The Vitamin Shoppe’s Omni-Channel Transformation

vs_logoLast week I attended the CSCMP Annual Global Conference in San Antonio, TX. The omni-channel track featured in the Customer Cornerstone had a number of interesting sessions (including mine). One that stuck out to me was “Creating a Healthy Omni-Channel Supply Chain: The Vitamin Shoppe’s Transition from Multi-Channel to Omni-Channel Retailer” presented by Rich Tannenbaum, Senior Vice President at The Vitamin Shoppe. Headquartered in North Bergen, NJ, The Vitamin Shoppe operates over 650 stores in 42 states, with revenues exceeding $1 billion. The company has seen twenty consecutive years of comp sales as they have grown from a catalog based retailer to an omni-channel retailer.

According to the presentation, The Vitamin Shoppe looked at three areas when moving from a multi-channel environment to omni-channel: inventory, distribution, and business processes and systems. Each of these areas contribute to the overall customer experience and need to be integrated to allow for anytime, anywhere retailing. The company looked at ways to improve each of these three in their omni-channel journey, using a combination of technology and new business processes.

vs-products-300x200The goal of The Vitamin Shoppe was to provide unprecedented inventory availability. The thought was that as channels merge, so should inventory. Our recent research has shown that less than 60% of retailers are sharing inventory across channels; this is a major roadblock to omni-channel. To achieve better inventory availability, The Vitamin Shoppe identified three strategies. First, the company evolved its inventory management processes. It overhauled demand planning, forecasting, and replenishment. This resulted in a focus on margins and maximizing inventory profitability. Second, the company outsourced planning and fulfillment to a software provider. This gave them better visibility into item, channel, and fulfillment levels. And third, the company no longer had buyers and planners. Instead, they brought in inventory managers. The inventory managers had a better grasp on how to make their inventory levels leaner, which led to improved inventory accuracy. With the roll-out of these new processes, The Vitamin Shoppe saw dramatic improvements in in-stocks, online back orders, and store inventory accuracy.

The second piece of the omni-channel puzzle was distribution. A key component to distribution is timely fulfillment of customer and store replenishment orders. This requires a network of DC’s. Four years ago, The Vitamin Shoppe had one DC in New Jersey to support their stores, e-commerce, and catalog business. This was clearly not sustainable for continued growth. The company’s order cycle time was slow, deliveries to stores were infrequent, and inventory accuracy in the DC was sub-optimal. The company made operational and tactical decisions to make improvements. First, they moved to smaller batch sizes, reducing the amount of on-hand inventory. They also changed their slotting philosophy to match customer demand. The big move was to open new DC’s for continued expansion. The Vitamin Shoppe opened DC’s in California and Richmond, VA. As they opened these new DC’s, they were designed to fulfill both in-store replenishments as well as e-commerce orders. This was an important component for the merging of their channels. As a result, average order cycles times were reduced from 8 days to mostly same day, deliveries to stores became much more frequent, transit times were reduced, and inventory accuracy at DC’s reached 98.5%.

The final component was to align business processes and systems. The key was to build business processes and systems that create a more seamless experience regardless of channel and to empower the customer to shop where, when, and how they want. With in-store inventory accuracy low, store managers would generally create special orders to make sure they had certain products in the store, even if the amount on hand was not needed. Combine that with the fact that the company was using an outdated, legacy order management system, and there was little control and oversight into inventory accuracy. The company installed a new order management system, which integrated with their point-of-sale system. ARC’s research has shown that order management is at the heart of omni-channel. The Vitamin Shoppe now had more transparency into inventory levels and had a better handle of what they had in-stock and what they needed.

The Vitamin Shoppe is a great example of a company that is in the midst of the omni-channel overhaul that is needed. Fortunately, they have developed a long term roadmap to navigate the transition. By breaking down the journey into phases, The Vitamin Shoppe was able to empower their customers to shop how and when they want while improving in-stock rates, order cycle times, transit times to customers, inventory visibility, and most importantly, , inventory accuracy in both the store and DC.