Australian Convenience Store News: e-Procurement

That little 'e' keeps popping up everywhere, and 'e-procurement' is the latest incarnation. Simply, it means using electronic devices to obtain the goods and services you need for your business. Even though this could include such things as internet banking, purchasing equipment, and electronic communications with the Tax Office, here we focus on on-line ordering systems. When Australian Convenience Store News was researching the POS article for the September 2002 issue it was clear that ordering is one of the key transactions between a retailer and suppliers, and that increasingly these transactions will be electronic.

"Electronic ordering has been around for a long time but mainly with the national supermarket chains," says Dave Levine, Chief Marketing Officer, Quatro Four Retail. "These chains have put pressure on small retailers by opening long hours and expanding into Convenience. Now the technology is available to everyone."

e-Retailers
In the convenience channel, the multi-site franchisees are leading the way. We spoke with Michelle Baumgartner who oversees retail site team leaders for Tayco Petroleum, a Mobil Retail Area Franchise with six sites in Melbourne, and Peter Friday who manages the 11 sites in BP's West Brisbane Multi-Site Franchise. "We were first BP MSF to develop a centralized ordering system," says Peter Friday. "Now it is used by 60% of BP's MSFs."

Peter places orders for all eleven sites, with sales information from the POS system generating the order. "I've been using e-Orders for two years," says Peter Friday. "I use it for ordering from Philip Morris and Coca-Cola. I use Quatro for British American Tobacco products and a number of other suppliers have on-line systems that accept email orders."

"Our main suppliers on-line are Accredited Distributors and Statewide," says Michelle Baumgartner. "We have also been using e-Orders for four months. Electronic ordering takes time pressure off our team leaders - telesales people and sales reps can take up a lot of their time. It also lets me monitor ordering and inventory control overall. Even though only four of the 30 suppliers we use are on-line, there is no doubt it saves time. We have to use the different systems the suppliers offer. It would be much easier if there was just one system."

Peter Friday agrees, "All supply-related tasks are now managed electronically. It is fast, convenient and seamless. Prior to on-line systems, an Amalgamated Distributors rep would walk around the site, write down the order, go to the van, and call in the order on a 2-way radio. Now, if the supplier's system is sophisticated, my electronic order can generate their picking slip order. This saves a lot of double handling. The main issue is getting more suppliers on-line. Some of their proprietary systems are locked in a time warp. Ultimately, there is only really room for one ordering system. The two electronic ordering specialists - e-Orders and Quatro - are scrambling for critical mass, for retailers and suppliers. The system needs to be flexible to link to the various supplier and retailer systems."

e-Suppliers
Suppliers agree to a large extent: "Even though we have developed a web-based site specifically for our customers to use for ordering, eventually there needs to be a single system to accommodate everybody, says Neville Plumb, Managing Director, Hunter Wholesalers. "The special feature of our system is the ability to leave the 'trolley' open until the order is finalized. A retailer can go on-line, add to the trolley, save the changes, then go off-line. The system saves the contents of the order until it is deleted or sent. We would like to be linked into a single system but retain the integrity of our own system. The technology to bring systems together is now available in specialist data conversion companies."

"It took a few months for Streets to change its systems to receive files from an external ordering system," says Andrew Martin, Senior Finance Manager, Streets. "Our products can now be ordered on-line through e-Orders. At the moment we prefer to use only one system but will respond to retailers needs. Ordering is just the start. The opportunities are limitless, in particular through the sharing of information. Suppliers will get a better understanding of how their products are performing, and retailers will get a better knowledge of their business and how to get more from suppliers. As more retailers use electronic ordering, we will use the medium to tailor marketing and promotion activities, and we will further automate our internal processes towards a fully automated supply chain."

"There are benefits for both retailers and wholesalers," says Brad Mays, Administration Manager, Accredited Distributors. "On-line ordering is faster, more flexible and less costly. The lower cost structure will flow through to prices and margins, and there is the additional benefit of better management control. It's early days. The vast majority of orders are still manual. This will change with computer use and a handover to the younger generation. Those still not comfortable with the technology and prefer a sales rep can still benefit. Reps are now using mobile electronic handsets and ordering electronically on behalf of the retailer. Our trials in Shepparton with this technology are working well."

"James Dickson's sales force has used hand held units in the field since 1993," says Richard Lloyd, Managing Director, James Dickson & Co." Our HERO (Handheld Electronic Retail Ordering) software enables our reps to scan product off shelf in-store, give pricing advice, monitor product ranging and sales history. It will then download orders remotely back to the mainframe located at our distribution facility in Oakleigh for discrete picking, packing and delivery. All orders are placed onto a motorised conveyor belt system that incorporates a scanning chamber to cross verify pick accuracy, then placed into labelled tote boxes for delivery. There are mutual benefits for wholesalers and retailers to trade electronically that should be reflected in the trading terms and level of customer services provided. Over a period of time, it will allow companies such as ours to focus more on the category management of confectionery and snack foods. By reviewing ranges and planograms, it will ensure that our retail clients are maximising their in-store sales opportunities. The logical outcome of this concept means that stock replenishment remains a fundamental and core task but becomes a secondary function in the role in the trading relationship. We are now also trading with a small group of clients via e-Orders and Quatro. There are great efficiency gains to be enjoyed by retailers by integrating such a product into their businesses."

The e-Twins
The electronic ordering twins are owned by the two major tobacco companies. e-Orders is a subsidiary of Philip Morris Limited and British American Tobacco owns Quatro.

e-Orders started in January 2001 and now has 18 staff and a customer base of 650 retailers in petrol and convenience, newsagent and route channels. "We service most of the majors - BP, Caltex and Mobil," says Mike Carson, General Manager, e-Orders. "Our 29 active suppliers are in the major categories - tobacco, beverage, confectionery, ice-cream, phone cards, convenience foods, dairy and automotive parts. Some people will take longer to adapt. We think that the majority of petrol and convenience will be on-line when all have POS systems in place. The main constraint is technology at the retail end, and access to and familiarity with the internet. However, some small retailers are taking to the new systems more quickly than some more established networks. The main benefit for retailers is the time saved by cutting out manual paper process, being able to order when it suits, and the ability to integrate into the major POS and back office systems. Additional benefits are access to promotions, product information, and special offers."

With Quatro, electronic ordering is just one component of the services offered. "Quatro identified the opportunity to provide the benefits of technology, enjoyed by the supermarket chains, to other retail channels. The opportunity includes POS equipment, systems and other indirect services," says Dave Levine, "Quatro offers retailers the opportunity to better buy, manage and sell by providing access to low cost business technology solutions. One of the biggest benefits for retailers is that over time suppliers' field forces will need to become business consultants rather than order takers. They will add value to the retailers businesses. Over 2,000 convenience retailers, from Shell, Caltex, BP and other majors to route independent owners, have been quick to identify the value of shifting their trading method to Quatro. Some suppliers, as well, have been quick to embrace the new system - tobacco, beverage, confectionery, salty snack and biscuit wholesalers - national and regional. For many retailers, 40% of sales volume could be electronically ordered. This will increase as other categories come on-line. Some supply chains are still evolving. For example, the high-cost supply chains such as bread and dairy are complicated by the frequency of delivery."

That's (not just) an Order
The e-Orders and Quatro systems may have started with ordering but this is only one activity that the new technology can support. As supplier back-office systems are enhanced, you can expect direct communication with suppliers through the common interface of either e-Orders or Quatro.

"We are working with the head offices of the major networks to build product management systems," says Mike Carson. "When new product trading terms are negotiated for a network they will flow through automatically to all retailers in the network."

"The next step is electronic invoicing," says Dave Levine. "This functionality will be available from Quatro suppliers from the first quarter of 2003. Electronic invoices can be channeled directly into accounts payable systems at Head Office and Multi-Site Offices and, eventually, trigger automatic payment, thus saving retailers and suppliers manual intervention. Updating inventory at POS level is an added bonus from this process. Quatro's expanding technical capability includes a wide range of functionality covering promotions and promotions control, sales information and aggregation. We are also expanding the range of service providers linked to the Quatro system. It will become a place for retailers to go for a wide range of targeted services."

Although it could be argued that having two competing electronic trading systems has been good for stimulating growth and developments in the technology, there will be pressure from both retailers and suppliers for a single system. This may come about through common standards and/or consolidation into a single e-market place. In the meantime, there is no reason why you should not link to both systems to access as many suppliers as possible electronically, and take advantage of new developments as they come along. In these early stages, suppliers are funding the service, and you can get a good deal in this competitive environment. With e-Orders your only cost is connection to the internet, and Quatro is offering free internet access (on a restricted basis) for the first year to build retailer numbers."

"It's a chicken and egg situation," says Mike Carson. "Retailers want more suppliers involved, and suppliers want more retailers using the system."

Dave Levine agrees, "The greater the retail numbers the more attractive it is to suppliers."

Introducing the e-Catalogue
In much the same way as e-procurement started in the supermarket chains, we look to the grocery channel for an insight into the next wave of systems and technology. Here we find the electronic catalogue.

The same organization that administers barcodes and open industry standards, EAN Australia, provides EANnet, an electronic catalogue and data synchronisation service. "We developed the product at the request of the grocery industry, says Neale Austen, General Manager eCatalogue Services with EAN Australia. "We launched version 2 of EANnet in April 2001, and now suppliers accounting for more than 60% of the grocery line items are represented and 15 demand side companies use the system.

"The system works by suppliers subscribing to the service at an average cost of less than $8 per product per year to host their products on the catalogue. They load up new products and amendments, automatically updating their trading partners. Users of the system can also access the catalogue via the EANnet website.

"The power of EANnet is released when other electronic systems use the product information as the basis for electronic transactions such as electronic ordering. For example, Coles and Colgate-Palmolive now undertake all communication electronically using the EANnet e-catalogue as the basis of the product information. Coles plans to be have all it supplies on EANnet within a few years when it will eliminate paper-based communication.

"For this to be effective, the most important criteria is data integrity, and this is based on the use of a globally unique product identifier, the GTIN (Global Trade Item Number) or bar code number. The EANnet e-catalogue is the preliminary step to synchronisation of the supply chain. This includes the Australian Tax Office which now checks the GST rate published on EANnet and verifies it, and the retailer can rely on this verification.

"For smaller retailers, the EANnet e-catalogue will provide the foundation behind electronic ordering systems such as e-Orders, Quatro and wholesaler systems. e-Orders and Quatro have begun using EANnet to regularly update product details across a range of core products, and are considering the development of interfaces to be able to accept continuous updates. It is an evolutionary process. In about 5 to 10 years' time there will be a global, universally accepted standard for data synchronisation across the entire supply chain. The standards and the e-catalogue level the playing field by providing a system that is accessible and usable by everyone. It is then up to the retailer to turn the system information into a competitive advantage."