Improving the health of Walgreens scan-based trading with SAP

Long ago, Walgreens created a prescription for success. And the main ingredient was and has continued to be its innovative business practices and services for the betterment of its customers, suppliers (or vendors), and operation. This story is about one innovation adopted by Walgreens, scan-based trading (SBT), and how SAP helped improve its use. 

When pharmacist Charles R. Walgreen Sr. became the owner of his first drugstore in 1901, there were about 1,500 drugstores in and around Chicago where he lived—all doing business in a similar manner. Charles decided it was time to stand out. And that’s when the innovations began.

Medicine, milkshakes, and more

Walgreen Sr. manufactured his own line of medicines to ensure high quality and low prices. He increased the number of household products on his shelves to make his drugstore more of a one-stop shop. As time passed and his operation expanded with more drugstores (now about 9,000 throughout the country as Walgreens Boot Alliance), the innovations continued—in various areas.

Walgreens invented the milkshake as we know it today. The chain was one of the first stores to introduce self-service, becoming America’s largest self-service retailer by 1953. It was the first drug chain to put prescriptions in child-resistant containers in 1968 and was an early adopter of in-store health clinics, continuing the practice of the one-stop shop.

Formulating a solution

Sometimes, innovations need to be improved. And that was the case with scan-based trading. Walgreens was an early adopter of that technology. Simply put, SBT is a practice in which vendors own and are responsible for their products on a retailer’s shelves until the products are sold. The vendor gets paid and relinquishes ownership when the product is scanned at checkout. 

SBT has advantages for retailers and vendors. The retailer doesn’t have to incur the cost of purchasing and stocking vendor inventory. In theory, the vendor gains inventory and sales information and gets paid faster. But the Walgreens legacy SBT mainframe solution slowed down payments, caused errors, and restricted visibility.

The Invoice Challenge

Point-of-sale (POS) information used to generate invoices for SBT vendors was getting hung up in the mainframe environment. The process involved multiple steps, from an SAP-based solution to the chain’s legacy solution and back to SAP. This transfer led to the slowdown and data inaccuracies, with an invoice error rate as high as 11%, causing incorrect payments of $117 million chain-wide in just around three months. Fixing the results required extra steps every day by Walgreens and vendor employees, adding to the delays.

“Walgreens is a world-class organization; we needed a world-class scan-based trading program,” says Bradley J. Trychta, senior director of Enterprise Financial Services at Walgreens Boots Alliance. “Our vendors require daily information to run their business and keep Walgreens shelves stocked.”

Putting SAP mortar to the pestle for faster, better processing

A joint team of experts from SAP, Walgreens, and TCS designed an end-to-end solution to implement a new invoice creation process, eliminating the use of the mainframe. The new process has cut the error rate down to, at most, one-half of 1% of all SBT invoices.

Walgreens can now handle 1.2 million SBT transactions on peak days, representing 2.3 million items sold. And processing only requires two to three hours on those days—a dramatic reduction over the previous solution.

Walgreens has improved its efficiency, cut costs, and created a better work environment for its employees, eliminating the time and effort required for fixes. The solution has also helped with vendor relationships.

And everyone benefits

In addition, to receiving on-time, accurate payments, SBT vendors have boosted their visibility into what’s selling in each store. The SAP based solution has helped them:

Improve daily operational analysis of UPC Sold

Plan the next deliveries at the store level

Perform accurate forecasting of product production

Eliminate in-store scouting of inventory before delivery

See store inventory turn and use shelf space more efficiently

The solution benefits not only Walgreens and its vendors but also its customers. Vendors now have a better idea of what to stock and where to stock it on the shelves, so customers can get the products they need at their favorite drugstore that was built on innovation.

For its commitment to innovation, Walgreens has been named a Business Innovator WINNER  in the Health Care category of the 2023 SAP Innovation Awards, which is celebrating its 10th anniversary. To learn more, see the Walgreens Innovation Awards pitch deck.

Digital Transformation