Assimilating 2,000 suppliers into a modern unified transaction management system was a daunting challenge for Canadian Tire Corporation Limited, headquartered in Toronto, Canada. Since its founding in 1922, Canadian Tire Retail (CTR) has grown to 454 stores and is the country's most-shopped retailer offering automotive, sports and leisure, and home products. Canadian Tire is forecasting retail sales to reach $5.6 billion (Canadian) for 2002 with the help of a successful outsourcing solution in supply chain management.
Geoffrey Frodsham, vice president of logistics for CTR, states the number one objective was "to electronically connect our suppliers with our business processes and technology environment." CTR wanted to have its forms "move back and forth much like email does today."
This was no easy task, according to Pete Adell, director of research, retail, for AMR Research, which is headquartered in Boston, Massachusetts. "Once you get below the top 100 suppliers, you run into very unsophisticated people. They are used to using faxes and phones. They don't have a lot of dedicated technical people," he says.
Helping Smaller Suppliers Participate
CTR had a dual program of electronic data interchange (EDI) and electronic forms, according to Frodsham. He says CTR had over 400 suppliers large enough where the investment in an EDI program generated a good payback for them. But it would be difficult for the others to warrant a full-blown EDI program due to the cost of technology and resources. Web based technology provided the tools to modernize the supply chain.
Modernizing the supply chain is a challenging task for a retailer, who generally "does not have enough manpower to train, equip and integrate all its suppliers," says Adell. In addition, many retailers operate with a welter of systems, including both their own legacy systems as well as packages they installed. Often only an outsourcing service provider "has the personnel, expertise, and experience to meet the challenge as it is their core competency," says Adell.
An AMR research report, "Improving the Odds for Successful Business Process Outsourcing," illustrates the advantages to outsourcing the supply chain. The report queried 300 chief financial officers (CFO) in 2002.
Adopting the Web Model
In April 2001 CTR outsourced its electronic order fulfillment transaction services to SPS Commerce of St. Paul, Minnesota. Since its founding in 1996, SPS Commerce has successfully integrated 40,000 small to medium-sized suppliers for its clients with its Web-based supply chain integration service.
"We have gotten to the stage where the Internet is a key enabler for supply chains to be much more efficient," says Adell.
Jim Frome is vice president and chief strategy officer of SPS Commerce. He says adoption of the Web model is working out like its predecessors - first the phone, then the fax. Today, companies expect suppliers to do business on the Web. A hosted solution allows retailers to save on their internal resources; it's also affordable for the suppliers. "They can have the service for $50 a month," he reports.
Frodsham notes the "ability to use Web-based technology is a very important value proposition for small suppliers. It allows them to use inexpensive technology and makes it as easy to execute the processes that we need." In addition, using the Web produced both "speed and agility -- something we need to enable our processes for our suppliers."
Frome recalls CTR wanted to move forward to leverage Web-based technology. In addition, CTR wanted a supply chain system that had flexibility to add more functionality down the road. Frodsham adds CTR wanted "robust technology and disciplined execution" from its outsourcing service provider. "The network management and data exchange protocols are their core competencies. We are not in the XML business," the CTR executive says.
Converting 1,400 Suppliers
The outsourcing process began in August 2001. First, SPS had to get its forms to work with CTR's legacy program. SPS used only 15 suppliers to ensure the forms worked properly. Then, SPS converted 1,400 suppliers in four months. The conversation was complete in January 2002.
An outsourcing service provider can avoid many of the time-consuming pitfalls of integrating a supply chain system, according to Adell. He says an experienced service provider "has run into most of the issues and problems of the small and medium-sized suppliers." He says most Web-based systems can have the buyer up and running "by the next day."
The unified system enhances CTR's maneuverability by shortening the response time, which makes it more sensitive to the forces of supply and demand in the marketplace. Adell explains, "If they are all up on a similar system, it allows the retailer to do the analytics very easily because it normalizes data."
In addition, the new system lets CTR know if its shipments arrive on time. For the first time, the retailer can spot a problem. "You can't fix what you can't measure and what gets measured fixes itself," he says. This is one of the most widely monitored supply chain metrics, he adds.
Frodsham points out that outsourcing allows CTR to take essential tasks off of its plate. "We have found a partner with core competencies that we would prefer not to do. We wanted to focus our resources and skill sets on the pieces that could provide the highest return. We win with service level, cycle time and cost."
The outsourcing relationship is a hit with the suppliers, according to Frodsham. "SPS is very pragmatic and customer focused. We have received very strong compliments from the suppliers," he says. This is remarkable since CTR implemented six electronic transactions to new technology in less than 12 months. "A full conversion a huge accomplishment. We are very satisfied with the relationship," he says.
The outsourcing solution streamlines supply chain management, according to Adell. "Outsourcing to accommodate small to medium suppliers is a major trend globally. It is a smart move for any retailer."
Lessons from the Outsourcing Journal:
- Outsourcing unifies suppliers into a centralized system producing greater efficiency and visibility into vendor performance.
- Using the Web makes it affordable for smaller suppliers to participate in the modernization of the supply chain.
- Outsourcing supply chain management is a major trend globally.