Operations efficiencies pay off - operations

DSN Retailing Today, Oct, 2003 by Doug Desjardins

Toys "R" Us has made plenty of high-profile changes during the past few years, from the Mission Possible remodeling of its U.S. toy stores to the shuffling of its upper management team. But the company has made just as many changes behind the scenes that have had a profound impact on its day-to-day operations.

During the past few years, Toys "R" Us has launched new initiatives--many under the umbrella of its Continuous Improvement Department--that have helped it save millions of dollars and improved the way it staffs its stores and keeps inventory in stock.

"The way we tried to do it was to think smarter," said Chris Kay, evp of operations for Toys "R" Us. "We wanted to find ways for the company to operate more effectively as well as more efficiently."

When he entered his current position in 2002, Kay was put in charge of an expense reduction program that aimed to reduce SG&A expenses by 200 basis points in four years. "In our first year, we were able to reduce our SG&A by 70 basis points," said Kay. "And we were able to reduce our capital expenditure budget by approximately $34 million, which is not reflected in SG&A hut is a sizeable and significant savings nonetheless."

Kay also helped implement a program called eRoster that tracks sales trends and helps store managers have the right employees in stores at the right time. The program tracks point-of-sales purchases and itemizes them by category and time of purchase.

"We can use the sales data that we obtained from our registers and use it to understand where we're getting our sales and when we're getting them so we can put people in the appropriate department at the appropriate time," said Kay.

Another new entity created under Kay's watch is the Centralized Procurement Department, which purchases nuts and bolts products for all the company's divisions. That department has already made more than $1 billion in purchases and helped the company maximize its economies of scale.

"For example, we're talking about the acquisition of fixtures or the acquisition of paper that's used in our inserts in the Sunday papers," said Kay. "We had to centralize these purchases, so we're getting better qualified vendors and we're creating better competition with those vendors."

Keeping product in stock is always important (just ask anyone at Kmart) and Toys "R" Us has been ramping up improvements in its distribution centers.

"We're implementing new labor-planning devices in our distribution centers," said Kay. "At the same time, we're also going to be using cross dockings as well as wave distributions at the same time."

And the results are already showing up in high rates of on-time shipping and products in stock. "Right now, we have an accuracy rate above 95% in terms of our shipping and our delivery," said Kay. "And we have throughout the summer been ranking above 90% of our top products in stock to the level we want them to be."

In the end, Kay says keeping ahead of the curve on technology will help Toys "R" Us save money, improve customer service and compete with category king Wal-Mart. "In every area of the company, we're using technology to help us work smarter and help us work more effectively."

operations

FAST FACT:

SG&A, as a percentage of sales, decreased 7% to 24% in 2002.