“Buy low, sell high” may work in the stock markets, but it’s a simplistic notion for purchasing inventory for retail stores.
Slumberland, a private bedding and furniture chain based in Little Canada, Minn., recently changed its roster of suppliers based on surprising revelations from its supply chain data. The company wanted to understand which furniture suppliers were most profitable to it, backed by facts, not only perceptions. So last year, it started an ERP business intelligence project.
Analyzing this data showed the true cost of doing business with each supplier, says Jamie Page, Slumberland’s director of information services. The expense of doing business with a vendor depends not just on the price Slumberland pays to buy, say, a dozen king-size bedsteads. Hidden costs add up, including manufacturers’ shipping delays and how often an item is moved between distribution centers or within a warehouse to meet demand from the company’s 120 stores in 11 states. “The best price is not always worth it,” notes Page.
Bye-Bye, Prestigious Supplier
To read more on this topic see: Want to Make BI Pervasive? it’s the Culture, Stupid and ERP, CRM and BI in the Year 2010.
Slumberland collected information from its ERP application, its Escalate Retail System and RedPrairie’s Warehouse Management System, about such items as how many times a dresser or La-Z-Boy recliner had been moved around a warehouse or from one distribution center to another and who moved it.
Data like that can be revealing: The more you move a large, heavy piece of furniture, the more you risk damaging it. Damage costs money, whether in repairs or returns to the manufacturer.
The company’s Enterprise 1 ERP system, which includes point-of-sale and order-management applications from Escalate Retail, provided sales information, including which products sell fastest in which stores and at what prices. They considered subjective information as well, such as ratings by Slumberland managers of how well suppliers behaved. Did they promptly respond to questions? Were they open to changes?
What they found surprised them, Page says. Some vendors thought to be profitable to work with weren’t performing well. They may have given Slumberland a price break, but they delivered orders late or sent them in packaging that required a lot of labor to remove. “We had a lot of ‘You’re kidding me’ instances,” says Page.
For example, Slumberland had long ordered sofas from a particular high-end manufacturer (that Page declines to name). But the analysis showed that the cost of this vendor’s products, which were not consistently available, made the relationship less profitable than Slumberland thought, Page says.
Meanwhile, Slumberland found that another manufacturer contributed more to its gross margins because its products were more available and were damaged in storage less often. “We started working more closely with them,” says Page.
Now that Slumberland is giving more business to better-performing vendors, its inventory is down 10 percent from its highest point in the last year, Page says. “We used to think our business was ‘buy it cheap and sell it.’ Now we know it’s more complex: Buy it from the best source.”
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