MUSCLING IN ON QUICK RESPONSE
RETAILER – INITIATED EDI MANDATES IRK SOME SUPPLIERS BUT COULD PROVE A LIFELINE FOR SMALLER VENDORS
Byline: MATT NANNERY
NEW YORK — Powerful, volume retailers are sending a clear message to the manu- facturers who supply them: Get up to speed on EDI or pay the price. Dillard’s, Federated and Younkers have in the past several months mandated that their suppliers communicate documents including purchase orders, invoices and, in some cases, advanced ship notices electronically. Some retailers are also mandating that goods be ticketed and shipped on hangers ready to roll directly on to the selling floor.
The move to mandate is far from collusion on the part of the retailers. Many who’ve been quietly coaxing their suppliers to speed replenishment say they’ve simply grown impatient with those who’ve been slow to modernize.
“Electronic data interchange standards have been in place since 1987, but some manufacturers still aren’t taking advantage of them,” commented Dan Smith, senior vice-president of information systems at Younkers. “The government got a rocket ship to the moon faster.”
Retailers justify the penalties, generally chargebacks, on the grounds that it costs them more to process paper documents than to transact business electronically.
“Mandating is the stick that is finally getting the large majority of manufacturers to move forward with EDI,” said Gay Millson-Whitney, electronic data interchange director at Saks Fifth Avenue, which does not currently mandate.
“Financial mandates from the Dillards and Federateds have certainly moved this forward in a way that wouldn’t have been possible otherwise,” added Valerie Burcham, EDI manager at Belk. “They are very progressive.”
Dillard’s began mandating Quick Response on July 1. Federated followed on Sept. 1, and Younkers’ mandates took effect on Oct. 1.
Dillard’s charges $50 for each paper purchase order it must generate for suppliers who cannot receive them electronically. A $50 charge is accessed for processing each paper invoice.
The charges also extend to carton marking and UPC ticketing. Younkers charges $5 per carton if it does not receive an EDI shipping notification, five cents per unit if there is no price on UPC tickets and $2 per carton if that carton does not display a UCC/EAN-128 shipping label. A 10-cent per unit charge is assessed if a unit is not UPC marked, and a $25 fee plus 10 cent-per-unit charge is assessed if a UPC mark is incorrect or of poor quality.
The mandates are largely a moot point with some volume suppliers. Companies like Haggar, Estee Lauder, V.F. Corp. and Levi-Strauss & Co. have been successfully transacting business electronically with retailers for some time. “Our commitment to EDI, floor-ready merchandise and Quick Response has definitely increased our turns, and retailers have broadened the selection of products they purchase from us,” commented Marsha Parr, vice-president of corporate Quick Response at Haggar. Lynn Hazlett, vice-president at VF, however, said the mandates are making life difficult for smaller vendors who haven’t invested in EDI. “The retailers are requiring the vendors to move forward more quickly than some would like to,” he said. “They are probably doing the right thing by instituting the mandates, but mandates are going to be very painful to some manufacturers.”
“EDI will have the immediate effect of shrinking the number of suppliers retailers deal with,” added Aaron Schorr, who heads the Quick Response Center at New York’s Fashion Institute of Technology. “And mandates may further shrink the pool of suppliers.”
Hazlett agreed. “It may have the effect of sorting some vendors out,” he said. “If complying with the mandates adds four or five cents to the cost of a garment that might represent a significant portion of a vendor’s margin.”
Despite the initial pain of compliance, retailers and vendors alike say there is a definite cost to non-compliance that goes beyond the chargebacks. The reticence of many smaller vendors to regear their operations to handle EDI and floor-ready merchandise has created a situation where it is cheaper and easier for retailers to partner with the more technologically adept, generally larger, players. Should that trend continue, observers feel the negative effects on vendors would be greater than the current discomfort the mandates are causing.
“If you are going to do business with companies like Federated, you have to be able to communicate with them,” comemnted Norman Fryman, executive vice-president at Bidermann. “We will be investing in computer technology to enhance Quick Response and to transmit documents via EDI.”
“Retailers had been calling on the vendor community to help them serve the customers better, but now they are putting some serious teeth into compliance,” added Bill Cobb, vice-president of logistics services at Kurt Salmon Associates, the Atlanta-based consulting firm. “Certainly, we are seeing an effort by our vendor clients to provide the Quick Response services required by the retailers.”
Though retailers say they will never discontinue products that sell well even if the companies that market them are not up to speed on EDI, the situation remains a precarious one for apparel makers who are not EDI capable.
“We are not going to turn our backs on good merchandise, but there is definitely a bottom-line benefit to working with vendors who are EDI-capable and/or can supply floor-ready merchandise,” commented Scott Fitzpatrick, manager of EDI administration at Mercantile.
“Quick Response has provided a way for manufacturers to differentiate themselves from the pack by providing the services retailers want,” KSA’s Cobb added.
Millson-Whitney said Saks is one of a number of retailers who’ll institute mandates once their internal systems are set up to reap maximum benefits from EDI.
“We are planning on mandating next year,” Millson-Whitney said. “Right now, it doesn’t make sense for us to move on mandates because we don’t have all the EDI transaction sets in place.”
Burcham said Belk is in the same situation. “We are not mandating right now, but that doesn’t mean we definitely won’t sometime in the future,” she said. “We aren’t fully EDI proficient ourselves yet. We are handling purchase orders electronically, but won’t start handling invoices via EDI until the first quarter of next year.”
Even retailers who feel mandating EDI may be extreme are nudging suppliers to use the technology.
“We have asked all our vendors to implement the core EDI documents — purchase orders, invoices and advanced ship notices, along with the functional acknoledgements of them,” commented Mercantile’s Fitzpatrick. “But some of our vendors are adopting EDI slower than we’d like. EDI is not rocket science. It’s quickly becoming the norm in the industry.”
Mercantile, however, has shied away from mandates.
“There are some downsides to mandates,” Fitzpatrick said. “Mandates might force suppliers to implement EDI quickly, but they might not do it well. We want to work with vendors, but if the situation changes, we might eventually have to mandate also.”
Federated is among the vanguard of advanced users of EDI. In addition to exchanging purchase orders and invoices electronically, the retailer is also set up to receive advanced ship notices from its suppliers.
Because of the problems manufacturers face in regearing to produce them, Federated has chosen not to penalize vendors who do not transmit ASNs.
“There are several companies who are charging manufacturers who don’t have ASNs — we don’t,” commented Lisa Lichtenberg, a divisional vice-president at Federated. She added that the company’s move to mandate was not designed to be punitive or to create revenue.
“Federated didn’t go down the technology path to make money,” she said. “We did it to serve the customer better. Manufacturers who don’t realize this are not going to be competitive in the future.”
Smith said Younkers has approached mandates from a similar perspective. “In no case do we make a profit on this,” he said. “We even charge a little less than our costs. By mandating, we are telling our suppliers we feel this technology is state of the art. We want them to be aware of the fact that it costs us more to process their merchandise manually and that we want them to move toward EDI.”
All retailers who’ve instituted or plan to institute mandates say suppliers are informed of the plan before the mandates actually go into effect. Often the time cushion is as important to the retailers as it is to the suppliers.
“We are phasing in dates for different mandates,” Smith explained. “We are trying to give the manufacturers a six-month notice. We don’t want to get 6,000 manufacturers going at once. If we did, we wouldn’t be able to handle the processing of getting them integrated.”
“We will issue a warning well in advance of any mandate,” Millson-Whitney of Saks said. “And we will do our best to assist vendors to comply with EDI.”
Younkers’ Smith was quick to point out that retailers’ mandates of suppliers are not without precedent.
“Penalties are not new,” he said. “The retail world used to charge suppliers if they sent merchandise late or if incorrect merchandise was sent.”
Smith said that in those cases penalties cut down on product substitutions.
Though Mercantile has chosen not to institute EDI and floor-ready merchandise mandates, the retailer is benefiting from the ripple effect of mandates put in place by other retailers.
“Many of our manufacturer suppliers are implementing these things because they’ve been mandated by some of their larger customers,” commented Fitzpatrick.
Automating replenishment is attractive to retailers for a number of reasons. Accurate billing and labor savings in their accounting departments are the “low-hanging fruit.”
When purchase orders and invoices are transmitted electronically, retailer personnel don’t have to rekey information regarding individual orders into their computer systems. This bears the dual benefits of cutting labor costs and eliminating human error in rekeying information. If suppliers and retailers are working off the same input information, the likelihood of billing discrepancies, is also greatly reduced. The latter issue is appealing to both retailers and vendors as investigating and resolving such discrepancies represents a costly administrative burden.
“We can do automated invoice matching, rather than having people key them in,” Belk’s Burcham said. “That results in less human error from rekeying and lower payroll costs.”
“EDI definitely saves labor in accounts payable,” Mercantile’s Fitzpatrick added. “And there is less of a chance of errors creeping into the information.”
FIT’s Schorr said cutting down on manual errors is among the concerns driving retailers to mandate.
“The fewer times information is touched, the greater probability that it is accurate,” he said.
VF Corp.’s Hazlett agreed. “Investigating discrepancies is very expensive,” he said. “That is where EDI, whether mandated or entered into voluntarily, is going to save money for both the retailers and the manufacturers.”
FIT’s Schorr added that vendors of all sizes that recognized the potential efficiencies of EDI early on are edging out their competitors.
“Some of the smaller suppliers have gained business because they jumped on this technology early,” FIT’s Schorr said.
Retailers remain committed to the technology and say there is no going back.
“For the retailer, EDI pushes the time cycle along,” Burcham said. “It lets us order repeatedly in small shipments and cut inventory.”
Burcham said trying to replenish in the Quick Response mode would be difficult, if not impossible, without EDI.
“When you order in lower amounts, you are actually creating more invoices,” she explained. “If you are not handling purchase orders and invoices electronically, the extra work would be overwhelming. You really need to do this.”
“EDI and floor-ready mandates let us get merchandise to the customers as quickly and inexpensively as possible,” said Younkers’ Smith. “Now we can cross dock shipments rather than open boxes in the DC. We’re getting merchandise to the stores between two and five days faster than we used to. And that’s good for both Younkers and our suppliers.”
“EDI allows us to get our products to the selling floor much more quickly,” added Haggar’s Parr. “Products don’t have to be opened until they get to the selling floor. If we had to go through the conventional receiving process, we could lose up to two weekends of prime selling time.
“We’ve cut out at least two days between when our products leave our docks and when they reach the selling floor,” she continued. “In some cases, the difference is as much as five days.”