Automated Ordering: What are the possibilities?

By Al McClain

I recently met with SAF - AG of Switzerland, a company that promises that great things are in store for retailers who adopt automated ordering. Not being an IT guy, I was curious about what the real potential for automated ordering is, and what the stumbling blocks may be.

SAF's system, under the product names SAF SuperStore and SAF SuperWarehouse, has recently been introduced to the United States. In a nutshell, the company promises to automate 95 percent of retailer orders, providing benefits such as reduced labor cost, improved inventory levels, lowered out-of-stocks (reduced to 2 percent instead of 7-10 percent, which they say is typical), and reduction of lost sales. They say "micro-forecasting," meaning item-specific replenishment, provides the basis for this capability. The system takes into account issues such as seasonality, promotions, price changes and holidays. At the warehouse, there is a parallel system that helps in optimizing logistics, reducing inventory, reducing out-of-stocks, improving truck loads and adjusting the ordering process to account for supplier restrictions.

The way I understand it, many retailers in the U.S. currently take inventory and make orders based on a combination of computer assistance and manual work. Two critical factors that are hindering the adoption of automated ordering, according to BrainTrust panelist and RAM Communications Managing Director Ron Margulis, are shrink and random-weight products. Since shrink can be as much as 3-5 percent of inventory, this can be a real problem. With random weight products such as produce, the issues include mismatches between shipping and selling volume, in-store processing waste and, again, shrink. In addition, poorly trained cashiers will combine bags of similarly priced fruits or vegetables, resulting in inaccurate inventories.

SAF promises to address the shrink issue with a sophisticated exception tool that will enable a manager to intervene on about 5 percent of the order lines. Random-weight products are difficult from a perpetual inventory perspective. The unit of measure for most items is quantity in selling units. Random weight products also have the criteria of weight by which product is priced and sold. Random weight can be dealt with by continually updating the average weight of the items which requires significant discipline at store level. SAF says that random weight products account for a very small percentage of the items sold and should be considered last, if at all.

SAF's European customers include the METRO Group and Woolworth Germany. In the U.S., Hannaford Brothers and Holiday Quality Foods are using the system, and two major retailers are in pilot.

The Founder and CEO of SAF AG, Dr. Andreas von Beringe, says what they do is "replace time consuming order review and order placement with the first truly automated store ordering system. We run thousands of items in a few minutes." A customer, dm-drogerie markt, which has currently 1700 drug stores in eight European countries, says that they have been able to automate nearly 100 percent of their orders using the system, enabling customers to find more products on the shelf.

Discussion Question: What is the real potential for computer automated ordering? Should retailers get at least a pilot going now, or "wait and see"?

Ron Margulis believes that the random weight issue needs to be fully addressed for an automated re-ordering system to have storewide benefits. Also, merchandisers/buyers at many retailers still have the culture of "I can order better than any machine", so there is an institutional hurdle that must be defeated.