Fancy Footwork Moves Inventory

When Skechers USA Inc. reported its third-quarter earnings in October, it noted that net sales for the three months ended Sept. 30 were down year over year, from $261.1 million in 2002 to $221.8 million in 2003. However, sales were higher than anticipated because Skechers had cut prices on its footwear by almost 20%. The company had lowered its prices as part of an "aggressive approach" to reducing inventory levels, CFO David Weinberg said in a statement.

When Skechers reported its results, the company also said that it plans to implement by year's end a cost-reduction program to reduce overhead expenses. But improved inventory management is already helping Skechers run lean.

The company's 1.5 million-square-foot distribution center in Ontario, Calif., handles the receipt and shipment of more than 40 million pairs of shoes annually for Skechers, which is expected to record $900 million in revenue this year. A year ago, the company installed a wireless inventory-management system from Psion Teklogix Inc. that works with warehouse-management software from Manhattan Associates Inc. that Skechers installed three years ago.

"It helps us do everything from inventory control to using application logic to efficiently repack" shoes, says Paul Galliher, VP of distribution. Previously, pulling products for shipment had been very labor intensive. With the mobile system and software, "we can now use logical pick paths and improve all the shipping processes with the proper documentation generated that allows us to see at which of our four buildings we can schedule a pickup." The improvements saved about $1 million annually.

The process starts when Skechers receives the products from its Far East manufacturers. Each box packed with six to 12 pairs of shoes includes a bar code that's scanned by a Psion handheld device; the information is matched against a database to assign the products to a specific pallet that's heading for a specific warehouse location.

When orders are received, an operator can log into the Manhattan Associates system to quickly find information about where the products are located and set up the most efficient plans for picking stock. The products are scanned again as they're repacked according to customer requirements for shipping, so they can be tracked through distribution channels.

The process "eliminates absolutely tons of paper, and paper generally would get lost somewhere along the line," Galliher says. "It helps us expedite the product through our buildings," thereby expediting shipments.

The company began its efforts to improve inventory management at the turn of the millennium, when Skechers was growing by more than 20% annually. An overhaul of its warehouse operation and distribution efforts was a necessary component to maintain growth, Galliher says, although growth this year will be flat compared with last year. "We had to look at what our operating environment was going to be a couple of years down the road and could we keep up with it using our existing infrastructure," he says. At the time, "the unanimous answer was a resounding no."

Skechers isn't done revising its inventory procedures yet, he says. "It's never really finished," Galliher says. "As our customers throw new things at us, we'll continue to change accordingly. It's all about being able to adapt quickly."