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Tawa Supermarket Inc., a Buena Park, Calif.-based privately owned ethnic grocer that operates stores under the 99 Ranch Market banner, primarily serves first- and second-generation shoppers, in addition to foodies looking for authentic Asian products, and has steadily grown to 40 locations across four states since opening its first store in 1984.
Along with this growth has come the challenge of coordinating and managing an inventory of which approximately 70 percent is sourced from overseas. To get a better handle on all of this information, as well as the related financials and HR data as it seeks to continue this growth, Tawa needed an enterprise resource planning (ERP) system that could seamlessly tie everything together and best leverage the efficiencies driven by the economies of scale and automation, so it could focus on its core business of servicing customers.
“In order for the company to grow, our business processes and the way that we do merchandising, the way that we do warehouse management and inventory control, needed to advance to a higher level of sophistication,” says Jonson Chen, vice chairman of Tawa. “This would enable us to achieve efficiencies in our operations to be able to support our handling more stores and inventory.”
Chen found the answer to drive this higher level of sophistication with global software corporation SAP, which has solutions developed specifically for the retail industry. “The SAP for Retail solution covers the breadth of what we were looking for, from inventory management, when and how we bring product in, the purchasing thereof, the financials behind it, the distribution, and then, of course, receiving information back into the system from the point of sale, as well as all of the peripheral elements such as the HR, payroll and asset management,” adds Chen. “It was a solution that SAP had tailored specifically to retailers like us.”
Global Inventory Management
To best serve its shoppers, many of whom are looking for products from their countries of origin, Tawa carries all of the most recognizable and leading brands from Taiwan, Japan, China, Singapore, Thailand and the Philippines, among other nations. In addition to the aforementioned foodies, the stores are also visited by locals looking for traditional grocery staples such as eggs, milk and cheese.
Indeed, Tawa made an appearance on the “Asian Night Market” episode of the fifth season of “Top Chef Masters,” in which the challenge was to recreate an American classic dish with an Asian spin. The chefs shopped a 99 Ranch Market store to find authentic Asian ingredients, including live lobster and shrimp, fresh vegetables, tender meats, and a variety of sauces such as Yuzu and soy. The ingredients were then brought to a popular Asian night market in Los Angeles that was decorated with red lanterns, stunning lights, and red and black booths, where the contestants and their sous chefs prepared their dishes for more than 200 guests, among them the show’s judges.
Sourcing most of its products from overseas makes inventory control particularly challenging for Tawa, according to Chen, and was a major focus of the SAP deployment. The overseas inventory, which travels via container ship, requires two to three months to be sourced and transported, versus mere days for products sourced here.
“Traditional grocers can enjoy a great deal of support from U.S.-based vendors and distributors that give them much quicker responsiveness when they order product, as well as flexibility in pack sizes,” Chen says. “For example, a store can typically order just six packs of Rice-A-Roni if that’s all they need. “Since we import around 70 percent of our products, it dictates that the import must be high in volume, and high-impact sizes. So we have to manage container shipments of products, as well as very large pack sizes in each box that gets sent down to the store level. So we needed a system to do better inventory management, which in essence is managing the monetary value of the inventory that you are holding in the warehouse and on hand in the stores.”
Implementing SAP for Retail enabled Tawa to move from a periodic accounting of inventory valuation to perpetual inventory, meaning that every single day it has visibility into that inventory and its value, as opposed to evaluating it monthly, as it did previously.
“With perpetual inventory, as each item is sold, we look at the average price, and thus the performance becomes much more weighted to the actual performance of each transaction as it occurs,” explains Chen. “With periodic accounting, we were prone to error. In the past, we may have had a month in which we did a lot of sales, but did not do a lot of purchasing, so it looked as if we had a strong net profit during this time period, but in reality what happened is we overbought in the previous time period and were just selling what we already had. Now it is more truthful, weighted against the performance of our merchandising and inventory control.”
How it Works
The entire process, from ordering through receiving, is done via SAP. The purchase order is generated in SAP, as the system contains all of the company’s master product data, which includes all of the vendor and item information. The order is transmitted out to vendors overseas, the sourcing companies fulfill against the order, and the products are bought and loaded into a container.
During this entire time, the order and associated products are tracked by the system, although tracking is obviously limited during the container ship’s voyage. Once it hits the ports, the tracking continues until it gets into Tawa’s warehouse, where it’s received against the purchase order that was already in the system. Then it’s broken down and put away into a warehouse in available spaces indicated by the SAP system.
The stores do their ordering from the warehouse, using SAP via what Tawa refers to as intra-company ordering, which is basically just moving the items from one site (the warehouse) to the stores. Each store places its product order, which flows straight to the warehouse; the system takes care of the ordering and the store doesn’t have to do direct receiving again, only spot checks. Then the product order goes on the shelves and off to the customers. As those sales occur, the nightly sales information then flows from the point-of-sale system back into the SAP financials.
Orders for locally sourced products are also generated via the SAP system, and the purchase orders against those products are sent to purveyors in the United States, which will either deliver to a warehouse or, in the case of DSD, to the stores.
“Because the SAP platform is such a globally recognized ERP system, there are a lot of other software applications that integrate with it, and one of them that we deployed last year was Open Text, which is integrated into our SAP invoice-receiving system and digitizes paper invoices,” notes Chen. “We process a lot of invoices, and previously, we would need an accountant eyeballing the invoices to match them against the purchase orders. Now we do scanned invoice processing. At least 60 percent of our invoices are now scanned into the system, using an optical character recognition (OCR) system, which then automates the matching of the invoices to the purchase orders.”
Tawa leverages SAP to optimize its promotions by analyzing its rich historical data against inventory levels and average price. “The first step in the promotions process is analyzing historical data, what historically is promoted during a certain period such as a particular season or holiday,” says Chen. “Then they look into the inventory to see which products are the good candidates, based on inventory levels and the ability to fulfill them, as well as the average price. If it is an item for which the average price has been creeping up, like lime is these days, we won’t promote it.”
The store managers can also run promotions themselves via the SAP Retail Store solution, although they still need approval from the merchandisers at the central office, says Chen. “The store manager might see that the competitor across the street is selling bananas at a certain price, and he or she may want to match it, for example,” he observes. “The system enables the central merchandisers to work with the stores on these promotions, which are generated from the store managers and sent to the merchandisers. If approved, the merchandisers push the promotions for those items back to the stores.”
Tawa also handles HR and payroll internally with the SAP for Retail solution, which has helped it enhance its organizational management and employee development efforts by enabling it to digitally capture and track employee information that was previously manually stored, and so rarely analyzed.
“Within the SAP system, we can track employees — not just their hours and how much money we pay them, but also their past performance evaluations, and also the type of training that they have gone through and the certifications that they have — so that we can really focus on the development of that employee through their life in our company,” says Chen. “There is a great deviation in employee capabilities. For example, a produce employee in Store A can make a set of apples in X amount of time, compared to the produce guy at Store B, who takes twice the amount of time to set the apple display. We have visibility into that now, and that helps with employee development and evaluations.”
With inventory, promotions, and financial now optimized with the SAP system, Tawa has a solid foundation for moving into shelf space management, an area that in the past was limited because of the nature of global sourcing. “In part, it has to do with the type of merchandise that we handle,” says Chen. “Shelf space management is reliant on how well you control the inventory that is flowing onto the shelf. For grocers like us, in the past we would buy a certain amount of noodles and do our best to fit it all on the shelf before it all expired. But having better inventory management enables us to now have better shelf management, and so we can plan out how many facings of the noodles make sense, and can use the other facings for additional products.”
In fact, SAP enables Tawa to be more proactive in general. “The efficiencies in our central processing capability, in the finance department, enable us to make better decisions regarding out inventory values,” notes Chen. “Our business always has a tendency to be reactionary to what’s going on in people’s dietary trends or going on in the industry. But we plan to move away from that; we want better planning about business going forward.”
This change toward a more forward-thinking outlook couldn’t come sooner, as the company already has its next three locations slated and underway, and plans to continue a steady pace of expansion. Now Chen knows that as his company continues to speed forward, his systems will easily keep pace.