Supply Chain is becoming increasingly important at Intergamma
Intergamma – with 385 stores throughout the Netherlands and Belgium – has significantly expanded its private label range over the past few years. In fact, the retailer has quadrupled the number of items it purchases directly from manufacturers. The reason is simple: “By doing our own direct sourcing in the Far East, we eliminate inefficiencies and hence costs from the supply chain. In effect, we cut one link out. We invest much of the money this frees up in developing our e-commerce activities,” says Jan-Martijn Sijtsma, Supply chain planning manager at Intergamma.
As a result, Intergamma now has a huge inventory to manage. Stock is kept in the central distribution centre in the Dutch city of Tiel, from where it is shipped to the DIY stores. “Today, cross-docking still accounts for 60% of our shipments from Tiel, with products being immediately allocated to the stores as soon as they arrive in from our suppliers. Only 15 to 20% of goods are shipped from our own stock nowadays,” states Sijtsma. In addition to the Tiel facility, Intergamma has another DC in Eindhoven which stores all the items that do not fit onto a pallet. “In the past, 70% of the goods used to be delivered to the stores directly by our suppliers. We’re keen to turn that around: we’re aiming for 70% in consolidated deliveries via our distribution centres. Right now we’re at 66%, which has already enabled us to eliminate 380,000 deliveries to our stores over the past few years,” continues Sijtsma.
For the online channel, Intergamma has a separate distribution centre in Antwerp where all online orders are picked and packed for dispatch. This includes customer orders for in-store collection. That’s a common scenario, according to Stefan Kooijmans, General Manager of Slimstock in the Netherlands. “A stand-alone operation enables retailers to optimally develop the online channel and to learn as they go. As time goes by, they automatically discover an increasing need for more operational integration and an integral approach to inventory management.
“First grow, then optimise.” Sijtsma echoes that. “We’re increasingly opting to keep inventory as high up in the chain as possible and not to allocate it to a particular channel until the very last minute. In the past, we put 60% of our stock straight into stores. Nowadays, a promotional activity can sometimes mean that 90% of the stock is allocated to the online channel.”
With Slim4, Intergamma gives the right tool to make the right inventory decisions. “Up until four years ago, there was only a small amount of stock in Tiel, so there was little if any pressure to keep inventory down because we had more than enough storage space there. Things have changed now that our private label range has quadrupled. Our stock has grown tremendously and now takes up a significant portion of the working capital. This has created the need to set up effective sales & operations planning,” comments Sijtsma.
He illustrates his point by referring to the inventory turnover rate, which is relatively low in comparison with food retail. Slim4 helps Intergamma to classify stock based on the turnover rate and to select the best inventory strategy at product or product-group level. “The system is capable of generating reliable demand forecasts, even for product groups with a low inventory turnover rate and hence with relatively little data.”
Adjusting the KPIs
But it’s not enough to just have a good tool. In recent years, Intergamma has invested heavily in the internal organisation to improve its overall supply chain performance. One key measure has been to refocus the KPIs, which used to be focused at a departmental level. “That meant that someone was penalized if a particular product was out of stock in the distribution centre, for example. But the question is; did our customers suffer because of that? Now, everyone is evaluated based on the customer service level.”
Altering the KPIs has been a way to change the employee mindset and behaviour – an intensive process, during which Intergamma was thankful for the support it received from Slimstock. As an example, Sijtsma mentions the Slimstock Supply Chain Game, which 140 Intergamma employees played in May 2018. “It’s amazing to see what an effect that has had. A game like that helps us to underline the importance of integral thinking.”
Besides that, Intergamma is investing in employee development. One benefit of Slim4 is that the members of Sijtsma’s team have got more time to spend on tactical and strategic inventory decision-making, but that requires different competencies. Slimstock offers a range of relevant learning opportunities and training courses. People development remains important, explains Kooijmans: “You can give a bad carpenter a better hammer, but that won’t get the job done any quicker. It’s nice that artificial intelligence and machine learning can identify data patterns more quickly and effectively, but you still need people to turn those patterns into tactical decisions.”
All the hard work is already starting to pay off. The inventory turnover rate has improved by an average of 19% while the stock levels have been reduced by 20% and the customer service level is up by 2 to 3 percentage points. Even more importantly perhaps, the other departments within Intergamma are increasingly recognizing the importance of Supply Chain. “We’re no longer merely sitting at the table, but are also actively involved in the discussion. Now, other departments ask us to help them with issues.”
For other retailers, Intergamma is a shining example of the importance of a good strategy. “All the changes stem from the vision that was defined a few years ago. At Intergamma they are executing that strategy step by step, without thinking that they’ve accomplished their goal each time they complete a step,” says Kooijmans. Sijtsma adds: “The strategy is an important pillar of our entire change process. A cultural change like the one we’ve implemented involves lots of discussions with employees and franchisees. In that case it’s good to be able to keep referring to the underlying vision: a flexible and transparent supply chain driven by financial decisions.”
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