Magazine Article | August 1, 2002

Pulling IT Together

Source: Innovative Retail Technologies

If your IT staff is making every inventory management software modification store managers request, beware. The resulting pork-barrel approach might be wasting your time and cash.

Integrated Solutions For Retailers, August 2002

Quick ... can you call up an accurate view of inventory in your San Antonio store in the next five minutes? If your answer is no, why not? Perhaps your company is experiencing some of the same problems Barbeques Galore (Lake Forest, CA; Sydney, Australia) had before IS Director Todd Budde came in with a steak knife and trimmed some of the retailer's IT fat.

Barbeques Galore sells backyard grilling equipment through 136 retail stores throughout the United States and Australia. When Budde came to the company four years ago, store managers were pretty much running the show from an inventory standpoint. "The stores would fill out what I call a Sushi menu," Budde recalls. "Give me ten of these and eight of these and a dozen of these. It was guesswork." This was a very inefficient means of replenishment, and Budde concedes that the stores were not using the company's inventory systems in an efficient manner. Decisions were often made at the store level that did not coincide with corporate objectives.

Ironically, the JDA store-level software Barbeques Galore was running had an auto-replenishment function that would easily return inventory control to the corporate office, but the function was bypassed at the request of store-level management. "It was a classic case of the enterprise defining the software, as opposed to the software defining the enterprise," Budde concludes. The result impaired inventory communication with stores and led to an inefficient merchandise management system. "If you physically knew where the product resided, you could pick it and ship it. If not, there was no sense in doing a computer lookup, because the information you'd get would be incorrect," he says. "Without accurate inventory, you can't attempt to implement an initiative like auto-replenishment."

In another example, protections had been removed from the wholesale order entry function, allowing buyers to bill for more than their actual on-hand inventory. This revealed another underlying problem. "The system had been modified to remove control functions, and that's exactly what the modifications did - let inventory get out of control," Budde says.

Budde's strict approach to running the company to fit the software - as opposed to modifying the software to fit the business process - is based on a simple premise. "Our core competency is not designing software, it's selling barbecues," he says. So the first thing he did was rewrite the inventory process to take advantage of the inventory management system. "Senior Program Analyst Rich Kilar removed all user-defined modifications that impeded the progress of using JDA's integrated solution. We decided that we had no significant business requirements outside what the solution offered," Budde explains. "Like any other retailer, we're primarily a distributor. Rich stripped out all of the modifications and went back to vanilla so that we could evolve with the software as the software evolved." Budde then reintegrated the software's wholesale order entry module with the inventory program so buyers could not bill for more than they had on inventory.

Taming A Retail Power Struggle
Convincing store managers to change their ordering process was not an easy task for the IT staff at Barbeques Galore. Many store managers didn't believe inventory could be handled any other way, and attempted to sidestep the procedures and software controls. In their minds, nobody knew what sold in their stores better than they did. But the corporate office found that managers often placed their orders based on sales that took place the previous week, rather than placing them based on long-term trends. So, Budde and company stood fast, challenged them, and worked diligently to prove the efficiencies of managing store inventory levels from headquarters. "To some degree, store managers were trying to circumvent the system because they felt JDA was built for a much larger company than us. The fact is, it's scalable to a very large company. We needed to start following those processes and acting like a bigger company in order to stimulate our growth and capitalize on it," he says.

Another factor Budde had to overcome was the "more on the floor" mentality of some store managers. The managers get paid based on their sales, so being overstocked gave them peace of mind. But meanwhile, those who hoarded inventory denied sales in other locations. Trusting corporate to keep inventory on hand was a lot for a store manager to ask. "In the mind of the corporate office, inventory sitting on the store floor (and not selling) is a waste of cash," says Budde. Turning on the store-level software's auto-replenishment function allowed the warehouse to automatically push inventory to stores (based on the daily sales data polled) rather than having the stores pull inventory from the warehouse. "With auto-replenishment, we can look at sales trends and determine how many products a store will get on the next truck. This is a more efficient use of our inventory," Budde contends. "Maybe a store manager wanted 20 grills, but in reality he only sells two a week. Shipping those 20 units ties up our cash and our inventory, and possibly denies the product to other stores, where it would actually sell." Budde claims that as managers realized the advantages - they didn't have to closely monitor inventory or place orders and they could depend on corporate to deliver, they liked the new system. Inventory just began to show up in the correct quantity, at the correct time, and in the correct place.

Improve Inventory With Forecasting
The first step for Barbeques Galore to improve inventory efficiencies was to implement efficient inventory processing methods. The next step will be to reach back into its supply chain to make sure it's working efficiently with the vendors that supply inventory to the manufacturing and distribution centers. In Australia, where the company originated and where most of its product manufacturing still takes place, the company is piloting sales forecasting software from Demand Solutions (St. Louis) that will model forecasting based on statistical models. "We want to use this tool to give manufacturing a heads-up as to what our sales demands will be," Budde explains. "We'll send them our sales data and they'll send us back a forecast. Then we can buy wholesale products according to forecast or modify it if we see growth or loss on a certain product."

Previously, the company's approach to forecasting consisted of little more than identifying departmental sales goals. This didn't help the supply chain at all, as it had no idea what the necessary product mix might be. "We're trying to get forecasting down to a unit level. You need 100 grill hoods if you're going to sell 100 grills," says Budde. "We'll also integrate the Demand Solutions report with our product budgeting plan and generate purchase orders from it. With multiple distribution centers located in the United States, you must focus on purchasing the correct quantities for each center so that the stores have adequate supply of inventory on a regional level."

The solution will alleviate the disadvantage of having manufacturing facilities in Australia. With product on the water for two months between completion of manufacturing and hitting the shelves, the company must have its product ordering system down to a science. "We'll go through issues such as the possibility of a strike at the port. If that happens, our lead time gets extended even more," says Budde. "That's where forecasting helps. With barbecues, fireside products, and related accessories, catering to the cash-and-carry customer is very important. If you don't have the product in stock, customers will just go somewhere else to get one."

20% More Stores, 0% More Idle Inventory
Although it has grown its store base by more than 20%, Budde claims the company's inventory figures have improved. "With the exception of some expected seasonal sales spikes, we've maintained a consistent level of inventory even as we grow rapidly," he says. "We're making better inventory decisions and moving product steadily, rather than reacting to the ebb and flow of retail demands. This translates into better customer service. When a customer comes looking for a product, the product will be there." Not only that, but when corporate goes looking for sales and inventory figures at the store level, those will be there, too.