Author: Helen Thomas

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.

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.

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.

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.

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.

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.

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.

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.

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?

In the June issue of Consumer Goods Technology, 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.