Reaping retail benefits with business intelligence
Retailers rely on a complex set of systems to manage the value chain. These range from supply chain management, through inventory control, transportation, logistics and merchandising to customer relationship management. That’s why – more than any other sector – retailers depend on robust business intelligence (BI) so as to get the right products to the right customers at the right price and at the right time.
“To achieve this, data flowing from different business processes must be integrated so as to provide a single view of the business,” says Sean Paine, Director of EnterpriseWorx.
“In South Africa, and globally, as consumer confidence dropped, retailers have had to push profits by selling more while cutting costs. In a competitive environment, with online shopping also taking its cut of the available spend, their share of wallet is being challenged.
“Retailers have had to take a hard look at key performance indicators (KPIs) such as return on capital, stock to sales ratio, inventory turns per year and they have had to manage the value chain much more tightly. However, without the appropriate BI tools, they face a lack of visibility as to what’s happening in their business. They are then forced to make decisions without having all the facts. Having sound intelligence puts management in touch with key elements such as customer spending patterns and sales trends.”
According to Paine, the first step in implementing BI is to make it a business project, not an IT project. “It’s important to define the strategic objectives of the organisation, decide which business drivers are critical for achieving these, and then derive key performance indicators (KPIs) for measuring progress.
“For example, if a retail strategy is to increase market share, it’s necessary to monitor customer spend, so as to ascertain whether current customers start spending more money, or whether the firm is attracting new customers, or both. It may also be important to measure the company’s rate of growth compared to its competitors. These KPIs then form part of a BI system that measures whether or not the growth strategy is being implemented effectively.”
Spreadsheets may provide a basic understanding, but cannot provide reliable insights from the myriad of systems within the organisation. “Knowing how many transactions took place is not the same as understanding why they took place, what factors influenced the outcome, and how to optimise the results in the future,” says Payne.
An integrated BI platform extracts greater value from existing data sources, transforming operational and transactional data from legacy systems into meaningful, forward looking insights that can dramatically increase revenues, profitability and effectiveness.
“Without commitment from the business user, ‘reporting sprawl’ can result, with contradictions between reporting systems,” says Paine. BI technology gives retailers the ability to report consistently across the entire business, producing one set of numbers and generating ‘one version of the truth’. However, to achieve this takes strategic alignment between business and the IT department, and that’s a people issue, not a technology issue.
“For the organisation to maximise its BI initiatives, you need a structured approach. The best way of achieving this is to establish a business intelligence competency centre (BICC) – a cross-functional team representing business and IT disciplines. Its role is to address the strategic objectives of BI in the organisation, and develop a framework for moving through the various phases of BI to maturity.”
Over time, retailers build understanding of the business by analysing historical trends. They can then proceed to using dynamic information to solve problems, optimise performance and make predictive decisions.
“Retailers walk a fine line between trying to give as much leeway as possible for repayments, while managing financial risk,” says Paine. “Customer demographics superimposed on sales and payment information can assist in managing this risk.
“Having a centralised view of all your systems can help stores stock high-selling items and determine how long it will take to replenish inventory. This can also lead to additional savings by reducing inventory levels and decreasing the amount of warehouse space.
“Business strategy based on business needs comes first, but accurate, consistent, reliable data can assist in developing strategy. It’s a circular process. Taking bad data and putting good-looking graphics and analytic capabilities on top does not make for good business intelligence. BI must be aligned with business strategy and backed by accurate data.
“Retailers need to be clear on their strategic objectives and implement BI systems in a methodical project-driven way. That’s the only way to get precise, accurate intelligence that generates business value for the organisation.”