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Operator Perspectives: No Vendor Is Too Small To DEX, Smith Vending's Nester Asserts

Posted On: 9/27/2011

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vending, vending machine, vending machine operator, Rod Nester, Smith Vending Corp., vending machine DEX, National Automatic Merchandising Association, NAMA OneShow, vending machine technology, vending machine planogram

Rod Nester

Rod Nester of Smith Vending Corp. (Clarinda, IA) invested in the infrastructure to support DEX automated data capture and retrieval three years ago, and says his experience demonstrates that small vending operations can reap sizable rewards by taking the leap. He shared his success story during one of the new Operator Perspectives sessions during the recent National Automatic Merchandising Association OneShow.

"You really should think about DEXing if you're not; I don't think anyone is too small," advised Nester. "I made the investment three years ago, and added $175,000 to my bottom line in the first year." In his opinion, the technology has become a necessity, rather than an option, and operators who think it's just for bigger companies may be putting themselves at a competitive disadvantage.

Smith Vending is a six-route operation serving rural southwest Iowa, southeast Nebraska and northwest Missouri. Nester spent his first two decades in the industry working for a Tom's franchise before purchasing the vending division that he helped grow -- Smith's Vending -- in 2008. He had done careful research on the benefits of having access to sales and audit data captured automatically by DEX technology, knew that it had been around long enough for the kinks to be worked out and decided to invest in it.

The vending industry, like other retail businesses, has long striven for automatic capture of transaction information. Attempts to collect sales data electronically date back to the mid-1970s. Early systems worked by recording pulses sent by the coin mechanism to enable a vend. They did the job and found niche acceptance, but each used proprietary architecture and software, so the components of one would not work with the components of any of the others.

In the mid-1980s, large retail chains confronted the need for exchanging data between a store and the driver delivering merchandise for it. They turned to the Uniform Code Council (Columbus, OH), and the UCC's solution was the Direct EXchange Uniform Communications Standard: DEX/UCS, or simply DEX.

In the early 1990s, NAMA brought machine and payment system manufacturers together with the industry's software developers to hammer out a uniform standard for automated data capture and retrieval. They settled on a superset of DEX, and the initial Vending Industry Data Transfer Standard was published in 1995.

It took a while for the industry to develop methods for equipping older machines to capture information in DEX format, and to unify the various machine manufacturers' implementations so each brand would deliver data that all the major management information systems could read. Within a decade, the major hurdles had been overcome, and DEX became a practical proposition. At a minimum, a DEX-capable machine can store transaction data for retrieval by a supervisor (or the owner) with a handheld computer. The system allows handheld computers to replace paper route tickets; fully implemented, it gives management line-item sales information. And the machine's DEX output can be delivered to a network interface for transmission to operating company headquarters.

Smith Vending's Nester explained that, like many operators who have reported success with DEX, he brought the new system on line in stages. He first took advantage of the basic implementation of DEX that allows automatic retrieval of audit information, to improve the accuracy and speed of reconciliation.

"Getting a better handle on cash accountability was our first focus," he said. "We evaluated three vending management software companies and picked one that seemed the best fit. For the first time, we were able to know that we were getting every dollar we were supposed to, by having a record of the bills in the validator, the coins in the coinbox and the coin mechanism and the change dispensed, along with the regular meter readings."

After reaping the rewards of the DEX audit function and developing a level of comfort with the technology, Smith expanded his use of automated data capture and retrieval to better monitor inventory and analyze sales.

"The next step was using data to merchandise our machines with the right products for each location, by analyzing what's in each spiral and how much of it is selling," the speaker explained. Retrieving data from the machines with handheld computers and uploading it to his management software allows him to identify the top five and bottom five sellers in each machine at every location. By acting on this information to adjust planograms, Smith Vending has reduced its cost of goods from 58% to 51%, and the number of SKUs in its warehouse from 150 to 75.

"Unless you're running every route yourself, you really don't know, item by item, what is in each spiral, and what is turning and what is not," he observed. "I learned that I needed to double up on some SKUs and eliminate others. It's so important to see what your customers are buying, and to figure out what they want from you. If you're not DEXing, you're relying on the driver to tell you. If you're DEXing, the data comes straight from the machine and you don't have to question it."

Nester said DEX capability takes the guesswork out of planogramming machines and expedites the process of designing and modifying menus. When DEX data are collected, the program retrieves the complete planogram configuration for that machine, including spiral description, number of rows and columns and pricing. These variables, specific to each machine, are uploaded to the back-end management information system, which automatically populates the machine's planogram.

"And the sales analysis you get not only identifies the fastest and slowest sellers in each machine, but also determines the best par level for each item," added the speaker. "On average, if you sell five Twix bars per service, you set it at seven or eight so you don't tie up inventory in the field."

The operator said one of his biggest challenges in implementing DEX systemwide was that he had inherited a good deal of older equipment when he purchased his business. "It was well worth keeping those machines and retrofitting them," he commented. "By buying a DEX box and harness from InOne Technologies for less than $200, I am now able to know every turn in my machines."

In all, Nester estimates that the cost to implement DEX throughout his operation was about $110,000, including the necessary adapters, the management software and the server. Since he added $175,000 to his bottom line in the first year alone by becoming more efficient and merchandising more effectively, he considers it money well spent.

Nester's bigger hurdle was convincing his employees of the long-term value of DEX, and of changing the procedures to which they'd become accustomed. All but two of Smith Vending's drivers chose to leave rather than learn the new system.

"Looking back, I wish I'd tried harder to get them to buy in," he said. "It's a move we had to make, and now we're a healthier company. The industry is changing: margins are tighter, it's more competitive, and employees have get on board for the good of the company. DEX is a big investment, but we've recouped it, and it's helped us do a better job of giving our customers what they want, which benefits everyone."