Building a stronger supply chain through automation

Today’s technology leaders must deeply understand their organization’s financial health, from top-line revenue to net income. This financial literacy empowers IT to contribute meaningfully to the organization’s bottom line and to the success of any initiative.  

Measuring the outcomes of IT projects is essential for building credibility. By demonstrating tangible results, technology leaders can secure support for future projects and gain a seat at the decision-making table.  

It’s time to shift from a purely technical mindset to a business-focused approach. Focusing solely on operational tasks is no longer sufficient. IT must become a strategic partner that drives business growth.  

For those unfamiliar with Peavey Industries and Peavey Mart, we’re a 100% Canadian- and employee-owned retailer dedicated to serving farmers and ranchers with more than 90 stores across the country. We also operate a select number of Ace Hardware corporate stores and maintain a vast Ace Hardware Canada dealer network.  

My role encompasses all aspects of technology at Peavey, from our IT infrastructure and service desk to business intelligence, application development, and cybersecurity. In early 2023, I also took on the expanding ecommerce business at Peavey, with P&L responsibility. Taking on this side of the business has been one of the most adapting moments in my career, and I’ve already lead growth in our sales through this channel by 7% YTD. I’m excited to see how much more we can grow this part of our business in the coming years.  

Automating our way to efficiency: A supply chain transformation 

I’d like to discuss our transformation journey with automation, both before and after the pandemic, focusing on its impact on our supply chain and internal processes. Business process automation (BPA) has become a cornerstone of our strategy this year.  

When I joined Peavey, I discovered many manual tasks across various departments that were consuming too much time and too many resources. For instance, in HR, the hiring and termination process were manual tasks, and in retail, as you’d imagine, there’s a high percentage of turnover at the store level. This was an immediate opportunity for automation. 

Another manual task ripe for automation was auditing freight bills to ensure we were not overpaying. It’s common in the industry that 10-12% of freight bills are miscalculated or prone to errors, so catching these errors can save a lot of money — but as a manual task, it takes a lot of time. So as our business grew, we faced a critical decision: expand our workforce or invest in technology. We opted for the latter.  

While BPA isn’t a new technology, it was a novel concept for our organization. We recently piloted a BPA solution to our supply chain to streamline vendor cost changes.  

This process was entirely manual. We would review the vendor changes from our thousands of vendors on a weekly basis — sometimes daily, depending on market prices — against contracts and timelines. These changes, both increases and decreases, were then input manually into our ERP system. Delays or oversights in this process, which have happened in the past, directly impacted our profit margins. Accurate cost data is crucial for setting competitive prices while maintaining profitability. While the pricing strategy involves multiple factors, precise cost information has saved us millions of dollars in potential losses.  

The importance of process documentation for successful automation 

The supply chain BPA pilot was successful primarily because we had thoroughly documented the process. That level of documentation is essential for successful automation. We can measure our progress effectively by linking a key performance indicator (KPI) to this process.  

To identify KPIs, you must collaborate with the business function. In the above example, it turns out that finance was already tracking the pricing error rate, which was directly tied to measuring vendor cost changes and their impact. This revealed the 2.1M dollar margin problem. Additionally, monitoring margin improvement against these changes allowed us to measure the overall effect of automation. Lastly, we tracked how many labor hours were tied to manually updating these vendor cost changes. Since we’ve started tracking labor hours, we’ve reduced two days a week of effort from the merchandising team.  

Many BPA projects fail due to a lack of understanding of the process. How can you automate something you don’t fully understand? To address this, we’ve implemented a strict requirement: All processes slated for automation must be fully documented. Otherwise, we won’t even touch them. This places accountability on business units to clearly define their processes before automation can begin.  

Building a sustainable automation program: From development to operations 

At Peavey, automation was a new focus for the organization, and while the development team was great at figuring out how to automate key processes, we still needed to ensure we had resources to operationalize and maintain these automations. Things will break, automations will get stuck: Continuous care and feeding are required.  

We’ve carved out dedicated time within our existing resources to spend on operations. As we continually add more, we will expand the team and leverage the proven savings to pay for those resources. It’s essentially a flywheel: As we continue to improve efficiency, we want to reinvest those savings back into the team so that we can continually grow and innovate.  

With respect to change management, we communicated clearly to all involved about the issue, the benefits of the solution (including reduced workload), and the new post-launch procedures. We aimed to prevent reverting to old methods and to establish the merchandising team as responsible for the new process by including them from the start. While challenges and setbacks are inevitable, early problem identification and consistent process assessments help minimize change-related difficulties.  

We anticipate recovering well over a million dollars in margins once we fully implement BPA, a substantial figure that has captured the attention of our CEO and CFO. This success will serve as a catalyst for future automation initiatives.  

Crawl, walk, run 

A key lesson I’ve learned is to start small. Incremental improvements can lead to significant gains in efficiency. As employees — and management — witness these successes firsthand, they become more enthusiastic about automation’s potential. Our goal is to transform automation from a perceived threat to an opportunity for more strategic and impactful work.  

This summer, we automated the freight bills process, leveraging Microsoft Azure AI Document Intelligence. We trained a model that can read specific freight bills and compare those bills against our rate cards and contracts to ensure we are being billed accurately and reliably. It’s standard in retail that 10-12% of bills are incorrectly invoiced. Our initial proof of concept workup revealed that one vendor overcharged us by $120k — enough to solidify this project’s success!  

We are now on the cusp of migrating this proof of concept into production in the coming weeks. This new AI automation will save our company minimally $60-100K annually.  

Next steps: The journey continues 

Automation is an ongoing journey, but we’re excited about the possibilities. Our organization has embraced automation, and our employees and business leaders are becoming its strongest advocates.  

We plan to build a center of excellence around automation. We are close to that tipping point as we continually provide value with each project we deploy. While we’ve just scratched the surface of automation, there are many more use cases within the existing functions we’ve talked about here, and the other business units are catching on. We get asked on a weekly basis if we can automate different processes business units identify as opportunities.  

It really is endless. We don’t see automation as a threat to our employees, we see it as an opportunity for them to focus on higher-value tasks which in turn should either generate higher profitability or generate better ideas on how we can improve in other areas. When you lift the limitations on a person’s workload, it allows them to be more creative and strategic. And we always want more amazing ideas and engaged team members.