Best-Of-Breed: PETCO Enterprise

Back then, it was nothing more than a ball of fur resting quietly in your hands. You placed it in a small cardboard box for the first few weeks of its life. As it grew, you purchased a good-sized cage to give it more room. A short time later, you put up expandable gates and turned your living room over to the newest member of your family. Eventually, "man's best friend" had the run of your house. As it grew, so too did its domain.

Like your puppy-turned-full-grown dog, PETCO has similarly expanded its size and the scope it now covers. Since its founding in 1965 in California, the company has grown to more than 500 retail stores in approximately 40 states and the District of Columbia. Each PETCO store carries about 10,000 items, ranging from animal food and vitamins to companion pets (e.g., birds) and less traditional pets (e.g., reptiles). Headquartered in San Diego, all of PETCO's retail stores are owned and operated by the corporation. The company's growth-through-acquisition strategy and new store development has paid off. PETCO's annual net sales are estimated at about $1 billion.

Like the dog that can no longer be contained in the living room, PETCO continues to broaden its scope. Most recently, the company purchased a 20% stake in the online retail pet supply company Petopia.com. While PETCO does not sell products through its company Web site, it directs online visitors to Petopia.com.

As PETCO has expanded, the company has opted for a best-of-breed technology strategy to support its growth. "Most of our attention has been focused on supporting our growth through acquisitions and new store development," says Andrew Ross, information systems project manager at PETCO. "New demands are placed on IT (information technology) every day. There is an increase in the number of stores, and that increases the amount of data we handle. And, all the stores need to be integrated into our distribution system as well as our management system."

While a dog will reach a specific size at adulthood, the expansion of PETCO is expected to continue unabated. The IT infrastructure is designed to handle this type of growth.

Connecting POS To Headquarters
Now that you have the puppy, you turn to PETCO to purchase the necessities. A collar, a toy bone, and dog food all make your short list. You carry the items to the POS (point of sale) station and pay the cashier. In doing so, a set of business processes has been set in motion. All of PETCO's stores are running JDA Software Group's (Phoenix) software at the POS, and Symbol Technologies' (Holtsville, NY) scanners read the product bar codes. The sales information is stored on IBM servers, which are designed with several fault-tolerant storage features, running in the back office. These servers are connected to PETCO's national headquarters. The sales activity at every PETCO store is polled nightly to a UNIX host computer (at headquarters), which processes the data. "We run a replenishment and merchandising system. This system determines the appropriate order for each store, based on the amount of products sold per day at each location," explains Ross. Once the information is processed, the data is transmitted to one of three main PETCO distribution centers (DCs). "From that point, it's just a matter of fulfilling the orders as they come into the DCs," adds Ross.

WMS Fits Best-Of-Breed Strategy
Once people have trained their dogs, they always make the process seem much simpler to new dog owners than it really is. Similarly, PETCO's inventory management and distribution strategy may seem straightforward. But, it is backed by complex software and hardware integration. PETCO has three DCs, which range in size from 200,000 to 330,000 square feet. It also has five regional warehouses that are about 50,000 square feet. "The majority of products sold in PETCO stores are shipped from the DCs," states Bob Northcutt, vice president of distribution and transportation at PETCO. "The smaller warehouses service local areas. For the most part, these warehouses are pulling bulk items, like pet food. We cross-dock the items coming from our main DCs through our regional DCs, and then we make the local deliveries."

Staying with its best-of-breed strategy, PETCO implemented Warehouse Librarian™ from Intek Integration Technologies, Inc. (Bellevue, WA) as its warehouse management system (WMS). "The Intek solution handles all activities that take place within the four walls of the DCs," comments Ross. "We made several modifications to the original application, and these modifications have all been rolled into Intek's standard package."

For picking and put-away operations, DC employees use Telxon (Akron, OH) handhelds to read bar codes on pallets and boxes. Almost all of the products at the DCs have bar codes that allow merchandise to flow quickly into and out of the DCs and retail stores. Using RF (radio frequency) technology, PETCO is able to conduct processes such as inventory management, cycle counting, and receiving in real time. "Our inventory and picking accuracy are both at 99.8%," relays Northcutt.

PETCO's implementation of PeopleSoft (Pleasanton, CA) handles the billing process with the company's trading partners. These suppliers receive purchase orders from PETCO; most of the company's partners then invoice PETCO via an EDI (electronic data interchange) solution supplied by Sterling Commerce (Dublin, OH). "We are also experimenting with vendor managed inventory with some of our suppliers," says Ross. "The inventory resides at our facility, but the replenishment is managed by the vendor. And, the ownership is maintained by the vendor until the time of shipment." To make this happen, these vendors need to be connected to PETCO's merchandising system and the company's WMS (Warehouse Librarian).

Tracking Sales And Labor
There are certain pet products that consumers want right away. For example, that holiday doggie sweater had better not be on back order. Fortunately, PETCO stores receive up to three scheduled deliveries each week from the company's DCs. The company's private fleet delivers the merchandise. While the store managers are responsible for ensuring that the right inventory is received, they are not heavily involved with the technology deployed in their stores. In fact, fulfillment is so accurate that there are very few discrepancies. Even when a customer grabs up that last doggie sweater, odds are that new sweaters will be on the next shipment to that particular store.

"Theoretically, a customer could deplete a store's inventory right at closing time," states Ross. "If we are picking products at the DC for that store the following morning, we may actually have the inventory delivered, stocked, and on the shelf the same day we picked it. I think that is pretty noteworthy." As PETCO stores are closing, the retail employees are also calling it a day. Both the stores and the DCs use a Campbell (Chicago) time and attendance system to track labor. This data is polled to headquarters each night, along with each store's daily sales information.

Database Management Personalizes Customer Relationships
In addition to reaching customers through its investment in Petopia.com, PETCO also personalizes its relationship with consumers through a loyalty card program. The company's P.A.L.S. (PETCO Animal Lovers Save) program offers members special promotions and discounts on pet products. In doing so, the company is also gathering valuable data on the purchasing habits of its most frequent consumers.

"By scanning customers' membership cards at the POS, we collect data that flows into our host system. Using database tools, we can analyze the buying trends of an individual consumer or a particular store or region," explains Ross. Using this data, PETCO's marketing efforts are more successful. For example, the company can market specific products to customers, based on the type of animals they own. Or, relevant facts and pet care literature can be sent by PETCO to appropriate customers. Adds Ross, "Collecting and analyzing this data makes our customer communication efforts more effective. But, it is also a great benefit to the customers themselves. The information we supply our customers with is relevant to them."

In addition to gathering valuable data, PETCO is careful to secure this information. "We ensure that no customer data will be used outside PETCO," says Ross. "We're not in the business of providing information to other companies." Part of PETCO's mission is to offer "a complete assortment of pet-related products at competitive prices, with superior levels of customer service at convenient locations." The company's IT department is critical to accomplishing every aspect of this goal. Competitive prices are largely a reflection of efficiently managing every link in the supply chain — from suppliers to the POS. Customer service is always enhanced when retail employees can offer products that are in stock, and customer relationships thrive with an effective loyalty program. And, adding more PETCO locations is only profitable if they can be easily integrated into the company's existing infrastructure. "Our philosophy is to maintain the lowest inventory levels throughout the system and reduce cycle times as much as possible. At the same time, we have to support the tremendous growth of the company," comments Bob Northcutt. "We explore any technology that will help us more efficiently achieve these goals."

Questions about this article? E-mail the author at EdH@corrypub.com.