Case Study

 

How Tumi Cut Inventory and Increased Sales

by Dave Hannon | insiderPROFILES

January 1, 2011

A decade ago, Tumi, Inc.’s customer fill rates were below 80%, and the company had an excess of inventory — among other problems. But when the travel products maker decided to retire its legacy systems and standardize on SAP Business Suite, it experienced business expansion and better customer service. This profile details Tumi’s implementation success story and its transition to a more retail-focused company.
 

The agenda of any executive meeting usually addresses the same topic, whether directly or indirectly: how to expand the company’s customer base and keep existing customers satisfied and coming back. At luggage and travel products maker Tumi, Inc., when management meetings concentrated on the company’s bulging inventories and poor customer fill rates, everyone looked to the IT organization for answers. And when the discussion turned to accelerating the company’s European expansion, again the group looked to IT for a solution.

At that time, in 2001, IT didn’t have an easy answer. Tumi’s patchwork of homegrown, US-centric legacy systems provided little capability for improved inventory management, customer satisfaction, and global expansion. Disparate systems for important processes such as order-taking, warehousing, and financials weren’t connected and relied on periodic batch updates to provide a somewhat consolidated but infrequent view of operations.

In short, the company’s growth was being stifled at a critical time, and the IT organization did not have the appropriate technology in place to handle the business’s demands for a new direction.

“We knew our customer fill rates were below 80%, and we had a ton of capital sitting in inventory,” says Jim Walsh, Vice President of IT. “We heard this once a month at our management meetings, and we would tell the group we were working on solutions — but, in reality, those were just Band-Aids.”

Today, almost a decade later, those management meetings at Tumi operate very differently, and senior business leaders’ view of IT has shifted dramatically. According to Walsh, “The IT organization is much more of a business driver today than it was in the past.” Now, business process owners seek out the IT organization’s advice and support in designing and executing their business strategies.

“When we have steering committee meetings and discuss the three-year plan, no one asks if there will be an IT issue,” says Walsh, adding that there really aren’t “IT problems” anymore but rather “business problems,” which are collaboratively solved with IT being one of the organizations contributing to the solution.

Tumi

What’s behind this shift isn’t simply an increase in the size of the IT organization. (Walsh’s core team remains steady at 12 people.) The difference has been Tumi’s decision to retire its legacy systems and standardize on a single integrated enterprise system, which started with a “big-bang” implementation of SAP Business Suite solutions to produce a large amount of change in a short amount of time.

Matching Technology to
Business Needs

The first step in Tumi’s IT-driven business transformation was perhaps the most important — selecting the right enterprise system. After managing with its legacy systems for so long, one of Tumi’s top priorities in evaluating an enterprise system was scalability. The company wanted to be sure that no matter where its business initiatives took it, growth would not be constrained by IT systems. It also wanted the flexibility to deploy solutions that would directly affect its most pressing — and often changing — business challenges.

To address these needs, Tumi deployed SAP Business Suite, specifically for the following functionality:

  • SAP Customer Relationship Management (SAP CRM) to improve relationships with both wholesale and retail customers
  • SAP Sales for Retail and Wholesale Distribution to alleviate poor customer fill rates
  • SAP Extended Warehouse Management (SAP EWM) to streamline inventory turns
  • SAP NetWeaver Business Warehouse (SAP NetWeaver BW) to centralize data and improve reporting
  • SAP Forecasting and Replenishment for Retail and Wholesale Distribution to determine customer trends earlier and react better to consumer market demands
  • SAP ERP Financials to accurately track financial data and streamline quarterly closing processes

But technology alone would not solve all of Tumi’s challenges. Through its close partnership with SAP implementation specialist Answerthink, Tumi identified SAP installation best practices and then redesigned some of its business processes to better leverage the new systems.

“We agreed ahead of time that we would make nothing custom to Tumi,” says Walsh. “We wanted to implement proven solutions that other companies have used already very successfully.”

How Technology Drives Business Expansion

With a foundation of new, scalable solutions in place, business expansion at Tumi is happening more rapidly than previously expected. Since its SAP implementation go-live, Tumi has opened two new US distribution centers, increased distribution to overseas markets, and become a much more retail-focused company.

“We were predominantly a wholesaler when we implemented our SAP solutions, but we’re now becoming a retailer as well,” Walsh says. “It was the natural migration of our business, but it would have been impossible with our legacy systems. Now we’re distributing to our own stores and have offices and sales teams in many more countries.”

The new IT strategy and SAP implementation not only drove the operational aspects of the retail expansion — the improved inventory management processes actually helped free up working capital to allow Tumi to pursue its retail channel. Walsh says, “We brought our inventory levels down by 30% while increasing sales by 25%.”

As Walsh explains it, in the past, Tumi forecasted using spreadsheets. And because the manual process took so long, it was done infrequently, providing longer-term forecasts at best, which required higher inventory levels. However, the visibility provided by the SAP Business Suite solutions allows Tumi now to develop more accurate and timely forecasts and then base its manufacturing and supply chain decisions on real demand instead of longer-term forecasts.

“When actual demand starts coming in, we can see how close we are to the forecast and plan our inventory based on that,” Walsh says. “We are talking with our manufacturing suppliers about inventory, telling them to push out certain purchase orders and bring others in, which we weren’t doing before because we had nothing to base our recommendations on. This is where we get our efficiencies — in exchanging information, in being able to alert everyone in our supply chain of potential delays, issues, and shortages, and in being able to react quickly.” 

The “actual demand” data comes from Tumi’s retailers being connected to its SAP CRM application, which provides instant data on product pricing and availability throughout its various sales channels. And on a broader scale, Tumi is using SAP CRM to analyze consumer buying trends to better respond to consumers’ changing needs and put products where they are needed most.

The result is a dramatic 30% reduction in the inventory it carries and a corresponding 38% reduction in warehouse space, which equates to a significant increase in the working capital available for new projects, such as launching a retail sales channel.

Providing Customers with Better Service

Today, Tumi operates roughly 90 retail stores worldwide, with many additional partner-run locations in operation. Going forward, Tumi plans to continue its transition from wholesaler to direct-to-consumer retailer, both online and in its stores. But retail requires a more hands-on customer service model than wholesale, which is another area where Tumi’s SAP CRM application is driving the business forward.

“When a retail customer calls to find out where an order is, we used to have to put the customer on hold while we called the warehouse. Our customers expect more than that,” Walsh says. “Now with SAP CRM, we can provide better service to those consumers. If they sent a bag in for repair, we can tell them exactly where it is, no matter who picked up the phone. It’s all in the same system now.”

These various customer-facing enhancements, such as improved inventory levels, fill rates, and customer service — made possible by Tumi’s new SAP solutions — are setting the stage for happier, more satisfied consumers, which leads to repeat business and more sales opportunities.

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