The web has become important in keeping shelves stocked with fresh merchandise, now its importance in the supply chain is increasing as retailers deal with terrorism and SARS.
By Paul Demery
To win customers in a world saturated with places to shop, merchants can’t escape a traditional rule of retailing: Give consumers something other retailers don’t have—and serve it up while shoppers are hot to buy.
That requires an effective supply chain and logistics system. And much of
retail’s technology investments the past few years have been in supply chain
technology—especially in web-enabled supply chain technology. Many retailers
and CPG manufacturers have become convinced of the efficacy of the web in sourcing
and procuring merchandise. But today global concerns about terrorism and SARS
are making the Internet more attractive to more businesses who have to deal
with distant suppliers. “SARS has truly created a supply chain shock,” says
Paula Rosenblum, supply chain analyst with AMR Research Inc.
First, the efforts to curb terrorism, then the sinking economy and now the
outbreak of SARS have restricted executive travel. Where some buyers in the
past would not have given a second thought to hopping a plane for the 23-hour
flight to China or Singapore, today they’re staying closer to home. Business
travel this spring was 2.5% lower than a year ago and 16% lower than two years
ago, reports the Travel Industry Association. The U.S. Commerce Department reports
that overseas business travel was down 7% last year over the year before and
with the development of SARS, analysts expect a similar drop when Q1 numbers
come out for this year.
New urgency
Add to all these recent developments such long-standing concerns as tougher
inspections for products that may be carrying parts made from endangered-species
animals and suddenly web-based supply chain collaboration that retailers thought
they could take their time developing has acquired new urgency. “These challenges
will drive significant demand for international logistics systems that combine
the ubiquity of the web with global shipping intelligence and analytics tools,”
says Mark Vigoroso, senior research analyst for supply chain management at Aberdeen
Group.
The good news is that the increasing demand for web-based supply chain and
flexible global logistics systems will pay off in the long run by creating an
infrastructure of business processes that will allow retailers and their suppliers
to overcome disruptions in supply chains, by quickly changing seasonal promotions
or sourcing replacement goods. “Those with better logistics management software
solutions will be better able to handle any disruption,” says Kristian Steenstrup,
research director for Gartner Inc. “An agile and resilient supply chain will
survive better than one based on velocity or volume only.”
Indeed, more retailers and their suppliers are looking for ways to improve
their supply chain processes with web-based systems, particularly as they bring
employees home from the SARS-troubled Far East and prevent staff from traveling
there, says Renee D’Ouville, vice president of marketing for QRS Corp., a provider
of web-based supply chain systems to retailers including Lands’ End, Nordstrom
Inc. and Federated Department Stores Inc. SARS—severe acute respiratory syndrome—has
been afflicting people in China and other areas with no known cure. “Companies
are pulling people out of certain geographic areas and using web-based supply
chain systems to share design ideas,” D’Ouville says.
An extra push to use web-based systems is coming now from the Sarbanes-Oxley
Act of 2002, which requires companies to fully disclose their financial operations.
D’Ouville notes that the law is causing retailers and suppliers to use web-based
systems to provide more visibility into their supply chains to prove, for instance,
how they sourced a particular product as evidence of how they reached sales
and profit figures.
A key component
Into this new reality comes the web, which companies are using in myriad ways
to address the problems. Some retailers are using web-based product lifecycle
management software, such as Windchill from PTC, to collaborate with product
development on the Internet instead of in person in overseas facilities, AMR’s
Rosenblum notes. Others, she says, are relying on supply chain visibility applications,
such as New Generation Computing Inc.’s eSPS, to keep track of inbound orders
without relying as much on personal meetings with suppliers. In addition, GlobalNetXchange
member retailers are relying more on online auctions in lieu of trips abroad
to work out the specifications of an order. “Web-based supply chains are a key
component in doing whatever needs to be done to get the right products on the
shelves at the right time and stay on top of customer expectations,” says Kent
Allen, Aberdeen Group analyst who specializes in the way supply chain technology
fits into overall corporate strategy.
At retailer Neiman Marcus Group Inc., a particular pain point was getting
past tough new U.S. Customs rules that can put a major crimp in the shipment
of imported fashion—products like Prada sandals from Italy and French-made printed
skirts from designer Jean Paul Gaultier—that typically have short selling seasons.
Neiman’s merchandise buyers scour the world for the latest in designer products—other
brands include Chanel, Gucci and St. John—but post-9/11 Customs rules require
importers to classify the ingredients of all foreign-sourced goods, such as
by country of origin for each material that an imported product is made of,
resulting in disruptions that can have the virtual effect of putting imports
on a slow boat back to China.
No one knows the pain that this causes more than Jimmy Howell, who’s charged
with the task of getting Neiman’s imports from Europe and other markets delivered
to stores on time—before the same type of products appear in the growing number
of boutiques that compete for Neiman’s fashion-seeking customers.
“Our toughest competition are these same people we do business with, because
every designer has their own shop right outside our stores,” says Howell, vice
president of transportation and logistics. “All of our merchandise is extremely
time-sensitive. If our merchandise buyers see products they’ve ordered in these
shops first, they’re on the phone with me demanding: ‘The competition already
has it on the floor. Why don’t we have it?’”
In the fast-moving world of designer fashions, time to market is even more
crucial than in other retail segments. “Even hours can mean money to us,” Howell
says. But delays in getting products through Customs were adding several days
to shipments. Yet Howell couldn’t just shrug his shoulders and blame delays
on nitpicking Customs inspectors. He had to find a way to get the information
on products and materials as well as shipment updates from suppliers and freight
forwarders ahead of time, so that Neiman Marcus could prepare the data demanded
by Customs before products arrived in the U.S.
Bringing order
To expedite this movement of Neiman Marcus’s imports, and appease Customs
inspectors as well as merchandise buyers, Howell’s staff has implemented a new
web-based Qiva Global Logistics Control System that enables Neiman Marcus to
pre-classify imports before they get to a Customs checkpoint. (Qiva recently
was acquired by global logistics software provider TradeBeam Inc., San Mateo,
Calif.)
The Qiva application integrates Neiman Marcus’s order management system with
its global logistics system. When it’s ready to place an order, Neiman automatically
forwards electronic purchase order information to the web-based Qiva application,
which checks to see if suppliers have submitted information on country of origin
for each ordered product. Suppliers enter that information directly over the
web, but in case they haven’t, the Qiva system sends an automated e-mail alert
to Howell and his staff once a purchase order is processed. The alert gives
Neiman Marcus several weeks to contact suppliers to make sure they all provide
the country of origin information before the order is shipped. The web-based
system replaces a slower and more error-prone method of manually entering purchase
order data into an order management system, and then checking that data against
separate files of product details from different suppliers.
The web-based system enables Neiman Marcus to file product shipment entry
papers with U.S. Customs as soon as a shipment leaves its country of origin.
Retailers are required to tell Customs which plane their shipment is arriving
on, plus the harmonized tariff code associated with each shipment. In the past,
Neiman Marcus had to wait to get all this information from suppliers until well
after shipment had started, which added to delays in getting through Customs.
The Qiva system, which integrates with suppliers as well as with worldwide flight
schedule data, alerts Neiman Marcus and its customs broker that a shipment is
on the way as soon as a plane or ship begins its journey. It relies on suppliers
and freight forwarders to enter shipment schedules directly into the Qiva system,
which forwards e-mail alerts on these schedules to Neiman Marcus. To compensate
for any changes in schedules, Neiman also receives e-mail alerts that the Qiva
system forwards from automatic feeds from air and sea carriers. “Now we know
what the harmonized tariff code is as soon as the wheels are up on the plane,”
Howell says.
And because the logistics system has also enabled Neiman Marcus to clarify
product classification information well before shipment, there is little likelihood
of other disruptions. “We no longer have to try to classify a product when it’s
en route to the U.S.,” Howell says. “Now we know that information before anything
ships.”
The Qiva system also checks if a particular product has been handled by shippers
known to have violated international trade laws by, for instance, switching
“Made in China” labels to “Made in Canada” labels to benefit from lower trade
tariffs. The Qiva system automatically checks supplier information against a
government database of known law breakers, then sends automated alerts to Neiman
if any are identified. Neiman Marcus can then decide whether to cancel the order
or check to see if a legitimate supplier’s identity may have been confused with
another’s. Customs will confiscate any shipment found to have been touched by
law-breaking suppliers.
Profiting from pain
The result of using the web-based Qiva system is that Neiman Marcus has been
able to meet its planned delivery dates and meet sales targets, even though
it is constantly ordering different merchandise based on current fashions. “We
haven’t missed one deadline since the new system’s been up,” Howell says. He
notes that this has helped Neiman maintain its policy of shipping each merchandise
order individually and as quickly as possible, instead of consolidating shipments,
in order to get merchandise into stores in time for peak selling periods.
He adds that the Qiva system was simple to set up internally as well as with
suppliers and freight forwarders, who can all access the Qiva system for information
related to their shipments. Other than the purchase order system interfaces
built into the Qiva system from Neiman’s three retail channels—stores, catalog
and web—implementation required 15-hour training courses, conducted by Qiva,
of two Neiman employees as well as custom brokers and carriers. The trained
Neiman employees pass their skills onto co-workers.
In addition to the help the system provides in dealing with Customs, it also
provides visibility into order status and events that occur throughout the supply
chain. “It reduces our costs and complements our vision for logistics control,”
Howell says.
There may be a silver lining for retailers in the new challenges posed by
the latest global concerns because targeted efforts to overcome particular problems
can be a good way to get started on a more effective and broader web-based supply
chain system. Retailers are often slow to invest in new technology until they
are forced into it by competition, trading partners or government regulations.
Although Neiman Marcus had already planned to roll out a broad global logistics
system to handle more than just the Customs issue, it’s still deploying it in
stages that allow it to see the value of individual phases before proceeding
to the next.
More retailers are forgoing quickly deployed broad IT projects in favor of
smaller, phased deployments, says Allen, the Aberdeen analyst. This prevents
them from taking on more than they can handle and allows them to better control
their strategic direction with technology projects that, if implemented too
broadly, would be unlikely to show a quick return on investment. “A phased approach
not only generates tangible benefits more quickly, but can also wring value
out of separate phases of projects,” he says.
Moreover, the gradual deployment of supply chain projects is more suited to
support preferred business processes—such as the way a retailer wants to receive
product and shipment data from suppliers—so that the new technology system is
made to fit the way management wants a business to operate, instead of the other
way around.
Extra space
In fact, a number of retailers are focusing on particular supply chain problems
as a way of supporting their preferred processes while laying the groundwork
for broader systems or as a way of adding new phases onto existing ones. At
Urban Outfitters Inc., which like Neiman Marcus relies heavily on getting trendy
merchandise delivered quickly to stores to satisfy its fashion-conscious, though
younger, shoppers, director of distribution Ken McKinney says he’s adding web-based
supply chain visibility to a mixture of inventory management and pack-and-ship
systems.
Urban Outfitters expects to cut by 10% the number of inbound cartons processed
in its warehouse, helping to move fashions faster to stores while opening up
more warehouse space for a wider inventory, McKinney says. “That will be a significant
savings of cost and time and it will buy us extra space in our warehouse,” he
says.
The multi-channel retailer currently runs its distribution center’s receiving
operations with a pack-and-ship system from AL Systems Inc. and a software suite
from Island Pacific that provides information on inventory levels, store sell-throughs
and store product allocations. The overall system organizes how shipments get
forwarded to individual stores, but a lack of real-time visibility into suppliers’
advanced ship notices limits the degree to which Urban Outfitters can consolidate
shipments to stores, McKinney says.
Without visibility into which products will arrive at the distribution center
and when, the company must process each inbound carton for re-shipment to individual
stores—resulting in a slower process that gets apparel and accessories in stores
later than merchandisers—and often impatient customers—want. Like all fashion
retailers, particularly those that cater to younger consumers who may have yet
to forge a tie with a single brand, Urban Outfitters knows shoppers may be quick
to look in other boutiques for those stretch jeans or platform shoes.
That’s
why McKinney plans to implement a web-based system that would enable Urban Outfitters
to receive real-time electronic updates of advance shipment notices, providing
distribution centers with the ability to better consolidate inbound shipments
into store deliveries. The data from web-based ASNs would be added to the Island
Pacific inventory management and store allocation applications. McKinney says
this will enable the distribution center to cross-dock or forward about 10%
of inbound cartons directly to stores without having to break them down for
re-shipment based on the different demands of individual stores. “We want to
be able to just slap a label on a carton as it arrives at the DC and send it
to a store,” he says. “That will save us labor and warehouse space.”
He adds that Urban Outfitters could arrange to have suppliers attach specific
store shipment labels on some cartons before they arrive at the distribution
center, but that the retailer prefers to attach store shipment labels itself
after checking updated sell-through data from each store. “We want to utilize
the latest sell-though information, so we can forward cartons to the stores
that need them,” he says.
Urban Outfitters, which expects to do $500 million in sales this year, operates
more than 90 retail stores and separate catalogs and web sites for its Urban
Outfitters and Anthropologie brands of apparel and housewares.
Fresh produce
When it comes to keeping merchandise fresh, of course, no retailers struggle
more than food merchants—an issue that is bringing more of them into web-based
systems that help them overcome problems in getting products with short lifespans
into their chains.
The Kroger Co., which operates more than 2,400 supermarkets and department
stores in several chains across 32 states, needed better ways of organizing
deliveries to its distribution centers. Kroger receives products through three
types of freight operations: freight it owns and manages itself, freight managed
by manufacturers and freight managed by third-party logistics providers.
But it wanted to replace its old way of relying on a mixture of communication
methods to see exactly who was shipping what and when it was likely to arrive
because such methods often result in a retailer realizing too late that an expected
shipment of 10,000 cans of soda pop is coming in at only 4,000 for the Fourth
of July weekend, leaving it little time to order replacement stock.
Kroger wanted a centralized system that could see into the operations of all
three freight systems simultaneously. Not only could it then better plan for
any disruptions to supplies due to problems such as stalled trucks or inaccurate
shipping labels, it could also see which freight operation was the most efficient.
In some cases, other freight operations would be able to re-submit lower bids
to fill their unused capacity. “They want to be able to select the right carriers
at the right price,” says Jerry Overcash, executive vice president and COO of
Elogex Inc., the provider of Kroger’s web-based logistics system.
Earlier this year, Kroger began implementing the Elogex OneNetwork, a web-based
logistics planning and execution system. The OneNetwork is a hosted application
that lets Kroger as well as its suppliers and shippers view real-time information
on shipments.
Creating cooperation
Under its old way of trying to coordinate its own freight operations, Kroger
processed a daily batch of shipment orders into a freight optimization software
system overnight, then reviewed a report the next morning that recommended how
to best allocate shipments. But the web-based OneNetwork system allows new orders
to be entered at any time. And because the system provides real-time visibility
into the location and capacity of individual trucks, a new order could be immediately
allocated to a particular truck that, for instance, happens to be in the right
place with enough capacity to handle a pick-up.
After testing the system for a year on a few of its distribution centers,
Kroger expects to have the Elogex system deployed companywide by the end of
this year. That will entail adding several hundred carriers as well as dozens
of suppliers to the network, which already serves freight movements from Kroger’s
entire private label manufacturing business. For suppliers and freight forwarders,
getting connected to the OneNetwork system requires them to have Internet access
to enter their shipment data as well as to view communications such as shipment
requirements from Kroger. Kroger’s partners also log onto the network to download,
for a fee based on number of users, a 30-minute computer-based training program
that instructs them how to use the system. Kroger also needs to similarly train
a few of its own employees.
Having seen the benefits the web-based system brings to its freight operations,
Kroger is also planning to use the OneNetwork to integrate information from
its merchandising, distribution and transportation systems.
More retailers also are using web-based supply chain systems to implement
cooperation among departments, Overcash says. For example, under traditional
methods a merchandise manager might order extra containers of blue jeans in
anticipation of large demand, but without considering whether the transportation
department has the freight capacity or if the distribution department has the
warehouse capacity. With visibility in the OneNetwork of each department’s needs
and capacities, department managers will be able to take actions after considering
the impact on other operations, Overcash says.
At Neiman Marcus, Howell is also looking forward to additional benefits stemming
from his new ability to better coordinate imported shipments through Customs.
Just as imported products must be classified for their materials’ country of
origin and for harmonized tariff codes, they must also be checked against the
U.S. Fish & Wildlife Service’s restrictions regarding endangered animal
species. “One of the nice things the system does for us that we hadn’t expected
is it can identify every shipment that requires entry through the U.S. Fish
& Wildlife Service,” Howell says. “If anything has a feather, shell, horns,
bones or exotic skin, it’s Fish & Wildlife material. They check to make
sure the species is not endangered and that we have proper documentation, and
that a vendor is not telling us that this is an alligator skin when it’s a crocodile.”
Unexpected benefits
This saves time in directing shipments for the proper processing, assuring
they’ll get into stores as soon as possible. Without the web-based logistics
system, Howell says, gathering the documentation for F&W can be time-consuming
and laborious, requiring phone calls, faxes and mailed correspondence. “It can
be a document nightmare, but with the Qiva system, we get all the paper work
in line much quicker,” he says.
Howell figures the flexibility of a web-based system will continue to come
in handy in unexpected ways. While issues like global terrorism and SARS burst
on the world scene to cause potentially major disruptions to supply chains,
there are also more subtle surprises popping up all the time, he says.
“Take men’s shirts, you’d think there could be no way Fish & Wildlife
would be concerned about them,” he says. “But now more of them are made with
mother of pearl buttons, so they need to go through F&W.”
paul@verticalwebmedia.com
