Sunday, September 14, 2014

How Macys managed to be on top in Inventory Management

How Macys managed to be on top in Inventory Management

Macys, founded in 1858, is the 16th largest retail store in U.S. and almost 150 years old with 840 stores around the world. Known for its diverse merchandise and niche in popular cultures, Macys is also famous for popular slogans released during holiday seasons and cause events such as “Believe”, “Macys, the magic way” and “The red shining star”. I was totally amazed to see that in the technology driven market, Macys kept growing in profits and market size, hence I decided to study the big secrets underlying Macy’s growth and earning high profits. How it is able to manage multiple stores  at so many different geographical locations with millions of different items and how it predicts customers demand in everyday changing world and able to maintain an updated inventory accordingly to fulfill their demands.

One big reason behind its success is the strategy behind the inventory management. Macys has always been serious to customer’s experience and does everything possible to provide the customer what they want.  Its core business value lies in finished goods (FG) because the finished products are readily available for sale. According to the article, “Managing Inventory” there exist five different types of inventory depending on the role in the supply chain. Macys kept its inventory in accordance to changing customers demand even it is related to one product, so called Buffer stock or safety stock, so that it could fulfill the demand of customers. Macys, first part, localizes the merchandise and shopping experience for each of its locations and trains its employees to keep a track of trends and demands in every different locations depending on the region, multicultural demographics etc. They maintain a Merchandise planner that tracks the demands made by the customer that were unavailable at that store. After every cycle, the district merchants get together and analyze the planners and look for the commonalities. This planner helped Macys to identify the high demands for Women’s Shoe Size 11 in downtown Chicago.  These planners have helped Macys to sell out the items before going for mark down by identifying stores in demand for similar items.

The second part of MOM strategy is Omni channel, which is an inventory optimization through technology. This gives the employee as well as the customer to access through different channels to search for online inventory, its availability at the nearest store and order the item online or ship them to home from another store, which acts as mini-fulfillment shipping centers. This gives huge advantage to Macys compared to its competitor stores such as TJ MAXX, Marshals, Burlington, JC Penny, and Sears. It also benefits Macys in moving its inventory in a smarter way towards the store of demand. Macy’s inventory search database is also designed in a smart way, such that if a customer orders a tie from Atlanta, it may ship from New York rather than from the nearest store even if it is available there. The reason being, the model predicts that there is  high stock of tie inventory at New York store and the probability of this store going for markdowns for tie in future in higher than the nearby at Atlanta store. By this way it better spends on shipping and still gains the profits on a full price item.

Macys improved its inventory accuracy by implementing REFID technology on a pilot scale at one store. After its success, it implemented this technology across all the stores. Wal-Mart also started with RFID technology to improve its supply chain so that the product can reach the right place at right time. But unfortunately, it didn’t work out for Wal-Mart’s for various different reasons and they stopped using the technology. But Macys has been able to successfully implement the RFID technology as it had Omni channels to support them.

The critical element of inventory management is identifying the location of each and every unit of merchandise across all the 840 stores and distribution centers. It is not an easy task to manually count each and every item but RFID technology helps with providing the visibility to the items to the customers and also to the sales merchant in the store available through their hand held devices. Macy’s associates perform the cycle count 24 times a year by walking around the floors and identify which style and size needs to be replenished based on its popularity. This increased the accuracy by more than 90%. Macys requires its suppliers to put RFID tags and send it to the stores and distribution centers. This technology not only helped with the profits but also helped with serving the customers in a more efficient way.

The advantages of using RFID technology are:
1) It helps customers as well as Macy’s employee to have high level of visibility for all merchandise.
2) It helps the store associates to check for system wide availability of the product, item location, and available for delivery or next day pick up by the customers.
3) It helps Macys to reduce the markdowns costs and inventory write-offs by enabling some mis-located items to be sold, either online or in alternate stores.
4) It enables the store items to be available for online orders through, especially when fulfillment center inventory is depleted.

The technology definitely helped with reducing number of markdowns and other kind of discounts, but Macys still puts up with many discounts offer and sale seasons lesser than the previous times in a more strategic ways.

There is huge hand in how you engage with your customers to keep the inventory moving. The Magic of selling plays a big role in that. If the points of sales personnel are not very engaging and committed to their work, the company can never benefit even it predicts the customers demand 100% accurately.  Unless there is dedication from sales personnel to find the item in the back of their stock room or helping to find the customer with their specific item, it’s not easy for a company to grow like Wal-Mart. From my personal experience with Wal-Mart, I have seen that their employees always had complaints about their payrolls and show less enthusiasm towards customer’s demands. Macys does many promotional campaigns during holiday seasons. It provides many sales seasons, keeping the stores open for 24 hours during Thanksgiving and Christmas seasons. This helped Macys create its own brand image. Macys is far outperforming its competitors with its share price up by 41% while JCP shares down by 55%, Burlington’s up by 24%, Sears up by 12%. It had $27.7 billion revenue through sales in 2012, which was $4.2 billion higher than the sales in 2009.

After researching related articles and papers, I think Macys has mastered the commerce of inventory utilization perfectly. The article from HBR, “Managing Inventory” talks about three key factors of Inventory strategy metrics such as Customer service, Operational Performance and Inventory related costs.  Macys has certainly managed to keep these odd metrics at their best in developing their strategies. Macys is on par excellence when it comes to customer service. As mentioned earlier, One Part of MOM strategy is Magic Selling Customer engagement keeps a check on that. Macys give personal touch to every customer and making sure the customers get what they want and also at a competitive price. Macys has improved it operational excellence by introducing RFID technology and expanding its online inventory for the online customers.  Macys is able to keep its inventory related cost down by sending the product to its customer on the basis of distance but also making sure that the other stores doesn’t have the same product in excess and go for markdowns in near future. This keeps the inventory of distribution centers, stores moving. This all enabled with the help of technology implementing with clear goals.

The article also aroused some interesting questions:
1) How long Macys can keep up its strategy in the technology-changing world and will it be able to compete with market with same effectiveness after 10 years or so?
2) Macys is building huge billion square foot of distribution centers, Will they change any strategy to manage such large inventories?
3) How Macys ingrained such commitments and enthusiasm among its staff or employees to give the best customer experience?
4) How Macys can keep the cost low for customers while also implementing costly technologies?



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