How Orvis tackled its supply chain woes

It may be the nation's oldest mail order business, but the Orvis Co. is hardly stuck in the past. Its tradition of innovation dates back to the 1850s, when Vermont tackle shop owner Charles Orvis started mailing catalogs of his fly fishing rods to wealthy New York sportsmen, becoming a pioneer in catalog merchandising. The retailer still sells fly fishing rods today, but now they're made of space age materials instead of wood. And it's marketing a lot more than fishing tackle. In recent years, the company has branched out into apparel, home goods, luggage, pet supplies, and gifts.

Along with adding product lines, Orvis has expanded into new marketing channels over the years. In addition to its catalog operations (which now include 14 catalog titles with a combined annual distribution of 60 million), the retailer runs a thriving e-commerce business. It also has more than 70 retail and outlet stores in the United States and the United Kingdom, and operates a wholesale division.

Branching out into new lines and sales channels was smart marketing, but it created challenges for the supply chain. As the business grew, it became harder and harder to keep track of the goods flowing through the various streams.

A big part of the problem was a lack of central coordination. Traditionally, each channel handled its own forecasting and stocking, which often led to inventory redundancies and overstocks. And because inventories were scattered throughout the various retail locations as well as warehouses in Roanoke, Va., and Andover, England, Orvis had no easy way to get an overall view of its stock.

"Our size and geographic reach were problems," recalls Mark Holmes, who joined Orvis as vice president of information in 2003. "We just had too much inventory in too many places."

Making matters worse, the company's channel-centric model limited its flexibility to respond to changes in demand. Once product was sent into one channel, it was difficult to recall for use in another.

By the time Holmes joined the company, the problems were coming to a head. "We decided we needed to add some intelligence to our business process," says Holmes. After analyzing the operation, he and his team launched a distribution restructuring project that has drastically changed the way Orvis does business.

Channel surfing
Going into the project, the retailer set three main goals for itself. It wanted to rein in excess inventories, pare operating costs, and, perhaps most important of all, bring a multichannel mindset to the operation. Translated into operating terms, what Orvis wanted was a failsafe process that would ensure it never again lost a sale due to a stock-out when the desired item was available in another channel.

The first step was to centralize its inventory management. To that end, the company developed its own software to track inventory across all channels, balance needs across those channels, and give employees access to inventory information systemwide. Today, if a catalog customer phones the call center looking for an item that's no longer in stock at the warehouse, the call center can check retail inventory. If the needed item is located at one of the stores, that store is assigned to fill the order.

If the needed inventory is found in more than one store, the software will balance work across the network. It also cross-checks the customer ZIP code so that the order can be filled from a nearby retail location if possible.

The process works the other way as well. "Customers often come into our stores with a catalog in hand," says Holmes. "If the store does not have [the requested] item in stock, an employee can pick up a special green phone and call the Roanoke warehouse. The item is then shipped directly to the customer."

Now that it has the inventory system up and running, the retailer has taken the next step toward centralizing its operations. It is currently rolling out Manhattan Associates' Advanced Planning and Demand Planning software to centralize procurement and forecasting.

Redirecting the flow
As part of its initiative, Orvis also began re-evaluating the way goods flow through its distribution network. Then, as now, most of its inventories—regardless of channel—flow through either the warehouse in Roanoke, Va., or its counterpart in Andover, England. The remaining items, mainly fly rods and leather goods, are handled by smaller warehouses located adjacent to the Orvis-owned plants that make the items.

In the past, decisions on what to store where were largely dictated by geography. The 300,000-square-foot automated facility in Roanoke handled fulfillment and replenishment for all U.S. sales outlets (with the exception of fly rods and leather goods). Meanwhile, the Andover facility—a manual operation about a third Roanoke's size—handled European direct-to-consumer orders and U.K. store fulfillment.

As logical as that might sound, the setup created some inefficiencies. For one thing, the company was forced to maintain duplicate inventories for all channels in both Roanoke and Andover, which did nothing to solve its problems with excess stock. For another, Orvis took a big cost hit whenever it went to dispose of overstocks and closeout items overseas. "The liquidation channels are smaller in Europe," explains Holmes, "so having too much inventory in a nation where it was difficult to liquidate was a problem."

In the end, Orvis decided it would maintain its existing distribution network but reroute the flow of goods through it. Today, 80 percent of the European orders, including stock for retail stores and direct-to-consumer shipments, come from the Roanoke warehouse, with Andover handling the remaining 20 percent. Although that might sound complicated from a transportation perspective, Holmes insists that's not the case. "It is easier now to ship products as needed to the U.K. than to ship items in bulk and have to pull some back," he says.

Reallocating work formerly handled by Andover to Roanoke has taken a big bite out of Orvis's processing costs. That's partly because at three times Andover's size, Roanoke offers economies of scale. Roanoke also has the advantage of being an automated facility that boasts a new Manhattan Associates warehouse management system (WMS), which enables it to process orders more efficiently and cost-effectively than the manual Andover operation can. Finally, it enjoys lower labor costs as well as lower inbound freight costs from domestic suppliers.

Lower costs, higher sales
As for how it's all working out, the results to date are impressive. During the past year, Orvis's inventory levels have dropped 10 to 15 percent, which translates to around $10 million in savings. (Although the recession accounted for some of the inventory decline, its effects were largely offset by the opening of about 15 new stores—mostly in the United States—last year.)

In addition, Orvis cut its liquidation costs by 25 percent in 2008 and is on track to achieve bigger savings this year. Taken together, the savings in inventory, liquidation, and processing costs far outweigh the added expense of shipping merchandise overseas by air.

The benefits haven't been limited to cost savings. Customer service has improved as well. Now that the new WMS is in place, the Roanoke facility ships customer orders within 24 hours of receipt, and fill rates are well above 90 percent.

To top it off, Orvis appears to have achieved the multichannel mindset it sought. No longer does the company lose sales because of fractured communication between channels. Nowadays, it can marshal the full array of company resources when filling customer requests. And the payoff has come in more than goodwill. Orvis says the new cross-channel approach has translated into a 14-percent increase in retail sales alone.