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New Jersey-based home goods retailer optimizes inventory levels.
In order to decrease lost sales due to out-of-stocks and maintain or
reduce inventory investment, Linens ‘n Things, Inc. sought a solution
that could optimize inventory levels through improvement of forecasting
and replenishment processes.
By interfacing analytics modules from 4R Systems with an existing JDA
MMS retail application, the 380-unit, 27,000 SKU retailer has begun
developing a new forecasting and supply planning engine. At present,
the retailer is rolling out the system.
Implementation
Linens ‘n Things obtained advanced forecasting capabilities as follows:
*Q4 2001. Having noted that one of its key vendors had successfully
utilized forecasting and planning functions from 4R Systems, the retailer
began investigating the vendor’s technology. This included two modules,
Right Data, a foundation piece that streamlines data and prepares algorithms,
and Right Plan, a forecasting and planning application. As a result,
Linens ‘n Things decided to perform small tests to evaluate the solutions.
*Q1-Q2 2002. After initial testing had shown positive results, Linens
‘n Things decided to perform an in-depth pilot of the 4R Systems-hosted
solution in all 380 stores. The retailer selected comforters and quilts
as test products and picked about 80 SKUs to be run through Right Data
and Right Plan, as well as 80 comparison SKUs to be run though the current
forecasting system. The company replenished the two sets of products
under the different applications and compared the results weekly.
*Q3 2002. Following the pilot, Linens ‘n Things evaluated and compared
results. This indicated that the company would benefit from reduced
inventory levels (thereby lowering required capital investment), as
well as from decreased out-of-stocks in the tested categories.
The retailer then performed a second pilot for a different product and
department. The company selected sheets as a basic item, and chose a
subset of SKUs to be piloted and compared through both systems.
Results from the second pilot, however, indicated that Linens ‘n Things
would benefit from increasing inventory levels in certain product styles.
It was also observed that, depending on the product and its movement
and demand patterns, Right Plan could be used to optimize inventory
levels rather than simply recommending inventory reductions across the
board.
With tests completed and results analyzed, the company then decided
to begin rolling out Right Data and Right Plan across all departments.
*Q4 2002. Linens ‘n Things has begun an aggressive rollout plan and
will have six to eight departments up and running on Right Data and
Right Plan by the end of the year. Currently, the company is bringing
the 4R planning suite in-house, and is adding and fine-tuning interfaces
between the new forecasting modules and the existing JDA enterprise
application.
Technical Environment
Linens ‘n Things utilizes the following technology for its forecasting
functions:
• an AS/400 mainframe running the JDA MMS system;
• a Windows-based server running the 4R Systems product suite, including
Right Data, Right Plan, Right Test, and Right Buy modules; and,
• an in-store CRS POS system.
Benefits
The new applications have enabled the retailer to adjust and optimize
forecasting, buying, and replenishment decisions. For example, the Right
Plan module informs Linens ‘n Things when the demand of a particular
product is phasing out. By notifying the retailer in advance to stop
buying a specific product, product obsolescence charges and closeout
costs that erode gross margins can be reduced. Right Plan also maximizes
gross margin based on service level targets, inventory goals, or within
an open-to-buy budget. In addition, it allocates stock based on inventory
productivity goals for the entire chain at the SKU/store level.
Future Plans
Linens ‘n Things will continue rolling out the forecasting software
and also plans to implement the 4R Systems product testing modules Right
Test and Right Buy. The Right Test module will be utilized to segment
stores by sales mix, thus selecting key locations in which to test particular
new products. Based on the results of the new product tests, the Right
Buy module will enable the retailer to determine the best product quantities
to be allocated to each store.
Linens ‘n Things
is a New Jersey-based $1.8 billion specialty retailer of home textiles,
houseware, and decorative home accessories. The retailer has stores
in 43 US states and in four provinces in Canada.
Pennsylvania-based 4R Systems is a provider of analytical software
matching supply with demand. The 4R Supply Planning Product Suite is
a set of software products enabling retailers and their suppliers to
manage SKUs at every stage of the retail lifecycle.
Sources:
Jeff Steinhorn, SVP/ CIO, Linens ‘n Things, Inc., 6 Brighton Road, Clifton
NJ 07012 (973) 778-1300; jsteinhorn@lnt.com.
Jeff Singer, President, CEO, 4R Systems, 1400 Liberty Ridge Drive, Suite
102, Wayne, PA 19087 (610) 644-1234; jsinger@4rsystems.com.
(Retail
Systems Alert, November 2002)
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