As one of the largest music specialty stores in the country, Guitar Center offers a variety of musical instruments and products meeting the needs of both amateur and professional musicians. Its stores combine an interactive, hands-on shopping experience with knowledgeable customer service and a wide selection of high-quality equipment, from guitars and drums to keyboards and sound systems.

Of late, Guitar Center has been growing at a rate of 30 stores per year and now has 215 locations in 42 states. But with that rapid growth comes a need for more control and management of store-level inventory. Leveraging a custom solution through Minneapolis-based Quantum Retail, Guitar Center now has a stable growth platform without having to sacrifice its core values of inventory assortment.

Rapid growth has created challenges ranging from weak merchandise forecasting and SKU optimization to promotional activities that don’t coincide with adequate inventory levels.

Irene Messier, senior vice president of planning and allocation, says that as Guitar Center grew, it was missing the required level of sophistication to better handle inventory management, store execution and overall profitability management. It needed a comprehensive forecasting engine that could understand how to best replenish and allocate both fast-moving and slow-moving SKUs.

“What makes you profitable at 100 stores certainly isn’t going to make you profitable and sustainable at 300 stores,” Messier says. “We needed a solution that could span all our product categories and give us a more sophisticated way of managing our assortment.”

Each Guitar Center location carries thousands of products, from guitar picks to $5,000 custom Les Paul guitars; customers range from first-time guitar buyers to professional musicians.

As a company grows, it inevitably will drift a little bit farther from its customer and can lose track of its moving parts, says Chris Allan, the founder and head of product strategy and marketing for Quantum Retail. Addressing this issue can be critical for owners or stockholders, who want to see that a company can increase in size with the same types of operational efficiencies that it had when it was young and promising.

Quantum Retail leverages technology to solve problems such as unproductive inventory, out of stocks and unsuccessful just-in-time inventory flows. It eased Guitar Center’s growing concerns through the implementation of Q, a bolt-on inventory optimization solution that can sit alongside a retailer’s existing supply chain planning system.

Continuously optimizing inventory for every item in every location, Q leverages merchandise assortment goals and strategies and offers multi-dimensional views of store-level item behavior.

According to Allan, one of Q’s primary advantages is that the solution takes into account localization and doesn’t use a one-size-fits-all approach. Driven by the merchandising goal and strategy, it bridges the gap between merchandising and execution. “You can understand what is making a particular product popular in a particular store,” he says. “If I understand how the product is behaving in a particular store – how it is trending and booming and how the seasonality impacts that – we’ll be able to fulfill it right away.”

Moving forward with confidence
Q integrates merchandise planning, product fulfillment and insight and action to improve inventory management and process efficiency. Q translates merchandise strategies into optimal store-level need, optimizes inventory for every product at every location in real time and provides knowledge and visibility to current and potential item performance.

After an eight-week trial run with Q, Guitar Center’s service levels increased and inventory displayed a reduction of units when compared with a control group. This gave the company the confidence to move forward with full implementation of Q into Guitar Center’s inventory management systems.

Within six months, the solution was fully implemented; by the 2007 holiday season, there was a big difference in inventory levels, Messier says. “As we were rolling out more SKUs and coming out of the Christmas season, we were able to correct our inventory and balances far more quickly using Q.”

Allan says that when Quantum did a cold call on the Hollywood, Calif., store last holiday season, the manager reported that he had the optimal continuous flow of merchandise – compared with previous years, when he had three trailers outside the store full of product. The leveraging power of software and technology to make small differences in just-in-time inventory planning can add up to major differences when spread out across a couple hundred stores.

Q also has allowed managers to focus on customer needs rather than constantly worry about inventory optimization. “It has empowered our business team to make critical decisions that you should manage your assortment SKUs differently than your money drivers and your image SKUs,” Messier says.

Promotions and forecasting
Now that Guitar Center has addressed its base forecasting, order management and allocation issues, it will look to maximize its promotional activity and forecasting engine.

Buying and merchandising teams can use Q to analyze how particular products are performing. A virtual “sandbox” environment also lets planners change expectations, remove or pull back profitability targets and see how that will affect key performance indicators. For the tactical execution side of the business, Q offers forecasting guides, allocation analytics and replenishment analysis.