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The Warehouse Group launched from a concrete-floored shed in 1982 and is now one of the country’s fastest growing merchandise chains. New IT boss Owen McCall takes stock.

The new IT supremo at The Warehouse Group is knee-deep in a review aimed at promoting greater synergies between the trans-Tasman operations of its chain of discount sheds. Owen McCall has some major decisions ahead, as he backgrounds himself and conducts an evaluation of current capabilities, market pressures and repositioning technology to prepare for future competitive challenges. As new group chief information officer, he is responsible for smartening up the technology operations of The Warehouse’s ‘red sheds’ and Warehouse Stationery’s ‘blue sheds’ in New Zealand, as well as the Australian-based ‘yellow sheds’.

Technically, this is only McCall’s second job. After leaving university in 1985, he went straight to Deloitte as an assistant auditor.

Then, within 12 months, he moved into its consulting practice, where he remained “through many name changes” for 17 years. At Deloitte he was involved in a range of IT work, from strategy to implementing packaged applications and managing development projects in the US, Japan and Australia. In his last role he was based in Melbourne, with responsibility for the company’s outsourcing operations in Australia and New Zealand.

The strategy review was something McCall initiated at The Warehouse Group shortly after coming onboard. “The last strategy review was in 2000 and only some of the recommendations have been acted on. I’ve noticed things that could be improved on, as well.”

The big view

Red, blue and yellow have their own IT groups but now he is taking the big view. It could take as long as four months to determine priorities and begin practical work on what will be a three to five-year plan. “The more you can get away from big one-off strategy exercises, the better you are,” says McCall. “There’s always a time to pause and reflect, but you need to have a rolling view.”

And he’s not calling in the consultants or the big outsourcers to help – this exercise will test the mettle of existing staff and, in the end, hopefully give them a sense of achievement. “It’s an exercise I want to complete with in-house resources; partly because of the experience and the learning involved and because I want the business and the IT organisation to own the result.”

McCall’s assessment after three months in the job is that the systems are pretty solid. “They do what we expect them to, as far as functionality goes, although they’re not leading edge or world-class any more.”

Some have been developed in-house or are proprietary. While this reflects the age and maturity of those systems, McCall says that doesn’t necessarily mean the company is locked in. Business priorities and how IT can support and make those happen are driving the review. “We need to appropriately discharge our IT governance issues on behalf of the board and the chief executive. It’s a combination of direction from them, but guidance from me.”

On the agenda are the biggies like getting three IT departments to work together; tossing up between the existing proprietary inventory management system and a state-of-the-art ERP system; harmonising three different point of sale systems; and moving into electronic supply chain management. McCall says it is pivotal to work together across all the brands to drive value for the business, while leaving room for different business models.

“Technology can allow you to do things better, faster and cheaper, or it can allow you to build and introduce completely new capabilities,” says McCall. “The driver needs to be in the business strategy with IT alongside it – not following subserviently.”

In today’s interconnected world, McCall says you need to understand the impact these two have upon each other and balance this against emerging technologies, understanding the gaps and prioritising those into a critical path. “I like road-mapping as an analogy.”

Occasionally, profound changes in technology end up shifting an entire business strategy; for example, the move by the Warehouse Stationery ‘blue sheds’ into B2B e-commerce just more than a year ago.

Websites were enabled for ordering and fulfilment over the internet and a call centre set up to take the orders, largely focused on the small to medium (SME) market. This was considered a major success, with sales rising 50.5 per cent in the quarter to February 2004 with NZ$57.5 million in sales and B2B contributing significantly to that.

“I want to see more synergy between the brands, and there’s been some excellent examples of where we’ve been able to leverage each other including telecommunications and desktop standards,” says McCall .

Telecom NZ provides wide area networking connectivity throughout the chain, with distribution and administration centres using its subsidiary AAPT in Australia to link the yellow sheds back into the overall picture. At desktop level, Windows XP and Office 2003 are standard on all business management PCs.

The Warehouse uses Microsoft Outlook’s Web Access interface, Exchange 2003 at server level and is piloting it at the desktop. This enables support staff and buyers to easily access Outlook from anywhere in the world, and includes secure email checking.

Work on harmonising the internal systems was already underway when McCall came on board. Until early 2003, The Warehouse ran a mixture of incompatible financial systems, which made it difficult to consolidate information across the different groups. It employed integration house Asparona to install an Oracle financials suite including general ledger, receivables, payables, cash management and assets, which is now in place on both sides of the Tasman.

Inventory systems may go

The Warehouse will also review its inventory management system known as Tui (technology used intelligently) and warehouse management system Tolas (total online accounting system). Tui runs the distribution centres and is tightly integrated with Tolas, which provides location-level data to the Colby Systems conveyor belt system, so that goods picked for each store end up in the right queue.

Tui and Tolas are at the heart of New Zealand distribution centres at Wiri in South Auckland; the South Island at Rolleston, just outside Christchurch; and the main Australian centres in Queensland and Victoria.

Tolas gets its data from Tui, which in turn accesses the NCR Teradata data warehousing system, which was first implemented in 1997 to help analyse sales and predict future requirements.

All these systems reside on separate boxes, forming a ‘capacity on demand’ hardware model at the Unisys secure facility at Penrose in South Auckland.

One of McCall’s key objectives will be to drive increased use of information from the data warehouse. “There’s always room for improvement in the way we use data to drive decisions that can optimise the business.”

He is confident the existing system (known as Max), which has gone through several upgrades, will stay. As for Tui and Tolas, that is still to be determined. And one cannot be replaced without impacting the other.

“If we want to replace Tui, we need to ask whether we can justify a major implementation of an ERP-type system, which would be complex and costly. I’m sure it will be vigorously debated within the organisation.” And Tolas, which is “robust and does the basics reasonably well”, will also be the subject of some hard questions and may ultimately be replaced by an ERP warehouse module.

Running on top of Max and accessing and massaging its continual data flow are a number of homegrown tools and applications that help the company decide what it should be buying. Among them is a demand chain management system, a merchandising and forecasting system for reviewing inventory nightly and automatically making purchase recommendations from thousands of barcoded items.

Smart reporting tools

Another tool helping to track whether the business is on target is MicroStrategy, which generates basic management reports based on key performance indicators. It also helps drive ad hoc user reporting in real-time from a web interface or automatically generated email. Tools like this keep everyone informed about the state of business and stock, and free up buyers to focus on sourcing new items for sale across the chain.

To date, The Warehouse hasn’t been involved in lot of electronic supply chain effort, but is working through this.

“We’re looking into electronic collaboration and considering how much forecast information we can and should share with our suppliers,” says McCall. “It’s imperative to keep the stock at the right level and to know how much can be sold, determine buying levels and track this in detail, so you know how the business is doing against projections. B2B collaboration may well be the way forward.”

This will have to be done so it is easy for people to comply, and McCall says part of it may be through document exchanges. “Ultimately, we’ll need to get into shared forecasting with our suppliers, which will require a direct link between back end systems,” he says. How this will progress has a lot to do with whether Tui and Tolas are ousted for a new ERP system. “The more visibility you provide your suppliers, the greater chance they have of configuring their production lines to meet your forecasts. It also means they’re more likely to give you what you need when you need it, which should reduce stock held in the supply chain by all parties and cut overall costs.”

The Warehouse was an early player in the radio frequency game, using wireless devices across its distribution centres and stores for several years. “We have upgraded over time and had an exercise last year to extend the functionality, so you could zap a barcode with your RF device to tell you what you have in the store or in neighbouring stores, including prices, quantities and basic turnover statistics,” McCall says.

The Symbol Technology mobile devices and in-house developed software are used to monitor in-store inventory, make adjustments and answer customer queries. This area is open to significant expansion as the business gets smarter, possibly with direct links into the supply chain and barcode reading from pallets for automatic stock adjustments.

There are issues around the point of sale environment as part of the review. Currently, there are three different brands of hardware and three PoS systems – two are homegrown and the third a joint development with a local software provider. This may be driven forward by imminent advancements in Eftpos and smart cards. “There are changes about to happen in the broader market and we will need to react to that,” says McCall.

Radio devices appeal

McCall believes radio frequency identification (RFID) technology could drive significant changes in the retail business model. “Ultimately, if you take what the consultants and technology providers would like you to do, we’d be able to achieve item-level visibility throughout the supply chain, automatic real-time stock taking, cashless checkouts and auto-scanning through a combination of new scanning devices and smart cards.”

The question is not whether The Warehouse should invest in RFID but when, he adds. That will depend on maturity and cost effectiveness, and could be at least five years away. “Maybe smart cards will be replaced by smart devices by then.”

McCall has his forecasting eye on any technology that can enhance the in-store customer experience, such as kiosks to help customers find and locate products, and self-scanning technologies. “Hand-held devices may enable customers to scan a barcode to find a price or learn more about a particular product and then let them get through the checkout process more efficiently,” he says.

However, McCall says, unless you can use new technologies to achieve bottom line results, they are useless. “You do this either by increasing efficiency, taking the laborious aspects out, or by helping to make people who truly add value to your business, including merchandisers, more effective in the decisions they make.”

IT key to ‘shed’ success

Warehouse Group CEO Stephen Tindall insists he can take 10 per cent of Australia’s discount retail sector, or about NZ$1 billion in sales, within four years – despite being forced to slash 20 per cent off its annual profit forecasts through poor performance across the Tasman.

For the six months to February 2004, the company shows an increase in revenues to NZ$1.25 billion, but a slump in net profit from NZ$58.2 million in 2003 to NZ$55.5 million in 2004, largely through having to prop up its Australian acquisitions, which have not yet performed to expectations.

The Warehouse Group comprises a chain of more than 230 stores in Australia and New Zealand, selling everything in its general merchandise outlets from tools and gardening items to jewellery, foodstuffs and clothing to music and electrical goods, including DVD players, TVs and video players.

Entrepreneur Tindall founded The Warehouse discount retail chain in 1982 with NZ$40,000 capital and began operating out of a small building with a concrete floor on Auckland’s North Shore – on opening day it took NZ$4490 in sales.

Within a decade, sales exceeded NZ$100 million and the first ‘blue shed’ Warehouse Stationery outlet was opened. In 1994, The Warehouse listed on the New Zealand Stock Exchange in a public float. In 2000, it acquired Clint’s Crazy Bargains and Silly Solly’s retail chains in Australia – with stores in New South Wales, Victoria, Queensland and Canberra – which have become its ‘yellow sheds’.

From its earliest days, The Warehouse invested heavily (75 per cent of the initial capital) in computer systems and software to help identify fast and slow moving products. It attributes its success to its ability to prejudge buying trends; track sales; keep the lowest number of items in its inventory and to know what margins it needs to sell at to retain profitability. The chain’s preference is for a “buy local” policy but it accesses goods from markets across the globe to find the lowest priced quality items for its stores; whether they be ceramics, confectionery or CDs. Clothing is one of its fastest moving stock items and it is New Zealand’s best selling music outlet.

Behind the review

The Warehouse Group IT strategy is to:

Look at current technology and future plans and identify the gaps.

Start a rolling three to five-year review process, rather than a one-off exercise.

Work alongside business strategies, rather than technology lagging behind or leading.

Decide whether to replace proprietary warehouse and inventory systems with a new ERP system.

Look at B2B supply chain options to get more accurate customer data.

Examine ways to expand the use of mobile devices in stores and warehouses.

Plan to improve the customer experience through kiosks and mobile barcode readers.

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