For most companies, "customer service" is one of several concerns that make up a supply chain. For New Age Electronics Inc., it's the whole reason for existing.
An intermediary linking manufacturers with retailers, New Age plays the traditional role of distributor. But it also offers a slew of additional services, including logistics, warehousing, remanufacturing, packaging and total channel management.
Based in Carson, California, New Age was founded in 1988 by Lee Perlman and Adam Carroll, who remain chief executive officer and president, respectively, today. The company has since grown into a provider of multiple services, driving sales into the $1bn range. It makes around 9 million shipments a year.
New Age has few pure vendors; both manufacturers and retailers make up its customer base. On the retail side, the company specializes in serving regional entities, such as Nebraska Furniture Mart, Conn's and Brandsmart. For those accounts, it acts as distributor of a large variety of products, including many of the latest digital entertainment devices. For larger retailers, such as Wal-Mart Stores, Best Buy and Circuit City, New Age supplements regular inventories during seasonal peaks. Accounts on the manufacturing side include Hewlett-Packard, Kodak and Sharp.
To a great extent, New Age is a product of the internet age. It provides Web-based fulfillment for a number of retail customers, many of whom were used to running brick-and-mortar operations and found themselves in need of help when required to establish a new sales and distribution channel. For items purchased over Circuit City's web site, for example, New Age handles all order fulfillment processes, shipping direct to the buyer.
New Age has three distribution centers - one at the Carson headquarters and two more regional facilities in Columbus, Ohio, and Miami, Fla. In many instances, the company takes ownership of inventory, varying the outbound flow of product according to the needs of retailer customers.
Such an arrangement requires a highly accurate forecasting tool. New Age is constantly adjusting the location of inventory in line with fluctuating demand, says marketing manager Roxanne Leone. It runs a 12-week forecast that is adjusted weekly. The program is made more complex by the multiple channels and types of customers that the company must support.
The setup can't function without tight collaboration between New Age and partners at both ends of the supply chain. Retailer forecasts link directly into the company's database via the Web. Wherever possible, information is drawn directly from point-of-sale systems. New Age then supplements the input with its own data and judgment, based on its knowledge of vendors' capabilities, according to chief information officer Sam Changizi.
Legacy Loses Luster
As New Age's business grew, the company found it increasingly hard to run operations on legacy software. It was relying on an enterprise resource planning (ERP) system from Microsoft Navision (now known as Microsoft Dynamics NAV), a tool best suited for small to mid-sized companies. The combination of double-digit growth and the complex array of services offered by New Age led to a decision to scrap the old software in the second half of 2004. "We ran out of runway," says Changizi, "especially in our dotcom business."
The company began looking at ERP packages that were aimed at larger entities. Following a review of several major systems, it settled on the products of Oracle Corp. The vendor's offerings promised to give New Age the ability to adjust forecasts and inventory levels, as well as grow without overtaxing the software, Changizi says.
"The old systems were not allowing them to be flexible," says Jonathan Oomrigar, solutions specialist vice president with Oracle. "If they were going to play in the distribution game, they were going to have to change their systems."
Oracle was well aware of the delicate role that New Age played in its customers' supply chains. Success depended on striking a perfect balance, says Oomrigar. "It's about having the right sort of clout and muscle to get enough inventory to supply your customer base, but not so much that [excess] capital is being consumed."
New Age might also have been swayed by an hour-long sit-down with Oracle chairman Larry Ellison. He assured the company that the vendor's recent spate of acquisitions of rival software providers was a carefully thought-out strategy, not a haphazard attempt to eliminate the competition. In fact, Oracle's wide range of supply chain software, much of it picked up in the acquisition of companies such as PeopleSoft, Siebel and Demantra, ended up being a strong selling point in New Age's eyes.
Still, neither Oracle nor any other "enterprise" vendor had all of the capabilities that New Age needed to run its increasingly complex business. In particular, the company needed a pricing system that could function in a "fast-paced, high-volume, no-touch environment for dotcom [customers]," Changizi says. Certain tweaks and additions would be necessary.
In addition to Oracle's ERP backbone, New Age acquired the vendor's E-Business Suite Special Edition, which included a tool for advanced supply chain planning. The software combined long-range planning capabilities with short-term, constraint-based optimization. New Age also purchased Oracle Trade Management, to manage sales and marketing programs across the business. The module would allow the company to capture demand data, then easily make that information available to suppliers.
Tweaking the System
For New Age, Oracle added a system that would oversee the transfer of marketing money from manufacturers to retailers, Changizi says. It built in an automatic pass-through mechanism, along with a shared "checkbook" that could be accessed by the parties at all times. The feature has since become part of Oracle's standard trade-management offering.
New Age also took on Oracle's warehouse-management system, again asking for new business processes that were specific to the needs of a distributor. Much of the supply chain applications on the market today, especially ERP systems, were designed for manufacturers, Changizi says.
Implementation of the software, including the ERP backbone, took about seven months. The full system was up and running by January 2006. During the process, both Perlman and Carroll sat in on all steering committee meetings. "They were there at every decision," Oomrigar says.
New Age worked closely with Oracle's development organization to head off any problems during implementation. The two sides would devote entire days to solving any issues that emerged, and coming up with "productive workarounds," says Oomrigar. The goal was to get it right the first time. "When your margins are razor-thin," he adds, "you can't afford to have a large IT staff always fixing and adjusting things."
Considering the scope of the project, the switchover went smoothly, Changizi says. "We never missed one day of shipments-not a day of the system being down."
It's too early to assess the full benefits of the new software, he says, and New Age is continuously improving the system's efficiency. Still, some results have become quickly evident. At the time of going live, New Age's inventory turns were in the range of 28 to 30 days. Now, for major products such as desktop and laptop computers, the figure is 10 to 12 days. Smaller items, such as calculators, turn over every 18 to 24 days. "Our goal is to bring it down to single digits," says Changizi.
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