Inventory Infrastructure

One step at a time, Payless ShoeSource has been steadily building its infrastructure to efficiently and effectively manage the more than 182 million pairs of shoes it handles each year.

Last year the shoe retailer—which is based in Topeka, Kan., and has nearly 4,600 stores located around the world—saw its sales peak at almost $2.8 billion. Shareholder satisfaction was also high as the stock price grew to $34.96 at the end of last year, from a price of $14.15 at the end of the first quarter in 2004.

During a user conference hosted by Dallas-based i2 Technologies in May, members of the Merchandise Systems and Solutions Team at Payless ShoeSource discussed the phased implementation of its Integrated Planning and Execution Suite. The team’s vision was to provide integrated systems that would support the product life cycle, from concept to liquidation, allowing the systems’ users to make better and timely business decisions.

Payless ShoeSource began building its suite in 2002, with the implementation of demand planning and mark-down optimization tools that helped to manage aged inventory.

In 2005, pricing solutions, a replenishment planner and case-pack optimization tools were added to the suite. The retailer’s legacy system did not have the flexibility or capacity to support the company’s growth, but the new pricing tool not only provided the necessary platform for expansion—it also enabled Payless to price by region.

“These tools improved our statistical method of allocation, supported a flexible supply chain and supported long-term growth,” explained team member John Miller. “However, the hub of all the systems is the assortment-planning and SKU-buying tool that was implemented in August 2006. It allows perpetual planning and forecasting, and bridges all of the other tools within the Integrated Planning and Execution Suite.”

For example, one of its busiest peak seasons is the spring/Easter holiday. This year Payless was able to plan lot and assortment by week and by geographical location.

Dual DC Strategy

Earlier this year, Payless ShoeSource announced it would adopt a dual distribution center (DC) strategy and open a second DC, geographically positioned to enhance logistical efficiencies and quicken time-to-market for serving its stores in the eastern United States. In May, the retailer revealed it would partner with St. Louis-based Clayco (which has built DCs for a number of retailers including J. Jill and Coldwater Creek) to open a new 600,000-sq.-ft. DC in Brookville, Ohio. This DC will be built to Payless’ specifications, including advanced technologies, but will be developed by Clayco. Payless will lease and operate the DC, which is projected to open in 2008. The new DC will work in conjunction with Payless’ 400,000-sq.-ft. DC in Redlands, Calif., and will serve approximately 2,900 stores.

Although the rollout of new technologies was strategically paced and ultimately successful, Payless’ team members admitted they had “underestimated the difficulty of change management.”

To help other retailers embarking on similar implementations, they shared key learnings from their experiences with attendees at the i2 conference.

First on their list of recommendations was the need to align the strategy of the proposed system with the company’s business strategy.

Next they discussed the overall design approach, with an emphasis on making design meetings as productive and efficient as possible. “We often found ourselves revisiting the same decisions, which made for a long and slow process,” noted Miller. Their solution was to create a schedule of design topics and communicate the status of each topic at every meeting. When decisions were made, everyone was expected to sign off on the process so there was no need to revisit the discussions.

Another significant realization was the need to balance the team with a cross-section of users, including people who had a visionary approach as well as those with a practical approach. Additionally, the team needed to have individuals with technical as well as business knowledge. However, one of the biggest challenges to the team was the fact that members had to maintain their full-time job responsibilities in addition to contributing time and resources to the project. Individual commitment was a huge component to the overall success of the implementations.

Finally, the team paced the transition and—specifically with the case-pack optimization tool—the legacy system ran parallel to the new system for a period of time. Running the two systems simultaneously allowed Payless to make final touches on the new processes before shutting down the previous system.

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