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New systems will support the cause

While JCPenney's five-year turnaround is about to hit the mid-point, the bulk of its back-end support and allocations systems initiatives are nearing completion.

From day one, Penney's key support departments were given a tighter turnaround schedule than the company at large — three years. And, by late 2003, information systems backing up Penney's centralized merchandise organization will be fully in place, according to Steven Raish, executive vp, cio.

This year, the firm is rolling out the final three pieces of an end-to-end platform designed to provide long-term growth and cost efficiencies, Raish told analysts during Penney's spring conference. They include an enhanced planning and allocation system; a supply chain management system; and a marketing event planning and promotion management system.

The modeling and forecasting system will roll out in the back half of the year and become fully operational in 2004, giving merchants an integrated view of the complete merchandise mix, including seasonal fashion, continuing basic replenishment and vendor-managed merchandise — all areas that are now managed separately. The new systems will also feature automated trending of store-level sales by store class, inventory and receipts to help distributors determine the right store-level allocation.

"The challenge of 2003 is to improve the productivity of each," said Jeff Allison, senior vp, director of planning and allocation. "We need to focus on the flow and effectiveness of our inventory."

This year, each classification plan will guide assortments and allocations at the store level. "What this means is that buyers can build one assortment plan for the company, then the individual store plans can be efficiently and systematically shaped to specific store needs and opportunities," Allison said.

The company is also defining its core key item strategy business by business, quantifying how big each key item can be to maximize key items and give them more clarity on the floor.

Penney's allocation team this year is also working off of a new seasonal calendar arranged by climate zone, building inventory plans by seasonal categories to improve transitional merchandise flow and the timing of clearance markdowns.

"A clear seasonal plan will help us create more impact on the floor so the customer really sees the change from one season to the next," Allison said. "Ultimately, these seasonal plans will also improve gross profitability."

The allocation upgrade will also dovetail with the rollout later this year of a new system to support marketing and advertising planning, Raish said. The new system will provide event-level performance reporting to improve marketing planning effectiveness. Post-event, the system will analyze the effectiveness of advertising performance vs. plan, breaking out measures by category, page and item.

The remaining back-end component will be the supply chain — pivoting around the completion this month of Penney's 13-unit SSC (store support center) distribution network. Replacing Penney's previous system, under which suppliers shipped product directly to more than 1,000 stores, the new system of regional warehouses will virtually eliminate expedited carrier shipments, reduce the amount of store-level merchandise handling and allow Penney to shutter the last of 57 outside receiving stock rooms that had been used to service larger stores.

"JCPenney was the last major retailer to have vendors ship product to individual stores rather than through regional warehouses," noted Tim Troy, senior vp, director of supply chain management. "We'll save 30 percent of transportation expense for every carton we move from the old network of premium carriers to our new truckload system."

In addition to boosting productivity and improving inventory turnover, the shift is expected to enhance gross margins in the range of 50 to 100 basis points over the next three years, he said. Penney expects to roll the cost savings into improved merchandise pricing — and expects its vendors to follow suit.

On the technology end, Penney's final major supply chain initiative for the year will be the completion of a supplier performance management and tracking system that measures compliance for on-time shipping, order completeness and accuracy and providing the proper electronic transactions, Raish said.

The company has begun testing the first components of a long-term, fully integrated supply chain system.

Virtual "dashboards" will provide real-time information about key supply chain performance metrics and will send real-time alerts to supply chain managers about "performance exceptions."

JCP's centralized model

SSC # of stores Opened
*Inside retail distribution centers
**Inside catalog distribution centers
Buena Park, CA* 92 9/01
Statesville, NC* 85 12/01
Cedar Hill, TX 92 1/02
Lenexa, KS** 92 5/02
Columbus, OH** 95 6/02
Allentown, PA 89 8/02
Atlanta** 78 10/02
Milwaukee** 105 11/02
Lakeland, FL 60 12/02
Indianapolis 87 1/03
Sumner, WA 54 3/03
Salt Lake City 50 4/03
Manchester, CT** 73 6/03

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