- THE MAGAZINE
World Trade 100 caught up with Jorge Pérez Garcia, director of systems for Grupo Elektra, at Manhattan Associates’ Momentum 2013 in Las Vegas for an update on some of the supply chain challenges facing the Mexican retailer.
“The biggest supply chain challenge right now is to get the right product in the right place,” says Garcia. That may be every supply chain executive’s challenge, but for Grupo Elektra, it is made more complex because of the business model the electronics and appliance retailer has in Mexico, he explains. “The customer likes to go to the store and take the product right there. They typically pay and they want to take the product with them — the blue ray player or the TV, or even refrigerators and big appliances — they like to take it home right then.”
He comments that e-commerce plays only a small role. “Right now in Mexico, we are not seeing a strong e-commerce move. I think that is growing, but it is not much yet. We have been trying to develop in that market, but I don’t think the Mexican people, or even the Latin American, people are talking about [online] orders. They don’t feel comfortable yet buying online.”
Online retail is coming though.
“We’ve been trying to get on that channel, but I think it is going to take one or two years more to grow. We need more reliability, we need people to feel more comfortable,” says Garcia.
Right Product, Right Place
When it comes to getting the right product in the right place, Garcia explains Grupo Elektra’s market is dealing with the lowest income people.
“We have two business interests. On the one side, we have a bank. On the other we have the merchandise side. So, we are selling product on credit. For example, you can go to a store and buy a computer or a tablet or buy a mattress or a TV and you can ask for credit and make small weekly payments. The lower income customers can pay weekly, and they need the product today.”
The combination of the bank and the merchandise side is the combination that is working well in that low-income market.
“Most of the stores are located in small towns,” Garcia explains. “So, to get there [with deliveries] is sometimes difficult. We have towns where it takes probably five hours from the distribution center to get there. The roads are not very good, and we have to make sure we have the product right there so the customer is able to get the product at the store where they are. That’s a big challenge in Mexico and in some countries in Latin America as well.”
Looking further south, Garcia notes, “In Peru, we have two distribution centers to distribute to all of the country; it is very difficult for some areas that are very difficult to access.” The group operates more than 900 stores in Mexico, Guatemala, Honduras and Peru
In Mexico as well, Garcia says if the store is far away and difficult to get to, then Grupo Elektra has to hold some more inventory at the store.
“What we experienced is we were keeping a lot of inventory at the store and the inventory was growing. So, the biggest [goal] is to make the inventory turn faster. If we don’t make it turn, then we are losing money. For example, we need to get to five turns per year. If we have less, we start losing money.”
Grupo Elektra has been operating without a lot of sophisticated technology tools, but with its growth in a competitive retail segment, it has purchased demand forecasting and inventory management tools from Manhattan Associates.
“For us, it is like a crystal ball where we upload inventories in transit from the vendors to the DCs; inventory in transit from the DCs to the stores, prices, promotions, and then with all that information it comes out with quantities to ship from the warehouse to the stores and quantities to buy from the vendors — when and where,” says Garcia.
“It is helping us to optimize the inventory and deal with the lead times from the vendors, lead times from the warehouse to the store, and then we are calculating the optimum cycle to buy and to ship. I think that’s one of the tools helping us the most,” he adds.
Other Logistics Strategies
“Most of the time we are shipping from the warehouse to the store,” continues Garcia. “We haven’t done any direct-to-store or cross dock.”
Grupo Elektra does not only rely on technology tools to address its logistics challenges — though they are helping to move the company forward quickly.
“We are collaborating with vendors and we are giving them a forecast of 13 weeks. So, we are sharing those 13 weeks with the vendors and then they know how much we are going to buy. With demand forecasting, we send the forecast for the 13 weeks to the vendor and in another tool we are publishing the purchase orders. The vendor is logging in daily to confirm the orders and create advance ship notices (ASNs) for their warehouse manager,” Garcia says. At four weeks, orders are “fixed” and the remaining time, out to 13 weeks, the orders are moveable, he continues.
Though Garcia agrees that reducing transportation lead times would help to reduce the forecast time, from an infrastructure perspective there isn’t much Grupo Elektra can do to reduce transportation lead times.
“The next big step we would like to take is working with cross docking. That’s something we think is going to help us a lot,” says Garcia. “Right now we are using a model where we are doing receiving, put away, let down and shipping. So, we want to start working with a cross dock operation.”
In some other cases, he adds, there are some small vendors. For example, for furniture in the state of Guadalajara, there are lots of small vendors that are manufacturers of furniture. And the Grupo Elektra trucks making the deliveries to the stores can first get out of the DCs and go to the factories to pick up product from the smaller vendors and return to the DC Garcia continues. Then Grupo Elektra will be able to create a more efficient routing that includes backhauls.
“We have both third party and our own trucks,” he explains. Grupo Elektra wants to set up the “milk runs” with its own fleet. “We want to help our vendors and help ourselves with our own trucks and go and pick up the furniture and take them to the stores that need the goods. Those are some challenges that we are dealing with right now.”
A major goal the company has is to reduce freight costs and optimize the time, says Garcia. Another is to improve advance planning. Garcia says advance planning tools will help Grupo Elektra look at the financial goals and take them down to its sales forecast in a combination of store, week and SKU. Currently, the financial forecast looks at how much must be sold in electronics, explains Garcia. It is not linked to vendor purchases and how much to ship to the store and when.
“The forecast just says ‘You have to sell this amount.’ So, that advance planning tool is going to help us create a forecast — store, week, SKU — that is going to be published to the salesperson and he will know that is the goal. He knows he has to sell five of this one, three of that one and he will be comparing his actual sales with that forecast; if he sells the right amount, he’s going to be OK. That’s something that we are working on right now.”
Advanced tools are helping to fill more than communications gaps. “Our current forecast is just by category, and so I think there’s a big gap between that financial goal and the actual operation entity or the way they work,” says Garcia, indicating he expects benefits to accrue to other areas of operations and Grupo Elektra’s supply chain.