Innovation by Design

Dillard's is famed for developing innovative practices (while adhering to industry standards) and implementing them rapidly. The $7.8-billion department store retailer achieves its financial and business improvements by focusing geographically and demographically, increasing its private label presence and maintaining strong vendor relationships.

IT-Business Responsiveness
Dillard's implements new processes and systems at a quick pace, whether creating its own innovations or keeping up with competitors as a fast follower. "Strategic IT plans are great and needed, but being able to react fast is a big deal," says Bill Holder, CIO. "Whether it's for regulatory changes or to create a competitive advantage, having the IT flexibility to react quickly with the business is the key."

The Dillard's IT team creates new systems fast, often as fast as it takes to implement some package systems. For example, "In nine months we wrote the Dillard's Production Sourcing Application for collaborating on private label product development with factories abroad," says Holder. "It provides easy communication, links to CAD and everyone can work in their own time zone or in real time. The system tracks performance and alerts the right people if something isn't proceeding right. And it automatically works a schedule back from the date we want it landed. Now, those factories ask us to sell our system to their other customers."

To cultivate the educated IT staff needed for speed and efficiency, "Dillard's has a well-developed training program including both a classroom environment and on-the-job training," explains Holder. "New programmers are assigned to a mentor to help transition them into the Dillard's way of life." Dillard's employees also stay active in retail best practices development in several VICS (Voluntary Interindustry Commerce Solutions) and NRF Committees.

Dillard's moves fast because of its culture, says Holder: "The Dillard family members continually come up with good ideas and changes to improve our business processes and systems," he notes. "It's also exceptionally easy to get full cooperation from all VPs -- there are no turf wars, no competitive hierarchy with our senior management team in the lead."

"Our users' ability to adapt to new practices and technology is very high at Dillard's," Holder adds. "It's everyday life. There's always something changing. Every day, someone at Dillard's is proud to be doing something that couldn't be done before."

Innovations Speed Operations
Among the innovations at Dillard's are best practices that deliver speed-to-market, quicker turns and productivity savings. Recent business gains from speed range from merchandising to supply chain to store operations.

For example, after re-thinking merchandising processes with the merchants, Holder's team recently developed new merchandising business intelligence systems. Dramatic improvements in buyer and inventory productivity are among the results. "What had taken a replenishment buyer a week to do before," says Holder, "now takes an hour."

"On average, goods run through distribution centers (DCs) in less than 1.5 days," continues Holder. "DC workloads have increased at 25 percent annually while staffing has held even, due in a large part to added system functions."

To speed the development and movement of private label goods, Dillard's has streamlined product development and production. The company has linked factories abroad via in-house browser-based systems. Factories pack deliveries by store, apply shipping bar codes and create accurate ASNs. This helps cut weeks off Dillard's' time-to-market.

Dillard's also has accelerated its IT operations. "We have few package systems," says Holder, "because we need to react quicker than packages can usually react." Holder's team often delivers simple changes to systems overnight. "With packages, it might be six to 18 months to get a change into the next version," he notes. "In-house systems also allow for systems to be written and changed to the specific needs of the company, where packages are generalized systems requiring a company to change the way staff works to match the system."

"Many retailers buy packages and outsource IT in part because they grew fast and did not have the infrastructure to do it themselves," Holder adds. "Also, most types of retailers are not as complex as department stores. Numerous functions in packages can't scale to meet our needs." For example, many of Dillard's systems must scale to handle more than 240 million store SKUs.

Innovative Vendor Relations
Dillard's has a decades-long history of innovative vendor relationships. The latest examples are Dillard's' advanced ordering processes, VICS CPFR and collaborative assortment planning.
With vendors such as Nygard International, Dillard's has seamlessly custom-integrated collaborative planning processes and systems. Dillard's' CPFR initiative with Nygard is increasing sales while reducing average inventory, reducing markdown and administrative costs and achieving an increase in gross margin return on investment (GMROI).

A widespread margin drain at most retailers involves excess inventory in some stores while out-of-stocks halt sales in others. Traditional ordering processes create the problem. When ordering a new product for delivery many months away, no merchant and no allocation system can accurately predict how much will sell in each store -- or even how much will sell totally. To reinvent that process, Dillard's created an innovative approach with at least one consumer goods supplier and expects to roll the process out to many other vendors.

The approach boosts sell-through as well as accurate allocation. "When the volume of
merchandise on the sales floor is not overflowing," says Holder, "customers worry that the item that they want might not still be in stock when a sale eventually comes along, so they buy more at full price."

RFID and Advanced Extranets
Not surprisingly, innovation is a continuous process at Dillard's. The company is experimenting with advanced concepts in RFID and the elimination of waste at vendors linking to multiple retailers' extranets.

At Dillard's RFID work covers not only distribution, with totes going to stores, but also with item-level RFID in test stores. In addition, Dillard's has an RFID asset tracking program planned enterprise-wide.

Dillard's RFID pilots focus on reducing out-of-stocks on the shopping floor. In the near future, Dillard's hopes to test reducing the time spent re-pricing items being marked down. "We will look at intelligent ink or intelligent paper for automatically displaying price changes of RFID-tagged items," Holder says.

While focusing on RFID on the store floor, Dillard's also is attentive to its vendor relationships, by providing data and scorecards for vendors on an extranet site. While Dillard's has forged full-force into improving the quality and amount of information available to its vendors, other retailers lag behind. Searching through different retailers' extranets for information can be convoluted and time-consuming for even the most savvy vendor.

To solve that dilemma for vendors, Dillard's is working to create a standard extranet for the industry. "With a standardized extranet, each supplier would have one sign-on to get all retailers' data for that supplier," says Holder. "Some retailers' data is not synchronized with an industrywide catalog, and most retailers' data comes from diverse systems with different requirements. So it's a big effort for suppliers to access and make sense of the different extranets." Dillard's is working with Inovis and afterBOT to create this standardized format.

Combining internal speed and flexibility with a continuous drive for innovation, Dillard's remains a bright light among department stores. Combining IT aligned to the business and to working with vendor relations, Dillard's remains a bright light among suppliers. Concludes Holder: "If more vendors and retailers would experiment with better processes -- and share responsibility for the results -- the innovation gains in our industry would be astonishing."