Panelists praise Quick Response for role in cutting shipping costs

Discount Store News, May 5, 1997

Show me the goods. And do so the way I want them. That was the sentiment of retailer panelists at the IQ 97 forum entitled "Future Requirements for Shipping to Retailers."

Retailers continue to refine Quick Response techniques to drive down costs at a time when the overall cost of doing business is escalating, and they expect vendors to join them in the effort.

"What we require is not rocket science," said Mitch Stover, Dayton Hudson's senior vp, distribution. "We need exactly what we order, when we ordered it, floor-ready, with advance information to allow us to move the product faster and without excess inventory."

Stover outlined two QR initiatives that resulted in significant savings at his company:

* Over the past several years, Dayton Hudson has realized a 50% reduction in receiving and sku marking expenses. "We've moved away from giving the size assortment to the vendor. We wanted 100% tracking of size and color, simply due to the enormous amount of skus," Stover said. The three divisions of Dayton Hudson carry approximately 2.7 million stock-keeping units.

* Another initiative is specific to the Target chain, which set a goal of reducing back from expenses by $200 million. Internal audits found that when an entire carton of product can be moved directly to the floor and not taken back to storage, Target's per-carton costs were reduced 400% from $2.50 to 50 cents (Dayton Hudson's three divisions collectively move about 1.6 million cartons per day). Target expects to realize this goal in 1998. "Target has already had remarkable success in eliminating back rooms storage. Mervyn's has almost no merchandise in their back rooms," said Stover.

While the supply pipeline has become much more efficient, retailers believe vendors can further reduce costs. At Dayton Hudson, for example, vendors are no longer measured on sales and gross margin. "Now we measure them on net contribution," said Stover. "Vendors pay for everything, including markdowns. We also charge them for back room handling, space and storage. We want to own the floor."

Improved floor-ready programs are another area where vendors can help hold down costs. Tom Cole, president/ceo, Federated Logistics, noted that the development of an accurate floor-ready program starts with vendors adopting the advance ship notice, or ASN. The EDI document, which the vendor sends to a retailer before the goods leave the manufacturer's warehouse, eliminates the need for retailers to open every box.

Audits conducted by Federated showed that vendors adopting this "scan and pack" method are several times more accurate than those that create their ASNs from another part of the packing and shipping process.

The floor-ready movement has enhanced the level of trust between retailers and manufacturers. "One change retailers need to make is to trust vendors for accurate shipments. The vision: do it once, do it right, do it fast and do it at the lowest possible cost to the pipeline," Cole said.