Staying on Top of Shifting Standards

Big retailers are pressuring suppliers to embrace their inventory-control technologies and billing protocols. Here's how one entrepreneur is coping

Small vendors are increasingly finding that the megaretailers they do business with want them to do business their way (see BW, 4/04/05, "You'll Be Upgrading"). Eric Lockwood is one of them. In the past year, the chief operating officer of Focus Products Group, a 100-person household-products distributor based in Vernon Hills, Ill., has received letters from Wal-Mart (WMT ), Target (TGT ), and Bed Bath & Beyond (BBBY ), requesting that he adopt new technologies and standards to speed up the supply chain.

How is his company handling the pressure to change? And what's his advice for other small companies in the same boat? BusinessWeek SmallBiz contributor Eve Tahmincioglu recently posed these and other questions to Lockwood. Edited excerpts of their conversation follow.

Q: An increasing number of big companies are pressing their vendors to make technology upgrades. While they're billed voluntary, what are the repercussions if you do not comply?


The stringent customer-fulfillment requirements are having a profound impact on suppliers like Focus. Granted, system improvements are costly, but getting dropped as a vendor for non-compliance is worse.

Q: These upgrades can cost thousands of dollars, and in your case, this has been the largest outlay in technology the company has ever made. Is it worth it, financially, for small businesses to comply?


The demands for shorter delivery windows, detailed labeling and packaging, and increased data exchange have put the pressure on the vendors to stay on their toes. The cost of compliance is high, however. Technological improvements must be made -- generally at a significant expense.

Each supplier must make the choice on how to proceed. In the end, the customer demands have made us a better vendor. We now deliver faster. We have higher fill rates and a higher level of customer satisfaction. Focus has made considerable investments in our systems to make ourselves a powerful force as a vendor.

Q: Companies continue to adjust electronic data interchange (EDI) standards to work best with their individual operations. How has that posed a challenge on your end?


EDI is an area where standards were set and then, over time, they came off the track. Individual retailers still use the base standard EDI templates ["850" transactions for purchase orders, "810" transactions for invoices, "856" transactions for advance shipment notifications, etc.], but they have all altered them to meet their own specific needs -- thus, ruining the standard.

EDI still remains one of the biggest areas of expense for Focus as a vendor. The rules keep on changing, so we have to keep up with requirements as described in the vendor compliance manuals.

Q: Many companies are now having their products listed on UCCnet, a registry run by the Uniform Code Council. Are you on board yet?


We have already jumped into UCCnet. Four of our key customers -- Home Depot (HD ), Ace Hardware, TruServ, and Wegmans -- have been the driving force behind this level of compliance. With non-compliance charge backs [fees imposed on suppliers] as the alternative, we were forced to get in the game.

Q: Radio frequency identification tags (RFID) remain less commonly requested at the moment. Are you beginning to think seriously about RFID?


RFID is on the cusp, but not yet a requirement with a vendor of our size. Standards remain a huge question with this technology. Smaller vendors have the fortunate position of being able to sit back and wait for the standards to be settled and for the bugs to be worked out, while the larger suppliers struggle with the initial investments.

In this respect, I feel badly for the larger vendors. They are financing the costs of this technology and bearing the brunt of the bumps in the road.

Edited by Rod Kurtz