A novel approach to inventory

Canada’s largest bookseller is starting another chapter in its information technology story — in fact, it’s destined to be a completely new tale altogether.

Indigo Books & Music Inc. has selected mySAP Retail as its IT platform for all retail operations. The system will help the national

book retailer perform inventory and category management, supply chain management and customer relationship management across its entire operations, including its 89 superstores, 188 mall stores and its online division.

Doug Caldwell, Indigo’s chief technology officer, says one of the primary drivers for standardizing on SAP was the digestion of Chapters — an acquisition finalized in early 2001, which included box stores bearing the Chapters name, its Pegasus distribution business, the World’s Biggest Bookstore in Toronto as well as SmithBooks and Coles outlets. Essentially, the business was sliced up into four divisions with their own cultures and systems. “”As we brought the whole company together, the main focus of 2001 was ‘let’s just get it on to common systems.'””

When it came to the retail locations at the time of the merger, says Caldwell, it made sense to defer to the 300-some Chapters stores rather than the 15 Indigo locations for the purposes of scalability, a Retek merchandising system implemented back in 1996. “”The version of Retek we have was very customized to the extent of about 60 per cent of the code was customized, and they have evolved that product quite a bit since then.”” Currently Indigo uses Oracle Financials for its reporting capabilities.

Indigo made a decision at the executive level in November 2001 that selecting a new IT platform would be a strategic initiative for 2002, says Caldwell. “”Are we going to fix what we already have, upgrade or replace?””

The first step was to map how the organization functioned. “”Out of that we identified a lot of what we called negative variances,”” says Caldwell, “”things that were broken. That gave us a list of requirements that we needed to go to the market with.”” By February of last year, Indigo had a laundry list of what it liked and what it didn’t like. At that point in time, he says, Indigo hired Cap Gemini Ernst & Young to aid in the selection process.

One of the challenges particular to the book industry, says Caldwell, is in the larger stores there are about 100,000 titles to be managed at any given point, and about 25,000 titles in the smaller stores. “”When you look at that across 300 stores, the number of individual store/book combinations you’re managing is in the tens of millions.”” Add to the characteristics of each item — availability, demand and seasonal variance, for example — “”it’s just a huge amount of data to try to manage,”” says Caldwell.

The existing Retek system looks at a four-foot linear section of fiction the same way everywhere, whether it’s at a large Indigo store in downtown Toronto or a small Coles location on the east coast. “”If I’m in Moncton, I probably want to have (less) fiction than history,”” Caldwell says. “”I want to bring in some of the local history.”” But Retek just looks at it as four feet of books — it doesn’t care what it is. “”The tool was really outdated for the ways we wanted to merchandise the stores.””

Hence category management is one of the top functionalities Indigo hopes to pull out of its mySAP deployment, as well as improve its overall supply chain so it is better able to forecast what titles the bookseller needs. “”We’d love to be able to share that with the publishers, to enable them to have better forecasts in terms of their production runs.””

When Indigo decided to go to market for a solution, Caldwell says it had to decide whether it would select one solution to meet all of its needs or go with a best-of-breed approach. “”The challenge we’re faced with right now is the number of interfaces that need to be maintained,”” he says. “”Each store has its own master file of data. It becomes incredibly challenging to make sure we have consistent data across the organization. The design goal was to definitely reduce that as much as possible.””

That didn’t necessarily mean picking an all-in-one answer, says Caldwell. Early in the process, Indigo didn’t even consider dropping Oracle for its financials — the priority was the merchandise planning and forecasting, and category management.

The bookseller ended up evaluating four packages, including SAP and the latest version of Retek, through one-day demos to the various stakeholders in the Indigo organization, some 30-odd people, says Caldwell. “”In that evaluation process, we looked at four criteria: category management, inventory management, execution and customer support.”” Indigo also checked customer references and had its own IT people look under the covers to gauge exposed interfaces, upgrade capabilities, stability of the vendor and training available.

At the end of the day, SAP came out on top. “”Before we made a commitment,”” says Caldwell, “”we did what we call a four-day conference room pilot. We actually took our data, had SAP load it on to its system and brought that same core team of 30 people for a four day “”down- and-dirty”” of what a day in the life of Indigo would be with SAP. That gave us a chance to really see how the system would work with our data.

“”By the end of June we were able to say SAP is the platform we want to go forward with.””

Indigo has just embarked on a three-month blueprinting phase, says Caldwell, and it has already discovered some potential improvements to existing processes — for example, the classification of SKUs themselves. “”If you look at cookbooks, The Joy of Cooking is a standard staple item book,”” he notes. “”You always want to have two in stock in small stores and you may want to have four or five in stock in a large store. All you need to do is keep it in stock unless you’re promoting it, so the thinking is to do some automatic classification of some of those items.””

In this model, The Joy of Cooking would always be replenished automatically when it sells without any human intervention.

The Indigo deployment would be considered a mid-large mySAP implementation, says Janet Wright, global account manager with SAP Canada in Toronto.

Retail is one of SAP AG’s key verticals from a research and development perspective, she adds, but notes there are specific verticals even within retail, and bookselling faces its own set of challenges.

Wright says Indigo’s process to ultimately select mySAP retail was quick and intense. “”Indigo knew exactly what it wanted to do,”” she says. “”They had a crisp selection process in place.””

In conjunction with the mySAP Retail deployment, the bookseller is also doing a hardware refresh, which will see two IBM P-Series servers on the back-end to replace 1996-vintage HP servers.

The first phase of the mySAP deployment is expected to be completed by April 2004, with secondary functionality such as CRM to be added afterward.

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Gary Hilson
Gary Hilson
Gary Hilson is a Toronto-based freelance writer who has written thousands of words for print and pixel in publications across North America. His areas of interest and expertise include software, enterprise and networking technology, memory systems, green energy, sustainable transportation, and research and education. His articles have been published by EE Times, SolarEnergy.Net, Network Computing, InformationWeek, Computing Canada, Computer Dealer News, Toronto Business Times and the Ottawa Citizen, among others.

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