How Distributors Can Win With Scan-Based Trading

Scan-based trading is often seen as a negative for distributors, But here, Kent Godwin discusses how distributors can use it to their advantage.

Scan-based trading (SBT) is often thought of as a process solely for larger big box retailers. This business model transitions the relationship with suppliers from purchased inventory to vendor managed inventory (VMI), with the checkout scan data serving as the channel to pay for the goods to the distributor. The data collected from the transactions is then delivered to the distributor, as a form of a receipt.

Since SBT takes the responsibility and ownership of the merchandise off of retailers, it has continued to grow in popularity in the retail world. Being only accountable for those items that actually sell, retailers are able to reduce their inventory holding costs and minimize risks of spoilage and shrinkage. It also enables them to have more control over their relationship with distributors, allowing them to easily shift with the changing needs of consumers.

Meanwhile, on the distributor side, scan-based trading technology is mostly seen as a negative. Not only are they now solely responsible for the product and, therefore, shrinkage, but they’re also faced with issues of ensuring they have accurate data and proper inventory management, items that are all supported by information sent to them from the retailer. While these challenges can certainly be frustrating for distributors, SBT systems aren’t going anywhere. Therefore, it is increasingly important for distributors to understand how they can use this business model to find new opportunities that help them overcome these challenges. Distributors have a lot to gain from the data shared by the retailer. By incorporating the pools of information collected from SBT, distributors can find ways to improve and maximize profit.

Reconciliation: Using data for defense

The best way distributors can combat the challenges faced in SBT is by developing their own framework for combining data from retailers with their own. By taking the SBT data and incorporating it into an analytics system, distributors gain the capability to take a deeper dive into derived insights and verify the data from the retailer. This ultimately gives them the ability to spot errors, reconcile inventory levels maintained at the retailer and identify shrinkage issues. Furthermore, the data allows a manufacturer to spot systemic issues, such as inventory that’s not set up or authorized in the retailer’s system. Over time, distributors can reconcile the relationship between purchases by consumers and the trade inventory maintained on an account level. Ultimately, the improved ability to reconcile these factors allows optimization of profitability by eliminating systemic issues and errors.

Sales Insight: Going beyond the inventory sales transactions

The SBT data from the retailer can also provide consumption context for the distributor, such as dates, days of the week, time ranges and additional consumer demographic data — all of which was never really easily available to distributors. With the right analytics tools, information on consumer retail price and volume mix can also be available, offering a secondary layer to consumer insight.

From all of this data, distributors have the ability to optimally design promotions and pricing strategies, making the relationship between inventory, promotion and consumption much clearer. In other words, SBT data provides distributors with the ability to look beyond inventory sales transactions (here’s what we sold, here’s how much you owe) and find valuable sales insight into consumption (when and what to deliver under specific scenarios versus when people are actually buying a product). The data gained from SBT also has the potential to maximize profitability by providing much greater insight into consumption patterns and the true impact of promotions.

Trade Spend Management: Efficiency is key

By utilizing the SBT data to pay for promotions to retailers, distributors can increase the efficiency of their trade spending. In other words, they are able to pay only on units purchased by consumers in a promotional window, ultimately helping to eliminate issues with inventory buy-in and other counterproductive retailer purchasing patterns. Furthermore, by incorporating the data gained from both scan-based trading and promotion-based trade spending into an analytics solution, distributors now have the ability to analyze the effectiveness of various promotions and determine the true value of a particular customer. Distributors can also use this information to optimize profitability by increasing the efficiency of trade spending — only paying on actual end consumer purchases, and by the promotional analysis and insights available.

The move to a scan-based trading business model may not seem like an ideal situation from the standpoint of a distributor. However, by managing SBT with strategic efficiency and continuous improvement in mind, the opportunities afforded are endless. The key is to incorporate data from both ends of the process and analyze it based on benchmarks that matter to the distributor. By utilizing this information and incorporating it into their strategy, distributors can make the most out of scan-based trading – and more money.

Kent Godwin, MBA, is corporate vice president of applications for Salient Management Company.

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