Operational and transactional systems such as merchandise management, ERP (enterprise resource planning), and POS, are very good at what they do -- organizing huge amounts of operational data and transactions. These systems can tell retailers what has happened in their business and what their customers have done -- last week, last month, and last year.
It's critical, however, for retailers to understand what will happen: what the demand will be for a select assortment of merchandise, what impact an incremental price change will have on demand, which floor plan will sell more designer shoes, which customers will respond to a direct mail or catalog offer.
Real value comes from systems that go beyond the limitations of operational software alone, systems that can take operational data and create enterprise intelligence and predictive insights.
These BI systems must combine data management (consolidating, organizing, and cleansing huge amounts of disparate data from varying systems and platforms) with predictive analytics (data mining, forecasting, optimization). When they do, retailers can make sense of customer, product, supplier, and operational data and draw insights that will help them run their businesses better and more profitably.
Leading retailers around the globe -- like Wal-Mart, Foot Locker, Staples, Williams-Sonoma, and Amazon.com and many others -- have begun using BI and analytics to make an array of strategic decisions. These include where to place retail outlets, how many of each size or color of an item to put in each store, and when and how much to discount. The effects of these decisions can save or generate millions of dollars for retailers.
The Strength of the Market for BI in Retail Today:
The market is very strong and getting stronger. While it is difficult to find a comprehensive suite of retail-specific BI offerings that spans the spectrum from competitive intelligence to merchandise planning and optimization (product, price, promotion, and placement) based on customer insight, to knowing how to maximize the ROI on the next marketing campaign, to understanding where to build the next store, to reducing supply chain costs. Retailers are telling us over and over that they are seeking a single, stable, reliable, and proven provider of superior BI solutions. They are implementing projects that span multiple years and will deliver value for years to come.
The Retailers that are Realizing the Most Benefits from BI:
We find that the retailers that are realizing the most significant returns on their investments are those that take a purposeful, pragmatic approach to establishing an intelligence platform upon which to base all other BI solutions. A single, reliable demand forecast, for instance, can also be used in merchandising, marketing, logistics, store operations, call center staffing, etc., for operational benefit. BI that remains segmented by functional area can provide some value, but retailers can realize a much larger return by building the foundation upon which the rest of the house will stand. This is true of both top-tier and midmarket retailers, regardless of segment.
Specific Areas in Which Retailers can Benefit Most Include:
Merchandising -- This is clearly the most important area of a retailer's business and an area where retailers are beginning to exploit the full value of BI. Analysis of past performance, combined with plans and forecasts of future customer behavior, leads to more accurate initial allocations of merchandise across channels and stores. Assortment and size optimization that are based on customer demand patterns ensure that the correct assortments, size, and case-pack distributions get sent to the correct stores. Daily price, promotion, and markdown optimization ensures that items are priced for optimal profitability, both preseason and in season. Space automation and optimization ensure that departmental sales and profit per square foot are maximized, and products are given the correct inventory and space on the shelf or on the rack. Optimized fulfillment ensures that products are allocated or replenished based on demand. Accurate analysis also results in a more efficient use of manpower in picking, packing, and shipping the first wave of product, while minimizing additional, costly payroll expenses to facilitate transfers between stores, vendor returns, changing signage and labels for markdowns, and otherwise correcting mistakes.
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