implementation of collaborative e-supply chain initiatives
TRANSCRIPT
Implementation of Collaborative e-Supply Chain Initiatives:
An Initial Challenging and Final Success Case from Grocery Retailing
Katerina Pramatari *
Athens University of Economics & Business
Dept of Management Science and Technology
47A Evelpidon & 33 Lefkados Str.
113 62 Athens
Greece
Tel: +30 210 8203855
Fax: +30 210 8203854
Email: [email protected]
Theodoros Evgeniou
INSEAD
Bd. de Constance, 77300
Fontainebleau
France
Tel: +33 (0)1 6072 4546
Email: [email protected]
Georgios Doukidis
Athens University of Economics & Business
Dept of Management Science and Technology
47A Evelpidon & 33 Lefkados Str.
113 62 Athens
Greece
Tel: +30 210 8203654
Fax: +30 210 8203685
Email: [email protected]
*Contact Author
Suggested Short Title: e-Supply Chain Initiatives
A copy of the accompanying teaching notes is available to bone fide faculty members and can be obtained
by contacting the authors directly.
Implementation of Collaborative e-Supply Chain Initiatives:
An Initial Challenging and Final Success Case from Grocery Retailing
Abstract
We discuss the challenges of implementing an Internet-based platform for creating collaborative supply
chains using a case study in the retail sector. The case presents how an Internet-based collaboration
platform was implemented to address the strategic issue of increasing shelf availability and customer
service in grocery retailing, an issue that has emerged as one of the major confrontations for the whole
sector over the last years. The case presented shows the challenges of executing such strategic
collaborative supply chain initiatives which, although arguably beneficial, can be hindered by IT
adoption failures. A longitudinal view of the case is presented, from an initial pilot back in 2001 to the
final success in 2005. We discuss the particular challenges of the execution of Internet-enabled
collaborative supply chain initiatives as well as possible managerial actions through a simple framework
we develop based on the lessons from the case.
Keywords: supply chain collaboration, store ordering systems, business-to-business, e-business platform,
IT implementation, inter-organisational systems, CPFR
MOTIVATION FOR AND INTRODUCTION TO THE STUDY
The advent of e-business has created several challenges and opportunities in the supply chain
environment. The Internet has made it easier to share information among supply chain partners and the
current trend is to try to leverage the benefits obtained through information sharing (also called visibility)
across the supply chain to improve operational performance, customer service, and solution development
(Swaminathan and Tayur, 2003). Following this trend, core business processes may need to be rethought
and redesigned, new organisational forms and inter-organisational structures may need to be developed,
and the emphasis shifts towards collaboration rather than competition (Hackney et al., 2004).
In grocery retailing and the Fast Moving Consumer Goods (FMCG) sector, this collaboration aspect
has been expressed through the Efficient Consumer Response (ECR) movement. ECR encompasses
multiple technological and managerial innovations which aim to transform retailers, distributors and
manufacturers into more efficient and interlinked organisations placing special emphasis on collaboration
(JIPOECR, 1995). One of the first forms of supply chain collaboration has been the practice of Vendor
Managed Inventory (VMI) or Continuous Replenishment Program (CRP), as it is often called in the
context of grocery retailing, where the buyer shares demand information with the supplier who, in turn,
manages the buyer‟s inventory. The practice of Collaborative Planning Forecasting and Replenishment
(CPFR) has extended this collaboration to include the exchange of forecasts based on widely shared
information (usually point-of-sales (POS) data and promotion plans), having a more strategic focus and
placing more emphasis on the demand side.
More specifically, the VMI/ CRP practice has been implemented at the level of the retailer‟s central
warehouse, based on the daily sharing of the warehouse inventory report data and orders information.
Most CPFR initiatives also focus on the central warehouse rather than on store replenishment, and deal
mainly with mid/long-term replenishment planning for promotion items and new product introductions.
The VMI/ CRP practice has been extensively studied by researchers but mainly from the perspective of
evaluating the impact of information sharing on supply chain performance rather than from the IT
implementation perspective. Furthermore, studies on CPFR mainly define it as a new practice and discuss
its adoption or evaluate its business impact.
To better understand the technology adoption challenges of such initiatives, we analyze a case of
implementing a web platform enabling information sharing and collaboration between retailers
(Veropoulos Spar, a €770 million major Greek retailer) and suppliers (i.e. Procter & Gamble, Unilever,
and Elgeka) to support the store-replenishment process. Contrary to the VMI/CRP practice and prior
CPFR initiatives, the focus of this case is on store rather on central-warehouse replenishment, addressing
the daily ordering process with the objective to maintain optimum levels of stock in the store and avoid
“out-of-shelf” (OOS) situations. The problem of OOS is a critical issue for both suppliers and retailers
today, as low OOS levels have been positively related to increased consumer value, higher consumer
loyalty to the brand and shopper loyalty to the store, increased sales and higher category profitability
(Campo et al., 2000).
The main focus of the case is to illustrate that realizing the promises of Internet-enabled
collaborative supply chains requires something more than just high-level strategic planning; it also
demands the successful implementation of the enabling IT systems. Through the case we discuss the
particular challenges of the implementation of collaborative supply chain initiatives using Internet
technologies, and suggest possible managerial actions based on the lessons from the case.
The case has a number of other interesting aspects:
it entails an innovative retailer-supplier collaborative business process in a many-to-many
environment;
it represents a technical challenge: employing an e-business platform to support critical
operations requiring vast data exchange and synchronization on a daily basis between
various information systems;
it addresses a problem that is currently considered as one of the major issues faced by
companies in the FMCG sector, that of shelf availability;
it shows the extra challenges of such collaborative initiatives due to the need for
coordination among a number of organisations;
it shows that collaborative supply chain IT systems can be -executed only after the in-house
business processes and systems are reorganised and stabilized: companies need to consider
Internet-enabled outward looking processes only after preparing their in-house processes and
IT systems.
In the following section we describe the case context in more detail, covering the company
background and the process of collaborative store ordering. In section three the course of implementing
the web-based collaboration platform in the specific context is presented, from the initial pilot to the fall-
out phase and final reincarnation of the project. In section four the lessons from this case as well as the
relevant problems and propositions are discussed. We conclude in section five with discussion and
suggestions for further research.
THE CASE CONTEXT
Company background
In the competitive business environment of the Greek retail-grocery market, where two international and
three national retail chains account for approximately 60% of the total retail market, Veropoulos is ranked
in fourth place with about 9% market share. With 196 stores around Greece, Veropoulos covers almost
the whole country, with sales estimated at around 770 million Euros for the year 2005. Recent expansion
outside Greece has added 9 new large stores in the Balkan area.
The company has an organisational structure with three main arms: commercial, logistics, and
financial. Nick Veropoulos, CEO and son of one of the two brothers that founded the company, is open to
new ideas and a great supporter of ECR global industry activities, participating in both local and
European ECR groups. Since 2001 Veropoulos has been the first and only supermarket chain in Greece
offering Internet online-store services to its customers.
In terms of product distribution, the company owns a central warehouse serving all the supermarkets
around the country with its own fleet of vans. Almost 50% of the products in large stores are replenished
through the central warehouse, whereas for the smaller stores the percentage of centralisation is around
60-70%. The remaining is replenished directly to the stores by the non-centralised suppliers.
In Spring 2001, Veropoulos suffered an average out-of-shelf (OOS) rate of 8.4%, which can be
translated into a yearly turnover loss of more than 20 million Euros, leaving aside the negative impact on
shopper loyalty and long-term profitability. More than 70% of these situations were attributed to mistakes
and omissions in the store ordering process. Clearly, these numbers indicated that there was a need to
improve store ordering and replenishment practices in use at that time. Nick Veropoulos was convinced
that “even a small reduction in out-of-shelf can bring significant results in turnover increase and improved
consumer satisfaction; … clearly this is not a problem we can ignore and the suppliers have to get
involved as well; it‟s not only ours but also their problem”.
Collaborative store ordering
A typical grocery retail store (supermarket) has more than 10.000 products in its assortment. Deciding
what to order every day at the store level is, naturally, a daunting task. Currently, the store ordering and
replenishment process is a combination of direct-store-delivery (DSD), where the respective product
suppliers are those preparing the order (i.e. the list of what needs to be supplied to the store) and
delivering their products directly to the store, and centralized-delivery, where the responsible store
personnel prepare and send the order to a central warehouse, which in turn delivers the products of several
suppliers to the store. Traditionally, various IT systems have supported these processes.
Ogawa (2002) distinguishes between three different types of systems used to support store ordering
to the central warehouse. These range from simple replenishment-ordering systems, merely supporting the
typing or hand-scanning and electronic transmission of the order, to automated-ordering and hypothesis-
testing ordering systems, relying on decision support tools using sales data and other information in order
to prepare the order, which is either automatically sent or first proposed to and confirmed by a user.
In the case of direct-store-deliveries, supplier salesmen may use hand-held devices (e.g. PDA‟s) to
type-in the order and send it electronically over mobile networks while still being in the field. This type of
system doesn‟t provide any decision support, but in some cases past order data may be used to facilitate
the order decision making.
The employment of such systems by both retailers and suppliers in the store ordering process has
had a positive effect on process efficiency, but has not been proved sufficient to address the out-of-shelf
problem, as reported in several studies (Gruen et al., 2002; Roland Berger, 2003). A reason for this can
probably be sought in the difficulty to correctly estimate consumer demand in such a complex
environment and the limited information that is available to either retailers or suppliers when working
independently to prepare a store replenishment order. In their attempt to address the problem, retailers and
suppliers have turned, during the last decade, towards collaborative replenishment practices, such as
CRP/VMI and CPFR.
CPR/VMI has been employed to support the daily ordering process at the level of the retailer‟s
central warehouse, rendering the product supplier responsible for the demand forecasting and order
preparation. In order to do so, the supplier receives the inventory report (in the form of an EDI message)
from the retailer‟s central warehouse on a daily basis and prepares a suggested order. This may require
confirmation by the retailer (in which case the process is called CMI, for Co-Managed Inventory) or not
(thus called VMI). CRP moves one step ahead of VMI and reveals demand from the retailers‟ stores. The
inventory policy is then based on the sales forecast, built from historical demand data and no longer
purely based on the variations of inventory levels at the customers‟ main stock-holding facility. CPFR can
be seen as an evolution from VMI and CRP. It addresses not only replenishment but also joint demand
forecasting and promotions planning, focusing on promotions and special-line items. CPFR is based on
extended information sharing between retailer and supplier, including point-of-sales (POS) data, forecasts
and promotion plans. Based on these short descriptions, VMI and CRP are more about efficient
replenishment and supply, whereas CPFR puts more emphasis on the demand side.
Combining the characteristics of conventional store ordering systems with information-sharing and
collaboration capabilities and applying the notions of CRP/VMI and CPFR at daily store level define new
collaborative store ordering processes. The following description illustrates how a web-platform can be
used to support collaborative store ordering for both DSD and central warehouse ordering. The central
web platform is updated daily with store-level information, including point-of-sales (POS) data, delivery
quantities, product assortment, promotion activities, new product codes etc. Most of these data come from
the retailer‟s central information system (e.g. product assortment, product catalogues) and directly or
indirectly from the store information system (e.g. POS data), but some information may also come from
the central warehouse or the suppliers‟ information systems. Based on this information, the system
running on the central web platform prepares respective order proposals per individual store. For
centralized deliveries, the store personnel review the respective order proposal and, upon confirmation,
the order is sent to the retailer‟s central warehouse. For direct-store-delivery, the supplier salesman first
reviews the system‟s order proposal, which is then sent to the store for final confirmation and then to the
supplier for execution. Both the stores and the suppliers‟ salesmen access the system through the web.
This is schematically depicted in Figure 1.
<<Insert Figure 1 here>>
EMPLOYING AN E-BUSINESS PLATFORM FOR COLLABORATIVE STORE
REPLENISHMENT
The initial pilot
In the context described above, and with the objective of addressing the stockout problems, the promising
capabilities of a web platform supporting collaborative store ordering were presented to the top
management of Veropoulos by a software service provider, a start up called OniaNet, in the spring of
2001. OniaNet was a new company acting as an intermediary between supermarkets and their suppliers,
supporting their business transactions and exchange of information via its electronic marketplace as an
Application Service Provider (ASP).
The positive attitude of Nick Veropoulos, the CEO, towards ECR-related supply-chain initiatives,
the presentation of the value proposition by OniaNet, and the full support of a key and trusted supplier
(Elgeka) who was also an investor in OniaNet, spurred enthusiasm to Nick for such a project and
triggered the decision of Veropoulos to pilot test such a system in the spring of 2001.
Suppliers were invited to view this as a unique opportunity to have direct access to daily store sales
data (POS data), a possibility which apart from supporting the store replenishment process would enable
them to monitor promotion activities and new product launches, identify missed sales opportunities, etc.
Three suppliers agreed to participate in the pilot project. Elgeka, a domestic company with an
international clientele, Procter & Gamble, and Unilever. Elgeka is a direct-store-delivery supplier
operating their own logistics fleet. They were also shareholders of OniaNet, the software service provider.
P&G and Unilever, on the other hand, delivered to the stores through Veropoulos‟ central warehouse.
Moreover, five representative stores were selected to participate in the pilot program.
The pilot went live on October 1st, 2001 and ran in the five pilot stores for six weeks, from the 1st
week of October to the 2nd week of November 2001. At this stage the five pilot stores used the Internet-
based platform for their collaboration with the direct-delivery-supplier Elgeka, and for ordering the
products of the two centralised suppliers, P&G and Unilever, from Veropoulos‟ central warehouse. For
the rest of the centralised products they followed the traditional processes. Moreover, for the remaining
suppliers the processes were unchanged.
The evaluation of the pilot, based on systematic out-of-shelf and stock measurements, returned
business results that were well above expectations soon after the implementation of the pilot: in a six-
week period, the OOS reduced by 62% in the pilot stores but only by 23% in five control storesi. In
addition, the OOS attributed to the two main reasons, wrong order quantity and no-order at all, showed an
even higher decrease in the pilot stores (see Figure 2). At the same time, the inventory measurements
showed that the OOS reduction was not due to any inventory increase.
However, leaving aside the positive business results, an important lesson from the pilot was that the
system could not operate only for few of the suppliers as this meant that the store employees would have
to deal with four different processes just for ordering: ordering to the central warehouse and ordering for
direct-store-delivery both in the traditional and the new way.
Thus, at this point the objectives of the project changed to include the upgrade of the system to
support the orderings to the central warehouse for all the centralised products – hence all internal to the
organisation ordering – covering over 6.000 products from about 600 products during the pilot.
Moreover, “intelligence” for making order recommendations to simplify the ordering task of the
employees was to be added at this stage. This was very challenging from a technical perspective. These
requirements also had to be met in a very narrow time window of about three months, as set out by the
service provider, who was under funding pressure. It was at this time that the objective of using the e-
business platform, therefore, shifted focus from enabling strategic supplier-retailer collaboration to
supporting critical within-company operations, mainly the store-ordering process to the central
warehouse.
<<Insert Figure 2 here>>
The failure of the roll-out
Influenced by the relatively positive early business results and by the time pressure of the service provider
OniaNet, the top management of Veropoulos decided to roll out the system to the rest of the stores and
sign a three years contract with OniaNet. After an initial roll-out phase to 20 stores and further work on
the system for the next three months, the roll-out continued with the rest of the stores till November 2002.
Unfortunately, users were not very happy with the new technology as their Internet connections were
slow and the web interface seemed too complicated to them. Once all the stores were online the situation
got worst, as users started experiencing even more system delays and their frustration with the new
technology increased. Many problems arose also from information quality issues, resulting in the system
proposing wrong products to be ordered or not including in the order proposal others that should be
ordered. This further undermined the users‟ trust in the system and the quality of the order proposal.
During this time, the service provider worked intensively for over three months to overcome the various
information-quality issues while the system was in use.
More important, it turned out that the actual users in the stores were poorly trained: in fact, although
initially the store managers were originally intended to be prime system users (to enable them to evaluate
the information and place orders), eventually the store managers “pushed” the system use to other store
personnel. These “unplanned actual users”, however, were not appropriately trained to use the new
system.
On the suppliers‟ side the situation was also mixed. For Elgeka the story was more positive. Apart
from being a shareholder in OniaNet, Elgeka as a direct supplier had the human resources to invest in the
new system and process and was enjoying benefits that it didn‟t have with the traditional process, such as
access to the daily POS information, possibility to order from a distance, etc. With a single salesman,
Elgeka was managing orders for 20 of the Veropoulos stores through the collaboration platform.
However, for the centralised suppliers the new process was bringing about major organisational
changes, as it required reinvestment in human resources. For example, Unilever as a centralized supplier
had laid the responsibility for the whole Veropoulos account to just one sales-person visiting the central
warehouse. If the company were to implement the new process, a lot more sales effort would be required
to prepare suggested orders for the many retail stores on a daily basis. As the two centralized suppliers
were not prepared to undergo these organizational changes just for one of their retail customers, they
abandoned the initiative immediately after the pilot. However, they continued to send their product
catalogue electronically to the web platform, in order to support Veropoulos in maintaining proper
product information and run the store-ordering process internally.
Apart from the initial three suppliers, the participation of other suppliers was very limited, as both
the problems that the Veropoulos stores were facing with their internal ordering and the anticipated
organisational changes were raising serious concerns to them too.
In early 2003, OniaNet, due to financial problems attributed to the suppliers‟ limited participation to
a great extent, had to stop operations. Nick Veropoulos was caught by surprise. However, most of the
people in the stores however felt happy they would return to the old familiar system and process.
The reincarnation phase
From the ashes of OniaNet a new service provider, having some key personnel from the old OniaNet
team, decided to invest in the OniaNet business model in the summer of 2003. The new company,
Retail@Link, approached again Veropoulos to recommend a resurrection of the ambitious collaborative
ordering initiative. The argument was that, first, the benefits of such a system are clear if they succeeded
in implementing it, and second, this time around they knew much more about how to succeed as they had
already done a lot of their “homework”.
The dilemma for Veropoulos was smaller than initially appeared: if they didn‟t continue they would
have to go back to the previous situation; if they continued they had a good chance to achieve the
promising business results this time, provided the lessons from the previous attempt were taken into
account. Moreover, the internal IT department was not in the position to take this as a new project aboard,
so the only alternative still remained with a service provider.
However, the approach to be followed needed to be different this time, especially as far as the
participation of suppliers was concerned. The Veropoulos management were convinced that they should
first make the system support the internal ordering process efficiently before any attempt was made to
open it up to supplier collaboration. This is in line with evidence provided from other industries and cases
(e.g. what is considered to be a best practice internet-enabled business model of Cisco (Nolan, 2001)),
suggesting that companies need first to rationalize and web-enable their internal systems and processes
before implementing internet enabled collaborative processes and systems.
In September 2003, Retail@Link was given the green light to pilot test the system, for a second
time, in five Veropoulos stores to support orders to the company‟s central warehouse only. The
implementation approach was quite different this time. Instead of customizing an existing e-business
platform to the needs of the specific case, which was the approach OniaNet had followed in the past, the
new service provider built the system from scratch, based on the user requirements that had been
collected during the previous phase from the actual users this time, store managers and personnel, while
the technical requirements were focused around scalability, efficient and robust data loading processes,
and fast system response – key technical requirements that hurt the usage of the system during the first
attempt. In addition, many data-validation checks were implemented to ensure high quality of information
and reliable order proposals.
The new system was pilot tested for more than three months, with the service provider working hard
to sort out any issue, even a minor one, that would cause frustration to the end users. Scalability of the
system was ensured by operating the platform for all the stores from the very beginning, even though only
five stores were actually using it at this stage.
With the old system as a benchmark, the new system was exceeding by far the pilot users
expectations this time. Their positive attitude soon spread around, creating a positive anticipation among
the rest of the stores. After the system had operated for a full month with no error incident and user
complaint, Veropoulos management, being more cautious this time, took the decision to expand the
system to the whole chain. Expansion went fast, as the system was centrally hosted and no installations at
store level were required. After about two months, 160 Veropoulos stores were online, utilizing the
Internet platform to place orders to the central warehouse.
After a year of successful operation, and after becoming convinced that the new system was
internally successful and was there to stay, Veropoulos decided to open up the system, as originally
planned in 2001, to supplier participation. Schwarzkopf&Rilken was the first direct-store-delivery
supplier to join in 2005. This time the inclusion of suppliers showed many signs of success. For example,
Schwarzkopf&Rilken reported a 64% sales increase in the pilot stores for its products compared to a 3%
increase in the total Veropoulos stores and started rolling-out the system to the rest of the stores. Other
suppliers started piloting as well, mainly centralized ones wishing to get access to store sales data.
<<Insert Table 1 here>>
DISCUSSION: CHALLENGES AND LESSONS LEARNED
In this section we identify the main challenges encountered and discuss some of the lessons from the
case. We group the challenges of execution in three main categories: technical challenges, organisational
challenges, and multi-party coordination challenges (see the framework in Figure 3). Table 1 also
summarizes the main points that were done differently, regarding these challenges, the second time
relative to the first one, which turned this case from an initial failure to a final success.
The objective of this discussion is to illustrate that realizing the promises of Internet-enabled
collaborative supply chains does not just require high level strategic planning and top-management
commitment, but also the successful implementation of the enabling IT systems, addressing technical,
organisational and coordination issues in a many-to-many environment. Other dimensions, pertaining to
the translation and power perspectives of different actors, as discussed in the last part of this section, need
also be considered.
<<Insert Figure 3 here>>
Technical challenges
First of all, the case exposes some important yet often disregarded “technical” principles which should
characterize any information system development and which are especially important in supporting
supply-chain integration:
1. Efficient data management and validation mechanisms are crucial to ensure information
quality which in turn is crucial for instilling trust in people towards any decision support
system.
2. System user friendliness, ease of use, and speed of response are important determinants of
user satisfaction and system acceptance.
3. For large IT systems connecting many other systems (possibly from many organisations),
the points of possible failures increase exponentially (why exponentially? Don‟t they
increases more-or-less linearly as the number of suppliers involved increases?, requiring
extra technical and management care before broader roll out.
If these principles had been respected, many technical and usage (“on the ground”) problems with
the system could have been avoided the first time. However, the technical challenges of setting up this
collaboration platform for the first time were, as always, too many and possibly disorientated people from
these basic principles. The technical challenges, stemming from the three key principles outlined above,
are mainly related to the following:
1. Data-integrity and synchronization issues: Roland Burger (2003) identifies data accuracy and
synchronization as one of the top five challenges the grocery sector faces today in the attempt to
streamline the supply chain. Although the sector has adopted barcoding technology as a standard to
identify products, yet the information is maintained at different levels in either the retailers‟ or the
suppliers‟ systems causing serious integrity issues when data synchronization is required. In order to
overcome these issues, several data-validation and integrity-checking rules had to be built into the final
system so that information quality problems didn‟t confuse the end-users and undermine the order
proposals‟ reliability.
2. Quality of the automated inter-organisational system links. Many of the data-quality problems
resulted from errors and mistakes in the file-transfer process and exchange of data files between the
retailer‟s systems and the collaboration platform. The use of FTP, which was the initial approach, was not
adequate to meet the requirements of such a demanding data environment both in terms of reliable and
secure file transfer. In the second approach, the technology of web-services (Ferris and Farrell, 2003) was
used instead to support the exchange of data files. Here, several control mechanisms were implemented
to ensure reliable and secure information exchange. The data-loading processes were also enhanced to
become more robust to data failures and send e-mail and/or SMS notifications in case of critical errors.
3. Web user-interface combined with slow Internet connections. One of the most technically
challenging issues was to enable efficient decision support for the ordering of about 1,000 products
(which was the average size of an order proposal) over a dial-up Internet connection of 56Kbps at best.
The challenge involved deciding both what information to display to the user in order to enable the right
ordering decision, but also selecting the right functionality to allow for fast browsing and order update.
What was causing a lot of frustration to the users with the initial OniaNet system was the idle time they
had to spent in front of a PC just waiting for web-pages to download (in some cases this was more than
half an hour in total for updating a single order). With the new system, the users make a print-out of the
order proposal, consult it when physically checking the store and then type-in the final order in much the
same way they did before the OniaNet system but just faster. Further improvement of the system is
currently sought towards the direction of loading the order proposal on a hand-held device, enabling the
user to update the order simultaneously with the physical shelf check.
4. Scalability of the centralised software architecture. Skuff and St. Louis (2001) have analyzed the
benefits of centralisation vs. decentralisation of application software. In our case, the centralised software
architecture, imposed by the central web collaboration platform model, led to serious scalability issues
initially. When all the 260 stores were using the OniaNet platform for their ordering to the central
warehouse, the users started experiencing serious delays in the system response. However, the scalability
problem dissolved after (a) the system‟s database was redesigned, and (b) new functionality was provided
for order-update which resulted in limited user interaction with the system. Table 2 summarizes the
advantages and disadvantages of centralised vs. decentralised software architecture to support
collaborative store ordering.
A variation of the centralised model, enabled e.g. by the use of web-services technology, allows that
part of the processing (e.g. what requires extensive user interaction, such as the order update) to take
place in the store, while the gathering of the information, the management of the order proposal criteria
etc. continues to take place centrally. This hybrid approach combines the benefits of both models, but the
respective technology is not fully implemented and tested yet.
<<Insert Table 2 here>>
5. Controlling the various points of system failure. Last but not least is the technical challenge of
controlling the plethora of points of failure in such a complex system. In addition to controlling hardware
and software failures of the main platform (web servers, application servers, data-base servers, data-
loading processes etc.), many new points-of failure are added, most of which relate to the e-business
characteristics and inter-organisational nature of this environment. These range from Internet connectivity
issues in the stores to back-end integration and file-transfer issues between the central platform and the
various information systems, to hardware printer failures in the stores, etc. No matter what reason applies,
in the eyes of the end-user any of these failures results in either system unavailability or information
flaws, translated further into inability to carry out the critical business process of store ordering.
Therefore, any such system should be equipped with various failure control mechanisms and should be
iteratively and rigorously tested (and pilot tested before broader, possibly phased, roll out) in order to
eliminate or minimize such a possibility.
Organisational challenges
This case is clearly a demonstration of technochange, defined by Markus (2004) as situations where IT is
used in ways that trigger major organisational changes. Hence, unavoidably the success of such systems
and the strategic initiatives they support relies on the careful management of change in the organisation
(Kallio et al., 1999). The contrast between the initial failure and later success provides lessons on the
challenges of such a technochange. These challenges can be seen at various levels: user involvement,
communication, and technology/business alignment and business process redesign. We consider these
next:
1. User involvement challenges. To begin with, the case provides a vivid example of the difficulty of
even sometimes defining in large organisations “who the actual users of the new system will be”. During
the first attempt, the company‟s management team assumed the actual users would be the store managers.
However, over time it became clear that, largely due to the difficulties in using the new system (which
also shows how all challenges are inter-twined in complex ways) the managers “pushed” the usage of the
system to other store personnel. It is often the situation that the final users of new technologies are a
broader (or even different) group than the one initially considered, and this case clearly shows the degree
of this challenge. Moreover, a main difference between the two attempts was the more careful definition
of requirements – given also the experience from the initial failure – in collaboration with the users during
the second attempt. Finally, training is a fundamental part of any large IT implementation often
overlooked. The initial difficulties in the early attempt show the dangers of poor training of the actual
users.
2. Top-down and bottom-up communication. Despite the positive business results from the very
beginning, many end users were resisting the introduction of the new system – probably due to usage
difficulties and unclear vision of the value of the system. For example, there is anecdotal evidence that
during a company-wide event in 2002 some store managers “requested the withdrawal of the new
system”. Some users were also under the impression that the system will finally “fail” and hence be
withdrawn. Such phenomena emphasize a key success factor of such implementations: heavy top-down
communication of the value of the new system and of its final persistence. At the same time, bottom-up
communication is also valuable. While initially some of the negative comments of the users were
disregarded, in the second attempt all users‟ comments (i.e. complaints from the initial pilot) and
perceptions of the new system were very carefully gathered and taken into consideration.
3. Technology/ business alignment and business process redesign. A fundamental principle in
information systems implementation is the very delicate balance between building the system according
to user requirements and changing the users‟ work practices to conform to specific system dictates (Butler
and Fitzgerald, 1993), such as those posed by a pre-defined e-business platform. Some of the key
decisions of large implementations are answers to the question “should we change the system or should
we change the business practices”. The case also shows the challenges of managing the complexity of
business processes with the introduction of new technologies. For example, during the first attempt it
became clear that the introduction of two new processes (order processes via the new system from the
central warehouse as well as from the direct suppliers) increased the overall complexity of the order
processes: there were now four different processes instead of two. It therefore became crucial to redesign
the business processes by effectively eliminating the old ones from the central warehouse. As clearly
noted in the past, business process re-engineering – effectively involved during large IT implementations
– is not only about “automating business processes” but also about “obliterating” them (Hammer, 1990)
Multi-Party coordination challenges
E-business initiatives across companies, such as the e-supply chain one considered here, have a whole
new set of challenges, compared to within-company large IT implementations, due to the involvement of
many independent organisations. The case shows clearly the challenges of such e-supply chain initiatives
that arise from the need for coordinating many parties “outside the boundaries of the firm”. Some of the
challenges arise from the nature of the Application Service Provider business model, and of e-
marketplaces in general, while others arise from the coordination between the retailer and the suppliers.
The challenges of the Application-Service-Provider model
According to the Application Service Provider (ASP) model, ASPs offer and manage outsourced
application services to many organisations via the Internet, while organisations outsource applications to
ASPs to reduce upgrade and maintenance costs and to focus their efforts on core competencies (Soliman
et al., 2003). The appeals of ASPs are the per-user pricing models, one-to-many access possibilities to
applications, IT expertise and capabilities, and value-added management services (Kern et al., 2002).
What Veropoulos learned from the first experience was that before deciding to use the services of an
ASP, the financial viability and long-term commitment of the provider need to be ensured, especially
when the switching costs are high. Kern et al. (2002) argue that although the ASP model offers an
electronic outsourcing solution, there are in fact many similarities with more traditional IT outsourcing.
Soliman et al. (2003) also mention additional issues that need to be addressed by a retailer when
examining the use of the ASP model for supporting the store ordering process, such as reliability, service
level etc. Given the many points of system failure as discussed above and the high dependence of the
store-ordering process on information quality, the definition and guarantee of a clear service level is quite
difficult in the case discussed. Furthermore, because of the extent of information provided by the
retailer‟s information system and loaded on the collaboration platform, a retailer may feel uncomfortable
to provide all this information to a third party and lose control over it. From informal discussions with all
major Greek retailers, it it clear that many of them feel concerned about having a big portion of their
internal data hosted on the platform of an ASP.
At the same time, some global retailers such as Wal-Mart, Metro and Tesco have built their own
private exchanges to support collaboration with their suppliers. However, suppliers do not feel
comfortable with the idea of being connected to a separate collaboration platform/ exchange for each
retailer. A neutral platform operated by an independent third party, which enables information exchange
and collaboration between retailers and suppliers in a many-to-many environment, positively contributes
to achieving a critical mass on both sides (Hsiao, 2003). On the other hand, neutral marketplaces face
more difficulties than private and consortia exchanges, because they need to develop trust relationships
among buyers and suppliers before a critical mass of users can be reached (Christiaanse et al., 2004). This
statement is also supported by the case presented, where both the old and the new service provider,
operating as vertical, neutral, electronic marketplaces or else independent exchanges, faced the problem
of building the critical mass of retailers and suppliers. As already mentioned, this is one of the main
reasons behind the liquidation of the first service provider. Grieger (2003) further concludes that a reason
for failures of electronic marketplaces can be found in the dilemma that operators of such marketplaces
concentrated on the integration of information systems rather than on integration of specific business
processes, which is also supported by this case, as more emphasis was placed on overcoming the technical
challenges rather than the organisational ones.
Supplier-retailer coordination challenges
One of the reasons that led the initial service provider, OniaNet, to bankruptcy relates to the
overestimates of the entrance rate of suppliers into this new form of collaboration with Veropoulos and
respective income streams for the service provider. While the suppliers initially appeared enthusiastic
about it with clear incentives (in case of success) to participate, several barriers soon had a slow-down
effect on their decision to exploit this new opportunity. These relate to the barriers to electronic
marketplace adoption mentioned by Hsiao (2003), including technology, organisational, and collaboration
barriers. In addition suppliers felt concerned that this was an innovative business process with very local
impact, not implemented elsewhere in the world. While this new form of collaboration between retailers
and suppliers can be regarded as a new form of CPFR (Pramatari et al., 2002), the suppliers, especially
multinational companies, didn‟t feel that this process would become common business practice across
many retailers in different markets.
Regarding the incentives of the suppliers, it was clear (i.e. see Figure 4) that direct-store-delivery
suppliers had stronger incentives for adopting the process of collaborative store ordering as for them it
represents not only a chance to improve shelf availability but also a cost-reduction opportunity through
reduced store visits. Hence it was probably expected that the one direct-store supplier, Elgeka, would
remain in the project longer than the others. Moreover, Elgeka as a direct supplier had the human
resources to invest in the new system and process: in fact the new system did not require more human
capital, since with a single salesman Elgeka was able to manage orders for 20 of the Veropoulos stores
through the collaboration platform. The story was very different for the centralised suppliers Procter &
Gamble and Unilever: while initially supportive of the initiative, over time it became clear that to succeed
these suppliers needed to increase the number of employees working with Veropoulos. Their decision in
the past to move to centralised deliveries had been followed by reductions in their sales-force which
would now need to be reversed because of the particular collaborative ordering initiative. Given the
challenges the initial pilot faced, it was not clear for these centralised suppliers whether it was worth to
take the risk and put extra, possibly permanent (human) resources to this program.
<<Insert Figure 4 here>>
The change over time of the centralised suppliers shows the importance of commitment to such
initiatives by all participants. Such initiatives unavoidably face many implementation challenges, as
discussed above, so they require strong commitment and involvement of extra resources (i.e. more human
capital) by all parties (i.e. the centralised suppliers, too) if they are to succeed. Unlike the case of within-
organisation implementations where commitment can be secured, for example, by strong top-management
support over-arching the whole implementation, such “inter-organisational top management” support is,
by definition, lacking for multi-party implementations. This makes the commitment of every single party
involved crucial. Moreover, the need to increase the sales-force for some of the suppliers (i.e. the
centralised ones) shows the organisational impact such initiatives can have to all parties involved. The
realization of this need only later in the process also shows how these large multi-party IT-enabled
initiatives can have consequences that were not fully expected initially. Had the centralised suppliers
committed extra sales people beforehand they may have remained in the project throughout.
We also note that in the long run, the adoption of the new system would lead to changes in the roles
of the suppliers‟ sales force, requiring sales people to work as consultants/ merchandisers, who can
identify growth opportunities and become problem-solvers, rather than mere order-takers, who follow a
fixed store-visiting schedule. This further implies significant organisational changes, especially for direct-
store-delivery suppliers, as well as new skills for the sales personnel.
The coordination with the suppliers therefore brings up a number of new challenges, beyond the
“within organisation” ones discussed in section 4.2. It was thus a wise decision for Veropoulos to go, the
second time around, for a solution that would work for the stores internally first, regardless of the
suppliers‟ entrance rate into the collaboration process.
The case shows clearly the importance of first rationalizing the IT systems and processes and
implementing e-supply chain modules in-house before starting the creation of more electronic links with
the suppliers.
CONCLUSIONS
In this paper we have presented a case of employing a web platform to support a new process of supply-
chain collaboration in grocery retailing. The case shows that web technologies can offer companies new
alternatives towards achieving strategic business objectives, by enabling new collaboration processes and
extended information sharing. At the same time, the case illustrates that collaborative supply chains
enabled by new internet technology can be hindered by difficulties in implementing large IT systems.
Several technical, organisational and multi-party coordination challenges had to be overcome in order to
turn this case from an initial failure to a final success.
The initial decision to customize an existing e-procurement platform to support the new
collaboration process proved inadequate. Other technical challenges ranged from mastering the various
data quality issues and information links, to controlling the various points of failure and achieving a
scalable system architecture. On the organisational side, the involvement and proper training of end-users
appeared to be one of the major challenges, which required the proper management of top-down and
bottom-up communications as well as the alignment of technology with the business processes. Apart
from these, the Application Service Provider and marketplace model as well as coordination with
suppliers raised issues that were initially underestimated. Moreover, the case suggests that collaborative
supply chain IT systems can be easier to execute after the in-house business processes and systems have
been properly settled.
After the rollout of the new system in 2003 and 2004, Veropoulos has been using it continuously to
support the store ordering process to the central warehouse. Three years afterwards, the management of
Veropoulos declares satisfied with the use of the system and believes that it has helped them maintain
relatively low levels of out-of-shelf. However, periodical trainings of the store personnel are considered
necessary in order to keep new people familiar with the system and make the best out of it.
Schwarzkopf&Rilken, the first supplier to collaborate with Veropoulos in 2005, currently uses the
system for about 40 of the Veropoulos stores, but has not rolled-it-out to all the stores as initially planned.
This is mainly attributed to information quality issues with store inventory data, which require that the
supplier salesmen visit the store and physically inspect the product inventory quite often, if not each time
they place an order. This certainly undermines the benefits of this supply-chain collaboration initiative,
since it does not reduce the cost of store ordering as initially expected by the supplier. However, this has
not been the case with another retailer that followed shortly after the Veropoulos example.
Galaxias, one of the top five Greek retailers with about 100 stores, after an initial pilot with 3 stores,
rolled-out the system to all the stores gradually in about a year‟s time. The introduction of the system in
the new retailer ran smoothly, as the service provider who led the project could build on the lessons learnt
from the first case, as explained above. The supplier Schwarzkopf&Rilken, despite having started with
Veropoulos, reports today that collaboration with the Galaxias stores has proceeded faster and easier.
This, as the Galaxias store people play an active role in monitoring and updating the store inventory data,
which allows the supplier to place orders from a distance. This fact, which greatly facilitates the role of
the salesman, has enabled two other multinational suppliers, apart from Schwarzkopf&Rilken, to work
collaboratively with the Galaxias stores in the ordering process. For several other suppliers the system is
used for monitoring product sales for the Veropoulos and Galaxias stores rather than for ordering
purposes.
The list of challenges mentioned in this paper is obviously not exhaustive. The topic of collaborative
supply chains is relatively new, so there is a lot more to learn from various perspectives. In addition, the
lessons acquired from this case need to be “transferred” to other organisations with care, since this
particular case is from a company in a relatively small and possibly not as technologically mature market,
although it is a large company and itself open to new technologies and business practices.
On the other hand, the lessons acquired from this case pertain to other supply chain collaboration
initiatives, such as CPFR, involving supplier-retailer collaboration in a many-to-many environment and
accompanied by organizational changes and coordination issues. From an e-business perspective, the
study contributes in presenting practical issues associated with new Internet-enabled supply chain
management practices and draws attention to issues other than technical aspects.
While the study has been carried out in the Greek grocery retail market, it is relevant to practitioners
in other western markets as well, as the big retail chains operating in Greece and their suppliers, which are
mainly multinationals, operate in a similar way as in the rest of Europe, as reported in a recent study
comparing retail practices in more than seven western European markets (ECR Europe 2005). (I cannot
understand this sentence!)
More implementations and pilot experiments, other than the first case reported in this paper, are
required in order to shed more light on the different aspects of this new supply chain collaboration
practice and the enabling role of new e-business infrastructures. Questions relating to the adequacy of the
infrastructure, to the business model and operation mode of the collaboration platform, to the motives and
barriers to adoption of supply chain collaboration practices and electronic marketplaces are some
examples for further research directions suggested by the presented case.
GLOSSARY
ASP: Application Service Provider
CMI: Co-Managed Inventory
CPFR: Collaborative Planning, Forecasting and Replenishment
CRP: Continuous Replenishment Program
DSD: Direct-store-delivery
ECR: Efficient Consumer Response
EDI: Electronic Data Interchange
FMCG: Fast-moving consumer goods
IT: Information Technology
OOS: Out-of-stock or „out-of-shelf‟
POS: Point-of-sales data
VMI: Vendor-Managed Inventory
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FIGURES AND TABLES KEY
Figure 1. Collaborative store ordering through a web platform
Figure 2. OOS reduction results from the pilot running
Figure 3. A Framework depicting the key challenges of implementing Internet-enabled collaborative
supply chain initiatives
Figure 4. First pilot users‟ feedback on„The new way of work does not present any difficulties‟
Table 1. Key challenges and managerial actions: Comparison between first and second phase
Table 2. Centralised vs. Decentralised IT Implementation
Figure 1. Collaborative store ordering through a web platform
Collaborative
Store Ordering
Web Platform
---- -----
---------- ---
POS data, store assortments, product
catalogues, promotion
activities, etc.
Direct-store-delivery
supplier
Web-front
(Order proposal)
Retailer Central
Warehouse
Centralized Supplier
Web-front
(Order proposal)
Order file
----
---------------
---
Order file
---- ----------
----- ---
Supermarket store
Web-front
(Order proposal ,
Order confirmation)
Retailer Central Offices
Delivery
quantities
Delivery
quantities
Figure 2. OOS reduction results from the pilot running
-62,8%
-78,2%
-47,2%
-4,5%
-78,9%
-61,7%
48,4%
-64,9%
-27,3%
-92,7%
-43,5%
-23,2%
-100,0%
-80,0%
-60,0%
-40,0%
-20,0%
0,0%
20,0%
40,0%
60,0%
n=4
Control
Μη αναπλήρωζη από
αποθήκη καηαζηήμαηος
Σσνολική Διαθορά
Αλλαγή
Κωδικού
Έλλειψη Προμηθεσηή / Κ.Α.
Καθόλοσ
Παραγγελία
Λανθαζμένη Ποζόηηηα
-62,8%
-78,2%
-47,2%
-4,5%
-78,9%
-61,7%
48,4%
-64,9%
-27,3%
-92,7%
-43,5%
-23,2%
-100,0%
-80,0%
-60,0%
-40,0%
-20,0%
0,0%
20,0%
40,0%
60,0%
Pilot Stores
Control Stores
wrong
quantity
No order
OOS supplier / CW
No replenishment from backroom
n=9
Total difference
Figure 3. A Framework depicting the key challenges of implementing Internet-enabled collaborative
supply chain initiatives
Technical Challenges
Information quality
User friendliness and system response speed
Scalability
Data-links management
Organisational
Challenges
Alignment of organisation and technology
User involvement
Communication
Roll-out plan and testing
Multi-party Coordination
Challenges
ASP capabilities
Supplier involvement
Figure 4. First pilot users’ feedback on‘The new way of work does not present any difficulties’
Centralized Suppliers
0% 11%
33%
45%
11%
I definitely agree
I agree
Yes and No
I disagree
I totally disagree
Direct Suppliers
0%0%
50%50%
0%
Retailer
0%
25%
25%
50%
0%
n=9
1st Phase – Failure 2
nd Phase – Success
Technical issues
Information
quality
Information quality was improved
gradually, with new data-validation
mechanisms being integrated into the
system as new problems appeared
Information quality was ensured with many
data-validation mechanisms being
incorporated in the system from the
beginning
User friendliness
and system
response speed
The system suffered slow response speed
and poor usability, due to slow Internet
connections and many web pages
The user interface was totally reorganised,
requiring much less interaction by the user,
which greatly improved response rates and
usability
Scalability The system was not designed to support
many stores and suppliers in a demanding
data environment, which resulted in
serious performance degradations as more
stores were added to the platform
The system was designed from the beginning
to meet the requirements of the specific case,
thus scalability was ensured from the onset
Data-links
management
Information exchange was based on
unreliable FTP connections
A new reliable file exchange mechanism was
built based on the web-services technology
Organisational issues
Alignment of
organisation and
technology
The system was based on the customization
of an existing e-business platform
supporting typical functionality of a B2B
marketplace
The system was designed and built from
scratch to match the specific requirements of
the company with changes to work practices
carefully managed
User
involvement
Not all actual users were considered
Actual users were not involved in the user-
requirements phase
Some users liked the system but others
expressed strong negative comments that
were partly disregarded
The actual users were not trained to use the
new system.
The users had active participation in the
definition of the requirements and experience
from using the first system
All comments expressed by the pilot users
were taken into great consideration
More emphasis was given to user training.
Communication Users felt the “hard to use” new system
may at some point get “unplugged”
Some users liked the system but others
expressed strong negative comments that
were partly disregarded
Top management communicated clearly that
“the system is here to stay”
All comments expressed by the pilot users
were taken into great consideration
Roll-out plan and
testing
The roll-out plan was guided by external
pressure by the service provider and not by
internal capabilities and assessment
The roll-out to the rest of the stores would not
start before all the pilot stores were satisfied
and the new system would work without a
single disruption for quite some time
Multi-party coordination issues
ASP capabilities The risk of bankruptcy for the ASP provider
was ignored
The financial viability of the new ASP
provider was well examined before the new
start
Supplier
involvement
Collaboration with the suppliers was sought
before internal processes were streamlined
The system was opened to suppliers after
internal business processes started running
smoothly
Table 1. Key challenges and managerial actions: Comparison between first and second phase
IT Implementation
Model
Pros Cons
Centralised Easy management of data integration
links
Data quality need only be maintained in
one single system
Less expensive as there is only one
central node requiring processing power
Easy upgrades of hardware and software
Slight delays in the system response if
accessed in interactive mode
In case of a central failure, all the stores
are affected
De-centralised Faster system response in interactive
mode
A failure in a local system does not
affect the other store systems
Rather infeasible to get the suppliers
involved in the collaboration process
Difficult to manage all the links between
the required data sources and all the stores
Difficult to maintain high levels of data
quality in all store systems
Higher cost for software and hardware
upgrades
More expensive as considerable processing
power is required in each store
Table 2. Centralised vs. Decentralised IT Implementation
NOTES
i The reason there was an OOS reduction in the control stores has to do with the fact that the subjects taking part in
the experiment (the order decision makers in the stores) take notice of the fact there is a measurement and this
influences their behaviour, which is referred to as the Hawthorne effect.