Getting a Handle on Enterprise Resource Planning
A small business ERP system from American Express helps handbag retailer Yak Pak pack a punch with customers, retailers,suppliers, and employees.
Yak Pak's business is in the bag, literally. The New York City-based company manufactures and sells handbags, duffel bags, backpacks, and accessories.
Founded in 1989, Yak Pak is owned and operated by former Georgetown University classmates Rolando Cohen and Stephen Holt. The urban designs are sold at mall stalwarts such as Pacific Sunwear, Sam Ash, Tilly's, and Urban Outfitters, and have been featured on TV and in movies. Yak Pak also operates a high-traffic retail web site and a concept store in San Francisco.
Yak Pak's products are designed at the New York headquarters, manufactured at the company's wholly owned factory in El Salvador—although some are sourced from China—and distributed through the company's Houston warehouse.
"We have three legs for distribution," says Richard Haugen, Yak Pak's chief operating officer. "El Salvador and Asia to Houston, Asia to other U.S. ports, and Asia to El Salvador."
For Yak Pak, like most fashion industry manufacturers, a key challenge is driving down distribution costs while keeping warehouse inventory low and retailers fully stocked—not an easy task in an industry where today's hot product is tomorrow's discount special.
To help it more effectively meet the demands of a high-pressure supply chain, Yak Pak recently turned to a distribution-oriented enterprise resource planning (ERP) software package from American Express Tax and Business Services.
SAP Business One-The American Express Edition for Wholesale Distribution is based on SAP's small- and mid-sized business ERP product.
The SAP ERP replaced Yak Pak's legacy accounting/business management system. The software provides new distribution and warehousing capabilities, as well as enhanced factory planning and control, purchasing, sales, and customer service functions.
"The ERP system is a complete package," says Haugen. "It solved many of our business issues in one fell swoop."
Dissatisfied with its legacy system based on FoxPro accounting software, Yak Pak began searching for a replacement system during 2003. The old software, Haugen notes, couldn't keep pace with the company's rapid growth, so it was vital to find a suitable replacement as quickly as possible. FoxPro wasn't a transactional database, which made it difficult for Yak Pak's sales representatives to monitor and review orders.
The new software, deployed in January 2004, provides all the features Yak Pak needs to more efficiently serve its suppliers, retailers, web site customers, and staff, says Haugen.
"The system provides an integrated warehouse, e-commerce integration with EDI capabilities, integration with our web site, document management, and online credit card processing," he says.
The technology helps Yak Pak fill orders quickly. "Because we use just-in-time manufacturing, our customers generally place orders for the future," Haugen explains. "This ERP system enables better visibility of our supply chain." That includes open orders from customers, open POs, and the matching POs Yak Pak receives when it places orders with its suppliers.
"It also allows for better visibility when we plan raw materials purchases at the factory," Haugen says.
The improved speed and efficiency means Yak Pak operates with less idle inventory in its Houston warehouse. The software also permits shorter lead times between the company's El Salvador factory and Asian suppliers, while ensuring greater shipping accuracy.
Before deploying the software, Yak Pak's shipping completion level was about 93 percent, says Haugen. By the end of 2004, that number shot to 98 percent. "That's a bottom-line result," he says.
"We produce more goods and meet more orders in the time allotted."
Other benefits have emerged as well. Before deploying the ERP, Yak Pak turned over its inventory about 13 times a year. Now, it turns inventory twice a month, which reduces inventory costs. The company has also seen mispacked shipments decline by 10 percent, manpower needed to pack orders decrease by 22 percent, and customer service costs fall by 60 percent.
Customer satisfaction has also improved, particularly among retailers placing large orders. "When a customer places an order for more than a certain size, the ERP software automatically alerts a production person," says Haugen. This capability forces a production employee to manually examine the information, make sure it is correct, and approve the order.
"Our production employees simply check a box and create a matching purchase order for the appropriate factory," says Haugen. "Just two mouse clicks and the PO is sent electronically to the factory."
The software has also helped Yak Pak keep orders from falling through the cracks. "Sometimes, for example," says Haugen, "we'd receive a big order, and the sales reps would fail to mention the new order to production. Then, when the order was due, we had to scramble to meet the deadline."
Rushing to meet a suddenly remembered order pushed up Yak Pak's production and shipping costs. "You should never be surprised by an order in your system," says Haugen. "We're no longer surprised by anything."
Additionally, for the first time, Yak Pak has an integrated audit trail that tracks orders from initiation to completion. "The customer's purchase order, the matching factory purchase order, the goods receipt at the warehouse, and the actual invoice and bills of lading are all documented," says Haugen.
On the consumer side, the ERP system helps Yak Pak fill web site orders faster and more efficiently. Shipping labels, for example, are printed at the warehouse within five seconds after the order is placed. The software also provides all the required information to scan, pack, and ship orders.
"When we ship goods, we print a delivery note and send an e-mail confirmation—the process is fully integrated," says Haugen.
Yak Pak has also achieved greater flexibility in shipping orders, allowing it to make extensive use of alternative carriers.
"In the past we shipped almost all our products via air, which is expensive," notes Haugen. "With only slight adjustments to the schedule and production, we can handle ocean shipping's 10-day transit time. Shipping 40-foot containers full of goods via ocean cuts transportation costs."
Yak Pak employees—particularly sales reps and buyers—have greater insight into the company's sales and logistics data with SAP Business One-The American Express Edition. The old system limited employees to the knowledge contained in spreadsheets and pivot tables.
"The ERP system offers visibility into the total operation," Haugen explains. "It allows us to coordinate orders, purchase orders, and production site developments."
Yak Pak's sales reps are now better equipped to live up to the promises they make to customers. The new software provides easy and quick access to reports containing data such as outstanding orders, styles that have gone out of production, and shipping delays.
"Sales reps don't have to look into the system for reports," says Haugen. "Their key statistics are delivered to them regularly, which gives them more selling time." Thirty-two percent more selling time to be exact, he reports.
The ERP system also helps Yak Pak more efficiently cope with rapidly fluctuating markets.
"We look at a number of factors when we promise delivery dates," says Haugen. "How much fabric has to be ordered from Shanghai, for example, to arrive in El Salvador for cutting and sewing and be shipped to the United States to arrive on time to a customer in San Francisco?"
In the past, the intricate supply chain trail took hours—even days—to plan. Now, with key information at workers' fingertips, complex plans can be completed in a fraction of the time.
Nearly instant information on a wide range of topics also allows employees to handle suppliers and carriers more efficiently.
"We can actually see what's going on in our business—which carriers are running late, or which vendors are best able to meet a bid," says Haugen. "It shortens all our cycles. We have more accurate information, purchasing mistakes don't occur, and orders aren't missed."
Yak Pak's need to acquire additional operations or logistics software down the road has been greatly reduced by the multi-tasking ERP system. It even allows Yak Pak to embrace RFID in the future.
Although the company hasn't yet started testing RFID, Haugen says it's likely it will adopt the technology.
It's important for rapidly growing companies to periodically reassess their enterprise software, Haugen says. "The systems that get you to one point may not be the systems that take you to the next stage," he says.
For Yak Pak, the legacy system that worked well for more than four years fell apart as the company began shipping more products to more customers.
"We grew from 1,500 ship-to points to 7,500 ship-to points, and from 800 customers to 3,600 customers," says Haugen. As the legacy system groaned under the strain, Haugen knew it was time to implement more capable software.
While all leading ERPs provide a full range of features, the products differ in how they handle and present information. Business needs differ, too, and some products simply prove to be better matches for certain companies.
"Know exactly what you're trying to achieve with your ERP system," advises Haugen. "Know exactly what data you're looking for, and how you need the data organized in order to make decisions."
Haugen stresses the need for careful planning and setting realistic growth expectations. "If you know your goals, it makes the rest of the process much easier," he says.