If I were to ask “what is the biggest problem faced by your multichannel company today?” I’m sure you would have a lot of ready answers. But when it comes to the biggest business information problem you face, there is one that stands head and shoulders above the rest: finding a “single version of the truth.” Just as you have multiple channels for dealing with customers, you have multiple systems with numerous, and differing, occurrences of key data and metrics. Many companies have grown up selecting best-of-breed systems for order management, fulfillment, call center, marketing, product information, inventory, finance and e-commerce. Companies with large-scale multichannel systems are often surprised to learn that their problem is even worse, because these “systems” are, in reality, multiple individual applications. That’s because no one vendor in the marketplace today can provide more than two of the best-of-breed components needed, and the reality is that even most ERP systems available to the direct marketplace don’t provide specialized direct, retail or warehouse management functions that are as good as best-of-breed.
The result of all these silos of information is that no one system provides more than 10 percent of the data needed by senior management. Management has to go to extremes to get what they need, either by requesting that department managers pull data or by using business analysts to come up with reporting. Because these are manual efforts using sources not originally geared to management’s needs, they are delay-riddled, error-prone processes. Valuable productivity and service data exists in systems such as telephone switches (ACDs), but management usually doesn’t have access to it. Worst of all, data often doesn’t reconcile from one information system to another; with database structures that can span 25 years of systems development, built upon different programming languages, they still don’t deliver a “single version of the truth.” Management faces the question: On which version of the data should you base your decisions?
Enter the Dashboard
Business intelligence (BI) solutions with dashboards and analytics are now becoming available that can potentially solve this problem. By pulling standardized data from systems across the enterprise, they open up tremendous possibilities for management to sharpen critical decision-making. More than just extracting data, such solutions allow management at various levels to set up actionable Key Performance Indicator (KPI) alerts that act as a dashboard for the business. For the first time, management has complete access to data across all systems in the enterprise-and senior management can keep informed about results on a real-time basis. Such business intelligence/dashboard/executive analytic tools not only provide a consistent view of all the data, but permit managers to set up alerts keyed to specific objectives, and allow each department to look at the segment of data that is meaningful to them.
Think for a minute, what data do you want to gain access to across your business? What information do you, as a member of senior management, need to run the business? Figure [1], Defining Your Personal Dashboard and Analytics, shows how a company president in one of our client companies interpreted what she wanted, seeing what the benefits and data could be. When you look at this menu, you can see that much of what is included isn’t found in any one information system-and a number of these analyses and Key Performance Indicators (KPIs) are created by including data mixed and matched between information systems.
Many Views, One Set of Data
Whether they’re analyzing inventory levels or fill rates, demand or sales, the new BI tools ensure all departments are utilizing a standardized view of the same data. Such business intelligence solutions also allow users to take cuts of the data and compare them in multiple ways, including this year to last year or actual to plan, as well as to reassemble the data and analyze it from one department to another. Each department needs to maintain their own way of analyzing data, but also be able to bring their plans and results together in a consistent, uniform way.
Here’s an example of an advantage provided by the access to uniform data these business intelligence solutions allow. Merchandising, Marketing and Inventory Control may have different information needs during the product and promotion life cycle, but they all revolve around gross demand planning and results. Merchandising wants to know the quantity of each product that is needed across all promotions-print, electronic and store. Marketing arrives at the catalog gross demand plan based on their circulation plans by drop, by house file, and by outside list segment. Merchandising’s catalog pre-season plans are built top-down by merchandise category, and bottom-up by product-but they should come close to tying together with Marketing’s demand plans at the demand level. It’s Inventory Control’s job to interpret the plans and selling results and purchase product far enough in advance to be in stock when customers order. However, management allows Inventory Control to purchase more product than the demand plans indicate, based on vendor lead time, vendor discounts offered, etc.-so they aren’t going to tie back to the others’ plans exactly.
Week-for-week, one of the hardest things to do is read selling trends and interpret them in a way that allows you to make the right decisions-which ultimately provide the base line projections for yet other departments, such as Call Center and Fulfillment. You can see that with the many different versions of plans and results used by these various departments, management needs to find a common source of information. In this instance, gross demand data ties all the planning and results together. BI solutions that can pull this common data out of all the departments’ databases can then provide accurate KPIs, viewable as executive dashboards.
Taking Stock
For an even more specific example, let’s look at inventory data. Inventory is the largest balance sheet asset in most multichannel businesses; its effective management largely determines your level of customer service and profit. If management had the ability to easily analyze some key inventory conditions, here are some of the ways they could benefit:
Inventory aging. Keep track of age of inventory across the business and by product/SKU for various inventory statuses (active, inactive, future and return to vendor) by warehouse and by inventory control manager. One of our clients found that 30% of their inventory was older than 12 months. Having access to this view allows top management to continually stay on top of products that are not selling. Merchants can regularly schedule liquidation of overstocks and slow-selling merchandise.
Inventory carrying costs. Provides costs of maintaining inventory in the company’s warehouse, including rent, utilities, insurance, taxes, fulfillment labor costs and the opportunity cost of tied-up capital. While inventory control applications have the on-hand quantity and dollars, financial management may want to develop a fully burdened cost for the inventory to more accurately reflect performance.
Gross margin return on investment (GMROI). This can be split out by category, product and inventory control manager. GMROI analyzes a firm’s ability to turn inventory into cash above the cost of the inventory. It is calculated by dividing the gross margin by the average inventory cost.
Customer service measured with fill rates. Analysis can be provided for initial item and initial customer order fill rates, and final item and final customer order fill rates, by category and product. Many companies measure back orders daily, but they don’t measure how well customers are being serviced-in other words, what percent of orders are shipped complete. We find the initial customer order fill rate to be 10 points lower than the line item fill rate in many businesses. For example, a fashion apparel business may have a difficult time achieving an initial order fill rate above 70% because of the newness of a style and the inability to reorder. However, a home décor business can achieve an order fill rate of 85% or higher.
Back order cost analysis. Identifies the total cost of being out of stock, both by products and categories creating the biggest issues and expenses. The cost analysis takes into account the total back order history by product for costs such as call center (“Where is my back order?”), second order picks and packing material, loss of shipping and processing revenue, etc. Most companies report back orders daily, but there are few systems that keep track of cumulative back order costs by product throughout the year. Our studies in hundreds of companies show that back ordered merchandise costs $7 to $12 for each backordered unit of product.
Are They Worth It?
Can the expenditure for this kind of solution be justified in today’s economic climate? It may be useful to ask the opposite question: What’s the cost of not having timely and accurate information to manage and control your business? Especially in this economy, knowing exactly where you stand is essential. You can only control expenses and inventory and know which products and promotions are working-and which aren’t-if you have accurate data on which everybody across the company can agree. An old axiom says, “You can’t improve something you haven’t measured.” To that we might add, even if you have measured it, you still can’t improve something if you can’t get accurate readings, or if you have multiple measurements that don’t agree.
There are great benefits to the organization when data can be shared across the enterprise and used for department analysis. One of the biggest benefits executive dashboards provide is the ability to get back in touch with the business from an analytical perspective. KPIs can easily be set up and changed to monitor performance in your areas of responsibility, with instant access to all the most important data needed to make decisions. In our experience, companies that used such BI solutions to overcome information problems have been successful in getting a positive ROI from these types of systems within 12 to 18 months. And in today’s business environment, that’s a “single version of the truth” on which we think everyone can agree.
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.
