Technology

Where Retailing Meets ERP Software

How Pacific Sunwear found a specialized ERP system to help it grow into a 1,000-store chain.
Esther SheinAugust 1, 2001

As recently as 1994, Pacific Sunwear of California was a largely regional chain with most of its 90 stores on the West Coast. But then the company underwent an aggressive expansion, and today it stands at 650 outlets. Now the firm plans to add 300 more stores during the next three years, and 1,000 locations nationwide by 2004.

The Anaheim-based chain, which also runs stores under the PacSun name, built its reputation by keeping up with what’s hip and cool in teenage sportswear, accessories, and footwear. But the $700-million company has also learned it’s had to stay current with the technology it uses for its supply chain, with some 400 suppliers.

This year, as part of an effort to get a better grip on its supply chain, the firm upgraded its enterprise resource planning system, adding an E-procurement function. It also installed the Web EC E- commerce middleware system from SPS Commerce. Finally, later this year, the firm plans to implement the PkMS, warehouse package management system from Manhattan Associates.

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The company’s ERP system, the SVi Retail System, from SVi Solutions (formerly Island Pacific Systems Corp.), “functions as the core of everything we do,” explains Ron Ehlers, the chain’s vice president of information services. The system runs on an IBM iSeries mid-range server, the class of hardware that Big Blue had tagged the AS/400 until last year, and Pacific Sunwear has been using it for merchandising, sales audit, and financials since the mid 1980s.

But the retailer’s rapid growth forced it to take a hard look at its infrastructure.

Last year, a consulting team from Deloitte & Touche reviewed the firm’s operations and recommended that it upgrade its supply chain.

“The key thing we were looking for was to make improvements in the efficiencies of the supply chain,” says Ehlers. Specifically, the firm wanted to integrate all of its electronic data interchange (EDI) transactions: invoices, outgoing purchase orders, and advance shipping notifications (ASNs).

The company uses the EDI format to send its vendors electronic purchase orders. It then receives an ASN and an electronic invoice. By adding SVi’s E-procurement module and the Web EC middleware, the store chain has automated the purchasing process with its suppliers.

“What we’ve done is set up an integration program between our SVi system and their Web electronic commerce platform,” says Ehlers. “We are literally going to get 100 percent of our vendors participating and communicating with us electronically.”

Already there have been tangible cost savings. Frank Schools, Pacific Sunwear’s vice president of finance, says he monitors the SVi system on a weekly basis in order to see where inventory and the gross margin are heading.

Schools says the weekly review is done “so merchants/buyers have complete understanding of the numbers we report. The data is very straightforward, and we can query into the data and take it down to a detailed level, if we want to.”

The SPS platform lets suppliers choose how they communicate with the retailer—whether via mail, fax, or the company’s Web site. This flexibility works for the many suppliers that Ehlers says are startups that are “literally operating out of their garage.” Some don’t even have a computer, let alone an IS department.

The retailer also liked that the Web EC site enables the vendor to print out shipping labels that match a carton’s contents, since it requires an ASN with a stock unit number on the carton and the quantity. Suppliers are required to invoice the retailer electronically, and only once the ASN has been sent, since both must match. Ehlers says this is a real time saving measure.

“When we receive the carton in our distribution center from that vendor, we already know what’s in that carton so we can pre-allocate it and the system knows where to send the content,” he says. In some cases, if a carton’s entire contents are going to one store, the Web EC system will “create a store shipping label and apply it to the carton, and then route the carton to the proper outbound shipping door and onto a truck.”

Like the SVi package, the PkMS also runs on the iSeries server, which was a big incentive, Ehlers says. “We didn’t want to implement that on [Windows] NT,” he says, because “reliability and scalability are big concerns on an NT platform.”

Improving supply chain efficiencies is also benefiting the company’s Web site, www.pacsun.com, which was launched in June 1999. By that December, the Web store did about two times the average store in sales volume. Last year, it did six times the average store.

“We expect that to improve even more this year,” Ehlers says.

PkMS has a component that supports customer order fulfillment and shipping. “That’s a very different animal than store shipping because in the case of a store, you’re shipping lots of different units to a store,” while a single customer places much smaller orders, he says, and PkMS handles both.

Ehlers says the company is pleased with the improvements to its supply chain. He’s also pleased with the retail ERP package. “There’s nothing out there that handled specialty retail well with hundreds of locations, which is what we needed to run our business,” he says.

Gene Alvarez, senior program director at Meta Group., a Stamford, Conn.-based market research firm, says ERP systems have always fallen short of adapting their systems to fit retailers’, particularly specialty stores, needs.

Alvarez says, “The presumption is all retailers do everything the same because they fall into this big bucket called ‘retail,’ but anyone who’s in retail knows retail is not all the same.” For example, in apparel, the product focus is on style, material, color, and size run. Grocery stores need to track expiration dates.

The bottom line, he says, is retailers ultimately go with the software that best fits their individual operation, and they tend to be limited by the cost.

Alvarez also notes that most retailers below the 100 largest chains have significantly smaller IT budgets than mid-tier companies in other industries.

Ehlers says other goals for the remainder of the year include expanding SVi so that certain inventory items that sell frequently, like jeans, get automatically restocked.

“We want the basic replenishment system to make recommendations for each week of the year in each location on what those levels should be based on sales history,” he says.

On the list for next year is the implementation of a full-scale data warehouse. And while the company has already started using a rudimentary vendor scorecard that tracks performance, Ehlers says once the PkMS warehouse management system is in place, Pacific Sunwear will be able to pull more detailed information, including on-time delivery, packing, and labeling accuracy.

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