You know the scenario. A customer scours the shelves of your store in vain for a common product. He finds the spot on the shelf where the product is supposed to be, but it isn't there. "We'll get one in soon," he is told by a clerk. "We'll call you when it gets here." Three weeks pass, and your ex-customer comes to the conclusion that the only thing shelved was his request. He gives up on your store and orders the product from the manufacturer's Web site, or worse, heads down the street to your competitor's store.
To a tier-one retail and wholesale company with multiple distribution channels and 4,000 employees, empty slots on shelves and holes in inventory can cost hundreds of thousands of dollars in lost sales opportunities. This was a situation $400 million retailer and wholesale supplier Mikasa (Secaucus, NJ) knew all too well.
Over the course of the 20 years leading up to this millennium, Mikasa had developed, modified, and continually striven to improve its homegrown back office, inventory, and financial systems. Its legacy infrastructure seemed to be holding its own until 1998, when the company built a nearly 800,000-square-foot distribution center (DC) in Charleston, SC, adding to its existing DC in Toronto.
With the addition of the new DC, Mikasa had a vision of daily inventory replenishment of the china, crystal, and flatware it supplies to its more than 6,000 wholesale/department stores and 178 retail locations. Previously, store replenishment was handled weekly, at best. While the new distribution facility increased the company's capacity to ship product, Mikasa still needed a system that would manage the communication and inventory shuffle between the DC and its stores. Thus, the retailer began to shop for ERP (enterprise resource planning) software.
Customer Service Begins With Product Availability
With thousands of distribution channels and an e-commerce site being fed by a common inventory system that was not supported by ERP, Mikasa was letting its partners down. "Our wholesalers demand 95% in-stock, and we weren't complying with that requirement," Mikasa's Vice President of IT Henry Bernal cites as an example. "We needed to get smaller, more frequent shipments to the stores. We had a larger inventory than we knew was needed, but we weren't necessarily shipping the correct SKUs [stock keeping units]," he laments. Adding to the company's challenge is that it imports 100% of its product line from more than 200 overseas factories, increasing the time it takes to get products to market.
Following a successful SAP (Newtown Square, PA) Financials implementation in January 2000, Mikasa began to replace its sales and distribution, inventory management, and retail systems (with the exception of its WMS [warehouse management system] and POS software) with SAP R/3 ERP software (version 4.6C).
Mikasa initially chose to use the inventory forecasting element of the SAP ERP system to forecast sales of its 2,000 core SKUs. Forecasts are generated based on a combination of historical sales data, input from retail and wholesale sales plans, and current sales data gathered from retail and wholesale POS stations. The company plans to increase the number of SKUs in the forecasting system to 20,000, or approximately half its total SKU base, after a six-month test of the initial 2,000.
From these forecasts, product orders are automatically generated and sent to Mikasa's suppliers. As product orders are filled, the product is received by Mikasa's DCs, which run Manhattan Associates' (Atlanta) PkMS WMS software. As it is received by the PkMS system, Mikasa's central ERP inventory database is also automatically updated. Sales orders and stock transfers from stores are then compared to a near real-time inventory report, which is 1 report of nearly 200 the company plans to make possible via SAP's Business Warehouse, a data warehousing and reporting application.
While the data warehousing system it chose would accommodate real-time reporting, Bernal says Mikasa doesn't need it. "What will you do knowing what you're selling or not selling today? On the other hand, you don't want history from two months ago," he reasons. Mikasa's daily reports, therefore, are based on the previous day's sales. They're delivered electronically among headquarters and to stores, eliminating paper and mailing lag time.
Mikasa uses a ratio called gross margin return on inventory (GMROI) to gauge its control of inventory costs. GMROI takes into account gross sales, cost of goods sold, and average inventory at cost. The ratio tells you what return you are getting for each dollar you invest in inventory, painting a clear picture of which inventory performs best. According to Bernal, Mikasa plans to achieve a 20% improvement on its gross margin return on inventory as a result of its ERP initiative.
Managing An ERP Implementation: Art Or Science?
Ask 10 IT managers for advice on implementing an ERP package, and you'll likely get 10 different dissertations. Some might even simply reply, "Don't." Bernal heard ERP horror stories from his colleagues at other companies. "One of the main causes of failed ERP implementations is a lack of support from top management," he's deduced. Therefore, it became Mikasa's approach to gain backing from C-level executives, then win over the entire company, paying close attention to the individuals who would interact with the program daily. A transitional task force was created, composed of people from every department in the company. The task force consumed itself with preplanning. It created a detailed calendar of the three months prior to the company's go-live date, which listed specific, daily tasks to be accomplished by each team member. "At Mikasa, IT is now part of each department. IT is not a separate entity," explains Bernal. This philosophy was critical in winning favor with the Mikasa associates who would see their daily operations change as a result of the implementation. For example, replenishment orders have gone from being keyed in to the inventory system to being automatically generated by the ERP program. Those who once mindlessly keyed in orders are now responsible for reviewing the replenishment reports generated by the system. Before, the company viewed the cumbersome legacy system strictly as a liability of the IT department. Now, says Bernal, Mikasa employees who interact with the company's ERP program consider it a user system, no longer the headache of the IT department.
The uncommonly smooth transition Mikasa made to SAP is evidenced by the fact that the company experienced zero turnover before, during, and immediately following the implementation. Large-scale technology initiatives are often accompanied by turnover, especially in the IT department. Costs were kept down by minimizing the hiring of implementation-centric staff, and keeping the disruption of employees' responsibilities to a minimum. "In most projects of this scale, an integration team is composed of new hires and several veteran employees who are relieved of their other duties," says Bernal. Mikasa brought in only one outside programmer - on a contract basis - and reassigned only three existing employees to the implementation. The outside programmer was hired to help write the POS, WMS, and Web interfaces to the ERP system. "From an HR [human resources] perspective, this was an inexpensive project in the sense that it was done with Mikasa people. Our staff owned the process," says Bernal.
The Customer Is The Big Winner
While Mikasa will see its own internal gains as a result of the system, customer service is where the real benefits will be had. Mikasa's retail store sales representatives can access the system to locate the whereabouts of individual SKUs for customers, tapping in to the data warehouse to identify sales trends and replenishment forecasts for a particular item. "The customer service representative can provide the customer with an accurate estimate of a product's inventory status and how soon it will arrive," assures Bernal. "Before, they had no visibility to that. The best a customer service representative could do was tell a customer to try back in a few weeks," he says. Fortunately, Mikasa knew that today's consumers increasingly are expecting instant gratification. "Try back later" just isn't good enough anymore.