5 Success Factors in Mastering the Retail Balancing Act

The new-generation approach to a better supply chain


In addition to problematic business process and limited visibility to the supply chain, the inflexibility of IT systems used by retailers also poses as a barrier to achieving advanced planning. Most retailers utilize function-specific systems rather than systems that facilitate an end-to-end process. These systems also lack a familiar user interface, so they slow down and complicate the work of planners instead of making it easier.

Success Factors

Daunting as they may be, these hurdles are surmountable if companies adopt a new-generation approach to planning. From our experience in working with a wide range of retailers, we have identified five success factors leading to the mastery of retail balancing act.

1. Combine Art and Science
Most retailers use a rudimentary logic for planning, largely based on historical data and "gut instinct." This may have worked in the past, when the industry was less complex. But in today's global economy, along with the growing number of products and options, retailers typically outsource many aspects of their business, manufacture overseas, coordinate multiple channels — stores, catalogs and the Web — and have to deal with rising expectations from fickle customers. A smart retailer should supplement the art of planning with science that analyzes multiple factors such as sales profiles, store types and locations, and regional and demo-graphic variations. Retailers can gain valuable insights and plan far more effectively by leveraging all available data.

For example, most retailers use simple rules, such as "refill when only five remain," to guide inventory restocking. By using advanced forecasting and replenishment algorithms; however, they can restock each store based on its most current sales trend. Or, instead of using intuition to decide which products to carry in each store, buyers can analyze how similar products have sold in the past to come up with more informed numbers. Analytical tools also let retailers manage inventory based on product and store attributes, so that they can plan how a specific shirt would be sold during the summer in the southern United States, for instance.

2. Be Process-centric
Without a formalized, consistent, disciplined and process-based approach, the retailer is doomed to inefficiency and lost business. Hence, it is essential for retailers to build end-to-end processes rather than focusing on specific functions when they adopt new planning solutions, for a process-centric approach will deliver far more flexibility and allow for continuous innovation. Processes must also be adaptive to changing business needs and market conditions. The best systems can support each retailer's unique processes, instead of force-fitting them into the system's practices and structure.

Ideally, planning processes should integrate the knowledge of each user within the organization to institutionalize best practices. The system should also track process performance and provide feedback on needed improvements. A focus on end-to-end processes also helps to identify disconnects and value leakage that otherwise would be hard to detect and fix.

3. Manage complexity and irregularity
A planning system that is hard to use adds another layer of complexity. Retailers need new-generation planning solutions to manage the underlying data and process complexity so they can focus on what really matters: getting the right products to customers at the right price, in the most efficient manner possible. Complexity also comes from the explosion of data as well as from the processes involved in coordinating across multiple groups within the enterprise and ensuring that everyone is delivering against a common set of goals. Retailers taking the new-generation approach are able to get good, timely information to their buyers and key managers so the latter can make better decisions throughout the buying and assortment management process.

Moreover, with the new-generation approach, retailers are able to automate inventory management by creating business rules (such as "always maintain inventory to cover two weeks of forecast") and then focusing on responding quickly to irregular activities and exceptional events, such as out-of-stock items, excess inventory or major changes in demand. These advanced planning solutions will help retailers generate accurate statistical forecasts for basic items that are carried over from season to season, so that buyers can focus on the more critical fashion or seasonal items.

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