Smart & Final and Mountain Water Ice Use Real-Time POS Data Sharing

As a retailer, have you ever wondered what impact real-time access to Point-of-Sale (POS) data could have on your ability to monitor sales and proactively avoid out-of-stocks at the shelf? Or, if you're a consumer product manufacturer, have you ever imagined how beneficial visibility to this type of data would be? In an effort to answer these questions, West Coast retailer Smart & Final Stores partnered with Direct Store Delivery (DSD) supplier Mountain Water Ice. The result was improved sales and margins through the use of real-time POS data for a pull-based DSD replenishment initiative.

Here are three key insights from the project:

Walk before you run -leverage POS data internally as a retailer first
Initially, Smart & Final needed a solution designed to provide better control of receivables management and streamline the transaction to payables process. The retailer also needed a more robust offering for credit card signature capture, dispute resolution and other post sales transaction inquiries. So they developed a data repository and business application for internal use which converted real-time POS transaction data into real-time visibility for store, transaction and item-specific sales information. To accomplish this, Smart & Final partnered with afterBOT, to implement a digital receipt based portal infrastructure , Matra Systems for a real-time POS data repository, XML messaging and data integration (using the ARTS IX Retail standard data model), NCR for a new POS platform and Microsoft for the technology platform.

After implementation, Smart & Final was able to leverage instant access to POS data and customer transaction data to extend the solution to vendor specific product movement and sales history. This real-time visibility into store sales allows Smart & Final to quickly identify service level issues; thereby driving a significant reduction in out of stocks and the ability to quickly expose distribution voids. For example, if a store was recording no sales on a new promotional item, management could quickly identify issues within hours, The next step was to expand the initial project to gain insights from real-time POS data delivered to supplier partners.

Leverage POS to improve vendor replenishment
Almost immediately, Smart & Final's merchandising team recognized the opportunity available through the sharing of this data with supplier partners. By harnessing the atomic level data collected at the POS to measure customer buying trends and monitor item level sales, they believed that the supplier community could play a vital role in further reducing distribution voids and in identifying replenishment priorities. It also became apparent that access to data would allow vendors to communicate with the store operations team more effectively thereby providing a win/win for all involved. But first two issues had to be solved; making the technology easy for vendors to use and identifying the compelling business value and process changes the technology would impact.

Dubbing their POS portal Smart Connection, Smart & Final solved the first issue by making the POS data available in a clean, Web-accessible format. They also made the data downloadable by suppliers in a format that allows easy data manipulation in common tools, such as Microsoft Excel, Access, or other business intelligence tools. In addition, real-time alerting capabilities based on predetermined performance thresholds were introduced in an effort to deliver actionable insights rather than simple reports.

Mountain Water Ice proved to be a great partner. Smart & Final stores requirement to provide ice varies widely due to demand swings based on seasonal temperature swings, product promotions and ever-changing business customer demand. This scenario was further aggravated by a short-fall of available storage during high demand periods for bulk items like bagged ice so Mountain Water Ice stepped in to provide 90% of the onsite freezer capacity. Challenged with keeping ice in stock with limited store level capacity, Mountain Water Ice's DSD operations team used a milk-run approach in which inventory and delivery routes were primarily determined by historical forecast data as well as seasonality and promotional factors.

As a result, drivers would make deliveries to stores not in need of replenishment, while missing opportunities to restock stores with unusual demand spikes, creating a missed revenue opportunity for both increased sales of ice as well as related products such as soda, beer and other beverage category items. Prior to access of sell-thru in real time, management coordinated adjustments to product-on-hand by taking a visual survey of the inventory and then placing a call for delivery of additional product or in some cases canceling deliveries last minute. A very inefficient way of handling products with limited shelf-life and large demand swings.

Now that Mountain Ice uses Smart Connection, dispatchers and planners monitor sales rates proactively in each store to modify the amount of inventory sent to Smart & Final as well as avoid wasted trips to locations not in need of replenishment. In addition, Mountain Ice worked with Smart & Final and afterBOT to build customized alerts. For example, any time one customer buys 50 bags of ice in one transaction, Mountain Ice receives an e-mail, allowing it to analyze what happened and decide whether a 'hot shot' (dedicated run) is required for that store.

In addition to the operational efficiencies gained through labor and cost savings (e.g., fuel) from better planning and fewer unnecessary deliveries, Mountain Water Ice has realized improvements in sales through reduced out-of-stocks and its ability to respond quickly to store or area specific sales surges. The combined benefits that Mountain Ice has received from the system has also allowed it to maintain it's very competitive pricing with Smart & Final - this at a time that fuel prices and other costs associated with delivery have increased.

The future:
Smart & Final now has a significant percentage of its sales data available through the Smart Connection system. As mentioned above since its inception it has grown to the point were there are now 350+ vendors using the tool with a strong emphasis on execution at the Store level. Key areas of focus are: eliminating distribution voids, driving operations and logistics efficiency and improving the communications between store vendor and headquarter personnel. The roadmap for the program includes, enhancements to the alert tool, exception reporting and using the data to better respond to Smart & Final's Category Management initiatives.

Going forward, we expect to see leading retailers continue to invest in sharing POS data with their vendors. As outlined in initiatives such as AMR Research's Demand Driven Supply Network, we believe that companies that do not invest in this type of technology will be at a competitive disadvantage. As for consumer product companies, we recommend that they actively partner with retailers who are driving to this vision.
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