Understanding Exchange Strategic Priorities: Fiscal Focus and Maximizing Return on Invested Capital

A continued fiscal focus and maximization of invested capital have been strategic priorities for the Exchange for the past few years and will continue to be so into 2017.

What do these strategies mean to typical Exchange associates working as cashiers in the stores, as warehouse foreman or as buyers at headquarters? Simply put, these associates, and all associates, accomplish these strategies in their everyday work without even thinking about it.

When associates increase efficiencies in their daily work, when they minimize waste or raise the bar on the customer experience, they are fulfilling the strategic goals of continuing fiscal focus and maximizing invested capital.

“Every dollar an associate saves and every dollar an associate earns for the Exchange is a dollar that goes back to the military community for Quality-of-Life programs or as investments in our facilities,” said Jim Jordan, the Exchange’s chief financial officer. “Every day fiscal focus and an enthusiastic dedication to company returns not only provide an unparalleled customer experience, but also will be reflected in increased earnings and, ultimately, more investment into the military community.

What seems miniscule or trivial, such as making sure you are not using too many rubber bands or paying attention to the amount of tape you use while taping up boxes, all of those things add-up to make the Exchange stronger and provide more dividends.

In 2017, managers will continue keeping a close eye on expenses, effectively applying resources to personnel costs, TDY trips, and PCS moves. Additionally, management will work projects that provide the greatest benefit to the Exchange, like expanding the MILITARY STAR program across an installation and emphasizing new technologies to enhance the shopping experience through the updated POS system and increased customer relationship management.

Field and headquarter associates can further help the Exchange meet fiscal priorities by submitting their cost-cutting proposals to the Idea program, which can make the Exchange’s major initiatives better and offer expense reduction or sales initiatives, which, though locally small, could have a major impact across the entire organization.

“In this retail environment, all retailers are taking close looks at their expenses and unique sales initiative as retailing across the board is struggling,” said Ken Jacquin, vice president of financial analysis and budget. “To accentuate what we at the Exchange have to go through, we have troop drawdowns, which mean fewer customers, while also being hit by the same struggles as every other retailer.”

“We must spend wisely and market smartly. We can’t waste any kind of resources because our mission is to create earnings that will go back into the military communities to benefit the troops and their families.”

One place where the Exchange is aiming to cut costs is in the supply chain, and that’s where inventory productivity comes into the picture.

To continue to make the entire supply chain more efficient and ensure the left hand knows what the right hand is doing, a new Logistics Directorate team dedicated to doing just that was created this past May. This is the first time within anybody’s recent memory that a team has the singular focus of supply chain optimization.

The genesis of the team started late last year when President and Chief Merchandising Officer Ana Middleton and Chief Logistics Officer

Karen Stack began talking about how the two directorates could better collaborate to drive down costs and improve the customer experience.

“We both own pieces of the supply chain, but we don’t have total transparency of either’s,” Middleton said. “We talked about the need to meld our teams together and find a conduit who understands both sides of the supply chain to drive efficiencies—and that conduit is Sean Shaw.

“The reason we did this is we saw a need. While both of us had the best intentions trying to move the needle and do the right things, we sometimes inadvertently impacted the other’s operation, resulting in higher costs and longer lead times.”For instance, at the launch of RETEK the while the Merchandising Directorate was focused on ‘just in time’ fulfilment and inventory productivity, but transportation costs of getting products to the stores in small, frequent orders…or ‘just in time’ skyrocketed.”

The new supply chain optimization team will provide the Logistics, eCommerce and Merchandising directorates with a holistic understanding of the supply chain.  Providing transparency to any “choke points” in that supply chain could save the Exchange millions of dollars, create happier customers and drive down unproductive inventory carrying costs.

“This team will study existing approaches, processes, procedures, policies and systems throughout our entire supply chain, from the buyer’s actions all the way to the shelf in one of our stores and to the customer’s door through ShopMyExchange.com to identify and develop innovative ways to make our supply chain as fully effective as possible,” said Sean Shaw, vice president of the supply chain optimization team.

The key phrase is “inventory productivity.” Simply put, “inventory productivity” is how the amount of money the Exchange invests in buying a product from a vendor compares to how quickly it flies off the shelf and boost sales and earnings. If a product doesn’t sell quickly, then the Exchange may have to resort to deep discounting, which eats into the organization’s financial earnings.

At any link, a supply chain disruption of the merchandise flow dise means the Exchange’s inventory productivity is anemic—and something has to change.

That’s where Shaw’s team comes in. These logistics “detectives” will search for clues as to why the supply chain is rusty somewhere and develop plans to correct problems. They also want to use the same data-driven, step-by-step techniques and tools for improvements that Jack Welch made central to his business strategy while CEO at General Electric in the mid-1990s.

“I don’t have skin in any game and I can objectively look at something and say whether that has the best benefit for the entire organization and drive down costs,” Shaw said.

Team members bring vast experience in merchandising and logistics:

• Shaw was most recently VP of Convenience Channel Merchandising. He brings experience in information technology; planning, allocation and replenishment (PAR); and merchandising.
• Jeremy Boyd, a certified supply-chain professional, who most recently served as PAR manager for retail food and many years of IT experience.
• Mike Bevel, who brings 30-plus years of experience in retail, including buying and PAR roles for major private chains and the Exchange.
• Maheshi Ruffin, who brings experience in merchandising and logistics.

Ship-from-store is a huge win for the organization because we’re not just satisfying demand and need, but more than likely selling more products at their full prices and not on markdowns.

— David Lemmons, vice president of Ecommerce Merchandising & Operation

These inventory optimization efforts are not solely focused on brick-and-mortar  stores. Middleton said the relatively new Ship-from-Store program allows the Exchange to virtually open the facility doors of 32 main stores, making their inventories available to online customers. This practice gets product to customers faster and cheaper in many instances because of the stores geographic proximity to them. Currently, the Exchange’s ecommerce fulfillment team at the distribution centers and ship-from-store facilities are getting orders to customers in 2.8 days—beating the industry average of 3.4 days.

This is truly a testament to the team’s commitment to our vision of pick, pack and ship same day, said David Lemons, vice president of Ecommerce Merchandising & Operation.

“Ship-from-Store is a huge win for the organization because we’re not just satisfying demand and need, but more than likely selling more products at their full prices and not on markdowns,” Lemons said. “Our plan is to have 58 Ship from Stores operational by the end of October in preparation for the Veterans online shopping benefit launch on Veterans Day 2017.”