ScottsMiracle-Gro Improves Customer Service and Achieves Annual Supply Chain Savings

The 1995 merger of Scotts — the leading lawn care brand — with Miracle- Gro — the leading gardening brand — to create The Scotts Miracle-Gro Company marked a major historical milestone for the company originally founded in 1868 by O.M. Scott. However, for several years following the merger, the combined company operated with multiple customer invoices, multiple sales forces calling on the same customers, multiple supply chain designs, and multiple technology platforms. These factors resulted in low productivity and hampered customer service, making effective execution of the company’s primary selling season extremely difficult. ScottsMiracle-Gro realized it needed to evolve in order to address these post-merger challenges.

A Shelf-Connected JourneyIn the period from 2000 to 2005, the company launched its “One Face to the Customer” initiative and invested $250 million in additional capacity and other capital programs as well as $100 million in technology system upgrades to support this forward-looking direction. ScottsMiracle-Gro implemented SAP’s enterprise resource planning system, but selected JDA Software’s Category Management and Manufacturing Planning solutions to gain consumer-based replenishment planning capabilities. The decision to employ JDA’s supply chain capabilities instead of leveraging SAP’s APO solution was based on the fact that ScottsMiracle-Gro needed to be connected to the shelf. “We wanted to leverage point-of-sale [POS] data and be able to create a store-level plan, and we weren’t able to do that with SAP — so that’s why we chose JDA,” said Jim Iovino, vice president, global logistics at ScottsMiracle-Gro.

ScottsMiracle-Gro leverages a wide breadth of JDA solutions across demand and fulfillment, space and category management, supply chain and production planning, collaboration, and transportation and logistics management functions. Since upgrading its infrastructure, ScottsMiracle-Gro has been able to make tremendous strides in its shelf-connected journey and realize impressive operational benefits.

OBJECTIVE

Transform the company’s post-merger technology infrastructure to improve consumer relationships, achieve higher retailer in-store support levels and increase supply chain efficiency.

SOLUTIONS

• JDA® Demand

• JDA® Fulfillment

• JDA® Space Planning

• JDA® Space Automation

• JDA® Master Planning

• JDA® Strategy

• JDA® Sequencing

• JDA® Inventory Policy Optimization

• JDA® Market Manager

• JDA® Collaborate

• JDA® Marketplace Replenish

• JDA® Transportation Planning

• JDA® Shipment Execution

• JDA® Freight Audit & Payment

REAL RESULTS

• Improved customer service rates from 92 percent to 99 percent

• Doubled inventory turns, boosting free cash flow

• Gained the ability to conduct proactive planning regarding weather events

• Achieved average annual supply chain savings of 2-3 percent

• Realized complete value chain synchronization — from shelf to supplier — for rapid response to dynamic market conditions

CASE STUDY

Cultivating Success

ALLIANCE MEMBER

• Planalytics, Inc.

“We have been able to improve our fill rate from a customer service standpoint from 92 to 99 percent, and we’ve doubled our inventory turns during that timeframe,” noted Iovino. “Part of what helped us accomplish these results was the ability to be more proactive regarding weather events and generating a POS forecast, enabling us to become more responsive to market demand signals.”

Iovino further states that the company also strives to operate as leanly as possible and drive cost savings that will help offset any peripheral cost increases. Overall, ScottsMiracle-Gro has achieved an average annual supply chain savings of 2-3 percent and now has complete value chain synchronization from shelf to supplier, enabling rapid reaction to dynamic market conditions.

A Deeper DiveA deeper look into how ScottsMiracle-Gro has been able to attain such dramatic results spans several fundamental shelf-connected supply chain best practices. Importantly, the company’s demand planning model is driven by consumer POS activity and starts with POS forecasts to generate store-level demand plans. After judgmental inputs such as promotions (e.g., buy-one-get-one), media/advertising, and stack-out planning are incorporated into the demand plan, store-level data is incorporated to create replenishment plans for each customer’s store. Store-level demand plans then account for that store’s safety-stock setting, on-hand quantities, and on-order quantities to create store-level replenishment needs. And finally, the model aggregates the store-level replenishment plans to drive ScottsMiracle-Gro’s supply planning activities. The company’s supply planners then utilize the aggregated demand signals at each warehouse to determine how much product to manufacture and where to deploy the goods produced. The company engages in effective supply chain segmentation and collaboration, and also incorporates weather-driven demand insight into its demand planning processes.

Leveraging Integrated Weather-Driven Demand ManagementScottsMiracle-Gro operates within an approximately 100-day peak selling window that makes or breaks its seasonal lawn and garden business. The weather is one external variable that can drive consumer demand and create variability. It is important to understand the economic impact of weather on demand and the supply chain — and then translate those insights into actionable information on a zip-code-by-zip-code, day-by-day, week-by-week basis is critical.

Using JDA’s core demand planning workbench integrated with Planalytics’ weather intelligence capabilities, ScottsMiracle-Gro is able to analyze weather-driven demand — the lift or dragimpact on demand that is caused by weather conditions — and actually leverage those insights into its daily and weekly/monthly demand-planning activities within the same planning view. The ability to adjust demand plans based on weather impacts helps drive increased sales and minimizes out-of-stocks at the shelf. It also helps the company do a better job managing anticipated weather patterns and making the associated inventory hedges more intelligent, reducing overstock. Additionally, leveraging integrated weather intelligence in the demand planning sphere helps ensure that promotions are timed more competitively to gain market share and drive a better sales lift, which represents a win-win for all trading partners in satisfying the end consumer.

Segmenting the Supply Chain to Profitably Serve CustomersScottsMiracle-Gro practices supply chain segmentation to drive and enhance customer service while simultaneously reducing costs. Depending on the type of product, the company goes to market differently with its customers. To this end, it has defined multiple supply chains tailored to maximize efficiency in shipping different products to the individual needs of its retail accounts.

“ We have been able to improve our fill rate from a customer service standpoint from 92 to 99 percent, and we’ve doubled our inventory turns during that time frame.”Jim IovinoVice President, Global Logistics ScottsMiracle-Gro

“We have both Scotts manufacturing facilities and contract manufacturers that we work with, and once we make the product, we have different methods of distributing to our customers,” explained Iovino. “We either go from our plants directly via truckload or intermodal to our distribution centers. We have more than 10 different third-party distribution centers throughout the country that we distribute the product to. We also will go directly from production plants to some of our accounts as well, depending on what the product is and the volume driving it.”

ScottsMiracle-Gro’s “big three” customers — Lowe’s, The Home Depot and Walmart — account for a significant portion of the company’s U.S. sales. ScottsMiracle-Gro distributes to Lowe’s stores directly, and it supports a flexible model for The Home Depot including store direct and The Home Depot’s RDC network. Distribution to Walmart includes store direct and Walmart distribution centers. For its channel accounts, including customers such as Tractor Supply and Ace Hardware, it distributes either to distribution centers or to stores depending on the account and program in place.

According to Iovino, the company also uses a strategic segmentation strategy for its grain media and wild bird food business. It leverages 26 or more Scotts-owned production sites throughout the country and locates them in close proximity to its retail customers. “In order to turn the product around quickly, especially when we’re doing the majority of our business and the majority of our shipments in a 100-day timeframe, we utilize points that are very close to the retail accounts. And for distribution to some of our customers, we’ll actually put grain media and our fertilizer on the same truck out to the store,” said Iovino. “We have different methods of getting product out there, and in this process, one of the things that I would say about JDA is that over time our supply chain has really evolved — and the system thankfully has given us a lot of flexibility in order to adapt along the way to this model.”

Collaboration and the Shelf-Connected Supply Chain Collaboration is essential to achieving a shelf-connected supply chain, and ScottsMiracle-Gro engages in a solid collaboration practice between its customers, sales teams and supply chain managers. The company has business development teams co-located with Home Depot, Lowe’s and Walmart, and also a team within its corporate office dedicated to its channel accounts.

“At ScottsMiracle-Gro, collaboration encompasses ready-for-season planning and making sure that we’re on the same page with our customers in terms of inventory and other items. We have collaboration meetings through the year in which we discuss POS data analysis and projections, our inventory targets, and promotional lists,” said Iovino. “We have consensus forecast processes with all of our business development teams, and those consensus meetings happen both internally and externally. We also meet with many of our customers where we’ll share our forecasts with them, and they frequently also generate and share forecasts. We’ll develop consensus with them on what that forecast should be and make sure that we all agree.”

The company also ensures consensus for seasonal collaboration including time and action calendars for inventory builds and reductions, and alignment on system settings (e.g., buffer stocks and minimum order quantities). “For many of our accounts, we actually do take on a lot of the responsibility of placing orders as well. We also do a lot of reporting and tracking of that inventory, POS and forecasts, especially during the peak seasonal period. We’re leveraging that information on a daily basis to understand what’s happening in the business and how we need to adjust,” said Iovino.

ScottsMiracle-Gro also engages in collaboration to enable alternative win-win vendor managed inventory (VMI) programs. The company works jointly with customers to set inventory targets, align and

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communicate on POS targets to establish joint ownership, adjust item settings for all categories and major builds, and navigate assortment-level adjustments — all leading to correctly balanced orders created and released to the supply chain.

“Typically, we do the ordering for our customers in their systems. So, for example, we use JDA’s marketplace replenish capabilities with Ace Hardware, where we’re actually getting into the customer system and placing those orders. We also do this with Walmart, Lowe’s and Home Depot to some degree where we’re working with the customer on setting those inventory targets, figuring out what our POS targets are and making sure that we’re aligned. So if our JDA or POS forecast says one thing and our customer is telling us that they think it’s going to be different and we’re trying to align on that, we can communicate that information back.”

According to Iovino, one of the benefits is the demand signals ScottsMiracle-Gro receives through this process. “We’re getting demand signals that we can use to collaborate with our own sales team within our financial forecasting process. For example, we actually had predicted that we were going to have a much higher March than what our sales team was thinking they were going to sell by using the system. And so it helps us to ensure that we do have the right inventory levels to help drive that point of sale, and conversely, that we’re shutting items off when they’re going back out of season.”

Keys to Successful Shelf-Connected Demand Planning The nature of ScottsMiracle-Gro’s business requires navigating multiple demand planning challenges, such as product seasonality, weather dependency, new item introduction uncertainties and sometimes unrealistic forecasts by retailers. However, according to Iovino, the company’s shelf-connected journey has revealed several key capabilities delivered by its JDA solution investment that have proven critical to demand planning success, including: • The ability to develop a consumer-driven demand

plan and being able to leverage and pull POS data into the company’s planning models

• Close collaboration with its retail customers — channel accounts and larger accounts — and the ability to leverage those customers’ store-level data as well as judgmental inputs

• Integrating the demand plan with the supply plan, and using that information to ensure that supply plans are being responsive to any changes in point of sale and balancing production accordingly

• Engaging an extended supply chain for collaboration with key suppliers to ensure that, based on the forward-looking weather patterns the company is seeing, it is carrying safety stock of the right components

When ScottsMiracle-Gro first embarked on its supply chain evolution, it had three overarching objectives in mind: improve consumer relationships, provide a higher level of in-store support to retailers, and increase its supply chain efficiency. Over time, ScottsMiracle-Gro’s supply chain has evolved into a competitive advantage for the company and today provides high customer service while consistently delivering cost savings and free cash flow. The company has successfully accomplished its goals through its transforming initiatives — and in the process has been able to further differentiate itself, use innovation to drive growth, take costs out of the business, improve its retailer partnerships, and create an enduring franchise.