Supply Chain: Inventory Efficiency

Retailers anticipate demand and reduce stock-outs

Keeping customers waiting while associates spend valuable time calling other stores to check stock is becoming a practice of the past as retailers adopt new systems designed to balance supply with anticipated demand. These systems provide two-pronged benefits: customers are more satisfied and inventory is honed so that stock-outs are lowered and on-hand inventory is reduced, creating a more efficient supply chain process.

Ann Taylor Stores is pleased with the results from a newly implemented inventory system, which paid for itself in 90 days, according to Mark Ballard, vice president of multi-channel client contact for Ann Taylor. "It was the fastest ROI I have seen in my 25 years' experience with order management systems," he says.
The New York City-based women's apparel retailer, with 800 locations in the United States and Puerto Rico, implemented the Intelligent Demand Response System from Cedera Systems. The demand response system allows associates to locate, in real time, a desired item anywhere within the store-wide inventory, complete the sale at full price, and drop-ship the item to customers.

"We have created a 'virtual inventory' system that, in an out-of-stock store situation, will scan the entire franchise's inventory, including the online store, and place the order algorithmically where it makes the most sense," Ballard explains. "It's a recovery tool, gross margin driver, a multifaceted improvement to inventory operations and efficiencies."

Business intelligence is a key component of the system, according to Ballard. "The system gives us business intelligence to help improve planning and allocation," he notes. "We clearly see which stores are selling more petites, more shoes or less accessories than other stores, so upstream we can tweak the stock and delight customers their first time in the store."

More than 9,000 Ann Taylor employees currently use the response system on a daily basis to capture revenues otherwise lost during stock-outs. Prior to system installation, when Ann Taylor stores were out of stock, associates blindly called other stores for the item, taking time from associates on both ends of the call, adding to phone costs, annoying waiting customers, and often lifting stock from stores with just a few of the items left, when another store had dozens on its shelves, explains Ballard.

The system automatically sends the order to the store where it makes most sense while the sales associate captures shipping and billing information (which extends the mailing list) and has the item drop-shipped to a satisfied client."Today we can take an item selling through at 90 percent and push it to 99 percent by finding the final one sitting on a rack somewhere in Des Moines to fulfill demand in Portland, which helps drive sell-through, revenues and gross margins," notes Ballard.
For items not yet in stock, such as those just advertised in the most recent issues of womens' magazines, associates easily can place a special reserve drop-ship order, rather than inconvenience customers by asking them to stop back next week. "The reverse drop-ship capability allows us to capture a demand that would otherwise walk out the door," Ballard explains.

High-Speed Inventory
Using a system from Oracle that addresses what is called enterprise resource planning (ERP), Anchor Blue Retail Group (ABRG) is expecting high-speed inventory updates and faster reaction to store needs that will "reduce our gross unit variance by 30 percent," says Lyle Perrigo, vice president of IT for the company that operates 167 Anchor Blue stores and 82 Levis and Dockers by MOST stores.

"To avoid inventory stock-outs, we fight against lack of information more than anything else," Perrigo notes. The retailer's legacy supply chain application, running on a home-coded mainframe, had caused long delays for fresh information, making it a challenge to keep abreast of actual inventory."With the new system, we expect not only a considerable drop in gross unit variance, but to accomplish better turns, streamlined inventory control methodologies, and the ability to drop-ship to stores from vendors as just-in-time needs arise," Perrigo says.

By having vendors ship direct to store, Anchor Blue distribution can see what sold last night, with the goal of replenishing any store within a day.
"We are migrating from an environment in which we reacted to what happened last week, to responding to current store activity, to demand forecasting, where we will know what to expect tomorrow," adds Richard Space, senior vice president of sourcing, logistics and IT for ABRG. He says the new system will "close the information gaps in our supply chain to monitor stock-outs and low inventory more easily, in real time, and react more quickly to store needs."

At the core of ABRG's new ERP structure is the Oracle Retail Merchandising System, enhanced by the Oracle Retail Advanced Allocation, Trade Management and Store Inventory Management packages. On slate for next year is Oracle Retail Demand Forecasting, to further minimize out-of-stocks and a vendor managed inventory application, "that we'll use in all its forms to collaborate with suppliers to further avoid stock-out situations," says Space.

Anchor Blue launched the system on October 31, 2005 and Space is expecting a number of positive returns. "Our ultimate goal is to improve same store sales, enrich the customer experience and secure the best real estate deals for new and expanding stores," he says. "The real project begins once we start exploring all the ways these new tools can enhance our best practices in the supply chain and throughout the enterprise."

Reducing Excess Assets
A new forecasting and replenishment tool in place at Redners Warehouse Markets is expected to "reduce assets by $200,000 per store," says Frank Fiore, director of retail automatic ordering and inventory control for the 38-store supermarket chain based in Reading, Pennsylvania.

"The system has been 99 percent accurate" in the initial rollout to several stores, he says. Full roll-out to all 38 stores is scheduled to take place after the December holiday season. Redners is using the Retalix DemandAnalytX (DAX) forecasting and replenishment system. A wireless infrastructure "has moved us from simply placing orders to truly managing our inventory, from stocking as many items that would fit on the shelf to carrying just enough," states John Sweigart, director of IS for Redners. "We've eliminated the guesswork by anticipating demand based on sales history; we know what's in each store, how much we will need, and how many to order. We've significantly reduced assets by correcting the amount of each item we carry, which is especially important in our perishable departments, where we've reduced out-of-dates by 30 percent."

J. Jill, a multi-channel specialty retailer of women's apparel, will be implementing a merchandising solution to help drive inventory efficiency. The retailer recently selected the Jesta I.S. Vision Merchandising Solution and Vision F.C. in an effort to achieve integrated centralized purchasing, tracking and inventory management.

"We are a true multi-channel retailer selling through our retail stores, catalogs and Web site," says Gordon Cooke, president and CEO of The J. Jill Group. "With more than 160 stores, and complex import purchasing needs, we must have the ability to manage by exception. The Vision.FC tool will provide us with real-time insight into our supply chain."

By integrating the tools, the retailer is looking to achieve a demand-driven supply chain with triggered alerts based on predetermined thresholds, allowing it to respond to potential bottlenecks early and meet anticipated demand.