One of the nation’s largest and fastest-growing sports apparel manufacturers has turned to SAP BusinessObjects...
Planning and Consolidation -- also known as SAP BPC -- to give it more control over its sales and production operations, which bring in over $1 billion in revenue each year.
SAP BusinessObjects Planning and Consolidation is used by companies to do planning, budgeting and forecasting, as well as financial consolidations. SAP acquired the software when it purchased OutlookSoft in 2007.
Under Armour uses SAP BPC to gain insight into its production orders at factories all over the world, said David Roberts, corporate manager of financial planning and analysis at the Baltimore-based company. That includes what’s been ordered and when it’s going to be delivered, and which is matched against what’s been promised to the customer, he said.
It also allows the company to see when there’s going to be an issue with production, such as when a factory has exceeded capacity and won’t be able to meet its commitments, not after the ship has already sailed, Roberts said.
“By using BPC, we can manage all of that pretty easily in advance, instead of right at the time we need the product on the water shipping to our distribution center,” he said.
A ‘knee-jerk reaction’
It wasn’t always that way.
In 2005, roughly a decade after the company was founded, Under Armour entered into the highly competitive -- and lucrative -- athletic shoes market by introducing its own line of men’s and women’s athletic cleats.
“There was a tremendous demand for the product,” Roberts said, adding that the men’s line alone took 25% of the market share its first week on the market. Before long, Under Armour was having a hard time keeping up with demand for the shoes, as well as its apparel lines. That was in large part because the company relied on its vendors and other external factors to determine how much product the company needed.
Under Armour CEO Kevin Plank’s answer, according to Roberts, was to build inventory up so that sales weren't missed. That strategy failed when the economic recession left unsold stock sitting on warehouse shelves.
“So it was a bit of a knee-jerk reaction, if you will, to a very short-term challenge,” Roberts said.
To remedy some of those problems, Under Armour deployed BPC, to add to its existing SAP ERP for the apparel and footwear market.
While Under Armour was making its decisions around inventory based on what the company was seeing at the time, the SAP implementation has given it a way to make more strategic decisions both in the short term and the long term, Roberts said.
“We’re able to look at data, like our production schedule, how much product are we buying, when do we expect to receive it, who’s buying it from us,” Roberts said. “We can [now] do that up to 18 months in advance, which would be three seasons for us.”
The company is also able to plan up to five years on down the road, which can help highlight discrepancies between projections and the company’s business plan.
“Forget about what’s behind you; just looking forward resulted in an opportunity for us to gain greater efficiency and ensure that we never placed ourselves in that position again of having too much inventory.”
Doing more with less
Using BPC has allowed the company to involve people outside of finance to do routine budgeting and forecasting.
In the past, Roberts said, the company had only two people who could do that, and it took them eight weeks to do forecasting for the entire company, across all product lines and regions.
With BPC, business unit owners -- like a vice president of apparel, for example -- enter in information they already have, such as that included in their business plan, into BPC’s Excel-based interface. That information could include how much they’re budgeting for marketing or how many new hires they’re anticipating making.
Because of some programming that’s built into the spreadsheet, the information is then translated into the correct general ledger line item number, he said.
The process now takes two weeks, Roberts said.
“If you’re able to push it out to the people that are running the business day in and day out, have them engaged in the process, you’re getting far better information and making much better decisions,” Roberts said.
“So for us, it wasn’t just a reduction in time, it was the quality of the information, as well as placing us in a position where we’re no longer just aggregating the data but performing detailed analytics on the information that’s provided out of the system.”
Extending SAP BPC to partners
At the same time, BPC was able to do a better job of assessing the financial benefits of doing business with some of Under Armour’s partners, including retailers such as Dick’s Sporting Goods and Sports Authority.
“We were quickly able to see that there was validation for the marketing guys to spend all that money,” Roberts said.
Under Armour’s second-largest asset on its balance sheet is its in-store fixtures, including those in places like Dick’s Sporting Goods.
“If you walk into a Dick’s Sporting Goods, you may see the Under Armour store, the Under Armour concept shop within that store. All of those fixtures, the mannequins, the floorways where the product is folded and sold, the roundabouts, those are all owned by Under Armour,” Roberts said. “So we’re actually investing in Dick’s Sporting Goods. We believe they’re going to generate a certain level of revenue.”
With BPC, Under Armour was able to develop for each of these retailers a profit-and-loss statement, which indicate how much it costs to do business with that customer, including the co-branded advertising that Under Armour does with Dick’s, and how much money that relationship is bringing in.
“If we aren’t seeing returns in terms of sell-through or we get a huge chargeback or series of sales returns from Dick’s Sporting Goods, then it makes us think twice about whether or not we’re going to continue to make the same level of investment in that customer,” Roberts said.
That’s a huge change from the way Under Armour used to do business, he said.
“Before we were just blindly throwing dollars, hoping that it resulted in some kind of return on investment,” Roberts said. “Now we have a truly quantifiable way to identify how much each dollar is returning to the business in terms of profitability.”