Managing the Private Label Supply Chain

Retailer Pacific Sunwear turns to hosted solution to automate interactions with global suppliers

Tempe, AZ  November 13, 2002  Pacific Sunwear runs a tight ship, but that doesn't stop the retailer from seeking out ways to run it even tighter.

"We're always looking to improve every aspect of our operation, so it's a never-ending process," said Ron Ehlers, vice president of information services at Pacific Sunwear, which has grown from a surf shop founded in 1980 in Newport Beach, Calif., to a 788-store clothing chain that today operates in 48 states and Puerto Rico.

So it is natural that the company, after having fully automated its order processes with its supply base, should look for ways to go one step further to automate its processes with the manufacturers producing the private label goods that account for about 36 percent of Pacific Sunwear's product line.

Pacific Sunwear, known for the surf- and skate-inspired clothing for teens sold through PacSun stores and outlets, as well as its hip-hop-influenced line called d.e.m.o., began working last year to automate transactions with its entire supply base. After eliminating electronic data interchange (EDI) as an option due to the cost, which would be particularly onerous for the company's smaller suppliers, the retailer went with a hosted solution from St. Paul, Minn.-based provider SPS Commerce.

Currently the company is transmitting 100 percent of it orders electronically through the SPS system, which allows suppliers to receive and respond to orders over the Internet. Pacific Sunwear receives advanced shipping notices (ASNs) and invoices back from its suppliers through the system, and the company can do its three-way matches between receipts, invoices and purchase orders in its back-end system, facilitating payments to suppliers. Everybody wins.

But even with the completion of that implementation, Pacific Sunwear continued to look for ways to streamline interactions with its supply base. One obvious area of opportunity: its line of private label clothing produced by manufacturers around the world.

To date, Pacific Sunwear has handled its roughly 7,500 annual private label projects much in the same way it handled supply chain execution in the recent past, that is, largely manually. After placing an order with a manufacturer, Pacific Sunwear provided a standard form that the manufacturer completed and sent back on at least a weekly basis, updating the status on all the active orders on which the producer was working.

In the past, the manufacturers sent their forms back by fax, although today e-mail is the usual medium. "But we still have to take the contents of the form and put it into a master document in our computer system so that we can report the status of our orders for all the stakeholders in those orders," Ehlers says, "whether that be product managers or buyers or sourcing managers, so that we know whether we have any orders that are at risk of being delivered late."

That type of notification is critical so product managers can take corrective actions before a critical delivery date is missed. But the manual handling of the order updates still has made for suboptimal processes.

To address this issue, Pacific Sunwear elected to work with SPS on a solution to automate the order update and alert notification process. SPS was a natural choice for a partner, since Pacific Sunwear's supply base was already familiar with the solution provider and already using the SPS system.

Pacific Sunwear plans to start testing with a key manufacturer in December or January, with a subsequent rollout in February to the roughly 100 manufacturers with which it works. The system will also extend to the consolidators that handle shipments of product from each of the 20-odd countries in which Pacific Sunwear has suppliers.

SPS, which, with Pacific Sunwear's consent, has productized the solution and is marketing to the larger business community, says its Private Label Order Management Service process works by creating an electronic version of the product development plan (PDP), the document used by retailers to handle private label orders. Once developed, both the retailer and the resource community, which could include fabric manufacturers, packagers, consolidators and shippers, will have access to the order status, next steps and real-time updates on SPS's network,

The PDP is essentially a workflow that accompanies a purchase order, establishing the process steps necessary to manufacture a particular product and deadlines for completing each step. Manufacturers and other critical participants can log into the system to update the workflow, checking off completed steps or, if they don't think they will be able to complete a step by the specified date, entering a comment with a suggested revised date.

Back at Pacific Sunwear, the retailer's system will receive automatic feeds that will ensure that stakeholders get current updates and alerts when orders are in danger of not coming in on time. That will allow the stakeholders to focus on the exceptions, and in the event an order looks like it will come in late, the stakeholder can get in touch with the manufacturer either to try to get the order back on track or, if the stakeholder decides to accept the late order, to get some other concession.

The retailer is developing template PDPs for particular products so that workflows don't have to be continually recreated. The templates will also allow Pacific Sunwear to quickly determine the required completion dates for specific process steps based on the date the company wants a product delivered to its distribution center. The workflow will take into account not only the product type but also delivery mode (air or sea) and such country-specific quirks as national holidays that keep plants closed on certain normal business days.

Ehlers says Pacific Sunwear is anticipating a "very quick payback" based solely on the process cost savings that the new solution appears likely to generate. "We were very easily able to justify it just with [the process cost savings]," he says. "And if you were to add in the potential soft savings from the reduced number of problem orders and the increased sales because more orders will be coming in on time, the payback will be even greater."

SPS, meanwhile, will start to market the solution to other retailers. The provider may find a ripe market given that retail industry analysts say that private label goods now account for as much as one-third of the average retailer's sales, more than twice the level of 10 years ago.

"Managing private label orders requires a tremendous amount of time and manual effort on the part of retailers," said Jon Derome of the technology consultancy Yankee Group. "By automating manual steps and providing electronic status for private label orders, SPS Commerce's electronic service cuts cost and complexity out of retailers' private label operations."