Sainsbury's Supermarkets, with the help of Microsoft Certified Solution Provider EQOS Systems, has recently launched a new supply chain initiative for all its suppliers to boost efficiency and communication. The Internet-based information sharing and collaboration system, which has recently gone live, will eventually allow all 4,000 Sainsbury's suppliers to strive towards the Efficient Consumer Response (ECR) principle of integrated supply and demand. The solution, the first retail system of its kind in the UK to be based on the Microsoft Value Chain Initiative, also has the scope to be dramatically extended in the future, to allow for efficient new product introduction to the shop floor, better product promotion planning and co-managed forecasting across the supply chain.

The Company

Sainsbury's, founded in 1869,d its first store in Drury Lane, London, with the promise of 'highest quality at keenest prices'. In 1998, with around 400 stores in the United Kingdom, Ireland and America, and total sales of £11.6 billion, Sainsbury's is still bringing the best products and high service quality to an increasing number of consumers. In a market that is fiercely competitive, product promotions, customer loyalty, quality of produce and availability all drive market share and position.

Customer perceptions of a retail organisation can drive the success or failure of retail outlets. Whether it be the quality or freshness of produce sold in the store, or lack of vegetarian or organic goods, supply is driven by the desires of the consumer. Recent initiatives, such as Sainsbury's 'Orderline'home shopping, Sainsbury's Bank and the Reward Points scheme are all proving successful in improving customer loyalty and increasing the offerings Sainsbury's can bring to the market place. Inevitably however, a company will only survive if it offers the best service and quality in its core business. Recently, Sainsbury's has implemented a solution with the help of EQOS Systems Limited, who are members of the Value Chain Initiative. The Value Chain Initiative (VCI) is a Supply Chain-based industry initiative sponsored by Microsoft. Members of the VCI are Retailers and Microsoft Solutions Providers who develop line of business applications within the Supply Chain using Microsoft technologies.

The Situation

The visible service Sainsbury's provides to customers can only be as good as the invisible supply chain that supports it. To this end, Sainsbury's invests a significant amount of time and money in assessing best practice in all of its operations, including Logistics Management. John Rowe, Director of Logistics at Sainsbury's, set up Logistics 3 years ago, with the specific task of centralising the management of logistics and assessing how the supply chain could be more effectively managed.

Solution Summary

He explains: "When I joined Sainsbury's, supply chain logistics was managed in three separate functions; distribution, trading and retail. My remit was to re-engineer this into one single group and one single process, in order to optimise the supply chain. Sainsbury's is aiming for Just in Time (JIT) supply, which means a continuous flow of products as and when outlets need them. The problem with the old process was that, as product was passed from group to group, stops in the flow of product occurred, reducing responsiveness. With clear ownership of the supply chain process, we can effectively keep product moving, allowing the supply chain to be responsive for the customer."

There are over 400 people supporting Logistics. With half the group focused on business processes and the other half focused on IT systems development. The group structures itself into joint teams to drive projects with a clear business focus.

Efficient Consumer Response

Since John Rowe's appointment, there has been a gradual change in the way Sainsbury's has worked with its suppliers and partners. A significant focus of Sainsbury's drive to satisfy the consumer is based on what is known as Efficient Consumer Response (ECR). Originally an initiative driven from the United States and adopted in Europe in 1994 (see http://www.ecr-europe.com/), ECR aims to provide the retail consumer with best quality service through integrated partner collaboration, information sharing and efficient supply-chain operations. Hence, this drive towards ECR cannot be fulfilled by Sainsbury's alone, as it relies on the retailer's and supplier's supply chain providing products in a JIT way. Therefore, the accurate and timely sharing of information between the systems of different parties within the chain is essential to ECR.

ECR has been a philosophy in practice within the retail market in the UK for about two years and Sainsbury's has embraced it, as have other major retailers. John Rowe explains: "The use of ECR principles is extremely beneficial in a number of areas, but particularly important to us is the benefits it brings to product promotions. ECR has estimated that across Europe $4 billion can be saved from efficient promotions. With so many people involved in a process inefficiencies are inevitable. The benefits from resolving these can therefore be immense."

Estimating customer response to a new line or product promotion is difficult and sometimes expensive. ECR encourages retailers and suppliers to share information in real time on the performance of promotions from day one, thus enabling the most correct estimation of stock levels, as well as dictating correct production levels to the supplier. Therefore, it can also significantly reduce product waste, especially within the perishable goods market or high residual stock in non perishable.

John Rowe continues: "ECR alsod up communications between Sainsbury's and its suppliers. It was no longer just a conversation about best price. There is much more sharing of information and joint decision making. It was logical therefore that we should develop systems to communicate essential information with our major suppliers and, eventually, with the rest of the chain."

Value Chain Initiative

This information sharing is an element of what Microsoft describes as the Value Chain Initiative. The Initiative aims to improve end-to-end supply-chain efficiencies, from the blending of raw materials to the product in the consumers' hands, by enabling dynamic sharing of business information between new and existing trading partners. By linking applications in a number of specific supply-chain industry segments (distribution management, electronic commerce, import/export, transportation and warehouse management) VCI aims to enable integrated, best-of-breed supply-chain solutions, sharing dynamic data in real-time.

In the past two years, Sainsbury's has used IT to circulate information between the members of its supply chain. Initially, product catalogues were circulated, making sure that all parties concerned had correct product codes and orders. Next, when efficient product promotions were highlighted as a 'big win'area for development in customer service, more complex information systems were developed. John Rowe explains: "We developed the Sainsbury's Information Direct, a web based information service for suppliers, with the aim of sharing information and jointly managing processes relevant to improving supply chain performance such as stock and sales data."

He continues: "There is a need to communicate differently because of the way the business is changing. The information needed to be clear, and decisions taken on that data need to be taken jointly. With this in mind, a gradual migration has occurred from infrequent data, published on paper, towards frequency information sharing on the net and now, collaborative processes. These processes could not be supported by traditional communication methods. We needed to look at further IT solutions that would enable the communication process to be effective."

The Solution

"Availability of software to manage uplifts in promotional lines is not commonly available in today's market, although this is slowly changing. Consequently, when we looked at implementing the new systems there was not much choice. Mike Quinn, co-founder and Director of Business Development at EQOS Systems Limited, comments: "We developed the EQOS Collaborator system when we saw a gap in the market for companies looking to integrate their supply chains more closely. Whilst there was a change in business culture, as well as emerging Internet standards and technology, there was nothing in development at the tools level which helped companies create what they needed to support their goals. We decided to build a tool that allowed companies to publish information, in a manner that could be easily viewed and downloaded into legacy systems and back, and which would support the co-managed business process. All this could be developed usingMicrosoft technology, which we have standardised on."

Mike Quinn adds: "We decided to develop EQOS Collaborator using Microsoft technologies because this enabled us to deliver a high degree of collaborative functionality very quickly. The wide range of Microsoft tools and available skills in the market was also an important factor. In addition, EQOS'vision of providing a unique collaborative software tool to enable supply chain integration is entirely consistent with the Value Chain Initiative. Working with Microsoft on VCI is enabling us to reach a wide base of companies who are looking towards innovative software solutions for their supply chain needs."

The EQOS Collaborator software package allows companies to automate and simplify the way business information is exchanged amongst companies and their customers, distributors and suppliers. Using EQOS Collaborator, companies can build applications that support and improve inter-company processes, so called "Collaborative Events", which require sharing of dynamic information between trading partners. In future, EQOS is looking to build the Microsoft Commercial Internet Pipeline technology into the solution. The Commerce Interchange Pipeline (CIP), a significant new feature of Commerce Server, is a simple system for enabling application-to-application interchange of structured business information using the Internet, email, or third-party EDI Virtual Added Networks (VANs). The CIP provides a standard method of sharing any type of business critical data over any network between businesses.

Benefits

A trial of the new EQOS solution began in April of this year. Initially, one major supplier of Sainsbury's, Nestlé, agreed to participate in the web-based collaboration system, but the solution worked so well that, even before the completion of the trial report, more suppliers were being added in June 1998. Now, Sainsbury's is aiming to get a third of its supply chain volume on the system by the end of August 1998. Tom McGuffog, Planning and Logistics Director at Nestlé UK, comments: "Nestlé invests millions of pounds ensuring that our information systems are optimised to provide our customers, the retailers, with the best possible service. Internet based systems like EQOS Collaborator now give us the opportunity to synchronise dynamic supply chain information with that of our customer. This helps to ensure that we both deliver the best possible service to our common customer: the consumer."

He continues: "We believe this project with Sainsbury's will deliver some very tangible benefits - such as improved communications leading to better on-shelf stock availability, and therefore to more cost-effective promotions. That is good news for our customers and consumers."

The trial of the EQOS system threw up some surprising results. John Rowe explains: "Forecasting of promotional uplift is difficult. However, we had a feeling that the reason why spikes in the supply chain occurred was not through poor forecasting but poor planning.

The system exposed the fact that in some cases suppliers had different expectations of, for example, the planned dates of promotions or the codes of products. We were surprised that some of the differences were so big, but importantly we were able to see them before the start of the promotion. We can then go back to the manufacturer and together agree the correct dates or best estimates." The system also exposed some unexpected benefits. John Rowe continues: "Information about regional advertising of a product can also be shared and this allowed us to influence the specific store systems to ensure we satisfy customer demand. With the EQOS system, information and knowledge can be circulated very quickly. Now several of our suppliers have started to use it, there seems to be an increasing thirst for data which can improve decision making. The good news is that it means that the consumers will get the specific product they need."

With the new EQOS system, Sainsbury's will be able to place new lines of goods, as well as product promotions, in stores in a much shorter time. Quantities can be predicted and managed in a much more accurate way, whereas previously there was a difficulty in matching the correct stock to demand ratios. John Rowe adds: "Now we can co-manage forecasts with our suppliers, whereas previously we worked in isolation. Branded suppliers will have far more of an idea about what the impact of the advertising plans are, promotions they are running, and so on, so we can let them update our forecasts of their products on a continuous basis."

Another hidden benefit that the customer may not see is also the ability to pass on consumer comment to suppliers in a quick and efficient manner. John Rowe explains: "We will be able to pass on consumer dislikes, comments and desires much more efficiently. Where previously paperwork was a bit of a nightmare, and the feedback loop was complex, we can now focus on responding to the customer quickly."

Significantly, the EQOS system will be available to Sainsbury's suppliers for free, reiterating Sainsbury's commitment to improving customer service and to the Value Chain Initiative. John Rowe explains: "Our supply chain is increasingly being organised in a virtual way. This will bring huge benefits, but relies on information support systems which are integrated across company boundaries. We see Microsoft's vision of VCI as the motorway, a road on which we need to drive to get information moving around between companies. The standards need to be there to make sure we all gain the benefit of the motorway and drive on the same side. The EQOS system based on VCI fits with this as it fulfils the business need for easy communication."

Mike Quinn adds: "Sainsbury's has taken an important lead in shaping the way it and its suppliers can jointly benefit from developing collaborative information systems. Importantly, this initiative extends to how Sainsbury's suppliers can fully integrate these collaborative applications back into their own legacy systems, and ultimately with their own suppliers. We've been working closely with Sainsbury's and their suppliers, together with industry bodies such as ECR UK and the Article Numbering Association, backed with the support of Microsoft. We want to ensure that this market leading initiative continues to provide the best of breed applications and underlying technologies to support co-managed and cross-functional collaboration."

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"Working with Microsoft on VCI is enabling us to reach a wide base of companies who are looking towards innovative software solutions for their supply chain needs." Mike Quinn, co-founder and Director of Business Development at EQOS Systems Limited. For More Information Sainsbury's http://www.sainsburys.co.uk/ Microsoft Connection or http://www.microsoft.com/uk/business

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