With Billions of Bytes of Customer Data, How Can Retailers Be 'Starved for Information'? (page 2 of 2)

Example: Book and music retailer Borders tracks sales by product category at each store, and periodically uses its merchandise planning system to automatically adjust each store's assortment. A store in Alaska, for instance, might be well stocked with books about small planes.

• Supply Chain Speed: Companies should improve supply chain responsiveness so as to reduce stockouts on hot sellers (popular items that sell out) and also to reduce markdowns because less merchandise needs to be ordered initially. Example: Zara, which ships apparel worldwide from Spain, stores raw materials and reserves production capacity at factories in anticipation of demand.

• Risk-Based Inventory Planning: Companies should track stockouts, use this tracking to estimate lost sales and inventory levels to balance the risks of lost sales and excess inventory. Example: At Bulgari, the Rome-headquartered jewelry manufacturer, the researchers found that stockouts on a single item had lowered company profits by 5% of sales.

In turn, these three capabilities must rest on a foundation of:

• Accurate and Available Data: Companies should ensure accuracy of sales and inventory data, and retain and share this data with merchants. Example: Office superstore Staples practices a "zero balance walk" in which an employee searches 20% of the store daily for stocked-out SKUs (stock-keeping units). The reasons for the stockouts are then traced to uncover possible computer inventory discrepancies.

• Organizational Design: Companies should blend "left-" and "right-brained" capabilities to build better communication between the MIS department and merchandising/planning. Example: In their article the authors quote one prominent retail CEO as saying, "the merchandising-MIS relationship is broken," and another stating that "the only time [the MIS managers] communicate with me is when they ask for a $30 million write-off on some previous project that now has to be abandoned."

As Fisher and his co-authors note in their article, "Retailers can't continue to suffer growing markdown losses yet disappoint a significant portion of their customers who can't find what they want. They can't continue to ignore billions of bytes of unused sales history that could help solve these problems...

"Every decade sees a retailer who innovates so powerfully that it rewrites the rules for other retailers and for all companies in the retail supply chain," they conclude. "In the '80s it was Wal-Mart. In the '90s, it was Amazon.com. We believe the next retail innovator will be the one that best combines access to consumer transaction data with the ability to turn that information into action."



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