David Perdue doesn't especially like the term "supply chain." To the chairman and chief executive officer of Dollar General Corp., it's just basic business strategy.
Perdue oversees a network of some 6,800 discount merchandise stores in 29 states, growing on average by two a day. In addition to managing aggressive expansion, he has to control costs, add warehousing space, upgrade technology, improve customer service and keep the shareholders happy. And whether he likes the words or not, his solution has rested largely on issues related to the retailer's supply chain.
Perdue's history reveals his bias. Among his previous jobs was senior vice president of global supply chain with Reebok International Ltd. But, as the first non-family member to serve as chief executive, he has clearly brought a new ethos to Dollar General. Named CEO in April 2003 and chairman of the board two months later, he couldn't have arrived at a more propitious time. In recent years, the company has grappled with accounting irregularities, as well as the everyday challenge of surviving the cutthroat world of retailing.
As a major industry player, Dollar General is more fortunate than many. At the recent Senior Executive Retreat of the Supply-Chain Council in Phoenix, Ariz., Perdue spoke of the hollowing out of the retail space. Over the past decade, high-priced merchandisers such as Saks Fifth Avenue have fared relatively well. So have deep discounters such as Wal-Mart Stores and, on a smaller scale, Dollar General. It's the big chains in the middle - Federated Department Stores, J.C. Penney Co., Sears, Roebuck and Co. and the like - that have struggled the most.
Based in Goodlettsville, Tenn., just outside Nashville, Dollar General benefits from occupying a well-defined niche. It offers basic household goods to low- and fixed-income shoppers, with no item priced above $50. Stores are mostly in the U.S. Midwest and Southeast. Nearly two-thirds can be found in small towns, and the city stores are in lower-income neighborhoods.
The strategy has allowed Dollar General to fly under the radar of industry behemoth Wal-Mart. In fact, says Perdue, Dollar General has done what few can manage: undercut Wal-Mart on price. Its stores, averaging 6,700 square feet, stock only around 20,000 SKUs, including 4,500 core items. A small company by today's big-box retailing standards, Dollar General nevertheless buys more SKUs from Procter & Gamble than anyone else, including Wal-Mart, Perdue points out. "It's like a Wal-Mart and 7-Eleven put together," he says.
Dollar General's roots in the "dollar store" business - where, once upon a time, nothing in the store cost more than $1.00 - date back to 1955. In the beginning, the company sold marked-down apparel. Over the last decade or so, it has expanded into a much broader range of household items, including cleaning supplies and health and beauty products. And, in what Perdue calls "a gutsy move," it has embraced branded merchandise, which today accounts for 80 percent of each store's product mix.
It remains a thriving business, albeit a competitive one. According to Perdue, two of the top three U.S. retailers are dollar stores. Last year, nearly a third of U.S. households shopped at one. Companies vying for a piece of that business include Family Dollar Stores Inc. and Fred's Inc., both of which chalked up big gains in net income and same-store sales over the past year. Dollar General itself has seen sales increase from $130m in 1977 to $6.87bn in fiscal 2003 (ending Jan. 31, 2004); during that period the number of stores ballooned from 671 to 6,800 and counting. Net income of $301m in 2003 was up 13.6 percent, while same-store sales climbed 4 percent.
Still, Dollar General faces some significant challenges, many of them built into the nature of its business. At the store level, it lacks the kind of sales volume that makes for an efficient supply chain. Warehouses ship mostly individual picks, not pallets. Each of its seven distribution centers, with more than a million square feet apiece, supports nearly 1,000 stores, shipping at least one weekly delivery per store. That makes for some complex route-stop sequencing of trucks.
Manual to Automated
Back in 1993, when Dollar General hit $1bn in revenue, its shipping system was largely manual, says Perdue. As it shifted from apparel to highly consumable products, it saw the need for a more efficient operation. The number of SKUs was skyrocketing, and the distribution arm - over which the company continues to wield direct control - was suddenly a lot more complicated.
Dollar General has built its current supply-chain strategy - or corporate strategy, as Perdue insists on calling it - around seven key "sustainable capabilities": higher in-stocks, accountable vendor partners, increased inventory velocity, flexible capacity to manage the growing variety of SKUs, lower overall cost of getting product to the shelf, increased sourcing through imports, and the flexibility to accommodate constant changes in the supply chain.
On each point, Perdue wields strict criteria. In the case of in-stocks, having a handful of a particular SKU on the shelf is equivalent to being out. "It's the Holy Grail of American retailing," he says, "yet nobody measures it right."
His ultimate goal is to create a "glass pipeline" through which Dollar General has total visibility of product all the way to the customer's pantry. Efforts toward that end in 2003, Perdue's first year with the company, included doubling to nearly 5,000 the number of stores with an automatic replenishment system for core merchandise. (All will be converted by the end of this spring.)
|"We've got Buck Rogers technology in the DCs and Roy Rogers technology in the stores."|
- David Perdue of Dollar General Corp.
|Dollar General at a Glance|
|The company: A discount retailer of general merchandise, particularly branded household goods, aimed at low- and fixed-income consumers.|
Headquarters: Goodlettsville, Tenn.
Top executive: David Perdue, chairman and chief executive officer. Joined company in April 2003.
Number of stores: More than 6,800 in 29 states, with plans to open another 675 stores this year.
Financial results: For fiscal year 2003 (ending Jan. 31, 2004), net sales of $6.87bn, up 12.6 percent over the previous year, and net income of $301m, up 13.6 percent.
Supply chain: Seven U.S. distribution centers, each with around 1 million square feet and serving about 1,000 stores. Together they handle 250,000 cartons per day. An eighth DC will open in 2005.
Supply-chain vendor partners: Manugistics, transportation planning system; Catalyst International, warehouse management system; Inovis, B2B communications platform for suppliers.
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