Minneapolis tech firm SPS Commerce gets retailers through busiest month of online orders

The squiggly-line graphs on the monitors that line the fifth floor of SPS Commerce's downtown Minneapolis headquarters provide a snapshot into the volumes of online shopping traffic in the final days of the holiday season.

Its engineers can quickly see how the company's systems are holding up and whether they need to increase capacity on a technology platform that helps 65,000 retailers and suppliers manage the flow of products.

"This is like mission control," said Peter Zaballos, the firm's chief marketing officer.

Again this year, more holiday shopping is expected to happen on smartphones and tablets instead of in stores. Online sales are forecast to grow 11 percent this holiday season, according to Adobe Digital Insights. The deadlines for placing orders to reach their destinations by Christmas is early this week for many retailers.

As more shopping has shifted online, it has created a lot more complexity for retailers. They used to deal with a linear movement of goods, from vendors to warehouses to stores and customers. Now, products are moving to customers in many ways, sometimes from vendors and sometimes from warehouses.

SPS, which employs about 800 people in Minneapolis, provides cloud-based technology for retailers to place, manage and fulfill orders from factories, warehouses or directly from stores.

The company helps retailers plan for the huge spikes in orders during the peak of the holiday season as well as how to work around unexpected situations, such as the effect a snowstorm can have on package deliveries.

The increasing demand for SPS' services are evident in its annual sales, which have tripled in the last four years to about $159 million.

During the holiday shopping season, it's not unusual for its retail partners to see 10 times the volume of other times of year — which means SPS has to adjust the capacity on its own network.

"When we talk to our big partners, they don't want to be thinking about us" during those big online shopping days, said Jamie Thingelstad, SPS' chief technology officer. "They want to know it's all just flowing, everything is working. They've got enough to do."

The PGA Tour Superstore, which operates 28 golf-related stores, migrated to the SPS platform last year. Doing so has helped it identify early on which products are becoming especially popular and to bring in more inventory as a result, said Randy Peitsch, the retailer's senior vice president of operations.

That was especially helpful when one of its major competitors, Golfsmith, recently disabled its online sales after filing for bankruptcy, leading to a spike in orders that PGA Tour Superstore and its suppliers, who are also on the SPS platform, could watch and figure out which products they needed more of.

"In many cases, [vendors] are contacting us and saying we're going to up your quantities based on increased demands that they see on the platform," he said. "It's real time."

While it may be surprising, many smaller retailers and suppliers are still relying on an inefficient system of Post-it notes and printouts to fulfill orders, SPS executives say.

"I was visiting one of our supplier customers — a really successful company — but they get most of their change orders in voice mail," Zaballos said. "The buyer will call up and say, 'Hey, I need to change a quantity.' "

SPS helps them modernize their processes and can also help them with things such as forecasting demand.

"A lot of our customers are very seasonal, so if you don't hit the season right, you've got a bunch of inventory you're going to sit on for another year and then have to mark down" in price, he said.

While SPS will still see surges of traffic on its network in these last couple weeks before Christmas, the week of Cyber Monday is by far its busiest time of the year, said Amy Patton, vice president of technology operations.

While it used to be just Cyber Monday, that peak period has been spread out in recent years to the days before and after it.

So from Black Friday to the following Friday of Cyber Week, SPS teams hunker down in what they call "hypercare mode."

"We cancel all other work so that both development and operations teams can focus entirely on our production environment," Patton said.

The fifth floor was a hub of activity with employees streaming in earlier and staying later than normal — from 5 a.m. to 8 p.m. The company brought in breakfast and lunch. E-mail updates were sent hourly to executives to keep them apprised of any issues with systems. During this time of heightened vigilance, certain employees have to be able to get to a computer within five minutes if any issues arise.

They tripled the amount of capacity on its network the night before Cyber Monday, but then closely watched the monitors to see if volume was spiking in certain areas that required more adjustments. The systems can automatically scale up when traffic surges, but they can also do it manually if needed.

It's not unusual, Thingelstad said, to see some suppliers who usually handle 100 orders a day all of a sudden get 10,000 during this time. So it's critical that SPS can be agile in its response.

"We have dozens of conversations with our larger partners, asking for guidance in what they expect to see in terms of volume," he said. "The reality is that nobody has a crystal ball."

If there is a problem during the peak time, they have all hands on deck to address it right away.

"If you're running an engine at the maximum, anything that goes wrong can be bad in an outsized way — different than if you were idling," Thingelstad said. "The same thing goes with software. We want to make sure in anything we deal with we deal with immediately. If there is a problem, it can become compounded to such a large degree because of the volume you're operating."

SPS starts its planning for the holidays a year in advance. Now that this season is nearly over, it is already debriefing on this year went and what changes it should make for holiday 2017.

Kavita Kumar • 612-673-4113