Scotts Feeds Growth

Three years ago the Scotts Company was turning inventory twice a year, which may not sound like much to a company that does 50 turns a year like Dell. But Scotts is a leader in a seasonal market - lawn and garden-care products such as Miracle-Gro and Ortho -and most of its plant-friendly business is done in just a six-month window.

A program of internal improvements enabled the $1.8 billion company to increase turns to three per year, a welcome improvement, but Scotts' executives had more ambitious goals in mind. They set an aggressive target of 6.5 turns, more than doubling the newly improved rate, and then turned to the sales and IT divisions for results. Where were the new turns going to come from? Small tweaks and quick fixes weren't going to cut it. Something larger and longer-term was required to reach the goal.

"We looked inside the four walls of Scotts at what we could do by traditional means, predictive forecasting and so forth," says Barry Sanders, vice president of sales North America. "And we felt we could get more turns, but we've pretty much got our house in order and we're running pretty effectively now. To get three or four more turns we had to step outside those four walls and get to a POS collaboration level to more closely integrate with our customer. The object was partly to drive sales, but it was also customer driven to avoid stock outs. Many of our retailers were not doing a great job of planning and ordering. We thought we could do a better job for them and drive sales at the same time."

You Say You Want a Revolution

So, Sanders and a high-level team of executives decided their best option was to start a revolution. No exaggeration intended. The goal was to shift the way the company does business from being product centric to one that is customer centric.

At the same time, as if corporate restructuring was not enough to keep everyone hopping, the team also created and implemented visionary systems that directly reached down to the cash register level -- the dream and ultimate goal of Collaboration Planning Forecasting and Replenishment (CPFR) technology for Scotts.

The scope of the CPFR project at Scotts, which required a multiple-six-figure investment and enlisted the services of Cap Gemini Ernst & Young and Manugistics, was two years in the planning. It began with the creation of a cross-functional steering committee consisting of representatives of supply chain/operations, sales, information services, logistics, planning and human resources.

"We put a cross-functional steering committee together that met every two to four weeks for two to three hours," says Sanders. "Then we put in a project management team that includes people from the business side and IS. Of course, the team includes the person who will ultimately be managing the CPFR function and whose job is to make sure the solution is going to provide him with what he needs going forward."

Aside from increasing turns, sales and customer satisfaction, the scope of the project included designing a complex and robust technology from the ground up that was geared to a seasonal business, something most IT systems accommodate poorly, notes Sanders.

The project began by using in-house resources to develop a pilot CPFR system, which Sanders calls "a homegrown Microsoft Access mini-system." It was piloted with one of Scotts' smaller customers, and the intent was to use it as a learning experience that highlighted the value of the proposed system (plus areas of concern) and helped define the requirements of the larger project.

After the homegrown pilot demonstrated proof of concept, the team went shopping for software. It enlisted Cap Gemini to help with the selection process and also to provide support and services. Ultimately, the team chose the Manugistics collaborative suite - including Demand Planning, Fulfillment, Collaborative Planning and Event Management & Analysis - as the major component in the CPFR initiative. After Manugistics was chosen Cap Gemini filled the role of integration partner assisting Scotts in the implementation.

Objectives of the plan were to be achieved in the following manner, according to Mike Lukemire, senior vice president of global supply chain/operations: "We pick up about one turn each from interaction and information gathered from our customers, another from internal improvements such as better processing, and then another turn from using internal data to improve how we go to business from our sites."

Initial results from the implementation indicate Sanders, Lukemire and the rest of the team are on track to hit the 6.5-turn target and the revolution at Scotts is officially and successfully underway.

Data from the Cash Register

As every CG executive knows, there's no substitute for good data, and one of the benefits of a CPFR initiative is vastly improved data-gathering and number-crunching capabilities. Prior to the implementation, Scotts' forecast accuracy for national SKU levels was no better than 50 percent, according to Sanders. Now, with the new CPFR system up and running, Sanders is able to forecast down to the regional level with an accuracy rate of nearly 80 percent.

"When you get to that level of accuracy from a forecasting perspective," says Sanders, "it provides much better data for our distribution and manufacturing people to make the right product, get it into the right areas of the country, into the right warehouses and then to our customers when they need it."

One of the keys to achieving this level of accuracy is tracking information down to the cash-register level, the essential point of collaboration technology. Rather than basing forecasts on what the sales staff thinks it's going to sell, Scotts now bases forecasts on POS data feeds from retailers. These are typically recorded in weekly increments as opposed to daily reports, which is ideal for the Scotts' business model since about 70 percent of its products are sold on weekends.

"We're looking at POS on a by-store and by-SKU basis, plugging it into our planning process, aggregating it up to our supply chain level and using historical fills at the customer level to make a forecast," explains Sanders. "Most companies base their forecasts on what they ship. In our case, we forecast from a retail perspective, meaning that what we ship is what our customers have actually sold. So we're moving from a pushing-inventory model into a customer-replenishing model based on a polling basis of what's actually moving across the cash register."

Corporate Restructuring

To efficiently execute the company's new technology and its ability to forecast at the store level, Sanders also implemented a corporate restructuring plan that reflected its new customer-centric approach. Essentially, Scotts mapped its supply-chain organization against its CPFR configuration.

"We used to be organized by product group and that's how our forecasting was done, by product," says Sanders. "Now we've realigned our organization to be organized by customer or by groupings of customers depending on their sizes. So for example, in our major customers, we have offices in the cities they're in."

This means that in Benton, for Wal-Mart, Atlanta, for Home Depot, or North Wilkes-Barre, for Lowe's, Scotts has inserted supply-chain people to work in conjunction with on-site sales people. The goal is to augment sales relationships with customers by fostering and building supply-chain relationships. Scotts and its customers now share and review forecasts together, and each now works with the best intelligence available.

Part of the motivation to restructure supply-chain relationships came from a realization a few years ago that the old system was struggling to deliver the level of customer service Scotts wanted to achieve. After the reorganization plan was implemented last year, Scotts went from struggling with customer service to being named "Vendor of the Quarter" by Wal-Mart.

Sanders attributes the success to the shift in focus from being product centric -- a view most manufacturing divisions are aligned with -- to one that is customer centric, especially in the divisions of the company that carry out supply-chain and sales responsibilities.

So, what did Scotts get for being named Wal-Mart Vendor of the Quarter? Just a plaque. But Sanders and his team were "real happy with that." A pat on the back from Wal-Mart goes a long way to making a sales team smile.

From an IS perspective, according to Brian Belcher, vice president of information systems, the CPFR initiative "was the biggest project we did last year, which means it was a multiple six-figure number."

As with any capital appropriation process, Scotts went through a rigorous return on investment (ROI) analysis process. It began with initial planning and a pilot project, because, as Sanders notes, "CPFR is still to a certain extent theory until you prove the results." The next step was writing a business case that demonstrated to a Scotts' capital committee that the project met internal standards and ROI rates.

The role of the capital committee is not only to ensure that each project achieves what is commonly referred to as ROI, but also that ROI is materially linked to the company's capital base. In other words, the frequently vague figures thrown around the IT industry won't cut it in this disciplined environment, as in the commonly heard X-amount improvement in efficiency and productivity translates into X-amount of dollars. The standard at Scotts is showing how the project not only achieves ROI to pay for itself, but also improves the investment capital base for the company's shareholders.

Judging against this standard requires ongoing audits to make sure Scotts achieves the predicted value of the project. Today, the CPFR system is live with one of the top-10 U.S. retailers (who wanted to remain anonymous for this story.) and, according to Sanders, the project is exceeding its ROI goals. Scotts' plans to continue the roll out, encompassing all brands and all products (more than 1,500 SKUs), to its entire customer base by September 1.

And that's just in North America. At this point, Scotts has already set the stage for a future roll out of the CPFR model in Europe by extending it's SAP enterprise system to Austria and Germany. "Over the next couple of years, we'll be implementing the SAP system in the other countries in Europe and then we'll be putting Manugistics on top of that," Brian Belcher says. "So we look to get great gains in the European market as well."

New Initiatives

Aside from the CPFR project, Sanders and his team also implemented two purchasing initiatives last year. One was deployed to automate the request for proposal (RFP) auctioning process and the other was the installation of e-procurement software to enable all internal purchasing via the Internet.

The next major projects on the horizon for Sanders and his team at Scotts are in the areas of customer relationship management (CRM) integration with salesforce automation and product lifecycle management.

"We're going to take a look at how to get CRM and salesforce automation collaborating effectively," says Sanders. "How do we get better, real-time information to our sales staff to allow them to actually effect our sales? We've got great internal information that we need to get out to our field sales force that they can use to drive our sales. And the second piece is product lifecycle management to improve the efficiency of the complete lifecycle of our products, all the way from the inception of the idea through product retirement. We'll be looking at deploying these systems probably sometime next year."

One of the major benefits of Scotts being an early adopter of CPFR technology is the acquisition of hard-to-get knowledge gained through the implementation process. The learning curve for projects of this scope is fairly steep, costly and, potentially, disruptive. Having made it through successfully, Scotts is in the unique position of offering to provide similar services and projects to other vendors that do business in its customer channels.

Captializing on Expertise

"We're probably within a few months of signing on a couple of customers," says Belcher. "We'll be doing planning, distribution, replenishment, merchant sales and merchandising within their stores. We're offering a complete lifecycle, all the way from plan to shelf management of their products."

Scotts is offering these services as a complete package, including tapping into investment capital resources, to both retailers and CG manufacturers. The principle benefit of the Scotts' CPFR-services offering, according to Sanders, is that the lawn and garden-care giant has already done it, and done it successfully.

"It's easy to underestimate the difficulty of making such huge changes to your internal enterprise resource planning system as well as your logistics network and the supply chain systems," says Sanders. And that's not the only potential pitfall. Belcher adds that finding the right talent pool and making the correct process changes are equally difficult.

In fact, implementing the process changes through the corporate structure (and corporate culture) may have been the biggest challenge of all to the Scotts' team.

"It was almost a revolution," observes Sanders. "It really was. The technology was great. Manugistics did a fantastic job working with us. In many ways the technology was the easy part. Adopting the new structure and changing the corporate mindset and behavior was actually a more significant challenge. But we've put it in place and we're seeing excellent results and market response to what we're doing."