VICS TACKLES FLOOR-READY
PREACHING THE GOSPEL OF EFFICIENCY AT THE NRF CONVENTION
Byline: MATT NANNERY
NEW YORK — VICS brought out its big guns recently to support its guidelines for preparing floor-ready merchandise.
Federated Department Stores, Liz Claiborne, Dayton Hudson Corp. and Carol Little Inc. are among the trading partners with the most advanced floor-ready merchandising programs in place. And logistics executives from all four companies detailed their experiences implementing floor-ready programs in a seminar on the topic at the National Retail Federation’s annual convention at the New York Hilton hotel in January.
The discussion, sponsored by the Voluntary Interindustry Commerce Standards committee, presented a new direction for that organization, which had previously focused its considerable energies on promoting electronic data interchange standards. The group’s commitment to expanding its focus is evidenced by a recent change in the meaning of its acronym. Last year, VICS stood for Voluntary Interindustry Communication Standards — a reference to it’s initial narrower focus on electronic data interchange.
Retailers Get the Ball Rolling
Lisa Lichtenberg, Federated Logistics
Lisa Lichtenberg, vice-president of merchandising technology and vendor strategies at Federated Logistics, said the push for floor-ready merchandise was a natural progression both for Federated and for the retailers and vendors who caucus under the VICS umbrella.
“VICS was formed in 1986 to tackle the issue of how to more effectively trade business documents within the general merchandise and apparel industries,” Lichtenberg said. “We succeeded in establishing VICS EDI guidelines — a set of transaction sets used to trade standard business documents, like purchase orders, ship notices and invoices. That formed the foundation for what we are doing technologically in the industry today, but it really left a lot undone.”
The problems VICS did not address early on, according to Lichtenberg, related to physical duplication of effort, not electronic glitches.
“We had vendors putting hangers on merchandise, and, when that merchandise got to our distribution centers, we took those hangers off, put new hangers on and threw the old hangers in the trash,” she explained. “Vendors were putting tickets on merchandise, too. But when that merchandise came to our distribution centers, we either put an additional ticket on it or we put a whole new ticket on it.”
After a 1993 study VICS commissioned from Kurt Salmon Associates found rampant redundancy of effort in the areas Lichtenberg outlined above, VICS spun off a subgroup to address the problem.
“We formed the VICS Floor-Ready Committee in October of 1993, and, by the end of our work, we had 75 different companies — apparel manufacturers, general merchandise manufacturers, many of the key retailers in the United States, as well as hanger manufacturers and people from different EDI networks,” Lichtenberg said.
It wasn’t difficult to get the industry involved in the floor-ready dilemma, according to Lichtenberg. Interestingly, something as seemingly innocuous as the color of proposed industry standard hangers — clear hangers, incidentally, were eventually settled upon — got the industry’s attention faster than the earlier EDI initiative.
“It was a very hot topic,” Lichtenberg said. “Picking standards like what hanger we were going to be using in this industry is a very emotional issue. It’s hard to believe, but we talked for about six months about what color the hanger would be.”
Lichtenberg said the VICS floor-ready guidelines were finalized in November of 1994, and have since been circulated in several revisions to retailers and manufacturers of apparel and general merchandise.
And Lichtenberg added that a shift in the organizational structure at Federated, and the Macy’s organization that has be assimilated into it, has allowed in to implement the guidelines quickly.
“The old Federated and Macy’s organizations could have been described as loosely associated groups of retailers,” she explained. “We pretty much had different rules and regulations at the different Federated department stores, and the same was true at Macy’s. One of the biggest differences between the old Federated and the new Federated is that now we have a true ‘federation,’ and we’re focused on best practices.”
But getting its suppliers to cooperate with those best practices was tough at first. Later, when Federated started imposing chargebacks for merchandise that was not received correctly and for EDI documents that were not communicated correctly, its suppliers began to fall into line.
“In March of ’92, we introduced the FASST plan,” Lichtenberg said. “That’s our Federated Accelerated Sales and Stock Turn plan. And that was the first time that we, as a corporation, formally requested UPC marketing and the trading of EDI documents.
“But shortly thereafter, we realized that requesting was nice, but unfortunately, it seemed that if there weren’t penalties associated with our requests we didn’t get the movement toward UPC marking and EDI that we were hoping for. I hate to say this, but it’s true.”
When the penalties went into effect, Federated was seen by many suppliers as a sort of bully among retailers. The threat of chargebacks, however, did pay off for the retailer. And a number of other large retailers followed suit with their own mandates for suppliers.
The EDI mandates and the floor-ready mandates are closely linked, according to Lichtenberg, as both an advanced ship notice and proper bar coding, labeling and presentation are necessary if vendor shipments are to move quickly through Federated’s distribution centers and off to individual stores.
“Essentially what we were asking suppliers to do was mark with UPC, provide a retail price on their ticket, send us a UPC catalog electronically, send us an EDI ship notice with UCC/EAN-128 container labels on the cartons and follow our corporate transportation routing instructions and send us an electronic invoice,” Lichtenberg said.
Last year, Federated updated the compliance instructions it sends to its suppliers.
“In the ’95 update, we announced the floor-ready hanger program,” Lichtenberg said. “We also announced that the retail price [marking] was now a requirement with chargebacks associated with it, and that the ship notice was also going to be a requirement.
“And we talked about moving away from garments on hangers, from suppliers loading clothing into the trucks hanging. We want to move all the merchandise into cartons because you can’t scan the 128 codes and cross dock unless the merchandise is in cartons.”
“We also made it a requirement that we wouldn’t receive bulk shipments,” she added. “Everything had to be distributed by store.”
Federated’s EDI and floor-ready mandates bore fruit quickly, according to Lichtenberg.
“Today, 87 percent of our merchandise is coming in with a vendor UPC ticket — that’s up 15 percent from about four years ago,” she said. “And about 80 percent of what comes in with a UPC ticket also comes in with a retail price, a manufacturer’s suggested retail price or we sign mark it in the store.
“As of the end of December, 45.6 percent of our units were received using ship notices, and 26 percent of hanging merchandise was received on VICS floor-ready hangers.”
Lichtenberg outlined what happens to properly packed and marked shipments when they arrive at Federated distribution centers.
“The DC workers open the door of the truck, scan the 128 code, the cartons go on the inbound sorting system, it runs around the distribution center until it gets to the right truck and it is loaded onto the outbound delivery truck,” she said. “Typically, the only thing that has to take place at the store is the removal of the plastic bag that is on the garment before it goes out on the floor.”
Lichtenberg said the company does meticulous checks on the first few shipments to make sure the ASNs individual manufacturers are sending Federated are correct.
“We have to have three accurate ASN shipments before we allow the ship notice to actually book the receipt,” she said. “We scan the 128 label on the outside of the carton, then we open the carton and scan each UPC on each garment.”
Once a supplier has demonstrated the accuracy of its ship notices, Federated randomly audits incoming shipments. A system Lichtenberg said keeps suppliers honest.
“Our ship notice vendors that we’ve audited are well over 97 percent,” she said. “But you need to be at 99.999 percent before you can book your files that your merchants use to run your business and book your files that you are eventually going to use to pay your invoices. So, the auditing piece is very important.”
Lichtenberg also appeals to logic to get suppliers to embrace the VICS EDI and floor-ready guidelines.
“I ask them where they would perform different functions if they owned the manufacturing process, the distribution process and the retails stores. Would they put a hanger on when they manufacture it and put a different hanger on when it got to their distribution center? Would they put a bar code on at the point of manufacturer and then add a retail price tag when a garment got to their distribution center. We really have to look at where it makes sense to perform different activities in the distribution chain.”
Suzan Beach, Dayton Hudson Corp.
Floor-ready is a priority at Dayton Hudson’s department store division too. And Suzan Beach, manager of vendor relations and administration there, said the retailer is also backing up its requests with chargebacks.
“We want to reduce the supply-chain time from our vendors to our selling floors by 50 percent,” she said. “And now we’re doing the full floor-ready program.
“Our vendors are required to send us purchase orders electronically, mark every piece of merchandise with UPC to the retail price, load the UPCs on a the UPC express catalog, send the ship notice to the carton level, mark all cartons with the UCC/EAN-128 carton label and send us an invoice electronically,” Beach explained.
When all this is done correctly, Dayton Hudson’s distribution centers perform like Rolexes.
“Where it was taking us days to process goods through our distribution centers, it’s now taking a matter of hours,” Beach said. “When we have to process shipments manually today, we have to pull and key in all the packing slips, so it takes about 1.4 days from when we open up the inbound truck until we get the merchandise on the outbound trucks. But using scanning technology, it only take minutes or hours to receive a shipment, depending on how big it is of course.”
A sizable number of Dayton Hudson’s inbound shipments come in with the bulk of the retailer’s EDI and floor-ready requirements fulfilled. Enough, according to Beach, that the company has been able to trim the clerical staff responsible for manually keying in packing slips. The streamlining of DC operations is enormous.
“Now we are scanning receipts right at the dock,” she said. “We open up the doors and we scan the 128 label in right there. That single scan updates our unit and financial systems. And scanning replaces manually pulling and keying in packing slips. And it makes opening all the cartons and hand checking their contents unnecessary. We’ve already reduced the keying-in staff by 25 percent, and we still have many vendors who aren’t yet fully compliant.”
And while Beach is pleased that manufacturers are now taking compliance seriously, she said it has been a rather rocky road getting to that point.
“Like Lisa, we started by sending out a notice to our top suppliers asking for compliance,” Beach explained. “That was back in ’93. And we got a similar response to Federated — not a lot of supplier reaction. So we sent out a second letter asking for compliance by February 1 of 1995, and along with that went a list of non-compliance chargebacks.
“Now, we’ve had a lot of progress,” she added. “At that point, we had notified our top 500 suppliers. We’ve since notified every vendor in our database and are working to get everybody up and running.”
And Manufacturers Respond
Jim Thompson, Liz Claiborne
Jim Thompson, senior vice-president and chief information officer at Liz Claiborne, agreed with Lichtenberg’s argument that functions like applying a price tag should be done at the most economical point in the distribution chain. He said Liz Claiborne takes compliance very seriously.
“We were not the first out of the gate when it came to providing the UPC tickets and EDI capability,” Thompson said. “But we were a fast second. We mark 100 percent of our products with UPCs. We are engaged in EDI partnerships with all our customers that can do EDI at the UPC level. And we are putting the 128 carton label on all our cartons, too.”
Thompson said Liz Claiborne was prepared when Federated mandated carton marking.
“When Federated said they wanted to move to a cross-docking and pre-distribution environment, we were able to assort our products in cartons with the 128 label and provide packing by store so they could scan cartons and cross-dock them for shipment out to their stores.”
Thompson admitted that relationships between retailers and suppliers have been tense in recent years.
“In the retail industry today, there is still some baggage that gets into the room when we discuss partnerships,” he said. “The old model was more of an adversarial model. What we are trying desperately to do at these meetings is to move to the new model. And the new model is not the notion you hear all the time today about these activities being pushed back on to the apparel manufacturer. I’m sure the retailers in this room have heard time and time again that this is really an activity of taking something that was once performed in the retail environment and just pushing that cost and that activity back on the apparel manufacturer. That’s what I call baggage.
“But there’s another way of looking at that,” Thompson continued. “The focal point should be that we should do each activity wherever it can be most effectively performed.
“For example, today we are putting suggested retail prices on all of our tickets that are shipped to retailers. Should that ticked be applied at the retail distribution center? No, because the apparel manufacturer could do it most efficiently. Looking further up the pipeline, should that ticket be applied at the manufacturer’s distribution center or the point of manufacture? Well, it should most appropriately be performed at the point of manufacture.”
Thompson, however, did hint that the cost of performing tasks like price tagging may eventually be figured into the cost of products if one point in the pipeline takes responsibility for the bulk of such duties.
“You have to determine where you can take cost out of the pipeline,” he said, “but, sooner or later, somebody has got to get paid for this stuff.”
He added that the money saved across the length of the pipeline by getting rid of duplication of effort could be more effectively spent elsewhere.
“We want to redeploy those dollars,” Thompson said, and he gave an example of how.
“IBM is showing a new radio-frequency tag, but we can’t afford it now,” he said. “If we can take cost out of the current pipeline, maybe we can apply those dollars to something that is going to provide more value to the retailer and the apparel manufacturer in the future. What I thought was great about this RF tag, is that you could walk out onto the selling floor of your retail customers and do a physical inventory at the color and size level simply by shooting your RF gun into the air. Again, that capability cannot be an added incremental cost. We have to drive cost out of the pipeline to get there.”
Larry Schiern, Carol Little Inc.
Like Liz Claiborne, Carol Little Inc. is putting a high priority on complying with retailer floor-ready and EDI mandates, according to Larry Schiern, vice-president of customer relations at the women’s sportswear manufacturer.
“The VICS standard movement is something we signed on to at the very beginning,” Schiern said. “The non-compliance charges struck a chord, and we decided we had better get in on the program.
“From the start, we wanted to produce a perfect invoice — an invoice that corresponds exactly to what the retailer ordered and received, right down to styles, colors and sizes. Therefore, when a retailer gets a shipment and an accompanying invoice from use, there would be no reason to take a deduction for any type of shortage or for an overage or substitution.”
Schiern said Carol Little has put a system in place that allows it to come pretty close to that goal.
“With our new shipping systems, all incoming orders are scanned into our system,” he explained, adding that the order information is translated into a bar code, the precise contents of which are matched when the order is picked in the distribution center.
“Each garment’s UPC tag is unique to that garment, by size, style and color,” he said. “And each UPC is unique in our systems.”
Schiern said the UPC ticket on each garment is scanned as the order is prepared for packing into a carton. If the scanned goods don’t correspond with the SKUs in the full-order bar code, warehouse employees go back and pick the correct merchandise.
But there is yet another check before the cartons leave the Carol Little distribution center.
“Each carton passes through a weight scale where the total weight of the carton is compared with the predetermined weights of its contents,” he said.
Such meticulous checking gives retailers the option of not opening the cartons and checking their contents at their retail distribution centers. Instead, they can spot check boxes and cross-dock the bulk of the shipments directly onto store-bound trucks.
“The stores can just scan the carton label, and they’ll know exactly what’s in each box,” Schiern said. “If they open the boxes and check their contents, everything should be exact.”
Carol Little’s efforts have paid off.
“We have found that our charges for shortages and substitutions are down tremendously,” Schiern added. “We still have some, but we feel that due to the way shipments are checked in by some retailers or it happens sometime between when the goods leave our DCs and get to the retailer DCs.”
Carol Little also decided not to fight the hanger program.
“When the industry came to us with the VICS standard hanger program, we could have fought it, we could have put a lot of energy into coming up with other ways of doing it, but we decided to sign on from the beginning,” Schiern said. “We wanted to be a leader in what we were trying to do. And that was to get our goods into the stores and out onto the floors in the least amount of time with the least confusion.”