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Seeing Red

Seeing Red

Stephen Tindall’s The Warehouse chain is one of the great success stories of New Zealand. It wasn’t always that way, as IT chief James Allison explains, but the way is now clear to build yet another business empire across the Tasman

James Allison smiles as he recalls a conversation with an NCR engineer who, in the early days of The Warehouse chain, had been asked by CEO Stephen Tindall to go to the Takapuna store to work on extracting information from the point-of-sale units. After listening to Tindall’s requests, the engineer shook his head and said to himself, “This guy hasn’t got a hope. He’s not going to survive in business.” The engineer was dead wrong, of course. What Tindall had asked of him then is considered standard practice in today’s retail environment.

“Stephen’s concept was that if he could understand what was selling, what he needed to promote more, what was the right price point to move a product — and whether he was going too far and just giving away margin … If he could understand these, he would be able to operate a more effective business,” says Allison, general manager of information services at The Warehouse. “Today that information is a given — it’s a must. Stephen still likes to talk about how he saw IT as being critical to the business when he set up the first shop 20 years ago. At that time he spent something like 75% of his capital on the computer systems to run the store and manage inventory. The remaining 25% went on stock, keeping in mind that in those days Stephen worked with suppliers to have them own a lot of the product.”

Allison remains proud of the company’s focus on its information systems as an aid to business. Things have changed considerably since 1982, of course. The business has grown hugely and now spans the Tasman. And it doesn’t just have The Warehouse outlets, known internally as Red Sheds. In Australia it also has Yellow Sheds — the Clint’s Crazy Bargains and Silly Solly’s chains — plus a growing number of Red-format sheds there, too. In New Zealand it has the Blue Sheds, the Warehouse Stationery chain. They all add up to sales worth $1.862 billion in the past financial year.

The Australian acquisitions have driven considerable change for Allison and his crew, and further changes are still being wrought. Allison is intent on maintaining a steady ship after the major setbacks of 1994-95 that halved share values for a while. Parts of the business are targeted to grow at up to 30% over the next few years, putting even more pressure on technology that is hugely more sophisticated and complex than it was in the early days. There is now far more dependency between the different systems, a new level of logistics and overheads.

“Our first data warehouse went live in 1997,” says Allison. “We still use the same NCR Teradata architecture, although it has been updated over the generations. In the early days we used the system for post-sale reviewing and analysis, trying to understand historically what was happening in the business and then using that knowledge to predict our future needs. Today the data warehouse is automatically making those purchasing recommendations. Buyers just don’t have time to look over the 2000 to 5000 barcodes [stock-keeping units] they might be accountable for across the 78 Warehouse stores in New Zealand.”

The merchandising and forecasting system is based on an application called Prompt, from NCR-owned Stirling Douglas. Prompt reviews 100,000 stock-keeping units in the stores every night. Allison says the Prompt engine handles a lot of the science of retailing in much the same way as supermarkets do. If a product is selling, Prompt knows to order more of that product. In the meantime, buyers can concentrate on investigating other purchases both inside and outside New Zealand.

The Kiwi way

As Allison talks about New Zealand-made products, it is evident that he has touched on an important part of the company’s philosophy: where possible, it buys local products — including software.

“The New Zealand component is proving able to compete in a number of areas,” he says. “We have a gentleman whose job it is to source New Zealand products that we have traditionally bought overseas. If the local businesses are able to deliver that price competitively, we will source from them. But they must satisfy us on a couple of points: first, the cost needs to be right — and we do a lot of work with our suppliers to help them identify ways they can get the cost out of their processes. And they need to meet some challenges in terms of volume. A lot of organisations haven’t had the capacity to supply to us.”

Recent local software acquisitions include Christchurch-based PayGlobal’s human resources system, known as Horace within the company. The Warehouse has also purchased PayGlobal’s payroll system for its 7000 staff. Both implementations went very well, says Allison. He is now looking at a time and attendance roll-out and labour scheduling software for the new year.

When it comes to buying internationally, Allison acknowledges that The Warehouse is a minnow in international retailing. In Asia the company would be considered a low-volume buyer, he says. If a company like United States-based Wal-Mart is there, The Warehouse will find itself piggy-backing on to the larger retailer’s sales. “We tend to celebrate where we have found a New Zealand supplier,” says Allison. “But some of the cost structure here is certainly a bit higher than in Asian countries. That’s a challenge for manufacturers and potentially a challenge for government. It’s a big issue.”

Helping the buyer

Allison says The Warehouse currently has a large strategic initiative, known as Optimise, under way. Part of this programme is aimed at defining the fine line between buying enough to sell at full margin and buying too much, which causes stock problems and clogs the supply chain. If too much money is invested in stock, a writedown will eventually become necessary.

The Optimise programme is expected to result in tools to assist buyers to make more informed purchases at the right price points — purchase of a partly filled container at a higher price per carton may be preferable to buying a full container of cartons at a lower price, resulting in stock issues downstream.

Buying patterns are further complicated by weather and geography. Buyers will know, for instance, that gumboots won’t be best-sellers in sunny Gisborne and boogie boards won’t sell well in Alexandra. If, however, the forecasters predicted a wetter winter in Gisborne, the planners could order stocks appropriately.

Despite all the science and technology, the company likes to promote its intuitive side. Buyers, having had some of the cost and time cut out of the operations by Optimise, are encouraged to take creative risks. Their “creative” purchases can be a huge success or, occasionally, a disaster. Allison talks about an annual Dog of the Year award, acknowledging in a humorous way that buyers are not always going to get it right. One year it was the Cat of the Year prize — awarded to a buyer who got confused over quantity and price and ended up flooding the market with little timber cats. Another year a buyer ordered sundials designed for the Northern Hemisphere, only to learn that north and south don’t mix. As Allison says, most times creative buying works — sometimes it doesn’t.

The same creative philosophy applies to the stores, within limits. Safety and consistency have been tightened after some criticism a few years ago, but staff are still encouraged to add their spark to their environment, especially around special events such as Halloween or Easter.

The challenging years

In 1994 The Warehouse had a dramatic IT project failure. Allison says The Warehouse, working with Cardinal Networks, had been trying to develop the equivalent of an enterprise resource planning environment for its retail trade.

“For various reasons it wasn’t a successful project. It didn’t deliver a successful solution to the business. We had a lot of stock inventory problems — we weren’t able to manage stock — and we didn’t have good visibility between our point-of-sale and inventory systems. It became a market issue. The analysts didn’t like it and the share price halved.”

Allison spreads the blame evenly between The Warehouse and Cardinal, which also provided the wide area network to the stores. “At the time, I feel, the problem was our inability — and our partner’s inability — to manage the project and deliver it. It wasn’t as much about our use of the system as opposed to the development team’s inability to deliver a solution.”

In the end, as much as 50% of the project never saw the light of day. Staff refocused on cleaning up the core of the system and have since added new capabilities and functions. Parts of the original design have now been replaced with other systems. It took 18 months to clean up the system and achieve something that was usable and robust. When Allison joined the company in 1997, work on up to 200 screens and reports was discontinued.

Complicating matters was the failure of another project in 1996. “We were putting in a new financial system at the time and we ended up not being able to pay creditors,” says Allison. “The problem wasn’t an inability to pay — the company was strapped for debt, as I like to say — but simply that we couldn’t get the system to print cheques and reconcile them to the invoices … Those sorts of things.”

Allison recalls talking to former CIO Neville Brown about the wisdom of being the first in the world to take the NCR WorldMark computer. “I would have thought we would be taking a fairly risk-averse strategy with something tried and true. But, as it turned out, with our commitment and NCR’s total commitment in New Zealand, this was a very successful project. However, I still think it was a fairly risky thing to tackle, given our strike rate.”

After all the trials and tribulations, the retail inventory system built in partnership with Cardinal eventually came right. “When I joined we locked it down and it has proven to be a very scalable, reliable solution.”

Today much of the business is outsourced. The Warehouse continues to own and develop its retail system but it resides on a leased box from Unisys, using that vendor’s ClearPath architecture. The Teradata data warehouse platform, which includes the WorldMark system, is housed at Unisys’s Penrose plant as well. Allison says the main data transfer occurs between the Tui (Technology Used Intelligently) retail inventory system and the data warehouse, known as Max. A warehouse management system, bought in the mid- to late-90s, runs the North Island and South Island distribution centres.

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