In its second-largest acquisition, Amazon buys the company for $970 million.
(Page 2 of 4)
Since Manco began participating in Ace’s collaborative supply chain initiative, sales of some products at Ace outlets have increased as much as 15%, says Brian Bastock, Manco’s director of customer logistics. “We’re in stock better at Ace because we can see what’s happening better and we can react faster,” Bastock says. “Hardware co-ops by their very nature don’t represent a lot of growth, but with this system, we now consider Ace a growth customer.”
The same has been true for other manufacturers. United Plumbing Technologies’ PlumbPak division, for instance, has increased its presence on Ace shelves from 98% in stock to 99.5%, Smith reports. He says that of the nine suppliers with which Ace is collaborating, five have placed additional product lines into Ace stores as a result of their willingness to collaborate. “Manufacturers they were competing with weren’t able to fill at the level we wanted,” Smith says.
Going to a full-blown CPFR system such as the one Ace is working on is a long process. While PacSun expects to implement its simpler web-based system within a few months, CPFR requires significant changes in how retailers and manufacturers operate. “An element of organizational change that needs to take place,” Suleski says.
For starters, both sides must agree on which data each wants the other to have access to. “That’s one of the hardest things for retailers and manufacturers to do,” she says. “You need a policy at the corporate level about what kinds of information can be shared.”
The importance of such a policy was underscored by a manufacturer who told her of a retail trading partner that wanted to know the manufacturer’s actual cost of producing a certain product. “They were extremely concerned about losing the business of this major retailer, yet the request was wildly inappropriate,” she says. Appropriate data for retailers and manufacturers to share include forecasting data, data about shipments from the distribution centers to stores and information about promotion plans, she says.
Playing by the rules
After the retailer and the manufacturer agree on which data to share, they then must make sure that each side understands the business rules of the other. Those are many of the same rules that both sides operate under already-such as the level of retailer’s stock on hand that generates a re-order, the size of shipments that a retailer will receive, when a manufacturer must provide an advance ship notice, when a manufacturer can issue the invoice for the merchandise, the minimum order that a manufacturer will accept under the pricing arrangement with the retailer and so on.
But since the rules are communicated without human intervention, the trick is to make sure the other party understands the rules and abides by them. Automated checks for that purpose can be programmed into a system to generate an exceptions report for an inventory analyst to review when a violation occurs. In addition, vendors would be foolish to initiate orders that violate a retailer’s rules for a short-term benefit. “We’d lose credibility pretty quickly if we pushed through an order simply to make a monthly quota,” Bastock says.
After the two sides reach such agreements, the retailer must make sure its host computer is secure so manufacturers see only what the retailer wants them to see. “The first thing we did was to make sure the security was there to allow manufacturers to dial into our mainframe over the Internet,” Smith says. Once that is accomplished and manufacturers log on, “we walk them through the maze to what they want and don’t let them get off the maze,” he says.
Once both sides are talking to each other, they then can generate automated advance ship notices, print scannable labels that tell the receiving dock the contents of the package, track the shipment from factory to retailer’s distribution center, create automated invoices and keep track of all transactions since they’ve all been generated electronically. Furthermore, the manufacturer can access the retailer’s promotions calendar to help determine manufacturing levels to meet promotional demand.
With such visibility of the merchandise throughout the supply chain, the distribution center knows what’s coming when and where it’s supposed to go. That reduces handling in the distribution centers. “This allows us to pre-allocate everything,” says PacSun’s Ehlers. “When a carton arrives at the back door, we can scan it and know where to send it.” Whether the distribution center wants to store the carton in a picking area to re-allocate the merchandise, keep it as back stock or send the entire carton on to a store, the receiving dock knows as soon it arrives what to do with it. “A carton can come in one door and go out the other within a half hour and without being touched at all,” Ehlers says.
Such quick movement of inventory certainly reduces the cost of maintaining inventory. “One of the biggest things we do is reduce inventory by 20 to 30%,” says Kurt Unglaub, vice president, corporate sales and ASP for E3.
But that is only part of the benefit that retailers earn from a web-based supply chain system, retailers say. Ehlers says PacSun, for instance, will be able to grow its business without hiring additional staff to manage orders and relationships with retailers. At the end of the year, PacSun is moving to a new distribution center that will be three times the size of its current center. The 300,000-square-foot center will be able to handle 1,500 stores, yet PacSun does not plan to increase its distribution center staff. “Expense growth is not matching sales growth because of the efficiencies,” Ehlers says. “You’re avoiding future spending and getting a lot more out of the dollars you’re spending now.”