From the Ground Up

By Tammy Mastroberte

After reviewing the capabilities of its legacy and proprietary systems across the company, including both headquarters and store-level technology, Wawa Inc. knew it needed a change to improve its operations and support the growing business.

The company wanted the ability to forecast inventory needs for all categories, ease the ordering process for general managers and revamp its foodservice systems to allow for perpetual inventory using forecasting and replenishment at the item level. And the company wanted everything integrated into one seamless solution and centralized at the corporate level.

"We were using a combination of proprietary and vendor systems, and we struggled with adding new systems onto the landscape that had been built over the years," said Michael Kinzly, senior project manager in the IT department at Wawa Inc. "We wanted an integrated inventory solution and a single vendor to supply the solution."

After a detailed analysis, the company chose SAP Retail to meet its technology needs with a new financial system; point-of-sale (POS) data management; inventory and price management; business intelligence; and advanced forecasting and replenishment capabilities for all categories, including foodservice.

Wawa outsourced the infrastructure to SAP, meaning "all the hardware resides in SAP's data center outside of Philadelphia, and SAP provides services to manage the landscape," explained Kinzly. "We have a connection from their data center to our data center. When we entered the relationship with SAP, we did not have technical skills necessary to manage the SAP environment. We leveraged SAP Hosting as a way to mitigate this implementation risk."

At presstime, 73 stores were live with the new system, with Wawa planning to roll out 30 stores a week. "We started piloting the retail components in September 2006 with a single store, and over time added additional stores while refining the solution based upon input from each store," said Kinzly.

Breaking Down the System
Using SAP's Netweaver Web portal and BW (business warehouse) system, headquarters employees as well as the general managers can access inventory information and more using the Web. "There is software that resides on the PC at the store and corporate that allows associates to access SAP," said Kinzly.

Starting at the corporate level, Wawa implemented SAP ERP 2005 (enterprise resource planning) as its base financial system in May 2006, which provides a system for accounts payable, fixed assets, general ledger, treasury accounts receivable and project systems.

At the store-level, SAP's SRS Retail Store system is the inventory and reporting mechanism that allows general managers to execute and approve orders, run reports and view inventory information from the back-office computer, as well as from a Symbol handheld device.

"A custom handheld solution was developed using SAP Console, which enables communication between the handheld device and SAP ERP," noted Kinzly. "Managers can view orders, perform a cycle count, manage spoilage and perform scan audits to ensure the inventory is accurate. It allows for ordering and receiving."

Wawa's POS system is Triversity, which was bought by SAP in 2005. To manage its data from the POS, the company is using SAP's POSDM or POS data management tool for sales auditing. This tool polls the POS every five or six minutes for store data, and it gets audited. Each night, the transactional data filters through the POSDM for processing at the headquarters, and general managers receive data regarding cashier productivity.

BW, SAP's business intelligence system, provides inventory information via reports at corporate using BW Analyzer, an add-on to Microsoft Excel, and at store-level using the Portal. SCM, the supply chain management system for forecasting and replenishment (F&R) has also been integrated. The advanced F&R system automatically generates orders for each store based on sales information, and managers can make any necessary changes and approve the orders each day.

"The solution takes all the knowledge the managers had to keep in their heads and puts sophisticated technology behind it," said Kinzly. "It will be a huge competitive advantage for in-stock position. If we do run out of stock, the system can estimate how much would have been sold and then adjust the order to receive more the next time so the out-of-stock won't occur."

In addition to the various SAP systems, the company also integrated JDA's Intactix space management program. It interfaces with SAP and general managers can look at planograms to "drive what items get ordered for the store," said Kinzly. "It allows you to see hot spots and cold spots."

It also makes sure each store is merchan-dised to the correct planogram. Category managers can access the system at headquarters and update it as necessary. "The general manager can go into the system and look at the layout, floor plan and planograms in real-time," he said. "He or she can bring it up on the screen, print it out and see if it matches the planogram in his or her store."

The program replaced planogramming books that were "outdated the day they were published," said Kinzly, and the new system also prevents direct-store-delivery (DSD) vendors from bringing in unauthorized items.

Before the JDA system, it was left up to the managers to make sure they were not receiving unauthorized items, and now vendors can only bring in products on the planogram. "It forces DSD vendors to be much more compliant," said Kinzly.

Forecast and Replenish
Automatic replenishment is not anything new to Wawa. The company was operating this way in all categories except for foodservice using its old legacy systems, although they were not as "robust," said Ben DiDonato, forecasting and replenishment and master data at Wawa. And the company did not do any forecasting.

"If you wanted to predict how many packs of Marlboro you would sell on Monday, it would take your sales from the last four Mondays and divide by four," he explained. "There was no looking at trends year over year or seasonality. It was a form of automatic replenishment and was better than ordering manually, but it was mainly based on averages with no trends and no real forecasting."

Now, SAP's SCM system looks at trends for the past 104 weeks of sales history and factors in year-over-year analysis, seasonality and the current inventory at the store. The system also allows planners to enter in a "demand-influencing factor" that could affect sales at a particular store.

"If in the store's history there was an external factor like a road closing or a heat wave, or if a holiday falls on a different day this year than it did last year, we can have the system react to that," said DiDonato. "For example, if something goes on promotion in July, but last year we did the same promotion in September, we can tell the system to use September's sales from last year to forecast rather than last July."

A similar approach is used to introduce new products, which do not have a history to forecast against. If a new product is introduced, the system can mimic the sales pattern of a similar item until it has its own sales history to use.

"We are coming up with our own isotonic beverage, and we can configure the system to use the demand pattern for another existing item, and it gives us a huge leg up when we launch new products," said Kinzly. "It helps us maintain an in-stock position by mimicking the demand of another product, and then over time the F&R will use actual product sales."

Furthermore, when a new store is open, instead of opening with no sales history, the system can reference the history of another store in the area. As the new store begins to create its own history, the system will begin to factor that in as well, said DiDonato. The company also created a business warehouse team to take the data from the old legacy system and input it into the new system to create the first order.

A forecasting and replenishment department, newly created and housed at headquarters, controls the orders for each store and takes care of any changes. The team consists of one planning manager and six planners. Orders are generated each day based on sales and forecasting through SAP, and general managers can access orders via the back-office computer or handheld.

"We have people here seven days a week managing the orders," DiDonato explained. "The orders are generated at headquarters, and the planners review them based on exceptions. They go through and resolve the exceptions and the orders get released at midnight. When managers come into the store the next day, it is there for them to review, and they have until 11 a.m. to review and make any changes, and until 3 p.m. for warehouse orders."

If there is a specific event the general manager knows about, such as a parade or a carnival, they can communicate that to the team to create a demand-influencing factor, noted DiDonato.

At presstime, Wawa was generating 760 order per week, and by the end of June, the company will be up to 1,700 a week, said DiDonato. "At the end of the rollout, which should be by the end of this year, we will be up to 1,200 orders per day," he said.

Revamping Foodservice
Dispensed beverages, coffee, bakery items and made-to-order sandwiches and wraps -- the foodservice list goes on and on at Wawa. With such a robust offering, the company knew it had to make a change and figure out a way to apply perpetual inventory as well as forecasting to the category.

"We were doing perpetual inventory on everything except for DSD-supplied items and foodservice," said Kinzly. "But now, with the growing foodservice business, the huge win is that perpetual inventory allows us to generate all the orders for our foodservice items."

To get to this point, the company had to change the way it inventoried foodservice items and ingredients, and get down to the individual item level, such as a slice of cheese or piece of tomato.

For made-to-order items and premade sandwiches and wraps, each ingredient is inventoried and replenished based on goods movements leveraging the forecasting and replenishment system.

"We built a module into SAP, which is very configurable," said Kinzly. "SAP is a bunch of building blocks that you put together the way you want. It can do anything, but you need to understand your business processes and what your objectives are first. We configured it to our business rules and processes, and built a recipe capability to do what we needed. We spent time to make sure we could build out as we offer more foodservice items."

Using Radiant Systems self-service kiosks, Wawa customers create made-to-order sandwiches, and the orders are sent to the kitchen to prepare. The customer also receives a receipt with a barcode that is scanned at the POS for payment. Customer activated terminal (CAT) information from the Radiant kiosk merges with the sales data from the POS, and the company can tell what ingredients are being sold for each sandwich.

"Now we know exactly how much money we are making on that sandwich with that customer," said Kinzly. "Foodservice is tricky because with cheese, for example, you are ordering and selling by the pound in the case of deli, or by the slice in the case of a sandwich," explained Kinzly. "It's not like a candy bar. But we built the system to be able to manage in a similar fashion as a candy bar. If we sell a sandwich with cheese on it, the inventory is decremented by the amount on the sandwich."

In addition to sales at the POS, general managers do cycle counts and record spoilage in the foodservice category to create an accurate order within F&R. This is done for bakery items as well as premade and made-to-order sandwiches and wraps.

"If we have 20 premade wraps, sold 18 and spoiled two, it all gets recorded, and we know what ingredients we used and what needs to be replenished based on the recipe," said Kinzly. "When we sell a roast beef wrap, we know it has roast beef, the wrap, horseradish sauce and American cheese, so we know how much inventory was sold or spoiled. The same thing holds true with made-to-order items."

The company is now at perpetual inventory in the foodservice category, as well as forecasting usage for all the ingredients in the made-to-order categories. "It has simplified the ordering process for the general manager, and we have increased control over the inventory of the category," noted Kinzly.

The next big benefit will be profitability analysis. "We will be able to understand the profitability of each item sold in the store," said Kinzly.

Dispensed beverages and coffee also posed a challenge because at the time of sale, the cashier does not know what type of coffee or drink is being sold.

"We don't know what is in the cup when a customer comes up to pay," said Kinzly. "We know it is a 44-ounce beverage, but is it a diet or a regular beverage? So we receive the unique article as Diet Pepsi or Diet Coke, but convert it to a generic post-mix article for sale. We can't do forecasting and replenishment on these items because we don't know the sales pattern. The same thing for coffee -- we have five or six flavors, but we don't know which flavor the customer is buying at the time. We receive by flavor, but when it goes to update inventory it is a generic coffee article."

The same inventory system is used for bakery items as well. Items are received as a glazed doughnut or a chocolate doughnut, but converted into a generic doughnut article.

In the future, Wawa would like to factor in spoilage and begin forecasting the bakery category along with its other food items. While the information is being captured today, the company would like to get the sales number and feed that number into the F&R system. "Then we can do a more accurate order for bakery products. Additional research is required to understand how F&R will react to the sales patterns. Right now, an order gets generated centrally based upon input from the general manager," said Kinzly.

Currently, the only items not on perpetual inventory are supplies such as coffee cups, napkins and sugar packets where there is "minimal value in maintaining a perpetual inventory."

The long-term vision is to leverage the F&R system for DSD items as well. "We use the F&R system on all Wawa dairy, beverage and McLane items, and would like to start doing automated ordering with the DSD vendors," said Kinzly.