Executive Briefings

THE LIMITED INC.

Nicholas J. LaHowchic President-Limited Logistics Services

Nicholas J. LaHowchic is president and chief executive officer of Limited Logistics Services, a subsidiary of The Limited Inc., a leading maker of fashion apparel and accessories. In addition to The Limited Stores, its retail brands include Express, Lerner New York, Lane Bryant and Structure. The company also holds an 83 percent share in Intimate Brands Inc., which operates more than 1,700 stores under the Victoria's Secret, Bath & Body Works and White Barn Candle company names. Limited Logistics Services performs a wide range of functions for all those units, totaling some 5,500 stores, in addition to 500 stores operated by the now-independent Abercrombie & Fitch and TOO Inc.
Prior to joining The Limited, LaHowchic was president of Becton Dickinson Supply Chain Services, an operating division of the medical technology giant Becton Dickinson and Co. In that position, he was among the pioneers of the Efficient Healthcare Consumer Response initiative, which identified $11bn of potential savings through improved supply-chain efficiency in the healthcare industry. LaHowchic also has worked in logistics for Colgate-Palmolive Co.


Q. What do you view as your greatest challenge in the year ahead, with respect to logistics and the supply chain?
A. The challenges are mostly on the outside of the company. One is environmental issues. We're bringing in product from around the world, and we've got challenges within countries that we must deal with.
The other issue would be employment. In transportation, there's a real crunch in terms of drivers. The strong economy is drawing a lot of people whom we have relied on from time to time for distribution, as we raised our levels of employment to meet peak season production.

Q. What innovations do you intend to implement in the year to come?
A. We're looking for higher and tighter integration, using some of the newer technology. We're continuing to work on how we transition our information flows with key suppliers to web-based activity, rather than doing EDI exchanges. From a technology perspective, there's a lot more we're looking to do within the four walls of our distribution centers and throughout our network to better integrate both information and the flow of goods. We're constantly looking at new practices to speed up the cycle, from factory source right to the selling floor. We are looking at ways to enhance what we and our suppliers are doing to take time out of the process.

Q. Are there any specific tools you are considering to increase the flow of goods and information?
A. We're doing a number of things with the entire business model. We're looking with our suppliers at how to guarantee capacity and consistent reliability to meet the peaks that come with the business, as well as respond quickly to changes. Our in-house production is looking to do parallel processing with key suppliers, so that we can transition quicker, modify items in production, and get brand-right product to the marketplace faster. It's all about responding quickly to fashion, as we go through the entire supply chain.

Q. How do you balance the needs for improving customer service, cutting costs, and satisfying investors - needs that often are in conflict with one another?
A. Yes, they are. The driving force for our company has been improving and growing the top line. Growth is a major keystone in what we're trying to do. First off, we're looking at how to provide a vehicle for further growth. That could be related to how we deliver product to stores, free up sales forces, engineer back rooms, or engineer the flow of goods themselves. It's all about getting in front of the customer more with product and experienced sales associates, which allows us to sell more. We're constantly working with the businesses on reengineering logistics and supply-chain activities, in order to give lift to sales.

The second priority is doing best-in-class work. If it doesn't reduce the cost, it gives us a real value proposition. In terms of Wall Street, we've had discussions with analysts who feel that what we're doing is not only very good, but in some cases extraordinary, compared with what they're seeing in other apparel businesses. We're continually talking about how the supply chain can help to drive profitable growth of the brand and the business.

Q. As you pursue a long-term strategy of improvements in the supply chain, are your efforts yielding enough short-term results to keep investors happy?
A. They can see what we're doing, and how it impacts the business. Improving our supply chain isn't the number-one priority - our product and the customer are. It just takes time to do. It isn't just about physical change - it's process change within the business.

At the same time, we don't want to distract the people who are in front of the customer, because that's where it all matters. So A, investors like what they see, and B, they'd like us to do it faster. I think we're moving at the right speed to achieve our prime objective, which is serving the customer and getting the right product to the right places at the right time.

Q. Is there work to be done in educating top management about the importance of what you do?
A. Funny you should ask that question. It just so happens that as of Monday [Oct. 30], we announced a corporate name change, from Limited Distribution Services to Limited Logistics Services. So I think the company recognition is there.

Upper management supports our taking on a broader role. Over the past few years, they have asked us to take on increasing responsibilities around the supply chain. We've added things like distribution planning, procurement, regulatory assurance, product quality assurance, international trade and customs compliance. And we've recently added strategic procurement.

For a retail business, that's quite different from the past. It proves that management sees logistics in a new light. There's a high level of confidence and awareness in the organization backed up with results as to how to support a product-based business.

Q. Of all the pieces that make up the supply chain, which in your opinion is the weakest link?
A. Probably the one we're spending the most time thinking about is the need for better integrated, collaborative management within the organization. In the past, The Limited was a company that bought finished product. Today, we're involved in designing and virtually producing the product throughout the supply chain. We're working hard on integrating those key areas and expertise in a more collaborative way, looking at changes in process, support systems, and culture. It's a large change-management issue that we've taken on.

Q. What is the progress of collaboration with external partners in the supply chain?
A. We've taken that on as well. For the last two years we've been meeting with senior management of our key suppliers on the apparel side, and before that, on the personal products side. We want to improve product quality, speed up the cycle and improve our agility as well. You can't do that sequentially or episodically. That effort has started to produce a lot of benefits to date.

On the logistics side, we've done similar things with key suppliers, including ocean carriers, air carriers and distribution within the United States. We're candidly taking a look at how we want to operate our businesses together.

Q. You have a long, multinational supply chain. To what extent do your external partners buy into the notion of true collaboration?
A. If I take the six to 10 key suppliers of personal products or apparel, we have alignments pretty much at the top of their organizations. We have teams working on new systems integration. We have long productive relationships with some of the logistics companies out of Asia.

We're now looking to change some of the flows into the U.S., to go to the next level, which is to further accelerate the delivery cycle. There's a lot of work in process. We have not won battles, but we have good alignment at the senior level, and probably at least two levels down with major suppliers. All rules are up for discussion and review.

Q.How do you approach the challenge of measuring your performance, and that of your supply-chain partners?
A. There's no silver bullet. What we've done is sit down and set levels of alliance that are proven on both sides. For example, we have started a program that stratifies and certifies suppliers. It includes protocols for ensuring that we're getting the right product and services. We've been inventing or copying better practices of other organizations with long and good strategic alliances with suppliers. We bring our findings to the table in draft form and work on it together. We talk with our key suppliers about how we can come up with a document together that fairly represents how we want to manage each other.

Q. How are you adjusting to the requirements of electronic business? What changes must be made to your supply chain in order to enter that space?
A. On the business-to-consumer side, because we are a vertically integrated company, we can manage multiple delivery channels all the way to the customer. That's different from some branded wholesale businesses, whose products are sold through third-party e-tailer channels.

Spinning that around to the other side, what we're trying to do with each brand - and probably Victoria's Secret would be the best example of that - is create what we call a 360-degree brand. We want customers to have the same kind of experience going through each channel, whether it's stores, catalogs or e- commerce. Over time, we want them to be able to move easily across those channels.

An example of that today is the substantial amount of customers coming onto the web site asking for the catalog, or wanting to receive notifications about new products by subscription e-mail. We've got people using the web site to order through the catalog. They're more comfortable making the call, but they want to be able to see the latest and greatest in terms of product.

From a supply-chain perspective, we've had a very good infrastructure in place for the catalog business for a number of years. And the e-commerce business has been profitable from day one. What we're spending time on now, in the area of customer contact, is taking this technology to the next level. In other words, how do we make the experience of the marketing programs consistent? And from a delivery basis, how do we make sure that the experience they're getting from the direct side is as good as the one from walking into the store?

Q. How are the requirements of today's logistics professional different from when you first entered the business?
A. Three things come to mind. One is that if you're going to attack this area with all the gusto that you can, you need a better understanding of the full business model. You have to ask where logistics fits in that process, how you're going to provide support to the customer's expectations. It's thinking about supply chain and logistics more broadly than what the functional activities would normally cause you to do.

Secondly, there's a hell of a lot of change going on. Technology, especially in the fashion business, is shortening cycle times for new, different and improved products. With the web, items are in front of everybody in nanoseconds. We're seeing fashion cycles change within the same year, where a few years ago they might have lasted for a year and a half. How, then, do you build up the speed and size to stay up with that?

The third issue - and I certainly see it on the supply-chain side, although it's broader on the business side - is the fact that we're no longer thinking sequentially. We're in a community of collaborative thinking, all the time. Everybody has to trust and share what they're doing with the people around them. You just can't do it all today. And the speed that we're asking people to go at means excellent decisions have to be made immediately. We have to educate people to make better decisions about logistics activities, even if they're in the production or allocation organization. That requires a better working proposition as to team management and team principles.

Q. What progress are we making toward a truly global supply chain, so that it functions as a whole, not as a series of disparate pieces?
A. While we source globally, we're still not a global company. We're doing a couple of things to help get us there. My organization and some others are putting key executives on the ground in parts of the world, so that we can operate 24 hours a day, rather than on our own U.S. clock.

We're also trying to understand which processes are important to integrate. We are building a business system that says, you've got the ball at this point in time, and I'll pick it up at the next. And unless you tell me otherwise, you're carrying the ball to meet our joint commitment. We're trying to empower the organization on the ground, with the ultimate goal of a seamless process. That takes a bit of time, certainly more in different cultures. It's not easily understood even in the U.S. Then you get into expectations in Japan, China, Hong Kong. It takes time to understand it.

Q. What's the next step forward in increasing customer satisfaction, while improving the efficiency and responsiveness of your supply chain?
A. We have a number of different customers that we're targeting, and we are approaching that in a couple of different ways. One, we do benchmarking against companies that we feel have excellent results, whether it's in our industry or not. We do that periodically - find out where the gaps are and which ones support our strategy that we want to tackle. Within our businesses, we make sure our service criteria are fitting with the business plan. We have service agreements with each one, setting out what we're attempting to achieve in the coming year for each business.

At the same time, we have expectations from our customers as well. On the B2C side, we're working with some key suppliers, like FedEx or UPS, to talk about the next level of service that the customer's looking for, as we start to differentiate our business. We try and think about how we can integrate that back into our capabilities.

Q. The Limited became known for its ability to get apparel onto the store floor in record time. How long does it currently take to get your supply chain to react to the need for product?
A. Production is doing more parallel processing to make the product faster, or to change it faster. For a major item, we can fly it out of Asia and land it in the U.S. in 72 hours, in Columbus, Ohio. We can have it through our distribution centers, ready for store delivery, in one day. In two and half days, we can have it in 6,000 stores in the U.S.

We're working closely with our logistics suppliers to shorten the cycle. There's no part of the supply chain that isn't worth a scrub to find out how we can get more time out of it.

Nicholas J. LaHowchic is president and chief executive officer of Limited Logistics Services, a subsidiary of The Limited Inc., a leading maker of fashion apparel and accessories. In addition to The Limited Stores, its retail brands include Express, Lerner New York, Lane Bryant and Structure. The company also holds an 83 percent share in Intimate Brands Inc., which operates more than 1,700 stores under the Victoria's Secret, Bath & Body Works and White Barn Candle company names. Limited Logistics Services performs a wide range of functions for all those units, totaling some 5,500 stores, in addition to 500 stores operated by the now-independent Abercrombie & Fitch and TOO Inc.
Prior to joining The Limited, LaHowchic was president of Becton Dickinson Supply Chain Services, an operating division of the medical technology giant Becton Dickinson and Co. In that position, he was among the pioneers of the Efficient Healthcare Consumer Response initiative, which identified $11bn of potential savings through improved supply-chain efficiency in the healthcare industry. LaHowchic also has worked in logistics for Colgate-Palmolive Co.


Q. What do you view as your greatest challenge in the year ahead, with respect to logistics and the supply chain?
A. The challenges are mostly on the outside of the company. One is environmental issues. We're bringing in product from around the world, and we've got challenges within countries that we must deal with.
The other issue would be employment. In transportation, there's a real crunch in terms of drivers. The strong economy is drawing a lot of people whom we have relied on from time to time for distribution, as we raised our levels of employment to meet peak season production.

Q. What innovations do you intend to implement in the year to come?
A. We're looking for higher and tighter integration, using some of the newer technology. We're continuing to work on how we transition our information flows with key suppliers to web-based activity, rather than doing EDI exchanges. From a technology perspective, there's a lot more we're looking to do within the four walls of our distribution centers and throughout our network to better integrate both information and the flow of goods. We're constantly looking at new practices to speed up the cycle, from factory source right to the selling floor. We are looking at ways to enhance what we and our suppliers are doing to take time out of the process.

Q. Are there any specific tools you are considering to increase the flow of goods and information?
A. We're doing a number of things with the entire business model. We're looking with our suppliers at how to guarantee capacity and consistent reliability to meet the peaks that come with the business, as well as respond quickly to changes. Our in-house production is looking to do parallel processing with key suppliers, so that we can transition quicker, modify items in production, and get brand-right product to the marketplace faster. It's all about responding quickly to fashion, as we go through the entire supply chain.

Q. How do you balance the needs for improving customer service, cutting costs, and satisfying investors - needs that often are in conflict with one another?
A. Yes, they are. The driving force for our company has been improving and growing the top line. Growth is a major keystone in what we're trying to do. First off, we're looking at how to provide a vehicle for further growth. That could be related to how we deliver product to stores, free up sales forces, engineer back rooms, or engineer the flow of goods themselves. It's all about getting in front of the customer more with product and experienced sales associates, which allows us to sell more. We're constantly working with the businesses on reengineering logistics and supply-chain activities, in order to give lift to sales.

The second priority is doing best-in-class work. If it doesn't reduce the cost, it gives us a real value proposition. In terms of Wall Street, we've had discussions with analysts who feel that what we're doing is not only very good, but in some cases extraordinary, compared with what they're seeing in other apparel businesses. We're continually talking about how the supply chain can help to drive profitable growth of the brand and the business.

Q. As you pursue a long-term strategy of improvements in the supply chain, are your efforts yielding enough short-term results to keep investors happy?
A. They can see what we're doing, and how it impacts the business. Improving our supply chain isn't the number-one priority - our product and the customer are. It just takes time to do. It isn't just about physical change - it's process change within the business.

At the same time, we don't want to distract the people who are in front of the customer, because that's where it all matters. So A, investors like what they see, and B, they'd like us to do it faster. I think we're moving at the right speed to achieve our prime objective, which is serving the customer and getting the right product to the right places at the right time.

Q. Is there work to be done in educating top management about the importance of what you do?
A. Funny you should ask that question. It just so happens that as of Monday [Oct. 30], we announced a corporate name change, from Limited Distribution Services to Limited Logistics Services. So I think the company recognition is there.

Upper management supports our taking on a broader role. Over the past few years, they have asked us to take on increasing responsibilities around the supply chain. We've added things like distribution planning, procurement, regulatory assurance, product quality assurance, international trade and customs compliance. And we've recently added strategic procurement.

For a retail business, that's quite different from the past. It proves that management sees logistics in a new light. There's a high level of confidence and awareness in the organization backed up with results as to how to support a product-based business.

Q. Of all the pieces that make up the supply chain, which in your opinion is the weakest link?
A. Probably the one we're spending the most time thinking about is the need for better integrated, collaborative management within the organization. In the past, The Limited was a company that bought finished product. Today, we're involved in designing and virtually producing the product throughout the supply chain. We're working hard on integrating those key areas and expertise in a more collaborative way, looking at changes in process, support systems, and culture. It's a large change-management issue that we've taken on.

Q. What is the progress of collaboration with external partners in the supply chain?
A. We've taken that on as well. For the last two years we've been meeting with senior management of our key suppliers on the apparel side, and before that, on the personal products side. We want to improve product quality, speed up the cycle and improve our agility as well. You can't do that sequentially or episodically. That effort has started to produce a lot of benefits to date.

On the logistics side, we've done similar things with key suppliers, including ocean carriers, air carriers and distribution within the United States. We're candidly taking a look at how we want to operate our businesses together.

Q. You have a long, multinational supply chain. To what extent do your external partners buy into the notion of true collaboration?
A. If I take the six to 10 key suppliers of personal products or apparel, we have alignments pretty much at the top of their organizations. We have teams working on new systems integration. We have long productive relationships with some of the logistics companies out of Asia.

We're now looking to change some of the flows into the U.S., to go to the next level, which is to further accelerate the delivery cycle. There's a lot of work in process. We have not won battles, but we have good alignment at the senior level, and probably at least two levels down with major suppliers. All rules are up for discussion and review.

Q.How do you approach the challenge of measuring your performance, and that of your supply-chain partners?
A. There's no silver bullet. What we've done is sit down and set levels of alliance that are proven on both sides. For example, we have started a program that stratifies and certifies suppliers. It includes protocols for ensuring that we're getting the right product and services. We've been inventing or copying better practices of other organizations with long and good strategic alliances with suppliers. We bring our findings to the table in draft form and work on it together. We talk with our key suppliers about how we can come up with a document together that fairly represents how we want to manage each other.

Q. How are you adjusting to the requirements of electronic business? What changes must be made to your supply chain in order to enter that space?
A. On the business-to-consumer side, because we are a vertically integrated company, we can manage multiple delivery channels all the way to the customer. That's different from some branded wholesale businesses, whose products are sold through third-party e-tailer channels.

Spinning that around to the other side, what we're trying to do with each brand - and probably Victoria's Secret would be the best example of that - is create what we call a 360-degree brand. We want customers to have the same kind of experience going through each channel, whether it's stores, catalogs or e- commerce. Over time, we want them to be able to move easily across those channels.

An example of that today is the substantial amount of customers coming onto the web site asking for the catalog, or wanting to receive notifications about new products by subscription e-mail. We've got people using the web site to order through the catalog. They're more comfortable making the call, but they want to be able to see the latest and greatest in terms of product.

From a supply-chain perspective, we've had a very good infrastructure in place for the catalog business for a number of years. And the e-commerce business has been profitable from day one. What we're spending time on now, in the area of customer contact, is taking this technology to the next level. In other words, how do we make the experience of the marketing programs consistent? And from a delivery basis, how do we make sure that the experience they're getting from the direct side is as good as the one from walking into the store?

Q. How are the requirements of today's logistics professional different from when you first entered the business?
A. Three things come to mind. One is that if you're going to attack this area with all the gusto that you can, you need a better understanding of the full business model. You have to ask where logistics fits in that process, how you're going to provide support to the customer's expectations. It's thinking about supply chain and logistics more broadly than what the functional activities would normally cause you to do.

Secondly, there's a hell of a lot of change going on. Technology, especially in the fashion business, is shortening cycle times for new, different and improved products. With the web, items are in front of everybody in nanoseconds. We're seeing fashion cycles change within the same year, where a few years ago they might have lasted for a year and a half. How, then, do you build up the speed and size to stay up with that?

The third issue - and I certainly see it on the supply-chain side, although it's broader on the business side - is the fact that we're no longer thinking sequentially. We're in a community of collaborative thinking, all the time. Everybody has to trust and share what they're doing with the people around them. You just can't do it all today. And the speed that we're asking people to go at means excellent decisions have to be made immediately. We have to educate people to make better decisions about logistics activities, even if they're in the production or allocation organization. That requires a better working proposition as to team management and team principles.

Q. What progress are we making toward a truly global supply chain, so that it functions as a whole, not as a series of disparate pieces?
A. While we source globally, we're still not a global company. We're doing a couple of things to help get us there. My organization and some others are putting key executives on the ground in parts of the world, so that we can operate 24 hours a day, rather than on our own U.S. clock.

We're also trying to understand which processes are important to integrate. We are building a business system that says, you've got the ball at this point in time, and I'll pick it up at the next. And unless you tell me otherwise, you're carrying the ball to meet our joint commitment. We're trying to empower the organization on the ground, with the ultimate goal of a seamless process. That takes a bit of time, certainly more in different cultures. It's not easily understood even in the U.S. Then you get into expectations in Japan, China, Hong Kong. It takes time to understand it.

Q. What's the next step forward in increasing customer satisfaction, while improving the efficiency and responsiveness of your supply chain?
A. We have a number of different customers that we're targeting, and we are approaching that in a couple of different ways. One, we do benchmarking against companies that we feel have excellent results, whether it's in our industry or not. We do that periodically - find out where the gaps are and which ones support our strategy that we want to tackle. Within our businesses, we make sure our service criteria are fitting with the business plan. We have service agreements with each one, setting out what we're attempting to achieve in the coming year for each business.

At the same time, we have expectations from our customers as well. On the B2C side, we're working with some key suppliers, like FedEx or UPS, to talk about the next level of service that the customer's looking for, as we start to differentiate our business. We try and think about how we can integrate that back into our capabilities.

Q. The Limited became known for its ability to get apparel onto the store floor in record time. How long does it currently take to get your supply chain to react to the need for product?
A. Production is doing more parallel processing to make the product faster, or to change it faster. For a major item, we can fly it out of Asia and land it in the U.S. in 72 hours, in Columbus, Ohio. We can have it through our distribution centers, ready for store delivery, in one day. In two and half days, we can have it in 6,000 stores in the U.S.

We're working closely with our logistics suppliers to shorten the cycle. There's no part of the supply chain that isn't worth a scrub to find out how we can get more time out of it.