Refashioning Retail Supply Chains
Whether they’re pooling loads or promoting best practices, retailers tag consolidation and collaboration as powerful strategies.
In a tough economic climate, as consumers hold tight to their wallets, many retailers draw inward. The market contracts as strong players buy weak ones, and the weakest close their doors. Chains cut back on expansion plans, shutter under-performing stores, and cut payrolls. A department store might shrink its furniture department, while a restaurant chain deletes some menu choices, all to focus on the products that the market wants most.
This kind of contraction and consolidation looks like a sign of distress in hard times. But in many cases, pulling inward or pulling together makes companies stronger.
“Retailers have talked about collaboration for years,” says Frank Williams, vice president, contract logistics operations at Transplace, a transportation and logistics management services vendor based in Frisco, Texas. In the past, though, little of that talk led to action. Now, consolidation and collaboration are gaining traction.
For example, shippers running private or dedicated fleets are more willing to adjust their schedules to pick up backhauls from other companies, and Transplace has started matching customers to talk about sharing warehouse space. The company also combines less-than-truckload (LTL) shipments from different customers to obtain favorable truckload rates.
“As a result of the economy, companies are more open to working together and trying to drive results for shareholders and the business,” says Mark McEntire, Transplace’s vice president of operations.
Whether they’re pooling resources to streamline supply chains or promoting ideas to develop better practices, retailers can consolidate and collaborate in positive ways to achieve greater success, as you’ll see on the following pages.
CONSOLIDATE AND SAVE
Department store company Stein Mart has made consolidation a central theme as it re-engineers its supply chain to better meet the needs of its growing retail footprint. Stein Mart, which bases its appeal on a blend of upscale ambience and discount prices, started as a single store in the early 1900s. Since then, it has expanded to 273 locations in 30 states and the District of Columbia.
Until recently, Stein Mart’s vendors throughout the country delivered their products directly to stores, using parcel carriers. “A UPS or FedEx truck would back up to the store and drop off between 100 and 150 cartons, every day of the week,” recalls Richard Schart, vice president, supply chain at Stein Mart in Jacksonville, Fla. “Employees had to cut a packing slip off each carton, enter that information into a receiving system, then do a carton count verification.”
If tickets or hangers were missing, store employees keyed in that information as well. The process was labor-intensive. And because no one knew how much merchandise would turn up on any given day, it was difficult to schedule staff.
In 2008, Stein Mart brought in a team of consultants to review its business processes. One consultant recommended implementing a traditional pull-point and consolidation network from vendors to stores.
Since then, Stein Mart has started using facilities owned and operated by third-party logistics providers to support the movement of goods from vendors to stores. These facilities include three consolidation centers in Atlanta, Secaucus, N.J., and Compton, Calif., and three store distribution centers (SDCs) in Atlanta, Compton, and Dallas. Oakland-based APL Logistics provides the facilities in Atlanta and Dallas; National Retail Systems, North Bergen, N.J., runs the centers in Secaucus and Compton.
Stein Mart expects to have all the locations, except the Compton SDC, up and running by the end of September 2009. The five facilities will handle about 80 percent of the company’s supply chain volume. The transition to the Compton SDC will take place after the December holidays. “We don’t want to implement a change in store delivery procedures during peak season,” Schart explains.
Under the new process, Stein Mart assigns carriers to pick up shipments from vendors and deliver them to the three consolidation centers, which re-sort the products and ship them to the three store DCs. At the DCs, workers attach tickets as needed, and check for missing hangers.
“We now have a way to notify a store that a particular carton has a hanger issue,” Schart says. “That helps the stores during their receiving process.”
The DCs then ship product to stores, with each retail location receiving one or two regularly scheduled shipments per week.
The first gain that Stein Mart expects from this consolidation strategy involves transportation savings. “We get the benefit of lower rates inbound from vendors to consolidation points via LTL or truckload, as well as savings from moving shipments in truckload quantities to store distribution centers,” Schart says.
The second benefit is greater store efficiencies. “This strategy allows for much larger consolidated store deliveries, which lets us schedule receiving staff in a more focused way,” he says.
Stein Mart estimates that the initiative will save $20 million in 2010.
Although Stein Mart has co-located its consolidation and store distribution operations in Atlanta and Compton, network modeling dictated that it should split the third consolidation-distribution pair between Secaucus and Dallas. The idea was to locate the consolidation centers close to the largest concentrations of vendors—in the Northeast and Southeast and on the West Coast—and site the DCs near the retail locations.
At the same time it began revamping its distribution network, Stein Mart started building a supply chain team. Schart, the team’s first member, came on board in late 2008. In addition, the company recently expanded its use of electronic data interchange (EDI) so it can receive advance shipping notices (ASNs) from vendors. It’s also launching a program to monitor vendor performance.
Stein Mart has added new technology to its shopping list. It is currently evaluating options for a transportation management system to pre-route vendor shipments. “We are also focused on building a system to provide full visibility into every shipment in the pipeline, from the time we cut a purchase order to the time the merchandise hits the store floor,” Schart says.
MOVING IN WITH A SISTER
For Barbeques Galore, the chance to cut costs through consolidation arose when one of its vendors—Taiwanese grill manufacturer Grand Hall Enterprises—acquired the company in August 2008. Barbeques Galore, based in Carlsbad, Calif., sells high-end grilling and outdoor living products through 39 retail stores in California, Arizona, and Texas. Barbeques Galore carries products manufactured by Grand Hall as well as merchandise from other manufacturers.
Soon after the acquisition, Barbeques Galore made two changes to its logistics operation. First, it contracted with Transplace to manage outbound transportation from its Arlington, Texas, DC. The DC supplied product to all the company’s stores, except for fast-moving items bound for outlets in the Los Angeles and San Diego DCs. That inventory moves through two smaller “hub” DCs in those California markets.
While Transplace took charge of those deliveries, Barbeques Galore started cooking up plans for a DC consolidation. Grand Hall USA, a sister company that manufactures parts for gas grills, was operating from a DC of its own in Garland, Texas, about 50 miles from Arlington. “With current economic conditions, it made sense for us to use a shared facility that the company already owned,” says Chuck Lightfoot, vice president of supply chain for Barbeques Galore.
The move took place at the end of November 2008. Transplace coordinated inventory shipments from Arlington to Garland, a tricky task because Barbeques Galore also had to keep supplying its stores in the high-demand period around Thanksgiving. “We made sure trucks went to the right location, while still pulling product and giving it to the stores for the retail operation,” Lightfoot says. By December 2008, Barbeques Galore had moved its Texas operation entirely to Garland.
To a large extent, the retailer and the parts company simply live side-by-side in their shared space. Although some overlap is possible, the companies employ separate warehouse crews and operate separate information systems.
The two companies have, however, combined their customer service operations and co-located warranty parts, which expedites customer service. And, by joining forces with its corporate sister, Barbeques Galore nets better inbound transportation deals by leveraging the larger container volume.
The consolidation also gives Barbeques Galore a direct fulfillment advantage. Say a customer buys a grill from a store in California, takes it when he moves to Wisconsin, then orders a grill accessory. “We process the order through Grand Hall USA’s system and ship it with their products,” Lightfoot says. Because Grand Hall USA fills nearly all its orders via parcel carrier, it earns much better pricing than Barbeques Galore could obtain on its own.
Lightfoot hasn’t calculated the savings realized by moving in with Grand Hall USA. “But the simple fact that Grand Hall owned the building outright made the move a no-brainer,” he says.
iven their fierce competition, collaboration among separate retail firms sounds about as likely as a Coke-Pepsi recipe swap. But sometimes retailers do put their heads together for mutual benefit.
One vehicle for that kind of collaboration is the Vendor Compliance Federation (VCF), based in South Plainfield, N.J. Formed primarily to foster collaboration between retailers and vendors, VCF also offers a forum where members can pool information and develop best practices.
Mary Lou Woods, a consultant in Des Moines, Iowa, benefited from VCF in her previous role as vice president of vendor relations at Saks Inc. “Only a few people at Saks were in vendor relations,” recalls Woods, a retail veteran who also has worked for Hallmark Cards, R.H. Macy’s, and the May Company. “VCF allowed me to talk to peers and gain perspective.” Retailers use VCF and other industry organizations to add value and quality, and to collaborate, educate, and generate solutions, she notes.
Through VCF, for example, Woods took part in a task force focused on ASNs. Retailers were frustrated about not getting the data they needed from EDI messages, so, together with vendors, they formed the group to try to improve their situation.
While not all vendor-retailer pairs had the same problems with advance shipping notices, some recurring themes did emerge. “We recognized common goals we could accomplish as a group,” Woods says.
Although retailers are careful not to share information that could harm their competitive advantage, they often collaborate in broader ways. “Sometimes competitors ask for advice on programs we have already implemented,” Woods says. “I answer, for example, ‘Make sure you keep your distribution center in the loop,’ but I don’t give details on how to accomplish that.”
One new tool VCF has developed for collaboration among members is TPNexus, an online peer forum for the retail industry that launched in March 2008.
TPNexus is similar to the business networking site LinkedIn, but it’s private, secure, and dedicated to the retail industry. Among other functions, members use TPNexus to collaborate on particular issues.
“Members can start their own group on TPNexus around a specific area of interest, say, luxury retailing,” says Diane Berry, chief executive officer at VCF and its sister organization, Trade Promotion Management Associates. Members of the groups, called Communities of Practice (CoPs), can exchange messages, operate blogs, and hold meetings, both virtual and in-person.
One of the first CoPs to emerge concerns the Perfect Order Index, a tool for scoring a vendor’s performance in delivering orders on time, error-free, with accurate communications and full documentation (see sidebar below).
“We foster collaboration among retailers and suppliers around that topic,” Berry says. “We conduct research programs within a community, write whitepapers and publish research reports, and hold webinars to discuss and guide the industry in those best practices.”
Other CoPs that have formed on TPNexus include one focused on forecasting accuracy and one on best practices for importers.
VCF also has tapped the collective wisdom of retailers to create the Global Compliance Protocol, a tool designed to make it easier for vendors to comply with the needs of their numerous retail customers.
“We worked to have retailers collaborate with each other on the form a compliance guidebook should take,” Berry says. The result is a uniform guidebook structure, with chapter headings, subheadings, and indices. When retailers use a standard guidebook format, it’s easier for vendors to find specific instructions and, therefore, to comply with those guidelines. That means fewer errors in the supply chain, and fewer vendor chargebacks.
Retailers also collaborate by giving VCF access to the vendor guidelines on their Web sites, so VCF can monitor changes to those guidelines and publish them in its Compliance Clearinghouse. Vendors who belong to VCF get regular updates alerting them to those changes.
“A supplier no longer has to have five people redundantly looking at different sections of their customers’ Web sites for compliance guidelines,” Berry says.
While serving as a safe place where competitive retailers can share ideas on issues of their choice is a key part of VCF’s mission, experience at the organization’s meetings shows that getting retailers together with their suppliers is even more productive.
In the past, at its annual fall conference, VCF devoted the first day to separate meetings for retailers and vendors. “The retailers would discuss issues important to them, and they didn’t necessarily want suppliers to participate. The same was true on the supplier side,” Berry says. The two constituencies then came together on the second and third day.
Over time, though, both groups started asking to reduce the time they spent apart. Now, retailers and suppliers meet in separate camps for just a few hours of the three-day event. That has been a productive change, Berry says.
“In past sessions, many challenges were discussed, but not necessarily solutions,” she notes. “Today, the conversations are focused on solutions to challenges that everyone is facing.”
ACHIEVING THE PERFECT ORDER
The Vendor Compliance Federation (VCF), a member organization facilitating retailer-supplier trade synchronization, recently released the results of a research survey conducted through its Perfect Order Index Community of Practice (CoP). To examine the use of the Perfect Order Index, the survey questioned retailers, manufacturers, and service providers on their use of the four measures—on-time, complete, damage-free, and with correct documentation—that comprise the Perfect Order Index (POI).
“Today’s retail environment requires an ever closer focus on margins and on the measures that will foster and protect them, such as the Perfect Order Index,” says VCF CEO Diane Berry. “Industry research supports a correlation between Perfect Order Index performance and financial measures such as earnings per share, return on assets, and overall profitability. The POI Community explores issues associated with adoption of the Perfect Order Index in order to make its benefits available to more organizations.”
The results of VCF’s industry survey show how trading partners currently apply the Perfect Order Index, and the significance of including this measure in scorecards. Select survey findings include:
- Only 10 percent of retailers are using all four POI metrics as part of their scorecards, their measurement of supplier performance.
- On-time and complete orders prove to be the most important POI metrics for both retailers and suppliers.
- 45 percent of respondents continue to use spreadsheets to capture trading partner performance.
More information on the POI is available at www.vcfww.com.
That’s one more testimony to the notion that in retail, pulling together makes great business sense.