Manager Pressure Threatened NewBy CIOinsight
The Limited Designs Supply Chain to Begin and End With the Customer
Four years ago Limited Brands, the $9.4 billion specialty retailer, learned about the need for supply chain visibilityand the cost of not having it in placethe hard way.
"We had a pretty significant catastrophe," Paul Matthews, the company's senior vice president of supply chain transformation, told attendees at the National Retail Federation (NRF) annual convention in New York in January.
"Due to the combination of four or five situations, we had about 400 trailers turn up unexpectedly in the parking lot of a distribution center, and the parking lot is only capable of handling about 150 trailers," Matthews explained.
"You can imagine the line of trailers blocking traffic along the main highway, interfering with the community. It was the beginning of a sales period for us, and everything that could go wrong did go wrong.
"Planning systems went down," Matthews continued. "Assumptions were made at the corporate level. The right hand didn't talk to the left hand. Worse, nobody seemed to have any idea where the inventory in the trailers had come from, what it was or where it should be sent. To this day, we are still not entirely sure what went wrong."
At the time Limited Brands, which counts Victoria's Secret, Express, Bath & Body Works, C.O. Bigelow, The Limited, White Barn Candle and Henri Bendel among its brands, was growing exponentially. In 2002, it had sales of $8.4 billion, but much of its growth had come as the result of acquisitions of different retail companies since opening its first store in 1963. These include the purchase of retailer Lane Bryant and the Victoria's Secret store and catalog in 1982, 798 Lerner stores in 1985 and 25 Abercrombie & Fitch stores in 1988.
As a result of acquiring so many stores and brands, Limited inherited a complex hodgepodge of information-technology systems and software, including 60 major systems running hundreds of applications, many of them redundant, on numerous platforms. Many of these platformsincluding Hewlett-Packard HP-UX, Sun Microsystems Solaris, and IBM OS/390 and AS/400, as well as Intel-based servers and Tandem computersare still in place today.
Given the complexity of the company's information-technology operations, Limited's ability to stay on top of its supply and demand chains was going to be a challengeat best.
The situation became acute when beginning in 2001, discount retailers started encroaching on Limited's market space. In response, the company began shifting to a high-end product line that would generate fatter margins. To make this new strategy work, however, Limited needed new supply chain technologies and processes to drive the speed-to-market requirements of the new growth strategywhat Leonard A. Schlesinger, Limited's vice chairman and chief operating officer and a former Harvard Business School professor, has described as "integrated brand delivery"; i.e., integrating and leveraging the supply chain and logistics supporting a brand for maximum value.
To that end, the company has spent the past few years upgrading its supply chain capabilities and replacing most of its disparate legacy environment. Among the hoped-for benefits: greater sales from its retail brands, greater flexibility in terms of being able to respond to market needs, and the capability of relieving the stores of processing and logistics tasks so the company's 100,000 associates can do what they do bestsell.
Its participation at the retail conference notwithstanding, Limited Brands doesn't talk much about its overall integration or related supply chain initiatives. In fact, the company turned down Baseline's request for an interview to discuss these initiatives. But a look at one piece of this effort provides an idea of some of the larger supply and demand chain challenges confronting the company.
For starters, it's important to grasp the complexities relating to integration.
Limited Brands buys merchandise from more than 1,000 suppliers worldwide and sells through multiple channelsretail stores, the Internet, catalog and third-party. "We're a very diversified company and, more importantly, actually own our stores, so we're rather vertically integrated when you consider some of the other retailers," Matthews told attendees at the retail show.
An enterprisewide view is critical in dealing with supply chain efforts, Matthews said. "We often talk about visibility as looking through a glass pipeline, but it's not actually just looking at pipeline, not just looking at inventory or customer buying patterns or raw-material transportation. It's actually looking at all of the above and, more importantly, all at the same time."
Manager Pressure Threatened New
Still, for an organization to make such a transition is difficult from a number of perspectives.
"For example," says Laurie M. Orlov, a vice president and research director of the information-technology management team at Forrester Research, "there's always going to be resistance to change. If you're a brand manager or business unit head, you're likely to believe that having control over your own I.T. operations helps you be effective. The move to an integrated approach may mean a loss of power."
Indeed, when Limited Logistics Services (LLS), which supplies global logistics management and leadership in support of the supply chains used by Limited's brands, initially tried to integrate the far-flung supply chain logistics operations of Victoria's Secret, Bath & Body Works and the like, it ran into strong pushback from brand executives, according to a story in the March 2005 issue of Harvard Business Review.
It was only after the brand managers saw retail sales increase and the time needed to get products to market reduced by as much as 10 days as the result of the effortand COO Schlesinger began pushing the initiativethat brand executives got with the program.
Limited has worked with a long list of vendors on supply chain-related software projects (see "Vendors Lend a Hand," below), including Tibco Software, which develops business integration packages. Though Limited's work with Tibco represents only a fragment of a far-reaching integration effort, it underscores some of the technical and business process hurdles Limited is trying to clear.
Limited brought in Tibco to build a global application integration platform, to better track and manage the flow of information moving through a supply chain that extended around the globe. As a first step, vendor and client went through an assessment phase beginning with business processes.
"Typically, implementing a project of this magnitude starts with documenting business processes," says Dean Hidalgo, senior manager of product marketing at Tibco, who declined to specifically discuss the Limited project. "Often these processes have evolved over time and have become ad hoc. They can involve lots of different steps, but before they can be documented, you have to have an idea of how they function from end to end."
According to a white paper on the Tibco implementation, Limited Brands had been experiencing scheduling issues and processing delays. These, Tibco and Limited Brands agree, were the result of rudimentary point-to-point interfaces that Limited Brands had been using to link one system to the next based on specific criteria. For instance, the monolithic interfaces typically linked an individual shipping facility to a point of distribution and transmitted data on a batch basis.
"That's a classic EAI [enterprise application integration] situation," Hidalgo says. "What has happened is that many companies built monolithic software applications and hard-wired the interfaces between the different APIs [application programming interfaces]. What you end up with is the classic spaghetti dilemma because you have these point-to-point relationships between all these different applications. If you make a change to one API, the interfaces with all the applications the original API touches have to be changed as well."
Using Tibco's business integration software, Limited partnered with Tibco to establish real-time reporting and communications with delivery agents, and to integrate Limited's outbound supply chain accountability and reporting (OSCAR) applications with its logistics applications.
Since Tibco's business integration framework can be readily replicated each time a new delivery agent, who receives merchandise from the manufacturer, joins the network, integration is efficient, rapid and lowers developmental costs, Tibco claims.
Limited stated in 2004 that as many as 45 delivery agents will be integrated into OSCAR, which aids with merchandise flow, data control and data facilitation.
The Tibco solution also enables Limited to communicate in real time with suppliers while providing a secure exchange of business documents. In addition, it extends shipment tracking and order visibility to the company's business partners through a booking information module (BIM) that effectively serves as an extranet to manage shipment information.
"The Tibco solution satisfies current project requirements, and positions Limited Brands to support future business initiatives and reduce development time and the cost of solutions," said Darrell S. Riekena, director of logistics systems at Limited Brands, in the implementation white paper after the Tibco work was completed a little more than a year ago.
Limited has now managed to consolidate its technology operations into a single shared service for all of its brands. This is operated centrally by Limited Technology Services, a subsidiary company run by CIO Jon Ricker. It employs some 750 information-technology professionals and has an annual budget of approximately $150 million.
There is still an enormous amount of work to be done before the overhaul is completed, however. "Limited at this point is in the middle of what is a 3 1/2- to 4-year transformation," Matthews says. "We've kept the details fairly quiet. The reason for that is we want to be talking about the transformation in the context of results."
Remaining to be completed is an enterprise architecture project that will incorporate asset reuse, a reusable framework so that software solutions can be replicated rather than created from scratch. This is expected, said Scott Preble, chief architect at Limited Brands, at a conference in April 2004, to cut delivery time of future projects and speed time to market.
This past September, Limited also gave a contract worth tens of millions of dollars to Capgemini USA, the I.T. and business consulting firm, to carry out an enterprise resource planning implementation. It will include financial, business intelligence and supply chain software modules from SAP and is intended, Capgemini says, to improve information architecture, business and technology systems, and processes related to merchandise planning, allocation, customer marketing and demand chain.
From Matthews' viewpoint, this should bring Limited that much closer to the Holy Grail of retailing, a "supply chain that begins and ends with the customer."