Case Studies

Climbing to the Top

Company uses technology to reach new heights in outdoor-equipment distribution business.
This story appears in the August 2005 issue of BizTech Magazine.

 


Photo: Alden Pellet/Getty Images
Clarke Thibault, Information Systems Manager, Peregrine Outfitters

Peregrine Outfitters INC. is like a Swiss army knife for outdoor-gear retail stores.

 

The Williston, Vt.-based distributor stocks more than 6,000 outdoor products, from sleeping bags, tents and hiking boots to guidebooks, maps and flashlights. If an outdoor-product retail store is running low on supplies and needs to replenish fast, many turn to Peregrine Outfitters, one of the nation's leading wholesale distributors of outdoor accessories.

 

When president Bob Olsen, an avid mountain climber in his youth, started the company in 1988, he had one employee, one computer, two makeshift desks made of door frames sitting on file cabinets—and the dream of transforming his love of the outdoors into a successful business.

 

Today, Peregrine Outfitters pulls in $10 million to $20 million a year in revenue, supplying merchandise to 1,600 outdoor-gear retail stores nationwide, including large retailers such as L.L.Bean and Eastern Mountain Sports. Technology contributes heavily to the company's success, from making warehouse operations more efficient to generating insightful data on sales trends that help executives make better business decisions.

 

 

"When you're a distributor, working with manufacturers and retailers, you have the narrowest profit margins in the food chain," Olsen says, adding that technology helps the company be more efficient. "We can operate with fewer people and have lots of information available to us, so we can see how our business works, what the costs are and how to price products."

 

"When you start understanding the customers, the vendors and products, you can wheel and deal with some level of confidence."
—Clarke Thibault

The $18.7 billion outdoor-sports market remains healthy for Peregrine Outfitters and others in the industry, says Julia Clark Day, general manager of retail sales tracking for the Leisure Trends Group, a market research firm in Boulder, Colo. In the past year, the industry has seen strong growth in areas where there's a lot of product innovation, such as shoes, women-specific products and backpacks with hydration systems that allow people to drink water from tubes, she says.

 

Peregrine Outfitters, which competes against three other national distributors, found a profitable niche by focusing on such accessories. For example, when colored water bottles burst on the scene about five years ago, Peregrine's annual revenue skyrocketed 10 percent to 20 percent for several years. Now that water bottle sales have peaked, the company still enjoys an 8 percent to 10 percent revenue growth each year. Olsen, whose staff balloons from 35 to 50 employees during the busy summer months, is optimistic his company will continue to grow steadily.

 

To further increase revenue, he offers extra services, such as sticking the retail stores' price tags on products before shipping them. Olsen has also launched a new division, called Peregrine Distribution Services (PDS), to manage the warehouse and order-fulfillment operations for outdoor-product manufacturers.

 

Technology Boosts Bottom Line

 

Peregrine uses a combination of commercial and custom-made business applications to speed the company's warehouse operation and give managers the ability to manage costs, spot sales trends and attract larger customers. Recent software investments for Peregrine's new PDS division allow the company and its customers to link their computer systems, to further facilitate their business together. At the heart of Peregrine's tech infrastructure is commercial enterprise resource planning (ERP) software that runs the company's accounting, order entry, inventory planning and warehouse management.

 

Peregrine ships orders on the same day, so an efficient warehouse operation is critical. All the elements of the ERP system work together. Inventory planning software, for example, keeps a running count of supplies in the warehouse. When an order comes in, the software automatically reserves the supplies in the warehouse for that order, says information systems manager Clarke Thibault. When inventory gets low in the main warehouse area, the software alerts warehouse workers, so they can quickly restock by moving extra inventory from the surplus section to the main warehouse.

 

To speed the packing and delivery of products, warehouse employees receive computer printouts with directions showing the fastest routes to find the products in the company's 35,000-square-foot warehouse. For example, if a 20-item order comes in, the printout shows the step-by-step sequence workers should travel through the warehouse to pick up all the products. The result is improved worker productivity and faster packaging and delivery, Olsen says.

 

Each warehouse employee also uses computers with custom-made time-management software that tracks how fast they gather merchandise and pack the orders. The company gives bonuses to the warehouse employees with the fastest results, Olsen says.

 

Carolyn Whitney, office manager for The Mountaineer, an outdoor-equipment store in Keene Valley, N.Y., is impressed with Peregrine Outfitter's customer service. Her store orders supplies every Monday and receives the products by Wednesday or Thursday. "They are probably the best company we deal with. They're reliable," she says.

 

Peregrine has an e-commerce Web site, but most customers are smaller retailers who prefer to place orders through phone or fax, Thibault says. Larger customers prefer to conduct business through Electronic Data Interchange (EDI). Peregrine's ERP software allows the company to support EDI, which has helped Peregrine attract and cater to the needs of larger customers.

 

Purchase orders through EDI are automatically entered and processed by the ERP software. Because companies use different vocabularies for EDI purchase orders, Thibault has hired an outside company to translate customers' EDI vocabulary preferences, so Peregrine's software can understand the purchase orders. Still, Thibault monitors EDI transactions daily because orders don't get processed if there's a translation mistake.

 

Sales Trends

 

Peregrine's business software and databases also churn out reams of sales reports that executives use to analyze trends, so they can make better business decisions, Thibault says.

 

"If information were water on a stone, Peregrine would suck it dry," he says.

 

Every month, the software breaks out sales information by customer, region and merchandise and compares it with data from the previous year. It allows Peregrine executives to spot trends and figure out how much of each product it should order in the future, Thibault says.

 

The company also uses software to analyze costs to determine whether a product is profitable. The software analyzes the price at which the company sells the product to retailers, along with all expenses, including the cost of purchasing the product from manufacturers and the cost of storing the product. Every quarter, the information helps Peregrine executives determine whether its relationships are profitable. If they aren't, the company can change policies or renegotiate deals. Peregrine can demand lower prices from the manufacturers or higher prices from its retail customers, for example.

 

"When you start understanding the customers, the vendors and products, you can wheel and deal with some level of confidence," Thibault says. For example, about three years ago, the company realized it was losing money by offering free shipping to customers who ordered at least $300 worth of merchandize. Peregrine increased the minimum order to $500 for customers to receive free shipping.

 

In the past year, the company also has purchased servers, upgraded its server operating system to Windows Server 2003, upgraded its Exchange e-mail server software and installed firewalls, Thibault says. For the warehouse, the company has replaced its old PCs running Windows 95 with new PCs running the more stable XP operating system.

 

New Business Opportunities

 

For the new PDS division, the company recently bought remote access software from Microsoft and Citrix Systems and installed virtual private network technology, so customers who have outsourced their warehousing operation can securely connect to Peregrine's computer system and vice versa.

 

So far, four manufacturers have outsourced to Peregrine, including an Italian hiking boot company and French sunglasses maker. Peregrine began the new division about four years ago with one customer, but over the past year, the company has made it a strategic initiative because many manufacturers have approached the company to run their warehouse operations.

 

Olsen believes he can attract more manufacturers who want to enter the U.S. market without having to build a distribution center. The new business will keep the warehouse busy during the winter, historically the company's slowest time of year. Revenue from the new initiative could potentially exceed current sales five to 10 years from now, he says.

 

"It's a small part of our business now," he says. "But we have a lot of momentum, and it's a nice opportunity to even out our revenue throughout the year."

 

 

IT Takeaway

In distribution, IT is critical in many ways to keeping the business running smoothly and profitably. Among them:

Dealing with Electronic Data Interchange (EDI) incompatibilities: Large customers prefer to conduct business through EDI. However, there is not a single standard vocabulary for EDI. Although many enterprise resource planning (ERP) packages support EDI, different vendors can use different EDI vocabularies. Peregrine uses an outside company to translate the EDI orders, but Thibault still monitors the EDI transactions daily to make sure there are no mistakes.
Tracking sales to make accurate forecasts: Monthly sales reports break out orders by customer, region and merchandise, and compare these numbers with those of the previous year. This enables executives to forecast sales and stock inventory more accurately.
Keeping tabs on costs: Peregrine uses software that tracks all the costs associated with any given product. This lets the company quickly identify unprofitable merchandise or deals and adjust their prices if necessary.
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