Finetuning the enterprise is instrumental to growth at Sam Ash Music
For 79 years Sam Ash Music has been a legend on the American music scene, billing itself "The World's Favorite Music Store." The claim is based on the fact that the musical instrument retailer is a family-owned business that operates a landmark store on Music Row in New York City with a long and personal connection to generations of established and emerging musicians.
The first Sam Ash store opened in Brooklyn in 1924, launched by Sam and Rose Ashkynase, a young couple that dreamed of building a business in a field they knew well. It turns out that music was a natural choice. The Sam Ash Orchestra was a popular local group at the time and Rose felt they could count on Sam's musician friends to help the new business get started.
The store grew to be a privately held company with multiple divisions, 1,600 employees and 42 stores in 12 states. Although exact figures are not released, it reportedly pulls in excess of $300 million in annual multi-channel revenue.
Responsibility for the company's long-term growth passed from the founders to their sons Jerry Ash, now chairman, and Paul Ash, now president, and then to grandsons Richard Ash, CEO, David Ash, COO, and Sam Ash, executive vice president. Jerry's wife Bernice is executive vice president in charge of sheet music and other family members work in the business, too.
Like many successful companies built on family-run concepts, it adapted to change over the years, moving into sales of recording equipment, founding a professional division and starting a successful e-commerce Web site.
But eventually, Sam Ash Music expanded beyond its original scope. The organically grown business and custom-built IT systems were stretched to the limit.
If the company wanted to continue opening new stores, making acquisitions, adding new sales channels and carrying an inventory capacity of more than 100,000 SKUs, it would need a robust IT infrastructure with scalable enterprise capabilities.
In early 1999, the decision was made to find the right application for the job.
Finetuning the Enterprise
The man put in charge of the project was David Ash, who is not only the firm's COO but also its general counsel and point man for IT. His IT decision-making team includes Susan Freed, director of management information services, and Stu Leibowitz, the company's CFO.
"We decided we needed to carefully improve our operations if we wanted to continue our growth," explains Ash, who joined the company in 1985 after a decade of private legal practice. "We wanted to make things more efficient and get better control over our inventory, sales and operations."
Certainly efficiency was a major goal, but it was also important the IT project not disrupt the business nor detract from the company's extremely customer-centric approach. Also, the new system had to be flexible enough to match the intricacies of retailing musical instruments, a highly individual product category that is far different from selling most commodity items.
"The first step in preparing our criteria list for the project was to analyze the way we were doing business and then try to automate it," explains Ash. "We wanted to find a system that matched our actual operations as closely as possible. We wanted a quick and easy way to look up inventory, product information and service warranties, for example, because in our business the customer doesn't just go and pull something down from a shelf. Our salespeople work closely with our customers to put together an order that fits the customer's individual needs. We also needed a system that supported trade-ins of used merchandise and rental transaction, which are not common to most other businesses."
GERS fit the criteria list very well, according to Ash: "With a little bit of customization it matched the transactions that our legacy systems could handle and allowed us to redesign our store operations over time to speed customer checkout and tighten management controls."
During the initial installation phase, which was assisted by Deloitte & Touche, Ash discovered many company processes were compatible with GERS Enterprise1 workflows, but several didn't fit like a glove.
One of these was in the area of invoice matching in accounts payable. Fortunately for Ash, GERS was a cooperative partner and willing to customize its ERP product.
The Match Game
"One of the things we did with GERS was spec out a complete overhaul of the invoice-matching system," notes Ash. "Our company receives most of its merchandise directly in the stores, creating thousands of weekly receiving events, each of which must be matched to an invoice and purchase order for payment approval."
Previously, the system was only able to match a small fraction of Sam Ash's invoices. "Our CFO, Stu Leibowitz, and I spent about a month writing the specifications for an improved accounts payable system for GERS." remembers Ash.
Today, well over 75 percent of the company's invoices are automatically matched to receivers and purchase orders, according to Ash. This enabled the retailer to quadruple the size of its business while using a much smaller and less expensive accounts payable department than it had before.
Another area where the partners collaborated was in beefing up the GERS warehouse management system (WMS) and add a physical inventory functionality, which helps Sam Ash keep a tight leash on inventory control.
"Although GERS had a robust inventory cycle count functionality, maintaining good inventory control in a business like ours requires cycle counts to be validated by full inventory counts," explains Ash. "Using the existing cycle count functionality to process a full physical inventory put an unacceptable strain on the equipment and the personnel processing the data."
To solve the problem, GERS sat down with the merchant's CFO and inventory manager and developed from scratch a full physical inventory system. This new system, explains Ash, "enables us to take and validate a complete physical inventory without slowing store operations."
Sam Ash clearly benefitted from these and other customization projects, and, according to Ash, so did GERS and its customers. "While some of the customization was specific to our business, most of the work we did with GERS improved the systems functionality for all GERS users."
Deployment of the new enterprise system at Sam Ash occurred during a time when the retailer felt it was important to undergo a makeover in its business processes and IT infrastructure before moving forward with growth and expansion plans. Ash recognized that his small IT team could not continue to develop the company's custom-built legacy systems fast enough to keep up with the company's plans and the rapidly changing landscape of retail technology.
"As time went on, I realized that our very small team could not keep up with technology if we had to do it all ourselves," he says. "Things happen very fast in retail technology. In order to keep up with the fast pace of change you either need a very big IT staff or you need a large partner organization doing a lot of the work for you."
As a result, Ash and his team moved away from a custom-made system toward an application that had proven itself with other retailers. "However, we wanted a system that could be molded to our specific retailing needs and improved," Ash continues, "and that's why we went with a software vendor that enables us to develop at a fairly rapid pace. You give up a certain flexibility when you give up a custom-built system, but we have been able to work around that by developing custom reports and processes in the GERS system's Oracle database."
In addition to the GERS Enterprise1 system, which handles store operations, sales transactions WMS and most back-office functions, Sam Ash also installed a Lawson financial package and a high-speed WAN to all stores through AT&T, which also hosts the company's busy Web site.
The initial enterprise rollout phase "took about a year before everything was stable and the way we wanted it," remembers Ash. "We had a few false starts because we interrupted the project with other corporate events, acquiring businesses and some important things like that."
So, what would Ash change if he had to do it all over? "About the only thing I would have done differently was, perhaps, wait a bit until the next generation servers were available, because it turned out that I needed more horsepower." he observes. "There was no way to know that beforehand, because nobody else was using GERS in quite the same way we were. So, we ultimately moved to a bigger box with a 32-bit processor and everything's been fine ever since, but I wish I had started with it first."
Presently, Sam Ash uses dumb POS terminals from Wyse Technology, but the retailer is in an early planning phase to make an eventual move to a thin-client POS architecture. In this system, POS terminals are fed something similar to screen shots by central servers as opposed to using complete data files, enabling them to have a small footprint and use a thin, embedded operating system. Wyse and GERS are major players in this area of leading-edge technology and Ash is currently exploring product offerings from both vendors.
Both Ash and GERS plan to keep their collaborative effort in high gear in coming months as the retailer explores adding functionality in gift cards and implementing Web-based purchase orders and invoicing with its vendors.
Much of this functionality is already available in version 10 of the GERS enterprise application, but Ash won't be ready to make the migration until he first upgrades servers, something he plans to initiate next year after the busy holiday sales season.
On a more immediate timeline is the addition of a labor management application from Kronos, which will replace an in-house system that now runs on Excel spreadsheets. The Kronos application "is being implemented as we speak," notes Ash.
While Ash, like other IT executives, analyzed the initial enterprise deployment from an ROI perspective, he now realizes it greatly underestimated the value of the project.
"I don't think any ROI analysis we had originally done explained what we actually got out of the system," he says. "First of all, we knew from the start the cost would never be what we originally projected, because I never heard of an IT project that came in under budget. Also, we were skeptical about many areas identified as earning a return, because we knew we already did our jobs very well. But, where we got our return on investment was in the greater ability to control our business, and that's what really added value by increasing our profits."
After the ambitious enterprise deployment, the merchant was able to tighten inventory control, reduce shrink, improve logistics and generate highly detailed reports that "brought to light problems we didn't know about or had incorrectly judged the magnitude," notes Ash. "Also, it enabled us to vastly reduce the size of our purchasing and accounts payable departments. In fact, our accounts payable and purchasing departments are both smaller now than when we started the project, and we had nine stores then and now have 42. That's an efficiency that we hoped for but couldn't prove until we put it into place."