Ever-increasing pressure on margins means food and beverage retailers need to look more closely at extracting value from their back-office processes and EDI (Electronic Data Interchange), including how trading documentation is managed, says Jack Naish, food and beverage sector specialist at Transalis.
Margins in food and beverage retailing are under the spotlight as never before with a multitude of pressures facing the sector as we head into autumn.
While Eat Out to Help Out brought a much-needed late-summer fillip for pubs and restaurants, the wider economic impact of lockdown looks set to challenge grocers, suppliers and distributors for some time to come.
Online ordering and home delivery is rocketing during the pandemic with consumers swapping trips to supermarkets and High Street shops for the ease of ecommerce and products brought direct to the door.
The highest profile market development in home delivery is the new tie-up between M&S and Ocado, putting both in direct competition with Waitrose.com.
The stakes are high for all involved. The problem with online food retailing is that the profit margins on moving such perishable items around the country are relatively small. They typically account for just three to five per cent of earnings before interest and tax, meaning that the more delivery you do online, the greater the potential to erode your net profit.
The annual food bill for UK consumers is set to reach £211bn by 2022, with £1 in every £11 spent on online orders. Already, the combination of lockdown and price competition between M&S, Waitrose and other players has seen online grocery shopping double its share of the retail food market to 14%, making it the fastest-growing part of the food sector.
Getting the pricing right, battling the competition and keeping customers on board is difficult enough without dealing with Covid, but the pandemic rollercoaster continues both for online players and bricks and mortar outlets.
As well as ensuring onward distribution to consumers is financially viable, food and drink retailers and wholesalers have a tricky balance to strike in optimising the efficiency of their back-office processes, including their supply chain management.
Across UK industry as whole, supply chain inefficiencies are estimated to cost around £1.5bn per year.
On average, UK businesses trading overseas waste around three hours per shipment funnelling data between supply partners. Shipments to non-EU partners incur 17% more wasted time.
Even before Covid, supply side factors were affecting M&S as a disappointing 2019 came to a close. The retailer conceded it had ordered too much festive fare in the fortnight before last Christmas, creating a surplus it found difficult to shift. Having to discount this food mountain inevitably harmed profit margins. At the same time, M&S blamed an ‘overly complex’ supply chain for keeping food too long in the delivery system rather than on the shelves.
Taking out cost and complexity in the supply chain has many benefits. Done properly, it means you can avoid excess stock and markdown while shortening clearance periods and maintaining product availability.
The efficient management of trading documentation has a key role to play. Electronic data interchange, or EDI, is the preferred solution for ensuring different supply chain systems can speak to each other. It smooths the flow of essential information associated with orders, invoices, advanced shipping notices and other trading documentation.
Over the years, EDI has introduced time and cost savings, improved accuracy and eliminated the need for most paper documents. So where’s the catch? Why aren’t more retailers optimising their back-office processes with EDI?
The answer lies in IT development generally, namely the relentless march of technical innovation coupled with user expectations.
If you are a retailer dealing with multiple trading partners, especially if together you are processing thousands of customer orders, you are likely to diverge in your EDI ‘world view’. This is because different users will have typically deployed a range of data formats, source files, interface files, management tools and processes. There will be different trigger points for extracting data, different ways of encoding and using data, and a spread of expectations on the outputs. The best way to resolve all this is a managed solution that meets all the formatting and translation requirements of your supply chain.
Built-in integration means all your business documents, including structured and unstructured data, can be exchanged without you having to learn the technical ins and outs.
A cloud-based EDI solution such as Transalis OpenEDI, created and developed over many years by experts in supply chain analysis, achieves this. In a nutshell, it automatically maps the required data output from the source file into the relevant EDI format for you. As soon as it is up and running, you and your partner or partners can be trading electronically within minutes, secure in the knowledge that you are supported by a robust, agile, scalable and high-performance platform.
In a sense, the multiple pressures being felt in the retail sector right now constitute the perfect storm for which EDI was designed. Thanks to process digitisation and automation, EDI paper-to-digital solutions take fluctuating workflows and orders in their stride. New trading partners can be onboarded in a fraction of the time taken using paper processes.
This means retailers and wholesalers can enjoy new levels of supply chain agility as they swiftly chop and change trading partners to ensure continuity of supply. Order delivery and the all-important order-to-cash cycle are also accelerated thanks to the fact that cloud-based EDI completes transactions faster and more accurately than ever before.
Recent advances in technology mean cloud-based EDI solutions are no longer reserved for the bigger brands. They are now within easy reach of tier two and three suppliers.
With Covid and other factors intensifying the trend to online home delivery, and with the uncertainties of Brexit on the way, relying on antiquated systems means you risk missing out on competitive advantage at a time when opportunities may be few and far between.
Resetting the way trading relationships work will not be easy but, when it comes to the technology for achieving cost-efficient document processes, EDI looks set to continue its role as the go-to solution for supply chain management. Isn’t it time you took a fresh look at how greater automation can support your search for greater margins?
Jack Naish is food and beverage sector specialist at supply chain optimiser Transalis. The principle aim of Jack’s role is to help clients in the food and beverage sector leverage EDI technology, so enabling them to trade at a global level. To discuss how EDI can support your supply chain efficiency, contact Jack on 0845 123 3746 or visit www.transalis.com.