The Retail Scientist

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noreply@blogger.com (SAF) — Fri, 31 Jul 2009 08:16:00 PDT

Here is the beginning of my post. And here is the rest of it.

It's About The Order

noreply@blogger.com (SAF) — Wed, 22 Apr 2009 12:06:00 PDT

Forecast, Schmorecast...Only thing that matters is the Order...

Recently, a retail VP of Ops told me off the record that, “…Until we get our store ordering right,no meaningful reductions in inventory or OOS are real or sustainable." Powerful stuff, no doubt, and yet, it seems to fly in the face of conventional wisdom -- that forecast accuracy is key.

While there is little doubt that you cannot get to good store ordering without accurate forecasts, it is alos true that the forecast is only part of the story when it comes to getting to the order. Simply put, you cannot have a good order without a good forecast, but you can get a bad order even with the great forecast on earth.

Why? Because forecasts are good for estimating the total sales for a product for a given time period, but they are not even designed to resolve that forecast into a good store order.

Forecasts are just what they are -- forecasts. They estimate total sales for a product for a given period of time. But orders, well they are a bit more complex. Orders begin with the forecast, but then work forward to derive an order. A good ordering system has to know the foreacst, but it also has to know:

what is already on order
what is already in the stores
what is already being shipped

And, almost every Demand Forecasting system out there fails to go beyond the forecast to derive the order. Consequently, orders are typically out of line with consumer demand, placing too much product in the stores.

Then, there is automation. With more than 20,000 SKUs in your average grocery store, retailers can no longer rely on manual order writers to accurately gauge consumer demand and resolve that into individual orders -- There simply are not enough hours in the day for that.

Instead, they must rely on automation in order to keep up. Yet, the highest levels of automtion achieved by nearly every Demand Forecasting system is only around 50%, meaning that more than 10,000 skus have to be manually ordered in every store by manual order writers. This is unsustainable.

Only automation levels over 90% can keep the retailer on top of consumer demand, and there is only one company doing that today -- SAF. http://www.saf-ag.com/?L=1

Staying Flexible with CAO

noreply@blogger.com (SAF) — Wed, 22 Apr 2009 09:29:00 PDT

How to be Flexible and Successful in a Tough Economy

As the economy continues to shift, many are speculating the future of retail. With more and more stores going out of business, retailers are evaluating technology solutions to optimize business processes and maintain a competitive advantage. However, as retailers continue to tighten their belts and budgets, many wonder if now is even the right time to think about implementing a new technology process. If it will lower the overall cost of business, the answer is yes. Ironically, a tough economy is an ideal time to invest in technology because you get more for your dollar and the benefits are invaluable.

According to the Supermarket News 15th annual State of the Industry Report on Supermarket Technology, computer-based ordering ranked first as an application that will be tested or launched in 2009. Retailers are implementing computer generated ordering (CGO) systems to achieve the highly sought after benefits of perfect store orders: high customer satisfaction levels, increased merchandise availability, optimum inventory levels, automated ordering processes, reduced capital costs and streamlined processes. However, retailers are also using this tool to continuously optimize business processes during any change in the retail climate. This is possible because CGO solutions enable retailers to easily shift variables to adapt to different factors affecting demand, such as current economic situation.

Understanding and Fulfilling Demand

Implementing CGO provides retailers with the flexibility to quickly adapt to future situations. It’s an investment in having the speed and capability to increase and decrease specific variables that affect orders and store performance. These variables include inventory level, labor and service level - the percentage of forecasted sales a retailer aims to capture. With a CGO solution, retailers have the capability to view future orders and forecasts to truly understand demand and fulfill it efficiently.

Using CGO, retailers can set service levels for each category depending on demand. By looking at future forecasts, a retailer with a 96 percent service level in its frozen dinner category may notice that demand from its shoppers has been decreasing. With that knowledge, the retailer can decrease the amount of inventory and labor for that category, but still reach its service level. Doing so enables the retailer to maximize sales with the least cost of service. With this visibility, it is possible to optimize various changes in demand by making immediate decisions at the store level. This capability enables retailers to do better in any economy, much less a bad one.

Setting a Strategy for Success

Retailers may also want to alter variables in order to change and improve their strategy. It’s true across the board that having the knowledge and visibility to successfully take advantage of incentives and contracts can separate good businesses from great businesses. For example, Southwest Airlines was able to profit during a financial crisis that threatened the survival of other airlines by locking in jet fuel prices and paying for large amounts years ahead of time. Doing so has protected the airline from spikes in oil prices and dramatically cut its fuel expenses. Since 1998, it has saved $3.5 billion over what it would have spent if it had paid the industry's average price for jet fuel.

In the retail environment, manufacturers provide retailers with incentives, such as price cuts, to sell particular products. In order for retailers to take full advantage of these deals, they must increase their inventory by stocking up. However, it is important for retailers to weigh in factors such as how much extra labor will be needed and how much sales will increase to ensure it is a profitable decision. This would be nearly impossible to do without using a CGO system that provides future forecast visibility along with the ability to modify such factors. With this technology, retailers have the tools necessary to make educated business decisions to increase profit.

Preparing for the Future

CGO is an area that retailers do not want to get behind in. Everyday, more and more retailers are implementing systems, gaining the knowledge, visibility and capability to adapt to changing factors in the environment. Those who lack this flexibility will not be able to react to situations as quickly and will ultimately lose their competitive advantage. However, to be successful, it’s important for retailers to understand demand at a store-item level. If the organization truly understands all factors of the operation including inventory, shelf, labor, schedules for delivery, etc. – it can manipulate these variables to lower overall business costs.

If there is one thing we all know, it’s that retail is going to change. It could be good, or it could be bad. In any situation it’s important to have flexibility. Set a strategy and quickly shift in or out of it depending on the current business situation.

Improving Store Ordering Accuracy

noreply@blogger.com (SAF) — Thu, 05 Feb 2009 13:04:00 PST

Improving order accuracy optimizes the ROI of other initiatives

As retailers now more carefully review their portfolio of completed and active projects, many are considering the impact of store order accuracy on their bottom line. What they are finding is that nothing impacts inventory reduction and Out of Stocks quite the way accurate ordering does.

Will expected benefits from supply chain investments materialize IF stores continue to order erratically?
Are investments to accommodate markdowns, returns, and transfers needed IF stores improve their ability to order the right product at the right time?
Are investments in workforce management still needed IF store ordering can be automated, orders become more accurate/predictable/smoothed, and labor required to resolve out-of-stocks, overstocks, etc is nearly eliminated.

Store ordering is fundamental. Automating the ordering process has a significant ripple effect and should be accomplished prior to optimizing adjacent processes to ensure those subsequent investments are maximized.

New CAO Best Practices

noreply@blogger.com (SAF) — Thu, 05 Feb 2009 12:53:00 PST

Now that the pioneering retailers have shown the way, other companies will benefit from their experience

A wealth of wisdom has been collected from their successes and struggles covering such asreas as data preparation, store procedures, pre-requisites, and executive support. each compay that has been successful with CAO has had a different experience, yet all can benefit from their mistakes and their triumphs.

Retailers now embarking on their CAO journey can get input/advice on common CAO questions:

How many stores/skus should be included in the initial deployment?
Should we roll out by category or store?
Should we start with high performing stores to ensure success or with low performing stores to maximize the benefits?
What performance goals and measure should be established?
What strategies are best for gaining and accelerating momentum during rollout?
How many people are needed to support CAO at corporate and how should they be structured?
What role should the store play in reviewing/approving orders? Does the answer differ in the short-run vs. long-run?
What inventory exceptions should drive store level alerts to action?
Do we need physical counts before starting and/or on an ongoing basis?

CAO is catching on, and with the economy being what it is, an investment in CAO has rich rewards to be reaped and right soon too. A typical grocery retailer with a CAO project on his/her plate in 2009 can expect to deploy to their top stores this year, and to roll-out to remaining stores over the course of the next 2 years. That means real ROI can be achieved in 2009!!!

CAO Delivers Real Results

noreply@blogger.com (SAF) — Thu, 05 Feb 2009 12:47:00 PST

Results have been demonstrated; payback is outstanding!
Enough grocery retailers have deployed CAO to evaluate its impact.

The results are clear – the anticipated results have been exceeded:

Out-of-stock (OOS) reduced 60-80%
Store inventory reduced 25-40%
95-98% of order lines released automatically

Which means….

Higher sales (1-3%)
Increased cash available
Less back room clutter
Reduced shrink
More space on shelf
Product variety can be increased
More effective use of store labor

Grocery retailers can expect a return on their CAO investment within 3-6 months of deploying their CAO solution.

CAO -- Perpetual Inventory Not Required

noreply@blogger.com (SAF) — Thu, 05 Feb 2009 12:41:00 PST

Perpetual Inventory no longer viewed as absolute requirement

Implementing procedures and technology to establish a true perpetual inventory has proven to be one of the most difficult hurdles to overcome and was originally viewed as a pre-requisite to CAO. New-generation CAO solutions only require a reasonably-accurate end-of-day on hand balance to drive significant results. Determined retailers are finding low cost and in-house solutions to calculate the on-hand quantities and rely on the new-generation CAO solutions to alert stores to high impact exceptions. A new strategy has also emerged in which retailers start inventory projects and CAO projects simultaneously. Even without considering inventory balances, the CAO solution adds value by producing more accurate demand forecasts, calculating item/location-unique safety stock needs based upon service level goals, and generating smart re-order and order-up-to points.

Path to The Perfect Order

noreply@blogger.com (SAF) — Wed, 19 Nov 2008 08:07:00 PST

For at least a decade, retailers have chosen to invest in warehouse, transportation, and data synchronization systems as their strategy for optimizing their Demand Chain, selecting systems for their ability to deliver the most financial benefit for the least impact on store operations. Yet, 10 years later, out of stocks remain at nearly 8%, and inventory levels have not noticeably improved for those companies. Why? – The answer lies in store ordering practices.

Analysis of these optimization projects reveals two previously unanticipated phenomena:
· Store ordering practices have a much greater impact on out of stocks and inventory optimization and need to be better controlled.
· Unless the retailer gains control of store ordering practices, all promised benefits of Demand Chain optimization are jeopardized.
Recent adopters, therefore, have re-focused their efforts toward gaining greater control of store ordering practices, specifically through Computer Generated Ordering (CGO). And success has followed them. Retailers with an automated store ordering focus routinely report 0.5-1.35% increases in per store sales, 30% average decrease in inventory, and a nearly 80% reduction in out of stocks.
And word of this success is spreading within North America. Recent studies by AMR, IDC Global Retail Insights, and Retail Systems Research indicate that CGO is the number two priority for U.S. retailers over the next two years, with nearly half of the retailers surveyed either already testing limited forms of CGO or actively exploring its use in their organization.
The key to this success lies in constructing a unique process for each company, “The Path to the Perfect Order” from among a collection of best practices. Building on the concept of incremental benefits, this approach joins computer technology with in-store procedural changes in the least disruptive way possible to achieve manageable goals with the least risk.