Navy Exchange buys into inventory control

Retail apps give officials better view of their 450 stores

CUSTOMER RELATIONS: The Navy Exchange in Little Creek, Va., is one of NEXCOM's stores.

Courtesy of the Navy Exchange Service Command

Global retailing is becoming a regular feature of business, but neither Starbucks nor Wal-Mart faces quite the same challenges the Navy Exchange Service Command does.

NEXCOM serves naval personnel, retirees and their families at 450 stores worldwide, wherever the Navy has a presence. The $4.4 billion retailer differs from its commercial counterparts in that its stores vary in size from 2,000 to 200,000 square feet, and in function from convenience stores to supermarkets and department stores.

In 2003, NEXCOM decided to replace aging legacy systems with several Oracle Retail modules. The older, proprietary technology could not accommodate electronic data interchange and e-commerce, nor could it provide the business functionality, such as forecasting capabilities, the Navy wanted.

Using a phased implementation, NEXCOM has achieved measurable results in the form of revenue growth and cost cutting, NEXCOM officials said.

NEXCOM aims to improve its merchandise assortment, inventory and pricing across a wide assortment of products.

'We stock as many as 350,000 items in any given store,' said Dick Garza, NEXCOM's CIO, 'and there are over 2 million active items that we carry. We spent considerable time and effort with cross-functional teams streamlining processes, aligning our business processes to best business practices, and aligning those with technology.'

The key was taking a phased approach to implementing the Oracle Retail modules. Oracle Retail is a suite of 40 modules.

Scott Groven, Oracle's client executive for NEXCOM, said NEXCOM has eight modules, covering retail merchandising, active intelligence, allocation optimization, a messaging infrastructure, warehousing management, data warehousing, store inventory management and retail-demand forecasting. It runs on an Oracle 9i database.

'We did this in order to minimize the negative impact to the business,' said Garza. 'At the same time, we were trying to achieve benefit realization sooner rather than later.'

The first module NEXCOM deployed was replenishment improvement, a program that seeks to reduce inventory and costs, and to drive additional sales by improving in-stock positions.

'In fiscal year 2003, we successfully reduced inventory in our distribution centers by 13 percent and improved in-stock position by two-plus percentage points,' said Garza.

In 2005, the system helped the Navy improve retail sales by 5.2 percent, partly because of improved product availability. NEXCOM also reduced its overall inventory by 5.5 percent across its more than 400 stores and eight distribution centers.

Oracle's optimization engines work by examining data on inventory, sales, customer profiles and pricing, according to Paula Rosenblum, executive director for research and content at the Retail Systems Alert Group of Boston.

Rosenblum said that Oracle's software is particularly amenable to a phased approach.
'It is a modular product,' she said. 'Many of the pieces are self-encapsulated, so that you can implement one without invading other processes.'

She also praised NEXCOM's 'vanilla' implementation, one that requires little or no customization of software.

'This allows you to stay on an upgrade path,' she said. 'As the science of retail evolves, as computing power develops, as the ability to be predictive grows,' NEXCOM will be able to upgrade the software with a minimum of hassles, she said.

Extensive customization presents upgrade problems because the people who performed the enhancements often have moved on to other jobs, and documentation of the system often is weak, Rosenblum said.

When fully implemented in October, Garza foresees the system influencing 'how we buy, how we plan, how we forecast and how we manage inventory at the store level and at the distribution centers.'

An Oracle feature called active intelligence is helping NEXCOM manage transactions in real time.

'Active intelligence allows us to set business rules in our applications,' Garza said. 'If transactions don't meet the rules, an e-mail alert is sent to the appropriate individual for action.'

For example, NEXCOM can establish fill rates, which measure the supplier's ability to meet demand for a product. Active intelligence will alert management if the vendor falls short.

'This drives our ability to improve in-stock position and to streamline costs,' said Garza.

For Rosenblum, what is most notable about NEXCOM's Oracle implementation is its simplicity.

'There is nothing like [the year 2000 date code rollover] or the Internet explosion that requires businesses to shift technology at this moment,' she said. 'Retailers will never get off legacy systems if they have to suffer through long and painful implementations.'

Garza measures the implementation's success by NEXCOM's sales performance. The retailer saw sales increase by 7 percent during the third and fourth quarters of last year.

This compares favorably to the 4 percent increase seen in the retailing industry as a whole, said Garza. 'As we continue to deploy these tools, we will continue to see increases in top-line revenue.'

About the Author

Peter Buxbaum is a special contributor to Defense Systems.

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