IQ 97 focuses on 10-year EDI performance, future strategy

Discount Store News, May 5, 1997 by Ed Rubenstein

DALLAS -- It's been just over 10 years since retailers and manufacturers lauched the Quick Response movement, spawning increasingly sophisticated methods of electronic data interchange. But more can be done, according to the dozen of speakers who appeared at the IQ 1997 Intelligence Business Strategies Conference, held here earlier last month.

The bottom line, noted speakers at the keynote session, is to keep the focus on the customer.

"A desappointed consumer is a headache," said Paul Charron, chairman/ceo of Liz Claiborne, Inc. "Too much inventory can be fatal to the health of any ceo."

Wal-mart International president Bob Martin noted that by understanding the individual assortment performance in apparel and partnering with manufacturers, Wal-Mart's lead times have been reduced by 60% to 70%. Wal-Mart's Retail Link Program, launched just five years ago, now has about 6,350 EDI vendors and about 1,100 international accounts.

David Cole of Kurt Salmon Associates outlined the results of a recent KSA study that analyzed the impact QR has had on the soft goods supply chain since it was introduced in 1985.

The study found that consumers over the past 10 years saved $35 billion annually from improvements in the supply chain. QR is responsible for 37%, or $13 billion, of this savings, Cole said.

Another $22 billion in cost reductions have come from structural changes among retailers, the growth of the mass retailing channel, lower cost imports and other cost reductions, Although retail selling space over the past decade increased by 29%, or 19 sq. ft., retailers that adopted QR reported a 60% reduction in stockouts and a 70% increase in skis over the same time frame.

The beneficiaries of this progress have been consumers. "Consumers have greater availability of product and are paying less," said Cole. He cited the consumer price index (CPI), or inflation rate, for apparel, which has fallen 18% relative to the overall CPI over the past decade. The CPI for food increased 2%.

KSA's research identified three types of companies (retailer or vendor) along the QR continuum:

* Proactive companies have achieved operational excellence and constantly re-evaluate themselves. They have redefined their QR processes beyond their organizational structures in new areas, such as forecasting. Proactives understand need and fill gaps in core competencies by establishing longterm relationships with suppliers.

* Active companies understand the benefits of QR and are currently identifying opportunities. Cole calls this group "proactives in training."

* Reactive companies "only run the chase," said Cole. Failing to fully understand or commit to QR, these companies become frustrated with the process and end up layering new processes on top of existing ones. Results: the cost of inventory increases. Cole expects that most reactives will not survive long in the current marketplace.

Among the proactive companies is Wal-Mart, which has recently added to its corporate lexicon, the newly coined phrase "Knowledge Colony" as it takes the Retail Link concept to the next level. Among the refinements are new collaborative efforts in forecasting, replenishing and store-specific merchandising through several programs. "It's an extension of being customer-driven--not just giving consumers a better deal, but selling the customer what they want," said Martin.

Martin underscored that Retail Link is just one component in eliminating costs out of the merchandise pipeline and focusing on the customer. "It takes more than just the information at POS. It takes knowing and understanding the locations of our stores, demographics, shopping patterns, merchandise adjacencies and other aspects," he said.

In the aggregate, Martin said, 90% of decisions are now driven by the customer vs. 74% before the use of Retail Link. However, apparel is one area where Wal-Mart has yet to maximize QR, he said, estimating that just 45% of its apparel business is being driven by the customer.

Liz Claiborne, Inc. is one apparel retailer that is also working to make the most of QR. Chairman/ceo Paul Charron credited QR with bringing the company 15% to 20% sale increases and "substantial increases" in vendor margins by helping the chain adapt each store to consumer preferences.

QR also prompted the development of Liz View, a modular in-store planogram that presents apparel lines in an impactful and easy-to-shop way. Concurrently, the sharing of more information with suppliers has optimized inventory by location. The store scheme has made Liz Claiborne develop consumer-responsive products.

In the future, he predicted, QR will increasingly become important to business, especially as fashion-forward retailing moves toward a model of mass customization. "In the future, each of our customers will require a different Liz Claiborne presentation of product. This calls for collaborative partnerships for the ultimate in consumer responsiveness," he said.

The cost savings of Quick Response have not yet hit full throttle, Cole said. He estimated that QR will provide annual consumer benefits of more than $102 billion when fully implemented across all consumers durable sectors.