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After years of effort, the retail and consumer packaged goods industries are close to correcting one of their most costly and intransigent supply-chain problems: mismatched and out-of-date item data.
For a wide variety of reasons, from sloppy keyboard entries to major corporate mergers, trading partners have long endured the inefficiencies that come when a supplier's item number and description do not match that used by a buyer.
"Over time people have gotten used to this huge business of managing trade settlements," says Andrew White, research analyst with Gartner Group, Stamford, Conn. "It is now part of our daily lives and we have software and budgets to cope with this rubbish. And why do we have all these problems? The root cause is that one enterprise doesn't have the same product data as another enterprise."
According to a study by A.T. Kearney for the grocery industry, which is widely accepted by a broad range of retailers and manufacturers, "dirty data" issues are at the bottom of a host of dismal operating statistics:
• $40bn or 3.5 percent of sales lost each year due to supply-chain information inefficiencies that lead to stock-outs.
• A 30 percent error rate in item data catalogs used by retailers and manufacturers for stock replenishment. Each error costs $60 to $80 to address.
• An average of 25 minutes per SKU each year spent to manually correct out-of-synch information.
• Errors in 60 percent of all invoices generated, with each error costing between $40 and $400 to reconcile.
• Deductions taken on 43 percent of all invoices because of inconsistencies.
• An average of four weeks to roll out a new product, in large part due to the inefficient and error-prone approaches for the exchange and updating of new item information in buyer and seller systems.
Getting both sides of a transaction to use the same item data - a process known as global data synchronization - can reduce these drains on efficiency and profits to the tune of about $1m for every $1b in sales, according to A.T. Kearney. In a subsequent study based on several proof-of-concept pilot projects, Kearney enumerated specific benefits for retailers and manufacturers. (See box).
In addition to these direct dollar savings, experts say, data synchronization is foundational to many other initiatives and systems. "Benefits of Vendor-Managed Inventory and Collaborative Planning, Forecasting and Replenishment depend on accurate product information," says Eric Austvold, research director for enterprise applications and technology strategies at AMR Research, Boston. "Data synchronization is the basic enabler for making collaboration really work."
This is demonstrated by a major CPG company that had made a huge investment of time and money to enable it to receive 75 percent of its inbound orders electronically, says John Stelzer, director of industry development at Sterling Commerce, Columbus, Ohio. "That is a very impressive statistic," says Stelzer, "but half of these orders were getting kicked out with exceptions that required manual intervention. So all of this company's investment up to that point was being undermined by bad data."
Data synchronization also is a necessary first step for next-generation collaboration technologies like scan-based trading, the electronic product code (ePC) and radio frequency identification (RFID).
"We feel that as companies look to more effectively execute on brand strategy and compete in the global marketplace, data synchronization is a fundamental requirement," says Rene d'Ouville, vice president of product strategy at QRS, Richmond, Calif. "It has a return-on-investment in and of itself."
Jeff Oddo, manager of corporate communications at UCCnet, Lawrenceville, N.J., agrees. "Getting data that is good, solid, clean and based on standards is absolutely foundational to other processes," he says. "If you have something at the foundational level that is wrong, there is a domino effect that impacts every other step that builds on top of it, all the way down the supply chain."
So why hasn't a problem with so obvious a solution been fixed before now? Two key reasons: the lack of global standards and the lack of an easy and inexpensive means to connect and transmit data. The internet and XML (extensible markup language) solved the latter problem; the first has simply taken time.
In 1998 six companies - Frito Lay, Kroger, Procter & Gamble, Ralston Purina, SUPERVALU, and Wegmans Food Markets - formed an ad hoc committee to further explore the concept of an internet-based, electronic trading community. Coinciding with this event, the board of governors of the Uniform Code Council charged that industry standards organization to become more actively involved in electronic commerce solutions. The two initiatives soon merged into one to create a not-for-profit subsidiary of the UCC, called UCCnet.
|"Just to find all the instances of item information is like a giant scavenger hunt."|
- John Stelzer of Sterling Commerce
|Summary of Benefits|
• 3% to 5% reduction in shelf out-of-stocks.
• Two-week reduction in speed-to-market for new items (i.e., 14 extra days' sales of faster-moving items).
• 7% to 13% reduction in sales force time spent communicating basic item information to customers, following up, resolving queries, etc.
• Reduction in call center and web site queries regarding basic item information.
• 5% to 10% reduction in sales force and accounting time spent dealing with invoice disputes.
• Reduction in invoice write-offs incurred as a result of data discrepancies.
• Elimination of basic item data errors, currently found in up to 8% of total purchase orders.
• 0.2% to 0.7% reduction in outbound logistics costs.
• 0.5% reduction in inventory.
•3% to 5% reduction in shelf out-of-stocks.
• Two-week reduction in speed-to-market for new items (i.e, 14 extra days' sales of faster-moving items).
• 10,000 to 30,000 hours saved in store labor costs resulting from shelf-tag and scan errors.
• 5,000 to 10,000 hours saved in merchandizing and data entry time dealing with new item introductions and updates.
• 1,000 to 2,000 hours saved in finance time dealing with invoice disputes related to basic item information.
• Reduction in invoice auditor fees.
• 0.5% to 1% reduction in inbound freight costs.
• 1,000 to 2,000 hours saved in dealing with item discrepancies.
• 1% reduction in inventory.
Source: A.T. Kearney, "Data Synchronization Proof of Concept: Case Studies from Leading Manufacturers and Retailers"
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