Ways to Save Money
The following is a brief email that we received from one of our eNewsletter readers, in response to an article we wrote about saving money in your company…
Curt:
Just received your electronic May newsletter and wanted to send you some ways we are saving money.
- Cut utility usage
- Drop non productive associates
- Reduce fulfillment goals from 92% to 85%
- Keep 15% of your OTB in your back pocket
- Only mail your best customers ( we are thinking of prospecting again this summer )
- Drop marginal books
- Flow inventory, more smaller orders, more frequently.
- Keep margins high, but salt the assortment with redlines for the illusion of markdown.
- Offer free personalization instead of a mark down.
We are actually making money on a reduced sales plan.
Hank
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From the Dark Side of Productivity
I’m with a firm that spends much of its time helping clients improve productivity and reduce costs. We are ever mindful of the negative side—the “dark side”—of productivity projects. What is the dark side? It’s what happens if we don’t take the human factor into account. As someone with 30 years of experience in industrial engineering, I can tell you that there is no way to achieve long-term success in a re-engineering project without considering the effect it will have on people.
Two articles in the Wall Street Journal serve as stark reminders of this reality. The first, “Retailers Reprogram Workers in Efficiency Push” (September 10, 2008) described installations of workforce management software at AnnTaylor Stores Corp. and other retailers. According to the article, workforce management systems are “sweeping the industry as retailers fight to improve productivity and cut payroll costs.” As the Journal noted, some workers aren’t happy about the trend, saying the systems leave them with shorter shifts, make it difficult to schedule their lives, and “unleash Darwinian forces on the sales floor that damage morale.”
The Ann Taylor system keeps track of the usual productivity metrics: average sales per hour, units sold, and dollars per transaction. The system schedules the most productive people during the busiest hours—and, because it awards more-productive salespeople with favorable hours, it gives employees an incentive to persuade shoppers to buy things. And it’s worked, as far as the overall economic goals are concerned; the chain’s director of store operations said it has helped turn more store browsers into buyers. But, as the WSJ story made clear, it also resulted in the loss of some veteran salespeople who had developed long-term relationships with customers. By focusing strictly on the metrics that could be easily measured, the system actually penalized associates whose selling style depended on longer interactions with the customer—even though such relationships often assured continued customer loyalty. Others found their hours cut back to the point where they could no longer afford to make the trip to work. During busy times, the formerly congenial staff began competing for customers, sometimes stealing them away from one another. While productivity was, indeed, increased, perhaps the most surprising unintended result of the system was that this story, with all its unflattering aspects, was splashed across Page A1 of The Wall Street Journal.
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Top Ways to Cut Costs and Improve Customer Satisfaction
Every smart business manager is constantly looking for ways to reduce costs and make the operation more productive. In today’s challenging economic climate, such efforts become even more crucial. Small steps that can help to save money may make a big difference. Our experience in the fulfillment and call center has been that often the same process improvements used to reduce costs also result in better service—and greater customer satisfaction. These are some of our top tips in four of the key areas.
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How to Make Vendor Compliance Programs Work For You
Of all the strategies for reducing costs in your catalog business, vendor compliance programs may be the most underdeveloped. A well-thought-out, formal vendor compliance policy can reduce warehousing and freight costs, speed up order processing, and lead directly to increased customer satisfaction. In order to achieve this it must spell out your requirements and the charge-backs for vendors’ non-compliance.
Without a formal vendor compliance policy, the warehouse has no recourse but to absorb both direct and hidden costs for noncompliance. Without compliance it is impossible for a merchant to implement advanced supply chain systems, ASNs, just-in-time inventory, source marking and ticketing, or RFID programs. A good vendor compliance policy will not only avoid pitfalls but will reduce the time spent dealing with vendor disputes, claims, and charge-backs.
Merchants are sometimes leery that more comprehensive accounting and charge-back policies may upset vendor relationships they’ve worked long and hard to develop. Besides weighing that possibility against the probability that improved vendor compliance will reduce costs and improve customer service over time, you need to consider that a well-defined document in which requirements, expectations and penalties are spelled out will ultimately remove ambiguities, end misunderstandings and result in even better vendor relationships. Anyway, if your vendors are dealing with large retail companies, they are already used to compliance policies.
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How Will You Provide Your CEO’s Favorite Reports?
You have just spent four months doing your homework to replace your aging call center and order management system: gathering user requirements, writing an RFP, getting capable vendors to bid on it, conducting demos and selecting the finalist. Yet there is one more activity that, if not done superbly, will shake management’s confidence that replacement of the old system will go smoothly. If you haven’t adequately studied how management at every level—from CEO to department managers—will get the information they’re used to having in order to run the business on an online, daily, weekly, monthly and year-end basis, your credibility could be in trouble. Even when business analysts feel they have done an adequate job of determining user requirements, this area frequently gets cut short. There are a variety of reasons:
- In requirements and demos, users often spend too little time reviewing the entire system. Some feel they can do it in half a day. In reality, it is a two-day task—and even then you run the risk of not seeing everything.
- Vendors have stopped developing reports—yes, that’s right: no reports. “But we have online displays of data!” software vendors and less experienced users will say. Of course, when you go live with the new system, users line up at your door and want to know, “Where are those 10 important reports I had in the old system?”
- Then there’s the fact that management, while sponsoring the systems replacement effort, takes little time to see whether their most important data is in the system or find out how they will get it from the new system. The biggest area of systems deficiency is in the lack of plans and historical data. Many order management systems have been developed without history by product, category, list segment, total business by year, or any other criteria. Management therefore has adapted with its own spreadsheets and Access systems. How will they get the information in the formats they will need?
- Software vendors convince the users that they can develop the reports they need with Crystal Reports, a query language or a data warehouse tool the vendor has included in the purchase agreement. But here’s the problem: Do you know how many and which reports will need to be replaced, or how much effort this will take? Our experience in implementing order management and warehouse management systems is that there are literally hundreds of reports that have to be replicated in order to be comparable. Just this week, in working with a client we discovered there were over 200 key reports that would have to be replaced in some form.
Think about some of the reporting needs of various departments:
- How will Merchants get their merchandise performance reports? Do they require history? Plans? Vendor analysis? Category trending? Contribution to profit?
- Does your Marketing department require source code statistics? Do they need figures by channel performance in terms of demand, average order, etc.? How about conversion rates for first time to multi-buyers? Reactivation of inactive customer accounts? What about history and plans?
- Is there productivity analysis required for the Call Center? What about customer compliance and inquiry reporting from customer files?
- What data do you need to provide Fulfillment with reports about picker and packer productivity? How will they feed their departmental productivity and cost systems, which may be manual or spreadsheets?
You get the picture. Here’s what you need to do: Be proactive in soliciting specifics on what analysis is required. Collect the requirements and determine where each analysis will come from in the new system. Get users to sign off on the new system, confirming that it meets their needs. Cost out the time and effort required to provide all of this and make it a key ingredient in your system conversion work plan. I think you’ll find that reporting is an area of systems requirements on which many don’t spend enough time before going live.
Brian Barry is a Senior Consultant with F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at www.fcbco.com.
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Sales Without Inventory
Sales without inventory—now there’s an oxymoron. Many of us who cut our teeth in the retail and catalog trade know that you have to own inventory to make sales. In fact, for many businesses it’s the largest balance sheet asset.
In the late 1990s, dot.com companies with their “virtual inventory” concept tried to change all that. And guess what? That business model never really went away; it continues in both large and small businesses of many different types today.
There are two scenarios for running a business with little or no inventory. The first is the traditional vendor drop-ship, which requires no inventory. The other is to build a just-in-time inventory model, which entails warehousing certain products, typically those that need to be fulfilled frequently.
Vendor drop-ship
Here’s a few examples of traditional vendor drop-ship: One of our clients is a retail specialty department store that has direct sales of $400 million. During the holiday season, its direct business approaches 20% of net sales. Holiday assortments that are drop-shipped include food, specialty items, wreaths and garlands, along with big-ticket items such as furniture, rugs, draperies and other home products.
Another company we are working with sells unusual hardware. It keeps bestsellers in stock and drop-ship the slower moving products, which can all be sourced and shipped within a seven- to 10-day window.
That may not be the highest level of customer service, but then the company doesn’t have a major fulfillment facility and the attendant inventories, concern for forecasting with required tight accuracy, or the significant overstock and liquidation problems common to other direct businesses.
A third client that specializes in business supplies has a small internal inventory and extends its assortment offering 80% by drop-shipping directly to the customer.
I’ve also seen a mega-retail/direct sporting goods company expand its line tremendously to include many slower-selling products that could not “break even” in the catalog’s merchandise selection process.
The point is, with drop-shipping you can open up a much broader assortment to your customers than you could justify for inclusion in print media and internal DC stocking.
What do these businesses have in common that makes this strategy effective?
–Systems functionality: These merchants’ Website and call center order management systems provide connectivity to the major vendors participating in vendor drop-ship programs. These systems validate, credit and process the orders out to the vendors.
The better systems download customer orders throughout the day or in batches. The systems are connected to terminals and printers in the vendors’ DCs to process all during the day. As orders are viewed and printed by the vendor, the drop ship system controls the process and gives the retailer visibility into the various order statuses.
As the vendor prints the pick tickets and the order is ship-confirmed to the system, those confirmations are sent upstream to customer service files online or in batches. This allows the retailer to eliminate all the costly manual processes that usually make drop-ship a nightmare and lead to poor customer service.
–Domestically sourced product: Imported product, exclusive and long lead-time products are not candidates for vendor drop-shipping because of the length of time required to get them. True fashion product is not a candidate because the retailer gets only one chance to purchase product, and possibly one reorder — by its nature the product is new, with no selling history and little reorder ability.
This concept generally works best when the replenishment is short: one to 10 days. This way you can continue to provide higher customer service, but without the attendant inventory and facility costs.
–Vendor reliability: Since the vendor is shipping directly to your customer on your behalf, they have to be as good or better in terms of accuracy than your internal fulfillment. This, I’m afraid, eliminates many vendors that do not understand the direct industry.
What’s more, the retailer must develop and enforce vendor compliance standards for processing orders, accounting paperwork for POs, invoices, possible returns processing, etc.
Just-in-time fulfillment
Some businesses have migrated to the just-in-time model and are warehousing products with longer lead-times or which need to be fulfilled more frequently. Several companies we work with hold inventory that is exclusive. Many of these merchants use a mix of just-in-time fulfillment and drop-ship programs.
With these just-in-time programs, not only can you achieve lower inventory costs, you can:
–Reduce the number of packages received by the customer
–Gain the ability to insert company materials (value-added service)
–Use cartons and labels with the company name
–Reduce freight costs with fewer shipments
Like the vendor drop-ship scenario, the merchant has to be responsive and reliable. They have to be willing to hold some inventory in order to cover anticipated customer orders.
Each of these scenarios can help you build your sales without being forced to carry a huge amount of inventory. Both can help you reduce the occupancy and labor costs associated with processing product and fulfilling customer orders.
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F. Curtis Barry & Co. works with multichannel businesses to increase catalog profitability through the evaluation and implementation of order management systems, inventory management systems, warehouse management systems that match client objectives.
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Black Friday Sales Officially Have Started
From a retail marketing approach, we all know that every year stores bring in and display Christmas merchandise in October. But this year with the tough economy and most stores except for Walmart being off plan, Black Friday sales have started this week. In our local newspaper, the Richmond Times-Dispatch, this morning, Kohl’s, Target and JC Penney are offering 50% off today and tomorrow. Yahoo news is reporting many retailers have already started Black Friday sales, some as early as November 8. Walmart, Best Buy and Circuit City are already posting items for sale that traditionally wouldn’t happen until the Friday after Thanksgiving. Target is indicating that sales in November are weak in its apparel and home offerings and will aggressively cut prices to give consumers bargains during the holiday season.
Obviously, the objective is to siphon off whatever consumer spending they can before someone else does. We have seen aggressive ads from some e-commerce retailers this week offering free shipping, a percent off or a flat dollar off your order. In some cases you, the customer, pick the deal.
What’s your marketing approach given this reality?
Tocky Lawrence
Vice President
F. Curtis Barry & Company
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F. Curtis Barry & Co. works with multichannel businesses to increase catalog profitability through the evaluation and implementation of order management systems, inventory management systems, warehouse management systems that match client objectives.
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Best Practices in Multichannel Operations & Fulfillment - Our New Book
Best Practices in Multichannel Operations & Fulfillment is now available. This guide to multichannel best practices was derived from our 24 years of experience with hundreds of catalog, eCommerce and retail companies.
Our team understands the issues and challenges facing multichannel businesses and provides insight on the following topics:
- Business Management - including “Developing Your Corporate Dashboard Of Key Performance Metrics”
- Contact Centers & Call Centers - including “Managing Your Cost Per Call”
- Forecasting & Inventory Management - including “10 Ways To Improve Vendor Quality Control”
- Direct Commerce Systems - including “How to Select Any Business System: Four Steps To Take Now”
- Warehouse & Distribution -including “Rising Transportation Costs – And What To Do About Them”
With over 45 articles filled with data, results and in-the-trenches experience, we compiled this information to provide a how-to and best practices resource to our clients and others in the industry. The articles in this book reflect the type of in-depth knowledge that a consulting firm with 250+ published articles in US and European trade publications should have - the type of knowledge and experience that F. Curtis Barry & Company brings to every client engagement. Each article was reviewed by our team and edited with timely updates.
Best Practices in Multichannel Operations & Fulfillment provides quick tips and thoughtful answers to companies working to increase their profitability, improve efficiency & productivity and reduce costs.
To order visit: http://www.fcbco.com/book.asp.
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How Well Are You Managing Your Inventory?
Inventory is most likely the largest balance sheet asset in your company. How well you plan, purchase, and manage your inventory largely determines your level of customer service and profits.But selling goods in multiple channels means dealing with channel-specific planning and inventory needs.
Based on our consulting work with clients and observations from conducting the F. Curtis Barry & Company’s Forecasting & Inventory Management ShareGroups, we’ve come up with some strategies to consider with multichannel inventory management.
Planning and inventory systems
In most companies, the systems for merchandise planning and inventory control remain highly fragmented by channel.
For promotional planning, many multichannel companies need to be more diligent and use a single promotional calendar rather than channel-specific schedules on which merchandise planning is based. These should include in-store promotions, catalogs, and e-mail campaigns.
Detailed channel-level inventory systems cater more to individual channel planning and inventory needs. In retail, assortment planning is performed by merchandise division, department, class, and product/SKU, with another view by region, store level, and product/SKU plans. Large retailers also have store replenishment systems to recommend restocking orders for retail locations.
For most direct companies, assortment planning differs from retail; it’s by catalog season, drop, department, class, and product/SKU. The data elements — though similar to retail — have some major differences, using demand, cancellations, returns, space used by category (pages, square inches, depictions), and other direct metrics. Most direct companies have not invested in formalized systems and are using internally developed systems or, more likely, spreadsheets.
Emerging direct businesses with stores don’t have comprehensive retail planning systems. Often they can’t justify the investment and use spreadsheets or other elementary systems more effectively. But there is a huge potential for sales and profit improvement through better planning.
To get results to flow through corporate planning, inventory and accounting systems, large retail companies identify top level plans, sales and inventory results and display as a store: “catalog store,†“Internet store,†or maybe the direct business combined as a store.
Many companies have tried to use channel-oriented planning and inventory systems (i.e., retail designed or direct designed) for other channels. But these have been less than successful due to the differences in views of the data (e.g., region and store) and the types of detailed data mentioned above.
Internet inventory management philosophies are slowly evolving in most companies. Traditional catalogers now average more than 50% of sales from the Internet, although much of that business is generated by receipt of the catalog.
Products may be active and available longer if there is stock. What sells online is heavily influenced by placement on landing pages and organization and ranking within category product searches.
The online product assortment can be more extensive than that in a single catalog. Internet may have a total chain assortment different from any one store or region. The Website may have a clearance or liquidation aspect. These principles of planning and managing inventory are not industry established best practices, but are being hammered out in the trenches every day.
From a purchasing perspective, companies are rolling multiple channel plans and forecasts together into a single purchase order management system to write Pos.
The eventual multichannel inventory system that evolves will be a new animal. It will need to be a blend of channel-specific function (such as store replenishment logic for reorderable product) and direct (such as promotional and time-based elements more like catalog).
It will also have a single inventory system that can be displayed by product/SKU and allow you to see the plan by channel and promotion, vendor on-order and on-hand by store, and warehouse location. The planning modules will remain channel specific.
When will there be true integrated systems for planning and inventory systems? For most companies, not any time soon. Retail and direct channels have different data needs and processes. It will probably be a few years before commercial software companies that cater to retail and direct have the most basic of systems in place. MICROS Retail, Direct Tech, and Manhattan Associates all have development projects to bring channels together in terms of planning and inventory systems.
Read complete article, How Well Are You Managing Your Inventory?
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VendorNet Connection User Conference
We attended VendorNet’s conference at the beginning of this month to present a speech and a roundtable on Vendor Compliance Policies. The speech covered:
• Role of vendor compliance in reducing costs and speeding receipts through the DC
• Trends in vendor compliance
• Contents of vendor compliance manuals
• What charge backs companies are implementing
• Where to begin in writing vendor compliance policies
• Who should be involved
• Communication between the retailer and the vendor community
For those of you who don’t know VendorNet (www.vendornet.com), their 100 percent Web-based software solution, VendorNet Commerce Suite, delivers high-speed retailer/supplier collaboration via the Internet, providing real-time transaction visibility to standardize, synchronize, and optimize the flow of order information among supply chain partners.
F. Curtis Barry & Company does not normally endorse vendor software products. But I have to tell you, the customers at the conference clearly felt like VendorNet has a great product. There were a number of actual merchandise vendors at the conference and I had a chance to talk with some of them. Guess what? The vendors love the VendorNet products and services too. Some talked about using other systems that weren’t nearly as straightforward. They liked the ability to follow up on work, and for their clients to communicate messages and status to each other.
The VendorNet user community includes Ballard Designs, Miles Kimball, Exposures, Neiman Marcus, Thompson and Company catalog group, Asset Marketing Services, Norm Thompson, and many others.
My hat is off to Sharon Gardner, co-founder and president, and the staff for an effective conference and great systems and services.