Retailers Try I.T. On for Size
As retailers shop for ways to adapt to e-commerce and changing consumer behaviors, logistics technology provides the perfect fit.
Today's retail space has a touch-and-go vibe. Lingering economic stagnation has groomed consumers to be deliberate and discerning in what they buy, casting even greater uncertainty over spending behavior and demand forecasts. In addition, shoppers are more inclined to touch a product in the store—test it or try it on—then go elsewhere in search of a better bargain.
The growth of e-commerce has illuminated this show-rooming effect. And it's changing consumer expectations. Brick-and-mortar retailers need to attract and retain business while providing customers elevated service levels and inventory sensitivity that guarantees the right product is available in the perfect size and preferred color.
By their own creation, e-tailers are held to higher expectations as well. Online shoppers expect availability, economy, and expedited service. When virtual stores fail to deliver, countless competitors—brick-and-mortars included—are waiting to turn a dissatisfied customer into a new Facebook friend. Online, memory never fails.
Given these challenges, logistics technology is evolving to meet demand. Retailers are shopping for cloud- or Web-based solutions that can adapt to changing market dynamics and business growth. Retailers of all stripes—large and small, with both physical and virtual storefronts—are under greater pressure to harness control of their inbound supply chains and better match inventory to demand. This visibility is especially important at the retail store, but it extends upstream to DCs and manufacturers as well.
Whether it's mining more accurate merchandise flow analytics, or aggregating data and inventory visibility from point of sale to source, solutions are flexing to need. Sellers and buyers alike are benefitting.
The way Travis Serpa tells it, receiving cartons at an Urban Outfitters retail store used to be like opening birthday presents. Emotions ranged from excitement to anxiety, then the inevitable catharsis when expectations were either fulfilled or crushed.
"You saw how many boxes you had, and you knew what you had asked for, but you were never sure what was in those boxes until you opened them. Then, it would be like hoping for jeans but getting socks," says Serpa, director of retail development for the Philadelphia-based company, which includes Urban Outfitters and Anthropologie among its five branded retail chains.
The retailer's store operations did not have visibility to inbound shipments from DCs beyond broad summary details, making it difficult for store planners to proactively manage inventory. They had to react to what they received, which often created a mad scramble to get product where it needed to be in the store.
Urban Outfitters had engaged its Philadelphia neighbor PCS Technologies to help drive better shipment visibility and tracking on the transportation side. In early 2013, a chance conversation led the retailer to consider using the IT company's PCSTrac, an eponymous supply chain solutions suite for retail store operations. That got the ball rolling for the two companies to work together and tailor a retail store-specific solution.
"At the time, we didn't have any internal way to track merchandise flow outside our existing inventory tracking software," recalls Serpa. "We had to find a partner who could build a solution with minimal input from us. We said, 'Here's the information our IT team can deliver to you; how can you turn it into what we're looking for?'"
What Urban Outfitters wanted was advanced shipment notice with varying levels of detail. This way, the second a shipment was packed in the DC and ready to move, the retail store knew what was coming and when it would arrive. Apart from some time-consuming manual processes that creative store managers had devised to mine more specific information, the retailer had little insight into carton contents.
"Urban Outfitters had no internal mechanisms aside from spreadsheets, phone calls, and emails to analyze exactly what was delivered to a store, or whether an order was complete," says Chandra Allred, chief operating officer, PCSTrac. "It had no real ability to manage delivery to a specific window; or manage its network's performance without increasing staff."
PCSTrac built its StoreTrac solution with guidance from Urban Outfitters, repurposing the data it was already receiving from pool providers in a simple, store-facing Web site that provides myriad drill-downs.
"Every retailer has its own sense of what data is most important," adds Allred. "Some are less focused on product category, and want more information regarding replenishment and pick and pack because it affects labor hours."
The problem that Urban Outfitters and other retailers face is that they don't receive timely information or, when they do, it's unusable and difficult to interpret. Allred recalls one customer who sent 40-page daily email reports.
During the first phase of implementation, PCSTrac was able to break down shipment information by product category, which allowed Urban Outfitters to allocate shipments to specific areas within departments. Prior to that summary, detail would only specify, for example, whether a shipment was for the apparel or housewares department.
The second phase aggregated data from the warehouse management system, and took merchandise analysis down to SKU-level detail. "That's what changed our lives," notes Serpa.
Labor cost is an important consideration for any retail store environment, especially Urban Outfitters. Store operations staff getting summary detail only about cartons coming in from the DC added a great deal of extra time to the receiving process.
"The biggest value of item-level detail is that it provides the ability to see the future," Serpa explains. "It allows us to know exactly what product is on its way to us at any given moment, and when we can expect it, so we can better plan our tasks and make business decisions based on inventory levels."
For example, when a hot-selling item starts to sell down, stores will generally move it to a smaller fixture. Urban Outfitters often would do this, only to receive an order of replenished inventory the next day. Then they would have to move it back to a larger fixture.
"That was extremely frustrating," Serpa says. "We knew a reorder was coming, but we didn't know when it was going to hit."
By providing greater visibility to inventory on the move, PCSTrac empowers Urban Outfitters staff to prioritize and allocate incoming shipments, and plan floor moves in advance. When a shipment hits the back door, store employees can find the exact boxes they need, grab the product, and move it onto the shelves.
This is especially helpful when locations are stocking up for sales. In the past, stores didn't have the right product in stock to meet demand for a special promotion; or they might receive delivery of the sale item two days later. Then, the boxes would sit for another two days because it took the staff so long to go through the shipments. Before they knew it, the promotion was over.
"PCSTrac tells us that an item will be delivered on Thursday. On Wednesday evening, we move product and clear the front tables," says Serpa. "When the item arrives, we're ready to go."
Customer service ROI is another benefit. Store product is hitting the shelves faster, which offers greater opportunity for a sale. If customers are looking for an item that has sold through, or is available in limited quantities, Urban Outfitters can use the PCSTrac system to identify when the next shipment will arrive.
"Because we can use our payroll and staff more effectively, we can provide better customer service on the sales floor," Serpa says. "We're able to complete our logistics tasks before or after hours, instead of chasing our tails during the day."
The last phase of the StoreTrac installation includes integrating driver scans into the retailer's inventory system. Stores currently have to double-scan product to acknowledge a shipment and close the loop. PCSTrac provides this feed and allows stores to eliminate that process.
Technology Keeps Pace
The collaboration between PCSTrac and Urban Outfitters to progress through this development curve speaks to the changing nature of supply chain technology. As retail demands shift, technology needs to keep pace. Sometimes the right solution requires a little creative effort—such as taking an application that was designed for transportation and inventory control, and repurposing it for retail store operations.
"From our perspective, Urban Outfitters is a risk-taking organization; it has an appetite for doing things that haven't been done before," says Allred. "So this implementation hit a home run."
Saddleback Has Demand in the Bag
San Antonio, Texas-based Saddleback Leather Company typifies the entrepreneurial spirit of its founder and CEO David Munson. He started the company 10 years ago, making leather bags one at a time in Mexico, then selling them across the border in the United States.
The business grew slowly, and then took off six years ago, forcing Munson to open a manufacturing operation called TrueBlue in León, Mexico. He owns a 50-percent stake in the company, making Saddleback a true soup-to-nuts organization.
The company sells its quality leather bags, luggage, wallets, and accessories exclusively online—through its own Web storefront as well as with Amazon.
As is often the case with hyper-growth startups, the company eventually outgrew its labor-intensive and error-prone inventory planning spreadsheets.
"Raw materials, sales, and production data were all on one spreadsheet. We knew we'd be hindered by these manual processes, and would have to automate at some point," says Blake Lebrun, Saddleback's operations manager.
The retailer's growing pains are common, especially for those that rely on QuickBooks or Excel for inventory planning. "It's a typical evolution—a company reaches the point where it recognizes it needs better processes," says Ranga Bodla, director, industry marketing, wholesale distribution and manufacturing for Netsuite, a San Mateo, Calif.-based software developer.
Saddleback was forced to think strategically about how it wanted to plot its technology implementation roadmap. The retailer preferred an IT platform where it could integrate its different operations—from TrueBlue's Mexico manufacturing plant to its Dallas-based fulfillment house, Chamberlain Shipping (also family-owned).
So, in 2011, it turned to Netsuite to implement an ERP manufacturing and e-commerce solution. Saddleback retooled its Web store with the vendor's SuiteCommerce platform, and multi-currency transactions with Netsuite OneWorld. Once that infrastructure was in place, Saddleback had an IT base to build upon. The next step was finding a demand planning application.
"We wanted a cloud solution that integrated with our core systems, so we could add IT pieces along the way," says Lebrun. "The more integration with stand-alone systems, the more difficult they are to maintain. And we wanted to tie retail to manufacturing."
One unique feature of Netsuite's business is its Suite Cloud Developer Network.
"This platform allows users to customize and upgrade solutions," says Bodla. "Partners can build a platform and seamlessly interface with the information in the Netsuite system. We can expand functionality and enable complete solutions for our customers. It's a force multiplier."
In 2013, Saddleback elected to work with Netsuite's cloud development partner Valogix, Saratoga Springs, N.Y., and implement its demand planning software to provide a fully automated joint solution replete with forecasting, daily planning, and automated replenishment.
"Valogix's Web services interface receives data from Netsuite and runs it through its analytics engine," explains Bodla. "It then selects the forecast that best fits the data. That produces a daily demand plan to Netsuite, which triggers orders."
Instead of manually creating weekly forecasts in Excel, Saddleback now receives automated daily updates. As a result, it has repurposed one full-time employee previously dedicated to planning, and reduced on-hand inventory by 25 percent.
This bundled solution improves Saddleback's visibility to demand, empowering it to make informed inventory and production decisions. When Saddleback made the transition to Netsuite, it brought data over from its legacy system, which provided a better picture of historical sales.
"Having that data opened our eyes," says Lebrun. "It was there all along, but we were making manual assumptions."
Finding the optimal inventory level is key to Saddleback's success, especially because it controls the means of production and fulfillment. With Valogix, it can better respond to demand and supply variables.
Saddleback's supply chain spans Mexico and the United States. Tanneries are predominantly local to the manufacturing plant, with some U.S. sourcing as well. Glue and thread come from Mexico. Having top-to-bottom visibility is important because seasonality affects leather supply. During certain times of the year, shortages occur, and lead times grow. Better visibility between TrueBlue and Saddleback, and more accurate data, allows them to react faster to these changes.
The demand side faces similar challenges. For example, in the lead-up to the busy holiday season, Valogix forecasted that September-October demand was pushing capacity at its Mexico plant. To account for this spike, Saddleback pushed production forward to June and July.
"We want to stay as lean as possible—reflect the inventory necessary to replenish to a certain stock level," explains Lebrun. "Inventory on the shelf is money not being capitalized elsewhere."
The retailer currently ships twice a month from its Mexico production facility, a three-day trip to Dallas. Its goal is to carry no more than 30 days of inventory. Two weeks would be ideal, notes Lebrun.
With greater supply chain visibility and inventory control, Saddleback has opportunities to push the envelope even further. The next step would be to extend Valogix's demand planning capabilities to TrueBlue and its suppliers—which would close Saddleback's supply chain loop.
The Pull of the Future
There is also an impulse to collaborate in a more pull-oriented manner. Chamberlain currently relies on TrueBlue to manage transportation from the plant to the fulfillment center. Saddleback is considering more frequent shipments, which incurs greater freight costs. It's a matter of finding the best trade-off between paying more for transportation and having inventory sit on the shelf.
"We don't want to be at the mercy of the manufacturer to receive shipments on time," says Lebrun.
A few years ago, that wasn't even a consideration. But a carefully and strategically orchestrated technology progression, built on flexibility, has Saddleback in front of the demand curve, seeking new horizons.