Mercari Technologies Tackles Supply-Chain Problems

Mercari Technologies Inc. is only 2 years old, it has yet to turn a profit, and it doesn’t even have a name for its latest product.

But by mid-November, the Fayetteville e-solutions company expects to turn the retail world upside down _ on computer screens, of course. Mercari plans to release the first three-dimensional Internet visualization application that lets users manipulate and view potential store displays of any size and from any angle. Instead of shipping elaborate models or choreographing expensive presentations, retailers and manufacturers will be able to work out the look and logistics of displays online.

It’s the third generation of Mercari applications designed to wage war on two of the retail industry’s top revenue killers: sales missed because of stockouts and inventory holding costs.

Mercari CEO Randy Laney said the idea was to combine the art of merchandising with the science of optimization and probability theory. The optimization tools are accessible, for a fee, via pass code through a regular Internet browser and do not require software installation.

In e-business jargon, that makes Mercari an “application service provider,” or ASP.

“We’re integrating consumer behavior and merchandising with supply-chain management at the shelf level,” Laney said. “We’re riding a lot of momentum right now. … We hope to become profitable by late next year.”

$5 Billion Industry

American retailers and their suppliers are expected to spend more than $5 billion on supply-chain technology by 2003, according to the Journal of Business Logistics. Essentially, it’s all about keeping the best-selling product stocked for the least amount of inventory holding costs. The second step is calculating when to introduce new products to spur sales growth.

Investors were impressed enough in September with the potential of Mercari’s first two products, InitiaLink and NeoCtex for Net Markets, to give the firm $20 million in venture capital funding. A quartet of firms, including Diamond State Ventures LP of Little Rock, made up the investment group.

Most of the $20 million will be used to take Mercari’s 3D products to market and beef up its sales team. The company has received $33 million in total venture funding and spent $21 million on research and development.

Mercari’s 12 existing clients will soon get first crack at the 3-D product. A national marketing campaign is planned for early 2001.

How It Works

The InitiaLink application and NeoCtex engine use probability theory to estimate how much of a product must be stocked to keep a store’s supplies from running out. It produces spreadsheet data.

The 3-D application, which is in the process of being named by Mercari’s advertising agency, Brodeur Worldwide of Boston, doesn’t eliminate the strategizing that’s already done in meeting rooms and on conference calls. It just uses the NeoCtex data and the video streaming of industry leader Metastream to make true-to-life imaging possible in an e-market place.

There’s a demonstration page at www.mercaritech.com that shows how images may be flipped, opened and dissected as needed to plot merchandise placement.

Mercari’s pricing is based on the number of locations and stock-keeping units involved for each client. A typical retailer’s or manufacturer’s initial cost might run $700,000 annually.

“NeoCtex lets retailers go on and say, ‘OK, I want 20 cases of toothpaste from company X by next week,” Laney said. ‘”I want so many of this category, so many of another, and etc. …’ Then they could also get the logistics down, the packaging designed, and plan the shelf layout to avoid stockouts.”

A 1991 study published in the Journal of Business Logistics examined consumer reaction to retail stockouts. When consumers could not find the product they were seeking, 13.7 percent said they shopped at another store in the future.

The trade publication said that that represents an estimated $13.4 billion in sales lost to the intended retailer.

Joe Hays, a managing partner with Diamond State Ventures, said he was swayed by the expediency of Mercari’s solutions.

“Mercari’s value proposition is very easy to identify,” Hays said. “They offer their customers not just an Internet application, but a business process that has a very clear and immediate return on investment that can be truly staggering.

“Supply-chain management has traditionally been a seat-of-the-pants proposition. Mercari brings a scientific approach that helps companies eliminate lost opportunities.”

The fact that renowned venture firms like ABS Ventures of New York and North Bridge Venture Parkers of Waltham, Va., got in on Mercari, too, adds even more credibility. Both are veteran king-makers of high-tech start-ups.

Laney, a longtime Wal-Mart Stores Inc. executive, left the Bentonville retailer in 1993 as vice president of finance and treasurer to become CEO of Rally’s Hamburgers Inc. in Louisville, Ky. But after leaving the burger chain, he reunited with friend Matt Waller, then a professor of logistics at the University of Arkansas, and the two got interested in improving supply-chain management.

Each one’s expertise complemented the other, and they set out to turn the “show and flow” of supply-chain management into dough. And they weren’t after the variety manufactured by a Mercari client and Wal-Mart supplier, The Pillsbury Co.

“We have been extremely pleased with our selection of InitiaLink and the results it has produced over such a short period of time,” Alex Cornett, Pillsbury’s Bentonville manager, said in a statement.

Cornett would not disclose particular sales figures. But Laney said Mercari had helped several other companies improve the optimization of stale categories. For at least one major grocery chain in the Midwest, that translated into an 11.6 percent improvement, or $22 million of added value.

“We’ve seen 11-plus percent category gains in at least two cases,” said Waller, now Mercari’s chief strategy officer. “The total amount American companies annually spend on supply-chain management as a percentage of the gross national product is said to be about 15 percent,” he said.

“So when you can make that kind of improvement for a company, it makes a difference.”