TruServ debugs its inventory control

Home Channel News, July 3, 2000 by Elizabeth Consavage

But members await task force report on co-op's financial snafus

CHICAGO -- The five-person task force assigned to review the breakdown that lead to TruServ's $131.1 million loss last year is at the halfway point of its investigation.

The task force -- which is being overseen by TruServ chief administrative officer Ron Ostrov and consists of five co-op members -- is expected to complete its work at the end of July, 100 days after receiving its charge.

"They've organized themselves and they're doing a lot of work," TruServ president and CEO Don Hoye said. "They're making progress."

Also progressing are improvements in the co-op's shipping capabilities. TruServ recently achieved its third consecutive month in which its fill rate on warehouse orders had exceeded projections. Year-to-date, TruServ's overall fill rate is 96 percent, compared to 93.2 percent for the same period a year ago. The company is working with inventory management software supplier E3 on a 12-month-long project to raise service levels while dramatically reducing its warehouse inventories. Among the problems that led to the co-op's recent financial setbacks was its inability to reconcile what it had ordered from suppliers and what it had paid them for those orders.

Hoye declined to identify the names of the members on the task force, for fear of compromising their confidentiality. He did say that none is currently on the co-op's board of directors. They were chosen by the current board members whom Hoye said were looking for "people of independent thought" and from various geographic regions. (The dealers on the task force are from Texas, Idaho, Michigan, Indiana and Virginia.)

"They were also looking for people had a varied background, and didn't necessarily start out in the hardware business," said Hoye. As it turned out, a few of the task force members have financial backgrounds.

The group will present its findings to the finance and audit committee of the cooperative's board of directors. The task force has also retained outside assistance from legal and accounting experts.

"This report will have a lot of credibility. These people are five independent members, each from a different geographic area of the country," Hoye said. "They are certainly not 'yes' people. I'm confident the product of their report will be well received."

TruServ's first-quarter sales were down slightly this year because of an unseasonably warm winter. But expenses were also down, so this quarter's $8.9 million loss was an improvement over its $24.4 million loss in the first quarter of 1999.

Estimated wholesale sales in the second quarter were $1.2 billion.

The co-op's Web site sales are expected to increase this summer. TruServ has not done a lot of promotion for the site, which it launched earlier this year, but expects to have about 20,000 skus on the site by the first week in August, Hoye said.

The success of online sales is often contingent upon the quality and efficiency of the product's delivery, an area that suffered during TruServ's formative stages of the merger between Cotter & Co. and ServiStar Coast to Coast.

To rectify its service level difficulties, TruServ is working with Atlanta-based E3 Corporation on a year-long program to cut its inventory levels while improving its fill rate to dealer-members. The application of EC's software has the co-op's fill rate -- the ratio of orders placed with warehouse shipments -- running three percentage points higher than a year ago.

"It's exceeding our expectations," said Bill Godwin, TruServ' s vp-supply chain. "It has a distinct impact on our retailers."

TruServ exceeded its corporate goal of a 94 percent service level by nearly two percentage points.

This year, while service levels were up, TruServ also slashed 20 percent of its inventory. The coop's inventory is $100 million less (and on order is $40 million less) than a year ago. TruServ is looking to take out another $50 million by the end of the year without a negative impact on its fill rate.

This year's fill rate on promotion items -- 96 percent -- is up from 91.1. percent at this time last year.

"E3's experience in the hardware distribution industry told us that TruServ's goals were achievable," E3's industry manager Al Radford said. "However, based on the size and scope of this particular project, the results TruServ is realizing in such a short time have even amazed us."

The partnership realized its goal in under a year. So on Flag Day, the partners commemorated their success by raising a flag that had once flown over the U.S. Capitol building.

"We felt we had earned the right to publicly declare our victory after three straight months of delivering service levels that exceeded our projections while reducing inventory levels below our plan," Godwin said. 'Thanks to our collaborative efforts, TruServ will be able to move to the next phase of this process ahead of schedule and continue to streamline and remove costs from its supply chain."

The next phase of the project -- which was implemented last November -- will include the advanced certification of Truserv's buying staff as well as the introduction of collaborative inventory management with TruServ's vendor-partners. Once vendors are trained in the use of the E3 inventory management and replenishment process, they will be able to work jointly with the TruServ team to help forecast the co-op's needs.