Virtualization Freezes Costs
The essential premise of running a successful retail or distribution business is a simplistic but time-proven adage: To make it, you gotta sell things that people want to buy. But the formula for getting products to a customer requires constant market research, product development, testing and effective distribution.
Similarly, demand continues to rise for technology solutions that better enable retailers to pursue those tasks. Enterprise IT spending among retail businesses is expected to increase to an estimated $151.2 billion in 2011, up from $142.4 billion in 2009, according to industry researcher Gartner.
Twenty years ago, many retail and distribution companies viewed IT mainly as a way to improve efficiency in supply-chain management and store operations. Now, they are using tech solutions to better understand and manage relationships with customers, vendors and business partners, as well as their internal data, according to Barry Brunsman, Chicago-based head of the National Information Technology Solutions team at Alvarez and Marsal Business Consulting.
“Ultimately, retailers need to understand what factors are driving a positive customer experience,” says Brunsman, who was vice president of IT strategy/enterprise architecture at Target before joining Alvarez and Marsal. “It’s not necessarily the products on the shelves that are driving purchase decisions; it’s the shopping experience.”
Here’s a look at four retail and distribution companies that have pursued these IT solutions to better manage their enterprise: e-commerce, virtualization, software as a service (SaaS) and cloud computing.
E-Commerce: a Dream Option
It’s difficult to be a sports fan without encountering Dreams, a company that sells a Johnny Unitas Baltimore Colts throwback jersey for $124.99, an L.A. Lakers 2010 championship T-shirt for $17.99 and a framed autographed photo of Dale Earnhardt Jr. standing in front of his #88 Amp car for $297.99.
The challenge, however, is that these products are sold online under three different brands. The site for the store, Field of Dreams, sells the Unitas jersey. The Lakers T-shirt is available through FansEdge, and the Earnhardt photo can be bought at the Mounted Memories site.
After Field of Dreams, based in Sunrise, Fla., launched three decades ago, it became widely identified with those seemingly ubiquitous Field of Dreams stores in shopping malls. Then, the dot-com explosion in the 1990s fueled a huge period of growth that continues today, as Dreams has acquired more than 70 different sports memorabilia companies to command a major e-commerce presence.
“We’ve expanded greatly, and we continue to do so today,” says Bob Hitchcock, who, as vice president of product development for Dreams, oversees all e-commerce, software development and back-office applications projects. “We started out strictly by launching sites for players such as Pete Rose and John Elway. They wanted a site for themselves and were interested in selling their merchandise there as well. So we did that for them, and then we turned our attention to larger, more syndicated online companies that sell sports items.”
At first, the e-commerce platform wasn’t suited for such expansion. “We’d use independent code and databases for each retailer site,” Hitchcock says. “That took a lot of time, and it wasn’t scalable. We’d sign a large client, and it could take six weeks before we could get the site up and running.”
The company turned to Amadeus Consulting, which provided a new e-commerce syndication platform to support and integrate all online sites with a unified customer database, multilayered navigation on a Microsoft.NET platform, enterprise-level architecture and multiple payment processors. Today, sites are ready to run just two days after acquisition, instead of the several weeks it used to take.
In addition, the company is now able to achieve sales levels that it couldn’t before. For example, FansEdge.com received nearly 16,000 online orders totaling more than $1 million on a single day during the winter holiday shopping season. Revenue from online sales overall has increased from $4 million before the integrated solution to more than $50 million after it was launched.
“We gained a lot of knowledge through this platform that can be used to grow our e-commerce sales,” Hitchcock says. “We have a dual hierarchy. Some customers think of themselves as buyers of jerseys or T-shirts. They’re not really that interested in the sports team or player. But other customers are diehard fans of the Yankees or Cowboys—or some other team or player—and they want merchandise that reflects their passion.
“We’ve always had two different kinds of customers coming to us from two different directions. This platform allows us to reach all those customers and bring them to the point of sale in a fluid, uncluttered way. We can get them more quickly to where they want to shop.”
For the Schwan Food Co., a frozen-food distribution giant based in Marshall, Minn., the virtualization of the vast majority of its back-office IT needs has been a decade-long process. When IT first approached senior managers about the concept in 2001, there was some explaining to do because virtualization wasn’t commonly known.
But Cory Miller, Schwan’s senior operations manager over IT, found a way to explain the value of virtualization to the uninitiated. “I told them that this technology had the capability to turn a small Windows server into a mainframe computer,” he recalls. “They all knew how reliable mainframes were, but when I added virtualization’s efficiency and cost-effectiveness, the idea became easier to sell.”
It took a number of years before a series of virtualized server, desktop and disaster-recovery projects took hold, but the company is now starting to reap the rewards. Through a Citrix Systems desktop virtualization effort, for example, it expects to save $1,200 per desktop over the next several years.
With a disaster recovery solution from SunGard Data Systems in place, testing shows that recovery time during a disaster is being cut in half—with 100 percent reliability. As a result of the VMware-based servers, 31 percent of available data center space is now free, and energy costs have been reduced by an estimated 19 percent.
“As of 2005, we could see that if we didn’t get this server virtualization project off the ground, we’d run out of data center space by 2008,” Miller says. “We would have run out of cooling capacity as well. Now, when we have a request to add a server to the system, we don’t have to build it up by hand as we did before. That would take days; now it takes only minutes.”
Security, of course, is always a major concern that needs to be addressed before such a large-scale effort can take place. Reflex Systems is providing segmentation and security protection, and Schwan has been carefully evaluating which business units should be virtualized.
The sheer size and scope of the company’s reach created a challenge: Schwan delivers more than 350 products—including pizzas, egg rolls, beef portabella dinners and Gold ‘N’ Nugit ice cream bars—to customer segments that include grocery stores and public facilities such as schools, government offices and prisons. The company also provides a “deliver-to-door” service to homes.
“We saw many other business units that would benefit from this without any compromise,” Miller says. “Our warehouse operations, for example, were a great fit. In those locations, you’d have employees and managers who each had their own desktop computing unit—essentially just to access Word and other Office software, and to use e-mail.
“We can take 40 to 50 of those employees and put them on the same virtual desktop computer. To the employees, it’s the same as using their own computer. In fact, it’s even better because the virtual systems are more reliable and faster.”
With its shelves stocked with fax machines, paper supplies, office software, shredders, Bluetooth headsets and other products for professionals, Staples has emerged as a dominant player in the office superstore universe. Its continued growth has been downright staggering: The first store opened in Brighton, Mass., in 1986. Today, there are more than 2,000 Staples locations in 27 countries.
After the acquisition of Corporate Express, the retailer needed to unify processes to conduct day-to-day business for its IT operations. Without such unification, a host of “Tower of Babel” scenarios emerged when requests came in to fix computer systems, process new employee information, approve job transfers and install new software. These tasks were generally conducted on a region-by-region basis.
The company needed a better way. “We needed to launch best practices that could scale and would be on par with a large, worldwide company,” says Neelima Sharma, director of information services for Staples. “With our size, we needed to build a stronger foundation for future growth.”
In 2008, Staples selected SaaS from Service-now.com, to replace multiple on-premises IT management tools with a unified package. The company wanted to implement the Web-based tool so that an internal user in Boston—or Amsterdam—could have a consistent experience when requesting IT services.
The firm’s employees are now able to get help from Staples IT through multiple channels, including a Web-based service request portal. This internal IT service catalog provides an experience similar to what Staples customers expect when buying office supplies through Staples.com. It includes a shopping cart, direct access to live customer support, a personalized shopping experience, autofill type-ahead and order tracking.
For Staples, the whole idea is to take the best practices of online customer service and combine them with modern Web technologies to deliver a simple, easy experience for both internal and external customers. The company is currently integrating Service-now.com with tools from vendors such as Ariba, CA Technologies, Hewlett-Packard and RightAnswers.
“We think there is so much potential in using Service-now.com that we’re evaluating the use of this technology in other areas of IT,” Sharma says.
Containing Inventory Costs
In the best of all possible inventory management worlds, products are routed from distribution centers to stores in seamless fashion. And there’s always enough product on the shelves to meet daily customer demand—but not too much.
Unfortunately, that’s not the way it always works. With about 50 locations throughout the United States, The Container Store realized it needed to change the way its inventory was managed. The Dallas-based retailer sells efficient shelving sets, storage boxes, closet/pantry/cabinet organizers, packing cubes and other items that enable customers to maximize their home or office space.
For years, the company depended on an Excel-spreadsheet process for its inventory distribution system. Traditionally, Container Store locations could order products directly from the vendor, and the vendor would transfer the order to a Container Store truck. Or the store would order directly from a Container Store distribution center. All nonmerchandise supplies were inventoried and shipped from the distribution center.
When the order was placed, central office staff made notes on the spreadsheets, which created the potential for human error. If uncorrected, a simple typo could lead to a major accounting headache down the road.
In addition, it was needlessly time-consuming. “It would take our staff a full day’s shift to key in all those orders, which wasn’t a good use of their skills,” says Bram Warrick, systems operations analyst.
A cloud-based solution from Coupa has helped the stores view order history and item costs—as well as pictures of products—online. Before this, the various distribution models had been segmented, and the systems supporting them hadn’t been adequately integrated, which added to the burden of tracking supplies.
Now, regardless of whether the product is coming from a company distribution center or directly from a vendor, the Coupa solution provides information to avoid a potential oversupply. Also, store staff can process dozens of orders online in just five minutes, instead of the one-to-two-minutes per invoice that was needed before.
Because it’s all automated, there are no manual input errors. In addition, the Container Store is now experiencing a 60 percent reduction in the number of stock-keeping units (SKUs) managed in house.
“In the past, our store staff spent too much time trying to navigate the ordering system in back offices,” Warrick says. “This [solution] gives them the tools to make better decisions about inventory with more efficiency. We need our store employees out on the floor, not in the back room.”