Jun 07 2016
The True Value of Retail Data
In 1985, Walmart changed the retailer-supplier relationship forever when it created Retail Link, a proprietary vendor portal solution that would allow its suppliers to track sales performance at the SKU and store level. A number of other major retailers soon followed suit, seeing the benefits of providing increased visibility to their suppliers and sharing the responsibility of monitoring sales and inventory levels.
Whether or not they were aware at the time, these front-running retailers created a lasting precedent. Increased vendor access to data, coupled with leaner than ever buyer teams, has created the expectation that suppliers bring data-supported insights to conversations with their key retail accounts. In this partnership model, the onus is on suppliers to make sure that they have the data and analytics capabilities to contribute.
Business Impacts of Better Managed Data
75% of of data sharing leaders say that the quality of collaboration and dialogue with their retail partners has improved since incorporating data into their daily operations.
Suppliers list numerous benefits of better managing retail point of sale and inventory data. Interestingly, the top 5 business benefits align almost exactly with the benefits listed by retailers as accruing to them through supplier data sharing:
1. Improved on-shelf availability
2. Better demand forecast accuracy
3. Lower inventory and safety stock levels
4. New product launch execution management
5. Improved customer experience
This further highlights that retailer-supplier data sharing and collaboration can get both sides singing from the same song-sheet in the pursuit of customer satisfaction and operational excellence.
So with all these great benefits, surely all suppliers must be investing in the people and tools to leverage data, right?
The reality is that not all suppliers are consumer packaged goods behemoths like P&G or Nestle, whose massive volume affords them the opportunity to invest millions of dollars in people, processes and tools to integrate this data into their daily operations.
In fact, outside of the top tier of CPG companies, one sees a significant drop-off of capabilities in suppliers’ effective use of retailer data to improve their business. In fact, this capability is almost entirely absent in those channels outside of traditional fast-moving consumer goods channels like grocery, even among the largest suppliers. Home improvement and hardware, sporting goods, apparel, general merchandise, and consumer electronics are all examples of channels where suppliers are less mature than their counterparts in the traditional CPG channels when it comes to effectively using downstream retail data.
With more and more retailers recognizing the benefits of sharing data with their entire supplier bases, the expectations of – and opportunities for – suppliers are growing.
So how can your business follow in P&G’s footsteps without needing to deploy armies of analysts and millions of dollars? How can everyone else leverage the best practices of the leaders in CPG?
Fortunately, the recent emergence of cloud computing and big data technologies have created options that didn’t previously exist for product manufacturers. A few years ago, the only way to harness big data was to build so-called ‘demand signal repositories’ or data warehouses with expensive custom reporting tools; but today, there are cloud-based platforms that are deployed quickly and easily without the need for custom software, expensive implementation services or hardware infrastructure.
There are three key areas where suppliers that leverage retailer POS and inventory information can expect to see benefits: Sales, Marketing and Supply Chain.
1. Redefining Out of Stocks
Despite all the technology investments that retailers have made in auto-replenishment and supply chain management software over the years, it is estimated that the global incidence of out-of-stocks is 8.3% (GMA, 2008). That’s an astonishingly high number and one that’s been consistent over years of measurement. And it’s a number that shoppers can relate to, as they have just a 42% chance of filling a 10-item shopping list without encountering a stockout.
This is also a number that any product supplier can relate to. Intuitively, suppliers know that there are many situations – new product launches, promotional events, unexpected weather – where consumers are not finding a supplier’s products on the shelf. These stockouts result in a lost sale as the frustrated consumer picks up a competing product. At worst, it can lead to a lost customer for a longer period of time – or potentially forever – who has to be wooed back from the competing brand that the stockout introduced them to.
While improved supplier POS and inventory analytics won’t eliminate out-of-stocks entirely, suppliers with increased visibility can preempt potential problems at store level and help bring the incidence of out-of-stocks down.
2. Driving Replenishment
Even in product categories where in-season replenishment may be less common, opportunities exist to drive incremental sales with proper retail channel visibility. The reality is that many products that have traditionally been thought of as non-replenishable are only so considered because of the lack of sell-through visibility that suppliers have into these channels. Blind to sell-through insights, suppliers have struggled to react along the supply chain to produce and/or push more product into the channel to fill assortment holes during the selling season.
With global supply chains shrinking in both time and space, in-season replenishment is becoming a significant missed opportunity for suppliers across many channels. By harnessing the sell-through and inventory data that is increasingly being shared by retailers, this entire paradigm that has long underpinned many product markets is shifting. Leading suppliers can take advantage of the resulting sales opportunities, and they can use retailer data to outmaneuver their competition on the shelf.
1. Improved Return on Investment
“We know we’re wasting half our marketing spend, but we don’t know which half.”
The holy grail of any marketing program is the ability to track its financial return or ROI. Unfortunately, it is all too often elusive. As the old adage goes, “we know we’re wasting half our marketing spend, but we don’t know which half.”
When product manufacturers invest in promotional activities or marketing campaigns – whether in-store, out-of-store, online, offline – it is pointless to measure the lift in sales by shipments into the retailer before the promotion. While it might be a nice shot in the arm to load product into a retailer as part of a joint promotion, the euphoria will be short-lived if the net impact to the supplier and retailer is not demonstrably positive in the medium term. And demonstrably is the operative word here – if a supplier is not able to credibly show its buyer or merchant the joint gains produced by the marketing promotion, that buyer will look to another supplier next time a joint promotional window comes along.
Similarly, a supplier trying to approximate lift based on aggregate sales numbers across the channel over time will likely find that the analysis contains too much noise to sufficiently isolate the true immediate impact that the marketing promotion had on sales. Particularly as hyper-local shopper marketing techniques continue to increase in popularity, the key to measuring their effectiveness will be based on collecting and analyzing store-level POS data.
Take the example of a supplier who manages to get offshelf displays for particular products at one of their key retailers. This is a tried and true tactic to draw increased awareness and attention to the product, potentially driving up sales significantly. A supplier who can zero-in on those stores with displays to track the rate of sale before and after the display hits the shelves, as well as compare it to similar format non-display stores, will be able to triangulate the precise return that the investment in the additional merchandising yielded. Decisions can then be made to expand, amend or abandon this particular marketing tactic.
Regularly measuring all promotional activities, whether they be coupons, in-store demos, signage, packaging, merchandising, or geo-targeted online or mobile ads, will ensure that the ‘wasted half’ of marketing spend is identified and eliminated. By identifying and pursuing those marketing investments that show a positive return, profits and revenue growth are likely to follow.
2. Optimized Assortments
No two markets are exactly alike. Retailers know this and accordingly build uniquely formatted stores and stock shelves differently depending on population size, consumer demographics, socioeconomics, language, climate, and other characteristics.
Suppliers can simply rely on the retailer to place orders and they can passively ship product, assuming that the retailer is making these optimization decisions for them; but how realistic is it to imagine that a buyer who is managing dozens of suppliers and hundreds of SKUs has the time to do market analysis for each and every product? As it turns out, it’s not realistic at all.
Retail buyers recognize that product suppliers are the subject matter experts when it comes to their product markets. Accordingly, they are increasingly looking to suppliers to come to the table with this type of product market analysis and recommendations to optimize category and assortment performance.
Smart suppliers who are able to analyze what’s driving their sales by store and by market are viewed as trusted partners by their retailers and are part of the conversation when it comes to joint business planning.
1. Forecasting Accuracy
Forecasting is an art, even at the best of times. A supplier’s forecasts may start with sales serving as a bottom up estimate by SKU by customer. Or it may be top-down, driven by past performance with a growth factor applied. Either way, the more information that is used in arriving at these numbers, the better they will be.
A key success factor in forecasting accuracy is the granularity of information. By using SKU and store-level sales information buried inside POS data, suppliers can build more accurate forecasts so that they are not caught with too little stock and therefore suffering out-of-stocks or missed replenishment opportunities; or on the flip side, too much stock, causing the supplier to clear out product at a discount and potentially negative margins.
2. Reduced Safety Stock and Increased Inventory Turns
When suppliers are blind to customer demand driven by store level purchases and instead manage their business only to periodic, ’lumpy’ purchase orders, they often err on the side of carrying too much inventory. After all, choosing between carrying extra inventory and short shipping a retailer, most suppliers will choose the former option so as to not jeopardize their standing with that retailer.
When less money is tied up in inventory, money is freed up to generate returns elsewhere. Effective use of store-level and SKU-level data enables suppliers to smooth out inventory levels, thereby freeing up capital. Those dollars multiplied by suppliers’ cost of capital will give suppliers a target for improved capital efficiency.
2. More Efficient Replenishment
When retail replenishment orders arrive unexpectedly, the downstream costs for a supplier can add up quickly. Expedited production and freight costs, both along its supply chain and to the retailer (not to mention the risk of short-shipment and lost sales), can all add up.
Effective use of store-level data and analytics allows smart suppliers to see around corners and anticipate demand in advance of the order, enabling a smoothing out of the production and supply chain costs. This is particularly important in the case of new product introductions when historical-based demand planning cannot help. The earlier suppliers can sense customer demand signals in the retail channel, the sooner they can plan and execute their supply chain activities to meet this new demand curve.
Enabling Smarter Suppliers
“The question suppliers should be asking is, ‘can we afford not to invest in retail data analytics?'”
With recent advances in cloud-based big data analytics and mobile technology, suppliers wanting to get a leg up on their competition are now able to drive smarter decision-making and execution using this retail data throughout their organization. From sales, to marketing, to supply chain to field service teams, it is now possible to have the entire organization optimize the business based on the same shared set of facts.
Emerging Software-as-a-Service platforms turn the traditional technology model on its head, shifting away from up-front investments in business intelligence software and implementation services, hardware and ongoing IT support. All of these capabilities can be deployed for nominal all-in monthly subscription fees.
Given the opportunities for increased revenue and reduced costs to be achieved across sales, marketing and supply chain, the question suppliers should be asking is not: “can we afford to invest in retail data analytics?”. Rather, the question smart suppliers should be asking is: “can we afford not to?”