Business Intelligence Solutions for Developing Profitable Strategies

Companies these days are looking for every advantage to compete in this economy, and more and more are turning towards unlocking the secrets hidden in all of their data.  With so many different applications and databases used in multi channel businesses these days, the task can seem daunting.  Developing sophisticated Key Performance Indicator (KPI) and Business intelligence applications are not always easy or fast, but these principles should help lay the ground work.

1.  Agree to a single version of the truth.  Executives should convey the strategies and objectives to top level managers and then agree on what will be measured and how it will be measured.  Agree to this and agree to the exact data and calculations so that once implemented, there is a single version of the truth that everyone is working from.
2. Start with the areas that provide the low hanging fruit.  By starting in a single area of the business you can develop an application that will provide a high ROI without spending years developing an application without recognizing any of the benefits.
3. The application must be user friendly.  This seems overly obvious, but you must remember that executives are typically not user of the various transactional systems – you need to bring them back in to the fold with regards to the data.  Develop quick snapshots and visual representations for the KPI’s and measurements so that executives can quickly see the status or health of the business.  Develop drill down capabilities and pivot tables for managers so that they can learn even more when things go awry. 
4. Develop KPI alerts and notifications for when problems arise.  Stronger applications allow for highlighting or spotlighting problems in the KPI’s and pivot tables, as well as notifications via emails etc. that can be sent to assigned people or a group of people.
5. For each of the metrics and KPI’s be sure that you can set a goal or a standard so the actual performance can be measured against these.  For instance, if you are not achieving your inventory turns goal you would be notified of the problems.  In the warehouse if your total throughput falls below a user defined variance you would be alerted to a potential problem.  By measuring actual against goals and standards your company will know where to improve processes.
6. Be sure to include your plans.  You have plans in multiple systems, maybe your order management system, inventory systems, spreadsheets etc.  And you have them for multiple areas – inventory plans, merchandising plans, sales plans, and financial plans.  Be sure to bring all of these in to the application so that you can measure plan to actual.  The same is true with budgets – all of this will make the financial analysis of your business intelligence application more intuitive as well as the other areas.
7. Agree on the source data.  Critical pieces of data can be found in numerous systems and in multiples places within the same system.  For example, the retail price for an item and its gross sales can often be found multiples times in multiple locations within most order management systems.  Once you have agreed on what will be measured and how it will be calculated, agree to which source application is best to multiple the required data from. 
8. Develop personal pages.  Instead of forcing executives and users to wade through dozens of screens or modules to see the full health of the business, allow them to pick and choose what metrics are important to them and create a personal page with those metrics on them.  For instance, a vice president who overseas both the call center and fulfillment center may only want to see 3-4 metrics from each area at a high level, allow them to create their own page and change it as necessary.  They should still have access to the full blown application with drill down capabilities if they want to know more.
9. Include all functional areas of the business.  The long term goal should be to develop an application that supports all areas of the business, from merchandising to finance and fro the call center to the warehouse.  All areas can benefit from a business intelligence application and KPI measurement.   In doing this, all levels of management will be able to see the overall health of the business and all are on board with the goals and objectives of the management team.
10. Begin today, these types of applications can have a huge ROI if done right but they do take resources, time and capital to complete.  The longer you wait the longer it could be before you realize what secrets are locked in your data.

Curt Barry is the President of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; learn more online at: http://www.fcbco.com.

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You might be asking yourself – if it is a good inventory buy, how could it be bad?  First, let’s take a look at several aspects.  Companies have always been aggressive with squeezing every margin dollar they could, even more so in this economy.  And in order to do this, many have looked overseas to foreign manufacturers as ways of increasing the potential margin.  The downsides include typically larger minimums from manufacturers, in addition to cubing out shipping containers for maximum efficiency, and very long lead times. 

Let’s take a look at how some of this can make what seems like a good inventory buy a bad buy.  A while back we worked with a company that imported a specific merchandise category from an Asian manufacturer.  The lead time for these products was 8-9 months.  By doing this, they were able to go from an average gross margin of 44% to 55% with an average price point of $51. 

Recently they made a purchase from the same manufacturer which allowed them to go from a 55% gross margin to 60% gross margin – or go from $28.05 in gross margin dollars to $30.60.  The downside was a substantial increase in the vendor minimum and a much shorter set of payment terms.  But still it seemed like a good buy, and they felt like they could sell through the extra quantity.

The reality of the situation was that the quantity purchased turned out to be a 15-month supply of inventory, causing several problems which made this a very unprofitable buy.  Here’s how:

1. A 15-month supply of inventory equates to less than .8 turns annually.
2. With a 60% gross margin and .8 turns annually, the gross margin return on investment (GMROI) is 0.48; in laymen’s terms this means for every dollar they invested in inventory purchases, the income is less than $0.48.  This is devastating to the business.  You can calculate GMROI by multiplying the decimal equivalent of your gross margin (50% = .50) times your annual turns. 
3. The increase in inventory levels and the length of time the product was warehoused caused several issues.  First, the warehouse was running close to capacity and this prolonged the pain of running low on warehouse space.  Second, the gross margin was further eroded by the inventory carrying costs – the longer it sat, the longer the margin was eroded.
4. Most importantly, the company tied up much more cash in inventory then they should have. By not turning the inventory quickly, a significant portion of the inventory will need to be liquidated in order to free-up cash and invest in other items.  Fifteen (15) months is a long time when you need to continually refresh the product mix with new products.  The liquidation will further erode the gross margin.
5. Not only did this tie up more cash than they should have but they had to pay the vendor even faster than normal.

These factors come into play and can make what seems like a good buy a very bad decision.  Having to carry more inventory, invest more cash in inventory and pay the vendor in even shorter terms will lead to several problems.  You should stick to a well disciplined buying and inventory strategy and run all the numbers before deciding whether or not it is a good buy.  If the numbers work out then consider making the investment in inventory. But don’t erode the increase in gross margin with higher shipping costs, higher inventory carrying costs, and then ending up liquidating a large portion of the inventory.

Brian Barry is a Senior Consultant with F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; learn more online at: http://www.fcbco.com.

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