VideoThe millennium started poorly for North Face Corp. The company's logo was ubiquitous on college campuses, yet the manufacturer, distributor, and retailer of outdoor apparel was nearly bankrupt, largely because of problems with its supply chain.
"North Face was losing $100 million on $238 million of sales because it was producing too much inventory and could not match this inventory to orders or even ship it effectively," says Dan Templin, CFO of Outdoor Coalition, a division of VF Corp., the $5.6 billion apparel giant that bought North Face in May 2000.
"The company had zero visibility into its supply chain," says Templin. "It didn't know what its orders were or where its purchases were logistically. Everything had come unglued from an information and service standpoint." On-time performance to retailers was less than 50 percent, bad for any manufacturer but particularly deadly for North Face because there was enormous demand for its apparel.
Given that even "performance" clothing has the limited shelf life of other fashions, there was little opportunity to recoup one season's botched opportunities the next year. The company, says Templin, was in crisis mode.
VF saw potential, but it had reservations. "We were looking at a business that could not meet its planned sales, had a broken supply chain, and was losing money fast," says Templin, who was CFO of VF's knitwear division at the time. Ultimately, what sold VF on North Face was the latter's solid brand and VF's faith in its own operational expertise and the power of business-intelligence (BI) software to fix supply-chain problems.
Templin had seen what BI software could do, having used products from Brio Software to fix supply-chain problems at VF's knitwear division and throughout the company. Confident that the experience could be repeated, VF bought North Face.
North Face's supply chain was undermined by its reliance on manual processes, arduous under any circumstances and more so for North Face, which had to cope with a mountain of data. The company created reports on nearly 12,000 stock-keeping units (SKUs) and 2,000 resellers.
Transaction data included sales orders, purchase orders, and inventory, which were entered into spreadsheets from which the reports were created. The effort often took weeks and sometimes months, frequently creating situations in which orders on the front end couldn't be aligned with all the back-end execution needed to satisfy them. Templin wanted to automate the entire process with a data warehouse and BI tools that could provide visibility into orders and drive smarter purchase decisions.
The Brio software culls data from the warehouse to produce more than 50 electronic reports that compare sales-order information with inventory data, determining an accurate delivery date that meets or precedes a customer's requested ship date. Reports cover historical sales information and open sales orders by customer; the styles, colors, and sizes that are best-sellers and those that may require discontinuation; and more-traditional metrics like business-unit profit-and-loss statements and budgets versus actual spending. The reports are pushed out to North Face decision-makers via E-mail.
By monitoring those 12,000 SKUs along the entire supply chain, North Face has reduced excess inventory by 65 percent. The company now fails to meet just 2.5 percent of its orders, compared with 10 percent before VF and BI came to the rescue.
And while most retailers would view store closures as a sign of failure, in this case, the company is cheering. With so little excess inventory to unload, the company has closed 13 of its 16 outlet stores. Unloading so much of its own stuff at a discount was beginning to erode the brand, says Templin. That may be bad news for college kids on a budget, but it's good for North Face, which is now seeing higher margins, regularly hitting the 14 percent profit margin that VF demands.
All of this may come as a surprise to CFOs and other longtime users of BI products, who have tended to regard the software as great for analyzing internal financials but not particularly well suited to supply-chain issues.
But a study last year by research firm International Data Corp. found that many companies applying BI software to supply-chain problems are realizing a hefty return. IDC studied analytics projects undertaken to address three core business processes — customer relationship, financial/business performance, and operations/production, which includes supply-chain management — and found that, when projected over a five-year period, supply-chain projects actually showed the highest return. "The median return for operations/production analytics was 277 percent, far more than the median return of 139 percent for financial/business performance management and 55 percent from CRM applications," says Henry Morris, IDC's group vice president of applications and information access.
"This is a very fruitful area," contends Morris. "Supply-chain analytics can boost the bottom line because they produce greater efficiency, less scrap, better quality, and lower production costs, and can improve the top line through greater customer satisfaction. This is basic business made better."
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