the clicks organisation - university of cape...

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The Clicks Organisation:

The implementation of automated replenishment software for a

retailer

A Case Study Research Report

Presented to

The Graduate School of Business

University of Cape Town

In partial fulfilment of the requirements for the

Masters of Business Administration Degree

By

David Peter Hamilton

and

David Laurence Evans

November 2000

Supervisor: Professor Norman Faull

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The Clicks Organisation Case Study

1

CONTENTS

THEORY APPLICABLE TO THE CASE STUDY .......................................................................................... 3

SUPPLY CHAIN IMPROVEMENT STRATEGY............................................................................................... 3

SUPPLY CHAIN MANAGEMENT .................................................................................................................. 6

ELEMENTS OF SUPPLY CHAIN MANAGEMENT.......................................................................................... 7

Logistics......................................................................................................................................................... 7

Distribution requirements planning .............................................................................................................. 7

Store replenishment/Inventory management ................................................................................................. 8

INFORMATION TECHNOLOGY STRATEGY............................................................................................................ 12

IMPLEMENTATION THEORY............................................................................................................................... 13

Upton Implementation Model...................................................................................................................... 15

Faull’s Q Model .......................................................................................................................................... 16

Terry Hill Model.......................................................................................................................................... 16

Assessment of Improvement Programs........................................................................................................ 17

Implementation Climate and Innovation Values Fit.................................................................................... 18

Project Management ................................................................................................................................... 18

Shrink wrap vs. home-grown software ........................................................................................................ 21

Project Management of Software Implementation ...................................................................................... 22

REFERENCES...................................................................................................................................................... 24

COMPANY BACKGROUND .................................................................................................................................. 27

CENTRALISING THE SUPPLY CHAIN.................................................................................................................... 28

METHODOLOGY OF PULL VS. PUSH ORDERING.................................................................................................. 31

MANUAL ORDERING PROCESS BEFORE JDA ...................................................................................................... 32

CHOOSING JDA SOFTWARE .............................................................................................................................. 32

WHAT IS THE JDA SOFTWARE .......................................................................................................................... 33

OPERATION OF THE AUTOMATED REPLENISHMENT ........................................................................................... 33

INTEGRATION OF THE SOFTWARE ...................................................................................................................... 37

PILOT PROJECT AND ROLL OUT.......................................................................................................................... 37

STORE CHANGE OVER........................................................................................................................................ 39

PROBLEMS NOT ENVISAGED .............................................................................................................................. 39

TRAINING.......................................................................................................................................................... 42

STORE MANAGERS’ REACTIONS ........................................................................................................................ 44

CHANGES IN GROUP INVENTORY ....................................................................................................................... 44

HELP DESK ........................................................................................................................................................ 45

ADVANTAGES OF THE JDA SOFTWARE ............................................................................................................. 45

WHERE TO FROM HERE...................................................................................................................................... 47

CASE SYNOPSIS................................................................................................................................................. 60

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CASE SYNOPSIS................................................................................................................................................. 61

SUGGESTED READINGS FOR THE CASE.............................................................................................................. 62

TEACHING OBJECTIVES OF THE CASE................................................................................................................ 64

RECOMMENDED ASSIGNMENT QUESTIONS......................................................................................................... 65

SUGGESTED DISCUSSION QUESTIONS AND GUIDE............................................................................................. 66

Chronological sequence of events ............................................................................................................... 79

SUGGESTED TIME ALLOTMENT FOR EACH DISCUSSION TOPIC............................................................................ 80

LIST OF FIGURES

FIGURE 1-A REORDER POINT SYSTEM ...................................................................................................................... 9

FIGURE 2-PERIODIC REVIEW SYSTEM (ASSUMING NONE ON ORDER AT TIME OF REORDER) ...................................... 9

FIGURE 3-ABC INVENTORY CATEGORIES .............................................................................................................. 11

FIGURE 4 - INTEGRATION OF PROCESS FLOWS, PEOPLE, AND INFORMATION TECHNOLOGY.................................... 13

FIGURE 5 - INFORMATION TECHNOLOGY PROJCT PRIORITISATION: JUSTIFICATION MATRIX ................................ 17

FIGURE 6 - SOFTWARE SELECTION METHODOLOGY ............................................................................................... 22

FIGURE 7 - ASAP IMPLEMENTATION METHODOLOGY .......................................................................................... 22

FIGURE 8 - TEACHING SEQUENCE.......................................................................................................................... 66

FIGURE 9 - GRAPH OF ANNUAL INVENTORY COSTS ................................................................................................ 75

LIST OF TABLES

TABLE 1 SUPPLY CHAIN IMPROVEMENT ..................................................................................................................... 4

TABLE 2 - UPTON FRAMEWORK ............................................................................................................................. 15

TABLE 3 - INNOVATION VALUES FIT VS. IMPLEMENTATION CLIMATE .................................................................... 18

TABLE 4 - COMPARISON OF PURCHASING SOFTWARE TO DEVELOPING IN-HOUSE .................................................. 21

TABLE 5 - UPTON'S MODEL APPLIED TO THE CASE ............................................................................................... 70

TABLE 6 - MILESTONES IN THE IMPLEMENTATION................................................................................................. 79

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THEORY APPLICABLE TO THE CASE STUDY

This section looks at the strategic theory associated with supply chains and the effect of

information technology on company strategy. Theory relating to supply chain management

and inventory control, as well as implementation methodologies associated with software

implementation will be discussed.

The first section looks at the strategic theory relating to supply chains, followed by theory on

supply chain optimisation with a focus on inventory control.

SUPPLY CHAIN IMPROVEMENT STRATEGY

There are a number of models used for assessing and improving operations. The improvement

of a supply chain is not an easily obtained goal.

“The road to leading-edge position requires focus, dedication, creativity and hard work.”1

Poirier has developed a model illustrating the four levels of progression that a firm

experiences on route to achieving advanced stages of supply chain management. The four

stages fall under two levels, namely internal and external. The internal level refers to

operations within the business while the external level deals with interaction between the

business and external firms to create a “savings network”2. The vertical axis of this table

depicts key elements of supply chain management.

Level One of the supply chain improvement journey focuses on leveraged savings. The

suppliers tend to come under a lot of pressure to reduce prices at this level of supply chain

improvement strategy. The danger at this stage is the possible danger of trading price for

quality and thereby having a detrimental effect on the business. Poirier (1999) emphasises that

the savings must be gained from using mutual resources for mutual advantage instead of the

more traditional cost-pushback from one company to another. The use of benchmarking to

identify best practices is useful at this level. The company should see real savings become

1 Poirier, C.C., 1999, Advanced supply chain management, Berrett-Koehler. 2 Poirier, C.C., 1999, Advanced supply chain management, Berrett-Koehler.

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apparent at this stage through initiatives such as inventory level management, logistics and

freight management and supplier consolidation. The first phase is essentially a phase of

consolidation and assessment of the current supply chain.

Table 1 Supply chain improvement3

Internal ExternalSourcing &

logisticsI

Internalexcellence

II

Networkconstruction

III

Industryleadership

IVDriver VP sourcing

(under pressure) CIO/supply chain leader

Business unit leaders

Management team

Benefits Leveragedsavings

Prioritisedimprovements across network

Best partner performance

Networkadvantage,profitablerevenue

Focus Inventory,logistics, freight, order fulfilment

Process redesign, system improvement

Forecasting,planning,customer services,interenterprise

Consumer, network

Tools Teaming, functionalexcellence

Benchmarks, best practice, activity-based costing

Metrics, database mining, e-commerce

Intranet, internet, virtualinformation systems

Action area Midlevelorganisation

Expanded levels Totalorganisation

Full enterprise

Guidance Cost data, success funding

Process mapping Advanced cost models, differentiatingprocesses

Demand-supply linkage

Model None Supply chain-intraenterprise

Interenterprise Global market

Alliances Supplierconsolidation

Best partner Formal alliances Joint ventures

Training Team Leadership Partnering Networkprocessing

Level two focuses on process redesign and system improvement. This level is more

complicated than the first level and organisations often don’t get to level two for a number of

reasons. Some of these reasons include a “tunnel vision” perspective of what the entire supply

chain encompasses, a culture of resistance to change, withdrawal of active executive support

3 Poirier, C.C. 1999, Advanced supply chain management, Berrett-Koehler; pg.:24

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resulting in less drive in the project, not sharing savings and reactive application of

technology. The second level requires the input and support of the IT department as efficient

electronic linkages between businesses provide a clear advantage over slower and less

effective networks.

The areas of most significance in level 2 are:

!" Product development: concept-to-market; voice of the consumer.

!" Forecasting: accuracy; short-interval planning.

!" Market segmentation: profitable revenue growth.

!" Sourcing: partnering; alliances; global aspects.

!" Pricing.

!" Order-to-cash: order fulfilment; error elimination; inventory management.

!" ERP.

!" Logistics: warehousing; distribution; transportation.

!" E-commerce: EDI; IT fusion; sales for effectiveness.

This level seeks to emphasise internal efficiencies and use the supply chain to obtain real cost

savings.

Level three focuses on the interenterprise functions and integrating the improvements

introduced in levels one and two. The goal is to establish value chain constellations, which

are groups of interrelated firms pooling their resources to gain a competitive advantage in

specific industries and markets. The goal is to build strong supply chain networks, which will

be able to compete and dominate their chosen markets.

Level four focuses on the customer network and how to enhance that network through

technology and global expansion.

This improvement strategy model by Poirier, 1999, emphasises that efficient supply chains

are not built overnight. The process of attaining the level of “advanced supply chain

management” is a well planned process that must be championed by a senior officer in the

organisation. The dedication and long term focus must be maintained or the process will

stagnate and the organisation will not progress to the subsequent level of the model. The

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model offers organisations a logical path to achieve success, starting from the supply chain

basics at level one. If the organisation can progress to level three, the internal standards of the

organisation will have been improved significantly. Supply chain improvement often involves

the raising of standards across the entire organisation and not just certain operational areas.

SUPPLY CHAIN MANAGEMENT

Advanced supply chain management is a practice used by leading companies to improve a

total system of supply. This is linked directly to current demands in chosen markets, so that

efficiency savings are accrued and shared across the network4. Shared thinking and

commitment must replace fear, distrust and arrogance if a company expects to create and

maintain an efficient supply chain that dominates its markets5.

The supply chain consists of the network of organisations that supply inputs to the business

unit, the business unit itself, and the customer network. The main elements of the supply

chain are logistics, distribution requirements planning, purchasing, transportation and

warehousing. Proctor & Gamble (P&G) developed a continuous replenishment program

(CRP) to provide customers with quicker and more accurate stock replenishment. Their CRP

transmits orders from retailers via electronic data interchange (EDI) to customer distribution

centres (DC’s). These orders are compared to on-hand inventory levels and then forwarded to

the customer’s headquarters where the optimum order quantities are established. This

information is then fed to P&G and back to the DC’s. The customer DC’s supply the retail

outlets with the required quantities while P&G despatch the required order quantities to the

DC’s. The Clicks Organisation is part of this supply chain as a customer of P&G.

The distribution model for the Clicks Organisation works on the same principles and

methodologies as the P&G CRP. Each store assesses its inventory levels on a daily basis and

transmits its requirements to the central purchasing department on a daily basis. The central

purchasing department assesses the organisation wide requirements against inventory on-hand

before transmitting the store requirements to the respective DCs for fulfilment. The

purchasing department determines the optimum order quantity for the organisation and

4 Poirier, Charles.C; Advanced supply chain management; 1999; Berrett-Koehler; pg. 3. 5 Meredith J.R & Shafer S.C; 1999; Operations management for MBAs; Pg. 284.

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transmits that to the respective suppliers for fulfilment. The single determining variable in any

supply chain of this nature is the consumer. The retailer must predict what the consumer’s

demands will be with a certain amount of accuracy and then purchase products accordingly.

Forecasting demand in the retail industry is not an exact science. This makes the effectiveness

of the supply chain crucial to the success of the retailer, both in terms of customer retention

management (CRM) and cost control. It is for this reason that one of the most important

aspects of supply chain management is inventory management throughout the supply chain.

ELEMENTS OF SUPPLY CHAIN MANAGEMENT6

Logistics

The logistics of the supply chain must be assessed before any form of planning can be done. It

is at this stage where the trade-offs between transportation and location must be decided. The

retail industry generally has a wide geographic spread of stores, which must be supplied with

products for the retail chain’s customers. A comparative cost study between the cost of direct

store deliveries (DSD) and the cost of centralised distribution deliveries will determine the

trade-off. Centralising distribution on a regional basis involves large capital investments in

warehousing, personnel, equipment and IT infrastructure. These are relatively immobile

functions of the supply chain. Meredith and Shafer (1999) refer to this problem as the

“multifacility location problem”. The analysis depends on the distribution patterns required to

replenish all the retail outlets and their geographic locations. The analysis must also

incorporate the cost of holding inventory at the DCs versus holding high levels of inventory at

store level.

Distribution requirements planning

Distribution requirements planning (DRP) is closely related to the logistics element of supply

chain management. One of the key elements of DRP is forecasting. The DCs need to carry

enough inventory levels to prevent stockouts in any of the retail outlets. Stockouts result in

high levels of reorder quantities from the retail outlet, which initiate the “bull whip” effect

throughout the supply chain. The effects of the bull whip are well illustrated in the “Beer

game”. The implementation of a pull order or just-in-time (JIT) distribution system is

essential to eliminate excess stock in the supply chain. Excess stock results in unnecessary

6 Meredith J.R & Shafer S.C; 1999; Operations management for MBAs;

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holding costs and in inefficient inventory management. One drawback of a JIT distribution

system is the increased risk the supply chain faces of experiencing a stockout situation due to

time lags in lead times to delivery.

The distribution function is dependent on MRP to provide accurate forecasts in order to

release the correct order quantities to the retail outlets to prevent any stockout situations. The

accuracy of MRP is enhanced by the effective use of technology in assessing historic trends

and tracking and predicting customer behaviour. Inaccurate forecasting will result in poor

performance of the distribution element of the supply chain and will adversely affect the

business as a whole in terms of financial performance and CRM.

Store replenishment/Inventory management

The centralising of the supply chain to regional DCs emphasises tighter inventory control

throughout the distribution system. The intention is to remove excess stock in the retail outlets

in order to increase the stock turn ratio per store. One of the benefits of achieving effective

JIT distribution is that a company can reduce the size of the storerooms at store level and

therefore increase the amount of shop floor space. A need for continuous stock replenishment

then becomes crucial. The correct use of technology enables retailers to implement electronic

data interchange (EDI) systems to achieve automated replenishment by integrating point of

sale (POS) systems with DC systems. The EDI system uploads the sales records for the day’s

trading to a central database, which calculates each store’s replenishment stock requirements.

The DC system receives the stock order per store and that order is then fulfilled. Each store

operates on minimum levels of stock depending on the lead-time required for replenishment

from the DC.

The task of inventory management is automated by means of inventory management systems

such as the JDA software. The software is however unable to predict seasonality and

fluctuations in demand. Forecasting accuracy is enhanced by historic sales history that the

software builds over time. There are three varieties of inventory management systems

classified on the approach taken to deciding “when to order.”7 These are:

!" Reorder point systems

!" Periodic review systems

!" Materials requirements planning (MRP) systems

7 Meredith J.R & Shafer S.C; 1999; Operations management for MBAs; Pg. 250

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Reorder point systems place a replenishment order when on hand inventory levels reach a

predetermined level. The reorder point is fixed and is set to ensure that there is an adequate

level of inventory to allow for the lead time to replenishment. This system is also known as

the two-bin system. The order quantity is fixed and the reorder period varies (Figure 1).

Figure 1-A reorder point system

In periodic review systems the inventory level is checked at fixed time intervals. The order

quantity varies while the reorder period is fixed. Any significant fluctuations in demand are

not compensated for which creates a high risk of a stockout situation occurring (Figure2).

Figure 2-Periodic review system (assuming none on order at time of reorder)

The above two systems are appropriate for industries where demand is constant. The retail

industry operates in an environment where demand is dependent on the consumer. MRP

systems are based on the demand for an item and not the on hand inventory level of the item.

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MRP systems continuously monitor the levels of demand for an item allowing for more

accurate forecasting.

Where the replenishment is done on an order basis rather than on a continuous basis, the size

of the order placed becomes an important factor in the cost of the supply chain. The theory

supporting this is the economic order quantity (EOQ) concept. EOQ is a computer generated

minimum-cost order quantity. The EOQ concept makes the underlying assumptions that

shortage costs and opportunity costs are irrelevant and will not exist if the demand remains

constant. Further assumptions of the EOQ are that the rate of demand is constant, shortages

do not occur, lead times are certain, price per unit is independent of quantity ordered and that

all items are ordered independently of each other. The information used in the EOQ model is

insufficient to ensure any form of accuracy. Storage space in a retail outlet is non-income

generating floor space for the shop. The increase in on hand inventory requires tighter

management control systems to control the stock efficiently.

A further complicating factor in inventory management is that all of the items do not move at

the same rate and some are of lesser value to a retailer. There are generally a number of slow

moving items within the store that do not generate attractive margins. The inventory levels of

these items do not need to be monitored and intensively controlled. The products sold by a

retailer must therefore be classified in order of priority. A simple method for achieving this is

called the ABC classification system. The ABC classification system is based on the

cumulative, annual, monetary value of the sales of the inventoried item. The reasons for this

are grounded in the Pareto principle. An analysis of inventory items will show that a small

proportion of these items makes up the largest portion of the revenue from the inventoried

items. The items are then classified in terms of their importance to the company:

A: high-value items: the 15 – 20 % of items that account for 75 – 80% of annual

inventory value.

B: medium-value items: the 30 – 40% of items that account for approx. 15% of annual

inventory value.

C: low-value items: the 40 – 50% of the items that account for 10 – 15% of the annual

inventory value.

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Figure 3-ABC inventory categories

Continuous replenishment systems using intelligent software to predict seasonal or periodic

peaks would help solve the forecasting issues for the retail industry. EDI is being used to

speed up the supply chain process by replacing manual paper based ordering and supply

systems. EDI now falls into the broad definition of e-commerce8. The use of bar-coding and

scanning throughout the supply chain speeds up the collection and dissemination of

information throughout the supply chain. This technology also helps to speed up the physical

processes within the supply chain. Bar-coding and scanning now forms part of the POSware

of many retailers enabling them to track sales information accurately and in-store inventory

levels continuously.

The use of technology and improvement in distribution systems has allowed retailers to lower

the inventory levels in their supply chains at store level to minimise excess stock at the outlet.

Instead of utilising the Materials Requirements Planning (MRP) model of “pushing” products

through the retail outlet, retailers are now able to move to a kanban model of replenishment

whereby inventory levels are only replenished when demand requires. The difference between

true kanban operation and the retail operation is that the retail operation will have a small

level of safety stock inventory on hand to protect against a stockout situation. The underlying

philosophy of kanban is to remove all waste (muda) from the system. In supply chain terms

this refers to excess and dead stock.

8 Meredith J.R & Shafer S.C; 1999; Operations management for MBAs.

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The kanban model requires the use of scanning technology, which updates the store inventory

database when an item has been sold. The software used in-store must have the ability to

monitor the changing inventory levels continuously both on-the-shelf and in the storeroom. At

end of the day’s trading, the store database updates the inventory levels and places

replenishment orders as required which are communicated to the DC for fulfilment.

The following sections follow on from the theory on the supply chain management and

inventory control, by discussing how information technology is affecting the supply chain and

the implementation of information technology.

INFORMATION TECHNOLOGY STRATEGY

Alfred Chandler defined strategy as, “the determination of the basic long term goals and

objectives of the enterprise, and the adoption of courses of action and the allocation of

resources necessary for carrying out these goals.”

In the retailing sector satisfying the customer is often the strategic goal. Satisfying the

customer means having the right product at the right place at the right time, which means

creating an efficient supply chain. Efficient supply chain management can lead to a

competitive advantage.

Information technology facilitates the transfer of information and automation to create a

responsive supply chain. Its development will facilitate seamless enterprise systems over the

next few years. IT, therefore, needs to be integrated into the key elements of the distribution

process for competitive advantage, as it is one of the important resources for achieving the

company’s goal. The integration of flows, people, facilities, equipment and information

technology will be needed to execute key distribution processes (figure 1).

Information technology has acquired strategic significance and is affecting all businesses. It is

affecting competition in three ways9:

1. It changes the industry structure, and in so doing, alters the rules of the competition.

9 Porter M.E. & Millar V.E., How information gives you competitive advantage, Harvard Business Review 1985 vol. 5

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2. It creates competitive advantage by giving companies new ways to outperform their

rivals.

3. It spawns whole new businesses, often from within a company’s existing operations.

Figure 4 - Integration of process flows, people, and information technology

Information technology is permeating the value chain at every point, transforming the way

that value adding activities are performed. Retailers can use information systems to co-

ordinate its activities regionally, nationally and globally. An example of this was Marks and

Spencer in the early 1980’s, who made significant investments in store renovations and

updated its procurement and distribution systems. However, the use of information

technology requires the successful implementation and adoption of that technology. The

following section describes elements of supply chain management and some of the

methodology for information systems implementation.

IMPLEMENTATION THEORY

Klein & Sorra define implementation as:

“Implementation is the transition period during which targeted organisational members

become increasingly skilful, consistent and committed to their use of an innovation.

Implementation is the critical gateway between the decision to adopt the innovation and the

routine use of the innovation within the organisation.”

Process

Flows

Information

Technology

People

Facilities,

equip &

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Aristotle said, “We are what we repeatedly do…Excellence, then is not an act but a habit.”

Implementation is the process of creating an improvement strategy and managing and

implementing the improvement strategy until it becomes a habit.

The 1996 Global Manufacturing Survey indicated that implementation may be what

distinguishes the best manufacturers from the rest10. There are various methodologies that can

be adopted for implementation, however these methodologies vary depending on what

category the implementation falls into. Upton (1998) uses the following categories for

classifying improvement programmes:

!"Equipment based

!"Information system based

!"People / community / organisation based

!"Philosophy based

Each of these programmes requires different changes in the organisation. As a result it is often

difficult to specify an implementation framework that can be applied to all implementation

projects. Within the implementation frameworks the specifics of the implementation

methodology can change. The project management approach for the implementation of

information systems and software has very specific steps that are unique to that improvement

programme. The details of these steps and management considerations are discussed in the

following section.

Faull, Day and Klein (1998) break down the implementation framework into 5 layers:

!"Foundation layer – overall improvement strategy.

!"Second layer – culture and innovation track record.

!"Third layer – the innovation needs to be tested against the results arising from the

examination of the context.

!"Fourth layer – tools and resources specific to the innovation need to be utilised through a

project management approach.

!"Surface layer – the results must be evident.

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The models that follow are part of the foundation layer where the overall improvement

strategy is formed.

Upton Implementation Model

Upton (1998) created a 7-step approach to an improvement strategy. His approach involved

the following steps:

Table 2 - Upton framework

Element Questions addressed

Context & Motivation Why is the improvement initiative taking place?

Direction and Goals How will the improvement be measured?

Focus Where will we concentrate internally to achieve the required

goals?

Methods and Techniques How will we achieve the desired results?

Resources What financial and human resources will be required?

Organisation and Phasing How will the initiative be organised? What groups will it

involve? Who will lead it?

Learning capture &

Leverage

How will knowledge be brought into the operation? How will

what is learnt in the initiative be captured? How will the

achievements of this initiative be leveraged in future projects?

The second part of the Upton model is the assessment of the improvement strategies. This

provides some methodology of evaluating improvement strategies. The evaluation criteria are:

completeness, coherence, fit with competitive goals, fit with operations strategy and speed

and efficiency. The Upton model is more generic in its approach. This however has the

advantage that it is more adaptable to a range of improvement programmes.

10 Faull, N., Day, N. & Klein, T., What does good implementation look like?, Conference paper, SAPICS July 1998.

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Faull’s Q Model

Faull’s Q model is another implementation methodology. This method incorporates the

strategic questions as to what business the company is in, how do we win orders in those

markets and how do we measure our performance on those outcomes? It then looks at the

specifics of the implementation process using the 3S model. Again, the S1 level ensures the

strategic direction of the changes is in line with the company overall strategy. The S2 level

looks at the multidisciplinary teams and the S3 the natural work teams. There are also two

functional work teams. Team 1 is a collection of stakeholders who should be involved with

and oversee the implementation. Team 2 is responsible for the day to day implementation.

The Q model also looks at the learning process. How learning is captured as well as

benchmarking to find best practices. The Q model is a more stepped methodology to

implementation, but it useful as it covers important aspects such as feedback and recording of

learning through the process.

Terry Hill Model

Terry Hill proposed a model for aligning company strategy and recognising the need for

change. He uses the concept that the marketing, corporate and production strategies should be

aligned around winning orders. This model focuses more on the strategy than the details of

the implementation

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Assessment of Improvement Programs

Whilst Upton (1998) uses certain criteria for the evaluation of improvement strategies, Ernst

and Young use the following matrix for the assessment of information technology

improvement programmes:

Figure 5 - Information Technology Project Prioritisation: Justification Matrix11

The matrix assesses projects with respect to the improvement potential of the project and the

strategic urgency benefit. Many companies attempt to implement too many projects at the

same time. This matrix attempts to prioritise the projects so only 2-3 projects are implemented

at a time.

11 Gopal C. & Cypress H., 1993, Integrated Distribution Management, Richard D. Irwin, Inc.

Strategic

urgency/

benefit

Strategic Analysis Study further Are the benefits worth investing in at a later date?

Develop/Acquire with available resources Strategic urgency/cost benefit analysis for allocation of discretionary resources

Ignore

Cost-benefit analysis Further study Is the payback worth investing in this time.

Strategic Focus

Cost reduction Customer service DifferentiationProduct diff Innovation Time to market GrowthStrategic Alliance Competitive intelligence

Process

Improvement Focus Time

Response Cost

Quality

Low High

Improvement Potential

Low

High

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Implementation Climate and Innovation Values Fit

This falls into the second layer of the implementation framework.

Klein and Sorra (1996) identified that implementation effectiveness is a result of the

organisation’s climate for the implementation of an innovation, and the fit of the innovation to

the end users requirements. They summarised the concept of an innovation value fit and an

implementation climate in the table below:

Table 3 - Innovation values fit vs. implementation climate

Innovation Value Fit Poor Neutral Good

StrongImplementation Climate

Employee Opposition and resistance.Compliant Innovation use, at best

Employee indifference.Adequateinnovation use.

Employee enthusiasm. Committed, consistent and creative innovation use.

Weak Implementation Climate

Employee relief. Essentially no innovation use

Employee disregard.Essentially no innovation use.

Employee frustration and disappointment. Sporadic and inadequate innovation use.

Klein and Sorra (1996) observed that implementation effectiveness affects future

implementation. A successful implementation benefits further implementation as employees

have learnt how to implement better and acceptance of change is incorporated in the culture.

The fourth layer of the implementation framework consists of the tools specific to the

innovation being implemented. Information technology and specifically software has its own

implementation steps. Examples of these steps follow.

Project Management

Upton (1998) commented that information technology is the link that integrates

manufacturing distribution and customer delivery. The retail sector is no exception. This

section looks at what choices and considerations are to be made in the choice and

implementation of software.

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Factors to consider in choosing software

Upton (1998) believes that the implementation and use of information systems often has a

path-based approach. By this, it is meant that the implementation is often progressive rather

than the one off. This process has the advantages of an approach of continuous improvement.

Information systems require architecture that will define how the components of the system

fit together.

In order to manage information systems one should be aware of 12:

!"Designing and orientating the path

!"Managing the path – the progressive addition of modules results in the packages working

together as a whole

!"Building an IT path that lays the foundation for ongoing operational improvement.

The key issues in building a conceptual model for computer integration is the understanding

of the levels at which a particular piece of technology is operating.

In creating a strategy for an organisation the introduction of software can either change the

game or strengthen the performance of the existing one.

There are, however, situations where IT would drive the strategy. These are:

!"As a source of structure to foster and reinforce new ways of working

!"To build new IT based capabilities

!"To take advantage of new and superior off the shelf information technology

When deciding on the use of information technology, companies need to make choices about

the degree of automation, the extent of the integration and the dimension and scope of

flexibility. They need to identify the primary functional objectives of information technology

projects and match those with the competitive improvement goals of the operation.

12 Upton D, 1998, Designing, Managing, and Improving Operations, Prentice Hall, Inc.

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IT implementation should not be without economic rationality. An economic feasibility audit

or break even analysis should be conducted on the software. A comparison can be done on

developing ones own software or buying off-the-shelf packages. The purchase price and the

development costs must be considered.

Other considerations when choosing software is the level of integration and standards used on

the software. An open standard is an agreement on the interface between modules that is not

subject to proprietary control. Many standards are inherited from legacy systems. The choice,

in terms of the standards to be used, will then already have been made.

In considering the software standards:

!"The manager needs to decide which standards are relevant. There is a possibility that a

closed module may need to be broken up, to be changed, or adapted to future needs.

!"The manager must decide whether those standards will function with existing and

projected modules

!"The manager needs to look at the aggregate effect of the new standards and languages on

the operation as a whole.

As well as having compatibility with other software, there must also be compatibility with the

hardware. The software package must be able to operate on the present systems in use.

A future consideration when choosing software is the level of support that is available.

Purchased software may not be immediately compatible. Some level of integration may be

required, necessitating the need of software back up support.

Ethical considerations to consider with Information Technology implementation include the

Facilitation vs. Substitution dilemma. In the 1980’s many people were predicting that IT

would replace many industry workers. However, the introduction of new technologies often

requires the provision of mechanisms to involve people in the system, using IT to facilitate

the work rather than using IT to substitute them. IT therefore creates a dual role both to

automate and informate.

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Shrink wrap vs. home-grown software

When assessing the information technology requirements of the supply chain the company

will have to deal with the decisions of choosing the most effective and rapid means of

building the system. Several factors are involved with this decision:

!"The size and complexity of the supply chain and its requirements

!"Current information systems in place

!"Availability of software application packages and hardware migration paths

!"Confidence in vendor and/or in-house capability

!"Resources in terms of capital and timing, people and time.

Following from these points, when managers are considering the introduction of new

software, comparisons need to be made as to whether to develop the software in-house or to

buy off the shelf. The advantages and disadvantages are shown in table 4:

Table 4 - Comparison of purchasing software to developing in-house

Advantages Disadvantages

Prototyping User Interaction

Feedback

Immediate value

General involvement

Flexibility

Cost

Only smaller initiatives are suited

Investment may preclude analysis

Ageing without adequate

documentation

Disaster / error recovery

Shrink Wrap Applications Reduced development time

Increased reliability

Decreased cost

Increased support

Choice

Lower switching cost

Ineffective process match

High customisation costs

Compromise

Competitive advantage minimised

The flexibility and adaptability to user needs are perhaps the biggest advantages of

prototyping. On average a 30% saving on both time and costs are obtained from using off-the-

shelf software as opposed to developing home grown software.

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The following process is adopted when choosing and implementing off-the-shelf software:

Figure 6 - Software selection methodology

Project Management of Software Implementation

Each IT consultancy has created its own methodology with respect to software

implementation and project management. SAP has introduced a methodology called the

Accelerated SAP roadmap (ASAP).

Figure 7 - ASAP Implementation Methodology

The process is broken into 5 phases 13:

Phase 1 – Project Preparation

This phase involves the proper planning and organisational readiness for implementation.

13 The Accelerated SAP Roadmap, [Online],2000, Available:

http://www.sap-ag.de/solutions/index.htm

Changing Needs

- Feedback

Needs Selection Criteria Request for

Proposals (RFP) Evaluate Proposals

Select Suppliers Implement

!" Training

!"Change

management

Operationalise

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The following criteria need to be met:

!"Full agreement from all company decision-makers.

!"Clear project objectives are set and communicated through the company.

!"An efficient decision making process is in place.

!"A company culture exists that is willing to accept change.

!"Key milestones set.

Phase 2 – Business Blueprint

The company’s business requirements are documented. The business blueprint is a visual

model of the business’ future state after implementation.

Phase 3 – Realisation

The SAP team will firstly configure the baseline system and then fine-tune the system to meet

all the company’s business and process requirements.

Phase 4 – Final preparation

This is the testing and final adjustment stage. All end users are trained and transfer of data to

the SAP system. Final preparations are done to go live.

Phase 5 – Go live and support.

The system goes live. On going support is given by the SAP sales team.

The ASAP methodology adopted by SAP has elements that can be used by project managers

for most implementations.

This section has covered some of the key elements that must be considered with supply chain

management and IT implementation. The following section contains the Clicks case study. On

analysing the case study, most of the theory outlined above is relevant. It is up to the student

to decide which theory and even which model is applicable.

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REFERENCES

1. Upton D, 1998, Designing, Managing, and Improving Operations, Prentice Hall, Inc.

2. Laudon K.C. & Laudon J.C, 2000, Management Information Systems, Prentice Hall, Inc.

3. Gopal C. & Cypress H., 1993, Integrated Distribution Management, Richard D. Irwin, Inc.

4. Lewis, Morkel, Hubbard, Davenport, Stockport, 1999, Strategic Management, Prentice

Hall Australia

5. Porter M.E. & Millar V.E., How information gives you competitive advantage, Harvard

Business Review 1985 vol. 5

6. Leanard-Barton D. & Kraus W.A., Implementing new technology, Harvard Business

Review 1985 vol. 6

7. Hines, P., Lamming, R., Jones, D., Cousins, P. & Rich, N. 2000, Value Stream

Management, Pearson education Ltd.

8. Meredith, J.R. & Shafer, S.M. 1999, Operations Management for MBAs, John Wiley and

Sons Inc.

9. Faull, N., Day, N. & Klein, T., What does good implementation look like?, Conference

paper, SAPICS July 1998.

10. Faull, N.1998, Competitive Capabilities, Juta & Co Ltd.

11. Fisher, F.L., Raman, A. & McClelland, A.S., rocket Science Retailing Is Almost Here –

Are You Ready?, Harvard Business Review July-August 2000, pg. 115-124.

12. Ketzenberg, M., Mettes, R. & Vargas, V. 2000, ‘Inventory Policy for Dense Retail

Outlets’, Journal of Operation Management, vol. 18, no. 3

13. The Accelerated SAP Roadmap, [Online],2000, Available:

http://www.sap-ag.de/solutions/index.htm

14. Klein, K.J. & Sorra, J.S., 1996, The Challenge of Innovation Implementation, Academy of

Management Review, Vol. 21, no24.

15. Poirier, C.C. 1999, Advanced supply chain management, Berrett-Koehler Publishers Inc.

16. Harmon, R.L. 1993, Reinventing the warehouse, The Free Press.

17. Harrison, A, 1999, Creating the agile supply chain, School of management Report,

Cranfield University.

18. JDA Software Group Inc., 1998, 1999 Course Catalogue, JDA University.

19. JDA Software Group Inc., 1997, Retail Information Systems, Sales brochures.

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20. JDA Software Group Inc., 1996, Merchandise Management System, Training Manual.

21. Richardson, H.L., 1998, Pooling with competitors, Transport & Distribution, November

1998.

22. Ward, P. 2000, Flexible: friend or foe?, Supply Chain Management Journal, 6 January

2000.

23. PricewaterhouseCoopers, 1999, Shaping the value chain for outstanding performance,

Research Report, PricewaterhouseCoopers.

24. PricewaterhouseCoopers, 1999, South African value chain analysis, Research report,

PricewaterhouseCoopers.

25. Iwanski, A., 2000, Supply chain 2000, Conference.

26. Iwanski, A., 2000, The Clicks Organisation, presentation.

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THE CLICKS ORGANISATION

A case study on the implementation of automated

replenishment software for retailing

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Keith Patterson, the Logistics Operations Director at the Clicks Organisation, glanced through

the Nielson report for October 2000, noting how the average out of stock figures for Proctor

and Gamble products had decreased from 19% in August back to below 5% at the October

month end.

Since the purchase and implementation of the J.D. Adams (JDA) software by Clicks in 1996,

they have been battling with the JDA replenishment algorithms to find the optimal solution

for each of the stores’ 12000 stock keeping units (SKUs). Keith leaned back in his chair and

reflected briefly on the implementation of the JDA software and the development of the

supply chain. He pondered whether it would not have been an option for the Clicks’ IT

department to have written and developed its own in-house automated replenishment

program.

Keith had worked in several Clicks stores before being moved to the position of Business

Systems Development Manager in 1992. In 1997 he moved into the newly formed Logistics

department as the Repurchasing Manager responsible for store and distribution centre (DC)

replenishment systems. In 1998 he was again promoted to Logistics Operations Director

responsible for all facets of stock movement and inventory levels within the group, with the

main focus being the implementation of the centralised distribution / replenishment projects.

COMPANY BACKGROUND

Jack Goldin started Clicks Stores in 1968. It was listed on the Johannesburg Stock Exchange

in June 1979. Clicks made a number of acquisitions during the 1980’s and 1990’s which

resulted in New Clicks Holdings Limited being formed in 1996. New Clicks Holdings

Limited is one of South Africa’s largest retail groups, consisting of six retail chains: Clicks

Stores; Diskom Stores; Musica Stores; CD Wherehouse; Link Pharmacy Chain; and Priceline

in Australia. The group operates a total of 640 stores in South Africa, Namibia, Swaziland,

Lesotho, Zimbabwe and Australia and employs more than 7 500 people. It had a turnover in

excess of R3.3 billion in the 1999 financial year. This represents an 800% growth in revenue

over the 10-year period since 1990.

Clicks Stores contributes 77% to the group profits and 53% to the group sales. Clicks had a

turnover in excess of R1,7 billion 1999. The group regards Clicks Stores as South Africa’s

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leading specialist retailer of health, home and beauty products. It operates from 205 outlets,

including eight franchised stores, in Southern Africa. Clicks’ target market is the middle to

upper income market. It was the first South African mass retailer to successfully establish a

non-credit customer loyalty card.

The group has recognised that successful modern-day retailing depends on exploiting the

available technology to manage the supply chain of the group. The implementation of the

JDA automated replenishment was one of the first steps in creating a more efficient supply

chain.

CENTRALISING THE SUPPLY CHAIN

In 1989 the Clicks Organisation was replenishing all its stores by means of direct-to-store

deliveries from all their suppliers in South Africa. The only part of the Clicks Organisation

distribution system that was centralised was that of their imported items, which constituted

20% of all goods. The imported items were sent to the Cape Town and Durban harbours

before being transhipped to and distributed from the three Regional Distribution Centres. The

distribution network was similar to that shown in Figure 1.

STOREOPERATIONS

WAREHOUSING

SUPPLIERSBUYING &

MERCHANDISING

20%

80%

Goods flow =

Information flow =

Figure 1 - The supply chain before centralisation

The increasing number of imported items was creating logistical problems for Clicks. Not

only did the imported items require a longer lead-time, but the distribution to stores was also

difficult. Distribution of all imported merchandise was handled via the three small regional

distribution centres in Cape Town, Durban and Johannesburg.

The growth in imported goods however soon necessitated an expansion of the facilities. The

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first phase of this development was the completion of the Montague Gardens DC in 1993.

In 1994 the distribution operation was again reassessed. The number of SKUs that Clicks

were handling was increasing all the time. Based on international trends a decision was then

taken to centralise the distribution of all products. This would benefit the organisation by:

!" Creating a higher stock turn at store level.

!" Decreasing the amount of inventory in the supply chain particularly at store level.

!" Moving to a pull demand system, based on electronic sales information.

!" Suppliers sharing the distribution and warehousing costs.

!" Increasing economies of scale for current warehousing and distribution infrastructure.

!" Increasing the stability of the supply chain infrastructure.

!" Moving towards a vision of full supply chain automation for the future.

!" Reducing paper work in the form of invoices and credit notes.

!" Reducing transport costs and the overall number of deliveries (See figure 2 and 3).

!" Stores receive smaller orders more frequently, than what was being experienced on a

direct store delivery basis, thus creating economies of scale.

Suppliers Stores

400 400x 2/month

320 000 Deliveries per month320 000 Deliveries per month

Figure 2- Direct store delivery

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CAPE TOWN

GAUTENG

KZN

Suppliers

D.C.’s

Stores

400 x 4 x 3= 4800

+ 400 x 4= 1600

6400 Deliveries per6400 Deliveries permonthmonth

Figure 3- Central distribution deliveries

Clicks unveiled their intention to build two new DCs, one in Pretoria (Exhibit 10) and the

second in Durban. The Cape Town DC would also be expanded. The objective was to

increase centralised distribution to 90% of total SKUs moved in terms of value, through the

three national distribution centres.

By 1994 there were 5000 SKUs in the Clicks Stores. In order to move to centralised

distribution for all products, Clicks management realised that there would be a necessity for

an automated replenishment system, as the large volumes and number of SKUs were

becoming unmanageable using historical manual ordering processes. The decision was then

made to purchase and equip all Clicks stores with an automated replenishment system that

would help enhance the benefits gained by centralising the distribution. Whilst the stores

would be replenished by an automated replenishment system, the DC inventory would be

controlled by a software package called Worldwide Chain Stores System (WCSS). The

warehouse management system was introduced to the distribution centres in 1993.

The WCSS is a relatively simplistic warehouse inventory management system that keeps

track of the inventory levels within the DC. At the time of purchase it was the ‘best of breed’

warehouse management software. It is able to produce manual picking labels / slips for the

picking of orders and can track goods within the warehouse by shelf and isle number. It is

barcode compatible, although Clicks did not implement any form of automated warehouse-

tracking system. One of the modules within the WCSS system is Purchase Order Management

(POMS) which is used to replenish stock into the distribution centres, from a central point.

Scanning in store was started in 1991 using the ICL computers / tills. Between the period

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from 1992 to 1996, scanning was used as part of the consumer credit card system. ICL

installed the software in the tills.

The distribution centres were to become the warehouses for products for the Clicks, Diskom,

Musica and Link Pharmacy Stores. The first phase would be to automate the replenishment in

all of the Clicks Stores. The WCSS would therefore have to handle “multi-chain” distribution

to cater for the requirements of the different retail chains.

METHODOLOGY OF PULL VS. PUSH ORDERING

The combination of in-store scanning and warehouse management systems are major enablers

in allowing ordering methodology to change from a “push” to a “pull” system based on

consumer demand. Orders to stores and replenishment of DC stocks is now made on what

has been sold and not what is forecasted by store managers or buyers, using “gut feel”. The

pull demand replenishment process forces the supply chain to move towards a just in time

method of replenishment. In simple terms this will prohibit stores from ordering extra stock,

over and above the consumer demand and store orders will be calculated using sales data. The

demand is now effectively a true indicator of the success of any given product. This method

of replenishment also highlights non-selling and slow moving products that should possibly

be removed from that store. The system automatically builds store specific sales trends and

inventory levels. In order to be able to handle the new way of working it was necessary to

restructure processes within the business. A stock repurchasing department was set up, whose

main function is automatic inventory control at stores and DCs. (Figure 4)

STOREMERCHANDISING

STOREOPERATIONS DISTRIBUTION

STOCKREPURCHASING

MARKETING

SUPPLIERSCATEGORY

MANAGEMENT

��

��

DEMAND SUPPLY

STOREDEMANDMNGT.

SUPP.STOCKMNGT.

Goods flow =

Information flow =

10% # 80%90% # 20%

Figure 4 - Current business model

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Prior to the supply chain centralisation, delivering on minimum orders (e.g. one shrink or 6

cans of deodorant) was not cost effective for suppliers, as delivery costs were higher than cost

of goods. Suppliers would therefore deliver in bulk to the stores thus creating a ‘push’

replenishment philosophy. Centralisation allows suppliers to do a 2-week delivery straight to

the DC. The suppliers now benefit as they only make one bulk delivery to the DC for

distribution to stores and the stores benefit from not needing to carry excessive buffer stock.

They can theoretically order when required and in the exact quantities required direct from the

DC.

MANUAL ORDERING PROCESS BEFORE JDA

The store replenishment system prior to the introduction of the JDA consisted of manual

counting and ordering. The store manager had a catalogue or stock card (Exhibit 1) listing

products that were available from a DC or supplier. Store stock was physically counted and

reordered on a cyclical basis by using a simple formula to calculate the order quantity. This

method was open to abuse and human error, the extent of which was revealed when the JDA

system was implemented. Before the JDA package was introduced, the store balances were

not known and the in-store stock was not an accurate reflection of consumer demand. Manual

ordering also allowed managers to use their discretion on the selective ordering of products

for the store, causing a number of ranged products to never be ordered.

CHOOSING JDA SOFTWARE

In South Africa, in 1996, none of the major retailing chains had DC operations with

automated replenishment. As no local systems could be viewed it was necessary for Clicks to

look overseas for a suitable system. Clicks then contacted Dr Stan Wulf, from WA Consulting

Ltd., to help source a suitable system. Dr Wulf had been a strategy consultant with the Clicks

Group for a number of years. Although no technical specification was drawn up as purchasing

criteria for the package, Dr Wulf understood the concept that Clicks were looking for through

his consulting engagements to the Group. Dr. Wulf had seen the JDA system that was being

used by retailers in the USA and the UK (Woolworths and ASDA). Looking at the

capabilities of the software, it was apparent that Clicks only needed the replenishment

module. The current warehouse management, financial and products and pricing and data

warehousing systems were more than adequate for their current business needs. Woolworths

(UK) was using a similar combination of WCSS and JDA package that Clicks required. Both

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the WCSS and JDA programs had been modified to service their particular operations. Dr

Wulf thus recommended the JDA software to Clicks management. The JDA software was

considered by many to be the ‘best of breed’ in terms of retailing software at that point in

time.

The IT manager in 1996 was August Iwanski. Iwanski was asked by Clicks management to

assess the software package and then negotiate a price, as well as the terms of the contract for

installation with the suppliers. There was no agent for the product in South Africa so all

negotiations were done in the United States. Iwanski returned from the US within a week after

having purchased the software on behalf of Clicks and proceeded to oversee the

implementation.

The JDA software was purchased without the necessary technical, administrative and

operational research being done. No alternative software was considered. Clicks purchased

the entire ERP system knowing that they were only going to utilise one module from the

package.

WHAT IS THE JDA SOFTWARE14

The JDA software package purchased by the Clicks Organisation is the JDA Merchandise

Management System (MMS). The MMS is an AS/400-based corporate merchandising,

distribution and financial system developed specifically for the retail industry. The MMS

software package consists of 31 fully integrated modules. The modules cover the functional

areas of merchandising, distribution, financial control and store operations with polling,

which allows the system to communicate with any other in-house systems. An overview of

the software modules is shown in exhibit 2.

OPERATION OF THE AUTOMATED REPLENISHMENT

The automated replenishment module contains some of the following features:

!"Provides online order simulation.

!"Contains one central program for maintenance and replenishment overrides.

!"Allows parameters to be set at multiple levels down to the store/SKU level.

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!"Provides for flexible , user defined order run schedules:

$"By store, replenishment zone, or all stores (store schedules).

$"By vendor and/or product classification (product schedules).

!"Allows seasonal profiles to be defined by the user or system defined.

!"Provides for review and maintenance of suggested orders before creating the actual

purchase orders or transfers.

!"Replenishes stores and or warehouses.

!"Replenishes from vendors and/or warehouses.

!"Replenishes warehouses based on warehouse shipments or accumulated store sales.

The store trader software (or EPOS), using scanned sales data, initiates the process of stock

replenishment for the centralised supply chain (Exhibit 5). The point of sales system records

the number of sales per item on a real time basis during the day’s trading. This data is held in

the MJ Retailer back office system and uploads to the central processing systems when the

store is polled in the evening. This data is processed through the JDA replenishment system

and store orders are calculated. The store order quantities are interfaced to the WCSS system

and is then accessible for DC processing. Sales and other data from all stores is collected by

the polling system every night.

Orders for stores are usually placed once a week, relative to their location and stock

requirements, but there are also many stores countrywide that are serviced on a daily basis.

The timing of orders is based on the DC delivery schedule and therefore sales data is

accumulated and used as and when the system requires an order to be placed. Once the order

has been received in the WCSS it sends a receipt confirmation back to the JDA system. This

information is used to identify “on order” products when the next order is calculated. The

basic ordering algorithm is Review Days + Lead-time + Safety Stock using smoothed

weighted average sales. The lead-time at present is 7-days (Figure 5).

After the item is ordered, the Clicks’ IT department requires that a full day must pass to

ensure that the system doesn’t crash. The following day the DC releases orders for picking.

Products are picked by store and packed into cages / rolltainers / tote bins. A checking

procedure is followed and invoices produced for the store. This process also sends another

14 JDA Software Group information pack

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confirmation back to the JDA system, confirming that the order(s) have been picked and sent

to stores. These goods are delivered to stores the next day using an independent transport

company, based on optimised delivery routing systems that allow for efficient use of vehicles.

Table 1 - 7-Day Order Lead Times.

7 DAY ORDER CYCLE

Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7

Order is

placed

Day passes to

ensure

system

doesn’t crash

Items are

picked and

packed

into cages.

The picked

items are

uploaded

onto WCSS.

Weekend -

no delivery

Weekend –

no delivery

Items are

delivered

.

On receipt of deliveries, stores check to ensure that goods received are correct. Stores will

acknowledge receipt using the back office system and any discrepancies are also captured into

the back office system in stores. These changes are then uploaded at the end of the day and

are interfaced to the JDA system overnight. The JDA system updates in-store inventory levels

using the delivery confirmation and discrepancy adjustments data. New stock, price changes

etc are also sent through from the WCSS to the in store JDA.

The JDA system can calculate replenishment quantities and safety stock based on different

algorithms (Exhibit 3). There are essentially 5 possible codes of replenishment per stock item.

The possible replenishment codes are:

0. Not a replenishment item

1. Statistical sales forecasting

2. Fixed stock level (min/max)

3. Seasonal rebuy

4. Avg. Weekly sales (dynamic)

“Not a replenishment item” is self-explanatory and no orders will be placed for these

products.

The Statistical Method, the Fixed Stock Level and the Average Weekly Sales Method all use

algorithms to evaluate the “order at” and “order up to” quantities.

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Once these values are calculated the order amount is calculated from the logic:

Avaliable- toupOrderOrderSuggestedAt;OrderQtyAvailIF #$

If a store was on a weekly replenishment cycle, stock items will generally have a 3-week

inventory level in store. This is so that there is 1 week of sales, one week of lead time and one

week safety stock.

Statistical Method

This method replenishes stock based on the period sales history that is adjusted for seasonality

and market trends

Seasonal Re-buy

This method uses previous season data to calculate order quantities.

Average Weekly Sales Method

This method is based on accumulated, seasonally adjusted, weighted averaged weekly sales.

Fixed Stock Method

This method replaces stock based on a seasonally adjusted, model stock quantity that is user

defined.

Full explanations of the equations are found in Exhibit 4.

When the JDA program was first used, different types of ordering algorithms were applied for

different categories of products, but in many cases they produced poor results. The one found

to be best suited to the Clicks product profile and sales pattern was the Average Weekly Sales

Method (Dynamic Method). The Fixed Stock Method is based on consistent sales and model

stocks per store and therefore does not take into account any sales trends, so you will always

be either over or under ordering on products that show varying sales trends.

The Statistical Method requires at least two years history for the product. This is not possible

with new products listed. The Average Weekly Stock Method uses the weighted historical and

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last week averages, which allows for sales trend changes and has shown to be most suited to

the Clicks business.

INTEGRATION OF THE SOFTWARE

Although the JDA software package has many modules, only the replenishment module is

used. The software had to be integrated with the other software that was being used at Clicks.

The other packages include the WCSS, the buying system and the store system. (Exhibit 5).

Programmes using RPG and Cobol had to be made compatible with the JDA software.

Due to the complexity of the integration with the other software packages, a JDA

programmer, Ian Granston, was brought out from the UK, whose job was to integrate the JDA

software to these packages, as well as customising the JDA package for features unique to

Clicks requirements. Iwanski commented on Ian’s position:

“Ian was 80% technical. He did not manage the project, however, he did a good job

considering the technical brief that he had had.”

No JDA consultant was sent out to advise Clicks’ management as to what additional features

would be beneficial to the operations. As the management at Clicks were not sure of the

capability of the software, it was left up to Ian to suggest changes to be made for the

adaptation to the Clicks supply chain.

The system modifications and integration of the JDA software cost Clicks in the region of

R1,5 million over and above the cost of the package, licensing and maintenance. The majority

of these costs were in consulting/ programming fees.

PILOT PROJECT AND ROLL OUT

Having purchased the JDA software, the software now had to be implemented across the 200

Clicks stores. A 3-day introductory training course was run by JDA at the Clicks Head Office

in 1995. Attendees at the course included a number of staff from all areas of the business.

Iwanski was to be responsible for the implementation of the JDA software. He did not have

any technical personnel who could aid with the implementation so he seconded the services of

the Richard Roetz who was appointed as Replenishment Manager to handle the system

management, user training and the roll-out of the system to stores. Roetz had previously held

Store and Warehouse management positions within the group.

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Roetz had no previous experience in software implementation and had limited knowledge of

the software. Roetz commented on his transfer to his new position.

“I had been on an introductory training course for the JDA software. As on most

courses we were not paying too much attention to the details of the training. When we

finished the course they told me I would be helping with the implementation. I thought

it would be a matter of installing the package and everything would work wonderfully.

It shouldn’t take longer than a few months.”

Without any formal training, Roetz started the JDA roll out with what he termed "a learn as

you go" philosophy (more commonly know as “adapt or die”).

The new implementation team, which consisted of Iwanski and Roetz decided that the JDA

should be implemented in 10 stores first and then rolled out across the country to the

remaining 190 stores. The initial stores were a combination of large and small, busy and quiet

stores, efficient and not so efficient (Exhibit 6). Some of the first stores to be implemented

included Claremont, Greenacres and Vryheid. The implementation started in Feb 1996. The

implementation could have started in December 1995, however Clicks' management decided

to wait until February, as they didn’t want any problems over the Christmas period.

Roetz and Iwanski conducted a road show around South Africa, in an attempt to spread the

word, as they understood it, of things to come. There were no formal training sessions on the

pilot project road show; the show was merely an introduction to what JDA was and what

benefits could be derived from its use. The training manual was discussed with the managers,

but it was up to the store managers to become familiar with the software.

All the store managers for a region were assembled at the regional offices. Iwanski sold the

product to the managers by explaining that it would sort out the ordering process, and would

automatically cater for the store stock requirements. Iwanski believed that apprehension had

filtered through the organisation, as many managers thought that the Clicks organisation had

‘dreamt up’ the software package themselves and were trying to implement home grown

software.

Initially the pilot project would be running for 2 months. This needed to be extended after

implementation difficulties were discovered. Contrary to Roetz’s belief, the implementation

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of all the stores was going to take substantially longer than 3 months. The pilot project was

extended and ran from June 1996 to February 1997.

After the implementing the JDA software into the pilot stores, Roetz and Iwanski began the

roll out to the remaining stores. The goal was to have all stores up and running on the new

system by the end of September 1997. A plan of rolling out approximately 20 to 25 stores per

month, between February and September, was put together. This was actually completed by

the end of the first week in October 1997.

STORE CHANGE OVER

Before implementing the new JDA software in the stores, store managers were advised to

order up an extra 2 weeks stock, to avoid running out of stock if there were any delays in the

implementation process. On a specified day a list of products is issued to the store and these

are physically counted in the storeroom and on the shelf (outside of normal trading hours so

that balances are not affected by sales). This data is loaded into the JDA system and balances

are then held in the system. On the order cycle the first orders are generated and processed

through the DC’s in the normal manner.

PROBLEMS NOT ENVISAGED

During the initial pilot project there were many unforeseen problems that arose due to the

difficulties with the change over and replenishment principles of the JDA software. These

included:

Negative Balances – When a product was counted and the balance was understated on the

system, sales would take place and because there were physically more items available than

on the system, the system balance would become a negative number (Sales greater than stock

on hand). This resulted in incorrect quantities being ordered for stores, as the system could

not handle a negative balance. This occurred for as many as 200-300 items per store.

When to count stock – Due to the way that the system applies data before doing calculations it

became apparent that you could only count stock outside of normal trading hours, as these

counts were always applied as at 8.00am on the morning of the count. If you count half way

through the morning and sales had taken place, the system would apply the count as at

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opening. It would then deduct total sales for the day and this would produce a calculated

balance lower than the physical. Orders generated from this information would overstock

stores.

Selective Ordering - The system was ordering products that the store manger had, through his

own discretion, not ordered before. Suddenly there were many more items delivered that

required shelf space (Approximately 300 products per store)

Order Sizes - The initial number of products that orders were calculated on was enormous and

took exceptionally long to process. This was as a result of the system believing that every

product in the company databases (approximately 64 000) had to be ordered for stores. This

indicated that it was necessary to incorporate logic from the buying system in the

replenishment system. This would allow for differentiation of product status by store and

would exclude products from orders if they were not meant for a store. These status flags

were interfaced from the buying system and the replenishment system was modified to read

these in the order calculation process. The order status was as follows:

!"DSC – Discontinued (No longer available/ sold in the company)

!"DNO – Do Not Order (Product is temporary unavailable)

!"NOT – Not Stocked (Product is not stocked in a specific store)

!"DXW – Draw Ex Warehouse (Available to be ordered from DC’s)

!"SMO – Stores May Order (Available to order direct from suppliers)

!"NYD – Not Yet Distributed (New lines that were not yet available for stores)

This coding helped with order processing and the management of inventory in the stores.

Although a similar option is available in the JDA package, it is not as specific and did not

provide for the requirements of Clicks.

The Average Weekly Sales calculations for stock reordering are based on a rolling average

weekly figure. Each item has a minimum reorder quantity depending on the item and the

volume of sales. This is tied in with the lead times of the stores. Two specific difficulties that

the JDA has in its implementation are the handling of promotional items and month end

peaks.

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In accounting for promotional items the weighting factor (W1 & W2) for the calculations of

these product is biased towards the historical sales rather than the weekly sales. The system

will take time to increase average weekly sales, as the sudden sales increase has little impact

on the rolling historical average.

South Africa is one of the few countries in the world where month end peaks occur in

retailing (Exhibit 7). These month-end peaks are attributable to the monthly salary method of

compensation compared to the bi-weekly method of compensation in the vast majority of the

developed world. The JDA replenishment has a problem with the month end peaks in that the

software is based on a monthly view, which assumes that weekly sales will be similar

throughout the month. The algorithm for the Statistical and Average Weekly Sales Methods

use price, volume and margin of sales to calculate the safety stock for each item for each store

(V1, V2, V3). At present the pricing module is not being used.

By using the pricing module of the JDA, benefits such as catering for abnormal sales as well

as promotional activity could be gained. The algorithm is now only using margin and volume

to calculate the necessary stock. To overcome the peaks the Stores replenishment manager

overrides the system by increasing the volume of sales for the product. Increasing the period

during which sales are made does this. The algorithm would then place the product in a higher

safety stock bracket.

Even with the changes the month end peaks are still posing a problem with ordering. Ted

Parzydlo, a previous store manager for several stores in Gauteng and now the Replenishment

Manager, commented on the month end peaks:

“ Month end peaks were causing many problems for replenishment. These peaks can

change with geographic area. For example in Pretoria the month end peak is around

the 20th of the month as civil servants are paid at this time. It also changes per area

per SKU. There are sometimes areas that have a certain type of clientele e.g. a

particularly Jewish area.”

JDA has the ability to forecast seasonal peaks such as Christmas (Exhibit 8) based on

historical data. Clicks have not, however, built a true historic database due to the many

manual interventions in the operation of the JDA and the manner in which it has been

implemented.

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Imported items are not being handled through the JDA system. The problem with imported

items is the 4-week lead-time on the delivery. A large order is also placed for these items.

This is done through the purchasing department at Clicks.

Other non- technical problems included:

!" Employees counting stock in stores did not realise the criticality of the correct counts

being recorded for JDA ordering process.

!" Lack of general understanding of replenishment cycles and principles caused confusion

amongst operations managers.

!" Many inexperienced managers at store level, due to the rapid expansion of the company in

the 1990’s.

!" New software meant that the store managers had a ‘scapegoat’ if store replenishment and

sales were short.

!" Acceptance of the new technology. Cultural ownership still needed to be moved to store.

!" There was no help desk for store queries.

TRAINING

When setting up the initial pilot stores, there was very little training for the store management.

Firstly there was no official training manual and secondly the implementation team felt that

the software was easy to use and self-explanatory. As far as the store managers were

concerned, they no longer needed the 2-inch catalogue and order card that they had used for

manual ordering, as the JDA system was a self-contained, self managed system that would

run the store for them. This was true to some extent, except that the managers did not foresee

how point of sale systems compliance and in store pilferage/ breakages could lead to incorrect

order calculations.

It was soon discovered that the tellers in the stores were causing ordering difficulties. Instead

of scanning every single physical item, they were scanning a similar item of the same selling

price, irrespective of the variant (e.g. Purity Baby Food), to speed up the flow at the checkout

counter. This resulted in the scanned item being reordered and the item that was not scanned

not being reordered. This was discovered when managers found certain shelves empty, with

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no orders in place for replenishment, and similar products in the range that were over stocked.

Training of the point-of-sales staff was then done to educate them about the JDA system and

the necessity of correct scanning of items. The multiplier key was also removed from the tills

to force tellers to scan each item.

Although Iwanski gave the impression of ‘feet up on the table’, this was not the case. The job

functions of the managers were changing. In 1996, 83% of products were still being delivered

direct-to-store, so manual ordering was still required. However, in order to assist in the

automated replenishment process, the roles in stores were changing. The ongoing

maintenance of store stock balances created new processes within the normal management

role. Store managers needed to be trained in these procedures.

After discovering these difficulties with the pilot stores, Roetz wrote a technical document for

all store managers to follow. He firstly looked towards the UK for some advice. He found that

in the UK 95% of store managers were still doing semi-annual physical audits as well as

doing counts by exception. This required the store managers to do physical checks of the

shelves and make notes of items that are below the minimum shelf quantity level, or items

that are already out of stock. The manager could then check whether items are on order and

whether there is the correct stock count of the item on the system. In this way 10-20 % of the

items were being checked. This means that the remainder of the 80% of the items were

automatically being managed and ordered by the replenishment system.

Following the initial conversion of the pilot stores, the rollout of the remaining stores

occurred with the new training manual that Roetz had created, with the emphasis on the

continual checking and counting of stock items. However the nature of the sessions was still

very theoretical, as everyone was learning new things everyday. Store managers believed that

they would have benefited from a further question and answer session after managers had

familiarised themselves with the software.

A new training manual has subsequently been written incorporating the responsibilities of

store managers. New store managers now go through formal training sessions at induction.

Each trainee is then assessed and appraised at the end of the training period.

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STORE MANAGERS’ REACTIONS

Although most managers welcomed the new software, the JDA system was removing the

store managers’ flexibility and autonomy to manage the store. The more products that were

being ordered through JDA and the DC the less flexibility the managers enjoyed. This was

particularly so over the Christmas period. Store managers were used to being able to order

their own safety stock for the Christmas period. During this period managers normally

develop their own in store warehouse. The JDA software was now controlling the stock levels

and everything had to be ordered through the system. This caused some frustration and

worries amongst the managers as to stock-outs in this important sales period. Any problems

or inventory discrepancies that then surfaced were blamed on “the system”.

Parzydlo recalled his feelings at the time of implementation:

“ When the JDA was introduced I had no formal training… Iwanski gave us the

perception that it would be ‘feet up on the table’. This was not so. The JDA required

ongoing maintenance with querying out of stock items, confirming receivables etc. The

stores that I managed sold specific goods to specific clientele. With the JDA I did not

have the flexibility to adapt to my clients needs.”

The biggest problem for Clicks was to change the mindset of the store managers to enable

accurate use of the JDA software. The incorrect perception of the JDA capabilities was

created in the minds of some store managers and staff. The JDA software did not take any

workload off a store manager. It simply changed the way in which he/she had to manage the

inventories within the store. The manager's tasks became more administratively orientated

where stock was to be managed by exception from the JDA reports, instead of by physical

stock take and manual record checking (Exhibit 9).

CHANGES IN GROUP INVENTORY

From 1997, when JDA was first introduced, to 2000 the company stock turn has increased

from 4.6 to 5.4 turns per annum. This may not show huge benefits, but the impact of JDA

only affected 10 to 15% of products sold. In the shorter-term, store inventory has decreased

from 10.5 weeks of supply to approximately 6.5 weeks cover on DC supplied local

merchandise, whereas directly delivered products have remained at 10.5 weeks.

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Before the JDA implementation, greater levels of safety stock were kept in store and greater

overall stock levels were held to avoid a stock out situation. Bulk deliveries would be

delivered direct to store as suppliers refused to deliver on minimum order quantities due to the

higher transportation/delivery costs associated with more frequent smaller deliveries. Post

JDA implementation, this was no longer necessary as products could be delivered in bulk to

the DC. This change enabled Clicks to reduce storeroom space in-store and utilise the extra

area as retailing space.

A practical example of this shift in operations is that in some instances, up to 6 pallets of

stock were delivered at a time to the store when doing direct-to-store deliveries. This has now

been reduced to 1 pallet to the store from the DC as the supply chain distribution system

allows for more frequent deliveries per store than previously.

HELP DESK

In the initial stages of implementing the JDA software, it was not envisaged that a help desk

would be required. However, with the number of queries coming through to the IT

department, asking to speak to a Mr. JDA, it was decided to implement a help desk which

would be available for any JDA queries. This was especially relevant during the initial pilot

phase where there was little training offered and the trainers themselves were still learning.

The Replenishment Manager manages the helpline service as many of the queries are related

to replenishment processes. At present, approximately 100 calls are taken per day from the

230 stores. 1000 adjustments are also made per day to the different products for different

stores. Over 120 store orders are made per day.

ADVANTAGES OF THE JDA SOFTWARE

Some of the advantages of the JDA software overlap with the benefits derived from the

centralised DC infrastructure. Some of these benefits include:

!"A reduction in the number of deliveries within the supply chain.

!"Reduction in the amount of paper work (e.g. supplier invoices, credit notes).

!"Small suppliers benefit hugely from transport cost savings.

!"Store minimum order quantity from suppliers has been eliminated.

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!"Store stock turns have improved considerably.

!"Store managers can concentrate more on customer service.

!"Credit notes no longer used between supplier and each store.

Another advantage of the JDA system is that it picks up non-moving items, known as dead

stock, and issues a non-mover report. This is invaluable both to the reordering department as

well as to the store managers. It is a waste of shelf space to be displaying non-moving goods.

Transportation costs for the suppliers are now lower due to the fact that they are making

fewer, bulk deliveries to one point of delivery. The supplier however shares the costs of the

warehousing and distribution to store at a rate which is negotiated with each supplier.

Transport costs are currently running at 3.2% (down from 3.79% in the last 12 months) and

DC and Logistics running costs at 7%, which amounts to approximately 10% of the cost of

goods sold (COGS).

(Figure 6)

2.813.73 3.79 3.20

5.931

9.88511.028

18.958

024

68

101214

161820

1997 1998 1999 2000

%

Cost R M ill.

Figure 6 - Clicks’ Transport costs – actual and as a percentage of COGS

Both DCs and stores are now able to move smaller quantities of stock faster through the

supply chain as more frequent deliveries are done to stores. Previously, the suppliers were

inflexible about the delivery schedule to stores. Store replenishment would take place in the

form of a weekly or fortnightly delivery with the quantity ordered by each individual store.

Centralisation allows suppliers to do a bulk, weekly delivery straight to the DC and stores no

longer need to carry safety stock to cater for long supplier lead times.

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At present 55% of products are still ordered direct using the manual system. Patterson

remarked that: “ Even if the JDA system is working at 60% efficiency it is still considered

more efficient than the manual counting and ordering.”

WHERE TO FROM HERE

Keith Patterson is now in a dilemma. Although the JDA software appears to be working, it is

not working optimally. He believes that it is possible to attain a further 30% reduction in in-

store inventory. At the same time there are further manual processes in the supply chain that

need to be automated to further enhance the distribution and achieve real savings for the

group.

His options are to discard the WCSS and POMS software systems and do a full

implementation of the JDA package including the warehousing and distribution models. This

will allow Clicks to build true sales databases on all their products. It would also allow for the

full automation of the supply chain from supplier to customer. This would however mean

writing off all the sunk costs. Alternatively he could continue using the JDA software as it is

and concentrate on automating other areas of the supply chain.

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EXHIBITS

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Exhibit 1 – Stock Card

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Exhibit 2 – JDA software modules

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Exhibit 3 – Algorithms Advantages and Disadvantages

Algorithm Best Use Pros ConsStatistical sales forecasting

Products with at least 2 years selling life cycle Products with selling trend changes from year to year

Low data maintenance Auto adjusts sales forecasts based on market trend Auto adjusts safety stock

Requires at least 1 year sales history or manual forecastRequires data entry of sales forecast for new productsAnalysis required to set weeks and percent of weeks supply Calculations are hard to follow

Fixed stock level (min/max)

Less important productsWhen case pack restrictions override forecasted weekly needsProducts that have a known required stock levelSimple sell one buy one replenishment Limited selling space

Easy to understand Highly predictable Matches need for set displays

Higher data maintenance effort requiredDoes not react to the market Not flexible

Seasonal rebuy Products that are sold only part of the year Products with at least 1 seasons selling history

Easy to understand and maintain

Weighting factor is buyers best estimate Requires at least 1 year history

Avg. Weekly sales (dynamic)

Products with no sales history Products with unpredictable sales Short lead time products

Low data maintenance Acts on recent sales trendsNo sales history requiredAuto adjust forecast and safety stock

Ineffective with long lead times and review periodsMay not react to sudden and drastic changes on sales patterns quickly enough

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Exhibit 4 - Algorithm Calculations

Statistical method

This method replenishes the stock based on the sales history, which is then adjusted for the

seasonality and market trend. This model is best suited for products with a long life cycle. The

algorithm is as follows:

Safety Stock (SS) = ((VC1 + VC2 + VC3 + VC4) x (Lead Time)/7

(in weeks)

where: VC1 = velocity code 1 (sales in Rands)

VC2 = velocity code 2 (sales units)

VC3 = Gross margin

VC4 = Undefined (usage requires custom mode)

Sales per Period = (Forecast or (Base Sales x Trend)) x (Profile Percentage for

Period / 100)

Sales per Week = Sales per Period / Number of weeks per period

Order up to:

IF Number of weeks left in period % (Number of weeks supply + SS)

THEN Order up to = Sales per week x (number of weeks supply + SS )

ELSE Order up to =(sales per week ) x (Number of weeks left in current period) +

(Sales per week in the next period) x (Number of Future period weeks Needed)

where: Number of weeks left = (number of weeks in period + 1) – current week

number in current period

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Number of future prod weeks = (Number of weeks supply + SS) –

Number of weeks remaining in product

The fixed order method

This method is based on an order up to and an order at figure and these are determined as

follows:

Seasonal rebuy

This is not a true replenishment method. This method accommodates purchasing for a season

based on the same season last year. The formula to calculate this is:

Avg. Weekly sales (dynamic)

This method uses accumulated, seasonally adjusted, weighted averaged, weekly sales. This

allows the system to respond closely to changes in the market place. The formulas are as

follows:

Last weeks sales deseasonalised (LWSd) = Last weeks sales / Last weeks profile ratio

Weighted last weeks sales deseasonalised (WLWSd) = LWSd x Weighting factor 1

21

)2*()(

WW

WASHpWLWSdASHstoricAvgSalesHi

&&

#

factorchange x salesyearsLastquantityOrder #

ratiostockModel x ratio)Profileat x order(AverageAtOrder #

ratiostockModel x ratio)Profilequantity xstockmodel(Average toupOrder #

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where: ASHp = Previous run’s average sales historic factor

W1 = Current weeks factors (normally 20%)

W2 = Historic weeks factors (normally 80%)

Forecast average weekly sales (AWSf) = Average sales historic (ASH) x

Adj profile ratio (APR) or current profile ratio

The adjusted profile ratio:

Nbr of weeks left in current period = (nbr of weeks in prd + 1) – Current week nbr

Nbr weeks supply = (Lead time + review period + safety stock) / 7

If nbr weeks supply > nbr of weeks left in current period THEN Adjust profile ratio

ELSE use current profile ratio

Adjust profile ratio (APR)

Current period profile (CPP) = CPP Ratio x Number weeks left in period

Next period profile(NPP) = NPP ratio x Number weeks needed in period

neededsupplyNbr weeks

)( NPPCPPAPR

&#

Safety Stock (SS, in days) = (VC1 + VC2 + VC3 + VC4) x lead time

7} / SS) timeLeadperiod{(Review x AWSf toupOrder &&#

7} / SS) time{(Lead x AWSfatOrder &#

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Exhibit 5 – Integration of software

WCSS

WCSS Whse Warehouse layout Warehouse inventory Perpetual stock takes WCSS SOMS Store order scheduling Picking Dispatching WCSS POMS Whse auto replenishment Purchase orders for whse

Shipping

Import order tracking Import costing Letter of credits Shipping Bible

WarehouseStock Ledger

Costed Movements GL interfacing

JDA Store inventory Store stock takes Auto replenishment of stores

Buying User maintenance General maintenance Company structure Supplier maintenance Trade agreements Supplier catalogue Product maintenance Product hierarchy Cost pricing Retail (selling) pricing Pricing approvals Supplier strips Warehouse catalogues Price change extractions Price change sheets Whse purchase orders Whse distributions H/O distributions Cosmetic commissions

Store EPOS (Store trader) Back Office v4 MJ Retailer

Infinium General ledger Fixed assets Cash Book Accounts payable Invoice matching

Creditors Accounts Payable Statement reconciliation

Major Clicks/Diskom Systems

Clubcard LEO Clubcard system

Affinity partners

Datawarehouse systemInfohouse Sales history Returns history Purchase history Whse issues history Whse receipts history Whse stock history Store stock history Performance tracking Product info Supplier info Customer analysis

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Exhibit 6 – Pilot Stores

Branch

Code

Branch Name Area Date store

went on to

JDA

Comments

104 Bothasig Cape 3-Jul-96 Quiet, low turnover store

103 Claremont Cape 3-Jul-96 Busy, high turnover store.

359 East Rand Mall Northern 3-Jul-96 Busy, high turnover store.

401 Greenacres Cape 3-Jul-96 Busy, high turnover store.

215 La Lucia Natal 3-Jul-96 Busy, high turnover store.

364 Mayville Eastern 3-Jul-96 Quiet, low turnover store

206 Overport Natal 3-Jul-96 Quiet, low turnover store

717 Somerset West

Diskom

Diskom 3-Jul-96 Only Diskom scanning store in the area

at that time.

344 Vereeniging Central 3-Jul-96 Quiet, low turnover store

221 Vryheid Natal 3-Jul-96 Quiet, low turnover store - also a

country store

417 Lorraine Cape 7-Nov-96 New store, put on JDA from the start.

509 Westdene Natal 21-Nov-96 New store, put on JDA from the start.

379 Louis Trichardt Northern 27-Nov-96 New store, put on JDA from the start.

418 Jeffreys Bay Cape 5-Dec-96 New store, put on JDA from the start.

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Exhibit 7 – Unit sales – Clicks Commissioner Street Store – June to Nov ‘99

Exhibit 8 – Xmas sales – Commissioner Street Store – Jan to Dec 1999

Unit Sales - Clicks Commissioner Street StoreJune - November 2000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

00/0

6/25

00/0

7/02

00/0

7/09

00/0

7/16

00/0

7/23

00/0

7/30

00/0

8/06

00/0

8/13

00/0

8/20

00/0

8/27

00/0

9/03

00/0

9/10

00/0

9/17

00/0

9/24

00/1

0/01

00/1

0/08

00/1

0/15

00/1

0/22

00/1

0/29

00/1

1/05

Weeks

Un

its

So

ld

Xmas Trading - Commissioner Street StoreDecember 1999 - January 2000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

99/1

1/21

99/1

1/28

99/1

2/05

99/1

2/12

99/1

2/19

99/1

2/26

00/0

1/02

00/0

1/09

00/0

1/16

Dates

Un

it s

ales

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THE GOLDEN RULES TO JDA SUCCESS.

CAPTURE ADJUSTMENTS DAILY.

COUNT & CAPTURE NEGATIVE BALANCE COUNT SHEETS ON TIME.

CONFIRM WAREHOUSE DELIVERY RECEIPTS THE DAY RECEIVED.

SCAN EACH ITEM INDIVIDUALLY.

ONLY USE PRICE ENTRY WHERE ABSOLUTELY NECESSARY.

ENSURE A WELL-PREPARED AND ACCURATE STOCKTAKE.

FOLLOW UP ON SHORTAGES.

LOG ALL PROBLEMS.

MANAGE THE SYSTEM. DO NOT LEAVE IT TOTHE COMPUTER ALONE.

Exhibit 9 – Store managers reference page

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Exhibit 10 – Article from ‘The Unicorn’ – June 2000

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INSTRUCTORS GUIDE

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CASE SYNOPSIS

Clicks has become one of South Africa’s largest retail groups. From the humble beginnings,

of one store in St George’s Street, Cape Town in 1968, Clicks have now close to 205 stores.

Clicks has acquired Diskom, Musica, Link and Priceline in Australia to culminate in the New

Clicks group of today.

The Clicks stores specialise in homeware, beauty and baby products with a total of 12000

SKUs now recorded. Their target market was initially all LSM15 groups in South Africa,

providing low cost products across the range. Recently, the Clicks and Diskom stores have

changed their focus and are differentiating themselves, with the Clicks stores aiming at the

upper income groups and the Diskom stores remaining with the low cost products for the

lower income group.

In 1989 Clicks management started centralising distribution to Montague Gardens in Cape

Town, for the handling of their imported items. By 1992 that vision had broadened resulting

in the building of further distribution centres (DCs) in Pretoria and Durban. Throughout the

90’s the number of Clicks stores and the variety of products increased dramatically. Clicks

management made the decision to distribute both local and imported products through its

DCs. To implement this distribution policy and to cope with the number of SKUs it was felt

that an automated replenishment system was required. It was then decided that the JDA

software was to be purchased and installed in the stores.

This case study looks at the strategic move to centralised distribution and the implementation

of the JDA automated stock replenishment software. The case also illustrates the change in

the ordering process, store managers functions and stock holding. The change in the supply

chain is also reviewed and the algorithms behind the automated stock replenishment. Students

will gain insight into the supply chain capabilities of retailing in South Africa.

15 Living Standards Measure used in a Living Standards Measure Study to guage poverty levels particularly in developing countries by the World Bank (http://www.worldbank.org/html/prdph/lsms/lsmshome.html).

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SUGGESTED READINGS FOR THE CASE

Suggested reading material for the case study include:

!"Fisher, L.M., Raman, A. & McClelland A.S., Rocket Science Retailing is Almost here

– are you ready?, Harvard Business Review July-Aug 2000

The concept of retailing is getting the right product in the right place at the right time for the

right price. This article looks at the areas of forecasting, supply chain speed, inventory

planning, and gathering accurate, available data. It also looks at what companies are doing

best in these four areas in order to optimise its retailing practices.

This article relates to the Clicks case as many of the problems mentioned were encountered

on implementing the JDA software to the Clicks stores. Some of these problems include the

discipline in scanning goods at the tills and forecasting.

!"Ketzenberg, M., Mettes, R. & Vargas, V. 2000, ‘Inventory Policy for Dense Retail

Outlets’, Journal of Operation Management, vol. 18, no. 3

This article reviews how many retailers are trying to move to smaller stores but with a wider

range of products. The journal also discusses some of the advantages of a dense store type and

how inventory policies are developed to help manage that. This policy revolves around the

aspects of assortment, allocation and replenishment.

This is relevant to the Clicks case as the Clicks stores have increased their product range by

300% over the last decade, and have implemented automated replenishment to assist.

Porter M.E. & Millar V.E., How information gives you competitive advantage, Harvard

Business Review 1985 vol. 5

This article discusses how information technology is providing companies with a competitive

advantage over their rivals. It describes the information revolution effecting competition in

three ways:

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$"It changes industry structure and, in so doing, alters the rules of the competition.

$"It creates competitive advantage by giving companies new ways to outperform their

rivals.

$"It spawns whole new businesses, often from within a company’s existing operations.

The second point relates to Clicks. At the time of the implementation there were very few

retailers with DCs. Non of the retailers had automated replenishment systems. Clicks

introduced the concept to South Africa and has been benefiting from it ever since.

!"Ward, P., Flexible: friend or foe?, Supply Chain Management Journal, 6 January

2000

The article explores the differences between the agile and the lean approach to management

of the supply chain. It further explores the advantages and disadvantages of elements of each

approach.

The article is useful for the case study as Clicks emphasised the need to reduce excess

inventory in the supply chain.

!"Schwartz B.M, The search for suitable sites, Transportation and Distribution

Journal, March 1999.

The article highlights certain factors that are crucial to the selection of a site and the location

of a DC. These factors are relevant to the case as Clicks went through this process when

deciding to centralise their supply chain using three regional DCs.

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TEACHING OBJECTIVES OF THE CASE

This case deals with the implementation of software as well as inventory control and stock

replenishment. This case should follow the beer game and the Barilla Spa case (HBS 5-695-

063) in the DIOS course. Whereas the Barilla Spa case uses warehouse shipment for

replenishment, the Clicks case uses point of sale information. Comparisons on the two

methods can be discussed. References can be made to the bull whip effect seen in the beer

game and compare the results to the demand driven supply chain seen in the Clicks case,

noting how inventory can be tightly controlled when demand driven. A comparison can also

be made with the store manager’s reactions to the new distribution method. In Barilla Spa

there was some resistance, but in the Clicks case the store managers were receptive.

Other issues that can be discussed with the case include:

!" Benefits that are derived from the implementation of an automated replenishment system.

What the strengths and weaknesses of that system are.

!" The risks that were involved with implementing an automated replenishment system in a

South African context where no other big retailer had managed to do so. What the risks

are with implementation of a software package that had no local technical support.

!" Retailing in the South African environment where month end peaks create problems as

well as promotions and discounts. How Clicks were able to manipulate the algorithm to

overcome the increased demand problem but to the detriment of store inventory levels.

The dilemma of too much stock vs. lost sales due to stock outs at the end of the month.

!" An in depth understanding of the operations of automated replenishment. What changes

have been made in the supply chain as a result.

!" Difficulties with the implementation. Discussions around choosing the correct software,

planning, handling and recording of problems and training.

!" Comparison of the three algorithms used for replenishment. What the factors are that

determine safety stock and replenishment levels. How the replenishment factors compare

to Economic Order Quantity (EOQ) calculations.

!" What performance improvements the company realised. How could the supply chain be

further enhanced with today’s technology.

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RECOMMENDED ASSIGNMENT QUESTIONS

These questions form part of the class discussion:

1. What competitive need does the automated replenishment system address and how does it

do it?

2. What are the main benefits that the company has realised since centralising its distribution

and implementing JDA software?

3. Was the implementation of the software a success and why?

4. What are the factors that determine safety stock and replenishment levels? (What is

important – how are products differentiated?) What are the advantages and disadvantages

of each method? How do the replenishment factors compare to EOQ calculations?

5. What could Keith do to further improve stock turns and decrease inventory levels?

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SUGGESTED DISCUSSION QUESTIONS AND GUIDE

The lecture should not be limited to the assignment questions. Issues such as supply chain

management, implementation issues and inventory control should form the basis of the

discussion. The assignment questions can form a part of this discussion. The following flow

chart represents a logical order of the classroom discussion, noting that the case study should

follow Barilla Spa and the ‘beer game’:

Figure 8 - Teaching Sequence

The following notes will reflect the above sequence of discussion, with the discussion

questions brought in at the relevant points.

1. Supply Chain Management

Supply chain management remains very topical at present especially with the advent of the

Internet. Everyone is talking about how the Internet is integrating suppliers and customers and

making dramatic improvements to the efficiency of the supply chain. The Clicks case offers

some insight to the South African retailing perspective. The Clicks management see the

implementation of the Clicks software as a giant leap and a step ahead of the competition. The

students will have done the beer game at this stage and had some discussions around the

Supply Chain Management

Implementation of the JDA

Problems with the

Implementation

Algorithms

Keith’s Next Steps

Store Managers Response

Planning & Training

Month End Peaks

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Barilla Spa case. With the advent of new technology, this case shows some insight as to how

technology can change and improve the supply chain. If one has a closer look at the supply

chain at Clicks, it is still very much a manual process. The instructor could ask the student to

pick out some of the more obvious areas where automation could assist in creating a more

efficient process. The Harvard Business Review article (‘Rocket Science Retailing is Almost

Here – are you ready?’) would help in giving some insight as to how it could be done.

Some of the manual tasks that can be automated are:

!" Goods are not scanned in and out of the DC but manually captured off invoice when

delivered to the DC.

!" They are then placed into specified slots on the racking in the warehouse.

!" Manual picking slips are generated per store from which the orders are picked into bins

and then packed into cages for delivery to stores by a 3rd party carrier.

!" The picking process is captured manually onto the WCSS system where any short picks or

over picks are recorded.

!" There is no automated process involved in the pick and pack process and the goods are not

tracked and traced along the supply chain.

!" The manual process is repeated at the storeroom in each shop where the goods are

manually checked before being uploaded onto the JDA store database and reconciled with

the store order.

!" Store returns and damages are manually checked in and captured onto the WCSS system.

!" The manual process allows for human error that gets blamed on the system or a finger is

pointed at the DC and visa versa. An example of this human error is a miscount between

the store and DC. Responsibility is therefore shifted to the store level to ensure stock

integrity.

The discussion on the supply chain theory and identifying the manual steps in the Clicks

process is a logical step from the studies of the beer game and Barilla Spa.

The discussion should progress to the JDA software, with specific question to the students as

to: ‘What competitive need does automated replenishment address and how does it do it?’

(Assignment quest 1)

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Reference has been made in the case to the reasons for the introduction of the software and

the change that will occur from a push to a pull demand system. The reasons for using the

software revolve around the increasing number of SKUs and the strategic decision to move to

centralised distribution. The benefits of centralised distribution could be mentioned at this

point. These include reducing paperwork, transportation costs, accommodating minimum size

deliveries etc. The benefits of the JDA software coincide with the benefits that are derived

from centralised distribution. Some of these include lowering inventory levels and creating a

higher stock turn. The change from push to pull demand system should also be mentioned,

and a comparison to a kanban type replenishment model, where what has been sold drives the

replenishment order. Reference can also be made to the differences in the ordering between

the warehouse shipment for replenishment method used in the Barilla Spa case and the point

of sale method used at Clicks. The point of sale software generates the information used for

replenishment. The strategic benefits that were to be gained from using the JDA software was

that Clicks stores could provide a wider product range, with controlled inventory.

2. Implementation of the JDA.

The Clicks case is partly about the JDA software implementation. Students should be aware

of the different theories on implementation and, on reading this case, should be immediately

thinking which implementation model best fits the case. The instructor should initiate a

discussion on implementation. This case lends itself to an implementation that had very little

methodology to guiding it and included the integration of a number of different software

packages, yet the software seems to have worked…or had it?

The question should be asked: Was the implementation successful, and why? (Assignment

question 3) There will probably be mixed responses.

The ‘Yes’ camp will site the facts that:

!" The stock turns have increased.

!" The level of inventory in stores has decreased per SKU.

!" The number of SKUs has increased from 8 000 in 1994 to approximately 14 000 today.

!" The software was implemented to all Clicks stores and 40 Diskom stores.

!" The software is still in operation after 4 years.

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The ‘no’ camp will say that:

!" None of the algorithms are being used correctly

!" The level of inventory could be better if weekly profiles were tracked.

!" Only the replenishment module was used from the JDA. The other modules going to

waste.

!" No preparation was done for the implementation.

!" Training was lacking.

!" No help desk was initially set up.

!" R1.5 million was spent on integrating the software package.

!" No JDA consultant was used to advise Clicks on ‘best practices’.

These positive and negative aspects could be listed and compared on the blackboard.

The debate over the success of the implementation stems from the fact that although the

methodology for the implementation was poor and the software is poorly utilised, the

software is working and benefits to the company are visible.

The software was purchased as a complete package and yet only the replenishment module is

being used. Reference should be made to the features that the JDA provides, and the present

software systems in use. (Exhibit 2 & 5). The comparison will illustrate that the JDA package

contains features (e.g. POMS, WCSS and POS) that will reduce the number of different

software packages that Clicks are operating with. Clicks’ IT department do not have a good

IT implementation strategy. Their approach has been myopic in that sections of the supply

chain have been considered individually. In the purchases of both the WCSS and the JDA,

best-of-breed packages have been used. Although this shows that Clicks would like to be on

the forefront of new technology, in some cases it is not practical. It also is an indication of

Click’s IT purchasing strategy. Not much thought had been given to standardisation of the

packages. Using modules of best of breed packages limits the ability of these packages.

Although the complete package is not always proficient in all areas, the use of the entire

package is often better than trying to integrate a number of best-of-breed packages. The

approach of trying to combine best of breed software appears to be quite common in South

African companies. With the addition of software packages, the company is left with a web of

legacy and new systems trying to work together. Complete enterprise resource packages

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(ERP) are perhaps a better solution. The instructor should highlight these integration

difficulties and the strategy to follow.

In analysing the implementation methodology the Upton framework fits the case very well.

The 7 points of his framework are referred to in the case. The seven points with their possible

reference to the case are listed below:

Table 5 - Upton's Model Applied to the Case

Element Possible Answers Context & Motivation The numbers of SKUs have increased dramatically. Need an

automated method of controlling stock. Move to centralised DC for all goods.

Direction and Goals Performance is to be improved by decreasing the level of inshore and DC inventory. This will be measured by stock turns and inventory levels.

Focus The change will be focussed at store and DC levels. The implementation will be in store.

Methods and Techniques The results are to be achieved with the roll out of the implementation across the country to all stores, starting with a pilot project. In this case not much planning was done. The ‘how’ of the implementation is therefore not detailed

Resources Resources for the project included Ian Granston form the UK as well as Clicks IT staff, store managers and Roetz and Iwanski for the implementation. Additional costs were incurred for Ian Granston’s consulting fees.

Organisation and Phasing The roll out was organised by Iwanski with the assistance of Roetz. The pilot project included 10 stores with further roll out to new stores and then the roll out across the country. Improvements to the implementation techniques were made during the implementation process.

Learning capture & Leverage

The initial pilot projects showed a lot of problems. These problems were acted upon and a technical manual was formed documenting the problems and the solutions. Whether the IT department has learnt from the mistakes made in choosing the software and the process followed from the implementation is not known.

When discussing the context and motivation, the Terry Hill framework could be used. Clicks’

strategy for rapid expansion of their stores across the country facilitated the need for DCs and

a replenishment system. The way that Clicks win orders must be addressed at this point. The

elements of equipment and systems in the Hill framework must be in line with the company

strategy and how the company wins orders.

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The project management steps of management and user buy in, communication, setting

milestones etc were not followed through by Clicks. The instructor should comment on these

steps. One of the key reasons for the continued use of the software was the fact that the end

user, namely the store manager, was using the software as it was saving the manager a great

deal of time in the ordering process. Considering the methodology and apparent lack of

planning by Clicks management, the software has been implemented and is still being used.

Does that then mean the main criterion for good implementation is a good implementation

climate? The instructor should discuss the implementation climate considering the high

growth rate of the company, the manager’s reactions and the benefits of the software.

3. Problems with the Implementation

The lack of planning and software implementation experience resulted in many problems. If

Iwanski and Roetz had studied the implementation of JDA systems in the UK some of the

problems experienced would not have occurred. The main problems that are highlighted are

around the store manager’s responses, planning and training and month end peaks.

The discussion should start with the manager’s reactions as comparisons can be made to

Barilla Spa. Clicks store managers did not have any choice in the implementation of the

software. Having read about the store managers in the Barilla Spa case, the question should be

posed to the students as to: What are the differences and similarities in the responses from

store managers to the introduction of new replenishment methods?

The first observation is that Clicks owned the stores and the store managers worked for Clicks

whereas in the Barilla Spa case the store managers were independent. The Clicks store

managers therefore did not have any say in the implementation. With the increasing number

of SKUs the Clicks managers were receptive to an easier method of stock replenishment. The

managers were under the impression that their workload would decrease, which was very

appealing. The replenishment of stock would be for all items, eventually, and not one brand as

with Barilla Spa. The commonality between the cases is that both store managers were losing

control (flexibility) as to how many items and which items to order.

Further problems occurred due to Iwanski and Roetz’s lack of understanding of the

replenishment module when conducting the pilot project, training and planning. The question

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could be posed to the students: ‘If you were project manager of the JDA software

implementation what would you have done differently?’

Students will probably raise the following points:

!" Strategy formulated for the implementation of the project.

!" Created a technical specification for the software.

!" Evaluated the software as to its applicability; only one module has been used.

!" Compared the feasibility of creating ones own specific software locally, to purchasing

software internationally.

!" Key targets should have been set for bringing suppliers on board the centralised

distribution channel.

!" Roetz and Iwanski should have been sent to the UK/U.S.A to gather information on the

implementation techniques, training and problems experienced.

!" Full training manual drawn up before roll out.

!" Training should have been conducted with all managers using a more hands on teaching

approach.

The last problem is the month end peaks. The month end peaks are clearly shown in Exhibit

7. Month end peaks are unique to South African retailing due to the monthly salary system.

Most other countries in the world are paid weekly or bi-weekly. Order fluctuations would

have already been discussed with the Barilla Spa case.

The instructor at this point could ask the students: Does this graph look familiar, and what

are the trends seen in this exhibit?

Not only does the replenishment have to cope with promotions and discounts, but with month

end peaks as well. It is ironic to note the insert from ‘The Unicorn’ article advertising the fact

that their winter promotions has resulted in record sales of soup mugs. It is exactly these types

of promotions that cause problems in forecasting and replenishment. The Barilla Spa case

highlighted this.

Unlike Barilla Spa, Clicks cannot get rid of month end peaks. It would be useful to ask the

students: How do Clicks attempt to overcome this problem? Is it successful, and what are the

implications?

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Clicks have tried to deal with the problem by changing the input variables to the average

weekly model algorithm. The number of days that the algorithm uses to count the volume

sales is increased, thus fooling the system into believing that the volume of sales is higher and

therefore requiring more stock. This however, defeats the objective of the algorithm to

maintain minimum stock levels. Effectively the store will be keeping excess stock for 3 weeks

and having just enough stock for the end of the month. The program cannot cater for this

change in sales volume at the end of the month. This is obviously one area where further

inventory reduction can be made. It is estimated that inventory could be reduced by a further

30%.

4. Replenishment Algorithms

A natural progression from discussing the month end peaks and how Clicks have tried to

overcome the problem is to discuss, in further detail, the factors that are used in each of the

algorithms for replenishment. Similarly the safety stock specified per SKU at Clicks is

dependent on volume sales, price and margin. The high value items having a higher safety

stock.

In initiating this discussion the students should be asked: What factors are considered for

stock replenishment? (Assignment quest 4)

From Exhibit 3 in the case study the student has the information as to when to use each of the

algorithms and the advantages and disadvantages. The discussion should bring up the issues

around the lead times for goods from the DC as well as the in-store inventory levels. The

issues around the seven day lead times and the implications on the delivery times and stock

levels should be mentioned. The fact that the delivery times should decrease to 4 days from

the present 7 is significant in the stock reorder levels. The ideal being a daily delivery service

which lends itself to the concept of Just In Time Distribution (JITD), also seen in Barilla Spa.

The algorithms used are different in the factors that are used for replenishment even though

they are all based on the same logic of:

Avaliable- toupOrderOrderSuggestedAt;OrderQtyAvailIF #$

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The algorithms differ in the time period in which the historical record is taken. The statistical

method is taken over a longer period and hence the difficulty when introducing new products

without a sales history. The calculations of the safety stock using the velocity factors are

based on the data of volume, sales price and margin (V1,V2,V3). The instructor must relate

this concept to the 80/20 rule (Pareto principle). The products with higher volumes and sales

price having a larger safety stock, as the losses incurred with stock outs of these items are

more significant and costly. A weighting factor is also used (W1 and W2) in the average

weekly sales formula. By increasing the weighting to historical sales, the bull whip effect is

reduced and increased sales over time result in increasing safety stock rather than the one off

end of month sales.

As theory has already been covered on EOQs, the factors behind determining stock limits and

the correct EOQs could be compared to these algorithms. The instructor should ask the

students: ’How do the replenishment factors used by the software compare to EOQ

calculations?’

The basic EOQ calculation applies to inventories that are replenished in batches or orders and

not continuously. These calculations are based on the following assumptions:

!" Constant rate of demand.

!" No shortages/shrinkage.

!" Lead times are certain.

!" Purchase price, ordering cost and holding costs per unit are independent of the quantity

ordered.

!" Items are ordered independently of each other.

The symbols used in EOQ theory are:

Q = order quantity

U = annual usage (demand)

CO = cost to place one order

CH = annual holding cost per unit

The goal of EOQ is to determine what quantity provides the lowest annual inventory cost to

the business.

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Calculations:

Annual ordering cost = U X CO

Q

Annual holding cost = Q X CH

2

Total annual cost (TAC) = (U/Q)CO + (Q/2)CH

EOQ = '((2UCO)/CH)

Figure 9 - Graph of annual inventory costs16

The JDA replenishment software offers three methods of automated replenishment: !" Fixed Stock !" Statistical!" Dynamic (Ave weekly sales)

The fixed stock method is inflexible and used for situations of static demand. This is the JDA

equivalent of the reorder point system of inventory management. It is based on an average

annual sales and the information used to trigger the reorder process is manually maintained.

The safety stock is manually entered into the database and the system does no dynamic

calculations.

16 Meredith and Shafer; 1999:260

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Calculations:

The fixed stock method will trigger the replenishment order when the on-hand stock level is

equal to or less than: (ave required safety stock level x ratio of sales expected in that time

period)x (factor indicating the rate of sale at a given location)

The order size will be the required stock level minus the above result.

The required stock level is calculated as: (ave annual required stock level x ratio of sales

expected in that time period) x (factor indicating

the rate of sale at a given location).

The statistical method is a more complex inventory management system as it is based on

actual sales history and is able to track and react to sales trends on any individual product.

This method needs to build a two year sales history before being able to forecast effectively.

The statistical method also adjusts safety stock automatically to reduce excess inventory in

the supply chain. This method is continuous in that it continuously monitors and adjusts the

stock levels within the store and consolidates on-hand stock levels with ordered stock levels

while taking lead times into account. Theoretically, this method is a retailer’s dream. The

sales history will allow the statistical method to compensate for the monthly peaks in the

South African retail industry as well as the seasonal changes. The annual month-on-month

demand will not vary to any great degree and should theoretically grow on an annual basis.

Once the database has collected enough historical information it should be able to compensate

on a monthly basis for annual growth in sales trends.

Calculations:

Safety stock (SS) = ((sales revenue + sales units + gross margin + max stock based on sales

data)x lead time) / period in weeks

Sales per period = (base sales x trend) x (profile % for period / 100)

Sales per week = sales per period / number of weeks in period

Required stock level:

IF number of weeks left in period % (number of weeks supply on hand + SS)

THEN required stock level = sales per week x (number of weeks supply on hand + SS)

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ELSE required stock level = (sales per week) x (number of weeks left in current period) +

(sales per week in the next period) x (number of future period weeks needed)

Order quantity = required stock level – stock on hand – lost sales

The Average Weekly Sales (dynamic) method is also a complex inventory management

system and is ideal for use with new products or products with no sales history data. It is also

ideal for products with a short life cycle and is useful for promotions. It reacts purely to recent

sales trends and also automatically adjusts forecast and safety stock.

Calculations:

Safety stock calculated in days (SS) = ((sales revenue + sales units + gross margin + max

stock based on sales data and item profile) x lead time)

Required stock level = ave weekly sales forecast x ((review period + lead time + SS) / 7)

Order quantity = ave weekly sales forecast x ((lead time + SS) / 7)

Both the statistical and dynamic methods differ from the basic EOQ model in that the

products are prioritised in terms of cumulative sales value in monetary terms. It is referred to

as the velocity at which stock is moved. There is a direct correlation between the ABC

classification system and the velocity factors used in the JDA calculations for both the

statistical and dynamic methods of forecasting. These two methods also allow for lost sales

and damages, which the basic EOQ model does not. This directly contradicts the two

underlying assumptions of the EOQ model as mentioned in the supply chain improvement

section.

Students may be asked to construct an Excel model as a group project using sensitivity to

understand the workings of an automated replenishment system. The above description of the

JDA formulae is simplistic as there are a number of additional variables to be accounted for in

the retail environment. One of the learning points from this exercise is to understand the

supply chain planning element in terms of seasonal capacity. Actual sales records should be

provided to illustrate the fluctuations in demand for products during the course of a specified

period. Students will find that average sales volumes over the Christmas period will increase

substantially (refer to exhibits 7 & 8).

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5. Keith’s Next Steps

After discussing the algorithms the students will be in a position to judge for themselves

whether the replenishment logic is adequate. The assignment question should be repeated to

the students: What could Keith do to further improve stock turns and lower inventory?

Having read the Harvard Business Review article, the students should have some insight to

some of the technology and what practices the cutting edge retailers have adopted. There are

obviously many key areas that need to be addressed. One approach would be to list all the

potential projects and then apply the Ernst and Young Justification Matrix to identify two or

three critical projects to concentrate on. The instructor may pose the question to the students

to write down all the possible improvements and then prioritise. Often the problem with

implementation is that companies are trying to run too many projects at the same time. This

exercise will bring out the value of concentrating on only a few.

Some possible improvements to the supply chain include:

!" An upgrade of the JDA. The upgrade can cater for month end peaks as it works on a

different cycle.

!" Decreasing delivery lead times. The present process of order replenishment is taking 7

days from order to delivery. Clicks are in the process of reducing the lead-time from 7 to 4

days, thus moving towards JIT delivery.

!" Increasing the number of deliveries should have the effect of a further reduction in store

inventories.

!" Use of further technology such as bar coding of orders thereby speeding up the picking

and delivery times and using Radio Frequency systems for recording of scans and picking.

Even though the software is not being used optimally, Clicks have seen the benefits of it use.

Other South African retailers have had mixed feelings about using centralised distribution.

Pick n’ Pay, perhaps South Africa largest retailer, is not using centralised DCs and prefer

direct-to-store deliveries for all its goods. This has not discouraged Clicks and they continue

to make improvements to their supply chain. The Clicks supply chain is far from being

automated, and many further improvements can be made. It is Keith’s responsibility to make

a judgement as to the best technology to adopt.

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What Clicks is actually planning

Clicks are at present evaluating the purchase of a new release of the JDA software. Clicks

want to utilise the full ERP solution of the software as opposed to certain modules. The old

WCSS, POMS and other modules will then be discarded. They expect the new software to be

released early in 2001. At the same time Clicks are also installing Radio Frequency (RF)

systems to record scans and picking, and bar coding of orders will be done thereby speeding

up the picking and delivery times. Keith is also looking into reducing the lead times of

deliveries from 7 to 4 days, thus further reducing in-store inventory.

Chronological sequence of events

For clarity and assistance to the instructor the sequence of events for the implementation of

the central distribution and supporting information systems was as follows:

Table 6 - Milestones in the Implementation

Date Event

‘89 Decision is made to build a DC at Montague Gardens

90’ to ‘91 Decision is made to build further DCs

’91 to ‘96 Point of Sale scanning roll-out

’92 to ‘00 CT, KZN & Gauteng DCs build

‘93 WCSS implementation

’95 to 98 Support Systems implementation

‘96 JDA - automated replenishment

‘99 Increase local supplied SKUs through DC from 10% to

+27%

‘2000 Increase local supplied SKUs through DC From 27% to

+45%

2001 Projected to increase local supplied SKUs through DC to

80%

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SUGGESTED TIME ALLOTMENT FOR EACH DISCUSSION TOPIC

The issues in the case may take longer than one two hour session to discuss. However, if the

instructor wishes to discuss the topics in one session the following time frame is suggested:

Topic Time

Supply Chain Management 30 min

Implementation of the JDA 30 min

Tea Break 10 min

Problems with the implementation 20 min

Algorithms 15 min

Keith’s next steps 10 min

the clicks organisation - university of cape...

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