Much has changed in the 15 years since Indigo Books & Music Inc. opened its first superstore in Burlington, Ontario. The online channel has expanded dramatically putting pressure on physical bookstores, and e-books on mobile devices have given consumers a simple, convenient, and eco-friendly reading platform with an endless selection at lower prices. It is estimated that within five years 50% of books will be read digitally, a trend causing Indigo to transform its business now.
Headquartered in Toronto, Ontario, Indigo is Canada’s largest book, gift, and specialty toy retailer. Its more than 6,500 employees operate over 235 physical stores across the country, and its popular online destination, www.indigo.ca, offers millions of products including books, e-books, toys, stationery, home décor, gourmet confections, music CDs, DVDs, and more. Indigo’s large retail stores average 24,000 square feet and are designed to be culture-seeking, inspiring destinations for browsing and community-building, while its smaller stores – conveniently situated in shopping centers, street-front stores, airports, and central business districts – provide a more targeted selection of goods.
Adapting for the digital transition
As the world’s authors, publishers, book retailers, and electronics manufacturers jockey for space and attention in the digital world, Indigo remains focused on its core business. With strategic initiatives in place to improve operational productivity, adjust its physical stores to accommodate the need for fewer books, diversify its non-book product offering, and expand its online presence, Indigo plans to extend its brand and customer base. “There is a lot of change going on in the book business these days and we need to react and adapt quickly to stay relevant,” says Sumit Oberai, Chief Information Officer at Indigo. “We can’t just look to the e-book market for growth,” he explains, “by optimizing our core books business and diversifying our product set and stores, we have a well-rounded strategy for the future.”
To support its strategy, Indigo launched a major supply chain redesign project in 2009, which included both the retail in-store and online channels. “Our supply chain was optimized for books; handling a new and diverse set of products was difficult for us,” said Oberai. Indigo also had data integrity issues and inventory wasn’t always accurate – serious problems for a business that promises next day shipping to customers.
The supply chain redesign was the second-largest capital project in the company’s history and was essential to its success. The key objectives of the project were to:
- Lower the unit cost for retail with best-in-class facilities and processes
- Reduce shipping costs and costs of goods sold through the online channel via a new
- Replace aging material handling equipment and warehouse management systems
- Support general merchandise growth
To meet the objectives of the supply chain redesign project, Indigo needed new warehouse management software that could handle its business requirements and fit well within its existing application architecture. “As we looked at our new business processes and where we wanted to be in the future, they were quite different from where we were,” explained Oberai.
After detailed business and technical requirements were ironed out, Indigo performed a careful evaluation of the top warehouse management systems for retail. The SAP Extended Warehouse Management (SAP EWM) solution landed on the short list, scoring highest for platform integration, vendor viability, and low total cost of ownership, but ultimately, Indigo selected SAP EWM because of SAP’s commitment – as an integrator and partner – to Indigo’s success. “Historically we were a best-of-breed shop, but SAP EWM fit our ‘platform first’ strategy,” said Oberai, “and SAP committed to provide and implement some key retail functionality for us.”
Elevating productivity and lowering costs
Due to the scale and complexity of the supply chain redesign, and unique needs of the company’s in-store and online channels, the project was divided into two phases. First up was the online channel, supporting Indigo’s direct-to-consumer business. At go-live it included a completely new warehouse running SAP EWM and basic material handling equipment. Indigo was able to up the SKU count in its warehouse by over 50%, reducing its reliance on wholesalers and improving margins. The company could also handle significantly higher daily pick volumes during peak periods allowing it to lean into marketing and discounts much more than it could before to drive higher sales. “On Cyber Monday 2012, we saw a sales volume 100% greater than our peak day prior to the SAP implementation,” said Oberai. “There is simply no way we would have handled that volume without SAP. The implementation was successful and contributes to the growth of our business.”
Phase 2 supported Indigo’s physical “bricks and mortar” business. This channel required a more sophisticated material handling equipment solution – including put-to-light and conveyers, and special functionality for pick-to-store radio frequency screen flows, multiple-inners, and put-to-light integration. “Since go-live, the new system has enabled Indigo to increase the number of units picked per week by 35%, while at the same time reducing our picking costs by more than 10%,” explained Oberai. With about 70 million packages going through its warehouse every year, reducing the cost of processing each package by only a few cents will help Indigo save millions of dollars. In a time of transformation, driving those savings to the bottom line is key for the health of the business.
Indigo was also pleased with the implementation support SAP provided over the lifespan of the project. SAP lived up to its commitment to be a long-term partner and put Indigo’s success first. “Having SAP as the integrator was a huge benefit,” said Oberai. “Whenever we encountered technical challenges
or complexities, SAP was able to leverage its worldwide expertise to solve the issues.”
With SAP EWM in place for its online and in-store operations, Indigo feels its supply chain is now best-in-class and fully capable of supporting its business both effectively and efficiently. The upgrade to its warehouse systems and processes is not only saving the company time and money, but also delivering the speed and flexibility needed to handle an evolving merchandise mix. “The SAP implementation has given us confidence that our data is right and our inventory is accurate, and when running a supply chain that is critical,” concludes Oberai. Better, faster replenishmentmeans fewer books are needed on Indigo’s store floors – freeing up space and turning gift, lifestyle, kids, and paper merchandise into key growth categories for the company.
By transforming its supply chain, Indigo has found innovative ways to drive costs down, increase margins, and improve the customer experience both in-store and online.