Executive Briefings

Demand Management Enables Cooking.com To Add New Products With No New Costs

The cookware company says it can now start with a smaller initial inventory of new items because it can react quickly to changes in sales patterns.

Sometimes companies find the right technology partner by going through a lengthy and meticulous selection process-and sometimes they simply get lucky. Cooking.com, the specialty online and catalog retailer, "just sort of stumbled" onto the forecasting and automated replenishment solution that perfectly matched its needs, says Bryan Handlen, senior vice president of operations at the Santa Monica, Calif.-based cookware company.

More than pure serendipity was at work, however, since the discovery was made during the users' conference of an existing vendor: Catalyst International, Milwaukee, Wis. At its 2003 conference, Catalyst demonstrated new CatalystCommand Demand Management and Inventory Optimization applications that it was offering in partnership with JustEnough Software, Irvine, Calif. And while Cooking.com was not exactly shopping for a solution, Handlen says the company was aware that it needed to move beyond the spreadsheets and manual processes it was using.

"When we saw the Catalyst-JustEnough product presentation, we immediately realized what it could do for us," Handlen says. Company executives had looked at other systems in the past, he adds, "but the Catalyst system really impressed us from a cost/benefit standpoint." After seeing this product's capabilities, "we did not feel the need to go out and bring others in to compare it with," he says. "We felt certain there would be little out there that could compete for the price."

Having an existing and happy relationship with Catalyst was a bonus that gave Cooking.com the confidence to move forward quickly with purchase and implementation. The company had been using the Catalyst warehouse management system at its distribution center in Ontario, Calif., since 1999. "We had always received excellent support from Catalyst on our WMS, so we had a high expectation going in that we would receive great support on Demand Management, and that has been the case," says Handlen. Implementation occurred early in 2004 and took only a few weeks, he says. "This gave us plenty of time to use the system for a while before we entered our busy holiday season."

"Lead times just didn't mean a whole lot to us in the past because we weren't able to truly track them."
- Bryan Handlen of Cooking.com

This was important because Cooking.com was significantly increasing its product line in advance of the holidays, going from around 4,000 stocked items to more than 6,000 SKUs. "One thing we did not do very well on a spreadsheet was forecast and react to new-item sales," says Handlen. "We would either bring in a larger quantity than we needed initially or bring in too small a quantity and then not be able to react quickly enough when we ran out of stock." The modeling capabilities of the Catalyst system "does a great job of enabling us to ramp up and quickly react to changes," he says. "We can start with a smaller initial inventory on new items because we can react much quicker as we see what its sales pattern is going to be."

"The application can mimic an existing SKU or set of SKUs and forecast a new item very quickly, then quickly make adjustments to that forecast as sales data comes in," says Noah Dixon, project management director at Catalyst. "The modeling process is very simple and it has a great deal of agility."

The really key benefit, however, was that Cooking.com was able to add more than 2,000 new SKUs and achieve better overall in-stock positions without any additional inventory investment. "For about the same money, we have been able to maintain a better in-stock over a much larger breadth of items," says Handlen, noting that this "equates to a 35 percent reduction in inventory costs." As a result of these savings, "we figure that the system paid for itself in the fourth quarter of last year alone," he says.
"Essentially, Cooking.com's goal was to take the inventory budget that they had and make it more effective," says Dixon. "To do that, they needed to make sure that whatever product they brought into their warehouse was what they needed to fill orders." By taking sales data from Cooking.com's host system and inventory data from the Catalyst WMS, along with "a few other data objects," the Inventory Optimization software was able to "model the outbound flow of their products and determine what products they should order and position in their facility."

Having a more optimized product mix in the warehouse also meant that fewer orders went unfilled due to items being out of stock, says Dixon. Quantitative data on this benefit is soft, he adds, since Cooking.com was not really sure what the figures were beforehand-an observation with which Handlen agrees.

Process Shortened
One reason this information was unavailable was because inventory information was all stored on spreadsheets and had to be reviewed manually. "It used to take us a week to go through spreadsheets on inventory and sales to determine what replenishment orders we needed to place," says Handlen. Each of Cooking.com's 4,000 to 4,500 SKUs had to be looked at individually to see sales patterns and trends and team members had no way of discerning how long an item had been out of stock, he says.

"The Catalyst system took this very manual, painful process and cut it down to a day or a day and a half," says Handlen. In addition, information that had been stored in spreadsheets was transitioned to a central repository for cross-functional integration. Cooking.com is now able to "slice and dice" its inventory information in a variety of ways to gain a better understanding. For example, says Handlen, one of the company's biggest problems was that it would overstock on its top 200 SKUs because the company did not want to run out of its best selling products. Allocating investment and resources disproportionately to this group of A items meant that other items were not managed effectively. "We wanted to be sure that we kept those top selling products in stock without putting as many dollars into them," says Handlen. "And we also wanted to be able to keep more of the second-tier, B and C items in stock than we did before."

Using Past Events
With the automated replenishment system, Cooking.com feeds in sales data at the beginning of each week. The system looks at inventory on hand and historical sales trends for each product and then forecasts supply requirements for a set number of weeks in the future. "How far out we forecast varies with different categories of products and with what needs to be purchased," says Handlen. It also may depend on whether any promotional events are planned. "We can use past events to model planned promotions and project potential sales. The system will then give us suggested purchase orders by vendor."

These suggestions are reviewed by Handlen's team. "At first, we reviewed these very heavily just to make sure we felt comfortable with the results," says Handlen. "As our confidence built up, we did less and less review." Now Handlen's staff looks at exceptions and at specific items or segments that the company expects to promote differently. "We are able to focus most of our time on those situations and less time on the very vast majority of items," says Handlen. "For the majority, we just allow the system to create purchase orders and send them off to the vendors."

Inherent in this operation is an understanding of individual vendor lead times, another piece of information that Cooking.com previously lacked. "Lead times just didn't mean a whole lot to us in the past because we weren't able to truly track them," says Handlen. "We just sort of figured an average lead time of three weeks for everyone. The Catalyst system actually measures lead times by vendor and by product and suggests the timing of purchases based on the actual lead times we are experiencing," he says. Even within the same vendor, he explains, items can be shipped from multiple destinations, so it is important to monitor lead times by individual items. "The system does a good job determining what we should use as an adjusted lead time for each item," he says. "That has been a tremendous improvement for us."

To further increase its offerings to customers, Cooking.com is partnering with other vendors and retailers, such as Barbeques Galore and Jessica's Biscuit, an online cookbook company. It also recently launched a partnership with Starbucks to sell that retailer's packaged coffees and teas online. "We are Starbucks's primary online retailer and we're really excited by that," says Handlen. "This is the path we are going down now. We are looking for other companies and products that we can carry on our site to help expand our offering and bring as much as we can to our consumer."

Most of these products are shipped direct to consumer from the partnering vendor. "These partner companies generally have very broad product offerings that are too large for us to carry in inventory ourselves," says Handlen. "But it is great to be able to offer their entire line and most vendors are more than willing to drop ship in that type of environment."

Cooking.com also is moving toward more drop shipments of its regular stock. "Prior to this year we did a very small amount of drop shipments, but going forward we really are bringing up that program," says Handlen. He notes that one of the largest opportunities for drop shipping is around bigger items that would not be packaged with other items even if they were part of the same order. "For example," he says, "we stock stand mixers from KitchenAid but if somebody orders a mixer and also a spatula and cookbook, those are not going to packaged with the stand mixer. The mixer will be shipped by itself, so items like that are prime candidates for drop shipping."

Catalyst also provides support for this program. "We have a supplier portal where a vendor can get a copy of the purchase order and print out carrier-compliant labels," says Dixon.

Another advantage of the Catalyst system is its reporting capabilities, says Handlen. "We are now using this system to create reports for people throughout the company, from the merchandising group to finance operations to IT." The merchandise team uses the solution to analyze data at a vendor or department level, he says, while the finance team creates customized reports to check the open-to-buy or inventory dollar levels. "The solution gives everyone in the company a much better ability to analyze data and make directional decisions for the company," he says. "We are using the system for a lot more reporting than was initially planned."

Sometimes companies find the right technology partner by going through a lengthy and meticulous selection process-and sometimes they simply get lucky. Cooking.com, the specialty online and catalog retailer, "just sort of stumbled" onto the forecasting and automated replenishment solution that perfectly matched its needs, says Bryan Handlen, senior vice president of operations at the Santa Monica, Calif.-based cookware company.

More than pure serendipity was at work, however, since the discovery was made during the users' conference of an existing vendor: Catalyst International, Milwaukee, Wis. At its 2003 conference, Catalyst demonstrated new CatalystCommand Demand Management and Inventory Optimization applications that it was offering in partnership with JustEnough Software, Irvine, Calif. And while Cooking.com was not exactly shopping for a solution, Handlen says the company was aware that it needed to move beyond the spreadsheets and manual processes it was using.

"When we saw the Catalyst-JustEnough product presentation, we immediately realized what it could do for us," Handlen says. Company executives had looked at other systems in the past, he adds, "but the Catalyst system really impressed us from a cost/benefit standpoint." After seeing this product's capabilities, "we did not feel the need to go out and bring others in to compare it with," he says. "We felt certain there would be little out there that could compete for the price."

Having an existing and happy relationship with Catalyst was a bonus that gave Cooking.com the confidence to move forward quickly with purchase and implementation. The company had been using the Catalyst warehouse management system at its distribution center in Ontario, Calif., since 1999. "We had always received excellent support from Catalyst on our WMS, so we had a high expectation going in that we would receive great support on Demand Management, and that has been the case," says Handlen. Implementation occurred early in 2004 and took only a few weeks, he says. "This gave us plenty of time to use the system for a while before we entered our busy holiday season."

"Lead times just didn't mean a whole lot to us in the past because we weren't able to truly track them."
- Bryan Handlen of Cooking.com

This was important because Cooking.com was significantly increasing its product line in advance of the holidays, going from around 4,000 stocked items to more than 6,000 SKUs. "One thing we did not do very well on a spreadsheet was forecast and react to new-item sales," says Handlen. "We would either bring in a larger quantity than we needed initially or bring in too small a quantity and then not be able to react quickly enough when we ran out of stock." The modeling capabilities of the Catalyst system "does a great job of enabling us to ramp up and quickly react to changes," he says. "We can start with a smaller initial inventory on new items because we can react much quicker as we see what its sales pattern is going to be."

"The application can mimic an existing SKU or set of SKUs and forecast a new item very quickly, then quickly make adjustments to that forecast as sales data comes in," says Noah Dixon, project management director at Catalyst. "The modeling process is very simple and it has a great deal of agility."

The really key benefit, however, was that Cooking.com was able to add more than 2,000 new SKUs and achieve better overall in-stock positions without any additional inventory investment. "For about the same money, we have been able to maintain a better in-stock over a much larger breadth of items," says Handlen, noting that this "equates to a 35 percent reduction in inventory costs." As a result of these savings, "we figure that the system paid for itself in the fourth quarter of last year alone," he says.
"Essentially, Cooking.com's goal was to take the inventory budget that they had and make it more effective," says Dixon. "To do that, they needed to make sure that whatever product they brought into their warehouse was what they needed to fill orders." By taking sales data from Cooking.com's host system and inventory data from the Catalyst WMS, along with "a few other data objects," the Inventory Optimization software was able to "model the outbound flow of their products and determine what products they should order and position in their facility."

Having a more optimized product mix in the warehouse also meant that fewer orders went unfilled due to items being out of stock, says Dixon. Quantitative data on this benefit is soft, he adds, since Cooking.com was not really sure what the figures were beforehand-an observation with which Handlen agrees.

Process Shortened
One reason this information was unavailable was because inventory information was all stored on spreadsheets and had to be reviewed manually. "It used to take us a week to go through spreadsheets on inventory and sales to determine what replenishment orders we needed to place," says Handlen. Each of Cooking.com's 4,000 to 4,500 SKUs had to be looked at individually to see sales patterns and trends and team members had no way of discerning how long an item had been out of stock, he says.

"The Catalyst system took this very manual, painful process and cut it down to a day or a day and a half," says Handlen. In addition, information that had been stored in spreadsheets was transitioned to a central repository for cross-functional integration. Cooking.com is now able to "slice and dice" its inventory information in a variety of ways to gain a better understanding. For example, says Handlen, one of the company's biggest problems was that it would overstock on its top 200 SKUs because the company did not want to run out of its best selling products. Allocating investment and resources disproportionately to this group of A items meant that other items were not managed effectively. "We wanted to be sure that we kept those top selling products in stock without putting as many dollars into them," says Handlen. "And we also wanted to be able to keep more of the second-tier, B and C items in stock than we did before."

Using Past Events
With the automated replenishment system, Cooking.com feeds in sales data at the beginning of each week. The system looks at inventory on hand and historical sales trends for each product and then forecasts supply requirements for a set number of weeks in the future. "How far out we forecast varies with different categories of products and with what needs to be purchased," says Handlen. It also may depend on whether any promotional events are planned. "We can use past events to model planned promotions and project potential sales. The system will then give us suggested purchase orders by vendor."

These suggestions are reviewed by Handlen's team. "At first, we reviewed these very heavily just to make sure we felt comfortable with the results," says Handlen. "As our confidence built up, we did less and less review." Now Handlen's staff looks at exceptions and at specific items or segments that the company expects to promote differently. "We are able to focus most of our time on those situations and less time on the very vast majority of items," says Handlen. "For the majority, we just allow the system to create purchase orders and send them off to the vendors."

Inherent in this operation is an understanding of individual vendor lead times, another piece of information that Cooking.com previously lacked. "Lead times just didn't mean a whole lot to us in the past because we weren't able to truly track them," says Handlen. "We just sort of figured an average lead time of three weeks for everyone. The Catalyst system actually measures lead times by vendor and by product and suggests the timing of purchases based on the actual lead times we are experiencing," he says. Even within the same vendor, he explains, items can be shipped from multiple destinations, so it is important to monitor lead times by individual items. "The system does a good job determining what we should use as an adjusted lead time for each item," he says. "That has been a tremendous improvement for us."

To further increase its offerings to customers, Cooking.com is partnering with other vendors and retailers, such as Barbeques Galore and Jessica's Biscuit, an online cookbook company. It also recently launched a partnership with Starbucks to sell that retailer's packaged coffees and teas online. "We are Starbucks's primary online retailer and we're really excited by that," says Handlen. "This is the path we are going down now. We are looking for other companies and products that we can carry on our site to help expand our offering and bring as much as we can to our consumer."

Most of these products are shipped direct to consumer from the partnering vendor. "These partner companies generally have very broad product offerings that are too large for us to carry in inventory ourselves," says Handlen. "But it is great to be able to offer their entire line and most vendors are more than willing to drop ship in that type of environment."

Cooking.com also is moving toward more drop shipments of its regular stock. "Prior to this year we did a very small amount of drop shipments, but going forward we really are bringing up that program," says Handlen. He notes that one of the largest opportunities for drop shipping is around bigger items that would not be packaged with other items even if they were part of the same order. "For example," he says, "we stock stand mixers from KitchenAid but if somebody orders a mixer and also a spatula and cookbook, those are not going to packaged with the stand mixer. The mixer will be shipped by itself, so items like that are prime candidates for drop shipping."

Catalyst also provides support for this program. "We have a supplier portal where a vendor can get a copy of the purchase order and print out carrier-compliant labels," says Dixon.

Another advantage of the Catalyst system is its reporting capabilities, says Handlen. "We are now using this system to create reports for people throughout the company, from the merchandising group to finance operations to IT." The merchandise team uses the solution to analyze data at a vendor or department level, he says, while the finance team creates customized reports to check the open-to-buy or inventory dollar levels. "The solution gives everyone in the company a much better ability to analyze data and make directional decisions for the company," he says. "We are using the system for a lot more reporting than was initially planned."