PREDICTIVE FORECASTING INTRODUCTION
A regional home improvement company was having difficulty supporting their stores with core product supplied through their distribution centers. The challenge was to accurately understand demand and coordinate vendor deliveries with the projected need. It was recognized that sales plans had to be regularly replaced with accurate sales forecasts. The company selected Inforem (then part of IBM) as its forecasting tool.
The business team I led, working alongside the IT team, implemented Inforem in less than a year and reinvented the decision support tools for repurchasing merchandise. Within 12 months of the roll-out my merchandise management team permanently increased the distribution center fill rates over 20 percentage points while reducing the overall distribution center ownership. These improvements proved sustainable.
This success resulted in reduced capital investment for trade inventory, increased store and customer satisfaction, and reduced operating expenses in the distribution center.
The investment in a forecasting tool not only provided peace of mind that the core business would run smoothly, but paid for itself over and over again.
NEW OPPORTUNITIES REVEALED BY COORDINATING
THE SUPPLY CHAIN
After reviewing the results of a physical inventory a Men’s discount apparel company concluded that it was time to change their strategy toward managing their inventory investment. The company was faced with excessive aged inventory, high markdowns, and overcrowding in their distribution center and store stock rooms.
The solution was a balanced approach that focused on replenishing the core merchandise while eliminating the aged inventory without generating a flood of red ink, or permanently eroding the company’s price integrity.
Accountable for this strategy, I had to persuade the Merchandising and Store Operations Groups to imagine a new way of conducting business. A way that would rejuvenate the merchandising offering to the customers, reestablish the company’s financial security, while providing peace of mind that their prosperity would continue. Their support was essential for success.
Within 24 months the aged inventory was within an acceptable range for that business, store stock rooms were generally limited to backup supplies of best sellers, and the warehouse was virtually changed to a distribution center. Financially, the company’s long term debt was permanently eliminated.
Stores reduced the number of times they handled a unit of merchandise before it was sold. The reduced crowding and handling resulted in reduced store damages and markdowns.
The change in the distribution center was so dramatic that along with two other creative executives we established and grew Priority Distribution Services, a successful third party distribution company (PDS). PDS eventually processed merchandise for up to 16 different retailers at one time, in addition to all the processing for the menswear company.
The benefits from operating PDS included the establishment of a stable year-around distribution center workforce which resulted in higher job satisfaction, increased efficiency, and faster service. Financially, the income generated from clients offset the majority of any distribution expenses for the menswear company.
INVENTORY MANAGEMENT LEADS TO
OPERATIONAL SUCCESSES
OPERATIONAL SUCCESSES
A home furnishings and décor retailer that imported the bulk of its product was having difficulty efficiently processing product through their distribution center and properly servicing their stores. The company already had a large distribution center and recently had contracted for another. Plus, there was a constant backlog of ocean containers waiting to be unloaded.
By implementing detailed merchandise plans and then revamping the supply chain the company began to have merchandise arrive closer to the anticipated need. Simultaneously, we changed the process for receiving staged containers in order to move the product through the distribution center and avoid the time and effort of put away and retrieval. Within months the container backlog was eliminated and within 18 months the top two tiers of racking in the distribution center was completely empty.
As the merchandise arrived closer to when it was needed the store stock rooms became less crowded, and the majority of the merchandise able to fit onto the sales floor. Distribution Center inventory was limited to core product which was replenished to the stores regularly.
As the second distribution center was about to come on line it was not only clear that it was unnecessary, but the existing distribution center would accommodate years of expansion. The second distribution was then leased to another tenant.
Resources and expenses were reduced at the distribution center because of the improved flow. The investment in trade inventory was lowered which reduced its carrying costs. Store resources were either reduced or redirected toward the selling floor as the receiving areas and stock rooms became more manageable. Damages were reduced and fill rates improved, all leading to higher employee and customer satisfaction.
The benefits of properly managing a company’s inventory are well known but this case illustrates spillover benefits of coordinating the entire supply chain.
COMPARATIVE STORE GAINS REESTABLISHED BY
RATIONALIZED INFORMATION DELIVERY
A northeast regional menswear company was having difficulty moving comparative store sales in a positive direction.
Input in the form of granular reports, anecdotal experiences, and selective analysis bombarded the merchants and clouded the overall picture of our customer demand. Careful review allowed us to discard much of the anecdotal input and all of the inaccurate analysis. We developed a balanced approach toward establishing the summery level and exception reports necessary for decision making. This strategy enabled the buying department to refocus the merchandise investment on core businesses and resulted in the first comparative store gains in several years.
While streamlining the management of the core businesses, resources were re-allocated to the seasonal and fashion portions of the business, further strengthening the merchandise offer.
In this case, we were able to establish a pattern of comparative store gains by just taking a holistic view of the business based on facts and a focused reporting portfolio.
COMPARATIVE STORE SALES AND MARGINS SKYROCKET WITH CRM IMPLEMENTATION
A NYC based chain of woman’s apparel stores experienced strong comparative store growth after changes in their merchandise strategy, but was looking for the next step.
Store associates maintained client books and were expert at reaching out to their patrons periodically. It became clear that this was an opportunity and the time to reinvent the Customer Relationship Management (CRM) effort.
First, we enhanced the functionality to capture customer information at the point of sale in order to centralize the customer information. At the back end we developed a CRM application internally using a blend of Microsoft SQL Server and Microsoft Access. The first functionality to come on line was the ability to identify, by location and associate, how many transactions had customer information attached and of those how many were new customers. Each week stores were reviewed on how they performed during the prior week and where they stood in relation to the other stores in the chain.
When the house list reached a marketable size we began to mail postcard offers. We always made sure not to mail to a control group so we could accurately measure the performance of the mailing. The company immediately realized significant increases, even over the large previous year increases. Although the redemption rate on the postcard offer was clearly acceptable, it did not account for the full sales increase.
We looked past the traditional response rate of the mailer and looked to the behavior of the customers that received the postcard. We found that a full one third of the customers that received the postcard visited the store within four weeks of the drop date and made a purchase, even if not to redeem the postcard offer. This far exceeded the behavior of the control group.
This scenario held up time and again and was proof positive that the investment in a CRM program and frequently reaching out to your customers is a highly profitable strategy.