Is it Time for Scan Based Trading?
By Bill Bittner
As the brick and mortar retailers continue to work against the encroachment of online retailers, one of the huge weights on their backs is the investment in presentation stock
they must make in order to merchandise vendors’ products.
Whereas the online retailer invests in a Web site and/or catalog images of the vendor’s products, the brick and mortar retailer must display the actual item at each store location.
The ability to eliminate this investment in inventory would have a huge impact on the retailer’s return on assets.
Scan Based Trading (SBT) has been around for many years, but has not spread much beyond the magazine and ice cream categories. Under SBT, the retailer does not take ownership
of the products on display in its stores. Vendors are paid based on scanning data recorded when the product is sold. The advantage to the retailer is obvious.
The advantage to the vendor is subtler. By not transferring ownership, the vendor no longer has to wait for store personnel to verify deliveries. Also, if the SBT solution is
tracking inventory, it can cut the trips the driver makes from the parking lot to the shelf in half. As the driver leaves the truck, they can have the product they need to replenish
the store without first walking into the store to count the remaining inventory. Some damaged product that is collected may not be replaced, but most often this will not be enough
to warrant another trip to the truck. Also, since delivery check-in is not required, deliveries can be made during off hours such as overnight when traffic is much less.
So the vendor gains by speedier deliveries resulting in lower labor and equipment costs. (This is the reason ice cream has been popular because, the investment in freezer trucks
is costly.) The partnership between the retailer and the vendor is strengthened because their goals become more closely aligned. With SBT, they both want to see product sell,
not just transfer ownership from one to the other.
There are a couple challenges to the implementation of SBT. The first is the concern that by not taking ownership, retailers will lose an incentive to care for the products lining
their shelves. Vendors fear the burden of inventory losses will not only shift from the retailer, but also increase because of a lack of retailer concern.
The accuracy of scan data as the basis for payment can be a challenge. The retailer’s POS system must be coordinated with the vendor’s delivery system so that UPC’s or EAN’s
that are delivered to the store are assured to be captured by the POS system when they are sold.
Moderator’s Comment: Can SBT be a viable way to help brick and mortar retailers? Is the opportunity to display their product for consumers important
enough to vendors that they will support SBT? Are there ways to address the concerns of vendors? Are there other obstacles?
A bunch of things are coming together to make SBT technically feasible. The coordination of vendor and retailer databases through data synchronization ensures
that what is received is captured when it is sold. The implementation of data warehouses for scanning data that are supported by “trickle feeds” from POS systems make near-real-time
With the technical hurdles subsiding, the pressure now shifts to the business processes and the business partnership. I believe that by implementing auditing
processes and explaining the importance to vendors, vendors will recognize that the benefit of having their product on display outweighs the potential risks of SBT.
If it becomes widespread, SBT has the potential to improve retailer’s financial results and strengthen their partnership with vendors as objectives become
more closely aligned. –
Bill Bittner – Moderator