What retailers can learn from manufacturing

Published on the 23/03/2014 | Written by Anthony Doesburg

This article was originally featured in iStart technology in business magazine.

in_depthFor the magazine version of this article click the link below:

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The manufacturing sector is a prime example of an industry vertical that has embraced technology. MRP & ERP systems have transformed productivity and efficiency in a sector whose margins were squeezed by globalisation. Now retail is under similar pressures with the growth of online retailing. Here Anthony Doesburg uncovers the lessons that the retail sector can learn from the way manufacturing uses technology…[View as PDF]

Technology has proved a lifeline for many manufacturers that could easily have gone under as globalisation – outsourcing to factories in parts of the world where labour is cheap – has swept through the sector. And for those not vulnerable to low-priced knock-offs, the global recession and other market pressures have forced them to seek savings through IT systems.

Now retailers are facing similar challenges. Overseas online shops such as Amazon, with its slick ordering, vast distribution centres and speedy delivery network, are threatening the livelihoods of retailers as distant as Australia and New Zealand. Not even the possibility of applying GST to small overseas purchases might be enough to save local shopkeepers, many of whom are struggling to match the prices and product ranges of their new online competitors.

To have a hope of getting close to the prices Amazon and its ilk can offer shoppers, they need to be looking at fundamental system changes. In other words, they need to be taking a leaf out of manufacturing’s book.

Pet food maker Butch found big cost savings when it began using financial system Greentree, which was implemented to pull together data from the 50-year-old company’s sales and marketing, administration and dispatch departments.

The system has helped the export business slash raw material costs, says office manager Carl Jeffery.

“Raw materials are our biggest single expense,” Jeffery says. “Now we can better measure our input and output, we won’t have to hold so much. Instead of holding $NZ1.5 million worth of raw materials at any time, we might be able to drop that by half. That’s going to be a major saving in running costs.”

Implementation of further Greentree modules will help the company meet its growth ambitions, which have seen it begin shipping its dog and cat food rolls to several Asian and Pacific markets.

Carbon fibre marine components maker C-Tech successfully kept one threat to its business at bay thanks to a modern enterprise resource planning system. Now it is grappling with getting sales online. But it has the advantage of being able to apply lessons learned during the implementation of ERP system SyteLine to its latest challenge.

“Inventory is the cornerstone of a web-shopping solution,” says C-Tech administration manager Lyn Holland. “We put a lot of work into getting our product codes right, including splitting some of our products up into components that can be sold separately. However, we are revisiting some of our processes around bar-coding, serial and lot numbers to make us more web-shop-friendly.”

C-Tech had built up a business that depended for three-quarters of its $NZ5 million annual turnover on sales of sail battens, many of them to America’s Cup teams. SyteLine showed its value when a design-rule change to the world’s richest regatta made battens obsolete, with fixed wings replacing sails.

The ERP system helped C-Tech make the transition to producing a range of tubular composites for applications as diverse as telescopes, guitar necks and gun silencers, as well as control components for the wings of the 2013 regatta’s yachts.

“Without the costing information we gained from having an ERP system we could have gone down some wrong tracks very easily,” says Holland. “We also have a much clearer picture of product cost versus sell price at a time when people are taking a lot more care over what they buy.” It is also proving a useful platform as C-Tech, as a matter of urgency, develops an online selling capability.

“Without the costing information we gained from having an ERP system we could have gone done some wrong tracks very easily. We also have a much clearer picture of product cost versus sell price.””
Lyn Holland, Administration manager, C-Tech

As Amazon demonstrates, once online retailers have the appropriate technology platform, they are limited only by their imaginations and marketing budgets. From starting out as a bookseller 20 years ago, it has become the Harrods of internet shopping, with sales of all manner of things expected to top $US60 billion in 2013.

Google, not to be outdone, is also making its mark in online retail. From what began life as Froogle, a price comparison service developed by Kiwi Google engineering high-flyer Craig Nevill-Manning, Google Shopping is the search giant’s latest e-tail offering, leading shoppers to merchants who buy ads on the site.

Shoppers these days need little persuasion to part with money online with total worldwide e-tail sales counted in the hundreds of billions of dollars a year. As they get used to the internet as a sales channel, they are also asking for access to more and more information electronically, says C-Tech’s Holland.

“For instance, even without a web shopping solution, it is now essential that we send tracking details for each shipment, empowering the customer to track their own order. We are now implementing part of the ERP system to capture and store this information electronically, something that was previously viewed as an unnecessary overhead – our paper-based system worked just fine.

“Full visibility of order stages is already commonplace in web-shopping solutions, but may be less so in the supply of manufactured goods. It is customer-driven expectations driving this business change.”

The last thing a retailer should do, however, is let technology lead them by the nose, says Grant Taylor, chief information officer at outdoor gear chain Kathmandu. But technology as a change-enabler certainly makes sense.

“It’s all about the customer,” he says. About 1 million shoppers belong to Kathmandu’s Summit Club loyalty programme, and like increasing numbers of retail customers, they want to do their buying at stores, online and via mobile devices.

Kathmandu began doing mail-order and web sales in 2008 and last year launched a mobile website and app. Integrating the lot into an “omni-channel” shopping experience is the goal of a $NZ2 million project now under way.

The publicly listed chain is replacing legacy ERP, point of sale and customer loyalty systems with Microsoft Dynamics AX and CRM. The immediate benefit of consolidating records in a single database, Taylor says, is a higher level of customer service.

“Having the data in one source that is updated in real-time means you can achieve things such as sign people up to your loyalty programme and instantly have the discounts available.

“It means that when you buy online you know what your stock level is and where because it is all in one place, so you can actually create a very good omni-channel presence in the market and create a much better customer experience.”

Call centre staff now have a full picture of a customer’s interactions – whether online or at one of the company’s 140-plus stores. “Transaction history and customer details are at their fingertips so they can provide a service through the 0800 number.”

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