“The advice I would give to executives who are looking to help their company evolve, and to reach their goals, is to really vet out what partner you want to help you do that, and what types of solutions are really required. And if you can find a solution that is holistic to many of your needs – it really can help the company operate far more efficiently than putting in several different pieces.”

LISTEN TO PART 2:

speaking with Irene Messier, former SVP of Planning and Allocation at Guitar Center, now Head of the Product Execution Team at Quantum Retail • April 2011

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Audio Transcript

Thanks to our audience for joining us again this week. I am Dan Brown from Mulberry Marketing, San Francisco, and I am joined with Irene Messier, former SVP of Planning and Allocation at Guitar Center, now Heading up the Product Execution Team at Quantum Retail.

Thanks for having me Dan. I’m glad to be here.

So let’s dive right in to what everyone wants to know. How did Quantum win you over? I understand the words “stroke of genius” mean something you…

Um yes – the phrase has somewhat grown to be very near and dear to my heart. First off – I had known some of the founders of Quantum before they formed Quantum and so when they approached me, I had already started understanding how truly talented some of the individuals were behind the creation of this tool. I was at Guitar Center and I was looking for a very different tool. I have been associated with several different traditional replenishment applications. And what was unique at Guitar Center, was the fact that it was $1,000, and $2,000, guitars, and our vendors were using our forecasts to actually plan their production lines and at Guitar Center, they were certainly significantly the largest player in their industry and the vendors were very reliant on good forecasting. When I got there, there was significantly room for improvement.

So I needed something that would give me “the next good order,” if you will. As most traditional replenishment systems do, they look down at the SKU Loc, they figure out what demand might be, and they look over a certain time horizon and cut it or suggest a purchase order. What I needed in a addition to that, was a vehicle that had some real strength behind order forecasting and demand forecasting across long time horizons. And that was one of the things that was very special about Quantum. I couldn’t find it anywhere I looked. So that was probably the biggest reason I engaged in conversations with Quantum early on.

Actually, one of the partners, Mike Hrabe, bought a guitar from Guitar Center, and once I became aware of the fact that, A. He was trying to speak with me, and B. He had purchased a guitar from Guitar Center, now I was dealing with a customer relation issue! It’s a funny story, it’s a joke between us. But yes, he did bribe me, in some respects, to speak with him, and I shouldn’t say that – he purchased a wonderful guitar, and I think his son loved it.

So they actually found me and when I was speaking with them, and the more conversations we had, what was really truly the stroke of genius, was that, I had, as we peeled the onion back, what I was really beginning to understand was that I didn’t have to go buy a replenishment system and a assortment planning system and a long-range forecasting system – what Quantum was able to offer and what Quantum was able to deliver was going to take probably at least two if not three capital requests and roll it all into one. So that’s where the term “stroke of genius” came from. And actually, the correct acronym is F.S.G, meaning “fantastic stroke of genius.”

The F stood for “fantastic,” ha!

(Laughs) Um, the F was really used for something else, but if anyone asks it’s “fantastic stroke of genius.” Which was really, very, very, special, and it was one of the main reasons and selling points back at G.C. to management, to say, hey we’ve got a chance to knock it out of the park. And it was a staged approach – that’s how we implemented it – but it was always with the forethought of having a very comprehensive solution.

You touched on this briefly – but what were they using before? Do you have any retail horror stories prior to using Q?

Um, I can say this because I was responsible for the team, but, we had a few hiccups there. Before I joined Guitar Center, they went from all the vendors sending product direct to stores, to putting in a distribution center, and when they did that they put in an allocation system which was very good. And they had already arranged their merchandising team with the roles of a planner and a forecaster to complement the buying staff – so a lot of the change, if you will, had already started. Going from a singular buyer doing it all, to a more holistic merchandising team, with skillsets that balance each other out, but what was evident when I got there, is that when we were looking at procuring product, and it was in a monthly cycle, so the vendors got a bunch of orders once a month, well what was driving that, and the methodology behind that was based in Excel and Access, and I was, you know, wow I wasn’t in Kansas anymore that’s for sure.

You know, you’ve got a multi-billion dollar company there, someone pulling things out of Access and working it in Excel, you know there were times when instead of cutting and pasting the receipt quantity that we wanted the vendor to ship, we’d paste our beginning of period inventories! Luckily – the vendors would call and say, “Are you sure you want this much?” Which of course, we didn’t, and they knew it. And that was one of the opportunities that was very visible when I got to Guitar Center.

There were many, many, vendors that were very, very, unsatisfied with the quality of the forecasting of the products demand. And back then – it required a lot of hand-holding and the buyer got involved and the vendors were involved, in fact, the first week I was there, one of our major vendors, actually our largest vendor at the time, spent a week in our executive board room going over SKU by SKU, each SKU’s forecast for the fourth quarter, and that isn’t what the buying team should be doing and it certainly isn’t what the vendor should be doing either. So there was definitely an opportunity to help the existing staff and the developing staff to provide a better tool that gave them a far better answer, a more sustainable answer, an answer that everyone could have a higher degree of confidence in.

So were you already looking for a new school solution? Or did you feel like you became a “change leader” for the company?

Um, yes they had been looking for a solution like Q, in fact there was some money saved aside in their budget to address that. The expectation was – you know, let’s go out and get the basic type of replenishment system, and I was able to communicate – that if all we sold was sticks and strings, that had a very high rate of sale, a very stable demand, and the vendor had a really strong supply chain – that those systems would be outstanding and our search would be over very quickly. But that was not the bulk of our revenue, and it would not address the instability in the long range forecasting because those systems today wouldn’t be able to provide that.

So there was a change agent needed in that respect, that while the teams were somewhat organized we needed to provide a tool, and to create a process such that the output was one that again, people were confident in, and then people could go back and people could do the jobs that they were really employed to do.

A buyer could go out and negotiate with the vendor great costs, a financial planner could do the open to buy and manage the quote un quote checkbook, if you will. And the forecaster really could focus in on doing the forecasting and ordering of the product.

And once we were able to deliver that and people understood, Oh, not everyone has to look at this? We actually got a good team and the team has individual roles and when there was confidence that we could all do our individual role very well, there was a lot of change that came out of that. There was a lot of ability to really leverage the existing staff in ways that we didn’t before, because everybody was so focused on – do we have the right forecasts out there so the vendor can go build the product?

Once you chose Quantum – being their first customer – you must have built a strong relationship from the start – could you talk a little bit about that?

Certainly. Again, I’d known some of the principles before they started up Quantum and I knew how talented they were and still obviously are. What is incredibly unique about Quantum is that everybody just kind of roles up their sleeves a pitches in, and even today, you can have an idea or want to bounce something out and have a shower thought, if you will, and you can approach Mike Hrabe or Vicki or Linda or Chris or Morgan and say – hey I was thinking about this – what do you think? And they really do want to hear and be engaged in how we’re maintaining, supporting, and developing their “baby” and it is very, very, refreshing in today’s environment to work with a company that you can feel that vibe, it’s being a part of something really special and dynamic.

And from way back on when we were the first customer, they were obviously fully engaged with doing things right down to asking us – hey, what’s the process flow going to be? You know – we’ll provide this tool – we’ll have alerts and work flows etc., but how are we really going to use it? Really challenging Guitar Center to think things all the way through – and re-question themselves, and go the extra mile to make sure that when we put pieces in – they were fully vetted, not only from Quantum – but from Guitar Center – and they really work – I think that is one of the key differences with Quantum as a solution provider.

When you provide a solution, if it’s not easily integrated and accepted into either the existing process or the processes as they evolve, then your solution is not optimized. And being one of the first customers of Quantum, I was able to witness first hand the principles themselves – living that attitude – that we are definitely in it together – we are here to provide a solution with you and for you – and we are both going to figure it out as we go. And I can honestly say that approach and that feeling is still evident at Quantum today – which is neat.

When you sat down with Quantum early on – how did you decide on the strategies that you would be using?

You know it’s funny, at a former retailer, I won’t use any names, one of the approaches that they took was to do portfolio management during their business planning cycle. And not every category was a stake in the ground, and not every category was a loss leader, or a traffic builder, so I was very much already accustomed to the approach that when you are planning or doing something in business that you don’t treat everything you are affecting the same way.

So for instance at this past retailer if you were a stake in the ground, you probably got more advertising, you were probably not challenged as much to increase your gross margin return on investment (GMROI), because you were a stake in the ground relative to that company, to that product offering the company had in the industry.

So dial ahead – many, many, years later, I’m working with Quantum Retailer, and one of the very unique aspects of Quantum Retail is that they don’t try and have you treat every item the same way, but you don’t have to turn a thousand dials and dial in everything in uniquely for that SKU. Whether you have 10,000 SKUs or 80,000 SKUs you can’t do it that way, or at least it’s not very effective that way.

So what the strategies allow people to do is to say, okay – I don’t bring items in to my assortment for the same reason, every item has its own reason for being part of the assortment. So because I was accustomed to that thought process already, it was a very natural and easy step to take it down to the item level. With Q, we would assign a strategy to an item, and the system would take that strategy and affect the order processing and the management of the inventory level accordingly. So I didn’t have to tweak a thousand dials to get it right. There were items that we wanted to maximize profit, there were items where we wanted to be more aggressive with sales, there were items that just rounded out the assortment that would maybe not be in every door, so I was more than happy with a little bit of a lower service level to achieve other objectives.

So in trying to get Guitar Center to understand the strategy approach we, at Guitar Center, got the merchandising management team together and we spoke. I said, well why do we bring different items in? And it seems like a silly question to be asking, but it was actually a very, very, good conversation. And the head merchandising, and the vice presidents of each of their areas felt very engaged, and felt as though they were defining how we were going to be managing the inventory flow and managing our business going forward.

So it allowed us to A. Be very surgical at a very high level, at an item level, and B. Allowed an opportunity for the merchandising teams’ executive team to be fully engaged, which was really very powerful.

So the strategies that you chose for each product are automatically kept up by the system – did the automation factor make you nervous, or what is it about that word that scares some retailers?

Well you know, there can be an expression – everybody has a little black box – all these software companies have a little black box. And you put information in, you don’t understand what happens, and then it outputs something and you’re supposed to execute your business on the output. And so for automation, particularly, in the role that I had, SVP of Planning, there and in another company, you’re looked at and you’re responsible for providing solutions that are obviously credible. It seems like a stupid thing to say, but the fear is, well if I can’t explain every single thing the system does and the automation just happens, how am I going to be sure it’s going to do everything I want in every single situation.

And you know what – there isn’t a solution that does everything absolutely perfect in every situation because for example – you could have an item that sells once every 26 weeks and all of a sudden in a month it sells two. And go figure. No system is ever going to forecast that, because it’s an aberration, if you will.

So one of the things that you need to get comfortable with – is you have to make sure that you are putting enough due diligence in, to test enough scenarios and conditions that your people operate under – scarcity of product, abundance of product, variability of forecasting, stores going into remodels, and you know, just everything that you could imagine that might impact the stores ability to sell product or the natural demand of the product. If you’ve done that and you’ve fully vetted that out, then you can say, ok you know what, the, well it isn’t a black box, but you can say that if you have 10,000 SKUs across 200 stores, no human being can do that calculation every single day when they’re doing allocation. Or you know, twice a month, when they’re re-looking at the ordering processes.

You need to have a system that can understand and do the math and the automation at the SKU Loc level, because that’s where it’s really happening. And you need to have faith that the system that’s doing that gives you the ability to – at a higher level – to go in and understand what’s truly driving the applications that are truly running your businesses.

And Quantum allows you to do that. They give you alerts, they give you work flows – you can go in at an item level and understand what’s going on. You know one of the things with Guitar Center very early on – if we were at an X number of weeks worth of supply and it looked like we had enough product out there – we could have been understocked in half our stores and overstocked in the other half of our stores. Well no human being is going to go through or could they, with hundreds and hundreds of SKUs, go through and say ok I’m going to order this product – well let me go through, by store, and see what they need and aggregate that up. It would have taken way too long.

So that automation of understanding what’s going on at a very low level and raising it up and providing someone with what is going on in a digestible format in a format that gives them alerts and work flows to understand so they don’t have to look at every single product. Because the product is operating dead on to the forecast, and the service levels are more than acceptable, there’s no reason to go in and spend a half an hour looking at that SKU. You might have to spend half an hour looking at another SKU where there could have been cannibalization or where there could have been a product entering the end of its life cycle, etc.

So that’s what the automation piece does. People at times want to be able to say that they know every single algorithm driving everything, and you’ll get bogged down in doing that. And once you have the comfort level that the application is going to execute its math, if you will, in a way in which you would expect it to, in a way in which you affirm, and then just take it from there, and then you free up your team to really start doing analysis – you’ve got forecasters going back to buyers saying, hey you know what – this SKU looks like it might be entering its end of lifecycle. Or you know what, this SKU is really taking off – and this is what I’m seeing, it’s tripped an alert three weeks running, lets go in and see what’s happening. And the buying team really starts getting very engaged because they have a growing comfort level in that, wow, I have somebody and some thing and some process that’s empowering me – and I do not need to not invest thousands of man hours doing it – but I have a vehicle and a process and a team that’s going to be able to give me this critical information and they go back and work with the vendors and its just a great cycle that you get into.

And you have a story about a big alert you received, right before the recession, don’t you? Can we hear that story?

It was the “Mother of Alerts,” what happened was – it was August and at Guitar Center in August, every SKU’s fourth quarter analysis is executed and because by that time you need to make sure that everything’s I’s are dotted and T’s are crossed. Well what happened was, from the beginning of August to the end of August, we could see the demand softening across the majority of our SKUs. We were beginning to get alerts across the board that said, downtrending, downtrending, downtrending… And what happened was the forecasted orders, and those orders result from a combination of what the current demand looks like, what your existing inventory already is, plus your future orders that you already have coming in.

And within a very short period of time, Q was saying hey – you need to cut back your orders – and it wasn’t a small amount it was a very large amount. And each week we could go in and we could see it happening and – when I answered one of the first questions – about being a change agent, you try and put a process in place and develop skillsets and put a tool in place that allows people to do their job, right? Well – what Q was witnessing and attesting to and serving up to us was so significant that at certain points in time, when you’re in a company such as Guitar Center you need to say, ok – stop, I brought the the head of merchandising in, the executive vice president of merchandising in, the vice president of merchandising in, and I said guys, look at this – this is substantially different than the forecast we gave the vendors a month ago. And you guys own the vendor relationship, I need you to understand this, and I need you to be a partner in this.

I walked into the CFO’s and the President’s offices and said guys, I believe this is rock solid. I can show you this, vet it, forwards, backwards, sideways, every which way you look at it, it is telling us to take this much inventory out and we had already started seeing softening comps, certainly nothing like what was going to happen in the next couple months, but we were seeing it starting to happen. So we sat down with the executives and the merchant community, with the President and CFO, and we all held hands and said, we think this is right. And it was a significant impact.

The buyers grew to understand and have confidence in those forecasts and went and had some tough conversations with the vendors, but I can tell you this – they were some tough conversations, but they were 1000% better than it would have been, had we not have been so proactive about it. One of the things I said to the CFO who was, as he should be during the whole acceptance process and the selling of Quantum at GC, he was very, very, challenging.

And after we put it in, the first engagement, if you will, we happened to deliver everything that was promised, in fact, the inventory reduction that we said would take two years, it happened it in a year, and he called me a sandbagger! But I went in and I said, you know, I want you to understand, if Q wasn’t in place, and I had a staff of people doing this manually, there is no way I would have suggested the amount of reductions that Q suggested, there is just no way I would have had enough confidence in what people were able to do manually, not going down to the SKU Loc level, looking at it at an item level, nor would the buyers have accepted that. Because, if we were wrong, we were leaving some serious sales on the table. And he kind of looked at me and smiled and I smiled back and thanked him for his time and left his office.

But the point was and the point still is, it was never envisioned, when we were trying to sell this solution to senior management, we made claims for service level, for sales, for inventory efficiencies, but we never, ever, even had the inkling to suggest that if a major recession is going to hit, this is going to see it and it’s going to save our skin. Because had we not done that, we would have ordered more than we needed, and we would have had the stores filled to the brim and the vendors would have gotten very very few orders first quarter, and in that vendor community it would have been significant. It would have been extremely hard to have lived through.

So while the buyers went out and had some tough conversations with the vendors, it at least allowed them to be proactive about it, and to have the vendors feel that they were privy to it as well, that they understood and knew what was happening. And I bet the vendors took that information and probably used it in other client sites as well. So I don’t want to call it a happy ending, because no recession has a happy ending, but it was a very gratifying process to actually be able to manage through some very difficult times.

That’s amazing – so after that experience – after you saw that Q really was dead on – did that instill a lot of confidence in the system?

Yes it did. Well that and confidence is, you know what’s the expression, you make money the old fashion way, we earn it every single day. Well, we, Quantum, and it’s application, really had earned the confidence every single day. Even from the pilot. From the initial pilot, within twelve weeks we were up and running and Quantum was affecting forecasts. And within 4-5 weeks – in a test and control environment – we were able to show that the forecasts that Quantum was just spitting out from the beginning, pure vanilla, were 20-25% better than what a human being was producing. And then time went on, and we trained the allocators to use it, and then we trained some of the key members from forecasting to use it, and then guess what? A trained professional with a better tool gets an even better forecast, so then it jumped as high as 29% forecast improvement.

So even from the very beginnings we were able to show very factual improvements, if you will. Another aspect of it – when we launched the Quantum initiative, we formed an executive committee, which had members from the head of the supply chain, the head of stores, so we got the people involved that would be impacted by this solution, and we had steering committee meetings. And every 4-6 weeks you were out there showing them what’s happening, showing them the differences in the processes, showing them the results, and so – you could really see as time progressed, the confidence level building and building and building.

Then once we were able to assess after the implementation of the phase one, which was delivering the order planning, forecasting, and the changes to allocation and replenishment. Basically, we were able to hit all the metrics that were promised in the analysis that was required to approve the project. The president was new at the time and he was in with the CFO as they were grilling me – and he looked over at the CFO and said okay, okay, she’s proved it okay, it works, it’s done it’s job.

(laughs)

So you know, it was icing on the cake. Again it’s hard to be happy about that recession, but it was another way that people at all levels of the company could understand the positive impact that the solution provided the company. And confidence is a great word. It really continued to solidify the confidence.

Awesome. So I understand that you now work with Quantum, can you talk to us about what that’s like?

Sure. You know I mentioned it, I think a little bit earlier. That it is being part of something special. Because it is not just a software application. It is a solution. It is applicable in grocery, it’s applicable in hard lines, it is applicable in soft lines, there is so much power behind what it can do that you really feel good going to work every single day. But really truly, it’s the people. You know, it’s the founders that are still fully engaged, and still very much care about the output. It’s working with a new person coming in and understanding, wow, this really is different, this really does help provide a different way of doing business. It is being a part of that. You know, I feel as though I’ve been part of it from the beginning, but being on this side of it – it’s a lot of fun. I am very grateful. It’s different for me, you know, I was a retailer basically all of my adult life, and so it’s a different set of shoes, but it is lots of fun and I couldn’t think of a company that I would be doing it with other than Quantum.

And we’re running out of time – but lastly, do you have any advice for retailers evaluating new technology like Q?

You know- often times in fact, I was told this – to go out and find the “Best of Breed” – and “Best of Breed” does not necessarily mean that which has been employed over and over and over again. In today’s changing retail environment, it is absolutely critical that when you implement a solution, it should be a holistic approach. There’s definitely some process changes, some system changes, maybe some people re-alignment changes, and you want to choose a solution that is truly going to be part of the solution and is going to be able to work with you as a partner to find the path that is right for that company, at that company’s point in time of its history.

I’ve worked with companies that were at early stages and really wanted to try and grow market share, I’ve worked with companies that were the largest in its industry and were really sure companies and were trying to focus on the bottom line. And at different parts in a companies life cycle they are going to be focusing on different things, you know, driving sales and growing market share – you need great processes and great people and great tools to do that. Optimizing profit and understanding, you’re mature, and you need to be extremely efficient in everything you do – you need some great people and tools and processes to do that too. And Quantum can help you in both scenarios. Which is terrific.The system is very, very, flexible.

I don’t want to sound like I’m trying to sell Quantum here, but the advice I would give to executives who are looking to help their company evolve, and to reach their goals, is to really vet out what partner you want to help you do that, and what types of solutions are really required.

And if you can find a solution that is holistic to many of your needs – it really can help the company operate far more efficiently than putting in several different pieces. If they’re looking to make a lot of changes, that’s probably something you might want to keep in mind.

Wonderful – thanks so much for joining us Irene!

Thanks for having me.

Tune in next week when we will be speaking to Greg Wilson, Director of Field Strategies at Quantum Retail.

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