The Cloud

Nordstrom Invests in Supply-Chain Software

The acquisition of a stake in the maker of Dsco software is aimed at boosting the speed of online order delivery while keeping costs down.
Matthew HellerJuly 8, 2016

Nordstrom has acquired a minority stake in supply-chain software firm DS Co. in a move to expedite delivery of online orders while keeping costs down.

The retailer has been pursuing initiatives to increase efficiencies across its supply chain amid a sharp decline in sales at its luxury sales. It has long been a leader in e-commerce but Nordstrom.com’s sales fell 3.5% in the first quarter, down from 19.8% growth a year earlier.

The DS acquisition partners Nordstrom with the provider of Dsco, cloud-based software that makes it easier for suppliers to directly ship orders placed through retailers. That method of delivery, known as “drop shipping,” reduces the retailer’s cost and risk of holding inventory.

“They’re shifting the risk of the inventory up the supply chain to their suppliers,” Irv Grossman, executive vice president at consulting firm Chainalytics, told The Wall Street Journal.

Nordstrom executives have said they are making major changes to the operating model in an effort to operate more efficiently and cut $150 million in expenses during the coming year. The investment in DS comes “as retailers are racing to compete with e-commerce companies such as Amazon.com Inc. to provide convenience and speedy delivery to customers while keeping costs down,” the WSJ said.

Having suppliers hold inventory and do shipping “is the best way a retailer can expand their offerings and compete against Amazon without carrying inventory risk,” Grossman explained.

E-commerce represents 20% of Nordstrom’s business, up from 8% five years ago, but as the Puget Sound Business Journal reports, “it has a high variable cost structure that has caused expenses in recent years to grow faster than sales.”

Dsco acts like an intermediary between the software systems that retailers and their suppliers use to track inventory and orders, pulling data from both sides and communicating any surges in orders or depleted inventory.

“Dsco is helping to improve [customers’] online experience by reducing complexity in our supply chain,” said Ken Worzel, executive vice president of strategy and development at Nordstrom.