Executive Briefings

SPECIAL ISSUE: GLOBAL SUPPLY CHAIN PARTNERSHIPS

Sodimac de Chile: New Data System Helps to Beat Back Foreign Rivals

The homegrown Chilean retailer had several advantages over foreign-based competition, knowledge of local markets not least among them. But when some big U.S. merchandisers threatened Sodimac de Chile S.A. on its own turf, the company had to respond.

Sodimac operates a chain of home improvement stores, 48 in Chile and six in Colombia. Designed around the "big-box" model, they are each around 120,000 square feet. In addition to its home centers, Sodimac runs a wholesale business through a chain of construction yards, providing expedited service to small contractors. Revenues for the whole business are approximately $700m a year.

In the late 1990s, Sodimac found itself challenged by U.S.-based retailers such as Home Depot, whose state-of-the-art information systems made them highly efficient. Determined not to cede market share to these multinational behemoths, the company set forth to revamp its own supply-chain technology and processes.

"We were not out to reinvent the wheel," recalls Ignacio Concha, Sodimac's executive vice president and chief financial officer. What the company wanted was a software application that could help it better manage its commercial and logistics processes. In particular, Sodimac wanted to switch from traditional warehousing to a series of cross-docks, which would move product faster and make the retailer more responsive to ever-shifting consumer tastes.

Following an eight-month search, Sodimac selected Scottsdale, Ariz.-based JDA Software Group Inc. as its vendor. More specifically, it purchased multiple modules of the JDA software suite known as Open DataBase Merchandising System (ODBMS).

On the commercial side, Sodimac wanted to improve price and assortment management. That meant being able to enact discounts on the same morning that it discovered lower prices in a competitor's newspaper ad.

"We wanted to open our stores in Chile with the best price in town," says Concha. At the same time, Sodimac needed to establish a standard assortment plan, to manage its inventory of 50,000 SKUs.

For logistics, the company was seeking to make better use of inventory and shipment information, while providing vendors with access to its internal database, Concha says.

Sodimac didn't skimp on the reengineering program. Over the last five years, says Concha, it has sunk $30m into various systems improvements. The JDA package alone cost $650,000.

The money appears to have been well spent. Within three months of signing up with JDA, Sodimac had implemented a cross-docking pilot with 10 vendors and five of its stores. A nationwide rollout, including training for employees and some 90 suppliers, happened within a year.

Other parts of the product were brought on board one at a time. They included JDA's modules for data, price and cost management; automated replenishment, competitive and vendor pricing, purchase orders, inventory control, returns to vendor and invoice matching.

Sodimac, like every established retailer, had its own way of doing things. But implementation required no major modifications to the JDA suite. "They fit the organization to the software, not the software to the organization," says Alfredo Guardiola, JDA's country manager in Chile. That's a sharp departure from business practices in Chile, where companies tend to resist process change, even if it's clearly for the better, he says.

Sodimac has seen a slew of improvements to its business, as a result of the project. The average service level among Chilean retailers is around 65 percent, says Concha; Sodimac is in the 95-percent range. With 25 percent of its product handled through cross-docking, Sodimac has reduced inventory on hand by $5m. Smarter vendor negotiations have increased its profit margin by $15m. Inventory carrying costs are down by $28m. The company has further cut administrative expense by processing fewer invoices - just eight a month now, compared with 180 previously.

Thanks in part to the new software, Sodimac's revenues have soared in the past two years - to $700m from $550m. Concha expects additional gains in the years ahead. Suppliers have benefited as well, with sales increases of between 20 and 180 percent. Meanwhile, Sodimac says, some of its foreign competitors have suffered a reduction in sales, even to the point of pulling out of the Chilean market.

The road ahead is not entirely free of obstacles, Concha says. Sodimac will push for even greater efficiencies through new applications, such as space management at the store level, and possibly catalog management. The retailer expects JDA to expand its offering at the same time. "That's the idea of the partnership," says Concha. "We can grow together."

The homegrown Chilean retailer had several advantages over foreign-based competition, knowledge of local markets not least among them. But when some big U.S. merchandisers threatened Sodimac de Chile S.A. on its own turf, the company had to respond.

Sodimac operates a chain of home improvement stores, 48 in Chile and six in Colombia. Designed around the "big-box" model, they are each around 120,000 square feet. In addition to its home centers, Sodimac runs a wholesale business through a chain of construction yards, providing expedited service to small contractors. Revenues for the whole business are approximately $700m a year.

In the late 1990s, Sodimac found itself challenged by U.S.-based retailers such as Home Depot, whose state-of-the-art information systems made them highly efficient. Determined not to cede market share to these multinational behemoths, the company set forth to revamp its own supply-chain technology and processes.

"We were not out to reinvent the wheel," recalls Ignacio Concha, Sodimac's executive vice president and chief financial officer. What the company wanted was a software application that could help it better manage its commercial and logistics processes. In particular, Sodimac wanted to switch from traditional warehousing to a series of cross-docks, which would move product faster and make the retailer more responsive to ever-shifting consumer tastes.

Following an eight-month search, Sodimac selected Scottsdale, Ariz.-based JDA Software Group Inc. as its vendor. More specifically, it purchased multiple modules of the JDA software suite known as Open DataBase Merchandising System (ODBMS).

On the commercial side, Sodimac wanted to improve price and assortment management. That meant being able to enact discounts on the same morning that it discovered lower prices in a competitor's newspaper ad.

"We wanted to open our stores in Chile with the best price in town," says Concha. At the same time, Sodimac needed to establish a standard assortment plan, to manage its inventory of 50,000 SKUs.

For logistics, the company was seeking to make better use of inventory and shipment information, while providing vendors with access to its internal database, Concha says.

Sodimac didn't skimp on the reengineering program. Over the last five years, says Concha, it has sunk $30m into various systems improvements. The JDA package alone cost $650,000.

The money appears to have been well spent. Within three months of signing up with JDA, Sodimac had implemented a cross-docking pilot with 10 vendors and five of its stores. A nationwide rollout, including training for employees and some 90 suppliers, happened within a year.

Other parts of the product were brought on board one at a time. They included JDA's modules for data, price and cost management; automated replenishment, competitive and vendor pricing, purchase orders, inventory control, returns to vendor and invoice matching.

Sodimac, like every established retailer, had its own way of doing things. But implementation required no major modifications to the JDA suite. "They fit the organization to the software, not the software to the organization," says Alfredo Guardiola, JDA's country manager in Chile. That's a sharp departure from business practices in Chile, where companies tend to resist process change, even if it's clearly for the better, he says.

Sodimac has seen a slew of improvements to its business, as a result of the project. The average service level among Chilean retailers is around 65 percent, says Concha; Sodimac is in the 95-percent range. With 25 percent of its product handled through cross-docking, Sodimac has reduced inventory on hand by $5m. Smarter vendor negotiations have increased its profit margin by $15m. Inventory carrying costs are down by $28m. The company has further cut administrative expense by processing fewer invoices - just eight a month now, compared with 180 previously.

Thanks in part to the new software, Sodimac's revenues have soared in the past two years - to $700m from $550m. Concha expects additional gains in the years ahead. Suppliers have benefited as well, with sales increases of between 20 and 180 percent. Meanwhile, Sodimac says, some of its foreign competitors have suffered a reduction in sales, even to the point of pulling out of the Chilean market.

The road ahead is not entirely free of obstacles, Concha says. Sodimac will push for even greater efficiencies through new applications, such as space management at the store level, and possibly catalog management. The retailer expects JDA to expand its offering at the same time. "That's the idea of the partnership," says Concha. "We can grow together."