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Building a smarter supply chain system

BY Jim Frederick

John Flanigan, EVP global supply chain, Dollar General

"We no longer ship hummingbird feeders to Florida.”

That’s one example of how Dollar General has smartened up its store replenishment and supply-chain processes in recent years, said John Flanigan, EVP global supply chain. There aren’t enough hummingbirds in the Sunshine State to trigger demand for feeders, he pointed out. Flanigan, who joined the company in May 2008 after managing distribution and logistics for Longs Drug Stores, Safeway and other companies, described the steady evolution of Dollar General’s supply-chain management capabilities as it improves its ability to track and forecast sales by region, store clusters and individual stores.

(Click here  to download the full special report.)

To improve its supply chain management and replenishment processes, Dollar General has created a regional store clustering system for items not considered part of its core mix of planogrammed shelf stock. Using that system, stores are organized into eight clusters, or “bands” in Dollar General parlance, with each band representing historical sales and demand levels for particular classes of products.

“For non-core [inventory], we tend to cluster the stores,” Flanigan explained. “We have eight bands where we segregate the stores based on individual class and department [item movement] levels.”

Under that store grouping system, he added, “we have more than 600 individual classes of merchandise” organized department by department and cluster by cluster, with Band Eight representing the cluster with the highest level of sales for a particular category, and Band One representing the lowest.

That means any store can be grouped into different bands for different product categories in order to facilitate the reorder and distribution process. “A store can be in any one of those bands for [different classes of] items,” Flanigan said. “So it could be in Band Eight for lawn and garden, but in Band Three for outdoor holiday [decorations]. We aggregate those, and we will allocate based on … what’s being serviced for those stores.”

Flanigan and his team constantly seek ways to make the handling, warehousing and weekly shipping of millions of items as seamless and low-cost as possible. “We’re constantly optimizing our effort,” he said. “But as we do that, we want to make sure we have the right products in those stores to meet demand.”

“Over the last five years, we’ve become much more sophisticated in how we break this down,” Flanigan told DSN. For instance, he said, “when I came here, Halloween was all just one class [as] a seasonal department. But … we don’t sell all those items evenly across the country. So now we take the Halloween category and break it down into four different classes” like costumes and spooky lawn decorations.

Clustering stores by sales patterns has been critical, “because today we can’t physically manage product assortment individually for 11,000-plus stores or 660 product classes,” said Flanigan. However, he added, the company will soon leap forward in its ability to forecast product demand at the item-by-item level, eventually bypassing many of its current reorder processes with more immediate product movement tracking, better sales trending analysis and more responsive replenishment capabilities.

“We’re converting our legacy system to a new system we call Supply Chain Solution,” Flanigan said. He called SCS “a much more robust system” with “a really strong forecasting engine” that can accommodate Dollar General’s rapid growth.

“We’ve been implementing SCS … very methodically, so that nothing would jeopardize our ability to serve the stores. When you’re growing at such a rapid rate as we are, if you mess up, you really impact the business. So we’ve run parallel systems very carefully.”

Under the new system, said Flanigan, “everything begins in the stores,” with reorders and replenishment forecasting triggered by point-of-sale data. “We have the capability of looking forward, while maintaining two years of [sales] history, so we understand what takes place on a particular day, and will forecast based on that,” he explained.

“With SCS, we’ll be able to project our sales. The algorithms are so much better. We’ll continue to aggregate the stores by these bands initially, but when we drill down and actually process the data, … we will be much more store-specific. We’re moving in that direction,” he added.

Staying ‘ahead of the distribution curve’

Also moving forward is the physical side of the distribution effort as new inventory storage and replenishment capacity comes on line. To that end, Dollar General’s growth in store count to more than 11,500 units is reflected in its ongoing construction of huge warehouses from which to aggregate and ship product. The company’s next distribution center will open in San Antonio, bringing to 13 the number of company-owned and operated warehouses around the country.

“As a general rule, we say that for every 1,000 stores we have we need another DC,” said Flanigan. “When you’re building 700 new stores a year, you have to be well ahead of the curve.”

Determining where to locate those new DCs, he said, “is all based on where the real-estate plans are, so we look at a five- and 10-year horizon primarily … where you will meet demand.

Most stores — about 95% of the total — are replenished with weekly truckload shipments from those distribution centers, delivered by contracted carriers. The other 5% of stores, including the highest-volume standard Dollar General stores and the larger Dollar General Market stores, receive at least two deliveries each week, according to Flanigan.

Either way, the company strives to make the supply chain as efficient as possible by managing inventory levels, adhering to just-in-time delivery goals and boosting turns on store shelves. “Inventory productivity is important, and we have targets for that,” said Flanigan. “But at the same time, we’re not so driven by turns that it impacts making good business decisions. So if we have an opportunity to purchase something [like a truckload of overstock merchandise at a steep discount], the financial opportunity is more important than the turn.”

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Striving for seamless store execution

BY Jim Frederick

Greg Sparks, EVP Store Operations, Dollar General

How does Dollar General maintain a consistent quality presentation and high standards for product display, merchandising execution, customer service and store appearance across thousands of locations throughout the United States?

(Click here  to download the full special report.)

It takes close collaboration between the merchants and store operations groups, clear guidance for store managers on executing merchandising programs, and open lines of communication between the store support center and regional, district and store management, said Greg Sparks, EVP store operations.

“With 11,000-plus stores, you have to have a pretty seamless process,” Sparks noted. That’s why “we have a very well organized monthly activity guide from the merchants to every store, where every square foot of the store is mapped out regardless of store size, format size, shelf size, market demographics, etc.”

“It’s pretty seamless for the store managers and their teams to execute … [with] a lot of clear direction from the merchants,” said Dollar General’s top operations manager. “We try very hard to keep store managers and their teams focused on execution.”

One clear advantage for the huge discount chain is that many of its store support center decision-makers have experience in both merchandising and store operations, Sparks said. “It’s a very collaborative effort, and we understand each other’s perspective,” he added. “The operators let the merchants know what’s working well and what’s not, and vice versa. That’s been very helpful for us.”

Although purchasing and planogramming of store sets is handled by departments at the company headquarters, “we do have some regional plannograms” to accommodate local purchasing patterns and conditions, said the head of store operations. “For example, our beach stores have an extended line of beach products in spring and summer, and we give them more flexibility to work with their local vendors to add more items. So if our store or district managers out in the field identify an opportunity, we have a process where the field can work with the merchants to try something locally.”

Buying, however, is done by groups at the store support center, even for items that may be locally sourced for a single cluster of stores in one geographic area, like a hypothetical special cookie that appeals to Alabama consumers. “If we negotiate that here, we get a much better deal,” Sparks explained.

“We communicate. That’s the real key,” he added.

Extending that collaborative approach is a mock store in the company’s DDC, or Design Development Center, where merchants, store operations managers and even vendors can meet to view actual mock-ups of new planograms and merchandising ideas.

Under Dollar General’s current management structure, two operations executives at the SVP level report to Sparks. Those SVP operations leaders oversee the activities of seven divisional VPs, each of whom is responsible for as many as 1,800 stores. Reporting to the divisional VPs are 69 regional store directors, each in charge of 10 to 12 districts. Each district manager within those districts oversees a dozen or more Dollar General stores.

Despite the clear command structure, decision-making at store level is a collaborative process and dialogue is encouraged. “On many of our store visits, our operators and merchants visit at the same time,” said Sparks. “We all compare notes when we look at opportunities.”

In addition, executives in operations, merchandising, supply chain management and other disciplines assemble on most Mondays for lengthy meetings to coordinate merchandising/ marketing strategy and store-level execution.

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Making every item contribute

BY Jim Frederick

Larry Gatta, general merchandise manager, Dollar General

Dollar General employs sophisticated data analytics to gauge item movement, consumer demand and customer segmentation store by store. But beyond that, said Larry Gatta, general merchandise manager, “we go through a category review of every planogram” in the store on an annual basis.

(Click here  to download the full special report.)

That process is not unique to Dollar General since the company’s overhaul began in 2008, but it has been enhanced with improved analytics and oversight, said Gatta. Thus, when updating a planogram or product set, “we go through … a strategy meeting first, followed by a business review, and then a final walk-through with the executives.”

Merchandising the store, planogram by planogram, is “a very collaborative process,” incorporating input in the planning meeting from “all functional groups,” said Gatta, including decision-makers across a broad spectrum of merchandising, supply chain and operational disciplines. “This meeting … incorporates all functional groups,” he said. “It’s shared accountability, so you have pricing, supply chain, a shrink team, a private-label team — every cross-functional team plays a role.”

The team also incorporates Nielsen data “within our customer segmentation,” as well as “clustering opportunities” for individual items and categories based on regional consumer preferences. For instance, “you have some brands that resonate strongly on the West Coast, but not so much on the East Coast,” Gatta explained.

“Everything is based on … the value proposition,” he added. “And in a limited-SKU environment, we get very ‘granular.’ So every SKU has to work hard for us, and we get to a micro level. We look at the trend data and build a forecast on every single SKU. So if those SKUs aren’t performing, the opportunity exists … [for] some mid-course corrections in between the [planogram] resets.”

Based on this analytical, data-driven approach and close scrutiny of customer preferences and product movement, “we change out probably 20% of our mix every year” through planogram resets and “mid-course corrections” of both individual items and categories, said Dollar General’s GMM. That means that product categories can go up or down in linear shelf footage based on their closely tracked performance throughout the year. And given Dollar General’s adherence to its core value proposition, “We continue to leverage our $1 price point, … which still accounts for well over 20% of our overall mix.”

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