 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 their inventory, they might be inclined to under stock with the hope of selling out of this month’s issue of a magazine, for example. Retailers on the other hand, would rather not sell out of an issue 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 not only loses out on the sale of the magazine, but also 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.

The best solution to maintain optimal inventory levels is to utilize a SBT solution that provides advanced exception reporting that will allow 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 can make all the difference. 

How can you embrace the new scan based trading? Start with the right partner with the right solution. Click here to read more about picking the perfect SBT partner for your company.

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