Nordstrom’s Inventory Management Strategy Will Work Elsewhere

The New York Times recently reported that Nordstrom had increased sales, customer satisfaction, and inventory performance by advertising available soft goods on their website. In this way, customers can reserve an item and pick it up at one of the stores, or the item would be shipped to the customer from the store that had inventory or by the warehouse. This has resulted in increased profitability as well.

This reservation system has been in place in retail for furniture and bedding so this is a natural progression. Other industries, particularly in manufacturing, have employed this type of system. I ran a group at Digital Equipment that tracked and used parts from thirteen plants worldwide and the most important aspect of this type of system was inventory accuracy. At Digital, we would have products reported available that were defective, were missing, were marked as the wrong product, and quantities were typically overstated.

I believe that the retail industry can use a system like this one to get the results reported by Nordstrom, with the following provisos:

1) Implement a lean six sigma approach to inventory management

2) Upgrade all inventory systems and like to website on a virtual basis

3) Train all staff on procedures

4) Carefully evaluate customer experience, and suggest that rather than wait for complaints, reach out to customers once they use the new system.

This is not necessarily innovation. It is using a proven system that has been in place for over 30 years, and using technology and virtual systems to apply the concept to new industries.

What Does it Mean to be Strategic

I just read a quick post over at Spend Matters about putting the “Strategic” back into strategic sourcing; and this got me to thinking, what does it mean to be strategic anyway?

We help a lot of clients implement strategic sourcing, either by running strategic sourcing projects with them or training them in the strategic sourcing process.  9 times out of 10 the staff working on the project or sitting in the training think strategic sourcing means only one thing: rationalizing the supply base.  I often spend the first hour of training explaining that strategic sourcing means so much more than this, then spend the rest of the training reiterating that point.

To be strategic really just means to think about what you are doing before you are doing it (as opposed to tactical, which means responding to the immediate situation at hand).  So for sourcing to be strategic it means we have to think about what we are buying, why we are buying, and how we are buying.  Just to round things out we should probably also consider the when and the where.  That’s it, that’s all there is to it, it’s not some magical process that requires teams of consultants to execute.

So then what makes strategic sourcing so hard to implement for so many organizations?  In my experience it has to do with shifting the thinking from the tactical “we needed it yesterday” perspective to one that takes a longer view and looks at all the things we may need to buy over the coming time-period (typically one year) and making a plan for how to do it.

Every member of the purchasing department knows when their contracts expire, there is no reason to wait until they do to start planning how to contract for those goods or services next time.  I would argue that the planning should start immediately upon executing the current contract!  Now if companies started doing that, things might actually get strategic.

Optimizing Purchase-to-Pay

Here’s an interesting tid-bit from the CPO Agenda on a new study looking at the lack of optimization around purchase-to-pay.  Seems like organizations are leaving this out of their category strategy which could have large total-cost implications.

I’m not all that surprised by these findings however.  Very few companies we work for even look at their accounts payable process strategically, instead, these processes are hold-overs from a paper process implemented decades ago.  Just goes to show, even after you get the best deal from your suppliers, there’s still opportunities for savings!