The retail supply chain is evolving from the 'push' model of forecasting inventory needs based upon past performance to the 'pull' model of letting demand draw product through the supply chain (SC), reducing overstocks and liquidation losses. Many retailers are moving to store-level planning and EDI to make their SC more nimble and responsive to demand, thereby increasing sales and reducing costs.
Founded in 1856, high-end sports and lifestyle retailer The Orvis Company was a pioneer in the mail order business. Today, the business is split into roughly equal thirds between stores, a catalog/call center and Web commerce. It also offers real estate, fly-fishing travel and education, international wholesaling and multi-category private label merchandise. Mark Holmes, vice president of information systems, describes the business as "very complex and truly multi-channel. We need to be really, really nimble. We can't expect to buy the right amount of inventory for each channel. In this business, you're never right. You just don't know which direction you're going to be wrong in." The goal became to re-engineer their SC processes from planning and forecasting to inventory and warehouse management.
Holmes started planning an overhaul of Orvis' 20-year-old legacy systems in 2003: "For Orvis, this is the first and most significant cross-departmental change of this kind. We needed to develop corporate best practices to make the SC implementation flexible, integrated and consistent. We began by increasing visibility internally with data warehousing and decision support systems, with help initially from T4G [a Toronto-based consultancy firm]." The next step was to move SC communications to the Internet, using VendorNet for Internet-based EDI, purchase order communications and SC visibility. Many Orvis suppliers are small craftsman-like vendors, and Internet-based EDI only requires them to have a PC and a browser. The final phase will include integration of channel points through Manhattan Associates' Advanced Planning and Replenishment system. Orvis will begin to phase in the full implementation in spring of 2007.
Store-level planning is hugely important to Orvis. "We tend to overbuy, because we want a high-touch, high-quality environment in our stores. We looked at the traditional business case and realized that we can reduce liquidation losses by selling more through what I call 'boundless fulfillment'," Holmes explains. "That means that I can now 'save a sale': when a customer is waving their credit card, we can sell the product regardless of where it is and ship it directly to them. It also means that we can now fulfill our UK stores from our Virginia fulfillment center as quickly as one in the UK could." Holmes sees boundless fulfillment increasing in the next five years, bringing suppliers into the mix so that retailers can drop ship personalized and other items from the vendor, with the fewest touches on the merchandise. Orvis vendors need to be certified for this to ensure quality of merchandise, packaging and communications.
Orvis doesn't expect to start seeing ROI until 2008, but then expects to get multiples of its investment back, according to Holmes.
Forzani Group Ltd., Canada's leading sporting goods retailer, also faces challenges with its increasingly global supply chain. The cross-channel retailer runs 230 company-owned stores and also wholesales to 195 franchised stores. With more product sources coming from offshore, more electronic transactions and EDI with vendors, its SC became too complex for its seven-year-old warehouse management system (WMS) to handle efficiently. From October 2005 to June 2006, Forzani implemented a new WMS from Manhattan Associates at its two distribution centers. The goals were to optimize sales in the stores by flexibly allocating products, and to increase the responsiveness of its distribution centers to the stores through faster dock to stock times.
According to Forzani's vice president of logistics and distribution, Keith Lambert: "We've improved our dock to store processing times and reduced server and operating costs. Going forward, we're working on electronic advanced shipping notices and other electronic transactions to be determined." Lambert chose a new software system over updating the old WMS and merchandising, and a 50-person team of business process and IT specialists from Forzani and Q4 Logistics was assembled to see it through. "We had a good project implementation team, which made it very well managed, on target and on budget," he explains. "We're measuring results through the projected ROI from our first funds report, which was just over two years. Now, we'll reach ROI in the 18- to 24-month range."