Staples - "Removing the seams in the supply chain"

Company profile and business context

Missing office supplies slows down business. Tom Stemberg grew so tired of business supplies delays that
in 1985 he left his career as a supermarket chain executive and turned entrepreneur. Stemberg struck
upon the idea when his typewriter ribbon broke on Independence Day weekend as he was preparing a
business plan and he was unable to find a store that stocked the ribbon. From his vantage point in the
supermarket business, Stemberg also noticed that ballpoint pens were selling for $2 retail despite selling
for 30 cents at wholesale establishments. Opening its first store in 1986 and its first Canadian store in
1991, Staples led the office superstore market explosion throughout the 1980s and 1990s. Staples'
approximately 50,000 employees have served individual customers and businesses ranging from home-
based entities to Fortune®500 companies in 27 countries. The company operates more than 2,000 office
superstores and also serves its customers through mail order catalog, e-commerce, and contract
businesses. Its strategy of making it easy for customers to buy the products they need has fueled Staples’
highly successful expansion around the globe. But for this high-performance business, market leadership
was not guaranteed.

Past supply chain capabilities

As competition intensified in the retail office supplies market, Staples looked for ways to sustain is
leadership position. Through its Staples Advantage program, the company publishes white papers and
blog entries on topics like supplier performance analysis and supplier consolidation negotiations. Much of
this knowledge publication and sharing was achieved by third-party market trend analysis. For example, in
discussing supplier consolidation programs, the company cited research by The Hackett Group that world-
class companies relied on 55% fewer vendors than less successful companies; and findings by AMR
Research that organizations spend as much as $585 to $760 annually per supplier. Retail Systems Research
reported that multi-channel supply chain visibility and network optimization would be key supply chain
management challenges going forward. Staples hoped these trends would favor them, but competition
was putting pressure on both the top and bottom lines. For instance corporate customers recognized that
supplier consolidation meant additional bargaining leverage - in terms of additional volume discount
opportunities and more strategic-level attention and relationship management. Retail consumers were
also electing to shop at competitor establishments, and increasingly looking to the Internet for their
shopping experiences.

Seeing these trends, Staples recognized that improvements in service levels and profitability in general
required improvements in their supply chain management in particular. Delivering on their “Yeah, we’ve
got that" promise profitably was becoming more challenging. Staples CEO Ron Sargent acknowledged, "We
were far from world-class in managing the supply chain so we did something about it…"

Yeah, we got that

In 2002, Staples kicked off a supply chain transformation effort and brought in an international
consulting organization to spearhead the analysis. Processes across the value chain would be
redesigned - from circular advertising, to in-store promotion, to store space management, to
replenishment merchandise flow, and to in-store inventory management. The goals of this
transformation effort were to increase supply chain visibility, improve supply chain reliability and costs,
and improve effectiveness across the value chain. In terms of visibility, analysis showed that a
disconnect existed between the inventory that Staples' systems showed as out-of-stock and what was
actually available in stores. Through extensive internal research, the company learned that what it

Created in support of MISM2301 learning objectives (rev’d md Fall 2014, ds Fall 2021)
 thought was a 98% in-stock level was, in fact, only 94.5%. A big opportunity for Staples was in ensuring
that inventory was not just in the store but that it was on the shelf and available for sale.

In addition to IT changes, Staples redesigned processes - including a new end-to-end inventory

management process that addressed virtually every stage of in-store inventory management.
Information systems were revamped and processes improved to enable the scheduling of precise times
when inventory would be unloaded from trucks and the times when store shelves would be restocked.
Staples' senior executives and their direct reports were directly involved in the change effort to ensure
the program remained a priority across the company. Eight months into the program, Staples
sponsored a "Summit Fair" to showcase the innovations and results that already had been achieved. The
Fair was part of an overarching Summit program, which had the goal of making the supply chain a
competitive asset. To do so Staples wanted to achieve three outcomes:
1. Decision-making: move from intuition-based decision processes to data-based ones by building
better fact bases and establishing processes to use those facts;
2. Process-orientation: Stop acting in isolation, and design processes that not only create
synergies across business units, but also don't assume everyone else will screw up; and
3. Change-management: Understand the concept of the flywheel – build momentum for continual
improvement, because change is difficult.
 
The Summit Fair event, which included a dozen ideas and capabilities championed by respected internal
personnel, involved 500 members of the Staples management team and helped generate widespread
enthusiasm for the overall Summit change program.
 
The results were promising. After two years Staples achieved a 15 percent reduction in inventory -
eliminating over US$200 million in working capital. The remaining inventory was made more productive
and supply chain programs contributed over US$100 million in incremental sales. The resulting effect
was that inventory turn improved from 4.5 to 5.6 times. Customer-oriented improvement was also
dramatic. Customer in-stock levels rose from 94.5% to 97.5%. Customers were finding products when
and where they wanted ("yeah, we really do got that now"), and Staples had a high-performing supply
chain that was positioned for growth.
 

That was easy

Staples continued its investment in driving supply chain performance. A variety of interacting
technologies would need to work together in harmony to provide insight about product
movements - products from high-end office furniture all the way to, well, staples. One major,
yet experimental, technology was implemented in 2007. Staples implemented an inventory
management system called intelliTRACKER that was centered on reusable, active RFID tags. The tags
were initially used to track higher-end individual items like laptops and printers. Jeff Williams, vice-
president, Information Systems described the level of tracking detail, “The goods are tagged not only at
a SKU level but also at an individual item level – so it’s not only an HP computer, it’s this particular HP
computer, and we can associate the serial number of the computer with that tag.” To reduce the risk
typically associated with a major change program, Staples piloted the implementation in its Staples
Business Depot stores in Canada prior to global rollout. In addition, based upon IT vendor partnership
relationships Staples secured for the program, the demand the new inventory management system put
on internal IT resources was modest.
 
The first year achievements for the program were highly encouraging to Staples leadership:
 Increased gross margin and comparative sales for the tagged inventory categories

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  Eliminated shrinkage on tagged inventory
 21 percent reduction in out-of-stock merchandise
 100 percent read rate with no system issues after a full year (deemed "trial without error")
 Low cost per use of approximately eight cents (5-year tag lifespan)
 
The increase in sales and gross margin had been a pleasant surprise for Staples executives. Williams
believed that those increases were due to the fact that the system made inventory search and location
easier for in-store sales associates. In the past, if a customer was looking for the last laptop of a certain
type in the store and the associate didn't know that the laptop had been moved to a different in-store
location then the sale would have been lost. With intelliTRACKER, the item could quickly be located and
the sale saved. Williams predicted that an improved inventory management system may have other
merchandising net benefits, especially with reductions in RFID tag prices. “If you add an accelerometer
to these chips then the system could tell you when customers are picking things up and putting them
down. Did somebody pick up these two cell phones and compare them? And which one are they
walking out with?” Having that level of visibility could provide insights regarding customers' product
feature and packaging preferences.
 

Make more happen

Fast forward, and Staples is reaping the rewards of their past supply chain
transformation efforts. For instance, they received the 2013 Supply Chain
Innovation Award (presented by the Council of Supply Chain Management
Professionals). Continuing improvements in SCM would be required given
Staples' competitive environment. Increased multi-channel purchasing meant that Staples faced new
challenges to their in-store sales revenue stream. Traditional channel-specific operations worked when
consumers investigated, selected, paid for, and took possession of their purchases in one physical place
(the store). Replicating in-store operations (i.e., aligning the supply chain to a single channel's needs) to
the online shopping experience would not be sustainable. For Staples to successfully address the multi-
channel challenge, they must be able to have visibility into the customer’s preferences and behaviors
across the entire retail experience - what consumers are looking for vs. what they buy, and their path to
purchase. Staples would need to understand and then anticipate consumer expectations for a seamless,
“channel-less” experience in order to move from supply chain management that “saves the sale” to
supply chain management that "drives the sale."
 
As a large clicks-and-mortar retailer, Staples would need to overcome internal concerns from their
stores in three areas: expensive modernizing for existing front-end systems and processes; suspicions of
increasing investments in e-commerce cannibalizing more traditional in-store sales; and the difficulty in
measuring enterprise-wide benefits for improving customer experience when no single group owned
the whole customer experience. In the midst of these concerns, Staples announced plans to expand its
online offerings beyond office supplies, funding the expansion by cutting $250 million in costs by the end
of 2015. The savings would come in part from the closing 30 U.S. stores, the reduction in size of 30 other
U.S. stores, and the closing of 45 stores in Europe.
 
Additional information systems capabilities would be required to support SCM efforts going forward. A
multi-channel order fulfillment (“buy anywhere, get anywhere”) operating model could not suffer from
redundant, bloated inventory levels and be sustainable. Staples needed wider availability of real-time,
cost-efficient enterprise-wide inventory visibility in a consistent and reliable fashion. Improvements
were needed in inventory management, in-store point-of-sale (POS) systems, as well as Staples.com,
and buy-in from brick-and-mortar leaders would be critical to ongoing success.

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Sources
1. Corporate Website, Staples.com
2. Editorial Staff, "Staples Revs Supply Chain with Unifying Metrics," SCDigest, October 28, 2005
3. "Fujitsu Installation of AbsoluteSKY RFID System Is Successful at STAPLES Business Depot,"
Corporate Press Release, Fujitsu, October 17, 2007.
http://www.fujitsu.com/us/news/pr/ftxs_20071017.html
4. Carey, David, " Staples Business Depot’s new RFID system hasn’t made a single mistake…so far, "
IT Business, December 2nd, 2008. <http://www.itbusiness.ca/news/staples-business-depots-new-
rfid-system-hasnt-made-a-single-mistake-so-far/12546>
5. "Staples Transforms Supply Chain Process to Maintain High Performance," Mojica, Michael and
Hajjar, Fred. Accenture , 2009.
6. "IBM and Staples customer success story," IBM case studies, http://www-
01.ibm.com/software/info/television/html/N627483A64458G86.html, accessed Feb 1, 2014.
7. Baird, Nikki and Kilcourse,Brian , "Omni-Channel Fulfillment and the Future of Retail Supply
Chain Benchmark Report," March 2011.
8. Zimmerman, Ann, and Banjo, Shelly, "New Web Victim: Office-Supply Store Staples Will Reduce
Retail Space to Focus Online," Wall Street Journal, September 25, 2012
9. "Staples and Packsize Win 2013 Supply Chain Innovation Award," Corporate Press Release,
Packsize International, November 7, 2013.

Case Questions
1. Using a process flow diagram, describe the process, from Staple’s perspective, of purchasing and
obtaining office supplies through Staple’s online / e-commerce channel. Your process diagram should
address L.O.L.A. considerations and include at least six steps. Do not submit an image of a hand-
drawn flow. You are free to use whatever flowcharting application/tool you wish (MS Visio,
LucidChart, MS Word by inserting shapes, etc). [Hint: You might find it easier to build the process
flow diagram in another application, then copy/paste it into a table in this MS Word document
(otherwise the images can take on a life of their own and move around on you without warning). ]

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 2. Describe the likely SCM IT architecture supporting intelliTRACKER implementation. Separate
your answer into the following categories: IT hardware, application software, data bases, and
networking components.
SCM Architecture supporting intelliTRACKER
implementation
IT Hardware  RFID Tags: track higher-end individual
items like laptops and printers
 Accelerometer: They tell you when
customers are picking things up and
putting them down. It helps to provide
insights regarding customers' product
feature and packaging preferences.

Application Software  SCM Software: Used to execute supply

chain transactions, managing supplier
relationships, and controlling business
processes
 ERP: Databases and information
systems are unified through systems
and business integration

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 Data Bases  DBMS: Helps to manage Staple´s data,
to record and file structure
 Middleware: Integrates data and helps
staple to focus on specific purposes
Networking Components  Extranet investment: Based upon IT
vendor partnership relationships Staples
secured its program.
 All computers are connected to a router
so they can exchange information

3. Describe three SCM planning and execution information problems Staples faces going forward
with the move to multi-channel integration. Address all three levels of information processing and
at least three channels in your answer.

E-commerce Stores Social Media

Operational  E-commerce is  Customers need  Use correct social
more effective in to be well trained media to attract
terms of to provide the the targeted
convenience since best customer customers
customers can experience  Reach the
order products  There should be targeted audience
without physically enough  Social media helps
going to a store employees to to attract
 It is efficient attend customers customers
because and help them if efficiently
customers can find they have
products in a questions
short- period of  Provide a good
time service
 Complete
customer service
Tactical  Update product  Anticipate  Use social media
availability customer needs to show the
 Growth of sales by  Be aware of product´s quality
increasing the customer´s  Show customers
website´s preferences the products
efficiency  Improving the Staples have
 If there is a good store experience
service, there will to attract and
be customer retain more
satisfaction and clients
retention
Strategic  Understand what  Have a good store  Advertise the
needs to be location correct products
improved  Provide good  Analyze what
 Online store customer advertised
accessible to experience products are

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 customers being bought

4. Describe your recommendations for an upgraded IT architecture to enable and support SCM at
Staples going forward. Separate your answer into the following categories: IT hardware, application
software, data bases, and networking components. Describe the expected benefits for your
recommendations (i.e., give business justification for information systems investment).
SCM Architecture supporting intelliTRACKER
implementation
IT Hardware  Invest in more devices such as
mainframes to have larger storage,
increase data processing, collect more
information, and track products and
transactions
 Invest in scanners and other devices
that help to keep track of inventory
 Labor costs is reduced by using IT
hardware

Application Software  Keeping information in a cloud system

would allow employees to access
information at any time from any place.
 Invest on CRM to improve relationship
with customers
 Making more interactive technology for
customers so they could better see
inventory levels of order of information
 Inventory could be more efficient if they
used POS system
Data Bases  Increase information organization and
analytics. By having more data and
keeping it organized the company can
track more processes and predict trends
 Better manage inventory data and
potentially analyze for trends
 Invest on security to protect the
company´s intellectual property

Networking Components  Improving supply chain will make the

process cheaper
 More efficient networks would allow for
people to access information faster
 WAN 5G will improve effectiveness and
efficiency since speed will improve
 VPN´s will make Staples more
competitive and will help to protect
intellectual property

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