Saks Transforms Demand Chain Management: Merchandise Allocation as an Art Molly Shaw VP, BIS Phil Sleboda VP IT
Agenda <ul><li>Saks Fifth Avenue Overview </li></ul><ul><li>Saks Fifth Avenue’s Operating Framework </li></ul><ul><ul><li>...
Saks Fifth Avenue Overview <ul><li>Saks Fifth Avenue  </li></ul><ul><ul><li>With 47 locations across the United States, Sa...
Saks Operating Framework <ul><li>Saks ‘4-Strategic Pillars’ operating framework, supported by foundational inputs  </li></...
Historical Process <ul><li>Inventory distributed to the stores prior to receipt resulting in the following: </li></ul><ul>...
Inventory Flow Spectrum and its Role at Saks Higher Risk Lower Risk Managed by Teradata Demand Chain Management Applicatio...
Game Changing Allocation Methodology Select & purchase goods in market <ul><li>Pre-allocate a portion to stores based on h...
What is  Demand Chain Management ( DCM)? DCM is the software system that generates orders based on historical and forecast...
What is  Demand Chain Management ( DCM)? <ul><li>Forecasting   </li></ul><ul><ul><li>All active SKU/Locations </li></ul></...
Saks DCM Objective <ul><li>Saks prioritized DCM as a critical project to transform inventory allocation across the company...
Saks Actions: Technology <ul><li>In order to accomplish this strategic initiative, Saks Fifth Avenue selected Teradata Dem...
Saks Actions: Process, People and Measurement <ul><li>Process: </li></ul><ul><ul><li>Integrated DCM into the overall buyin...
Benefits <ul><li>Reduction in out-of-stocks on vendor replenishable items  </li></ul><ul><li>Improved sell-through </li></...
Key Take-Aways <ul><li>Need Executive buy-in and support </li></ul><ul><li>Need significant coordination of cross function...
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Nrf demand planning rodgers v8

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  • Welcome to Saks Transforms… I am Molly Shaw, VP of business Intelligence Services and presenting with me is Phil Sleboda VP of IT applications. Today we are going to present our great experience with Demand Chain Management and how we combined the art and science together to improve merchandise allocation.
  • We will provide you with an overview of the company Review our strategic pillars Tell you where we were in the process Our methodology Specifically about the DCM project What benefits we received And some takeaways Certainly we will take questions as well.
  • So a little bit about the company We have 3 outlets for selling product Saks Fifth Avenue Stores We have 47 locations and our mission from when we started in 1924 is to be the first and only choice for the most discerning customers. We are focusing on our inventory concentration in the most productive stores Off 5 th Stores OFF 5TH is the premier source of discount designer clothing and accessories Our customers are quality and fashion conscious outlet shopper We offer her style at a considerable value in 58 locations across the country Saks.com In 2000 we launched an online shopping experience with the ability to shop by look, designer or item
  • The way Saks looks at the business is in operating segments Product Selling Marketing Expense management – we are always looking to drive value out of our expenses These are the 4 strategic pillars and Real Estate/HR/IT/Operations/Logistics/Asset Protection are the foundational supports of the business Today we are going to talk about the product 4 of the 5 Rights of retail Having the right product in the right stores, at the right time, in the right quantity, for the right customer
  • Historically the majority of our product was distributed to the stores at the time of purchase this resulted in high transfer costs product off the floor for too long manual analysis lower sell through rates allocations were based on history For our replenishment business we had higher forecasting error due to sub-optimal inventory allocation and high rate of out-of-stocks for replenishment items – especially in cosmetics
  • So we implemented a strategy to incorporate a range of inventory flow options. These multiple types of shipments decrease the financial risk One Shipment bring it in sell it and your are done Push-Push bring in an initial allocation to the stores with a back up in the DC and pushed to the stores Hold &amp; Flow bring in an initial allocation to the stores with a back up in the DC to distribute this product gets distributed after an initial read on selling and are pulled to the stores hold &amp; flow product is fashion merchandise – it has an end date DC Replenishment Is the same as hold &amp; flow but it is basic product. It does not get marked down in - season Pack &amp; Flow An initial bulk order is written to the vendor, allocations are created up to this bulk commitment. Usually not on going product Replenishment on going programs of basic product. As you can see all the options except one shipment are managed by Teradata – Demand Chain Management Application
  • As we implemented DCM we changed the allocation methodology Read the slide
  • DCM is the software system that generates orders based on historical and forecast sales and provides a profiling method to account for seasonality Forecasting All active SKU/Locations ARS (Adaptive Rate of Sale) Recalculated Weekly Seasonal Profiles ( Avg. of all 52 weeks equals 1) Promotional Uplifts Sales Forecast = Current ARS * Seasonal Factor Automated Order Generation (Replenishment &amp; H&amp;F)
  • DCM is the software system that generates orders based on historical and forecast sales and provides a profiling method to account for seasonality Forecasting All active SKU/Locations ARS (Adaptive Rate of Sale) Recalculated Weekly Seasonal Profiles ( Avg. of all 52 weeks equals 1) Promotional Uplifts Sales Forecast = Current ARS * Seasonal Factor Automated Order Generation (Replenishment &amp; H&amp;F) Forecast – review &amp; lead time, planned sales days, safety stock Effective Inventory on hand + on order DC Inventory – uses a constrained process
  • Saks prioritized DCM as a critical project to transform inventory allocation across the company The objective was to completely re-engineer merchandise allocation across the inventory spectrum from full automatic replenishment through post-distribution of inventory We were looking to facilitate less manual intervention in the replenishment process Add improved seasonal profiles Provide improved short, medium and long-term forecasts Enable adoption of a “Hold &amp; Flow” methodology for select Fashion and Basic merchandise Replace the legacy automated replenishment system I am going to turn it over to Phil to talk about the details of the implementation portion of the initiative.
  • Nrf demand planning rodgers v8

    1. 1. Saks Transforms Demand Chain Management: Merchandise Allocation as an Art Molly Shaw VP, BIS Phil Sleboda VP IT
    2. 2. Agenda <ul><li>Saks Fifth Avenue Overview </li></ul><ul><li>Saks Fifth Avenue’s Operating Framework </li></ul><ul><ul><li>4 Strategic Pillars </li></ul></ul><ul><li>Historical Process </li></ul><ul><li>Inventory Flow and Allocation Methodology </li></ul><ul><li>Demand Chain Management (DCM) Objectives and Saks Actions </li></ul><ul><li>Benefits </li></ul><ul><li>Key Points </li></ul><ul><li>Q&A </li></ul>
    3. 3. Saks Fifth Avenue Overview <ul><li>Saks Fifth Avenue </li></ul><ul><ul><li>With 47 locations across the United States, Saks Fifth Avenue is renowned as an arbiter of modern style </li></ul></ul><ul><ul><li>From the day its doors opened in 1924, the purpose of this retail legend has always been the same: to be the first and only choice for the most discerning consumers </li></ul></ul><ul><li>OFF 5TH </li></ul><ul><ul><li>OFF 5TH is the premier source of discount designer clothing and accessories for the quality and fashion conscious outlet shopper, offering Saks Fifth Avenue style at a considerable value in 58 locations across the country </li></ul></ul><ul><ul><li>Collections for men, women, children, and the home are available at everyday savings of 40% to 70% off original and comparable prices </li></ul></ul><ul><li>Saks.com </li></ul><ul><ul><li>In the summer of 2000, Saks Fifth Avenue launched saks.com, offering an enhanced, personalized, online shopping experience with the capability to shop by look, designer, or item </li></ul></ul><ul><ul><li>saks.com is committed to providing the same legendary service and style found in all Saks Fifth Avenue stores </li></ul></ul>
    4. 4. Saks Operating Framework <ul><li>Saks ‘4-Strategic Pillars’ operating framework, supported by foundational inputs </li></ul>Demand Chain Management
    5. 5. Historical Process <ul><li>Inventory distributed to the stores prior to receipt resulting in the following: </li></ul><ul><ul><li>High product transfer cost (freight) </li></ul></ul><ul><ul><li>Opportunity cost of product off the floor </li></ul></ul><ul><ul><li>Manual work to analyze appropriate transfers by store </li></ul></ul><ul><ul><li>Increased risk of product damage from transfers </li></ul></ul><ul><li>Sell-through rate and margin deteriorated due to the above </li></ul><ul><li>True opportunity of the business not realized because Buyers allocated based on history </li></ul><ul><li>Higher forecasting error due to sub-optimal inventory allocation </li></ul><ul><li>High rate of out-of-stocks for replenishment items – especially in cosmetics </li></ul>
    6. 6. Inventory Flow Spectrum and its Role at Saks Higher Risk Lower Risk Managed by Teradata Demand Chain Management Application Across the range of inventory flow options, multiple shipments decrease financial risk and improve the opportunity to have the right merchandise at the right store, at the right time, for the right customer ONE SHIPMENT PUSH – PUSH HOLD & FLOW DC REPLENISHMENT PACK & FLOW REPLENISHMENT <ul><li>Vendor unit commitments are made pre-season </li></ul><ul><li>A single shipment is delivered from the vendor, 100% is allocated to stores </li></ul><ul><li>Vendor unit commitments are made pre-season </li></ul><ul><li>A single shipment (split into an initial set and a reserve) is received from the vendor </li></ul><ul><li>Initial set is shipped to the stores immediately </li></ul><ul><li>Held products are pushed to stores after initial read </li></ul><ul><li>Vendor unit commitments are made pre-season </li></ul><ul><li>A single shipment (split into an initial set and a reserve) is received from the vendor </li></ul><ul><li>Initial set is shipped to the stores immediately </li></ul><ul><li>After a period of selling (~3 wks), held products are pulled to stores </li></ul><ul><li>Vendor unit commitments are made pre-season </li></ul><ul><li>Total commitment is shipped to the DC at beginning of each season all at once or staggered </li></ul><ul><li>Multiple shipments are made from the DC to the stores based on individual store needs </li></ul><ul><li>Vendor unit commitments are made pre-season </li></ul><ul><li>The initial shipment is sent at the beginning of the selling life </li></ul><ul><li>Subsequent shipments are delivered from the vendor monthly or every other month, while the remaining units are held at the factory/vendor DC </li></ul><ul><li>Vendor unit commitments are made pre-season and in-season </li></ul><ul><li>Multiple shipments are received from the vendor through out a season </li></ul><ul><li>Multiple shipments are made to the stores based on individual store needs </li></ul>
    7. 7. Game Changing Allocation Methodology Select & purchase goods in market <ul><li>Pre-allocate a portion to stores based on history </li></ul><ul><li>Balance of units go to the DC </li></ul>Market: 6-9 months prior to selling season Purchase Order: Immediately after market Selling: In-season analysis and action Statistical Forecast Selling Trends # units # units # units # units
    8. 8. What is Demand Chain Management ( DCM)? DCM is the software system that generates orders based on historical and forecast sales and provides a profiling method to account for seasonality
    9. 9. What is Demand Chain Management ( DCM)? <ul><li>Forecasting </li></ul><ul><ul><li>All active SKU/Locations </li></ul></ul><ul><ul><li>ARS (Adaptive Rate of Sale) </li></ul></ul><ul><ul><ul><li>Recalculated Weekly </li></ul></ul></ul><ul><ul><li>Seasonal Profiles </li></ul></ul><ul><ul><ul><li>( Avg. of all 52 weeks equals 1) </li></ul></ul></ul><ul><ul><li>Promotional Uplifts </li></ul></ul><ul><ul><li>Sales Forecast = Current ARS * Seasonal Factor </li></ul></ul><ul><li>Automated Order Generation (Replenishment & H&F) </li></ul><ul><ul><li>Forecast – review & lead time, planned sales days, safety stock </li></ul></ul><ul><ul><li>Effective Inventory on hand + on order </li></ul></ul><ul><ul><li>DC Inventory – uses a constrained process </li></ul></ul>DCM is the software system that generates orders based on historical and forecast sales and provides a profiling method to account for seasonality
    10. 10. Saks DCM Objective <ul><li>Saks prioritized DCM as a critical project to transform inventory allocation across the company </li></ul><ul><li>The objective was to completely re-engineer merchandise allocation across the inventory spectrum from full automatic replenishment through post-distribution of inventory </li></ul><ul><ul><li>Facilitate less manual intervention in the replenishment process </li></ul></ul><ul><ul><li>Provide improved seasonal profiles </li></ul></ul><ul><ul><li>Provide improved short, medium and long-term forecasts </li></ul></ul><ul><ul><li>Enable adoption of a “Hold & Flow” methodology for select Fashion and Basic merchandise </li></ul></ul><ul><ul><li>Replace the legacy automated replenishment system </li></ul></ul>
    11. 11. Saks Actions: Technology <ul><li>In order to accomplish this strategic initiative, Saks Fifth Avenue selected Teradata Demand Chain Management (DCM) as the software solution </li></ul><ul><li>The DCM application suite: </li></ul><ul><ul><li>Addressed the supply chain flow methods previously discussed (push-push, hold & flow, dc replenishment, and vendor replenishment) </li></ul></ul><ul><ul><li>Easily integrated into our existing Teradata environment </li></ul></ul><ul><ul><li>Provided for scalability to handle large numbers of SKU/store combinations </li></ul></ul><ul><li>DCM has been completely integrated into our supply chain processes </li></ul>
    12. 12. Saks Actions: Process, People and Measurement <ul><li>Process: </li></ul><ul><ul><li>Integrated DCM into the overall buying process </li></ul></ul><ul><ul><ul><li>Trained the entire Merchant Organization on Demand Planning </li></ul></ul></ul><ul><ul><li>Created requirements for running the business for both replenishment and hold & flow </li></ul></ul><ul><ul><li>Initial order review with the merchants </li></ul></ul><ul><li>People: </li></ul><ul><ul><li>Created a separate Demand Planning Function </li></ul></ul><ul><ul><li>DCM introduced a major change in the way people worked </li></ul></ul><ul><ul><ul><li>Increased value added analyses </li></ul></ul></ul><ul><ul><ul><li>Created inventory efficiency through improved weeks-of-supply and better sell-through </li></ul></ul></ul><ul><li>Measurement: </li></ul><ul><ul><li>Currently developing the appropriate measurements to track results </li></ul></ul><ul><ul><li>Process is evolving and we continue to course correct as we gain experience </li></ul></ul>
    13. 13. Benefits <ul><li>Reduction in out-of-stocks on vendor replenishable items </li></ul><ul><li>Improved sell-through </li></ul><ul><li>Improved forecast accuracy </li></ul><ul><li>Improved gross margin </li></ul><ul><li>Improved Demand Planning productivity </li></ul><ul><li>Reduced transfer cost </li></ul><ul><li>Improved inventory productivity </li></ul>
    14. 14. Key Take-Aways <ul><li>Need Executive buy-in and support </li></ul><ul><li>Need significant coordination of cross functional teams (e.g. merchants, IT, planning, etc.) </li></ul><ul><li>Don’t underestimate the following: </li></ul><ul><ul><li>Integration, reporting, analytics and measurements </li></ul></ul><ul><ul><li>Learning curve </li></ul></ul><ul><ul><li>Organizational impact of DCM implementation </li></ul></ul><ul><li>Need to educate the entire organization on the value of DCM </li></ul>

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