Supply Chain is Sexy- Myer transforms

In 2006, when iconic Australian retailer Myer was acquired by private equity firm TPG Captial along with the Myer Family and the Management Board, it was in a rut, and in dire need of a change.

Supply Chain director Prakash Menon and his team, along with consultants Xact Solutions, formerly of Woolworths, have presided over achievements which can only be described as remarkable.

With 500,000 SKUs and the added complexity of the transition from Coles, the company was anticipating the project to take at least 24 months from the formulation of strategy to implementation.

But the opening of eight new local and international Distribution Centres (DCs), the creation of new landscape IT systems, processes and recruitment took just over 12 months.

DC operating costs were reduced by more than 50% from time of acquisition and international freight costs plummeted 22% despite greater volumes.

Domestic freight fell 11 per cent. International lead times were reduced from an average of 42 days transit time from China to Australia under the Coles regime, to an average of 24 days.

“The introduction of roll cages across the majority of stores has dramatically improved the efficiency of the transportation of goods from the store dock to the floor,” Menon tells Logistics Magazine.

“Offloading time has been reduced to just seven minutes where previously it was forty five using pallets. Stock can now be moved during trading hours where previously this wasn’t possible.”

“Productivity has increased 50%,” Menon enthuses.

“We’re proud to see Myer’s supply chain has reached benchmarking standards for department store retailing worldwide.”

“We’ve also achieved a 40% reduction in Advanced Shipping Note compliance error rates and a massive 85 per cent reduction in carrier no-shows,” he adds.

“To put it simply, two years ago there was no discipline. We were averaging something like 70 no-shows; that is bookings were made with a DC but the carrier wouldn’t turn up. Then that leads to poor delivery performance and out of stocks.”

With the introduction of strategic supplier plans and consequences for no-shows, awareness among the carriers began to grow. No shows fell to an average of five to six a week.

“One supplier actually wrote to me to say that his carrier had a booking, but turned up the next day,” Menon relates. “I explained that if I invited him to a five course banquet, and he didn’t turn up until the next day, I might provide him with a sandwich, but not the caterers and Champagne. He understood the point.”

“We have over 800 suppliers across 12 different business models,” Menon says, “so clearly it’s not a case of ‘one size fits all’. Our goal in our supplier relationships is to ensure visibility, transparency and the sharing of plans and information so we can work together towards the same outcomes.

“Myer has a brand promise and we need to ensure all our suppliers, including the non-merchandise ones, can deliver on this. They need to have the right functional background, comprising accreditation and systems. We work together to streamline disciplines across both organisations.

“As part of this we have an obligation to educate our suppliers if necessary to ensure they’re on board with us.”

Menon, a key speaker at this year’s Smart Conference, says the first thing Myer had to achieve in 2006 was to redefine its supply chain strategy.

“It was a baked beans model imposed on a fashion house,” he quips. “First, it was sluggish. It took an average 42 days for shipments to arrive from China, but it sometimes took two months just to clear it from our own backyard into the store.

“We had 24 offsite warehouses across the country, and the inventory was everywhere. Our first step involved consolidation, streamlining and simplification. In the history making clearance of June 2006, we cleaned up $400 million worth of stock at retail.”

The supply chain team sought feedback from its internal stakeholders; the buying team, stores, and supplier base, in order to understand the expectations for the new Myer supply chain.

“Eventually we decided on four regional distribution centres (RDCs) in four major cities: Perth, Brisbane, Melbourne and Sydney,” Menon says.

“Most of our stores are laid out around those RDCs, which cater for their cluster of stores in their own network. That was the practical starting point for our supply chain strategy. From a Myer perspective the building blocks were essential before we began the growth phase.”

“As Theodore Roosevelt once said, ‘the credit belongs to those that are actually in the arena’,” Menon says. “We have a fantastic team which I am part of and whom I am really proud of.”

“We recruited the best talent in the country for the four warehouses. My leadership team consists of Scott Braddy (National Supply Chain Manager), John Amm (International Supply Chain Manager), Darragh Miller (Merchandise Logistics Manager), Paul Hickling (Supply Chain Planning Manager) and Jacqui James (Executive Assistant) who are undoubtedly the best in what they do.

“They lead an experienced, self motivated, self driven and outcomes focused support team who make it easier to achieve our goals consistently.

“High on our list of priorities is our commitment to service through ensuring our merchandise is store-friendly,” Menon says.

“While we want products to get to the store on time, we must also prevent inundation. So we have a very smooth flow of merchandise.

“Previously, merchandise arrived in boxes, flat packed,” he explains. “We now bring them on ‘goods on hanger’ which makes it easier when it comes into the store.

“It’s a one touch point, you just take it out of the box or from the bag, and it goes on to the fixture. Store handling is minimised, while at the same time, merchandise is on the floor quicker, with fewer out of stocks.

“Suppliers are happy because sales occur faster and they get same time they get repeat orders. We are carrying less inventory, but more importantly the right inventory is in the store at the right time.”

Menon points to safety as another important component while speed and flexibility are crucial if the company was going to be nimble.

“Supply chain is now considered a core competency,” Menon says. “Our system is much more about ensuring two way communication across the entire supply chain and comprises both push and pull strategies. We work closely with the stores and our customers.

“Finally cost is obviously an important factor in any business and efficiency within the supply chain has been critical in reducing costs.

“However Myer is built on a service driven model with service the primary driver. The reduction in costs is an important corollary to service improvements.

“We have introduced a new labour planning and scheduling tool at each of our RDCs to help us benchmark and measure our performance on a daily basis.

“One of our imperatives is ‘if we can’t measure it, we can’t manage it.”

Originally from India, Prakash Menon studied chemistry and physics before becoming fascinated with the hotel industry.

He completed his second degree in hotel management and worked with the Intercontinental Group of hotels.

“As part of this role in the hotel industry, I managed flight catering for British Airways and Singapore Airlines where I developed keen time management skills,” he recalls.

“Then I moved over to fine dining restaurants where I later became a banquet manager. India has a population of 1.3 billion people and Indian weddings are not small. The largest wedding I’ve catered for is 50,000 people.- It went for three days so I had to organise a cricket stadium in Mumbai to cater for all the different events. My own wedding was small only 3,000 guests.

“Arriving in Australia in 1990 with $500 in his pocket, two suitcases and pressure-cooker, like any new migrant Menon cleaned toilets and did odd jobs for the first few weeks, including stints at Kentucky Fried Chicken and Pizza Hut.

“At KFC I learned about inventory management to a micro level,” he says, “because even if I had two chicken wings left over at the end of the night, I had to report the reason for cooking too many pieces.

“I later opened a restaurant in Sydney and my wife and I went through some fantastic and challenging times.”

But in 1995, it was time for a reality check; to realise the purpose for coming to Australia, which had been to continue developing Menon’s career.

“So we sold the business and I joined Myer in 1995 as a department manager in one of the stores in Sydney,” Menon says.

While working with Myer, Menon completed his MBA from Macquarie Graduate School of Management and was head hunted by Franklins supermarkets. But he later returned, quickly moving from the flagship Sydney city store to planning manager for a Myer Melbourne promotion.

His $250 million buying team portfolio rose to $600 million and $900 million a year later. In 2003, Menon became General Manager Planning and later took up opportunities to study at both the Wharton School of the University of Pennsylvania and RMIT in Melbourne.

In the year of the TPG acquisition, Menon was appointed one of the directors on the board, with responsibility for Myer’s supply chain.

He says the transition out of Coles was the single biggest highlight of his career. “Like Catherine Zeta-Jones and Sean Connery in the movie Entrapment, we were in danger of dire consequences if we cut the wrong wire,” he says.

“We were dealing with millions of dollars of inventory and micro-planning every single aspect of the operation including IT infrastructure and change management.”

Under the Coles regime, Myer sourced from 79 different countries but Menon says the system afforded no visibility. “We were just second-guessing whether the ships were coming and when,” he says.

Four international hubs in Shanghai, Hong Kong, Singapore and Shenzhen in the southern Chinese Pearl Delta were opened, requiring a new international e-commerce system and each of the old contracts to be re-negotiated.

“All our information including Gateway; communication between our IT function and supply chain, had to migrate across from Coles to Myer,” Menon explains.

“The opening and going live of the four standalone RDCs and four international hubs including the transitioning of supply chain e-commerce was achieved under budget in one year.”

“Given electronic trading is such an important part of the supply chain, I am very proud to say that today, we are 99.9 per cent e-commerce compliant with our suppliers,” Menon adds.

“We now measure every part of the equation; so when merchandise comes into the hub overseas, we have full visibility of it and the orders all the way through.”

Prior to the TPG acquisition, Coles Myer had begun a $99 million project to design and implement a new RETEK merchandise system. The new owners had to spend a futher $10m to complete the project on time.

“But the system is only as good as what you do with it,” Menon argues. “To have consistency across the company, we look at pre-seasonal and promotional planning and product sourcing.

“We undertake allocation and replenishment analysis in terms of each product’s life cycle along with competitor and post-seasonal analysis.

“Any learnings are taken over for the critical part planning phase of the next cycle and industry benchmarking.” According to Prakash Menon, the challenge is to make sure Myer understands its customers needs.

“My role is to plan every aspect of Myer’s merchandising, from the way products are sourced either from overseas or local suppliers through to stock turns, mark downs and flowing the merchandise through the DCs into the stores.

“Essentially, if you delay your merchandise by even a week, you lose your competitive edge.”

Menon believes the key to successful merchandise planning and inventory management is taking a forward cover approach.

“We don’t talk about carrying the same amount of stock as we did last year,” he explains, “but rather, we look at the coverage we need for weeks or days by category and SKU level.”

“We also have a new landed cost tool which gives us a good feel for what our expected margin might be. We now have a much more accurate forecasting tool which allows the planners and buyers to actually plan the merchandise and tighten up margin control.”

Menon says a key success factor of the program was the strong support provided throughout from Myer’s Executive Chairman, Bill Wavish and Chief Executive Officer Bernie Brookes who coined the phrase ‘Supply Chain is Sexy’.

“This became a visible and emphatic demonstration of the importance they placed on supply chain and wished the rest of the company to emulate as a critical element of Myer’s future success,” Menon says.

Menon also puts his success down to communication and the ability to share information rather than hoard it, a message he hopes to impart to the industry at this year’s Smart Conference.

“It’s important to bring your people with you on the journey,” he says. “My obligation to the organisation is to ensure supply chain is at the top of the agenda.

“Right from the beginning our imperative was to live up to the catch phrase ‘supply chain is sexy’ and we make no apology for that!”

Despite Myer’s phenomenal improvements, Menon says more smarts are needed. “Enhancements we’ll make over the next couple of years include the implementation of RFID and a new warehouse management system,” he reveals. “We need an upgrade to enable better voice picking.

“The key challenge will be to make sure merchandise continues to be delivered to the stores floor-ready, and to galvanise our suppliers towards that target.

“Supply chain transformation is an ongoing process; rather like peeling an onion. Beneath every layer you find another.”

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