Achieving Operational Excellence
Within the consumer goods (CG) industry, executives are trying to make better use of retail data, manage an increasing number of SKUs and stores, handle shorter order cycle times and reduce inventory levels. This month, CGT caught up with Doug Percy, president and CEO of Blue Agave Software, a provider of real-time performance management solutions for the consumer goods industry. Percy discusses these challenges as well as how CG firms should be striving to reach Operational Excellence.
How can CG firms leverage retail data to achieve Operational Excellence?
Most CG firms agree on the importance of utilizing retail data, and many of them are already using it in some capacity -- often for retrospective reporting or to improve future planning and forecasting activities.
We believe -- and most industry analysts agree -- that CG firms need to utilize retail data on a more proactive, consistent basis in order to fuel better, more effective decisions within critical windows of opportunity. By transforming retail data into actionable information on a real-time basis, CG firms are able to truly realize the potential that this rich information has to offer, and take the first steps on the path to Operational Excellence.
What do we mean by "actionable information" and "critical windows of opportunity"? Consider, for example, trade promotions. Retrospective reporting on retail data may tell you how a promotion performed two or four weeks ago. The Operational Excellence approach that we are advancing leverages retail data on a daily basis, delivering insight to your team while the promotion is still running so decisions can be made while it still counts. Imagine knowing the exact locations where promotional lift isn't meeting planned expectations two days into the promotion -- you'd be able to avoid stock-outs and excess by diverting inventory to the locations where sell-through is greatest, maximizing revenue.
What are the benefits of realizing the Perfect Shelf?
Retail shelf space is valuable real estate for CG companies, and often serves as a CG firm's face to their ultimate consumer. Advertising and promotions may bring consumers into the store, but the moment of truth occurs when they are standing in the aisle looking at the shelf. A shelf containing one item may be considered in stock, but if your shelf has room for 12, you are losing revenue for both your company and your retailer. Consumers aren't likely to buy the last item on the shelf. And if you're not maximizing the space, then your competitor's products will surely find their way over from a neighboring shelf. Consistently achieving the Perfect Shelf means that CG companies are fully utilizing the modular space with the right mix of products to maximize sell-through. It creates a positive consumer experience and increases the chances that your products will move from the shelf into consumers' carts. What's more, the Perfect Shelf keeps retailers satisfied, who are then more likely to reward you with increased business and space.
What steps can CG firms take to corral the overwhelming volume of retail data?
We've talked with many organizations that have described their current process of using retail data. They come in early in the morning or on Sundays to download data into spreadsheets and then spend hours manually poring through reports to uncover problems buried in the data. This manual process just isn't feasible as the number of stores and SKU's increases and the demands of the retail channel become greater. Often, team members are looking for very specific, commonly occurring challenges: Incorrect de-seasonalized demand settings, stock-outs, forecast errors, excesses or incorrect promotional base indexes. In short, they are looking for areas in which reality isn't meeting planned expectations -- needles in a massive information haystack. The right technology can take the tedium out of this manual hunt for problems, freeing up customer-facing teams to spend more of their day driving improvements in top-line revenue, instead of fighting fires. CG firms should look for solutions that automatically evaluate all available data to deliver timely, focused insight into where problems or opportunities are currently occurring, so that decision-makers can direct their attention to those areas. This insight should be presented with the contextual information related to each issue, so that teams have the information to quickly and effectively respond.
How can CG execs realize the revenue potential that lies in the gap between planning and execution?
With so many variables at play -- weather, store openings or closings, fickle consumers, new product introductions, competitor's promotions -- reality very seldom matches planned expectations. Success in meeting the demands of the retail channel, without jeopardizing margin, depends on a CG firm's ability to proactively and efficiently respond when the unpredictable occurs. In other words, success depends upon achieving Operational Excellence. With right-time, informed decisions fueled by proactive utilization of retailer data, Operational Excellence enables CG firms to effectively and profitably execute, even if plans don't unfold as expected. This agility enables CG firms to capitalize on more revenue opportunities by achieving timely insight into the best performing products and stores, so inventory can be shifted to where it is selling best. It helps firms consistently avoid the issues that put revenue and service in jeopardy -- stock-outs, late orders, excess -- with real-time identification of developing situations, so teams can take action before these issues become major problems. And it enables firms to fine-tune promotions as they run. Because Operational Excellence provides a proactive understanding of exactly when and where issues and opportunities are unfolding, CG firms are able to substantially cut supply chain costs by reducing expediting costs and decreasing buffer inventories -- without sacrificing service to customers.
The ability to evaluate real-time data is critical to achieve Operational Excellence. How can CG firms overcome the many hurdles to make this happen?
CG firms should look for solutions that work continuously behind the scenes, leveraging their business's rules and best practices, intelligently evaluating retailer data to identify issues and opportunities critical to revenue and service. The solutions should leverage the business rules to automatically generate business and situation-appropriate resolution strategies. And the solutions should provide an environment that makes it easy for decision-makers to rapidly and efficiently resolve issues with capabilities like workflow and email, as well as an integrated ability to perform routine tasks like creating replenishment policies. CG firms should certainly look for vendors with deep expertise in business process and data integration. It's a requisite for accessing retailer data in all its various formats as well as for connecting to the myriad of other internal systems that provide the context and background information necessary for this level of effective decision-making. Given the investments CG firms have already made in their existing IT infrastructure, it is important that new solutions are non-disruptive and can be implemented quickly.
Which CG firms have moved towards this concept of Operational Excellence?
We are currently working with several CG firms who are moving toward Operational Excellence. We were able to help one well-known CG company prevent more than $1 million in lost revenue in the first six months of deployment by identifying orders-at-risk early enough for teams to take action to prevent interruptions. By automatically correlating information across supply, demand and inventory, the firm was able to proactively identify downstream service problems often caused by changes in internal business conditions such as changes in manufacturing schedules, expected purchase receipts, demand dips or spikes, and take appropriate corrective action. During this time, the firm reduced finished goods inventory by more than 25 percent, while improving service to top retail customers.