The Spice & Tea Exchange redefines its business with integrated inventory management system

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If you’re looking for some Bird’s Eye chile peppers in Anchorage, Alaska, or Golden Monkey tea in Chattanooga, Tenn., The Spice & Tea Exchange can quench your culinary thirst and soothe your psyche.

But this unique variety of over 250 items in each of the company’s 54 franchise stores didn’t exactly have a calming effect when store and sales growth resulted in an accounting nightmare and managing inventory became an increasingly frustrating task, says Matt Kessenich, director of finance for the Palm Harbor, Fla.-based retailer.

“We’ve been growing at a pretty steady clip of 20–25 percent over the last four or five years and we expect to post about the same this year with six or seven new locations opening their doors,” he says.

“But growth is difficult to maintain when it outpaces the capability of your accounting software.”

Growing pains

The Exchange was founded in 2008 with a mission of “creating and sharing the experience of a more flavorful life.” Through the years, its stores have remained true to the original concept, with interiors reminiscent of an 18th-century trading post — down to the apothecary-style jars lining the shelves — and an interactive shopping experience where guests are encouraged to smell the spices and watch spice masters creating unique blends.

The company’s stores, which run about 1,000 square feet, are spread across the country, many in tourist-driven areas with high foot traffic like Orlando, Fla., Rehoboth Beach, Del., and Williamsburg, Va.

Kessenich, with a background in construction, manufacturing and intricate product tracking, joined the company two years ago to help it through what could have been a difficult transition.

“The major issue with our accounting system was simply that we had outgrown it. We were operating under the QuickBooks enterprise edition. That was their top-of-the-line system which had worked well for us. But it was time to move on,” he says.

The company does some manufacturing and blending; with most products, he says, raw materials are sent to its production facility for development, and then sent to franchisees. The Exchange sources from more than 80 suppliers, what Kessenich calls “a lengthy list that’s a challenge to handle. Our system couldn’t handle the logistics of just managing the inventory and processes we had in place.”

Paperless processes

In its search for a modern accounting and inventory management system, the company looked for a scalable, cloud-based solution flexible enough to handle its growth and unique business requirements. It found both with Xero and Cin7.

Distribution and production management system Cin7 introduced logistical efficiencies throughout The Exchange’s supply chain — from vendors to warehouse and production and finally to franchisees. Xero, the core general ledger accounting system, helps maintain the data.

“The combination of the two accomplishes about 85 percent of what a $200,000 system could do for us — but in a more flexible and cost-effective way,” Kessenich says.

“Cin7 allows us to complete fulfillment electronically on tablets. We can track, [in] real-time, the flow of product from the receipt of raw materials down to shopping labels for boxes. We can capture far more information than ever before. We can also track by lot and batch numbers from the source through production and distribution, so we know what product went to which stores and when.”

The Exchange uses a system called Concur for expense tracking and invoice processing. Between all three, the processes are essentially paperless and can track all processes smoothly.

“All three systems talk to each other and use their own expertise,” he says. “It’s better than trying to have one system do it all.”

Consistent communication

The company’s main production plant and distribution center for stores is in St. Augustine, Fla. “We haven’t outgrown it yet,” Kessenich says, “but going to a third-party warehouse will probably be the next phase of our growth.”

Handling hundreds of products for dozens of stores was far more labor intensive with the old accounting system. The warehouse staff previously had to print out paper orders and pick lists. After pulling products for those orders, they entered information into the shipping software to print labels. Then someone had to enter the orders off the paper pick list into the accounting system for transaction processing.

“The efficiencies we’ve gained are on the cost and processing side. We’re seeing places where we didn’t even know inefficiencies existed because they never showed up in the numbers.”
— Matt Kessenich, The Spice & Tea Exchange

Outgrowing the accounting system was causing significant problems, one of which was that the company deals in perishable foodstuffs. And most of the tea and spices are configured differently, Kessenich says, so there can be multiple variants of each item.

“Because so much of the process is manual we didn’t have a great batch tracking system for lot numbers and raw ingredients, so everything ended up throughout our system for sale to end users,” he says.

“We’ve been lucky not to have had any sourcing issues where raw materials turned out to be bad or contaminated in some way. Under the old systems, tracking that down would have been difficult. We probably would have had to cast a very wide net and recall a large volume of product to make sure we caught anything that might have caused a problem,” Kessenich says.

The system also impacted the company’s relationship with vendors, many located overseas. “Dealing with them was also manual. Everything was written on paper or handled with a phone call. We were just asking for errors,” he says.

Now everything flows electronically and is tracked by one system, which is a benefit for vendors. “It makes the communication process simpler and more consistent. There is less miscommunication because we can send things directly from our system and track source documents.”

Gaining efficiencies

Because the system is web-based, implementation and use is efficient and cost-effective. Actual implementation at The Exchange took three months, and included access to Cin 7’s systems, a repository of training data and on-call guidance.

Initially, franchisees didn’t even have to interact with the new systems, though Kessenich says that might change.

“Cin7 has a fairly robust point-of-sale and franchise processing system they’ve just rolled out as a draft. They’re working on redesigning the POS system and we’re hoping to be involved in the development. If things work out, we might be able to implement a POS system for our franchisees that would enable them to view inventory and place orders directly into our system through their own. Then everyone will be speaking the same language.”

Using these systems has enabled the company to learn a lot more about what it has to do on a daily basis. “So far, the efficiencies we’ve gained are on the cost and processing side. We’re seeing places where we didn’t even know inefficiencies existed because they never showed up in the numbers,” Kessenich says.

“We’re seeing labor costs broken out by production job and we can see how much product we have to produce at any given time. We’re able to fill orders more quickly and accurately. Time previously spent tracking down paper can now be shifted to creating value for the company,” he says.

“Basically, it’s redefining the way we do business.”

Len Lewis is a veteran journalist and author covering the retail industry in the U.S., Canada, Europe and South America.

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