SKU Rationalization

SKU rationalization is an interesting process.  We have been working with a client to help them analyze product performance with the goal of reducing under-performing SKU's.  This lead us to research other organizations that have tackled this same problem.  We found an encouraging example worth sharing.  In the April 2006 Harvard Business Review, there is an interesting story of how Clorox attacked this problem and the results they achieved.

According to the article, Clorox identified 30% of their SKU's were falling short of sales volume and profit targets.  In order to address the problem, they created an annual planning process where under-performing SKU's were scrutinized and put onto a "glide path" to either be improved or eliminated.  If they are within 5% of target, they are put on "yellow" and if they are below 5% of target they are put on "red".  All red SKU's are evaluated for elimination.  The results reported are impressive; today 90% of Clorox's SKU's meet volume and profit targets.  Retail sales per SKU have grown by more than 25%, and net customer sales per SKU have almost doubled over the past four years.

This type of analysis is very powerful.  We have seen that many times the growth in unique SKU's, or reluctance to eliminate a product, can be a challenging managment issue.  But by evaluating sales and profit performance for SKU's on a regular basis, an objective evaluation can be made, and profits across the board can be improved.

August & September Executive Moves

Saks, Inc. reported Andrew Jennigs resigned as president and Stephen Sadove will assume Jennings' position.

RadioShack reported Claire Babrowski resigned as president & CEO.

Jo-Ann Stores promoted James Kerr to executive VP and CFO.

Spartan Stores appointed Derek Jones as executive VP supply chain.

Family Dollar Stores promoted James Kelly to COO.

Charming Shoppes, Inc. appointed Tim White as senior VP marketing.

CVS Corp named Paula Price as senior controller and CAO.

CompUSA appointed Roman Ross as president & CEO.

Office Depot named Teddy Chung to senior VP and managing director Asia.

Fred Meyer Stores promoted Lynn Gust to VP corporate merchandising and advertising.

Noteworthy conference

The Accelerated Analytics team has been asked to exhibit and provide a keynote presentation at the upcoming Vendor Collaboration Federation conference.

Global Retail Trading Partners Unite!
Sunday, Nov 05, 2006 - Wednesday, Nov 08, 2006

View conference information

This conference will provide an excellent opportunity to learn what retailers and vendors alike are doing with new supply chain technologies and how they are collaborating for success.  The Accelerated Analytics presentation will be titled: "Planning & Forecasting - Profiting Through Partnerships." Learn more about the Accelerated Analytics service.

Reporting vs. Planning

Several times in the last few days, our team has been involved in discussions with vendors regarding the difference between reporting and planning.  Surprisingly, many vendors see these two as synonymous functions, when in fact the are distinctly different. 

Reporting involves looking at what happened in a past period.  The period could be five minutes ago or 5 weeks ago, it does not matter.  The basic concept is that you are studying what happened in the past.

Planning is what happens after the report is analyzed.   It involves looking in the future and creating a series of actions based on what was reported to have happened.  e.g. a merchandising plan provides a specific open-to-buy (OTB) plan typically on a category level. 

Why is this important?  Because many vendors see the process of gathering EDI 852 sales and inventory data as a planning function, when it is actually a reporting function that serves as an input into the planning function.   Management needs to understand the difference and adjust their expectations accordingly.  Otherwise you run the risk of throwing out the baby with the bathwater when the EDI 852 data program fails to meet the needs of the business from a planning perspective. 

Is Supplier Collaboration Such a Risk?

This is the headline story in the October 2006 Integrated Solutions for Retailers magazine.  The story details the efforts Dillard's is making to share store level sales and inventory data with suppliers.  On the one hand, we are pleased to see another large $7.7 billion dollar retailer that "get's it", on the other hand we are surprised by the question in the headline.  Is vendor collaboration really a new and untested business model as the article suggests?  Just the opposite, the model has been shown to produce higher in-stock percentages and better assortment planning.

The obvious conclusion one reaches when reading the article is that vendors need a set of tools to better turn raw EDI 852 data into actionable decisions.  This is accomplished using a tool like our Accelerated Analytics service.  By using a comprehensive service, the vendor can get out of the data management business and go straight to making smart decisions.  Reports can be quickly created that highlight stores with too little inventory or declining sell-thru.  

Working with POS data

As we speak with manufacturers about how they are handling POS data from their retail customers, we find they are having trouble with the "noise" inherent in the data.  One of our clients get a very typical EDI 852 file each week with units sold and units on hand for each UPC for each store.  This is great data, but it takes up about 40 pages in a standard row and column format.  The issue of course is that it takes a long time to sort through and arrive at actionable information.  There is simply too much noise in the data.  And the problem is magnified when dealing with several retail customers at once.

We find it is much better to approach the analysis in a top down rather than bottom up fashion.  Top down analysis involves calculating sell-thru and weeks supply for each item.  Based on viewing these metrics, one can much more easily spot the trouble areas than by attempting to review line after line of sales and inventory with no context or relative performance information.  

When working with your POS data, start by identifying leading indicators for your data like weeks supply.  Leading metrics are actionable and add needed context to your decision making.  In this way, you can be much more efficient when dealing with lots of POS data.

Next, talk to your customer about how they analyze performance.  Some retailers look at sales by item and style, especially in apparel.  In soft goods, this is less important because they have longer lasting SKU's and more rigid replenishment guidelines.  By understanding what your customer is measuring and how often, you can align your metrics so you are both scoring performance in the same way.

Trade Promotion Management

The Accelerated Analytics team had the pleasure of attending the TPMA show in Chicago last week, as well as presenting a keynote presentation on POS data analysis.

Some interesting facts about trade promotion:

53% of companies do not know if their promotions make money

50% of companies do not know if the promotions they run add incremental value to the brand

51% of companies have not implemented changes to their trade promotion programs in light of new Sarbanes-Oxley and FASB regulations

It was clear as we spoke to manufactures at the show that they are struggling with POS data. Most of the manufacturers we spoke to are still using Excel as their primary tool. This creates a number of issues as the volume of data grows and the source data files come in various formats. It is abundantly clear a more robust POS data analysis tool like Accelerated Analytics is needed by a majority of manufacturers. It was interesting, this is true of both large and small manufacturers we spoke to. This is because in most cases, POS data analysis is a line of business issue and is not supported by the IT function. Most manufacturers we spoke to are looking for an outsourced service to handle the data. They don't want to invest into hardware and software that will become a growing expense over time. They also do not want to mess with the data integration issues.

Effective Key Performance Indicators

The Accelerated Analytics team spent a majority of the day to day reviewing retail point of sale data provided by a manufacturer client of ours.  These are large reports with thousands of rows of data organized by UPC, reporting units sold, units on hand, forecast units, etc.  This particular client sells to a 'big box' retailer, so each UPC is duplicated for over 2,000 stores.  Not an easy task to review and draw out meaningful and actionable intelligence.  It was clear as we reviewed the data that we needed to create a few top line key performance indicators to summarize what was happening. The natural choices were sell-thru, weeks supply on hand, and in-stock percentage.  By calculating these metrics and then eliminating all the columns of units sold and units on hand, we were able to more quickly identify which products were performing well and which were not.  This caused us to write up for this client a short summary on how to define effective key performance indicators to manage their business.

Effective key performance indicators are:

Context driven. Reporting units sold by UPC does not by itself yeild much information.  On the other hand, units sold compared to forecast provides very useful context to the user because you can immediately judge the relative performance.

Actionable.  If a report tells you UPC 384730384738 sold 374 units, what action can you take based on that knowledge?  Not much.  However if the report tells you the sell-thru percentage is 9% you immediately know action is required. 

Gather together your top 3 reports and review them to see if the data summarized provides KPI's or just data. Then work on creating KPI's that provide context and actionable information.  You will be surprised by how much more effective your analysis can be.

Understanding EDI 852 Product Activity Data

We have been receiving a lot of phone calls lately from manufacturers trying to understand the EDI 852 data files their retail customers are sending.

We posted a new page on our web site for understanding EDI 852 product activity data that you might find helpful if you are dealing with this issue. The Accelerated Analytics team would be happy to answer questions if you need help. contact us

Collaboration comming of age?

A recent shared strategy study titled "The State of Collaboration 2005", by Consumer Goods Technology, RIS, and Forrester, sited some encouraging results our team felt needed to be shared.  read the study

Finding #1: almost two-thirds of retailers and manufacturers feel they suffer adverse business effects when they do not collaborate.

Finding #2: EDI 852 is still the primary tool most firms use to collaborate.

Our conversations with manufacturers indicates they are having a hard time dealing with the EDI 852 data provided by retailers.  Plus many retailers have developed web portals which provide data files in even different formats.  There are simply too many different formats, and too much data to wade through on a weekly basis.  This points to the need for a tool to make the most of the opportunity.

Still, this is good news to see momentum continues to grow.

McDonald's WiFi

As a marathon runner, McDonald's is not typically on my list of places to eat.  I have a tough time finding anything there that fits my preferred diet and still tastes good.  But I've been reading about their WiFi deployment and I needed to do a few things on the Internet the other day, so I thought I'd give it a try.  It was a pretty typical WiFi experience on WayPort infrastructure.  I've logged on to their network many times in the past at airports, and other locations.  The service is fairly reliable, and the speed is acceptable.

What I was disappointed with was the $2.95 for two hours price tag.  McDonald's is smart to get into WiFi.  But I tend to align myself with the concept that WiFi used as a differentiation strategy should be free. (one of the only gripes I have against Starbucks is that they charge outrageous fees for WiFi) Especially when McDonald's has so prominently promoted their new network as the backbone for corporate e-biz including eLearning, POS transactions, franchisee communications, and appliance status monitoring.  As I sat there and clicked through my email, I could not help but smirk at the irony I was helping to subsidize McDonald's business communications.

Here's an idea... print a code on a customers receipt that is good for 30 minutes of free WiFi.  That way, for the windshield warriors, you create an incentive to visit the store and get lunch while you also discourage people that would come and just hang out all day and not make a purchase.  Or create a frequent visitor club where you can earn free WiFi minutes for some number of burgers purchased.  Just a thought.... they are on the right track, but I think McDonald's could improve upon their strategy just a bit.

What a difference a year makes...?

When you spend as much time as we do involved in 'missionary' conversations educating senior retail and consumer goods executives, it is a breath of fresh air when a research report is published which directly supports your business case.  That is why we were celebrating in November 2005 when the "2005 Shared Strategy Study: The State of Collaboration" was released as a joint project by Forrester Research, Consumer Goods Technology and RIS News.

One of the important findings of the report - 70% of retailers and 82% of manufacturers agree they suffer adverse business effects when they do not collaborate.  Based on this finding alone, one would expect a ground-swell of interest in collaborative technologies.  Right?

As we approach the one year anniversary, we can report the following based on our many, many conversations.  Only a handful of retailers are making a serious investment into collaborative technologies.  Instead, most retailers are taking a wait and see approach, or they are simply using existing EDI or worse yet, spreadsheets as a stop-gap.  Most manufacturers we talk to are suffering through the expense and difficulty of dealing with what retailers are sending to them.  Imagine getting a dozen different files each week from your customers.  And these are not small files.

The technology to collaborate effectively is pretty straight forward.  It can even be implemented in a managed service model so you don't have to spend a lot of money up front, or hire a bunch of IT guys.  Hopefully another 12 months will see big changes.

Applying Sun Tzu to Supply Chain Strategy

I have been reading Sun Tzu over the holiday weekend.  Very interesting reading.  It's the type of reading where you cover a few lines and then take an hour to reflect on what it means to your business.

One passage stuck me:
"Therefore, determine the enemy's plans and you will know which strategy will be successful and which will not."

I often find myself in conversations with senior executives debating the merits of expanding their vendor collaboration program.  Typically they already have a program in place, but I am advocating an expansion of that program and the application of new technology.  In these conversations, there is tremendous inertia to maintain the status quo.  After all, why fix a program that's not broken.  At their level in the organization they don't hear the day to day challenges of the EDI manager who is fielding vendor support calls. In fact, most of the time they hear just the opposite from the middle level manager, "Oh, everything is fine Mr. Executive, no need to come and visit me, just keep on moving."

But, if one critically evaluates where the most successful retailers (e.g. enemies) are making investments, one cannot espace the conclusion they are moving to more and more sophisticated vendor collaboration programs.  They are making investments before a problem occurs because they want to enjoy the corresponding lift of competitive advantage.

So, here is what I encourage all executives to do:  create two columns on a piece of paper and write your top five competitors down the left column.  Then on the other side for each competitor write down everything you know about their supply chain initiatives at this moment.  If you are coming up blank, that is your first clue there is a problem.  Now consider what your organization is doing.  What threats or opportunities are evident?  Every time I have gone through this exercise with an executive, we have both been surprised at the results.

Excellent Category Management Resource

We were recently referred to check out a great new association for category management professionals.  We spent some time on their web site and joined the organization.  I must say, so far we've been impressed.

Check out CPG Cat Net.  http://www.cpgcatnet.org/

Call to action: what other category management resources do you find beneficial?

Vendor Collaboration Success Story

In the June issue of Consumer Goods Technology (read article) there is a terrific success story on how data sharing and collaboration between a retailer and vendor should work.  This is a must read for any retail or vendor operations, sales, or supply chain professional. 

Here is a clip from the article:

Smart & Final offers the same service to its key vendor partners. “We can filter the information by product line so we can tell Coca-Cola or Pepsi, or the Ice Man, what they are selling in real time by item and by store,” he says. “By sharing real-time sales information with the ice vendor, the vendor now manages its own sell-through on the ice,” says Duge. As a result, Smart & Final’s ice sales increased 40 percent in the first year.

Did you catch the bottom line - 40% increase in sales on ice!  I can't think of too many strategies that are this simple, and can drive a double-digit increase in sales.  OK, everyone, lets collaborate.

Making sense out of EDI 852 data

We have been contacted by many vendors to major retailers in the past two weeks, looking for a solution to EDI 852 reporting.  It's not surprising since many major retailers send the EDI data out and simply hope vendors are able to use the data in some beneficial manor.  The fact is, most vendors are not in a good position to make this happen.  Especially since most vendors have many retail customers, all of which have different EDI templates and reporting requirements.  What a mess.

What is the point of making sales and inventory data available to suppliers if the data is unusuable, or inaccurate?

To make sense out of EDI 852 data requires a reporting tool capable of presenting summarized views (e.g. sales by month for each SKU and store) and then drill down capability to investigate problems.  In addition, a solid reporting tool needs to provide exception based management of the data.  This provides the vendor the ability to ingrain business logic like min and mix inventory turns and then be notified when something is out of whack. 

If you are struggling with EDI 852 data reporting, take solice.  You are not alone. 

Betting your business on a spreadsheet part II

In the August 2006 RIS News, a Tech Trends Study provides a stark answer to our rhetorical question from just a few days ago.  "Are you betting your business on a spreadsheet?"  Well the surveys are in, the numbers are counted, and the answer is YES.  According to the Tech Trends Study, 57% of organizations are using spreadsheets as their primary analytics tool.  On the positive side of the ledger, 37% of respondents said they already have a "BI workbench" in place.  "BI workbench" is a pretty broad term, but it does at least indicate an investment has been made into improving analysis capabilities.

Trade Promotion Management Event

Our President and CEO will be a featured speaker at the upcoming Trade Promotion Association event in Chicago.  If your organization is concerned about trade promotion, this is a must attend event.

The Trade Promotion Management Association (TPMA), is a non-profit trade association for professionals and organizations involved with trade promotion. TPMA provides members with information, education and research on the dynamic world of trade promotion, including co-op advertising, market development funds, slotting fees, off-invoice deductions, channel promotions and more.

Mark your calendars today for TPMA's Annual Conference, September 24th - 27th, 2006 in Chicago, IL. This will prove to be a watershed event, raising the bar for all trade promotion programs and their measurable results. New strategies, identifiable metrics, new media, and the supporting analytics to continuously improve results will be presented.
View the conference brochure

Accelerated Analytics Product News

Our Accelerated Analytics product was recently highlighted in the retail blog ShiSh List.  We recommend taking a look at their posting as well as looking around the blog.  Lots of good content on retail collaboration.

Accelerated Analytics was designed and built using Microsoft SQL 2005 and ProClarity (for the non-geek that means latest great technology) for business users to perform category management analysis, POS data analysis, and to support collaboration between retailers and their vendors. 

Betting your business on a spreadsheet?

A surprisingly large number of organizations are still using spreadsheets as the backbone of core business processes like POS data analysis, category management, and vendor collaboration.  There are many reasons for this, and even for a business intelligence professional like myself, I cannot simply dismiss their use altogether.  Although, it would be good for business ;-)  Spreadsheets are an incredibly useful tool in many situations.  However, they are also terribly overextended and misapplied.

I cannot tell you how many times in the past month I've heard some form of this statement; "Our spreadsheets work just fine, I don't see any reason for us to change."

I am going to take a few deep breaths and be as diplomatic as possible in answering that statement.  So here are a few reasons not to use spreadsheets for POS data analysis, category management, or vendor collaboration. 

Spreadsheets are inefficient for most complex data analysis.  Spreadsheets were designed to be a presentation layer for data and allow a user to perform some limited high level math.  Unfortunately, in many offices, spreadsheets have become complex programming environments where power users spend hour after hour manipulating data.   Because they are on the very edge of what a spreadsheet was designed to do, they spend 80% of their time fetching and manipulating data and only 20% performing analysis.

No single version of the truth.  Each spreadsheet has its own business logic, calculations, and definitions, so each user must spend time simply familiarizing themselves with the information.  In some cases they will have a different definition, so then the spreadsheet must be recreated to suit their needs.  One client of mine comes to each meeting, distributes his spreadsheet, and then leaves to refill his coffee cup and use the restroom while all the other attendees just figure out his math. 15 minutes on the front of every meeting multiplied times a dozen senior managers!

Lack of data quality and consistency.  Any time data is manually inserted into a spreadsheet, an opportunity exists to make a mistake.  The mistake could be inserting the wrong set of data or not applying the correct unit of measure.

Spreadsheets create a single point of failure.  Almost every office I have ever visited has a power user with an Access database and an Excel spreadsheet.  The rest of the office lives in fear of the day this power user might choke on a chicken bone at lunch, or decide they would rather live in Tahiti.

No auditability or verification.  In the post-SOX business world, this is a key concern for any public company or large private company with ambitions of an IPO.