Supply chain technology: What retail's doing right

While Wall Street and the Big Three Auto Makers compete for shares of government bailout money, consumers are trying to hold onto enough money to keep a roof over their families’ heads. The discount retailers seem to be doing quite well catering to their customers’ needs for a good deal. What business lessons can we draw from the retail sector now that we’re past the holidays?

Modern interviewed Joe Andraski for some answers. He’s president and CEO of VICS, the Voluntary Interindustry Commerce Solutions Association, which is dedicated to cross-industry movement of product and information among retailers and suppliers. Here are the highlights from that interview.

Modern: How is the retail sector making out in this financial crisis?

Andraski: Some talk about this as being a recession proof business, the P&Gs, for example. Everyone has to use detergent, so there are some verticals that will do OK. Anyone that’s into discounted prices right now will continue to do well. Now is the time for companies to evaluate their business practices. In the past when we were flying high, money was coming easy, home sales were up, and the related industries were doing well, we saw a lot of positive signs as to how companies were doing. That led to some companies developing business practices or accepting changes in business practices that weren’t the right thing to do in the long haul.

Modern: Similar to what happened in the automotive industry, with the proliferation of so many different models?

Andraski: Another example of that is Gillette before it was sold to P&G. They brought an executive over from Europe who had been over there for a while and they took a hard look at their A,B, and C items, and the service levels to the customers. They found they had a plethora of C items they weren’t selling much of, but what they were selling they weren’t shipping in complete orders. Inventories were up, service levels were down and customers were dissatisfied, and they weren’t making the kind of money they should have been. So they rationalized their offering to customers. They got to the point where technology was able to give them the information they needed to manage their business. They got rid of the nonsense that was taking up time, effort and money.

Modern: So Information Technology has helped during these tough economic times?

Andraski: Over the last several years a lot of companies have invested in ERP systems. They put in SAP, Oracle or different pieces of functionality. Somewhere in the organization, whether IT or the people who were developing the functional specs, decided they were going to make modifications. Now they had a package they understood but the organization didn’t understand because organizations evolve. New people coming on don’t necessarily understand all these systems and everything that was put in. Over time you see less and less of the functionality because the people coming on or being promoted into positions don’t even know the functionality exists. About 50% of the information is passed from the incumbent to the person coming in.

Modern: With all the mergers and acquisitions and turnover that must grow into a real problem.

Andraski: Absolutely. We’re a global economy, and while we’ve seen a lot of benefits with low cost labor provided by South America and Asia Pacific, I don’t think we have the talent within organizations today to be able to manage the outsourcing that’s been taking place over the last 5-6 years. The other side is, we haven’t done a very effective job of educating the people in these foreign countries. Look what’s happened with Melamine, and with the lead-based paints. We opened an office in Beijing that is helping to educate the China business community in apparel. The China National Textile and Apparel Council has come to us, 10,000 members strong, saying we can no longer depend on low cost labor to be competitive worldwide. We have to get much better at how we manage our customer supply chain.

Modern: One automotive analyst told me that the trend is to simplify and reduce excessive inventory and special parts and come back to common parts, and to source domestically instead of offshoring because you can now give these suppliers volume orders, making it more justifiable to use domestic suppliers.

Andraski: I have a problem with this, and I heard it at CSCMP. Oil was $147 a barrel and we’d better bring manufacturing back to the US. Well now oil is $50 a barrel. There are reactionary approaches to short term situations. There isn’t a blanket you can put over every business challenge. There has to be a rule of reasonableness where people can look at their business environment to see if it makes sense to outsource. There are all sorts of factors to consider like taxes. Are you getting everybody in the organization who has some input they can add to the outsourcing situation, whether it’s a third party provider of transportation and warehousing or someone who will manufacture for you. I was talking to someone in Denver who was given the responsibility for rationalizing a department that had 76 facilities. This person didn’t have the wherewithal to make those kinds of decisions. Companies like P&G have the width and breadth to be able to say we don’t want to do business 17 different ways depending on the country we’re doing business in. We want to do business one way. P&G had laid down what their game plan is because they want to do business the same way with everybody because they know the value of having a common practice.

Modern: Are we there yet?

Andraski: VICS started more than 20 years ago when all these retailers got together and said we’re tired of wasting money on all these one off business approaches. Let’s get together and decide the guidelines we’ll agree to. The first thing they went after was bar coding. Then it was EDI, then floor ready merchandise, then Quick Response. One building block after another allowed them to put together the most efficient logistics and distribution system in industry.

Modern: So just as automotive is saying they need to be simplifying inventories and parts, you’re talking about simplifying processes and establishing basics.

Andraski: China and India are having a hard time getting products to retail. Their economy is growing and they have more money but when it comes to getting product on the shelf they’re doing a terrible job. So we’re suggesting they need to step back and learn from history. There have been advances in technology so look at what the VICS community did 25 years ago, take what’s going on with technology today that didn’t exist back then. For example there are integrators today that can take information and pump it into a legacy system with minimum effort and technology changes. That didn’t exist back then. We’re doing research with the University of Arkansas on RFID and finding the more we keep turning the pages the more we’re finding that bar codes and RFID tags can live together in harmony.

Modern: Where does organizational responsibility lie?

Andraski: Senior management has abrogated their responsibility and pushed it down into the organization, and decisions being made are having broad ramifications. They’re placing unique and specific requirements on their trading partners, and now it’s become so widespread that the manufacturing companies are having a hard time keeping up with these multiple and varied requirements. That goes against simplification and streamlining. There should be a common way of doing business between trading partners, whether you’re in automobiles or apparel. When I was at Nabisco, I quickly found out we were into EDI but very little of the information that came to us via EDI could go right into the system. We had to print it, somebody had to look at it and somebody had to re-enter it into the system because all the retailers thought there were specific deals that went against the standard. 27 years later we’re still doing the same thing.

Modern: What’s being done about it?

Andraski: We’ve taken all the key EDI transaction sets and boiled them down into business implementation guidelines. A major part of what we have to do is an educational program, so in January we have a 5-stage webinar series that helps companies understand what you need to do to meet customer requirements. There’s a wonderful opportunity for companies to step back and look at the effective ways they can be doing business, how can they become more efficient, how can they meet requirements for visibility and speed to market. I don’t care if it’s speed to market from China to California or Indiana to Chicago. You have to put together the pieces that will allow that to happen. You need to know the agreed to and common metrics between yourself and your customer so when you give them a report there’s a clear understanding.

Modern: What about the understanding within one’s own four walls?

Andraski: You have to clearly identify what a perfect order is, educate everyone in the company, from president to sales to marketing, the entire organization. You finally get to the point where everyone is on the same page financially. Incentives are based on the company making its numbers. If you want to change behavior, change the way you pay people.