S-10 A SPECIAL SUPPLEMENT TO DC VELOCITY
company’s rapid growth, it was not achieving the econo-
mies of scale that should have resulted. “We kept adding
headcount in our back-office functions, but not enough
was focused on the right value-added activities.”
The problems, he says, came from taking an overly
broad view of inventory, managing to averages, and look-
ing at inventory in large “buckets.” “We needed to get to
a more granular level to manage inventory. We needed to
think about inventory at the intersection of SKU, channel,
and fulfillment method.”
That was a capability the company decided not to
develop internally, Tannenbaum says. Instead, Vitamin
Shoppe outsourced its inventory forecasting and plan-
ning to 4R Systems, a software-as-a-service provider that
specializes in omnichannel inventory management for
retailers. “Implementing a profit-optimized system that
looked at inventory at the SKU/channel/fulfillment-meth-
od level allowed us to make purchasing decisions and
deploy inventory with the laser-like focus we wanted.”
The changes included a greater focus on vendor perfor-
mance, with vendors scored on metrics such as leadtimes,
on-time shipments, and fill rates. “We really worked with
our vendor community on speed,” Tannenbaum reports.
As a result of those efforts, leadtimes on purchase orders
have been cut in half. As part of the process, select ven-
dors, such as some handling refrigerated goods, began
shipping direct to stores.
The Vitamin Shoppe also changed the way it worked
with carriers. The company took control of inbound
transportation to the DCs. “Gaining control and access
has served us really well, as we have achieved more visibility into goods in transit,” Tannenbaum says. On the
outbound side, the company built tools to gain that same
kind of visibility by “scanning products in and out of every
hub in our carrier network.”
EFFORT YIELDS SUBSTANTIAL GAINS
The result of all that work was a major improvement in
inventory management throughout the supply chain.
“It took a couple of years, but we went from 90 percent
in-stock in our stores to 97 percent, and we simultane-
ously decreased inventory in each of our stores by 25 per-
cent,” Tannenbaum says. “We reduced back-orders in our
e-commerce business by 75 percent, and we increased
our inventory turns by 35 percent. Our fill rates on our
purchase orders have improved by 40 percent. And we
have doubled the number of on-time shipments into our
distribution centers.”
Transit times from the DCs to stores were cut by about
four days even as adding stores in locations like Puerto
Rico and Hawaii increased the average number of miles.
In fact, fulfillment has become so fast and reliable that
more than 50 percent of SKUs in stores have on-hand
inventory rates of one or two units.
The retailer’s success at trimming its inventory, however, revealed an unexpected problem: inventory accuracy
in the stores was not where it needed to be to provide
reliable information to customers. Accuracy at some
stores was as low as 60 percent. “A big piece of omnichannel capabilities, we believe, is about inventory visibility,”
Tannenbaum says. “Part and parcel of that is having correct inventory numbers.” Accurate inventory was crucial
to making store inventory visible to customers on their
desktop or mobile device so they could determine which
channel they wanted to use.
The company put significant effort into changing processes to sharply improve store inventory accuracy. The
changes involved shifts in scanning policy, physical inventory and cycle counting, receiving processes, and reporting tools for store managers. As a result, store inventory
accuracy now stands at more than 90 percent. That
allowed Vitamin Shoppe to make store inventory visible
on its website, a critical part of its omnichannel goals.
FULFILLMENT INFRASTRUCTURE REVAMPED
Closely connected with improving the inventory process
was revamping distribution and fulfillment. The company
knew it had problems with both processes and network
design. “We needed to get faster and get more accurate,”
Tannenbaum says. “And we needed to be able to scale
our supply chain network in a flexible kind of way.”
Four years ago, all distribution was handled from a sin-
gle DC in North Bergen, N.J. That had worked well when
the company was smaller. But now, with a larger store
base, cycle times were slower than desired, and inventory
accuracy and productivity were low. The DC also experi-
enced high turnover. Additionally, the growing number
of stores, increased same-store sales, and SKU growth in
the direct-to-consumer channel had strained DC capacity
and slowed throughput.
“We knew we needed to do two things,” Tannenbaum
says. “We needed to dramatically improve execution in
our one and only DC. And we needed to build a fulfillment
infrastructure so we didn’t just have one DC.”
The Vitamin Shoppe turned to Fortna, a supply chain
consultancy, for help with a network design project. That
