Cloud Computing

Cloud Computing is the topic du jour everywhere you turn in the press and analyst community lately, and for good reason. But, the real question is, what does it mean for enVista clients, and how do you stand to benefit?

Industry Shift Toward Cloud Computing
I recently attended Microsoft’s World Wide Partner Conference in Washington, DC. The event was quite impressive with over 9,500 participants from around the world. The overall conference theme was “Cloud Computing.” While the concept of cloud computing is not necessarily new, for a company like Microsoft where software revenue streams have been built on perpetual licenses, the fact that their entire Worldwide Partner Conference centered on this concept connotes a major shift in strategy.

Microsoft is building infrastructure, platforms and applications that are designed for the “cloud” and their partners are 100% behind them. For Microsoft, a company that spends $9 billion a year in R&D across its solutions (its next biggest competitor’s R&D budget is just over $5 billion), their investment is significant and research-based. In other words, for Microsoft to justify and embrace cloud computing, it means the technology is here to stay, and it’s where the industry is headed.

So What is Cloud Computing?
I like to think of cloud computing analogous to a big electrical grid or matrix. As a user, you buy what you need, when you need it. However, don’t confuse SaaS (Software as a Service) with cloud computing. SaaS is the revenue model whereas cloud computing is the delivery mechanism.

(Click here for Wikipedia’s definition of Cloud Computing and graphical representation below).

Cloud computing conceptual diagram

One of the biggest online CRM solution providers Salesforce.com uses cloud computing as their delivery mechanism while they charge end users a SaaS fee to use their application. Cloud computing should also not be confused with hosting an application. Hosting is simply outsourcing or putting your applications outside your company’s firewall, like staying at a hotel that offers the same basic comforts of home. Cloud computing is multi-dimensional, whereby the application and database are designed to stretch across the platform, much like how plasma moves on your TV screen based upon the heat and energy you emit when you touch it. In a nutshell, cloud computing is infrastructure, platform and application services that are morphed based upon the energy (demand) required by the end user. You need more data storage, CPU, connectivity, memory, and end users, you got it.

Cloud Computing for Supply Chain
Cloud computing is most certainly catching on in the Supply Chain Planning and Execution space. Transportation planning systems like MercuryGate are leading the way; They have truly built a platform (grid) that end users (shippers, carriers, and suppliers) can plug and use. The next wave of solution providers are labor management solutions like Next View Software.

The Business Benefits

• Scalability
• Robust Functionality
• Lower Total Cost of Ownership (reduced IT costs)
• Globalization
• Competitive Advantage

I found a company called Wine Management Systems in Santa Rosa, California that offers a compelling illustration as to the power of cloud computing. Using Microsoft’s infrastructure, Wine Management Systems is providing tier-one wine making, compliance and distribution capabilities for small and large wineries. Cloud computing has allowed Wine Management Systems to provide Tier-1 wine making and compliance software not only to the small wineries but to wineries all over the world. Wineries within the United States (California, Pennsylvania, Iowa and Indiana), but as far away as Argentina are accessing Wine Management’s solutions through cloud computing for a fraction of the cost, yet benefiting from a best-in-class solution.

Summary
In summary, industry leader Microsoft is rapidly moving toward cloud computing.  Cloud computing is not a fad. Microsoft has the power and R&D to move the entire computing and application delivery market. Beware old school thinking perpetual license software companies. One of my favorite quotes by Jack Trout is, “Differentiate or Die.” Microsoft has just thrown down the gauntlet and the Giant called Microsoft has awakened. For enVista clients, increased adoption of cloud computing within supply chain and enterprise applications will result in robust solutions with lower total cost of ownership that are scalable and support globalization.

If you are considering a solution implementation or upgrade, it may be beneficial to take a closer look at cloud computing. enVista will be demonstrating cloud computing supply chain and enterprise solutions at Booth #803 at CSCMP’s Annual Global Conference (September 26-29th in San Diego, CA). Stop by to chat, and let’s debate the merits of cloud computing.

Best regards,

Jim Barnes
jbarnes@envistacorp.com

In life and in business there are distinctions. A distinction suggests the perception of dissimilarity, as the result of analysis and discrimination. For example, when a carefully made distinction is made between two material handling designs for the same business a difference may refer only to the conditions of being dissimilar, for example the difference between a tilt tray sorter and a cross belt sorter.

A distinction in life and business is the concept of “right versus wrong” versus “what works for some does not work for others.” You may be asking where the author is coming from. There is difference of opinion in the material handling and industrial engineering consulting arena as to how to design a distribution center. Who is most qualified and who can produce the best solution for a client? In this example, let's assume that the distribution center is a 450,000 square foot facility that will be used to distribute merchandise to 100 retail stores. The prospective client is considering using an industrial engineering consulting firm that is focused on a solution design that is unbiased versus the use of a Material Handling Integrator (MHI) whose livelihood is based upon selling and installing equipment. Note, the distinction is not to be righteous (right versus wrong) but “what works” for the client versus “what does not work.” Remember a distinction suggests the perception of dissimilarities as the result of analysis and discrimination.

Let's explore the approach and differences between an unbiased industrial engineering consulting firm and a material handing integrator. The approach and methods by the two parties is based upon the end goal. Yes, both parties will explain to the client that their perspective solutions have the client's best interest in mind, however we will look at the metrics used by each party to determine the best solution for a client. The metric that is predominantly used by both independent consulting firms and material handling integrators to evaluate facility design solutions is Return on Investment (ROI). To paraphrase Elli Goldratt (Author of The Goal, Its Not Luck and the Hay Stack Syndrome) “metrics derive behavior, tell me how you measure me and I will behave accordingly, if you measure me illogically then expect me to behave illogically.”

However there is a key distinction between independent consultants who have no affiliation with equipment vendors and who receive no compensation for their designs versus a material handling integrator who has the main objective of selling and installing equipment. A material handling integrator's metrics drive the entire organization (Sales Person, Design Consultant, Project Manager) to design solutions where by equipment (conveyor, racking, warehouse control system, sorters, ASRS, etc.) are the focus of the design.

Many MHI vendors have started process improvement consulting practices, or facility design consulting practices, as part of their total services solution. It is the experience of the author that the MHI vendor will heavily discount, if not provide these services for free. Is it because the MHI vendor is a non-profit organization? Or is it because the MHI vendor would rather discount a solution design knowing that theforfeit cost of service can be overcome by selling equipment to the client where the profit is greater? The selling strategy is creative, but does it warrant the best and unbiased solution for the client?

In addition, are alternative designs and conceptual solutions free of bias? If your depository of services offerings were pick-to-light, conveyor and racking,and you had no experience with WMS or voice technology would the MHI evaluate the latter? The goal of many MHI vendors is “to convert the facility design to metal” as stated by former facility design consultant.

The design approach for both an independent consulting firm and MHI vendor are similar but there are key differences during the design life cycle that a buyer should be aware of.

We will look at each one of major twelve (12) process steps and compare them between each party.

STRATEGIC PLANNING

Step 1. Establish A Project Team / Plan Objectives and Priorities
Both parties should take this approach. However, this process is critical to the independent consulting firm. Process improvement will be as much a part of the solution as material handling equipment. A cross-functional project team should be created. This team will consist of warehouse, information systems, sales, accounting personnel and consulting resources. The team should be limited to around five members. The team will interact to establish the objectives and priorities for the development of the warehouse strategic plan. The team will quantify these objectives and priorities for use as a guide in warehouse alternative generation and apply as the criteria for the qualitative analysis. The team will obtain a consensus on the objectives, priorities, and evaluation criteria.

Step 2. Establish Database
Both parties will need the data and information below in order to design the optimal facility. The following data should be obtained:

* Planning horizon (five years, etc.)
* Growth (sales and product
* Receiving and shipping requirements
* Storage and throughput requirements
* Control system requirements, etc
* Operating procedures
* Present warehouse layout
* Material flow volumes
* Unit load definitions
* Present operating cost
* Economic evaluatiocriteria and factors
* Present storage, picking, and packaging procedures
* Order profiles
* ABC analysis (velocity movement of product)

Step 3. Document Current Processes
Both parties will document current processes using tools like Visio. There are two key differentiators that most MHIs do not complete. 1) developing cross functional flows that encompass the organizations business systems and 2) developing non-value added versus value added process flows. Value added versus non-value added processes, also known as “value steaming,” is a LEAN process for evaluating processes with an organization. The concept of LEAN and MUDA (eliminating waste) should be a key component of both independent consulting firms and MHI vendors. However, the approach to solving a LEAN distribution problem should be based upon simplicity, agility and flexibility. Material handling equipment is not flexible nor agile.

Step 4. Identify and Document Alternative Warehouse Strategic Plans
Given the database established in Step 2, material handling, storage and control systems should be considered. The methods of receiving, storing, picking, packaging, and shipping, along with the quantity of SKUs (stock keeping units) in all locations should all be questioned. The utmost of creativity, innovation, and practicality should be pursued. Various operating and material handling systems, as well as storage/handling systems, should be considered. The independent firm will view the solution as optimal only if all factors are considered: Labor, Processes, Equipment, Space and System. The Material Handling Integrator will focus more on the justification of equipment (conveyors, etc.).

Step 5. Evaluate Alternative Warehouse Strategic Plans
Define the investment, installation, and operating costs for each alternative plan. Perform an after-tax economic analysis of each alternative plan. Select the best Warehouse Strategic Plan based on the overall economic and qualitative evaluations. Qualitative factors considered should be items such as flexibility, expandability, safety, security, integration, and ease of implementation. The project team should determine these factors. Both parties should focus in this area. The independent consult will focus on all potential areas of improvement. Equipment must be justifiable.

Step 6. Specify the Plan
The selected Warehouse Strategic Plan must clearly illustrate the material handling systems, storage systems, and control systems. The result of this step should be a detailed document that will detail the four steps above and the previously described methodology. Both parties should perform this step. However, the MHI will tend to want to move quickly past this step.

DETAIL PLANNING

The detail planning phase will not be performed by the MHI. There is no incentive for the MHI to locate the least expensive vendors or the equipment that best meets the needs of the customer. The MHI has fixed contracts with rack and conveyor vendors.

Step 7. Establish Bidders List
Contact appropriate equipment and system vendors and establish a qualified list of three-five vendors for each.

Step 8. Develop and Release Equipment and System Functional Specifications
An equipment and system functional specification is a document that clearly and logically defines the required functionality and bid requirements for the required equipment and systems. The document assures that all vendors provide an equal level of functionality for the price quoted. The document is prepared by the company or their representative and then sent to the appropriate vendors. The vendors will then respond with a proposal that addresses all areas of the document. Documents can range in size from ten to eighty pages depending on the complexity of the required equipment or systems.

Provide functional equipment and system specifications with information such as the following:

* General requirements
* Description of Company
* Quantity
* Dimensions
* System Overview
* Features and Options
* Operational requirements
* Performance
* Capacities
* Throughput
* Define The Functional Areas of the Warehouse
* Receiving
* Putaway, Storage and Replenishment
* Order Initiation and Picking
* Shipping
* Miscellaneous Functions (Returns, Cycle Counting, etc.)
* Integration and Interface Requirements
* Communication Protocols
* Mainframe Interface Requirements
* Software and Hardware Requirements
* Reports and Inquiries
* List of Hardware and Software
* System Development and Implementation Requirements
* System Performance
* Project guidelines
* Training
* Maintenance
* General Instructions to Bidders
* Terms and Conditions
* Pricing format
* Schedule requirements

Step 9. Vendor Interaction
The team will provide input to vendors during the bid process. The vendors should be allowed four-six weeks to complete the bid response. Items include the following:

* Respond to questions during the bid process
* Receive bids

Step 10. Coordinate Site Visits
The team will establish dates for vendor site visits and document the requirements of equipment and system demonstrations.

Step 11. Evaluate and Select Vendors
The team will perform an analysis of the equipment and system bids.

Step 12. Finalize Layout
Redesign the conceptual layout based on selected vendor's feedback. Layout the facility to maximize storage and minimize congestion. Show details and dimensions on layout for items such as staging lanes, aisles, section views of storage equipment, forklift maintenance areas and lighting requirements by area.

In life and in business there are distinctions. The distinction is not to be righteous (right versus wrong) but “what works” for client's versus “what does not work.” Remember a distinction suggests the perception of dissimilarities as the result of analysis and discrimination. The use of an independent consulting firm will allow a company to strategically plan and implement the most cost effective system where material flow and data flow are synchronized, ultimately producing the lowest total cost of ownership and positive ROI.

One of my close business colleagues gave me a book to read called, Vested Outsourcing by Kate Vitasek. He had recently attended the ARC Forum where Kate spoke about concepts from her book, including the “Five Rules that will Transform Outsourcing.” The book was interesting and an easy read, (especially if you‘re on a 10-hour flight from Europe to the U.S.).

I have to admit, I was intrigued by Vitasek’s writing and as it turns out, I fully support her message and the book’s overall premise. Vested Outsourcing explores the concept of moving beyond what I refer to as “Type I partnerships“ whereby a contract between a supplier and customer is based squarely on price and activity. Vitasek rightly stresses the value and important of moving instead to “Vested Outsourcing.” However, I would argue that “Vested Partnership” is a actually a better term than Outsourcing for several reasons, but primarily because the end goal in any business partner relationship is to create a partnership based upon transparency, collaboration and improved cost containment or reduction whereby all parties have a “vested” interest in the outcome.

A “Vested Partnership” seems like common sense. I challenge the fact that a “Vested Partnership” is an evolutionary vs. revolutionary process. However, common sense many times is lost on personal agendas and policy constraints within an organization. The end game which is what I call a Type III partnership takes time, commitment and openness to think differently about solving hard and complex supply chain problems. But before you can move to a Type III partnership you must progress you’re your way through what I refer to as Type I & II partnership (reference illustration 1).

Unfortunately in today’s supply chain arena there are few, if any, companies that are really effectively managing their extended supply chain from source to consumption. In my 20 years of experience in manufacturing, distribution, transportation and supporting supply chain technology, I have not seen a wholly synchronized supply chain from source to consumption. This includes, DELL, GE, and yes even Toyota.

I do want to congratulate Vitasek and her contributing authors, because the book does provoke conversation and is on point regarding the value Vested Partnerships could bring. I use the word conversation vs. dialogue, because the distinction between the word choices is that conversation is free of bias and “right and wrong” objectives. I have had a number of conversations within our internal team and with clients regarding the concept. Is it a new concept? The answer is “NO”, Japanese car manufacturers have used “Vested Partnership” agreements to drive waste out of manufacturing for 40 plus years and over the last 10 years the same mindset has applied to their distribution network to service their dealers.

For 3rd Party Logistics Services providers (3PLs), this book should be a “wake up call.”I know of at least two large 3PLs that are on global road shows discussing the concept of Vested Partnership with their clients and prospects. Why? Because the fundamental principle behind “Vested Partnership” is to move to a Type III level that requires a new mindset: What is in it for WE, not ME.

As for traditional invoice audit and payment companies, that charge clients based on transaction cost alone , this book delivers a “rude awakening.” The value they add is minimal since they are not incented to proactively add value. I would argue that invoice audit, payment and GL account coding providers should provide yearly, if not quarterly, rebates back to their customers. Why? Because as a customer transactions increase, the audit company’s cost decreases. In addition, traditional invoice audit and payment companies are not improving the value stream of their customers’ supply chains. Granted, they are eliminating Muda (Waste) by standardizing processes, but beyond the first year’s savings, how are they adding value? The traditional activity-based costing method is a means of the past.

A Level III partnership is focused on value and the way two or more companies can improve the value stream of services or products that are being delivered by the supplier(s). If you are supplier that provides a service or an actual product, I would like to think you are asking yourself, “How can WE add value through information, data, and innovative technology?”

Level III partnerships must start with a “shared vision” and ask the hard question, “What do you want more of?” For most companies, it is increased profitability and Net Operating Income (NOI). Type I and II partnerships are cost-centric models focused on, “I have something that I want you to do for me, give it to me at the lowest total cost, or else.” This makes it difficult for any supplier to become innovative, creative or motivated to invest in new technology, resources or process improvement. Matter of fact, it encourages the opposite. If the customer is dysfunctional, then the supplier wins and takes advantage of the customer by developing new activities that may or may not be adding value in the supply chain.

Can you achieve a Type III Vested Partnership? The answer is “Yes.” We at enVista have proven the concept and have developed a methodology to get any company there. In fact, we actually implemented these practices within one of our own business units (enVista Freight Management) in a proof of concept test with a very large e-commerce retailer. We are a supply chain consulting firm that has a unique twist; we actually run numerous transportation operations for clients. What a concept to actually execute what you consult! It is difficult to be a “trusted advisor” to a client but never execute on or implement the very practices you preach. Therefore, we walked our client through our Vested Partnership model and asked the client, “What type of partnership do you want?” We were expecting them to say somewhere between Level I and Level II, but to our surprise, they wanted a Level III partnership from the start. We openly discussed the pros and cons of each partnership level and they were adamant they wanted a Level III vested partnership.

The collective group challenged traditional thinking by first determining what both companies really wanted “more of” and what and how a “picture of success” should be defined. More importantly, both companies also considered how to correct behavior if both companies were not moving in the right direction and achieving the common goals and objectives. If you do not take away anything else from this blog, take away this!! Level III Partnerships require a “recovery” system to be effective. Life and business are not always perfect and when two parties are involved, there will always be times when someone drops the ball or actual execution gets out of alignment with outlined goals.
You may note that I just contradicted myself because Level III partnerships need to evolve and mature over time. You are right, they do. The Level III example that I gave above is very rare. The only way it worked is because both organizations, enVista and a big mass e-commerce retail client, were willing to have an honest and open conversation. (Not to mention the leaders from both organizations are change agents and “out of the box” thinkers). Starting at Level III is rare, but not impossible.

In summary, I want to thank Kate Vitasek for inspiring me. Her book has validated the importance of Vested Partnerships, the same type of partnership enVista has been consulting on and putting into practice with its own clients for the last eight years.

At enVista we believe there are four fundamental types of supply chains: Distribution, Manufacturing, Purchasing and Service Centric. A vertically integrated CPG company would be classified as a hybrid of three different supply chains (Manufacturing, Purchasing and Distribution) compared to a retailer who is (Purchasing and Distribution centric). At the end of the day and regardless of which type of supply chain your company is your supply chain is required to meet or exceed the end customer’s expectations while maintaining profitability. Supply Chains are becoming more complex, they are dynamic in nature due to economic pressures and require agility in order to be competitive. There is an increasing interdependence on technology, processes and people. The Supply Chain Eco-System is ever evolving, and what has worked in the past is no guarantee for future success. Technology solutions used to manage the above supply chains vary vastly based upon the business objectives of the company. A pure-e-commerce retailer has different software requirements compared to manufacturer of cell phones.

Historically, Supply Chain practitioners have had to use: 1) enterprise resource planning (ERP), 2) best of breed (BOB) or 3) legacy or home grown solutions to manage and execute their supply chains. Over the last decade many companies have used a combination of BOB applications with their ERP system. Or in the case of some retailers they have used a culmination of BOB and legacy solutions for merchandising, replenishment, allocations, financials, and distribution to manage their business.

Many of the ERP software vendors have tried to develop end to end solutions but have struggled in the area of optimization and execution. To overcome the functionality gaps in their core solution they have made acquisitions to fill in the holes. On the other hand non-ERP providers who have focused on execution and optimization have made acquisitions to overcome their inability to plan and become the transaction of “record”; single data model for the enterprise.

These software companies have either built or acquired a “suite“ of solutions that may or may not be integrated but more importantly do not work on a common data model with shared business objects. The extreme is a software vendor that has made numerous acquisitions or has developed solutions on different technology stacks that are not integrated but may have “assembled” their solutions with a common user interface to look like a “suite” but the underpinning solutions are not integrated and do not share data between applications in order to form basic optimization.

Imagine for a second that you are a Sr. Supply Chain Officer and there is complete transparency from source to consumption. Your organization is completely aligned based upon business objectives and desired outcomes that have been developed by your Executives. Your team acts and behaves knowing the decision and actions they make impact either 1) customer service, 2) top line revenue, and/or 3) profitability. Unfortunately in many retail environments or complex supply chain environment resources make decisions in a vacuum not knowing REAL time the impact their decisions may have on the supply chain upstream and down-stream. For example a merchant/buyer decides to bring in product early because of potential spike in demand (forecasted snow storm), they decide to expedite the freight and the only supplier that has the desired inventory can ship on Friday meaning the warehouse will have to work on Saturday and deliver to the store during the weekend. Sounds great in theory but what is the costs and service impact of making that decision. What happens if the snow storm does not hit as predicted what is the impact of the extra inventory, space in the warehouse and expedited transportation cost? But on the other hand the snow storm does hit and the buyer was right, did the buyer know the impact on his or her margins and the cost to serve prior to making the decision….I doubt it. How about if the platform architecture used SOAP and WSDL to allow for easy integration to other applications, widgets, and programming languages and informed the buyers of the snow storm proactively because the demand planning and replenishment system was tied to the National Weather Bureau.

This leads to why I believe having a universal technology “transparent platform” to run a supply chain where-by there is complete transparency is key to improving supply chain performance in 2010 and beyond. There is “one version of the truth” from source to consumption. Having a platform is more than just visibility and alerts, which are historical in nature. I am referring to multiple applications that reside on a single platform that can be used for optimization and predictive what if analysis. In the case of my previous example, if there was a single platform sharing the same data model and with common business objects then the buyer could prior to issuing the PO to the ski supplier understand the impact on his or her decision. What if I execute one PO and expedite the freight by having the vendor drop ship to a few stores, versus shipping to the DC. What if I ship to the stores on Monday vs. Saturday, what is the impact to my sale through rate on the item and transportation cost. My point is that this is impossible without a single platform that is synchronized from source to consumption. The buyer could have completely eroded his margins on the item because the merchandise had to be air freighted from the east coast to west coast.

The trend for 2010 and beyond is for supply chain centric software technology firms to develop their solutions on a single “transparent platform” which runs on one technology stack with one data model. Supply Chain Planning and Execution centric software vendors are adopting integrated work flow and user personalization (defined roles) with common business objects. Meaning there is only one item master, purchase order, and sales order. This minimizes master data integrity issues and ensures that ALL supply chain management personnel are using the same data. Data integrity is key when trying to develop multiple reports, dashboards or queries across an organizations enterprise and supply chain. Having common business objects that are shared across applications is mission critical to drive the lowest total cost of ownership. In addition common business objects are shared between applications (functionality) allowing for either simultaneous optimization or common work flow. An example would be optimizing purchase order consolidation for an inbound load plan and sharing that consolidation with the WMS. Having one PO table within the data base that is used by both the WMS and TMS with shared business objects allows for improved work flow through out a company’s supply chain. Last but not least a platform allows for transparency and drives accountability within the end user community. For example a vendor is going to be late with a shipment based upon the initial requested must arrive by date (MABB), an alert is sent to the buyer, replenishment team, inbound receiving team and transportation team providing each with visibility to react to the alert but more importantly allowing the applications to re-plan automatically. This could mean sourcing the product from the other vendor or expediting the freight and knowing the costs impact in advance.

The new splash and buzz is about getting on one “transparent platform”. Technology has matured to allow for a common work flow layers, business objects layers, optimization layers, web services layers and business intelligence (management reporting) layers. Supply chain are not getting simpler to manage they are getting more complex. The future is about cross-functional awareness and organizational accountability through a “Transparent Technology Platform” which reduces the complexity and simplifies decision making and execution.

Is this a dream or reality? I encourage any solution provider: Manhattan Associates, Red Prairie, High Jump, Microsoft, JDA, I2, SAP, or Oracle to come forward with their plans to move from traditional suites and assembly architecture to what I predict will be a revolutionary “Transparent Technology Platform.”

Always in Motion,

Jim Barnes

As I write this from my hotel in Germany, 2009 is behind us. I don't need to inform anyone of the economic crisis our country has experienced over the last several quarters. Our economic meltdown has impacted almost everyone, regardless of industry. The retail industry, however, was hit especially hard (specialty retail, apparel and footwear retailers), and numerous retailers were forced to close stores in order to reduce cost and diminish operating losses.

Since retail sales impact manufacturers and distributors upstream in the chain, let's look ahead to this year. There are two questions to ask: Is the retail industry back on the right track and what can retailers do differently to ensure success?

I will attempt to answer these questions using a number of key retail statistics. As examples, I have selected companies where I have a personal interest in the company (they are an enVista client or I use their goods and services). Two key public retail company indicators of success are comp sales and annual stock price percentage change. Same store sales reveal the strength and growth or weakness and retraction of a retail chain. Stock price is how much one is willing to pay for one share based upon the company's performance and should not to be confused with stock value.

When evaluating the data in the table below I believe these retailers are on the right track to recovery. The majority of 2008 and 2009 have been dismal for retailers and buyers have lost confidence in the economy due to uncertainty about their own economic fate. However, the comp sales figures for these companies are improving compared to 2008 (although, there are really only two directions they could go - up or bankrupt). If you look at the stock price percentage change last year, all of the companies have made significant improvement. (Unfortunately, I did not invest in Nordstrom on December 31, 2009. They produced a return of 182% - not bad!). However, a key static is a two-year return. Had you invested in these companies two years prior on December 31, 2007, your return on investment would have been less than stellar.

Source: Yahoo Finance and retailindustry.about.com

Why do some retailers outperform others and what do underperforming retailers need to do change their fortunes?  
Obviously, all retailers need to have great merchandise that we as consumers want to buy. However, retailers that excel in 2010 and beyond will focus on 1) customer service and satisfaction, 2) integrated technology platforms that allow for exceeding customer expectations and exceptional customer service, 3) integrated applications on one data model that allow improved work flows from point of sale, replenishment, merchandise planning and allocation, and 4) retailers must be relentless about cost containment (inventory working capital and operating expenses).

Let's look at each of these points:

• Customer Service includes activities and actions that an accountable retail organization is required to perform in order to enhance the level of customer satisfaction. Customer service and satisfaction are not the same. Customer satisfaction is the feeling that a product or service has met the customer's expectation.
  
  
  Nordstrom and Walgreens understand customer service and hence deliver great customer satisfaction. What makes these two companies unique is that they go beyond the basics of customer service.
  
  
  The Nordstrom name is synonymous with customer service, it is engrained into their culture which is aligned with their company's business objectives. Nordstrom makes you feel good about buying their merchandise. When you buy an item from Nordstrom, the sales person will walk around the sales counter, hand you your purchase and shake your hand. That is customer service. Some have argued that the quality and level of customer service has decreased in recent years, and that this can be attributed to a lack of support or understanding at the executive and middle management levels of a corporation and/or a customer service policy. In the case of Nordstrom, I believe their executives realize that the customer service is a key competitive differentiator and one of their main business priorities.
  
  
• Retailers need to understand that an integrated technology platform is also one of the keys to improved customer service. I personally believe that Walgreens has used their integrated technology to improve customer service, specifically in the area of pharmacy management.
  
  
  I recently experienced how Walgreens has integrated technology and applications to improve the flow of information and data from patient, doctor, pharmacist, retail store and health care provider. My wife, Julie, needed medication that required a doctor's prescription. From the time my wife called the doctor (on a holiday), to the time I picked up her medication was less than 1 ½  hours. Walgreens has used a superior technology stack and platform to connect and manage data information and make things easier for their customers.  For example, their integrated technologies surrounding pharmacy cases are proactive as they called us when my wife's prescription was ready. Due to the positive experience, I purchased $50 worth of staple merchandise while picking up my wife's prescription... unplanned sales revenue due to a great customer experience.
  
  
  Walgreens understands the importance of customer service and satisfaction and uses technology to differentiate themselves from their competitors. Customer satisfaction provides an indication of how successful the organization is at providing products and/or services to the marketplace.  Have you polled your customers to see how satisfied they are with your company?
  
  
• Retailers need to replace their disparate legacy applications which typically run on a multitude of databases and technology stacks (platforms and operating systems) and implement an integrated application which utilizes the same data model and framework. Why? Because as a retailer your core application suite is required to support a synchronized flow of inventory to meet variable demand. Does this mean that every application requires the same data model and systems architecture? No, but if you are a multi-channel retailer, some functions such as: demand planning, forecasting, purchase planning, purchase execution, merchandise planning and allocation, store replenishment, POS and visibility should all be on the same data model and architecture.
  
  
  I am an advocate of running a retail company's core solutions on the same data model for the following reasons: improved flow of information and data across functional departments. The improved information flow increases transparency and improves organizational accountability. There is reduced total cost of ownership with one core solution versus multiple applications. The core solution must provide the retailer the ability to be agile and flexible to meet customer demands through the use of SOA and end user configuration. Unfortunately, Microsoft Excel is by far the leading application used by small and mid-size retailers to manage their company's work flow.
  
  
  You may be thinking this is contrary to the common belief that Best of Breed (BOB) solutions provide increased flexibility and agility. Retail technology providers are using SOA to extend their applications allowing non-developers to make rapid changes. Manhattan Associates, JDA and Microsoft understand the need to run core retail systems on one technology platform and data model. However Microsoft's recent acquisition of LS Retail has taken it beyond just core retail flow and now they have one common data model that runs the entire Retail Enterprise (MS AX and Navision). Microsoft's only gap is in the area of warehouse management system. However Manhattan Associates SCALE (ILS.NET) is completely integrated with Microsoft's AX platform and provides a powerful combination for that medium size retailer with both push and pull replenishment strategies.
  
  
  From an overall sales process engineering effort, customer service plays an important role in an organization's ability to generate income and revenue. Retailers must at least keep up with the technology curve. In today's fast-paced world where customers are more demanding and where social media has increased transparency, technology has become the core of what we do and who we are.
  
  
  Customer service is normally an integral part of a company's customer value proposition. In their book, Rules to Break and Laws to Follow, Don Peppers and Martha Rogers, Ph.D. write that "Customers have memories. They will remember you, whether you remember them or not." They further say that, "Customer trust can be destroyed at once by a major service problem, or it can be undermined one day at a time, with a thousand small demonstrations of incompetence.”
  
  
• We are not out of the woods and some predict that our economy will not fully recover until 2011. In the meantime, retailers are required to focus on the bottom line and ensure that they are managing and reducing their working capital (inventory) and operating expenses.
  
  
  The old cliché that retailers are required to get the right product to right place at the right price is still relevant. However, retailers in 2010 must also focus on getting the right product to the customer at the lowest total supply chain cost. Last year in one of my blog entries, What You Can do Now to Cut Costs in These Economic Times, I wrote the following: 1) the retailers that are surviving provide value through discount prices and, in most cases, exceptional customer service, and 2) the retailers that are surviving, and will continue to survive, are constantly seeking efficiencies in their supply chains. They are squeezing every penny from source to consumption. Wal-Mart's entire business model is focused on cost containment, cost reduction or cost postponement. As I said last year and 2010 is no different, retailers require a relentless 24/7 and 365 days a year focus on COST. In 2010 retailers most also focus on ROIC (Return on Investment Capital). The wrong inventory, too much inventory and in the wrong place is not acceptable in today's competitive retail environment.
  
  
  Retailers and companies in general that are focused on customer service and investing in integrated technology in order to improve their customer's experience will be the big winners in 2010. In addition, they will continue to develop tactical and strategic initiatives focused on enterprise cost and waste management.

To validate my point, Wal-Mart's stock price has increased by 12.46% for the same two year period compared to the sample of retailers I listed above for the same period. As for the technology stocks, both Microsoft and Manhattan Associates' stock prices are -16.87% and -9.68% for the same two year period (12/31/07 - 12/31/09); however, they have recovered significantly from stock price lows of 50% of their current price in the first quarter of 2009.

I believe all signs point that we are moving in the right direction; however, I predict that retailers focused on customer service and cost containment using an integrated technology strategy will survive and those that don't…