Hobby Crafts Leader Reduces Inventory $5 million in 6 months with SmartForecasts and Smart Consulting Services

SmartForecasts plays big role in supply chain transformation at Creativity, Inc.

Creativity, Inc., based in Van Nuys, California, is a mid-size importer and distributor of a variety of arts and crafts products, such as beads, macramé, scrapbooking supplies and other consumer craft items.  It was formed in 2000 when a private investment group purchased Westrim Crafts, a pioneering leader in the hobby crafts industry since 1951.  Since then, the business has grown significantly with the acquisition of four more craft companies: Blue Moon Beads, DMD, Crop-In-Style and Autumn Leaves.  Creativity now has about 400 employees and more than $100 million in annual sales, making it one of the top five U.S. suppliers in the general crafts sector.

As Creativity’s business has grown and changed since 2000, so too has its customer base.  The company transitioned from selling primarily to small independent retailers to supplying mass merchants, such as Wal-Mart, Target, Michaels, and Jo-Ann Stores.  To satisfy the needs of its new clientele, Creativity now manages over 12,000 SKUs in its inventory and maintains distribution warehouses in Van Nuys and Springdale, Arkansas.  A third warehouse in California is expected to open later in 2006.

The Challenge
Due to its recent and rapid growth, Creativity, Inc. was experiencing difficulties managing its supply chain.  In particular, the company was having trouble meeting its customers’ high service level requirements, which in turn led to excess inventory problems.  At the time, inventory stocking decisions were being made subjectively—eyeballing demand trends and inventory needs using primarily point-of-sale and customer inputs.  With many thousands of active SKUs to manage, this process was becoming increasingly challenging, time consuming and costly.

With the assistance of ADR North America, a consulting firm specializing in supply chain improvement, Creativity’s senior management started a campaign to transform its supply chain and the business processes that drove it.  The campaign included a major upgrade of the company’s information systems architecture together with the implementation of SQL Server-based data warehouses.  It also identified the need for a better, more appropriate solution for forecasting demand and optimizing company inventories.

“We needed a sophisticated forecasting and inventory planning system that could predict future demand, help us optimize our inventories, and enable us to provide superior service for our customers,” explains Nick Lazarou, vice president of supply chain planning at Creativity, Inc.

The Solution
In early 2005, Creativity, Inc. purchased the SmartForecasts® Enterprise demand forecasting, planning, and inventory optimization system.  Some of the key factors in the company’s decision were SmartForecasts’ user-friendly interface, ease of implementation with the company’s new information architecture, and management’s confidence that it would help them accomplish their inventory optimization and service level goals.  Smart Software was also able to demonstrate convincingly that SmartForecasts would have a quick payback and high ROI due to expected reductions in excess inventory.

Because the supply chain transformation effort had identified shortcomings in Creativity’s demand planning process, the planning staff was reorganized into functional roles with one group dedicated to the forecasting function.  In order to better familiarize the forecasting group with SmartForecasts and derive maximum benefit from the system, Creativity purchased customized training and business consulting services from Smart Software.  A two-day training/consulting session was conducted on-site at Creativity in May 2005.  It introduced SmartForecasts to the entire 19-member planning staff, including the three individuals directly responsible for the demand forecasting function.

“The consulting was an eye-opener,” according to Lazarou.  “Because of the consulting, we really understood SmartForecasts, and it was terrific preparation for our implementation.  We were very impressed with the product’s potential for our company.  And because SmartForecasts was so easy to use, team members were able to immediately use the solution to help identify unusual demand patterns in the historical data and produce forecasts.”

Because the company’s new SQL Server-based data warehouses were not yet operational, the planners took advantage of SmartForecasts’ ability to work with a variety of platforms, and temporarily integrated it with a Microsoft Access database.  The system was up and running in just one week, and yielding usable results shortly thereafter.

Creativity continued to use SmartForecasts with the Access database until the company’s information architecture was complete in July 2005.  Under the new architecture, SmartForecasts is integrated with a SQL Server data warehouse that acts as a repository for demand history data.  Forecast results produced by SmartForecasts are saved to the data repository and used by the sales and marketing departments, while its safety stock recommendations are used by inventory managers as input to the company’s ERP/MRP system. 

The Results
The initial results were very impressive!  During the first three months, using SmartForecasts with Access, Creativity was able to cut its finished goods inventory by $2 million.  This represented a complete payback on the company’s SmartForecasts investment in less than one quarter.

When the company moved to the new information architecture and SmartForecasts was integrated with the SQL Server data warehouse, the results got even better.  In just 6 months, the company boasted nearly $5 million in total inventory savings.  Remarkably, this was achieved as the company increased its fill rate, in some cases, to nearly 100 percent and experienced a double-digit percent increase in sales.

“SmartForecasts tells us exactly how much safety stock we need to carry,” said Lazarou.  “This capability insulates us from failure.  We have more of what we need and less of what we don’t.  And it’s working very effectively!”

Today, Creativity’s inventory is well below original levels, and inventory turns have increased substantially.  In addition, the company is able to give its largest suppliers updated demand forecasts to reduce their replenishment lead times.  In fact, overall lead times have been reduced an average of 2 weeks in just eight months.

“SmartForecasts was definitely the right solution for us,” claims Lazarou. “Smart Software’s consulting and training services got us started on the right foot, and the product has met all of our expectations, enabling us to save millions of dollars in inventory and still provide excellent customer service.”

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