[From iSource Business, February/March 2002] Perhaps all of us have felt the frustration of finding the perfect pair of shoes, only to discover that the right size is not in stock. But have you ever stopped to think about how many pairs of shoes a store would have to keep in its inventory, at all times, to please everyone? With multiple colors, half-sizes and widths, shoes retailers are burdened with what they call a SKU [stock keeping unit] explosion.
It may sound odd, but even amidst the implementations and information technology (IT) capabilities that must be wrestled with when moving a business online, perhaps the biggest obstacle faced by Nordstrom, one of the country's largest department stores, was shoes.
From Inc. to .com
For many bricks turned clicks, developing a Web storefront simply means offering select products online. But for Nordstrom the online project was a big endeavor, so it brought in an external board of directors that was experienced in Internet e-commerce. As business at Nordstrom.com grew and new technology continued to emerge, the dot-com board of directors became ambitious. One of its goals: to offer the largest online selection of shoes in the world.
With sights set high, Norstrom.com spun off as its own company in November 1999 - a move which, according to Paul Onnen, chief technology officer (CTO) of Nordstrom.com, helped the new channel to be a more nimble, fast-moving Internet company. In other words, the smaller dot-com subsidiary would allow Nordstom Inc. to pilot some new technology on a smaller scale; technology aimed to tackle problems like the SKU explosion.
As Onnen explains, Nordstrom.com was anxious to offer a large assortment of shoes to its customers, but didn't want to hold all of the inventory in its own warehouses. In order to avoid a costly investment in shoe inventory, Norstrom.com decided to elicit the help of e-business software provider Netfish to develop a drop-ship strategy. Such a strategy would allow Nordstrom.com to sell many brands of shoes on its Web site by transmitting its customers' purchase orders directly to the specified shoe company's database. With drop-ship, Onnen explains, suppliers get the order and package and ship the product from their own stock with our packaging directly to the customer. So we never see the merchandise in the warehouse.
Technology Shoe Horn
Acquired by IONA in February 2001 and now part of the IONA e-Business Platform, Netfish technology was the steppingstone for Nordstrom.com's entrance into the world of drop-ship inventory management. The goal, for Onnen, was to find a standards-based product that would allow Nordstrom.com's shoe suppliers to be seamlessly linked to its databases. I am a big believer in Internet standards, Onnen professes. But there were many other qualifications he wanted a software provider to meet. We looked for one that could grow with our business and scale to meet our needs; one that allowed us to build in our particular business processes that we have with our suppliers without having to do any customization of the code. And Netfish met all those needs, he says.
It hardly posed a problem for Nordstrom.com when IONA purchased Netfish. In fact, as Onnen explains, the acquisition happened around the same time that Nordstrom.com was looking for an add-on middleware product that would integrate its legacy systems with the new Web site and other systems it was building. The IONA iPortal Application Server fit this need perfectly, and Nordstrom.com purchased the IONA application server.
Overall, the IONA e-Business Platform has helped Nordstrom.com move to a drop-ship strategy without a hitch. While Nordstrom notices a huge difference with respect to order fulfillment, the only difference customers may notice is faster delivery times. We pick the order and manage the order and customer service on the back end, explains Onnen. But customers have no idea that it is coming from anywhere other than our warehouse.
Aside from integrating the company with its suppliers in order to eliminate the need for inventory, IONA also helped reduce the costly and time-consuming amount of paperwork involved in the process. According to John Rymer, vice president of product marketing at IONA, the paperwork and the ongoing interactions with their suppliers was much more costly than any other category of merchandise. The idea was to build an application that tackles this, because we know there's a lot of cost in it. That is exactly what they have done. Nordstrom.com has extended its trading hub to 49 shoe suppliers and claims an offering of 30 million pairs of shoes online.
In fact, its ability to tout the world's largest online shoe store is just the beginning of the return on investment (ROI) that Nordstrom.com is seeing. By moving to a drop-ship order fulfillment strategy, Nordstrom.com has reduced response time for customer orders from 1.5 days to 20 minutes. It also reduced the time to process purchase orders by two days with each of its 49 shoe suppliers. But Onnen notices a different kind of ROI. The main ROI that I am seeing - which is not really measurable - is that we are able to decrease the time it takes to add a new supplier to the system, but, more importantly, it increases the amount of supplier errors we catch and thereby increases accuracy, explains Onnen.
From .com to Inc.
The implementation of the IONA e-Business Platform has been so successful, in fact, that Nordstrom.com is preparing to branch out the drop-ship strategy to its other merchandise categories. In addition, it is Onnen's goal to roll out the technology to Nordstrom Inc. That's one of my personal goals, says Onnen. We've served as kind of a pilot production prototype for the full line of Nordstrom Inc.
IONA's Rymer sees the same thing in Nordstrom's future. Nordstrom.com is the group that is the most aggressive in terms of adopting new technology, he explains. There's a pattern in that the things Nordstrom.com develops eventually make their way into Nordstrom Inc.
While that may be in store for the future of Nordstrom, this type of technology change may also be in store for the entire retail industry. According to Onnen, this integration and supply chain technology will definitely have an impact on the retail industry & eventually. He suggests that, like the roll-out process at Nordstrom.com, the technology will be adopted at retail companies on a tiered-model. Shoes will be the first wave, he says, because they are more sophisticated and more domestic. I think jewelry and cosmetics will follow. Apparel, the most complex and generally off-shore merchandise category, will likely be the last to fall in line.
But no matter which merchandise tier comes first, the retail clothing industry is facing a highly raised bar. Companies using enabled technology to achieve a drop-ship strategy, like Nordstrom, will have the competitive edge. Eventually, as in all other industries, it is only a matter of time before the competition follows that lead.