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September 27, 1999

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E-commerce is a key ingredient of supply-chain management in the food industry

By Charles Waltner

et's be frank. Companies in the food and beverage industry haven't been the most aggressive IT users in recent years. But to their credit, it wasn't because of ignorance or fear. It was a matter of money--and though that dynamic hasn't changed dramatically, many companies are taking steps to alter the trend.

In general, the food and beverage industry has one of the lowest ratios of IT spending to revenue--1.1%, according to a study by the trade group Grocery Manufacturers of America and consulting firm Computer Sciences Corp. The ratio at InformationWeek 500 food and beverage companies is slightly higher at 1.5%--but that's still well below other industries such as banking and telecommunications.

"Clearly, the industry has not been a technology leader on the whole," says Fred Parker, senior VP of IS at Schreiber Foods Inc. in Green Bay, Wis. The industry's last big technology boost was the bar-code scanner, which came on the scene 20 years ago, Parker notes. He says the industry's low profit margin is the main culprit for its conservative approach to IT initiatives.

"Prices get chewed up by all the people handling the food," he says, and that doesn't leave much in a company's coffer for technology advancements. During the past few years, much of the food and beverage industry's IT efforts have focused on bringing legacy systems up to par with more progressive industries, such as telecommunications and financial services. Many companies have been deploying enterprise resource planning systems while bolstering client-server networks and handling Y2K issues.

Now, with most of those projects nearing completion, IT departments are keeping the momentum, initiating E-commerce efforts aimed at boosting supply-chain management by more closely integrating data sharing between manufacturers and retailers.

The Grocery Manufacturers of America--the world's largest association of food, beverage, and consumer products companies, representing U.S. sales of more than $450 billion and 2.5 million employees--in conjunction with its member companies has launched two E-commerce initiatives this year.

By far the most ambitious is UCCnet, an Internet trading network that ties together supply-chain information for all grocery manufacturers and retailers. In developing the system, the association contracted with the Uniform Code Council, a Dayton, Ohio, organization that develops product identification and E-business standards. A.T. Kearney Inc., a Chicago affiliate of EDS, is providing technical assistance.

The network, based on Extensible Markup Language technology, is intended to cut costs and trading errors by eliminating paper forms and to speed transactions and data sharing among participants. Instead of taking phone orders from retailers for scheduling a fruit delivery, for example, a distributor can just log on to the system and check the retailer's inventory.

In May, the grocery manufacturers' association also launched a scan-based trading pilot, which uses an extranet to house up-to-date product information for synchronization of promotional campaigns and inventory management between trading partners. ViaLink, an E-commerce technology provider, will manage the extranet and the data exchange.

Gary Cooper, VP of IS at Tyson Foods Inc., in Springdale, Ark., is intrigued by the UCCnet initiative. He says many companies, collectively or independently, are focusing on how Internet technology can improve information exchange between manufacturers and suppliers. "I think that's where you'll see a lot of effort, in E-business and how it relates to the supply chain," Cooper says.

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