JC Penny Seeks Partner Heaven
RIS News, June 2001 - By Michelle Schoenung, Contributing Editor

As members of the Voluntary Industry Standards Committee (VICs) meet this month in Chicago, their decisions will have a quick and deep impact on increasingly global retail companies. Nowhere will the impact be felt as it is at JCPenney.

Last year, Penney’s purchasing arm told RIS News that it wanted to build on its QSR RockBlocks system to accelerate the success of its global sourcing and tracking program. At that stage, RockBlocks had reduced the number of store personnel manually keying SKUs as products made their way through the supply chain. This saved the company millions of dollars as it increased bar code reading accuracy and increased the velocity of its supply chain.

Mounting debt of the parent company and a slowing economy made the JCPenney Purchasing Corporation slow its move toward more sophisticated global sourcing techniques. But company officials say their caution is based more on the paucity of cooperative efforts by their suppliers than it is on economic conditions.

“The system is effective for our purposes now,” says George Koegler, the company’s vice president and manager of operations. He adds that JCPenney would like to reduce its total number of suppliers and focus on cooperative management issues. “We would like to have more strategic suppliers,” says Koegler, “more key relationships.”

Cutting Costs

In an era of tough retail competition, companies are looking to cooperative relationships to maximize the value of global sourcing. Collaborative procurement, for instance, would give retailers global visibility into cost of materials. “Visibility and collaboration are key to advances in supply chain management,” said Claus Heinrich, member of the executive board, SAP AG.

Penney, which has shown improved performance in the past quarter as it tightened its belt, is not alone in its hunt for cooperative solutions to enhance the value of global sourcing. Pier 1 imports has begun shopping for a global sourcing and tracking solution that will feed executives 24x7 visibility of suppliers in 66 countries for its 800 stores worldwide.

“We need to get a handle on how much is in the pipeline coming toward us,” says Marty Denhome, the senior manager for electronic communications in Pier 1 Imports’ information services department. “If we could see it better, we could control how much gets here and when. This is the most important piece. We need to be able to get information from everybody who touches our merchandise.”

Denhome, who recently came to Pier 1 Imports from Jo-Ann Stores where he was an EDI expert, says the most important feature of the global sourcing and tracking system is that it allows them to punch in a SKU number and find out where a product is at any given moment.” Denhome says they plan on collecting information from suppliers using EDI, or an Internet-based system.

One complication is finding a system that will work with the company’s proprietary warehouse and merchandise management systems.

All of these “wish list” items are the kinds of things Denhome is putting into the requests for proposal he is sending out. He says his RFPs contain background information on Pier 1 Imports and two long lists of questions.

“The first list is the vendor request for information,” he says. “In it we ask questions about the vendor viability - How long have they been in business? Are they making money? – the vendor vision, the technical architecture and the vendor’s services. We also spend a lot of time mapping out exactly how we want the software to function and create a list of questions based on those functions.”

Ned Blinick, vice president of sales and marketing for Blinco Systems, sees a lot of RFPs come across his desk for Blinco’s 3rdwave Logistics products, which aims to provide retailers with status reports and visibility into the entire logistics supply chain from pre-production to delivery to the distribution center. He says that RFPs he sees from retailers have several things in common.

“They want to have visibility into their PO,” Blinick says. “They want to know if they can track the PO from the time it is put out. And they want to be able to see the milestone events that they need to track to arrive at the store on time. Another thing that is common to all of them is that retailers want to be able to do a true landed cost as compared to a budgeted cost.”

Irving Chernofsky, research director at the Gartner Group, says that one reason suppliers aren’t moving very fast to implement new technologies is that it is unclear whether the onus should be on the retailer to invest in a technology infrastructure for suppliers or if the supplier should make the investment himself. It is clear that, for the most part, foreign suppliers are not equipped with computers and Internet access and the retailer has the most to gain in terms of return-on-investment. “Retailers save money by being able to reduce the amount of inventory they carry,” says Chernofsky, “and by knowing what to expect and when to expect it. They can take that to the next level and provide that back to the customer.”

XML’s Role

Chernofsky says that he sees XML playing a large role in the continuing development of global sourcing and tracking systems. He says XML will be used instead of EDI, in conjunction with EDI and as part of Web-enabled tracking systems. This will enable retailers to roll out these types of global tracking capabilities even to their smallest suppliers with whom it may not have made sense to implement EDI in the past.

Eddie Capel, vice president of Manhattan Associates’ Infolink says that suppliers will come along as “week by week, month by month” Internet service providers make Internet access available in all parts of the globe.

Manhattan Associates doesn’t have a global tracking system per se, but the company made an alliance with QRS in September of last year to integrate its warehouse management system with QRS’ RockBlocks.

The company’s XML-based Infolink product has a module that allows retailers and consumer goods companies to track products while they are still in the suppliers hands and as they change hands from consolidators or air freight carriers en route to various distribution centers in the United States.

Despite new Internet-based products and the expansion of the Internet to the farthest corners of the world, Gartner’s Chernofsky says that both retailers and suppliers are still grappling with what they want from global sourcing systems.

“There is not a lot out there in terms of standards,” he says. “We are in the early stages of development.”

Biggest Burden

Those who perform global sourcing duties for retailers say they have the biggest technology burden. One insider at UPS told RIS News that big retailers are asking shippers whether they can provide global sourcing services. At present, the answer is no, but most major shippers are ramping up to offer such services in out-of-the-way places where they have some clout.

BAX Global, a shipper with 200 warehouses worldwide, is reportedly working on such a system now. BAX runs its warehoses on Exe Exceed eFullfillment software using SQL Server as a database. Currently, with their Exceed system, BAX is able to deliver advanced shipping and receiving, inventory management and reporting capabilities. Through an extranet it is reportedly building, BAX will be able to give customers and their suppliers direct access to one another in what will amount to a private exchange.

The key to Bax Global’s future success will be to provide services for companies that reach across the globe for raw materials and supplies. “We have seen very significant gains in cost-efficiency and overall distribution productivity since the deployment of this EXE/Microsoft solution,” says John Martin, senior vice president, global supply chain management. “We originally implemented EXceed at 16 distribution centers. Based on this very positive outcome, we hope to extend this solution across our entire global network.” Martin did not discuss rumors of its intended global sourcing partnerships.

“Most shippers are seeking new streams of revenue and global sourcing is a natural for them,” says Marcus Levine, partner with Meteor Freight Forwarders in Elizabeth, NJ. “As more American retailers reach beyond U.S. borders for specialty products, these services will become routine.”

In addition to the widening availability of outsourced global sourcing services, an increasing number of Web venues is changing the way retail buyers are doing business. Colavo, the California Avocado Growers’ Exchange, is a prime example. Using the Web (www.colavo.com/buyers), Colavo introduces buyers to alternative EDI resources, backgrounders on timing of deliveries and electronic stock replenishment. Sourcing can be done through the exchange at no cost with offline payments to low cost EDI payments.

Textile Sourcing

Global sourcing is one of the main goals of the International Textile Exchange (www.international-textile-exchange.com). The exchange provides free registration for retailers, global sourcing services, and over 200,000 manufacturers and retailers trading worldwide. The site trades in natural fibers, tops and yarns, knitted apparel and other materials.

Most nations whose markets are accessed regularly by Western retailers have Web services for global sourcing as well. India, for instance, runs IndiaTradeZone (www.indiatradezone.com), a site where a wide variety of manufacturers list their wares and where selling can be effected through a variety of payment systems.

“China, Thailand, Argentina, Brazil, South Africa and other countries maintain trade Web sites that can help retailers seeking help with sourcing around the globe,” says Arnaud Misraeli, a research associate with the World Trade Organization in Washington. “Today a retailer can hold online conferences with large numbers of sources in a single day.”

For related information, please go to:
3rdwave Retail
3rdwave Fashion
3rdwave Global Logistics