Building a smarter supply chain system

John Flanigan, EVP global supply chain, Dollar General

"We no longer ship hummingbird feeders to Florida.”

That’s one example of how Dollar General has smartened up its store replenishment and supply-chain processes in recent years, said John Flanigan, EVP global supply chain. There aren’t enough hummingbirds in the Sunshine State to trigger demand for feeders, he pointed out. Flanigan, who joined the company in May 2008 after managing distribution and logistics for Longs Drug Stores, Safeway and other companies, described the steady evolution of Dollar General’s supply-chain management capabilities as it improves its ability to track and forecast sales by region, store clusters and individual stores.

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To improve its supply chain management and replenishment processes, Dollar General has created a regional store clustering system for items not considered part of its core mix of planogrammed shelf stock. Using that system, stores are organized into eight clusters, or “bands” in Dollar General parlance, with each band representing historical sales and demand levels for particular classes of products.



“For non-core [inventory], we tend to cluster the stores,” Flanigan explained. “We have eight bands where we segregate the stores based on individual class and department [item movement] levels.”



Under that store grouping system, he added, “we have more than 600 individual classes of merchandise” organized department by department and cluster by cluster, with Band Eight representing the cluster with the highest level of sales for a particular category, and Band One representing the lowest.



That means any store can be grouped into different bands for different product categories in order to facilitate the reorder and distribution process. “A store can be in any one of those bands for [different classes of] items,” Flanigan said. “So it could be in Band Eight for lawn and garden, but in Band Three for outdoor holiday [decorations]. We aggregate those, and we will allocate based on ... what’s being serviced for those stores.”



Flanigan and his team constantly seek ways to make the handling, warehousing and weekly shipping of millions of items as seamless and low-cost as possible. “We’re constantly optimizing our effort,” he said. “But as we do that, we want to make sure we have the right products in those stores to meet demand.”



“Over the last five years, we’ve become much more sophisticated in how we break this down,” Flanigan told DSN. For instance, he said, “when I came here, Halloween was all just one class [as] a seasonal department. But ... we don’t sell all those items evenly across the country. So now we take the Halloween category and break it down into four different classes” like costumes and spooky lawn decorations.



Clustering stores by sales patterns has been critical, “because today we can’t physically manage product assortment individually for 11,000-plus stores or 660 product classes,” said Flanigan. However, he added, the company will soon leap forward in its ability to forecast product demand at the item-by-item level, eventually bypassing many of its current reorder processes with more immediate product movement tracking, better sales trending analysis and more responsive replenishment capabilities.



“We’re converting our legacy system to a new system we call Supply Chain Solution,” Flanigan said. He called SCS “a much more robust system” with “a really strong forecasting engine” that can accommodate Dollar General’s rapid growth.



“We’ve been implementing SCS ... very methodically, so that nothing would jeopardize our ability to serve the stores. When you’re growing at such a rapid rate as we are, if you mess up, you really impact the business. So we’ve run parallel systems very carefully.”



Under the new system, said Flanigan, “everything begins in the stores,” with reorders and replenishment forecasting triggered by point-of-sale data. “We have the capability of looking forward, while maintaining two years of [sales] history, so we understand what takes place on a particular day, and will forecast based on that,” he explained.



“With SCS, we’ll be able to project our sales. The algorithms are so much better. We’ll continue to aggregate the stores by these bands initially, but when we drill down and actually process the data, ... we will be much more store-specific. We’re moving in that direction,” he added.



Staying ‘ahead of the distribution curve’



Also moving forward is the physical side of the distribution effort as new inventory storage and replenishment capacity comes on line. To that end, Dollar General’s growth in store count to more than 11,500 units is reflected in its ongoing construction of huge warehouses from which to aggregate and ship product. The company’s next distribution center will open in San Antonio, bringing to 13 the number of company-owned and operated warehouses around the country.



“As a general rule, we say that for every 1,000 stores we have we need another DC,” said Flanigan. “When you’re building 700 new stores a year, you have to be well ahead of the curve.”



Determining where to locate those new DCs, he said, “is all based on where the real-estate plans are, so we look at a five- and 10-year horizon primarily ... where you will meet demand.



Most stores — about 95% of the total — are replenished with weekly truckload shipments from those distribution centers, delivered by contracted carriers. The other 5% of stores, including the highest-volume standard Dollar General stores and the larger Dollar General Market stores, receive at least two deliveries each week, according to Flanigan.



Either way, the company strives to make the supply chain as efficient as possible by managing inventory levels, adhering to just-in-time delivery goals and boosting turns on store shelves. “Inventory productivity is important, and we have targets for that,” said Flanigan. “But at the same time, we’re not so driven by turns that it impacts making good business decisions. So if we have an opportunity to purchase something [like a truckload of overstock merchandise at a steep discount], the financial opportunity is more important than the turn.”