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Application of Sourcing and Supply Chain Management

Principles to enable business growth and margin expansion in a retail environment

22Jul

CONTEXT & BACKGROUND

Privately owned $100M annual revenue, private equity backed, vertically integrated, leading manufacturer and retailer of window blinds and shades in North America. The organization’s retail stores offer the largest selection of custom made blinds and shades at low, factory direct prices.  Expertly trained design consultants in every superstore work closely with customers to find creative solutions for their window decorating needs.

The in-store team ensured every customer is 100% satisfied and the custom made window treatments are available for pick-up within a few days.  Expertly trained design consultants in every superstore work closely with customers to find creative solutions for their window decorating needs.

The vision for this organization was very simple but far reaching – become the best known brand for window blinds and shades. The owners wanted to transform the existing business model and paradigms in the window blinds and shades industry. They set their sight on accomplishing this by implementing and executing a direct to the consumer business model

While the business was elegant and could deliver industry leading profitability, achieving and sustaining operational excellence was not for the faint of heart. The manufacturing operations environment was challenging and demanding – it was an application of built to order in a extremely low volume, high mix, mass-customization supply chain in an extremely short customer order to fulfillment business cycle

PROBLEM STATEMENT

The lifeline of any retail organization is its product offerings.  This organization was no different, being a leading retailer in the window treatments industry, it offered an unparalleled selection of custom made blinds and shades. The product portfolio was a wide category of blinds – natural and faux wood blinds, vertical blinds, cellular blinds, roller shades and horizontal aluminum mini blinds.

The horizontal blinds product line exhibited a timeless and classic ability to accent any room, bringing both function and fashion to the windows of your home. Available in aluminum, in a wide range of colors and finishes, these blinds offered the privacy and light control with the design flexibility a customer would need.

The horizontal blinds product line’s annual revenue was $15M.  Although not glamorous, this product line was the bread and butter of the portfolio.  However, the product line was facing some challenging business conditions.

Over the last couple of years, the product line had experienced declining annual revenues (10% YOY reduction), reduction in operating margins due to rising costs, reduction in price points due to increased competition.  The product line had seen a recent rise in quality and delivery issues.  The product line was getting old and tired as there was limited differentiation of the product line in the market place.

The product manager of this product line also realized that he was being held hostage by the incumbent North American suppliers who delivered products.  The incumbent suppliers did not address the poor quality of products they were providing and continued to raise prices further squeezing the margins.

It was time for the product manager to act.

THE PRODUCT MANAGER

The product manager for the product line is responsible for the product line across the entire supply chain – from product strategy development through material sourcing to presentation in retail showrooms.  Key activities that a product manager performed included competitive market analysis, product positioning and pricing, supply based analysis and sourcing negotiations, materials management and manufacturing process improvements.

The product manager needed to develop and implement a strategy to turnaround the financial and operational performance of the product line

The product manager began with market & voice of customer inputs.  This identified the needs and wants of the customers, relative importance of features and benefits associated with horizontal blinds and what customers needed for increased satisfaction.  The feedback from the customers was unanimous, they were looking for increased product differentiation, multiple product offerings, with clearly separated price points for varying segments within this category.

Given the feedback from customers, the product manager began researching the global supply base with superior technical product offerings in the horizontal blinds segment.  During the discovery process, the product manager learnt that although the horizontal aluminum mini blinds were perceived to be a basic commodity product in the North American market, that was not the case globally.

The product manager began evaluating potential suppliers in North America, Europe, and Asia and reviewing their horizontal blind product offerings.  After going through an extensive supplier selection process and a thorough evaluation of various product offerings, the product manager made his decision.

He was ready to introduce a brand new category of horizontal blinds from an European supplier in the North American market to supplement existing offerings.

This decision served two purposes, first these new category of products were highly functional, technically superior, extremely decorative in design, were available in much larger selection, keeping with current interior design trends.  This was consistent with the organization’s vision of offering the largest selection to its customers.  Who would have thought technology can play a role in providing product differentiation in blinds and window shades industry

Secondly, this was a clear signal which put the incumbent suppliers on notice.  Either they had to be more responsive to the needs of the organization or potentially face a deteriorating relationship.

The DISCOVERY PROCESS

LAUNCHING THE NEW PRODUCT LINE

The supplier involvement in the new product launch was extensive.  This was accomplished by including suppliers on project teams which added information and expertise regarding new ideas and technology, helped identify potential problems so they can be resolved early.

Early supplier engagement and integration reduced complexity of product launch, improved communication and information and thus reducing delays, eliminated rework.

Leveraging Design / Engineering capability from supply base by engaging suppliers early in the product development cycle enabled the product to be launched under budget, within a shortened and compressed launch schedule.

STRATEGIC OUTCOMES

The endeavor resulted in the launch of a highly successful new product line of horizontal blinds across the entire network of retail stores in North America.  The customer choices in this product category increased by 200%; this was accomplished while maintaining overall inventory levels across the supply network.

On the supply chain side, the launch of these products developed globally competitive supply base, developed strategic and long term partnerships with key suppliers and rebalanced the leverage in the supply chain.

As the incumbent suppliers saw a reduction in their revenues and declining volumes, their approach towards the organization changed.  In order to maintain their business, they offered price reductions and addressed on-going quality issues.

In a nutshell, not only did the quality and profitability of the existing product lines improved, the new product offerings enabled the organization to become the best known brand for window blinds and shades.

BUSINESS & P&L IMAPCT

On the whole the product category was transformed, the product lines saw tremendous revenue growth – 30% YOY for product line, and the revenues doubled in 2 years

The total number of units of the horizontal blinds grew – 20% YOY for product line.  The net margins for the product line grew from 20% to 28%.

Superior technical products significantly reduced quality issues (by 50%)

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