DALLAS — J.C. Penney, like many retailers, has entered into Quick Response relationships with many suppliers. But unlike its retail peers, Penney’s is grading those suppliers on their performance.
W. Barger Tygart, director of merchandising and support operations at Penney’s, said the chain has been issuing what amount to report cards to suppliers for about three years. Called supplier status reports, they were originally intended as an internal mechanism to help Penney’s buyers track supplier performance. Tygart, however, said sharing the reports with suppliers is improving the level of service they provide to Penney’s and, by extension, the other retailers they serve.
“I haven’t seen any backlash from suppliers,” he said. “The reports aren’t seen as a tongue-lashing. They give suppliers a handle on how they’re performing.”
Suppliers backed up Tygart’s statement.
“The sharing of that information has improved the performance of the entire pipeline,” said Alex Neely, executive vice-president of Burlington Menswear. Burlington supplies fabric to several suit companies that, in turn, supply Penney’s.
Tygart said Penney’s had always encouraged manufacturers to improve the timeliness and integrity of shipments, but added that the reports have given that philosophy a solid base.
“We moved beyond cheerleading when we started doing status reports three years ago,” he said.
Tygart said Penney’s gives suppliers a wealth of information on everything from the on-time and completeness ratios of shipments to “factory ratings” on the quality of tagging, packing, dyeing and sizing.
But it is not only measures of manufacturer performance Penney’s shares with its suppliers. The retailer readily shares information on how effectively it’s moving those products off its shelves.
“We share store-specific information on gross margin, sell-through and on-hand inventory,” he said. “And we can give them sell-through information on the entire category so they can track their performance against the category as a whole.”
The movement reports are updated daily for manufacturers who want them.
“Some manufacturers who produce dress shirts and underwear want daily updates, and we can do that,” Tygart said. “We try to be flexible.”
Burlington’s Neely said weekly updates are sufficient for his company’s purposes.
“We can get the information every day if we wanted, but we only look at it on a weekly basis,” he said.
Tygart said manufacturers welcome all information that can lead to better sales of their goods and fewer costly returns — that includes supplier evaluations and point-of-sale data.
“The number-one reason for getting into QR was to have what the consumers want when they want to make their purchases, and consumers don’t want to pay for inefficiency,” he said. “QR has let us offer our customers a greater mix of colors, sizes and styles in the same floor space.”
Tygart, however, is quick to point out that lowering inventory carrying costs is not the goal of Penney’s QR initiatives.
“We were not looking to lower the amount of stock we have on hand,” he explained. “We wanted to make sure the stock we have is in the sizes, colors and styles customers are buying.”
Of the areas evaluated by the supplier status reports, Tygart said timeliness and completeness of shipments are probably the easiest to improve.
“The easiest thing to fix is on-time performance and shipping complete,” he said. “The toughest thing for most manufacturers is to be able to trend and estimate their sales curves back to the point of manufacturing. Estimating, production planning and trending are three of the most difficult challenges.”
Penney’s, however, is giving manufacturers the data they need to improve in those areas. And technology is allowing the retailer to capture and pass that information along.
Tygart said over 90 percent of Penney’s purchase orders are transmitted electronically to suppliers. Manufacturers transmit advanced ship notices on about half the goods that move through Penney’s stores, a statistic Tygart said can be improved.
“They are not quite there yet when it comes to advanced ship notices,” he said.
Despite the advantages of transmitting information via EDI, Tygart said EDI proficiency is not a prerequisite for manufacturers who want to supply Penney’s.
“EDI is not a requirement for doing business with Penney’s,” he said, adding that the chain would not exclude suppliers with products consumers are demanding.
Tygart, however, said the timely communication of point-of-sale data to manufacturers is key to effective QR relationships. In order to replenish in the most efficient manner possible, he said retailers and manufacturer partners must “work backwards” from that point-of-sale information to better time replenishment and make production schedules more responsive to actual purchasing.
“Sales estimates are built up from the stores — from the customers,” Tygart said.
The strategy benefits Penney’s by getting hot products to the shelves while consumer demand is high and benefits manufacturers by reducing storage costs, lead times and factory overtime. Penney’s, however, is willing to provide much more than just raw data to effect those changes.
“Electronic information transfer is a significant form of communication,” he said, “but in the true sense of QR, tagging and labeling time, manufacturing time and shipping time are all part of the process.
“We work with suppliers on lead times and production schedules.”
The directive sometimes brings Penney’s personnel right into the factory.
“Our people have been holding workshops with the mills and cutters for the last few years,” he explained. “You’ve got to be the instigator and provide leadership. Our factory evaluators look at how they can best assist factory managers to do a better job.”
Tygart said Penney’s experience with private label has helped it bridge the gap between retailing and manufacturing. Penney’s design teams, he said, give brand manufacturers a hands-on perspective on the popularity of colors and styles in Penney’s stores.
Penney’s also calls manufacturers in to its offices if a pattern of problems with replenishment or product quality arises.
“If there are a group of suppliers who are having excessive returns, we have them in for a meeting and go over the problems,” he said. “We’ve been very successful in driving down returns.
“The customer is very unforgiving when a product is poorly made or doesn’t fit right. In 1980, only four out of 10 consumers said they thought quality was important when making a purchase. Now eight out of 10 say it is.”
Tygart said the suppliers are even pointing to the efficiencies brought about by the supplier status reports when they bargain with other retailers.
“The ratings of most factories have improved so much that they are now using that to sell other retailers,” he said. “Supplier reaction has been very positive.”
Back to Basics
A program called “Basic Logic” is Penney’s most refined stab at QR. And suppliers in that program are getting high marks on Penney’s de facto report cards.
“Lines that are on the Basic Logic program have produced 11 percent higher sales than lines that are not on it, but the percent increase in inventory was only in the single digits,” Tygart said.
He said roughly 30 percent of Penney’s business falls into the Basic Logic program. About 55 percent falls under the broader heading of QR, and a whopping 95 percent uses the most basic efficient replenishment tool, EDI. The more refined Basic Logic grouping, however, is steadily growing as suppliers realize the benefits of working closely with Penney’s to keep consumers satisfied.
“We are letting Basic Logic naturally expand as products and manufacturers become right,” Tygart said.
The buying function is largely automated in the Basic Logic program. Point-of-sale data triggers reorders when stock falls below a certain level. Tygart said the program frees up buyers to pursue other duties, such as developing better merchandising plans.
“Customers make purchases and the system decreases or increases an automatic order based on those sales figures,” Tygart said.
But the automatic reordering function is far from being Hal, the power-drunk computer in Stanley Kubrick’s 2001: A Space Odyssey. Buyers are in control and can intervene at any time if their intuition on what will sell in coming weeks doesn’t jibe with preprogrammed reorder specifications.
“There isn’t continual intervention, but one associate is assigned to each store to monitor lines on the Basic Logic program,” Tygart continued. “For instance, if white-collared dress shirts are trending up or down, the buyers might ask the stores to monitor those changes.” If it looks like sales will rise or drop off sharply, buyers intervene and adjust order quantities.
Penney’s first tested the Basic Logic program about four years ago. It was rolled out to all stores two and a half years ago, according to Tygart.
Burlington Menswear was among the first participants. Neely said Burlington, Penney’s and the Lanier Clothes division of Oxford Industries “were the original members.”
Burlington supplied the material for suits manufactured by Lanier for sale in Penney’s stores. By involving the suit manufacturer, Penney’s ensured that its QR program took on inefficiencies in the entire pipeline rather than starting with the suit manufacturer.
Penney’s assumed sales forecasting duties itself — a move QR experts say was a wise one since retailers are closest to the consumer and can best forecast sales.
“J.C. Penney’s responsibility is to forecast sales and update that forecast once every two weeks,” Neely said. “Then the manufacturing plan is updated once every two weeks based on what is actually happening in the stores.”
He said the success of the three-way relationship with Penney’s and Lanier prompted Burlington and Penney’s to bring other suit manufacturers into the fold.
“We handle the fabric side of it, the suit manufacturers handle the garment side and Penney’s handles the distribution side,” Neely said. “Every two weeks, the Penney’s buyers, the manufacturers and Burlington sit down and review the individual products right down to the stockkeeping unit level by size, pattern, style and color.”
The program has slashed the time it takes all participants to get garments to Penney’s racks.
“We have been able to get about half the time out of the pipeline,” Neely added. “We can revise performance to meet J.C. Penney store orders.”
He said the initiative has been so successful that Burlington has used it as a model for QR relationships with other retailers and clothing manufacturers.
“The Penney’s initiative was the model, but now we are doing it with others,” he said. “And in all cases we’ve been able to cut lead times and increase turns.”
Penney’s Tygart, however, admitted that much of the success of the retailer’s QR initiatives came via trial-and-error.
“Our commitment has let us increase the flexibility of the merchandise pipeline,” he said, “but in QR we made up the rules as we played the game.”