The ROI on Transaction Visibility in the Retail Sector

QRS offers solution to let retailers, suppliers detect potential supply chain disruptions, avoid stock-outs, chargebacks

QRS offers solution to let retailers, suppliers detect potential supply chain disruptions, avoid stock-outs, chargebacks

Richmond, CA — October 15, 2004 — Retail solution specialist QRS has released a new transaction lifecycle visibility solution intended to increase supply chain efficiency and improve accuracy of trading partner communications.

The solution provider also announced that two major retailers, Boscov's and Federated, were both participants in the Beta program for its new QRS Reveal solution.

QRS said that Reveal improves the way that retailers and suppliers manage and monitor trading community transactions from original order placement through delivery and payment. The new solution, which builds on QRS' current product data management and transactional network offerings for the retail sector, allows retailers or their suppliers to monitor transactions to detect breakdowns in the supply chain.

Reveal monitors activity flowing through the QRS network, including purchase orders (POs), advanced shipping notices (ASNs), invoices and other transactional documents. Using the solution, a retailer could configure a rule within Reveal so that when the retailer has sent a PO to a supplier, an alert could go out to key personnel at both the retailer and the supplier if, say, two days before the "cancel after" date or one day before the requested receiving date, the retailer still has not received an ASN. With the alert signaling a potential supply chain disruption, the supplier can expedite the order to avoid a chargeback, or the retailer can look for alternative sources of supply to avoid a stock-out.

"This type of capability will help to reduce the execution breakdowns that are occurring between retailers and their suppliers," said Lincoln Yarbrough, senior product manager for Reveal at QRS. "It goes beyond just basic monitoring of transaction flows. It goes to business drivers and what the business people at our customers need. And when there's a problem, an alert can go out in time to avoid a supply chain disruption that can result in an out-of-stock or a supplier missing a sale or getting dinged with a chargeback."

Yarbrough said that Reveal could be configured to monitor essentially any business process, not just order management or order fulfillment processes. For example, accounts receivable people at one of the Beta test companies wanted to make sure that they were receiving invoices through the QRS system on time so that they can pay their suppliers on time.

A retailer using Reveal can extend the monitoring to suppliers that are not signed up to use Reveal or that are not even a customer of QRS, according to Yarbrough. But he suggested that a supplier might want to sign up for Reveal, for example, to do self-monitoring of their own operations so that they don't have to rely on the retailers and so that they can reduce their chargebacks, or to make their accounts receivable more efficient by ensuring that they're sending invoices out on time. "There's a whole set of rules that a supplier might be interested in but that a retailer would not [find interesting]," Yarbrough said.

Liz Fetter, president CEO and director of QRS, said that Reveal came about as part of an initiative late last year within QRS to extend the value of the transaction network that the company operates for its retailer and vendor customers. Currently the network handles about three-quarters of a billion transactions annually. "As we were thinking about new products to offer, we worked with our customers to understand which of their critical business problems QRS could solve, particularly those that were close to what QRS already does on the transaction side and with product information," Fetter said.

One problem that rose to the top was the lack of visibility that retailers and suppliers have across their trading communities and supply chains. This lack of visibility results in significant costs, including stock-outs for the retailers — not having the right product on the shelf at the right time — which can cost them up to 4 percent of their revenue line in lost sales. And when the suppliers don't get the products delivered in line with commitments, or if they short their shipments, they get charged back from the retailers, and those costs can be as high as 8-9 percent of their revenue line.

In working with its customers, QRS developed a user interface that it tested with customers last year, and the provider started development on Reveal early this year. QRS brought Reveal into Beta around June with some of its larger customers, including Federated, Boscov's and Levis, and introduced the product to the general market at the end of September.

Steve Shiovitz, supply chain services manager of Levi Strauss and Co., suggested that Reveal could help improve business relationships with his company's retailer customers because it gives suppliers the ability to be proactive and will promote a more collaborative approach to problem solving. "If a supply chain breakdown is detected in advance, retailers can be contacted and alerted," Shiovitz said. "With QRS Reveal, resources can be applied on both sides of the transaction to resolve the issue proactively, or even avoid problems altogether."

Yarbrough said that pricing on Reveal will be based on how many documents a company is tracking. Based on that number, a tiered rate applies.

On the return on investment (ROI) side, Yarbrough said that QRS uses an ROI model for retailers based on the customer's out-of-stock rate and what percentage of the retailer's out-of-stocks are related to supply chain or execution issues that Reveal addresses. (On average, according to Yarbrough, a retailer's out-of-stock rate is about 4 percent of its revenues, and 28 percent of its out-of-stock rate is related to supply chain issues.) Based on this business analysis, QRS estimates how much Reveal can reduce the out-of-stocks and related costs. The provider also looks at the internal costs that the retailer is incurring related to disruptions, for example, labor costs when trucks show up at the wrong time at a distribution center, as well as the impact on the retailer's chargebacks, which actually should see a reduction.

On the supplier side, the ROI is more related to reducing chargebacks, which can be significant for suppliers both large and small. A small supplier, for example, that fails to send an EDI acknowledgement within 24 hours of receiving an EDI purchase order — or that fails to send an ASN within a certain timeframe, or falls below a certain fulfillment rate or provides substitutions on an order — might incur a charge ranging from a flat $200 to a percentage of the PO. "That could hit thousands of dollars," Yarbrough said. "So the ROI for a supplier is straightforward: how much are you paying in chargebacks related to things that Reveal could address, or how often are orders canceled when Reveal could have caught it."

Research by the supply chain analyst community suggests that the type of supply chain monitoring that Reveal offers can have a substantial impact. According to Beth Enslow, vice president of enterprise research at technology consultancy Aberdeen Group: "Our research shows that companies that proactively monitor the order fulfillment process routinely achieve 20-40 percent improvements and greater in lead times, perfect orders and data error reductions. Proactive tracking capabilities are rapidly becoming a key initiative for companies because of the supply efficiency and reliability gains they enable."