Retail

The Missing Link in the Retail Supply Chain

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On This Page

	Why Collaborating with Trading Partners is Key
	The Changing Face of Retail Worldwide
	Why EDI Usage Continues to Grow
	About the Analysts
	About the Partner

New technologies are helping large retailers to collaborate more extensively on a range of integration issues as integrated supply chains become increasingly critical. Yet midsize retailers remain at a disadvantage when implementing complete business-to-business (B2B) solutions with trading partners. They’re falling behind in such key areas as transportation management, collaborative demand planning, trade promotion management, product development, and radio frequency identification (RFID) technology.

Although many large retailers and the consumer packaged goods manufacturers have invested heavily in integrating legacy systems using electronic data interchange (EDI) and extensible markup language (XML), midsize retailers are hard pressed to keep up. Because most midsize retailers cannot develop hard-wired connections with all of their top product manufacturers and trading partners, they don’t always share enough data—or the right types of data—with manufacturers. (See the "Why Collaborating with Trading Partners is Key" table below.)

The new alliance between Microsoft and GXS, Inc., (see The Fast Track to Supply Chain Innovation) provides an online trading hub along with related software to help solve a major connectivity challenge for midsize retailers worldwide. Using Microsoft BizTalk Server 2006 to connect to the GXS Trading Grid, midsize companies will, for the first time, be able to collaborate in real-time and on equal footing with their largest competitors.

Until the advent of BizTalk Server, implementing message-based e-commerce was time-consuming and expensive for large retailers creating direct links with their highest volume, largest manufacturers. Retailers that made only a few transactions per year with a supplier met their needs by placing orders manually through the supplier’s portal. The problem, according to Bill Swanton, vice president of research for Boston-based AMR Research, arises for the midsize retailers in between. They face constant challenges because they have limited IT resources and a significant number of transactions to conduct with suppliers.

Why Collaborating with Trading Partners is Key

As the table below indicates, most retailers agree with the statement, "We suffer business effects when we don’t collaborate with our trading partners."

Source: Forrester Research, 2005 shared strategy study of 89 retailers and 120 manufacturers

"This is where the company isn’t big enough or IT–savvy enough to implement EDI or XML but they still do many transactions with their most important suppliers every day," Swanton says. In this situation—which is where most midsize retailers find themselves—a company may lack the resources to forge direct connections with its top suppliers, but the volume of transactions makes manual order entry to the supplier portal impractical.

The Microsoft–GXS alliance addresses this very conundrum. For these retailers, the GXS Trading Grid presents a great solution, giving trading partners the ability to connect and exchange information within their own enterprises and with suppliers across the globe. With BizTalk Server 2006 operating behind the firewall and in the GXS Grid, the solution works as a single integration platform, delivering real-time visibility throughout the supply chain. Using real-time monitoring tools and alerts, retailers benefit from increased stock turns, improved fulfillment rates, maximized trade discounts, and increased sales.

For example, a midsize grocer is a new customer of the alliance, relying on a warehouse management system as well as on BizTalk Server to link a variety of legacy applications related to ordering, receiving, billing, and accounts payable. The grocer relies on BizTalk Server as its internal integration tool and on the GXS Trading Grid for managing shipments into and out of its wholesaler warehouse. The new solution improves on-shelf availability by avoiding stock-outs, directly affecting revenue and profitability.

Making the Right Connections

Using BizTalk Server 2006, a midsize retailer can send a purchase order or other document to the GXS Trading Grid. The grid then translates it into whatever B2B format the customer prefers, including EDI, XML, the language of their enterprise resource planning (ERP) software, or a flat file. Companies that connect with one supplier on the GXS Trading Grid can then connect with many others using the same technology and knowledge. The GXS Trading Grid is a one-to-many platform. More than 20,000 companies already do business there. Retailers can use it as their electronic collaboration hub for virtually all of their suppliers and trading partners.

Though e-enablement is a top priority for retailers of all sizes, a projected slowdown in U.S. retail sales growth from 6.1 percent in 2005 to 4.7 percent in 2006 (source: National Retail Federation) will likely lead toward tightly prioritized IT spending. Demand planning and forecasting top the list of automation requirements; price and promotion efforts also rate highly. In this climate, the BizTalk Server grid-ready solution provides a welcome electronic forum that is easy and economical to implement.

Beth Enslow, senior vice president of enterprise research for Aberdeen Group, a Boston market research firm, predicts that more midsize companies will automate their supply chains because of the alliance. This solution “gives midsize companies the ability to connect and communicate electronically with a much larger percentage of their customers and suppliers,” she says. Enslow adds the Microsoft–GXS alliance is an elegant way for midsize companies to use their normal business applications to connect electronically and in real-time with partners.

Global Trade Rules

Though large apparel retailers have so far led the way in global sourcing by using low-cost manufacturing in Asia, global sourcing extends into every retail segment and onto every continent, according to AMR. (See “The Changing Face of Retail” section below.) The BizTalk Server grid-ready solution will facilitate this migration by giving midsize retailers a scalable and cost-efficient electronic collaboration platform with which to communicate with their far-flung suppliers.

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The Changing Face of Retail Worldwide

Retailers have a pressing need to differentiate themselves in a climate of global competition and consumer apathy. Keeping the following retail trends and market impacts in mind can help.

Source: AMR Research, November 2005 Retail Industry Market Analysis

"The promise is they can get up and running within days rather than weeks or months," says Enslow. The BizTalk Server grid-ready solution provides the international network connections, real-time visibility, and operational support to smooth the kinks of global sourcing, speeding the time to value.

Long Live EDI

Most larger retailers have already invested heavily in B2B communications through EDI. Rather than setting aside their EDI infrastructure, these companies can offer smaller companies the chance to interact electronically for the first time over the Trading Grid. For these suppliers, the GXS Trading Grid is a way “of bringing down the cost of message-based e-commerce and reaching more companies without having to build up a huge EDI department to do it,” says AMR’s Swanton.

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Why EDI Usage Continues to Grow

Several factors continue to drive the expanded usage of this venerable technology:

Source: Forrester Research, Trends 2006: Electronic Data Interchange

Although EDI is still the primary collaboration tool for retailers and will likely remain so for the foreseeable future, midsize companies no longer need skilled EDI specialists on board to take advantage of its benefits. An electronic trading hub based on EDI increases speed and productivity and decreases complexity. Most importantly, it opens the door to real-time B2B collaboration for suppliers of all sizes

The combination of the integrated BizTalk Server 2006 along with the well-established GXS Trading Grid is a powerful and cost-effective electronic collaboration solution for retailers. Managers at midsize companies can use it to save time by focusing primarily on conditions that exceed normal parameters and require the most attention, just as the largest companies in the world do.

"Manufacturers and retailers tend to have lots of small transactions with each other,” says Swanton. “This solution will let them manage by exception instead of trying to track everything manually. This is important any time companies are doing a lot of relatively small transactions with each other."

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About the Analysts

Aberdeen Group

Aberdeen Group provides fact-based research focused on the global technology-driven value chain. Founded in 1988, Aberdeen has established the market leading position as the “voice that matters” when it comes to understanding the measurable results being delivered by technology in business.

AMR Research

AMR Research focuses on supply chain, enterprise applications and next-generation infrastructure. Founded in 1986, AMR Research provides advisory services and peer networking opportunities to supply chain and technology executives in the consumer, life sciences, manufacturing and retail sectors.

Forrester Research

Forrester Research is an independent technology and market research company that provides pragmatic and forward-thinking advice about technology's impact on business and consumers. For 22 years, Forrester has been a thought leader and trusted advisor, helping global clients lead in their markets through its research, consulting, events, and peer-to-peer executive programs.

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About the Partner

GXS

GXS GXS is a leading worldwide provider of business-to-business integration, synchronization and collaboration solutions. The company operates a highly-reliable, secure global network services platform enabling more than 30,000 businesses, including more than half of the Fortune 500, to conduct business together in real time.

Lauren Gibbons Paul is a senior writer for Triangle Publishing Services Co. Inc. and has more than 15 years of experience as a writer and editor for leading business and technology publications, including eWEEK, CIO, Managing Automation and Network World. She has also done research assignments for a number of well-known analyst firms.

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