Marketing, Merchandising, Inventory Control: Gaining a Single Version of the Truth

by Brian Barry, Senior Consultant, F. Curtis Barry & Company on March 26, 2009

I was sitting in a client meeting for business intelligence (BI) and dashboard planning this past week, and the Merchandising, Marketing and Inventory Control people were squaring off over why Merchandising’s results never tie back to Marketing and Inventory Control.  Some of it was argumentative, but when you step back and look at it objectively, it shows why business intelligence and executive analytics have such great promise for the retail and direct industries.

At every step in the product and promotion life cycle, these three departments’ needs are different – but at the same time they all revolve around gross demand planning and results.  (By “life cycle” I’m talking about the Marketing side of planning a campaign, re-forecasting results once the initial demand is in, and then potentially re-projecting after half the campaign when the majority of sales are in.)

Merchandising’s needs are about the pre-season merchandise plan or the continual planning for the e-commerce site; the forecasting by catalog drop; and the end of the season.  What quantity of each product is needed across all promotions-print, e-commerce and store?

The thing that ties these three departments’ planning and results efforts together is gross demand data.  Marketing arrives at the catalog gross demand plan based on their circulation plans by drop, by house file, and by outside list segment.  They also must think through all the digital media in which specific products are featured – website home pages, e-mail, affiliate campaigns, etc. – and give some direction to Merchandising and Inventory Control.

Ideally, 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. 

Then we have Inventory Control.  It’s their job to interpret the plans and selling results and purchase product far enough in advance to be in stock when customers order.  From an inventory perspective, the Inventory Control plans aren’t going to tie back to the others’ plans exactly.  Management allows Inventory Control to purchase more product than the demand plans indicate, based on vendor lead time, vendor discounts offered, etc. 

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.  Yet from an uninitiated perspective, it looks like a free-for-all, with many different versions of plans and results. 

How can business intelligence (BI), dashboard and executive analytic tools help with this critical decision-making?  They can provide a consistent view of all the data, so that whether they’re analyzing demand or sales, all departments are utilizing a standardized view of the same data.  This allows each department to look at the segment of data that is meaningful to them.  Business Intelligence solutions allow users to take cuts of the data and compare them in multiple ways, whether it be 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.

The more we talked, the more the client’s managers got back inside their skins. And they realized how important having a single version of the truth, through BI tools and executive analytics, would be to planning and reconciling results-day-for-day, week-to-week, and throughout the year.

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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Jingle Bells or Blues? Q4 2008 Retail Results

by Curt Barry, President, F. Curtis Barry & Company on January 16, 2009

Like many of you, we’ve spent the past two weeks talking with our clients about the results of Fall/Holiday 2008. Here is what we are hearing, along with what our clients think the outlook for 2009 is and some things you can do immediately to further reduce expenses.

Holiday sales for retail and direct industries.  After all the media flap about the weak Holiday season as it progressed, no one can be surprised that it ranks as one of the worst Holiday seasons in the last 30 years. In their September 2008 Holiday forecast, National Retail Federation (NRF) estimated sales would be up 1% to 3% over last year. At the NRF event this week, we heard estimates that many retailers will finish 5% to 8% below the previous year, which is obviously a disaster. This will lead to a record number of small and large businesses exiting the retail and direct space. In the past 6 months there have already been a record number of retail store closings from bankruptcies.

Catalog has a broken business model.  We feel there are two major issues that have changed the business model for cataloging:

  • Prospecting has been on a 10-year decline in response rates. Renting and exchanging lists as a prospecting practice has totally been destroyed by the co-op databases. Co-ops overall are the major game in town for prospecting, but many of the senior management we talk to are concerned that co-op response rates are not as strong as they were. Is there over-saturation of mailings by co-op users, along with the bombardment of e-mail campaigns? 
  • Continual increase in postage costs. As a result of the postal reform of the last few years, USPS has a mandate to make money and the ability to almost automatically increase postal rates annually. Many of our clients had postage increases of 20% to 24%. At one client we worked with last week, their postage costs are now 33% of the total cost to create and mail catalogs.

Highly promotional offers and high use of free shipping.  We have just completed an in-depth study of free shipping practices during Fall/Holiday 2008. (Call me to discuss the results. The study is featured in February’s Multichannel Merchant magazine.) Clearly, this Holiday season was characterized by highly promotional pricing and free shipping. A number of clients interviewed mentioned they got poor results to e-mail promotions unless they offered a strong promotional incentive such as free shipping.

Suffice it to say that consumers were opportunistic with their purchases, looking for true bargains at the retailer’s expense.

What businesses did well?  Customers pulled back on discretionary spending and reduced gift-giving this past season. There were some discounters, promotionally priced and value priced businesses that did well. Two we have all heard about in the press are Wal-Mart and Amazon. We have one large client that is off price/value priced, and had order increases over 40%. Obviously, off-priced businesses that sell overstocks will have great selection to choose from and should continue to see strong sales. 

A number of our business-to-business catalog clients saw a slowing of sales for the first time starting in October, and they finished 2% to 7% off plan. 

Then we have a surprise: A number of smaller e-commerce pure plays we have talked to seem to have had major sales percentage growth. My guess is that they are truly niche businesses with unique products, whose customers cannot find the same or equivalent product elsewhere. Also, in a small business it’s easy to see double-digit growth, because the “last year” number is small. But not to take anything away from them, they are not significantly off plan. And because they are not print catalog or list prospecting oriented, they aren’t suffering from the issues we discussed earlier.

However, many of our gift, fashion apparel and general merchandise clients finished 10% to 25% below plan, which meant many ended below 2007. Plans in even the most aggressive companies may have only been up 5% to 10% over 2007. Circulation plans had been cut because of the postage increases. 

Outlook for 2009.  The industry leaders we work with-retail and direct companies, venture capital and finance people-expect the downturn to get worse in the first half of 2009 and last 12 to 18 months longer. One retail client with over 500 stores told me at NRF that they are planning, from a financial perspective, that sales for the next two years will be down. 

Given the seriousness of the downturn, our major challenge is how to plan 2009 in terms of number of products and pages circulated. We all know that if we reduce pages and products to reduce costs, we decrease revenue further and really shoot ourselves in the foot.

For many businesses, it will be a time of trying to survive.

Another big worry many companies will have is the lack of growth in the 12-month buyer files. Many companies will now have had two Holidays with the 12-month buyer count smaller than 2006. 

The downturn, as we all know, is worldwide. We are hearing from clients who have been in the markets here and overseas recently that many of their smaller resources are in trouble and will probably close. And an even bigger issue is that there does not seem to be a lot of new product being offered. 

Reducing Expenses. There are many resources on our website (www.fcbco.com), both in the articles and blog, that can help you to reduce expenses. Also, there is an article entitled “70+ Cost Reduction and Productivity Improvement Ideas” which is a good thought jogger for cost reduction and efficiency improvement.

Here are some current projects for which F. Curtis Barry & Company is engaged by clients looking to reduce expenses:

  1. Perform an assessment of how to further reduce call center and fulfillment costs
  2. Determine whether inbound and outbound shipping costs can be further re-negotiated
  3. Do an inventory assessment to determine how to improve inventory forecasting and management strategies
  4. Look at whether outsourcing call center and/or fulfillment can reduce costs

Feel free to call me today to talk through any or all of these ideas.

These are tough times for sure. But it’s also in this time of uncertainty that the smart and well-financed companies will pick up market share.

- Curt Barry, 804-740-8743

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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How Business Intelligence Systems Make Executive Dashboards, KPI Alerts and Analysis a Reality Across Your Enterprise’s Systems

by Curt Barry, President, F. Curtis Barry & Company on January 10, 2009

As companies grow in size and complexity, providing actionable, analytical information to senior management has become increasingly difficult. No one system provides more than 10% of the data senior management needs. Key data such as plans and history often exist in spreadsheets outside the information systems. Systems such as the telephone phone switches (ACD) have valuable productivity and service data, but management usually doesn’t have access to it. Reports from commercial systems by software companies often leave the user wanting a lot more.

Today’s Biggest Business Information Problem

Multichannel companies not only have multiple channels for dealing with customers; by their very nature, these companies often have multiple systems, with numerous-and differing-occurrences of key data and metrics. Depending on the database design and the age of the information systems, there may even be multiple occurrences of key data within a single system. This problem is actually worse in companies with large scale multichannel “systems”-because in reality, these are multiple individual applications. Many companies have grown up selecting best-of-breed systems, and since no one vendor in the marketplace today can provide more than two of the best-of-breed systems needed, these have disparate databases and designs. With separate systems for order management, fulfillment, call center ACD switches, marketing, product information, inventory, finance and e-commerce, we have created silos of information across the enterprise. ERP system proponents may say, “this is what we have been trying to tell you for years,” but the reality is that 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.

In moderate to large companies the multichannel transaction systems consist of a significant number of information systems and databases.  Here are some typical examples:

  • Catalog/e-commerce order management, marketing and merchandising system (OMS)
  • Warehouse management system (WMS) if not part of the OMS
  • Telephone switch software (ACD)
  • Financial applications (accounts payable, accounts receivable, general ledger, etc.)
  • Specialized standalone merchandise planning and forecasting system
  • POS and retail merchandising system for brick and mortar stores
  • E-commerce site and web analytics systems
  • Internally developed systems using Access or other small data bases
  • And there are hundreds to thousands of spreadsheets (including sales plans and history) extracting more tailored info for management

These best-of-breed systems are not designed with the same “look and feel” or navigation, and their database structures can span 25 years of systems development with Oracle, DB2, Access, COBOL, Java, C++ and .net. Management often has to get its information by having business analysts or department managers pulling data from these disparate “silos” into spreadsheets, Access databases or by using OLAP tools-and that’s a big problem. There are delays in getting the data, because much of it cannot be online, real time; there is considerable cost in massaging the data; a continual need to keep it updated; inevitable manual errors; and lack of the ability to add any sophisticated analysis to it. Perhaps worst of all, data often doesn’t reconcile from one information system to another, and therefore there isn’t a “single version of the truth.”  On which version of the data should you base your decisions?

There Is A Solution

Business intelligence software and services now exist which can open up systems and standardize data across systems in the enterprise, opening up tremendous possibilities that many companies have never before experienced. Rather than just extracting data, management at various levels can set up actionable Key Performance Indicator (KPI) alerts that act as a dashboard for the business. Analysis and queries using the same detailed data up and down the organization bring uniformity to the analytical and reporting process.

The benefits? For the first time, management has complete access to data across all systems in the enterprise. Objectives and KPIs can be set up to sharpen management decision making, and to keep senior management informed about the results on a real-time basis as shown in Figure 1:  Solving Data Problems With BI Solutions.

Getting Your Personal Dashboard of KPIs and Analytics

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 2: 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 KPIs are created by including data mixed and matched between information systems.

Business intelligence systems with KPI dashboard alerts are a reality today.

Using Inventory Data Across the Enterprise

To go into more depth, Figure 3: Using Inventory Data Across the Enterprise shows how various managers can derive benefit from business intelligence systems tailored to inventory management. Inventory is the largest balance sheet asset in most businesses.  Its effective management largely determines your level of customer service and profits. Suppose management had an ability not currently available to them: the ability to easily analyze some key inventory conditions.  Here are a few examples:

  • Inventory aging. 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.  The merchants can schedule to liquidate overstocks and slow-selling merchandise regularly.
  • Inventory carrying costs. Costs of maintaining inventory in the company’s warehouse, including rent, utilities, insurance, taxes, fulfillment labor costs and the opportunity cost of having capital tied up. 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). 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. Senior management wants to judge the firm’s ability to turn inventory into cash.
  • Customer service measured with fill rates. Initial item and initial customer order fill rate analysis, 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 the customer is 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 the 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. To identify the total cost of being out of stock, both by product and by categories that are creating the biggest issues and expenses. Cost of back orders 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. There are few systems that keep track of the cumulative back order costs by product throughout the year.  What our studies in hundreds of companies show is that back ordered merchandise costs $7 to $12 for each backordered unit of product.

Return On Investment (ROI)

There are great benefits to the organization when data can be shared across the enterprise and used for department analysis. We believe that these business intelligence applications will provide a positive ROI in 12 to 18 months, by enabling:

  • In the inventory control areas, you will be able to optimize inventory levels for the first time, taking into account initial order fill rates (service levels), inventory and planned turnover objectives.
  • In merchandising, you can expect to develop merchandise analysis by channel and across the enterprise to better understand how your multichannel business sells product. Vendor scorecards combine purchasing, demand and sales history, and receipt processing data.
  • The ability to put together distribution center productivity and service level metrics in receiving, checking, picking, packing and shipping. These include cost per order and service levels in departments such as receiving and returns processing.
  • Similar productivity data will be at your fingertips from the call center, with service levels for call abandonment rate, length of call, calls in queue, etc. as well as cost per transaction, cost per call and contacts per order.
  • One of the biggest benefits to management is 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.

Summary

What’s the cost of not having timely and accurate information to manage and control your business? There is an old industrial engineering axiom that says, “You can’t improve something you haven’t measured.” Worse, 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. With business intelligence systems, the ability to have instant access to all the most important data needed to make decisions is now a reality.

Figure 1:  Solving Data Problems With BI Solutions

The following are the problems that moderate to large companies have with silos of information throughout the enterprise and how BI can solve them issues.

Problem BI Solutions
Separate systems create information silos Standardized & normalized data base opens up applications across the enterprise
Multiple occurrences of same data(e.g. on hand in multiple systems and often within one system)”Don’t have a single version of the truth”. During the development of templates and KPIs each data field will be reviewed versus the other occurrences in the same and multiple systems.  Decisions are made of which data elements to use in the applications.
Reports and data but not actionable information. Management isn’t generally a user of the major information systems Management sets KPI alerts and analytics tailored to their responsibilities and concerns.
Any one system may only have 10% of the data required by top management BI opens up all information systems to management analysis
Abbreviated and programmer defined data field names in very complex flat files and data bases Standardized data base has redefined and understandable field and data base names for easy use  by non-programmers
Have to use programmers to get at the data.  Have to map hundreds of files and tables to be able to get at the data System uses standardized queries and KPI alerts
   
Data not KPIs Department and senior management can set standardized KPI alerts to notify when performance is not on plan or outside a pre-defined KPI range.
Key data may still not be available such as plans and history which are critical to management Business intelligence systems make all data sources regardless of technology or sophistication available
Everyone not on the “same page” with very different systems, reports and processes All KPI alerts, queries and drill downs into the detail data all use the same data

Figure 2:  Defining Your Personal Dashboard and Analytics

As the President, if you could select KPIs and metrics from various business and information systems, what would your Executive Dashboard include?  Many of these data feeds from the main transaction systems can be on-line, real time or batch.

Data                                          Source                                 KPIs and Benefits

Demand to Net Sales

  • Gross demand, cancellations, returns
  • Net sales against plan
  • Channel demand
 Order management, retail merchandising KPI alert when out of the expected range; summarized and drill down on demand, returns and sales; review by channel performance
Fulfillment

  • Orders shipped yesterday
  • % orders shipped complete
  • “Trouble” receipts in warehouse
  • Carryover work from yesterday
 Order management or warehouse management systems Number of orders and dollars shipped actual to plan; to understand warehouse work load carryover; what “trouble” receipts need buyers attention;
Call Center

  • Abandonment rates
  • Inquiries and complaints
  • Service level metrics
 ACD systems, order management systems KPIs for service levels; summarized reasons for inquiries and complaints
Marketing

  • Media results
  • Campaign results
  • Customer satisfaction surveys
  • Outbound selling by rep
 Order management or other marketing systems Individual results by media, campaign; results of on-line and call center surveys about customer satisfaction; performance of outbound salespersons
Merchandising/Inventory Control

  • Back order analysis
  • Inventory ageing
  • Slow sellers

(candidates to liquidate)

  • Fast sellers (POs needed)
 Order management Analyze cost of back orders to company profits; find optimal inventory levels to achieve high initial customer order fill rates with minimal overstocks; identify sales trends to take action on reorders and liquidation earlier
E-Commerce

  • Traffic analysis of visitors and page views
  • E-mail performance
  • Cart abandonment rate
 Web site or web analytics tools Learn more about response in fastest growing channel
Finance

  • Net cash flow
  • Line of credit balances
  • Aged A-P
  • Aged A-R
 Order management and finance systems With the CFO have the ability to better project and understand cash flow needs

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.

About Manage Metrix

Manage Metrix is a business intelligence system with KPI alerts and dashboard capabilities that can be easily customized for each user.  In addition, managers can use pre-built retail and direct analytical templates and KPIs or clients can customize their own unique analysis.  Senior management has drill down capabilities into the same detail data as the department management assuring everyone is using “the same version of the truth”.  Another unique approach offered is that F. Curtis Barry & Company works with the client management to set appropriate KPIs and action plans for improvement.  Modules have functionality for inventory management, merchandising, marketing, call center, fulfillment, retail merchandising and finance which shares data across the enterprise.  The product is co-developed by Taurus Software and F. Curtis Barry & Company.

About Taurus Software

Taurus Software has been making data liquid since 1987. Taurus offers an entire range of solutions that incorporate products such as DataBridger-a robust open platform data foundation creation tool, and application specific data models such as Ecomedate for Ecometry customers and Analysis Suite-a powerful analytical and reporting toolset. Taurus is a member of the HPe3000 Transition Partners Program and has technology partnerships with DirectTech, Quest Software, Lund Performance Solutions, Managed Business Solutions, Escalate Retail, Orbit Software, Pathway Pacific, DST Health Solutions and Acumium. To learn more about Taurus Software, visit www.taurus.com or call 650-482-2022 x1.

About F. Curtis Barry & Company

F. Curtis Barry & Company is a consultancy specializing in multichannel operations and fulfillment for catalog, e-commerce, and retail businesses.  F. Curtis Barry & Company offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; contact center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels. To learn more about F. Curtis Barry & Company, visit www.fcbco.com or call 804-740-8743.

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Collaboration Creates Solutions for Multi-Channel Retailers

by Brian Barry, Senior Consultant, F. Curtis Barry & Company on January 9, 2009

The introduction of ManageMetrix, a Business Intelligence Solution for Multi-Channel Retailers, is scheduled to occur at the 2009 National Retail Federation Big Show in New York.Taurus Software and F. Curtis Barry & Co. have partnered to create a robust & revolutionary business intelligence solution for the retail market. We look forward to seeing you at NRF Booth #337 for the introduction of Manage Metrix.

January 12th and 13th, 2009
Jacob K. Javits Convention Center, New York City
Dont miss this event where you will learn “The difference between information and intelligence”.

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Achieving a Single Version of the Truth

by Brian Barry, Senior Consultant, F. Curtis Barry & Company on January 8, 2009

How many times does this happen in your company?  You go to a meeting about sales performance, and Marketing says they think sales are up 3.5%, but the merchants disagree and say sales are up 6.3%. The specific numbers in this example aren’t important; the point is that the two figures aren’t even close.  That’s the reality in most companies today.

Or, say management has tasked you with developing a report and you try and go back to prior results, maybe from a season or two ago.  How many different versions of the sales, purchase and inventory plans are there?  Which ones are the actual and which were prior versions?

Some readers might say we could do a better job of controlling and eliminating versions of plans—which is certainly true, and something every company should work toward. Or you may say if we use only one enterprise system we can eliminate this dilemma.  But that isn’t really the solution; such systems aren’t viable for most companies, and anyway, there are multiple data elements that are all valid for whatever processing system is being used.  There isn’t a “single version of the truth”— one official set of figures for sales, inventory, plan, history, etc.

Take for example a product’s inventory.  You can find sales plans on a user-derived Access system or Excel spreadsheets.  A product’s inventory on hand in units and dollars occurs on your order management system.  A separate best-of-breed warehouse management system will also include the same product on hand, but needs to be synched up daily.  The finance system will also carry the total company inventory in dollars—probably not updated real time, but daily or  weekly.  You may also have a specialized standalone forecasting and inventory management system, to project inventory by promotion or catalog campaign.

Additionally, because the major transaction systems require a high degree of training, management does not use them as the source for their information.  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.  And they still don’t deliver a “single version of the truth.”

You get the picture.  There simply isn’t a “single version of the truth” for the major data elements used in many businesses.  For management to have confidence in the integrity of the data they’re getting, I think the time has come to advocate and budget for projects that resolve these problems.  Such problems are not new, and I believe they inhibit the effective management and growth of direct businesses.

Here is a hierarchy of solutions you should consider:

  • Extract data from major transaction processing systems into Excel or other reports
  • Access databases, and business analysts using OLAP tools
  • Data warehouse products
  • Business intelligence systems with dashboards and analytics

As the New Year approaches, it’s time to advocate with management for solutions to this problem.  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. In our experience, companies that used business intelligence systems to overcome such 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 all companies can agree.

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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