It sounded like big news for The Children's Place Retail Stores, Inc.: a 47-percent jump in sales for the month of September 2003, along with a 30-percent rise in same-store sales. But further scrutiny of the numbers showed the real reason for the company's sudden uptick. The year before, same-store sales for the month had plunged by 30 percent. The reason? Poor demand planning and a non-performing supply chain.

In the space of a year, The Children's Place had gotten its act together. And things have been looking up for the specialty retailer ever since. Net sales for fiscal 2003, ending Jan. 31, 2004, were up 19 percent, to $797.9m. Same-store sales rose 4 percent, versus a 16-percent drop in the previous year. And in February of this year, same-store sales were up 22 percent.

Children's Place executives and outside observers credit higher-quality merchandise and lower prices for much of the rise. But an enhanced supply chain was also a factor. In recent months, the retailer has been stuck with a lot less unwanted product. And shipments have been getting to the stores on schedule. All this at a time of feverish expansion in the number of retail outlets.

Headquartered in Secaucus, N.J., The Children's Place sells apparel and accessories for children from newborn to 10 years old. As of Jan. 31, it had 691 stores, including 649 in the U.S. and 42 in Canada. The company added 126 stores in fiscal 2002 alone, another 50 or so last year, and continues to expand its network at the rate of around 30 percent a year. Most stores are located in major regional malls, although something less than a quarter can be found in strip malls, outlet centers and street locations.

The competition is tough. Direct rivals include the much bigger Gap Inc., with its Gap Kids, baby Gap and Old Navy units; Gymboree Corp.; and, until recently, the Kids "R" Us division of Toys "R" Us, which announced plans to shut down the under-performing chain late last year. But The Children's Place doesn't just vie with these boutique retailers, which stress quality, atmosphere and personal attention. In addition to traditional department stores such as Sears, Roebuck & Co. and J.C. Penney Co., it must compete on price and selection with that merchandising colossus, Wal-Mart Stores Inc., and other big-box retailers.

So far, the company seems to be managing this difficult balancing act. And it has done so with just two distribution centers in the U.S., and one in Canada. The key is a focus on sophisticated material handling equipment, a state-of-the-art warehouse management system, and cross-docking to minimize expensive inventories.

As a distinct brand, The Children's Place traces its roots to the mid-1980s. But it wasn't until 1990 that the present owner bought the company from retailing giant Federated Department Stores Inc.--whose more familiar names include Macy's and Bloomingdale's--and took it private. At that point, The Children's Place launched a new strategy of selling private-label merchandise, much of it sourced in Southeast Asia. Today, the retailer buys product from more than 30 countries, according to Bob Scatko, senior director of IT logistics.

Sophisticated Systems
The Secaucus D.C. was established in mid-1999, and for nearly two years was the only one to support the company's fast- growing network of stores. (At the time, the company had around 300 outlets.) With some 150,000 square feet of warehousing space, the facility was highly sophisticated from day one. It featured a pick-to-light system, three automated receiving doors, nearly a dozen automated shipping doors, and 18 secondary product-sortation lanes for items to be palletized and placed in inventory locations.

"From a retailer's perspective, it was one of the more heavily automated facilities," says David Landau, director of retail solutions for Atlanta-based Manhattan Associates Inc., which provided the warehouse management system (WMS) for The Children's Place.

Srinivas Pai, Manhattan's senior manager of project services, says the vendor's relationship with the company dates back to 1998, before the opening of the Secaucus D.C. "They were one of our first retail customers," he says.

The Secaucus implementation required Manhattan to customize its product in order to mesh with the facility's high level of automation. Specifically, the WMS had to tie into the pick-to-light system, mechanized sorters and extensive cross-docking operation, Pai says. Other "tweaks," according to Scatko, included adjusting to the customer's practice of source-labeling cases for ease of use in conveyor systems, and various processes related to quality assurance.

	"It has improved efficiency on the operational side. And it's provided management insight into what's going on, on a daily basis." - Bob Scatko of The Children's Place

Scatko says The Children's Place chose Manhattan because the vendor already had a significant presence in retail and consumer wholesaling. What's more, the Manhattan WMS could be easily adapted to the customer's unique systems, and it ran on an AS/400 server, which is considered stable and relatively simple both to operate and maintain.

Efficient as it was, the Secaucus D.C. couldn't support The Children's Place's growing chain of stores forever. (It has also been given the job of handling direct shipments to customers, from purchases made on the retailer's web site.) Current volumes average 5,000 cartons a day, climbing to 8,000 cartons during peak periods, according to Landau. So in March 2001, the company chose a second distribution location, this time in Ontario, Calif.

Ontario lies squarely within Southern California's "Inland Empire," close enough to the region's biggest ports and airports but sufficiently removed from the congestion and urban sprawl of Los Angeles. It has grown substantially in recent years as a retail and wholesale distribution center for the immediate area, as well as the entire western U.S.

In the case of The Children's Place, Ontario would support a strategy to boost the retailer's presence along the West Coast, particularly in California. Texas and the entire U.S. Southwest were also viewed as promising sources of increased business. "We knew that a lot of growth was going to be in that area," says Scatko. "Plus a lot of our product arrives [from Asia] through the Port of Long Beach."

Built from the ground up, the Ontario facility came on line in May 2001. Volumes now average 5,000 cartons daily, peaking at approximately 6,000 cartons. At 250,000 square feet, Ontario is significantly larger than Secaucus, supporting more than 400 stores. But that's not the only difference between the two warehouses. Although it once again chose Manhattan as its WMS provider, The Children's Place opted to install the latest version of the vendor's software right off the bat, says Landau. It took the same approach when opening a third North American D.C. in Mississauga, Ontario.

The Secaucus WMS was subsequently updated, so that all three facilities are now running the same release. The system was geared up to handle The Children's Place's growing e-commerce pipeline, involving direct shipments to the consumer. Planners gave the upgrade a go-live target of January 2003, following initial meetings with the vendor the previous August.
Unlike the Secaucus implementation, with its need for customization, later WMS installations proceeded with little difficultly, Landau says. Adds Pai: "They went live on their own with minimal support from Manhattan." The result was improved picking, inventory control and shipping procedures across the board.

"Put-to-Store"
In building a second D.C., The Children's Place drew on lessons learned from the first. Its challenge in opening the Ontario, Calif. facility was to expand the company's geographical presence without driving up costs to excessively high levels, says Landau. At the same time, it needed to make distribution operations even more efficient. So Ontario became the showcase for a "put-to-store" picking system.

Traditional pick-to-light technology, both for customer-direct and store-bound shipments, triggers a light at each piece-pick location. With put-to-store, also known as put-to-light, the technology supports what is essentially a reverse pick operation. Each light represents a location dedicated to a particular store. Drawing from full cases of product with multiple destinations, warehouse personnel can quickly and easily build loads for individual stores. Items that aren't needed for one store can be directed to another, so there's no excess product left in the warehouse.

Scatko says the technology is part of a larger effort to supply the company's stores with more size-specific shipments. For example, rather than send out a three-pack of a single item, the warehouse might pick several "eaches," which better conform to the store's actual need. That places greater demand on pick and pack operations, highlighting the shortcomings of a pure pick-to-light system.

Using put-to-store technology, the Ontario facility can bypass much of the putaway process, which would otherwise require a more extensive pick-to-light setup to retrieve stored merchandise. The strategy is an offshoot of The Children's Place's preference for cross-docking, which speeds up order fulfillment at the same time it cuts down on standing inventories. With cross-docking, says Landau, most incoming product is out the door within 24 to 36 hours. The amount of product that is cross-docked instead of stored at the D.C.s can run from 10 percent to 50 percent, depending on merchandising and packaging decisions, Scatko says.

Successful Strategy
The Ontario system proved so successful that it was partially duplicated in Secaucus. That facility now includes a two-story picking module, evenly divided into pick-to-light and put-to-store operations, Scatko says. Initiated last December, the change was necessitated by growing constraints in shipment processing at Secaucus, as well as a continuing push for new efficiencies at all locations. Put-to-store, says Scatko, "is much more productive."

Manhattan continues to add features to its WMS package. Landau says The Children's Place is now using a vendor-performance module, designed for retailers who participate in chargeback programs, which fines suppliers or carriers for failing to live up to service expectations. The module captures relevant information and creates a vendor scorecard for review by the user.

Historical data generated by Manhattan's performance-management system allows The Children's Place to make comparisons between quarters and years of distribution activity. The software also includes some real-time reporting and alerting capability, for instances where warehouse procedures fall out of tolerance. At such times, it generates e-mails to key supervisors, who can then take immediate action. The result is a system based on management by exception, rather than the constant monitoring of mundane events.

"It has improved efficiency on the operational side," says Scatko. "And it's provided management insight into what's going on, on a daily basis." In addition, the system has allowed the Children's Place to make the best use of its labor pool within the warehouse.

A trend among supply-chain execution vendors is the merging of once-separate WMS and transportation management (TMS) systems. But The Children's Place doesn't rely on Manhattan for a full-blown TMS, Scatko says. Its outbound transportation process is relatively straightforward, utilizing either major parcel carriers or a single less-than-truckload provider at each location. Much of the company's shipping activity on the U.S. East Coast is via LTL, driven by the favorable terms of existing contracts. The western U.S. operation depends more heavily on parcel shipping, as does the e-commerce portion.

The company does use some components of Manhattan's TMS offering, including the execution of shipment processing and routing of parcels going direct to consumers. It draws on data within a parcel engine which prints manifests and labels, and generates electronic-data interchange (EDI) transactions to carriers, Landau says.

Steep Discounts
The Children's Place also uses Manhattan's system for zone-skipping, whereby it ships in bulk to the West Coast hub for subsequent breakout and delivery of individual parcels direct to consumers. In the process, it obtains steep discounts from parcel carriers. But it doesn't rely on such classic TMS features as inbound optimization, in-transit shipment visibility and the global rating and routing of imports.

Scatko says the company achieves shipment visibility through standard pickup and delivery confirmations from FedEx, its preferred parcel handler, and the chosen LTL partner, which he declines to name. That information can be matched up with Manhattan Associates' Warehouse Management System, as well as with store-level delivery confirmations. All the data then goes into the development of performance report cards on carriers and stores alike.

Retailers often get hung up on the failure to react quickly to changing patterns of consumer demand. Aided by the fact that it controls its own stores, The Children's Place captures data at the point of sale and posts the information to its inventory systems on a nightly basis, Scatko says. The planning and allocation team can thus obtain daily figures on current inventory and sales, minimizing mismatches between supply and actual demand.

Efforts by the Children's Place to forge a competitive supply chain are far from complete. Scatko has identified a number of areas for improvement, mostly on the supply side. One project will draw on JAVA-based open systems software to provide expanded capabilities for purchase-order management. The company wants to do a better job of collaboration and communications with suppliers. It also plans to expand the receipt of electronic status messages from carriers and freight forwarders. The idea, says Scatko, is to "fill in the gaps of the information we currently have."

Implementation of the first part of the new effort is slated for the fourth quarter of this year. The long-term aim, Scatko says, is to get fast and accurate information from a universe of overseas suppliers, in addition to key logistics providers.

The chosen sourcing strategy makes such a plan imperative. The Children's Place saves money by contracting with producers in some of the lowest-cost locations imaginable. That means, in addition to more traditional locations in Southeast Asia, countries such as Uganda and Kenya.

Yet the approach raises new challenges in communicating with suppliers, as well as acquiring goods in a timely manner. Scatko says The Children's Place needs "a clear understanding of where product is in production or in transit. These are the areas we are actively in the process of improving."

Don't expect the pace of expansion at The Children's Place to slow anytime soon. The company is exploring the need for additional DCs or the relocation of facilities, although nothing has been finalized. It is eyeing a greater presence in international markets, particularly Puerto Rico. And it might double the number of outlet stores. Says Scatko: "We see significant opportunities to grow."

The Children's Place at a Glance

The company: a specialty retailer of apparel and accessories for children, ages newborn to 10. Number of stores: 691 as of Jan. 31, 2004, including 649 in the U.S. and 42 in Canada. Headquarters: Secaucus, N.J. Top executives: Ezra Dabah, chairman and chief executive officer; Neal Goldberg, president Financial results: For fiscal year 2003 (ending Jan. 31, 2004), net sales of $797.9m, up from $671.4m in the prior year; net income of $23m, up from $8.9m; increase in same-store sales of 4 percent, versus a 16-percent decline in previous year. Employees: approximately 10,200 Supply chain: Three physical distribution centers in Secaucus, N.J.; Ontario, Calif. and Mississauga, Ont., in addition to a direct-to-consumer pipeline generated by sales over its web site. Most product is sourced in Southeast Asia, entering the U.S. through the Port of Long Beach, Calif. Warehouse management system: Manhattan Associates, Inc.