OfficeMax’s Strongest Link
When Reuben Slone penned his Harvard Business Review article entitled “Are you the weakest link in the supply chain?” he wasn’t referencing the company that employs him. From the time he joined OfficeMax in November 2004 as executive VP supply chain, he has led the charge to battle a recessionary climate and often rising fuel costs without sacrificing an internal supply chain code that reads, “Never do we compromise service to our customers.”
As economic woes have taken their toll on consumer demand, supply chain executives across retail have found themselves challenged by overstocks and out-of-stocks. But Slone, a self-professed supply chain zealot and published author, and his team have managed to outwit the downturn and do their part to contribute to OfficeMax profitability initiatives that resulted in net income of $24.8 million in the first quarter of 2010.
Senior editor Katherine Field spoke with Slone about how his areas of responsibility—which include inventory management, supply chain operations, real estate and store development—have survived, even thrived, in the downturn, and about how the chain will continue to maintain its course during the economic-recovery period.
In your role at OfficeMax, how have you managed to cut costs in the downturn with as little disruption to your customers as possible?
When it comes to supply chain, we have three priorities that are in a hierarchy: first, product availability, then inventory productivity and cost productivity.
We tackle all challenges—primarily declining sales and rising fuel costs—in that order. Never do we compromise service to our customer, which is measured via in-stocks at retail and next-day delivery for contract customers.
On the real estate side, we’ve partnered with our landlords to negotiate rent relief toward helping poor or marginally performing stores survive in this tough environment. Many of our leases have either come due or are coming due during this period—in fact, about 60% of our leases come up for renewal between now and 2014. That puts us in a good position to take advantage of the commercial real estate glut.
Will you allow some of those leases to expire and therefore further trim store counts, or will you use the opportunity to upgrade your real estate?
Both. We may relocate, and in a relocation we may effect a downsize. We may move from an existing location to one that allows us to reduce square footage from a standard 34,000 sq. ft. to less than 20,000 sq. ft. to accommodate our new Advantage store format. We may close a store in a micromarket and open a new store in a better location but roughly in that same market area. Or we may opt to stay where we are and refresh the store.
What is the status of the new, smaller store format?
The Advantage store format is 18,000 sq. ft., and we built about 169 between 2005 and 2009. The pace and degree that we open new stores has slowed substantially, and at this point we have no new stores planned. But when we relocate for the purpose of downsizing, the new store will be in the Advantage store format. If we simply relocate, the new store will be in the Advantage format, and certainly when we remodel or refresh we will do it within the specifications of the Advantage store format.
Specifically, what changes have been initiated to reduce costs and drive operational efficiencies?
At OfficeMax, we actually felt the recession in the fourth quarter of 2007. We saw the storm clouds on the horizon, and we took strong action. Sam Duncan, CEO, and Sam Martin, COO, focused us on creating a fortress balance sheet to weather the storm, and supply chain played a prominent and critical role. (Martin recently left OfficeMax to become CEO of Great Atlantic & Pacific Tea Company.)
The thrust of the effort was to reduce inventory and costs without sacrificing any of the priorities in our hierarchy. Of our approximately 1,000 retail stores, we operate at less than 85 out-of-stocks per store on any day of the week. And that’s out of 7,800 SKUs. Of the top 2,000 SKUs, there will be no more than two outs. On the contract side, we maintain our 99.9% next-day delivery.
Between 2006 and 2009, while maintaining that customer performance, we took out over $250 million dollars in inventory, dropping our per-store inventory nearly 40%. In the supply chain area, we took out nearly $120 million in operating expense in that timeline.
We did that by employing intense collaboration among store operations, inventory management, replenishment and supply chain operation, and by external collaboration with our transportation partner Werner Transportation.
Explain the process of shoring up your supply chain.
We converted floor loading of our products to pallet loading, which involved converting our three Power Maxes (warehouses over 600,000 sq. ft. that feed the stores) that supply 250 to 300 stores each. The next step was working on load quality and working very closely with our stores to load the way we unload. We embrace Kaizen, which is a Japanese word that means “to make better.” We had the loaders and our Power Maxes working with the store personnel to figure out how to load so that it would be easier to unload. We in fact launched a campaign with the catch phrase, “Load it like you’re going to unload it.”
With this method, in combination with the conversion to pallet loading, we were able to dramatically decrease the time it takes to unload, from roughly two hours to less than 30 minutes, and sometimes as little as 10 or 15 minutes.
This has also enabled Werner to go to a flat stop-charge for us. And we have improved the cube utilization of the trailer, now delivering six to 10 stores from one truck. With a delivery frequency of up to three times a week for high-volume stores and once a week for low-volume stores—and by employing a sophisticated algorithm that analyzes frequency and minimum delivery requirements—we were able to reduce delivery miles driven to stores in 2009 versus 2008 by nearly 6.9 million miles. And that’s without moving one warehouse or one store closer to one another.
Iknow you have a new book out, “The New Supply Chain Agenda.” Why should retailers read it?
The book is based on my second Harvard Business Review article, “Are you the weakest link in the supply chain?” When I joined OfficeMax from Whirlpool in November 2004, my wife asked me this question: “Why is it that in your supply chain career, you have had to justify what you do, educate people about what you do, and convince people to do what you need to do in supply chain?” That’s a really good question. The whole point of the book is that supply chain is a fundamental driver of shareholder value. If you are a retailer and are in the C-suite, you really need to understand how a well-performing supply chain can drive economic profit and shareholder value over time.
Editor’s Note: Slone has been widely recognized for his achievements in supply chain. Harvard Business Review published two of his articles: “Are You the Weakest Link in your Supply Chain?” and “Leading a Supply Chain Turnaround.” Harvard Business Publishing published his book, “The New Supply Chain Agenda,” in May 2010.
Five ways to reduce risk and increase efficiencies with the right service provider
By Monte Boyer, [email protected]
For more than two years now, retail facility managers have been hunkering down; deferring maintenance and postponing facility upgrades until the economy shows signs of improvement. Although "waiting for the dust to settle" is an understandable strategy for survival, it is not without risk. Dollars deferred today may pale in comparison to the ultimate cost of postponed maintenance. Equipment that hasn’t been properly serviced can become increasingly inefficient, unreliable or — even worse — prematurely fail.
Retail facility managers can reduce that risk, and at the same time increase efficiencies, by partnering with the right service provider. A good HVAC partner can help facility managers overcome some of the challenges posed by today’s economic environment through consolidation of efforts across both facilities and services, and by creating operational and energy efficiencies.
As a facility manager, here’s how you can reduce risk and increase efficiencies with the right service provider:
1. Select a vendor with the largest reach possible
Do yourself a favor; reduce your dependence on multiple, local vendors to perform maintenance. Instead, select a vendor that partners with you across your portfolio — preferably someone with national capabilities. Whether you’re responsible for eight facilities or 8,000, you can drive down costs through consolidation to one vendor that can meet all your needs. They’re out there. Some national service providers have thousands of technicians in place across the country. Service providers that are backed by a national or global infrastructure offer:
- Quality control: By working with a national vendor, you can eliminate the huge variations in quality that are inevitable when contracting for service with a variety of local vendors.
- Efficiency: Consolidation streamlines the maintenance process. Instead of dispatching calls, statusing issues and reviewing invoices of multiple vendors, one call to a single point of contact is all that is required. With the time saved, you and your staff can turn your attention to revenue-generating activities.
- Reliability: Service calls can’t always wait. Larger service providers are available 24/7/365.
2. Select a vendor with single-source accountability
Not only should you select a vendor that can execute nationally, choose one that delivers expertise across multiple services. Here’s where the efficiencies grow exponentially. Top-tier service providers offer expertise in everything from HVAC, janitorial, lighting, refrigeration, fire and safety to energy efficiency and sustainability; a suite of expert services managed by a single point of contact. One call ensures consistent performance, value and responsive service across all sites.
3. Select a self-performing vendor
Avoid working with a vendor who will manage contractors but outsource the work. Instead, partner with a provider whose employees actually perform the facility services. Self-performing providers make you their only priority. They take ownership of the work. And with a self-performing vendor, you can avoid subcontractor markups. With a national HVAC consolidator, you may have passed along the headache of managing multiple HVAC providers but you have not eliminated it.
4. Select a single-source provider to increase operational efficiency and effectiveness
Choose one provider that can see the big picture. If you currently work with 15 different HVAC vendors, and ask them to prioritize equipment replacement, you’ll get 15 different perspectives. Conversely, a single-source provider will consider all equipment from all facilities when identifying critical needs and setting priorities. By working with one point of contact who has a greater view of your portfolio, you can be confident that priority is given to issues most critical to your business. Strategic investments made today when costs are lower can provide your organization with a competitive cost advantage for many years.
5. Select a single-source provider to increase energy efficiency
Partner with a provider that can show you how to increase energy efficiency. The key will be getting access to facility data that’s relevant, meaningful and actionable — which the right service provider can deliver. Today’s most advanced technologies allow you monitor building performance in real time; identifying trends within buildings and across portfolios, spotting areas of concern and flagging underperformers. Some commercial control systems actually monitor themselves and send notifications when there’s a noteworthy event or when it’s time for a service call.
When priorities do call for the replacement of equipment, the right providers make sure you’re choosing the most energy-efficient solutions. Ideally, they even help to identify ways to leverage federally- or utility-sponsored rebate programs.
The right service provider
Choosing the right service provider requires careful consideration. Take the time to identify vendors who have national reach and are single-source, self-performing providers with demonstrated expertise in energy and operational efficiency. By partnering with a top-tier vendor, retail facility managers can reduce risk, increase efficiency and overcome some of the challenges posed by today’s economic environment.
Monte Boyer is VP and general manager, Johnson Controls National Service. Johnson Controls is an OEM supplier with over 125 years of experience in the HVAC industry. With more than 150 local branches throughout the United States and Canada, Johnson Controls National Service provides retail customers with innovative solutions and an expertise in HVAC, refrigeration, security and fire safety, as well as lighting applications. For additional information on Johnson Controls National Service visit www.johnsoncontrols.com or contact Monte at [email protected].
Staples puts Kindle on Christmas list
Beginning this fall, Staples will offer several variants of Amazon.com’s popular Kindle wireless ereader device in its nearly 1,600 U.S. stores, the company announced Tuesday. Staples will offer a base model Kindle for $139, the Kindle 3G for $189 and the large-screen Kindle DX for $379.
“As part of our efforts to offer customers a wide range of top technology products and services at amazing values, the new Kindle is a natural fit,” said Jevin Eagle, Staples EVP merchandising and marketing.
Staples is the first office superstore to offer the Kindle, however, Target became the first conventional retailer to stock the product when Kindle endcap displays hit its stores several months ago.
The Kindle is Amazon’s best-selling, most-wished-for and most-gifted product for two years running. Although, it is unclear how much demand remains for the device after such strong sales, Staples has secured distribution of the compelling item just in time for what promises to be a challenging holiday season. Kindle promises to bring some needed energy to the office products retailer with interactive displays that allow customers to experience the product before they buy and to learn more about the product. Plans also call for Staples to offer a full assortment of Kindle accessories.