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Issue Date: Vol. 45, No. 6, June 2005, Posted On: 6/23/2005


VendTec Workshop Offers Overview Of Latest Telemetry, Payment Tools


Tim Sanford
Editor@vendingtimes.net

Las Vegas - "Our lives have changed," said Dr. Michael Kasavana, National Automatic Merchandising Association Endowed Professor at The School for Hospitality Business, Michigan State University (East Lansing, MI). Dr. Kasavana moderated the first "VendTec" seminar at the education conference concluding this year's NAMA Spring Expo here, a program based on the association's very successful "VendTec" exhibit-area presentation series.

Dr. Kasavana recalled that many people grew up with a series of tools that also were familiar to their parents, like phonographs (with turntables), typewriters, adding machines and rotary-dial telephones. In less than two decades, all of those things have disappeared; most young people today have never seen any of them.

The revolution that has swept mechanical and electromechanical office machines, and analog recording and playback instruments, into history's dustbin has been driven by parallel advances in semiconductor design and manufacture, data processing techniques and communications technology. "How do these apply to vending?" he asked.

A few examples include today's growing array of host/satellite vending installations, in which the patron can make purchases from two or more adjacent venders from the customer interface panel of one of them, and remote monitoring capability, allowing the operator to determine the inventory, collection and functional status of widely-dispersed machines from a central computer in the office.

Perhaps most immediately interesting are the increasingly sophisticated methods for analyzing sales, using that analysis to tailor machine menus for maximum sales through "planogramming," and scheduling service only when the specific machine requires it. Taken together, these new capabilities have the potential for increasing per-machine sales, upgrading route productivity, enhancing customer satisfaction and bolstering profit. For example, the speaker observed, the average snack machine today is serviced when it has sold down to about 60% of its capacity while, in other retail channels, suppliers regard 30% as an efficient and attainable restock level.

Dr. Kasavana added that defining a "vending machine" can be a useful exercise, because it suggests new ways to look at what the industry actually is attempting to do. For example, he said, it would not be difficult to come up with a definition under which the Internet can be seen as "the world's largest vending machine."

An example of the evolution that continues to affect vending machines as well as many other kinds of equipment is the ongoing improvement in interface protocols. The speaker recalled that, not so long ago, computers were connected to printers either through a "parallel" port (known to "MS-DOS" as "LPT1") or a "serial" one ("COM1" in DOS); the serial interfaces came in several flavors, and there were other less-common interfaces too. These presented a real challenge to connectivity, which the speaker summarized as "plug and pray." Today, the Universal Serial Bus (USB) has supplanted all of those interfaces, and more besides, making life a great deal easier for computer users.

Operators should take the plunge into the new technology, Dr. Kasavana suggested, to  gain competitive advantage , or simply to remain competitive in soliciting new business; to improve productivity, using resources more efficiently and thus containing the steady rise in operating costs; and to enhance profitability.

All of these potential benefits derive from two data storage and transfer standards, the "multi-drop bus/internal communications protocol" (MDB/ICP) and the vending industry data transfer standard, an adaptation of the "direct exchange/uniform communication standard (DEX/UCS)" , almost always called "DEX." The application of DEX to vending enables compliant vending machine controllers (VMCs) to capture and store cash and column sales information for retrieval with a handheld device, or transmission to a remote computer. MDB, best known for standardizing the exchange of information between the controller board and peripheral devices (coin and bill validation systems, card readers, refrigeration systems, and adjacent vending machines configured as satellite dispensers), also can be used to keep a record of transactions.

Greatly increasing the versatility and potential of DEX and MDB-enabled vending equipment is the swift development of reliable, affordable wireless technology, Dr. Kasavana added. This has made telemetry practical and, perhaps of even greater immediate interest, has provided the medium through which cashless payments can be authenticated, and cashless transactions unified with cash sales for reconciliation with machine inventory withdrawals.

The application of these advances to vending has not been altogether straightforward, because vending machines tend to have a long earnings life, and so many generations of equipment coexist, side by side, in the field. Upgrading the older ones to some degree of uniformity with the latest models has been a challenge.

Dr. Kasavana recalled that postwar full-line vending equipment evolved from electromechanical designs to electronic, and then to "enhanced electronic" architecture. During the electromechanical period, the multi-price coin changer represented the highest development of payment technology; the electronic era was marked by the advent of controllers with serial interfaces. Enhanced electronic machines are compliant with the data transfer and MDB standards.

In such a vender, the payment device sends information to the controller using the MDB protocol. The controller effects the vend, and records the item vended and the payment in a standard format defined by the data transfer standard. That information is available through a DEX-compliant interface, and can be collected on site by use of a handheld computer. The machine also may be polled for this data from a route truck in the parking lot, so the driver will know exactly what and how much merchandise to bring in for restocking. Or it can be transmitted to a remote headquarters, for use in scheduling a route stop, detecting component failure or verifying collection information.

It is equally possible to capture information from the payment terminal that specifies what kind of transaction has been made (cash or card, for example). That electronic transaction record can be used to determine total dollar sales and to specify the amount of cash that should be in the machine. This transaction record, of course, also can be retrieved from a distance by telemetry, for settlement processing.

Cashless vending has been implemented for decades in "closed" environments, such as college campuses and large industrial and commercial locations. The development of communications standards and the swift improvement in technology now has brought credit and bank debit card acceptance within reach, Dr. Kasavana noted. This offers the vending industry a number of benefits, not all of them obvious. "Research shows that 50% of consumers will not make a purchase from a vending machine if its 'use exact change only' light is on," he reported.

DEX-capable machines, and the ability to retrieve the data they collect, form the necessary foundation for realizing the potential benefits of today's technology. Creating that foundation takes commitment and effort, and there are some areas in which additional refinement will prove very helpful. The typical DEX record is very difficult for the uninitiated to read, and it's important to allow for the effect of the new vend assurance systems on that record. A system that records actuations of a vend motor to capture column sales data can be thrown off by another system that repeatedly cycles a motor until its spiral drops the product.

The standard is flexible enough to deal with these annoyances, given the necessary firmware. It also is flexible enough to offer additional services, such as supporting a machine whose payment system can be used not only to purchase products directly, but also to "recharge" a closed cashless payment system of the sort offered by PayKey and eSecure Peripherals. In this case, the trick is to capture the payment without recording a sale. At present, DEX seldom is fully implemented, as a majority of operators have chosen to concentrate on capturing audit data before taking advantage of the standard's more sophisticated capabilities. It's important to remember that a full DEX record contains both "transaction" and "event" information; the user can decide how much of this information to interpret and use.

Vending management software is a necessary complement to DEX-enabled vending equipment. Software that offers "product mapping" (recording the location of each specific product in a machine) is essential to obtaining line-item sales information from the DEX record. And, of course, the product "map" for each machine must be updated when a new item is substituted for the present one.

If this is done (and it is being done), the operator has a powerful category management tool, able to provide a continually updated gauge of patrons' preferences and to identify slow-moving SKUs that can be replaced by potentially more appealing ones.

PROFITABILITY BY DESIGN

Dr. Kasavana suggested that the next stage is what he calls "V-engineering," in which item-level data tracking is used not only to optimize the load plan, but also to enable more effective replenishment and rotation procedures. This can boost productivity and thus enhance profitability, he emphasized.

"V-engineering" thus is a component of the overall retail environment that the NAMA Endowed Professor has called "V-commerce." And, he quipped, "V-commerce rocks! Imagine a group called 'VMC and the Peripherals...."

Over the past year and a half, discussion of cashless vending has grown more animated as improvements in payment processing systems have made the use of credit cards for smaller-ticket transactions, such as purchases in fast food restaurants, more practical and attractive.

The advantages of cashless payments in vending are substantial, Dr. Kasavana emphasized. Improving convenience always has boosted vending machine sales, and offering customers a cashless option has proven its value in this regard. When patrons are freed from concern over depleting the limited supplies of cash on their persons, not only do they make more purchases, but in many cases, they will purchase several items in a single transaction, if the machine will permit them to do so.

Classic cashless systems in vending have been "closed," using a proprietary payment medium like a prepaid card or other stored-value instrument. Dr. Kasavana described this methodology as a "hosted internal system," and pointed out that it has proven its value over more than two decades. Its strong points are its security and its freedom from ongoing service charges.

Such systems work very well in environments where the vending machines are used by relatively stable groups of people: students, faculty and administrative personnel in a college or university, or patients and staff at a hospital, or the employees at a business-and-industry account.

The alternative "open" or "external" approach is taken by card-based systems that can accommodate major credit and bank debit cards and short-range "contactless smart cards" (transponders). The tremendous demand for wireless data services in recent years has spurred improvements to technology and reductions in cost, providing a practical way to authenticate a payment instrument and enable a vend, virtually in "real time." That demand also has produced successive generations of cellular telephones with ever-larger feature sets, and these also can be used to make cashless purchases ("mobile commerce").

One catalyst of the present intense interest in assembling vending machines into wide-area networks is that the same communications technology that enables telemetry also permits card-based cashless payment options. This changes the cost/benefit equation, since the cost of the network service is shared between one enhancement that tightens control, increases efficiency and reduces service costs, and another that increases sales, expands pricing flexibility and reduces collection costs , while both increase customer satisfaction.

Dr. Kasavana noted that the initial telemetry systems available to vendors represent a "simplex" model, in which the machine is polled (information in one direction) and responds by sending the requested data (in the opposite direction). Another model, widely used in other environments, is "duplex" communication which is genuinely bidirectional. In a vending application, a duplex system not only receives information from the machine, but also can send instructions to it (to change prices remotely, for example).

The evolution of machine monitoring has proceeded from the classic vend meter, whose readings were written down to create a manual record, through the handheld computer, which can download captured information in DEX format and accept data keyed in manually, to "curbside polling" (the driver transmits the request for information from a route truck outside the location, and the machines respond by transmitting the information back to the truck). Remote monitoring allows polling from a much greater distance, over a wide-area network. The ultimate development (to date) makes the data available online, often through a secure Internet website.

Dr. Kasavana added that inventory management models, "replenishment algorithms," also have evolved. The usual approach in vending is "par stock," in which a quantity is established for each product in the machine, and that level is restored on each visit from a rather large truck inventory. Alternative approaches are "mini-max," in which restocking to the "maximum" level is done only when the quantity falls to a predetermined "minimum" quantity; and "zero based," in which the truck is loaded only with the quantities of product that will be required to restock each machine. The two alternative approaches require either very accurate sales forecasting or the ability to determine machine inventory remotely.

Telemetry also can offer the operator "instant alerts" (for example, if a machine is being attacked, or if a component fails or begins to fail, such as a compressor overheating). It also holds the promise of allowing all the machines (and their peripherals) in the field to receive new software or firmware by uploading it from a computer at headquarters.

BEAT TO THE PUNCH

At present, Dr. Kasavana estimated, the cost of maintaining wireless communication averages $6 to $7 per machine per month. That cost will be "effective" if eliminating unnecessary trips and responding swiftly to alarms results in savings greater than the expense.

Trends to watch, he concluded, include the continuing rollout of cashless vending; widespread adoption of "coin manager" technology, based on new-generation changers that monitor their change levels and adaptively refill depleted coin tubes from money inserted into the machine; and ever-wider use of product delivery assurance systems. Beyond that, he predicted, operators increasingly will adopt remote monitoring systems and use them to implement dynamic routing programs, fine-tuning stops to actual machine inventories. More "open-architecture" peripherals, using the industry's new standards and protocols, will become available, and Web-based solutions will find increasing favor.

Dr. Kasavana then introduced Craig Lewis of MEI, who offered an overview of the present challenges and opportunities facing the vending industry in the United States and other industrialized nations.

The question can be approached by considering cash and the cash equivalents used to make vending purchases; vendible products; operational efficiency; and security. They are interrelated, the MEI executive observed.

Among "cash equivalents" are tokens and coupons, credit cards, and "closed-site debit" systems (which, in the United States, have found greatest favor with educational institutions, but which enjoy very widespread deployment in the European Union).

Cash is a straightforward payment medium, Lewis noted, but it always has exposed operators to loss, and the increasing versatility of payment systems has increased the complexity of auditing. A machine that sells at multiple prices (as most modern ones do), and that is equipped with a changer that must be restocked from a change fund carried by the driver, is vulnerable in a variety of ways.

When the audit procedure determines that money is missing, it can be difficult to trace the loss to the driver or a technician, a supervisor, or an outsider using a lost or stolen key, the speaker pointed out. It also is possible for a driver to work around a basic accountability system by placing his own "substitute" merchandise in a machine, then skimming the payments for it from the collection. Tokens and coupons offer their own opportunities for fraud, he added; and credit cards do, too.

Most of these challenges have been present since the early days of the full-line vending revolution, if not before. While more sophisticated vending equipment and payment systems have, inevitably, made accountability more complex, technology also offers better and better tools for overcoming that complexity.

For example, the classic paper route ticket, filled out by hand, is being replaced by an "automated" ticket receiving its information from a DEX upload, with no transcription at all by the driver. The quality of DEX data is conditioned by the vending machine manufacturer and the information technology supplier, Lewis pointed out, but real progress is being made in improving uniformity and reliability.

The window for loss opened by traditional changer magazines is being closed by new systems that keep track of the coins in the tubes and include this information in the audit data, the MEI executive noted.

The automated route ticket provides many opportunities, Lewis reported. While a manual ticket could only track categories , entering item-level detail would take far too long , a DEX upload can provide that detail. Being able to track specific stock-keeping units in a glassfront snack machine, column by column, makes effective planogramming possible.

This is worth doing, the speaker emphasized. It does require some attention ("Your system must handle situations in which a different product is put in the back of the spiral," he instanced), but in return, it gives the operator unprecedented control over merchandising. "Who does your marketing, the newest hourly hire or your marketing vice-president?" Lewis asked.

TOTAL ACCOUNTABILITY

On a larger view, the challenge is to track every product through the entire system, from its arrival on the warehouse dock through its residence in warehouse inventory, truck inventory and machine inventory, to its conversion into cash or its return as a "stale."

Control of "stales" is especially important in food machines, since waste is the chief obstacle to profitable food vending. "You need to know what's needed, what's popular, and what to make," the MEI executive said.

The simplest way to collect this DEX data is by issuing handheld terminals (usually "palmtop" computers or personal digital assistants) to the drivers, the speaker continued. Good drivers will find these very helpful, because they are easier to read and faster to use than a paper route ticket. They display the exact items needed for each slot in each machine; they provide SKU-level detail.

A further refinement is the elimination of the "first walk," in which the driver must check the machines in a location in order to learn what must be brought in to restock them. If the driver knows what to bring in before leaving the truck, he or she can visit more locations in the same time, avoiding a good deal of wasted effort. "It's like a cordless phone," Lewis said. "It makes it possible to service more machines per day."

This can be accomplished by equipping machines to transmit their current inventories to the truck at curbside or in the parking lot. This is best done by looking for ways to maximize the reliability of data transmission while keeping the cost down; strategies include "bunny-hopping" (linking adjacent machines to share a single transmitter) and selecting appropriate antennas (they are available in "standard," "sensitive" and "high gain" designs).


Topic: Vending Features

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