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What is Scan-Based Trading?
Gain insights into - what is scan-based trading (SBT), including implementation tips to align supply and demand at the retailer's point of sale.
Today, retailers face the pressure to cut carrying expenses and reduce inventory while offering high in-stock levels and product variety due to the omnichannel explosion. That is where the benefits of Scan-Based Trading (SBT) come in handy.
As a widely-used payment solution, SBT aligns supply and demand at the retailer's point of sale. That, in turn, provides significant operational savings to vendors and retailers.
How does scan-based trading work?
The SBT concept withdraws the need for retailers to wait to sell goods to recoup the cost of purchasing inventory and make profits. The implication here is that the supplier owns inventory management through SBT, which is not the case for the conventional retail approach. Additionally, the retailer collects and transmits such point-of-sale data like time ranges, dates, and days of the week to the right supplier.
In turn, the supplier uses the point-of-sale data to generate an invoice, and after that, they send it to the retailer. SBT helps retail trading partners realize operational efficiency because it allows retailers and vendors to align supply and demand at the point of sale. From a business point of view, SBT serves as a form of consignment trading.
That suggests that suppliers maintain ownership of a retailer's physical inventory in stores up until the scanning and purchase of an item. In that case, the transfer of a product from the supplier to the retailer is automatic at the point of sale. Eventually, the payment is split, thereby hastening the entire process.
5 tips for implementing scan-based trading
One of the most significant benefits of the SBT approach is that it allows a retailer to pay for merchandise, but only when they sell at the register. That way, retailers shrink liability, and they avoid incurring inventory carrying costs. On the other hand, suppliers no longer have to check in their deliveries at retail store locations, which saves them time and money, another advantage of adopting SBT.
Meanwhile, suppliers have greater control over stock levels and product ordering, which allows them to maximize potential sales, and improves their in-stock position. The bottom line is that SBT increases sales and improves the accuracy of inventory control. Here are a few tips for implementing SBT.
1. Focus on aligning priorities
In the traditional retail approach, suppliers typically focus on selling to retailers in bulk. On the other hand, retailers prioritize consumers' buying from their stores. Entering into an SBT agreement means that your pay as a supplier will depend on what the retailer sells at the register. That aligns the interests of vendors and retailers, which fosters collaboration in growing the operations of both parties.
So, aligning the priorities of the vendor and retailer is critical when implementing SBT. Otherwise, the concept may not yield a desirable outcome. For instance, a supplier should not understock in the hope of selling out the current issue of a magazine just because they own inventory in the case of the SBT arrangement.
Also, retailers should not avoid selling out an issue to protect their interests, because that will frustrate their clients and push them to competitors. In that case, retailers and vendors should build mutual relationships for the SBT strategy to work. That is only possible when entrepreneurs align their priorities.
2. Invest in a customizable SBT solution
The SBT solution you opt for should have provision for customization to reach its true potential in the market. That implies that acquiring a cookie-cutter solution that one cannot customize will hinder effective communication between retailers and suppliers. This could result in higher inventory counts due to a risk of miscommunication on the following:
- Invoices and payments
- Item and cost files
- Daily POS sales
- Promotional activity
For that reason, you need to consider advanced data sharing capabilities when researching SBT solutions, as they can automate data exchange within a centralized, collaborative enterprise portal.
Note: Customizing the portal to accommodate preferences like individual user settings, file exchange formats and methods, data management and filtering criteria, and EDI feed specifications is possible.
3. Adopt flexible buyback terms
Because the supplier gains complete inventory management control, especially in the ordering and fulfillment procedure, SBT can also increase sales. Unfortunately, however, suppliers may also encounter cash flow problems because they must take back their inventory at some point. This means that vendors may generate sales, but not realize actual revenue when buying back a retailer's inventory.
The solution here is for retailers to implement flexible buyback terms. For example, opting for multi-year buybacks will prove more profitable after adopting SBT than expecting immediate buyback of 100% inventory worth millions or tens of millions of dollars.
4. Focus on maintaining full visibility
Suppliers who use their technology to assume control over their inventory in the SBT strategy may deny retailers visibility, which implies viewing inventory counts, orders, credits, and deliveries will be a challenge. The potential lack of transparency, in this case, can bear a negative impact on collaboration between business partners.
However, using an advanced SBT solution can aggregate and centralize supply chain data to ensure that retailers maintain full visibility. Investing in these solutions will allow suppliers to view retailers' data, including their daily POS sales by UPC (Universal Product Code) and store. As a result, there will be increased accountability to shelf integrity and product assortment between partners. And in this case, identifying distribution opportunities that can grow sales will not be a problem.
5. Treat shrink as a shared responsibility
Retailers typically experience a reduction or elimination of shrink liability after embracing SBT because that responsibility transitions to the vendor. The problem is that overlooking the impact of liability on suppliers can discourage the adoption of a retailer's SBT program –a successful SBT program treats liability as a shared responsibility.
That demands the acquisition of a robust scan-based trading solution that provides visibility to shrink down to UPC levels and the store. In turn, the data allows vendors and retailers to assess the factors contributing to shrink. After that, they can partner to implement ways to reduce such shrink.
Benefits of SBT
- Help vendors identify consumer-purchase habits by combining sales promotions with point-of-sale data
- Reduce the financial risk of retailers because they do not purchase inventory until they sell goods to customers
- Offer suppliers more control over the stocks at retail locations, which presents opportunities for targeted assortments for particular retailers
- Reduce a retailer’s risk of dedicating shelf space to new, unproven products because they do not have to pay for scan-based inventory
Find the right SBT software
Partner with the right software vendor to ensure you’re operating successfully after implementing SBT.
You can now reduce invoicing and inventory costs, order processing, and fraud with iControl’s Scan-Based Trading (SBT) system. Ditch the outdated manual processes that are costing you money, and refocus your time and attention on improving cash flow. Leverage an e-invoicing system to reconcile payments and track paid vendors. Ensure accurate product and pricing maintenance so you can eliminate on-hand inventory and shrink liability. And gain an immediate ROI.