Sapphire Now 21 - how Carhartt has made SAP 'back to basics' a catalyst for transformation

Carhartt is an iconic American retail company, best known for its work wear, such as jackets, coats, overalls, coveralls, vests, shirts, jeans, dungarees, fire-resistant clothing and hunting clothing. Founded in 1889 and still family-owned, the firm has been engaged in transforming the business through its Project Catalyst SAP transformation program.

Project Catalyst is a multi-year initiative encompassing both technology and business transformation with objectives including migration to SAP S/4HANA, a wholesale shift to the cloud and a re-imagining business processes end-to-end. John Hill, Carharrt’s CIO and SVP of Business Planning, explains:

In late 2018, we had already embarked upon building a new end-to-end planning system. However, we were having difficulties with the current ERP being able to meet the demands of the growing and evolving business. It was highly customized and had difficulty in scaling with growth and provided limited flexibility to accommodate the business unit nuances. So we decided to move forward with a business transformation that was anchored by migration to S/4HANA for fashion.

The firm sent up an integrated business and IT team, that functionally reports to Hill. This team drives the migration to S/4HANA and works to a very important basic principle:

The focus on the implementation was a return to standard within SAP. The continued use of customizations was impacting our ability to quickly pivot or adapt to changing market conditions. As part of that effort, we also decided to deploy a new warehouse management system into our plants. Shortly thereafter, we decided to replace e-commerce and POS and do that in parallel as well. Our e-commerce system was lacking key functionality and had an out-of-date technology stack. It was also difficult to adopt omni-channel strategies within that platform. Our Point-of-Sale system similarly could not adopt omni-channel strategies either.

The reasoning behind a ‘back to basics’ with SAP was straightforward, says Hill:

First and foremost, SAP provides us with a set of industry best practices that will allow us to speed up our transformation. We made the decision to go to a single platform for ERP, e-commerce and Point-of-Sale with SAP. There were four main factors that were driving that decision. First, this allowed us to achieve some 22 omni-channel scenarios, out of the box. Second, we're able to drive an improved security and compliance framework to meet the regulatory requirements for things like GDPR and CCPA. Third, we'd be able to simplify our support and training efforts within the technology team. And finally, we saw this an opportunity to strengthen our strategic partnership with SAP.

The decision to move to S/4HANA for fashion provides a long list of business improvements for us, including the simplification of many of our core business processes, which will drive operational efficiencies. We'd also be able to drive segmentation by things like channel, region, quality, country of origin and customer, which will drive improved customer service and inventory management. We'd be able to better enable channel protection, market segmentation and plan-based confirmations. The team is also really looking forward to the improvements in things like order management and production planning. Finally, we're enabling inventory visibility and management across multiple channels.

Cloud first 

The firm had also decided that it would be moving to a cloud first way of thinking and it was decided that the SAP migration would be a suitable time to make this happen. Hill recalls:

I joined a little over five years ago and we made a decision very early on that we were going to take a cloud first approach in our infrastructure strategy. It was just a matter of time of finding what's the right sequence of events to make that a reality. So when this decision to make the move with SAP came up, we decided that the migrations would be implemented, right from the project initiation, in the cloud. So we're running S/4 on Azure and SAP is going to be e-commerce for us on Azure as well.

The decision to adopt a cloud first approach was based on our conclusion that frankly we couldn't compete with the ability of a company like Microsoft to provide a highly flexible and secure environment. In addition, the complexity of our environment had continue to grow, and this provided a means of us simplifying that management as well.

Interestingly, what really became apparent though is that we would not have stayed on track with the project timelines had we gone for a traditional on premise implementation. There are too many requests for new environments early on in the project that would swamp the ability of the infrastructure team to react. With the cloud deployment, we're able to spin those environments up quickly and stay on track. By later this year, we expect to have most of our remaining compute environments set up in a cloud environment as well.

All of this change has been made possible in large part by ensuring that the wider organization as a whole was ready for that change. That involved scoring executive buy-in, says Hill:

Even before we started this project, for probably more than a year beforehand, we spent a lot of time with various parts of the organization - the executives, maybe the next level down - making sure they understood the limitations of the current ERP and what was preventing us from doing what we wanted to do, what was preventing us from getting out of the hole. The idea was we wanted them to understand that the key to our success was going to be some kind of transformation in that space.

Just as we were getting ready to kick off the transformation project, we had a meeting for all the directors involved in the company. In that meeting we introduced the journey that was ahead, the approach that we were going to take and the rationale. What was striking to me was how many of the executives brought up that we needed to get back to standard in SAP. Any CIO would probably love to be in that spot - having their own new customer saying, 'Yes, let's get back to standard'.

Payback

The ‘standardization’ has paid off, he argues:

We were able to reduce the customizations significantly.  The S/4 implementation reduced the number of customizations from over 2000 to 160  and the e-commerce platform reduced the customizations from over 1000 to just 60. From an adoption perspective, we've been highly focused on making it a frictionless experience for our customers and associates. The simplification of process and ease, the adoption of Fiore and improved functionality and speed of S/4HANA for fashion, certainly have folks excited about the migration.

He adds:

Any ERP implementation is always tricky in terms of calculating the ROI. For us, the ROI of this project is pretty simple. We needed to make this transformation in order to provide a frictionless experience for our consumers, our customers, our suppliers and our own associates. The question wasn't ever if, but when and how we chose to move on. We chose to move very quickly to make this move.

Will that speed slow down a bit now? It seems unlikely, according to Hill:

I've been doing this a long time and that's never been the case, so I'm going to go ahead and assume that we are never done in terms of our digitalization journey. But I think this effort puts in a really good foundation from which we can continue to provide that frictionless experience. We certainly have more to do in our engagement with suppliers and our retail partners, as well as support our sustainability initiatives.

I think one key area, and frankly the source of competitive advantage for a lot of firms, is in the area of data, AI, ML etc. For example, being able to do predictive forecasting for the replenishment side of our business, and then linking that to the very complex supply chain planning solutions we have, will help us not only improve return rates, but make sure that we're never out of stock on items that we have promised to our customers that we'll always have available for them.