When Tim Meester came to Toys “R” Us Inc. (TRU) in 2003, his primary responsibility as director of vendor partnerships was to develop compliance and supply chain-performance programs for the 838-store retailer. Instead, he and his team spent much of the first year working with TRU’s accounts payable and electronic data interchange (EDI) groups to improve payment processes and information flow between the company and its vendors.

That’s because early on, the team discovered that some of the data that the Wayne, N.J.-based company was exchanging with its vendors was inaccurate and incomplete, making it difficult for the vendors to get paid and for both sides to meet performance expectations.

“We had to clean our own house before we could even address vendor performance,” Meester says. “We estimated that 60 to 80 percent of the issues came from a lack of internal consistency and discipline, so we worked together with our vendors and internal partners to understand the process issues, identify gaps, and ensure that processes were integrated, product kept flowing, and vendors were paid accurately and on time.”

Along the way, Meester and his vendor-partnership team learned that their ability to implement efficient supply chain processes depended on accurate data collection and reporting. It soon became clear that if Toys “R” Us was to achieve its performance goals, it would have to take an “all or nothing” approach when it came to accuracy.

With 12 distribution centers filling orders for 588 Toys “R” Us and 250 Babies “R” Us stores nationwide, the company wanted to improve supply chain visibility and event management. Starting with those areas made sense because it would give TRU the tools it would need to make other improvements. “With a clear view of the supply chain and alerts to potential issues, we could effectively get to the root causes of our problems,” Meester explains.

Initially Meester and his team focused on the company’s existing replenishment, transportation management (TMS), warehouse management (WMS), and accounting systems, seeking ways to streamline the information flow between those internal systems and along the entire supply chain. But before they got very far, they found that some of the retailer’s biggest issues were related to upstream processes that ultimately affected its ability to pay invoices.

One trouble spot was receiving. “When we analyzed the receiving process, we found that in many cases, the receivers had insufficient data about the shipment to effectively process the load,” Meester recalls. As a result, he says, decisions about receiving were made on the dock rather than in the information systems that were designed to support that process. Those on-the-spot decisions, moreover, had an inherently higher risk of inaccuracy and often led to invoicing and payment problems.

TRU’s IT group joined forces with the vendor-partnership team, and the hunt was on for the source of the receiving-dock problems. They quickly discovered that the data TRU was exchanging with its vendors via EDI had the greatest impact on the company’s systems and processes. Any delays or errors in that data—and there were plenty of them—affected a number of functional areas.

Resolving the accuracy problems would require cleaning up the data that the shipper transmitted to its vendors and the information that they sent back. But how to accomplish that? Meester liked the idea of such improvements as an alert system for incorrect EDI documents, but he wasn’t interested in purchasing an expensive new system.

Instead, TRU’s IT team came up with its own solution: Using existing e-mail servers and database logic, the team built an extranet for sharing information with its vendor community.

They also developed a notification-engine component, which is directly integrated with the extranet’s vendor-contact database and subscription tools, to alert the company’s 1,300 vendors about EDI issues. The solution is not only efficient, it’s also very cost-effective. “We used technology that was already in place and didn’t have to invest significant capital in an off-the-shelf tool to do it,” Meester says.

To succeed in its highly seasonal business segment, Toys “R” Us needs consistent execution by hundreds of vendors. Vendor performance is critical to the retailer’s logistics organization, which must keep freight costs for high-cube, low-cost products under control. Speed-to-market is another critical success factor in toy retailing, so TRU’s logistics team has been focusing on increasing the use of cross docking as a mechanism for driving cost and time out of the supply chain.

To effectively manage cross docking, which which takes inbound materials or merchandise and allocates them to outbound loads without the intermediate step of warehouse storage, the logistics team relies on transmissions of EDI 856 Advance Shipment Notice (ASN) messages for each shipment. The ASN delivers such information as purchase-order numbers, vendor identification numbers, item-to-Universal Product Code (UPC) matches, and carton counts to TRU’s warehouse management system.

This information helps distribution centers anticipate inbound volume, prepare for receiving, and plan labor needs. The ASN is also used by TRU’s invoice-processing systems to match invoices to receipts and purchase orders.

With a valid ASN, replenishment and WMS systems can allocate products to outbound store shipments prior to receipt. This process not only eliminates one to four days in storage, says Meester, but it also mitigates the need to slot the shipment and return for picking at a later date.

The problem was that nearly 81 percent of the ASNs that were being transmitted to the retailer failed their application edits, which determine the validity of the content of the ASN. That represented a considerable volume of inaccurate data—an average of 85,000 errors per week, the team found.

Those errors were disruptive to TRU’s daily operations. “Vendors would send a document assuming that everything was fine, but in the meantime we were dealing with a lot of receiving issues at our DCs, where opportunistic cross docking became virtually impossible,” says Meester. When a receiving team received a partial or inaccurate ASN, for example, it had to stop what it was doing and investigate the issue. That fixed the error but didn’t resolve the root cause of the problem. Meanwhile, accounts payable tried in vain to pair up the mismatched invoices and receipts generated by ASN errors.

The team knew that its objectives would be tough to achieve without accurate ASNs. “The supply chain engine needs high-octane fuel to perform well, and that fuel is data,” explains Meester. “Because our data was of poor quality— if even available—our engine couldn’t deliver the performance needed.”

The group also knew that it would encounter both operational and cultural challenges. In the past, a philosophy that can be summed up as “if it’s not 100 percent accurate, let’s make it as accurate as we can” had been acceptable. But that attitude would no longer fly. “We decided that it would be all or nothing from now on,” says Meester.

In April 2005, Toys “R” Us launched the ASN Integrity Program. Through this process-management initiative, TRU hoped to significantly decrease ASN content errors, improve the timing of information needed to support the receiving process, and provide timely notification of errors so the vendors could correct any problems and mitigate potential chargebacks.

In Phase 1 of the program, the vendor-partnership team completed an assessment of each element of the ASN to determine the level of value, purpose, and validation required. The application edits were aligned to support efficient use of the information; non-critical edits were removed from the process, and critical edits were challenged.

This effort went a long way toward cleaning up the EDI messages and bringing critical errors to light. “More than half of the edits were removed or modified to reflect the most essential value of the document,” says Meester.

During Phase 2, the vendor-partnership team worked with IT to develop a notification system that collects errors recognized in the application-edit process, determines the respective vendor and EDI contact, and sends an e-mail notification of the errors to that contact. To help the vendor find and fix errors, Toys “R” Us includes a link to the error report that resides on its Vendor Extranet. The report includes the message element that contains the error as well as the erroneous information. The vendor is instructed to correct the error and retransmit the ASN in order for its shipment to be received and processed by a TRU distribution center or store.

It didn’t take long for TRU to enjoy the fruits of its labors. By the end of 2005, ASN errors had decreased by 96.9 percent. During the fourth quarter, a critical period for any retailer, the company averaged fewer than 1,000 errors per week, most of which were immediately corrected by vendors.

By about three months after the launch, most errors had been resolved. Then came Phase 3, a simplified compliance policy. TRU’s policy simply requires that a valid ASN must be available for shipments to be received—something most vendors had already achieved by that time. Because the notification process is so effective, moreover, minimal chargebacks for non-compliance have been levied against the vendors. At the same time, the quality of the ASNs’ content has continued to improve, Meester says.

Now that it has clean, accurate data, TRU both provides and receives timely information for its receiving and allocation systems. By improving the ASN process, moreover, the retailer’s cross-docking operations have much better visibility of inbound freight and the distribution centers can prioritize appointments to facilitate cross docking. Other benefits include shorter lead times, improved worker productivity, better in-stock rates, increased sales, higher net margins, and faster, more accurate invoice matching and payment.

While those internal benefits are impressive, so too are the benefits that TRU’s vendors are now enjoying: fewer chargebacks, as well as improved receiving accuracy, cross-docking capabilities, invoice matching, and reconciliation.

“When we announced this program to our vendor community, most assumed that we were focused only on compliance management. But now they see that we’ve taken it in a different direction and implemented collaborative systems,” says Meester. “We knew that compliance was a short-term solution, so instead we’ve built the tools that enable our vendors to succeed while at the same time helping us get our supply chain to where it needs to be.”

Because the data-accuracy initiative has been an “unprecedented success,” Meester says, the error-notification engine has being expanded for use with other types of EDI documents, including invoices, carrier EDI, and purchase orders for vendor-managed inventory. The vendor-partnership team is now looking at ways it can use the system of programmed rules, tolerances, and logic to quickly spot pressure points in the supply chain—and generate alerts about potential problems—in other company departments.

The ASN Integrity Program is one of 10 projects that Toys “R” Us has undertaken with its vendor community. And it seems all but certain that it won’t be the last. Meester credits the support of multiple internal teams and executive management as factors in the project’s success: “They knew they were investing in something that would be worthwhile for the company overall.”