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One Vendor's Quest to Garner a Global Sourcing Ecosystem

Written By: Predrag Jakovljevic
Published On: October 12 2007

Many articles by TEC and other sources have depicted in great detail not only the opportunities of global sourcing for retailers and their manufacturer suppliers, but the potential perils as well. There has indeed been much talk about globalization and its effects these days on business, and there is no doubt that competing corporations are increasingly butting heads in the global playing field. Yet competing in supply networks that cross borders inevitably adds many more problems for companies to contend with compared to doing business in a single local market, where competitors have to abide by the same rules and regulations; invoice and pay in the same currency; communicate in the same language; and pay about the same rates for labor wages, supplies, and materials. To learn more, please see The Gain and Pain of Global Retail Sourcing, Dealing with Global Trade Management Complexity, and Supplier Relationship Management: Benefits and Challenges.

On the one hand, there has been an increasing awareness of the strategic importance of suppliers; retailers and manufacturers are trying to nurture long-term collaborative partnerships with their trading partners and to leverage their suppliers' strengths and savvy. They do this with the intention of forging win-win relationships (as opposed to traditional price-based and transaction-based encounters that benefit only one side—usually a large channel master).

On the other hand, while outmaneuvering the competition requires companies to be well prepared to source or produce and sell virtually anywhere in the world in addition to having an understanding of the global supplier market trends, buyers require intuitive tools to solicit quotes from trusted suppliers, analyze and compare responses, and ultimately manage critical path items, such as prototype testing and sampling. In other words, rapidly responding to customers' demands requires the ability to seek out the most appropriate global suppliers and manufacturing sites, and then get these facilities up and running on the retailer network of systems as soon as possible.

Enter Eqos

Exploiting global sourcing opportunities while minimizing the risks and challenges has been the “bread and butter” (the core source of revenue, as well as core competency) of Eqos (http://www.eqos.com), a UK-headquartered provider of on demand, Internet-based global sourcing and supplier management solutions for the retail supply chain. The company's roots go back to 1997, when it was officially formed as a hosted business-to-business (B2B) collaboration platform.

The vendor's first major customer was the large UK supermarket chain Sainsbury's. Eqos's founders Mike Quinn (currently chief executive officer [CEO]) and Chris Foulkes (currently chief product officer) put the platform to good use, as they worked with the marquee customer to ensure product availability and promotions while reducing supply chain inventory. The solution, then called Eqos Collaborator, was layered atop the customer's existing core enterprise systems to carry out predictive alerting, manage on-the-shelf availability and promotions (and communicate the information back to the trading partners), monitor the performance of suppliers, and analyze inventory turns.

In 1998, Sainsbury's custom-made price performance management application was deployed to over 750 suppliers, 800 stores, 55,000 stock-keeping units (SKUs), 3,000 users, and 100 depots. The results of this deployment included a decrease of outbound stocks from five weeks' worth to only one week's worth, an increase in sales of promoted items by 10 percent, a reduction in millions of pounds in operating costs, and a decrease of out-of-stocks by 20 percent.

The Eqos concept at the time involved using Web portal–based collaboration and integration (leveraging proprietary architecture) made possible with Eqos's proprietary toolsets, such as Eqos Collaboration Server, Eqos Application Builder, and Eqos Integrator. The difference between what Eqos offered at the time and equivalent, contemporary systems was that Eqos's system used Web-based remote access for a dispersed community (somewhat along the lines of the peer-to-peer [P2P] architecture), while other systems used the more traditional client-server model (with some Web interfaces being bolted on later).

P2P is a type of network in which each workstation has equivalent capabilities and responsibilities. This differs from client-server architectures, in which some computers are dedicated to serving the others (that is, in a master-slave model). While P2P networks are generally simpler and more adaptable, they usually do not offer the same performance under heavy loads, which somewhat resembles the traits of the contemporary service-oriented architecture (SOA) frameworks (see Architecture Evolution: From Mainframes to Service-oriented Architecture).

In the early 2000s, Eqos also worked with the Focus Wickes DIY (do-it-yourself) home improvement centers to develop a product performance management solution, which helped the retailer keep better control over its supplying factories. The solution was deployed to 350 suppliers in 21 weeks, resulting in increased sales by 0.5 percent annually, reduced costs by 0.5 percent in the first year, and reduced inventory by a monetary amount of 6 million pounds. The early 2000s were tough years (and not only for Eqos) owing to the combination of an economic downturn, the dot-com bust, and the emergence of Microsoft BizTalk as a commercially available, off-the-shelf integration and collaboration platform.

In 2002, Eqos delivered a B2B portal built on the Eqos Collaboration Server to Debenhams department stores. In hindsight, this B2B portal could be regarded as the beta release of Eqos's future global sourcing solution. Debenhams deployed the solution to 900 suppliers and multiple categories, resulting in reduced transit times by one week, a lower number of markdowns, decreased lead times, improved operational efficiencies, and reduced carrier costs.

Although Eqos was primarily offering services to build collaboration systems for its clients using its toolsets, its overall strategy at the time was to work with independent software vendors (ISVs), technology consultants, and systems integrators (SIs) to use the systems as a core technology for collaboration systems development; Accenture has been a stellar partnership example. Eqos has integrated BizTalk into its platform, helping to evolve its technology base from an enterprise application integration (EAI) tool with message brokering services into one that offers strong business process management (BPM) services.

However, in the spirit of the adage “when one door closes, another opens,” Eqos has lately regrouped around leveraging the sourcing best practices (know-how) it has learned with the high-profile clients above into a global sourcing and supplier management application solution set. Eqos's knowledge, expertise, and proven technology with its early customers has been incorporated into the new suite of solutions designed to automate the sourcing process, decrease time to market, and enable greater sourcing capacity, while keeping the administrative burden to a minimum.

More retailers are working with offshore suppliers to help expand their own label and private label ranges to gain competitive advantage and better margins. In 2004, Eqos launched a standard solution to help reduce the risks of outsourcing and to streamline the processes of buying globally. The first release of the Eqos Sourcing solution suite comprised several modules, which encompassed the initial selection of the supplier, order placing, new product development and introduction (NPD&I), total cost management, and quality and risk management. A key element of the application suite is the collation of all relevant data on potential suppliers and their bids, and the ease of comparison at the supplier selection stage. The applications provide visibility of products as they progress through the supply chain—from concept to delivery—generating alerts and reports when things do not go according to plan so problems can be avoided before they arise.

By early 2005, Eqos delivered the multichannel and multi-country global sourcing solution to the electronics and appliance retail giant Best Buy, which at the same time marked its penetration of the coveted US market. The solution complemented the retailer's coinciding shift to a “pull model” very well. This pull model allows each of the retailer's more than 900 individual stores to stock the merchandise (product assortments) that the store's customers are most likely to buy. To achieve such tailored offerings, the retailer uses sophisticated modeling capability to discern who the actual store's customers are, what their tendency to spend on is, and how much of the annual spend the retailer is likely to capture.

Best Buy has since claimed a 20-fold increase in its private label business, with improved margins, reduced costs, and improved vendor negotiations as accompanying results given that it is now able to configure non-commodity products based on user-oriented specifications and features much better (as well as to convey these quickly to its Asian sourcing office).

The Eqos solution continued to be enhanced and refined through the 2005 project with the UK retail giant Tesco at 13 sourcing offices in nine countries. Since then, the retailer has reported a 25 percent reduction in time to market, increased sourcing efficiencies owing to best practices deployed across the entire organization, and better visibility for supplier teams.

Virgin's Need for a Non-vanilla Music Procurement Solution

2005 also marked the major engagement of Virgin Megastores, where Eqos developed a special contract management solution named OTIS (standing for Online Trading Information System) for 200,000 active product lines, and on average, 400 specific one-off (nonstandard) deals per month. Virgin operates over 120 megastores (it also has a lesser number of Virgin XS factory outlets) in the UK and Ireland, with additional outlets in the US, France, Australia, Greece, and several other countries.

Each day, more than a million people visit Virgin stores around the world, and their tastes can vary uncontrollably. Virgin thus has nearly 200,000 active entertainment and media product lines, which come from about 120 different suppliers. The supplier list is ever changing, while many obscure and specialty suppliers have limited IT means and savvy. Furthermore, Virgin executes many product- and time-specific deals that may involve discounts, promotions, or package deals, which adds more complexity to the equation of managing a slew of suppliers and keeping everyone on the same page.

Indeed, Virgin's challenge was not really about global sourcing per se, as is the case with most other mainstream retailers, but rather the company needed a way to automate its management of supplier deals, and ideally in real time. Therefore, Virgin had to build formalized deal and terms management applications that could be used by its buying teams and all its suppliers regardless of their size and IT means.

Such deals can be extremely time-sensitive, and they can vary quite a bit from store to store. Namely, if a certain popular band is in town, a particular local store may want to devote more shelf space to its compact discs (CDs) and marketing collateral. Without a well-structured system in place, this would be done randomly, especially in terms of specific promotions and discounts to follow the band as it tours the globe. Another scenario involves the manual handling of demand spikes. For example, if a performer suddenly or unexpectedly wins multiple renowned music awards, much more shelf space must immediately be allocated to that act for as long as the demand is strong.

To mitigate these issues, the special Web-based system OTIS handles both standard and one-off deals while integrating buying and selling decisions into supply chain management (SCM). With OTIS in place, buyers agree to terms with suppliers for a specific deal, and when deals are completed (agreed to) over the phone, the buyers then enter terms into OTIS and send them to the supplier. After receiving an e-mail alert from the buyer, the supplier can log into OTIS and authorize the deal or submit any necessary changes. The deal (including all the changes that are made along the way) is then tracked so that both sides can measure the results of end sales, promotions, and other key variables.

Details of the deal (signed off by both parties) are then fed into Virgin's proprietary retail merchandise management system (cleverly named ELVIS, standing for EPoS Linked Virgin Information System) and its data warehouse and business intelligence (BI) systems. Received goods are later matched with the invoice, and the terms of the agreement are confirmed. With granular deal measurement in place, Virgin can make such changes as increase discounts if certain volumes are met, or change a promotion term if a title underperforms. The undertaking aimed at enabling suppliers' proofs of claims has reportedly saved Virgin 1 million pounds in the first year, with an average savings of 1,500 pounds per contract, due to improved contract terms management.

This is part one of the series One Vendor's Quest to Garner a Global Sourcing Ecosystem. In part two, Eqos's expansion in the retail sector on a more global scale will be explored in greater depth.

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