In the midst of what was widely regarded as the most significant slump in consumer retail spending for decades, with entire economies failing and a global credit crunch in progress, Southern Africaâ€&#x;s largest non-food retailer took a bold step by investing massively in a foggy financial future. Three years later, we look back on one of the biggest success stories in their 80 year history.
Edcon M.O.D.E. A Practice in Evolution December, 2013
The Edcon Group, Southern Africa‟s largest and most established clothing and footwear retailer, has now fully realised the benefit of their decision made near the close of 2010, which was to embark on the most extensive implementation of Oracle Retail Solutions ever seen on the African continent, and the second largest globally at the time. The project would call on the end-to-end configuration and roll-out of nearly all Oracle‟s various Retail Merchandise and Planning products. “It was a massive undertaking”, says Group IT Business Integration Executive Calvin Low Ah Kee when reflecting back on pitching the R190 million (US$27.5 million) purchase to the executive committee back in 2010. “We knew the scale of our business meant that our requirements from Oracle Retail would involve replacing, upgrading or installing anew so many of our existing legacy systems, that a complete business process renewal would be necessary”.
The Existing and Future Challenges The ‟scale‟ Low Ah Kee talks of is but one of challenges that Edcon and Oracle faced at the outset and duration of the project back in 2010. In the world of the large retailer, there are myriad of business processes, integrated, supporting and disparate software applications and logistics concerns to get their merchandise to market in the most efficient way possible. The Edcon Group, with 12 retail chains, over 4 million consumer credit customers, and over 80 years of successful operations, was all too aware of the way shifting dozens of software applications would affect every aspect of their business operations, risk exposure and ultimately their market and customers‟ perceptions. However, the risk of not changing was even more prominent in the minds of the decision makers. Geoff Ayoub, Group Chief Planning Officer, was a proponent of change within Edcon from 2009, when he recognized that the existing business processes, hamstrung by legacy systems with limited upgrade potential and cross-platform integration capabilities, would ultimately do more harm to the group over the coming years than any risk associated with its mammoth overhaul. “Wherever I turned it seemed that our buying, planning and merchant channels were limited; opportunities were being lost, and optimization of our critical retail business activities was being foregone in lieu of an aging software landscape. We had to create a better future“.
“…realizing you need to spend almost R200M while emerging from a global recession does require a somewhat special approach.”
Leading up to the decision, Edcon was just emerging from a slump in retail sales figures due mainly to the overall downturn in the local and global economies and reduced consumer credit spending, yet still managed to generate R21 billion rand ($3 billion) in retail sales during their 2010 fiscal year, equating to a profit of R7.8 billion ($1.1 billion) for the same year. Edcon‟s executive board took aggressive steps during this period to reduce their credit risk exposure, improve cash flow and ensure ground-level operations were optimized; credit was discontinued on certain lower margin products such as cellular airtime and food; expenses and space expansion were reviewed and revised down; seasonal inventory was cleared aggressively and merchandise orders were reduced in line with expected trend. Edcon admits that in the second quarter of fiscal 2010, when the effect of the recession coincided with the cumulative impact of these key control measures, the going was tough.
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“We could see the light at the end, but what we exposed during this forced optimization process was something of immense value” continues Ayoub. “By uncovering every area of sub-optimal performance throughout the business, we could see where we were simply wasting time, effort, resources and money. When stores were forcibly downsized, we realised that in many cases they weren‟t carrying the correct stock, or in the correct sizes or quantities. When we were forced to optimize our replenishment operations, we discovered that supplier, merchant and even distribution centre lead times were often too long and the commitments between them, the buyers and the stores sometimes vague. Taking these end problems back full-circle, we realised that our planning, forecasting and buying processes needed a complete revamp in order to ensure that they met the new demand placed on the organization by a leaner economy”. Although Edcon was able to successfully close the door on fiscal 2010 with an upward swing, the mandate was clear; the existing suite of merchandise planning, buying, forecasting and inventory management systems and processes were not capable of delivering optimal retail efficiencies. The core building blocks of successful retail operations - ensuring the right product arrives at the right store at the right time (in the right size and colour profiles), at the right cost – were eroded and shaken.
Rudimentary forecasting data could no longer reliably predict wildly fluctuating consumer patterns. The red lights leading up to 2010 had exposed every weakness that could change Edcon‟s future
In the new light of day, it had become clear that too much stock was hitting clearance prices due to incorrect store profiling and stockholding patterns. Rudimentary forecasting data could no longer reliably predict wildly fluctuating consumer patterns, and the backlash on the merchants and vendors in the supply chain was rapidly breaking down relationships, accountability and overall store service levels. Inventory and allocation planning and distribution practices were not cognizant of or able to respond quickly enough to Edcon‟s new efficiency demands. Business processes and interaction at the head office level, in the financial and merchandise planning, sourcing and buying departments, had become cumbersome and disparately managed on separate software applications and spreadsheets, resulting in what could have been considered a presumptuous, „besteffort‟ approach with little fact-based, justifiable science backing it.
Although the current software applications and business processes had, up to now, maintained Edcon’s leading position in the C&F retail landscape, the red lights leading up to 2010 had exposed every weakness that could change their future, and so Ayoub and his team embarked on a hunt for the most advanced, encompassing and appropriate retail system available. After spending the better part of 2010 assessing vendor submissions, the Oracle Retail solution was chosen, which encompassed a suite of integrated modules to address the challenges of large-scale retailer merchandise, financial, logistics and forecast planning and management. “However, realizing you need to spend almost R200M while emerging from a global recession does require a somewhat special approach”, says Ayoub. “Every module had to be critically analysed in terms of its need, perceived benefits, business impact and risk, even though we had proven the critical need for such tools. The Oracle solution was the only one demonstrably capable of meeting our massive retail needs, with a range of integrated modules interdependent on one another to deliver maximum overall benefit and positive transformation across the organization. It was our „go big or go home‟ moment; so we went big“.
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The Building Blocks of Retail Redesign Oracle‟s proposed solution consisted of various modules to be fully implemented into Edcon, based on their Retail Predictive Application Server (R.PA.S.) infrastructure. Distilled down to the basic mantra of successful retailing, every solution component had to play its part in getting the right product, in the right quantities and size profiles, to the right store at exactly the right time, and then on the shelves at the right price. The Oracle Retail solution provided a modular platform to address the business activities of a large retail organization which were aligned and enabled to deliver on these requirements. Merchandise Financial Planning (M.F.P.) is the core starting point for major apparel retail operations, ultimately deciding where the company will spend its hard-earned profits based on experienced analysis of historical data in collaboration with the Retail Demand Forecasting (R.D.F.) team. Within these financial parameters, the Advanced Inventory Planning (A.I.P.) teams work closely with the buyers and merchants in order to create store laydowns and Assortment Planning (A.P.) strategies which are feasible and profitable. Every item in the buying plan must be analysed in order to reach the most optimized balance in terms of store Location Planning (L.P.) and Size Profile Optimization (S.P.O.). Once these optimized designs are in place, they must be continuously monitored, measured and maintained both pre- and in-season using the new toolset. Furthermore, the entire range of stock has to be assessed in terms of their hierarchical structure, as well as how they would fit into the “replenishment” (ongoing, regular core sale) or “fashion” (seasonal, once-off demand) item mix This calls upon the appropriate Replenishment Optimization (R.O.) practices and further module design, to ensure quick reaction to changing demand, and ultimately maximum efficiency of the entire supply chain operations. To integrate and manage the masses of data generated by these various interacting systems, in a way which delivers operational value to its hundreds of users, a bespoke Workspace presentation layer was developed to present the information in a filtered, customizable and attractive user interface.
A bespoke Workspace presentation layer was developed to present the information in a filtered, customizable and attractive user interface.
At the time, only a handful of Edcon‟s chosen R.P.A.S. version modules had been successfully rolled out anywhere else globally, and some were brand new products that would have to be proven during the implementation. Even more looming was the fact that the adoption of the new applications meant an almost complete redesign of all their associated business processes, all the way from human resource training and positioning requirements, to the impact they would have on their vendors, merchants and consumers. The risk/reward mitigation strategy had to be ironclad, which meant all aspects of the project deliverables, timelines and costs were under constant scrutiny. Although some of the abovementioned retail modules had been implemented before, very few had been done so on such a large scale or in so much unison. Edcon‟s Edgars Division consists of seven department store chains (Edgars, Edgars Active, C.N.A., Boardmans, Red Square, Temptations and Prato) and there are five Discount Division chains (Discom, Jet, Jet Mart, Jet Shoes, and Legit). Together, these divisions and chains account for 60,000 individual stock-keeping units in over 1,200 stores, all managed and supported by relevant teams of buyers, planners and merchandisers dependent on the evolution about to take place.
“With so much investment, both financially and personally, by the various stakeholders in their respective departments and project portions, it could have become easy for the project as a whole to miss the wood for the trees” comments Ayoub.
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Bringing in the Team To mitigate the risks associated with such a broad reaching undertaking, Edcon knew that the best possible team of both internal executives and external consultants must be assembled, aligned and committed to the project from the start. Every operational area touched by the project would experience radical business process change, and these in turn were intertwined with supporting and dependent systems and processes themselves. The understanding of the project quickly evolved from system implementation to an entire remodeling, modernizing and streamlining into the way Edcon conducts its business today.
“We had to bring in everyone who could possibly contribute or offer guidance or experience as to how we could move forward on a successful path, one which we had to forge together for the next few years, sometimes into the unknown.”
Edcon is one of a handful of large organizations which successfully relies on the outsourcing of various critical head-office business operations to specialized consultants, with a focus on the management of the outsourced services and their various projects. Fortunately, with such a large project involving so many new solution modules, expert members from both Accenture and Oracle (both sharing long standing partnerships with Edcon and one another), alongside smaller niche expert representatives, were keen to get involved in such a unique opportunity. When the time came to build the team, Edcon assembled what may be seen as the United Nations of project leadership, bringing in world renowned experts in retail, project and Oracle implementations from Brazil, Europe, the United States, as well as Australia and the U.K.
“For us, as well as even the best consultants available, a lot of the project deliverables and components were completely new territory” says Low Ah Kee. “We therefore had to bring in everyone who could possibly contribute or offer guidance or experience as to how we could move forward on a successful path, one which we had to forge together for the next few years, sometimes into the unknown.” This mutually adopted „green fields‟ approach of the entire team created a sense of working for the greater good rather than concentrating on what each team wanted for themselves in isolation. Although the project team was naturally broken up into its various work streams and system component configuration and delivery tasks, Edcon‟s well established Project Management Office (P.M.O.) ensured they often worked closely together to ensure they took cognizance of not only their impact on other business areas, but also to recognize where interlocking processes and systems could be mutually optimized and benefitted.
…they took cognizance of not only their impact on other business areas, but also recognized where interlocking processes and systems could be mutually optimized and benefitted.
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Systems, Process, Change and Evolution. One of the key messages Edcon had to impress upon the hundreds of stakeholders in the project was that it was not about the implementation of a new piece of software, nor a realignment of existing processes or an exercise in improving a single area of their operations; it was a complete evolution of their business foundation. In fact, the term „evolution‟ became the project‟s official moniker, while the words „project‟ or „system‟ were avoided due to their finite, microcosmic connotations in what was actually an ongoing process of learning, growth and optimization of everything Edcon considered important towards their retail success. “When you change something so fundamental in your operational success, so intertwined with so many other elements, and so critical towards the success of many other operational objectives, which will completely redefine your success parameters, you are not completing a project. You are not changing a system, nor modernizing it, or redesigning a supporting process. You are doing all of these things in unison to create a platform for the ongoing evolution of the business.” Whilst they may seem profound, Ayoub‟s words are far from philosophical musings, and if Edcon‟s latest statistics are anything to go by, evolution has most definitely taken place.
Managing and Supporting Change Another major consideration of the MODE evolution was the Change Management component that accompanied it. With the scale and volume of impact it had, a complete awareness, alignment and training strategy had to be considered very early on in development. A large scale launch of the project principles, components and goals (summarily branded “MODE” – Merchandise, Optimize, Distribute, Evolve) was conducted where all stakeholders, from every retail operation the project would touch, were introduced to the MODE dream that would take Edcon into a new era of retail efficiency and understanding. Further to this, a dedicated „change agent‟ was appointed from each work stream to work in conjunction with the training and change department, to ensure that over the project‟s three year initial rollout plan the benefits would be realised early on, with as little resistance or business interruption as possible. “In any project, buy-in is a crucial element of its overall success; adoption and ownership of change determines how quickly and to what degree any new way of working delivers value”, says Sonia Peres, Group Merchandise Planning Executive and key member of the change teams across all work streams. “Over 600 people were being asked to open their arms and champion a completely new way of doing things, using new tools, processes and systems, sometimes even rewriting their career paths, not to mention adopting a completely new social networking support infrastructure.”
A dedicated „change agent‟ was appointed from each work stream to work in conjunction with the training and change department, to ensure that benefits would be realised early on, with as little resistance or business interruption as possible
The new support structure that Peres speaks of was Edcon‟s introduction of a radical new way of integrating social media into the company‟s support structures, particularly to smooth the challenges staff would face post-MODE. Recognized as a younger, vibrant organization, Edcon acknowledged that many of its staff were savvy to social networking tools such as Facebook and Twitter, as well as looking for quicker, more personal ways to solve their day-to-day system and process problems by calling on their peers, rather than logging laborious support calls.
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Through a combination of a dedicated MODE Facebook group, linked to Twitter and RSS feeds, as well as the implementation of Windows Live Messenger, Edcon created interactive groups of users within their community, who could throw out questions, suggestions, tips and general MODE related information easily, at any time of the day, to selected groups of subject matter experts, peers or managers. The response of the staff was incredibly positive, welcoming a new way of sharing their thoughts, skills and feelings. “By creating a simple, fun platform for all those going through the MODE evolution, people were sharing their daily activities and experiences, their knowledge and their suggestions for improving the new status quo” says Kevin Willemse, one of MODE‟s Group IT Project Managers. “By constantly sharing in this manner, people were aligning their practices to create a sustainable, best-practice functional area which called upon its own ranks to resolve issues much quicker, and probably much better, than a segregated support desk function could.” Not only were the various business units at Edcon evolving into self sufficient expert network, but by constantly monitoring, channeling and responding to the content of the social networks when needed, the Change Management and Training teams could react more quickly and appropriately. “We now have an ear to the ground in terms of where real issues exist, such as where a system or process may be failing or problematic. We can see where training sessions or optimization may be required. We can ensure we don‟t focus our efforts on anything but the most prevalent complaints, or worse, end up simply not knowing of any inherent system or process inefficiencies that staff silently soldier through every day”.
Social networking has also reduced potential costs associated with the support function, and proliferated a shared learning culture within the entire Edcon group..
By monitoring activity on the various social media and micro-communications networks implemented as part of MODE, Edcon also was able to recognize and motivate staff who were actively participating in the various user groups as unofficial trainers or subject matter experts. Those who responded to fellow peers‟ questions regularly, with valuable information and solutions, became instantly recognizable as proponents of the MODE evolution and experts in their areas, and as such were recognized by being asked to perform informal training, assist in system enhancement design, or even perhaps receive a promotion or transfer to areas where their skills could be utilized and nurtured best.
This innovative approach alleviated much of the pressure the current „formal‟ Edcon systems helpdesk was expecting to receive from MODE‟s inherent systems impact. As an outsourced service, it has also reduced potential costs associated with the support function, and proliferated a shared learning culture within the entire Edcon group.
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Counting the Benefits Today, just three years later, Edcon is a completely different entity altogether. The various components of the Oracle Retail Solution have been successfully implemented and integrated, and MODE has been further expanded to include Oracle‟s Clearance optimization Engine (C.O.E.) module, which will manage their (significantly reduced) slowmoving stock off their store floors. On the planning side, the scientific retail demand forecasting system provides much more accurate predictions, based on years of data with thousands of reference points all calculated in the background, which allows the financial planning team to better decide and allocate budgets across their various expense areas. This improved faith in financial budget allocations has released often locked-up open-to-buy funds to the buyers, thus allowing them more freedom to buy product as well as capitalize on opportunities that may arise in-season or quickly respond to increased demand. Further capital reserves could also be allocated to their ever-growing basket of profitable financial services products as well. The operational business model of Edcon has also changed, and where different departments and work streams were somewhat segregated due to their different systems and dependencies, they now operate as a cohesive unit. By all speaking the Oracle Retail language, everyone from the financial manager to the hosiery buyer can understand and call upon data to substantiate and assist in making their relevant decisions. Edcon‟s merchants, logistics partners and suppliers, heavily involved in the design considerations and implementation of the MODE project, are also reaping reward by having much clearer and reliable instructions at their fingertips. Since the forecasting, allocation and overall planning has drastically improved, they have less to worry about when it comes to unexpected item replenishment requests. This benefit cut both ways in Edcon‟s favour, as their suppliers‟ and merchants‟ service level and quality assurance agreements were revised to ensure that they met the levels that MODE demanded as part of its success criteria, in order to hit peak optimization of the entire supply chain. Communication throughout all tiers of the supply chain are clear, comprehensive and trustworthy, thanks to reliable data.
The entire structures and core principles on which the group is based, so easy to become stagnant and rigid in large corporate retailers, have become agile, interactive, responsive and evolutionary.
At the store level, one of the most notable impacts was the „right-sizing‟ of many of Edcon‟s stores. Once the stores were receiving optimized stock mixes (an aggregated cut of 8% across the board equating to R1.9 billion), it became immediately apparent which stores could be reduced in terms of floor area and still meet demand, and which should be expanded to meet it. Edcon‟s massive (and expensive) property footprint was therefore also optimized without negatively affecting its ability to supply the merchandise the public was asking for. The same logic was applied to the types, sizes and brands of apparel that was on offer across all (now 1,400 and counting) stores, to maximize allocated floor and shelf space to the appropriate products. Not only this, by increasing the service level and item planning accuracy to the stores, Edcon‟s Edgars Chain has reduced sale items from a massive 19% to just 7%, while the Discount Chain has gone from 9% to just 5% of floor goods marked down.
Edcon‟s reported growth is streets ahead of analyst expectations, and its competitors…
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While the past three years have seen a cautious but steady climb in consumer confidence and subsequent spending across all retailers, the 21% retail sales growth which Edcon reported this year is streets ahead of analyst expectations, and its competitors. This must also be viewed in context, since the optimization benefits of MODE only truly came online halfway through 2012, where Edcon showed an 11% growth, so the almost doubling of that figure between then and now may well be attributed to MODE‟s success. More of a yardstick against the project however is their adjusted EBITDA figure of 23%. This performance brings their 30% market share in FYE2010 to 39% by FYE2013, more than doubling its closest competitor. However, ask any of the team who were involved in Edcon‟s transformation from good to great and, while aware, they will not say that the success of MODE translates into dollars and percentages. The entire structures and core principles on which the group is based, so easy to become stagnant and rigid in large corporate retailers, have become agile, interactive, responsive and evolutionary. Every one of Edcon‟s 20,000 employees has felt the organization shift in the way it reacts to and embraces change in itself, the market, and the new-age economy in which it flourishes. If nothing else, MODE has, in its various forms, components and concepts, hit the bulls-eye when it comes to evolving an organization towards a new identity and way of retail operation optimization.
MODE has hit the bulls-eye when it comes to evolving an organization towards a new identity and way of retail operation optimization.
“We‟re at a good point in our lives, with an excellent foundation; but we can‟t afford to slow down now, or see ourselves as evolved”, Ayoub is quick to point out. “Evolution never ends; it just makes us better all the time.”
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