Getting a Leg Up on Logistics
Leg Avenue jumps feet first into demand forecasting and warehouse management systems to meet demand for its provocative Halloween costumes.
As summer approaches, the weather turns warm, and flowers bloom, Halloween might be the furthest thing from your mind. For companies that make and sell costumes, however, peak shipping season for the autumn holiday is just around the corner.
Los Angeles-based Leg Avenue got into the Halloween business a few years ago, and before long seasonal demand for its new product line was putting unprecedented pressure on its supply chain operation.
Leg Avenue's traditional focus is lingerie—the R-rated kind, sold at chains such as Frederick's of Hollywood and through boutiques, adult bookstores, and home party businesses. In 2000, the company entered the Halloween market, introducing several provocative costumes at the National Halloween Costume and Party Show in Chicago. They proved a big hit.
Today, the company sells more than 500 costumes, ranging from a nymph and a mermaid to a grown-up Strawberry Shortcake and GI Jane in a camouflage bikini. Leg Avenue's print catalog has ballooned from 24 pages in 2000 to nearly 700 this year.
Including items in different colors and sizes, the company now manages 4,200 SKUs. That's far too many SKUs for the accounting software Leg Avenue has been using to manage inventory, or for its manual warehouse operation.
The traditional peak seasons for lingerie are Christmas and Valentine's Day. Halloween has given Leg Avenue a third peak. Along with the surge in sales, fluctuating demand has made it hard for the company to keep inventory at optimal levels.
Getting Caught Short
Leg Avenue has its products manufactured in Taiwan and shipped to its Los Angeles-area warehouse. It sells through a network of 14 sales representatives and 15 distributors throughout the United States.
"We get orders every day—by fax, phone, and online," says Mike Tsai, operations director at Leg Avenue. And too often, when those orders pour in, the company gets caught short.
"For each invoice I get right now, I can ship only 70 to 80 percent of the sale," Tsai says. When Leg Avenue places an order with one of its manufacturers, it takes the factory 14 days to turn out the product. So it's hard to react quickly when a large order arrives without warning.
"When I place an order, including the transportation and processing, it takes up to 60 days to deliver," Tsai says.
Leg Avenue has also outgrown its warehouse's capabilities. With items stored alphabetically, and no warehouse management system (WMS) to direct the workflow, pickers spend excessive time walking back and forth.
"I have to pay a lot of overtime during the peak season," Tsai says. Even with the excess overtime, last summer the company fell seven days behind in its shipping.
Fortunately, all that is about to change. UPS Professional Services Inc. (PSI) helped Leg Avenue design a new, 120,000-square-foot warehouse, with modern racking, conveyors, and radio frequency data collection terminals. Located in City of Industry, Calif., the new facility will open in 2006.
As part of the same improvement initiative, Leg Avenue will implement Microsoft's Great Plains enterprise resource planning (ERP) system this summer. And, following PSI's recommendation, it will implement two supply chain management systems from Chicago-based SSA Global: Distribution Replenishment and Warehouse Management.
Like Leg Avenue, SSA Global has experienced a growth spurt in recent years. Founded in 1981 to provide ERP solutions, the company has used acquisitions to broaden its portfolio and increase customer and market share.
Some of its latest buys have made SSA Global a prominent player in supply chain management. In 2003, it purchased ERP vendor Baan and, with it, took possession of the logistics planning technology Baan had acquired from CAPS Logistics. Also that year SSA acquired EXE Technologies, which gave it a set of WMS solutions. And last year SSA acquired Arzoon, a developer of logistics execution and global trade software.
SSA created the foundation for most of its transportation offerings by integrating the CAPS Logistics and Arzoon technologies, says Eric Nilsson, senior director, solutions management, SSA strategic solutions division. From EXE, it acquired several WMS platforms and the distribution management solution.
"The WMS platforms are a competitive differentiator for us because we're now able to integrate replenishment planning and ordering with the fulfillment and transportation systems," Nilsson says.
SSA offers components of its Supply Chain Suite as an extension of its own ERP system. But it also markets them to customers such as Leg Avenue that want to integrate best-of-breed supply chain modules with ERP solutions from other vendors. Its execution systems run on web servers; end users access them using a browser interface. Planning solutions are available either as web-based or client/server systems. Customers can license SSA's software and host it on their own premises, or SSA can host the application.
Leg Avenue hasn't purchased SSA's transportation system, but Tsai looks forward to the improvements his company will see when it implements Distribution Replenishment (DR) this summer and Warehouse Management in the new facility next year. Once DR is up and running, buyers won't have to guess how much of which products to order from Taiwan. Instead, the forecasting system will make recommendations, based on current inventory and projected demand.
"That's something we've never done before," he says.
What Have We Spent?
DR will also help Leg Avenue better manage its purchasing dollars. "My buyers often decide how much to purchase, but they overspend," Tsai says.
The accounting software reports on how much the company pays for a single order of a specific item, but it doesn't highlight the cumulative cost for multiple products or help the company manage purchases over the course of a year. "That's something new we're going to try," he says.
DR will also help buyers at Leg Avenue determine when it's worthwhile to increase an order to take advantage of volume discounts.
The system uses historical data to develop a sales forecast, then combines that with data about lead times, business goals, and management directives to develop not just a replenishment plan, but a suggested purchase order, says Michael Uskert, solutions manager, SSA strategic solutions division. This is helpful to wholesale and retail distribution companies, which, unlike manufacturers, usually don't have departments devoted to demand planning.
"Wholesalers and retailers without a demand planning department need a system that automates and formalizes forecasting, inventory planning, and replenishment so it becomes a single process that they can do with a large number of SKUs very quickly," Uskert notes.
"The applications contain several features that eliminate many of the buyers' manual processes," Uskert says. As a result, "buyers take their time working with vendors, as opposed to crunching numbers and maintaining spreadsheets."
Of SSA's several WMS offerings, Leg Avenue has chosen the system designed for mid-tier companies, third-party logistics providers (3PLs), and manufacturing companies. A company can use this solution in a simple operation, including one that uses paper rather than data collection terminals, and add more sophisticated functions as needed.
"It allows them to grow without having to change applications," Uskert says.
Leg Avenue, however, is moving quickly to automate its warehouse. Using the WMS, RF-based bar-code scanners, and a new layout devised by PSI, the company will cut from six to three the number of steps it takes to move a product from shelf to shipping dock.
Thanks to the new system, it should also have an easier time bringing on temporary help in peak season.
"Without the WMS, it takes time to train temporary workers," Tsai says. "With the system I have now, workers have to be here for six months to learn where the merchandise is going to be. But with the WMS, it'll be easy to find the items."
The WMS will also provide a more accurate picture of current inventory. Often today, the accounting system shows that the warehouse has run out of a certain item, "but somehow we find two more cases off in a corner somewhere," Tsai says. The WMS should put an end to that problem.
The opportunity to reduce inventory is the main benefit Tsai hopes to gain from SSA's technology. "And, with the WMS, I'll also be able to fulfill more invoices, reduce overtime payments, and gain more accuracy on inventory counts," he says.
The technology also will bring more efficiency into the whole supply chain process—from ordering to shipping—without costing an arm and a leg.