Does Your Retail Operation Move at E Speed?

For retail companies, with branded consumer goods moving out of their stores at a rate of knots, the most important consideration in managing relations with customers is anticipating demand. Information has been flowing in for some years from electronic point of sale (EPOS) systems and has been amassed in massive data warehouses, but basic concerns about stockouts, inconsistent availability, poor returns management and high prices remain more likely to have consumers moving on down the high street than any high-flying CRM concepts.

But it's not weaknesses in forecasting demand that are coming back to haunt the retail giants--everyone can tell turkeys are going to be popular at Christmas--but their ability to pass that information on to suppliers. "The challenge for retailers is changing their mindset to accept collaboration and visibility across their partners," says Steve Weller, retail marketing director at supply chain planning software market leader i2, which has recently set up a retail digital exchange, SoftgoodsMatrix. "They're lagging with reason--they have gotten to the powerful position they are in through rationalising suppliers and driving costs down. But that's not sustainable."

"Over the past 15 years, retailers have starved manufacturers of meaningful data, principally to gain power and in the mistaken belief that information is power," agrees Mark McDonnell, marketing director of retail specialist collaboration vendor Eqos. "By giving the information back to manufacturers, they are better able to react to circumstances."

A three-year-old start-up founded by ex-GE staffers Mike Quinn and Chris Foulkes, Eqos found itself in the right place at the right time when J Sainsbury was looking to implement a demand planning solution, and the Collaborative Planning System was born. Two years later, they are working together to facilitate planning of the promotions which it runs on around 2,500 lines at any one time, and which account for 20 percent of its £12.1 billion turnover.

Dave Simister, supplier relationships manager at J Sainsbury, says: "Out of all the products we sell, promotions cause the biggest problems because they create spikes in the supply chain. You can improve forecasting and improve your capacity, but it's more about ensuring everyone involved in the supply chain can see the information."

He adds that while in the past it could take up to a month to measure demand on a particular promotion, now one supplier on the system has reported getting feedback the day after kicking off a promotion. The knock-on effect has not only been better relations with suppliers--logistics director John Rowe has talked about eliminating the "blame culture" of not wanting to take responsibility for problems--but also better service to customers.

Simister says there are soft and hard benefits. For a start, the company reckons to have taken £2 million a year in costs out of the supply chain. But in addition, he says: "It has improved sales to the customer. Before this, a number of stores might not have had the product at the time of a promotion, the customer was frustrated, we lost sales, and it was the biggest complaint we had." J Sainsbury plans to extend the system to cater for new product introductions, where information about an offering needs to be at the supermarket eight to nine weeks before it is launched. It is also linking up with an Internet catalogue provider, Udex, to maintain all information on lines remotely. Simister says it is keen to get an industry standard in place.

J Sainsbury's drive is tied up in its own and its suppliers' moves toward Efficient Consumer Response, a US-based initiative which was set up in Europe in 1994, estimating that $4 billion could be saved across Europe from inefficient promotions.

Of course, the data to enable more efficient response to consumer demand has been flowing in since EPOS systems began to be adopted more widely, around the same time. At first, companies were overwhelmed by the deluge of data. "You can't just draw a line under it and say we will start analysing it. The data is still pouring in," says Steve Morrell, head of Datamonitor's CRM analysis.

Where companies have got a handle on the deluge, and installed data warehouses to manage it, Morrell believes it has been driven by IT. "IT is great at storing data, but it is not great at using it. As long as IT have their little storage boxes, they're happy. What we're seeing in terms of CRM is that in a third of cases it's driven by sales and marketing and they're now expecting to get something out of it." Datamonitor predicts an explosion in the uptake of analytical CRM from $160 million across Europe at the end of last year to $750 million by 2004.

What analysis will come out of the data is an entirely different debate. Morrell says that while retailers can never get a single view of the individual customer, they should be aiming towards that. But Vivienne Cramer, head of retail at data warehousing vendor NCR, believes not everyone wants a single view of individual customers. "Certain organisations like Walmart/Asda don't do any customer communications. Their strategy being everyday low prices, they get benefits out of the information they keep on products and share with suppliers so they can ensure their stock is maximised and their prices are keen."

According to Cramer, Asda ran a pilot loyalty card programme in 19 stores, but abandoned it after realising it did not fit with its strategy. Others, she admits, will want to segment their best customers--although she points out that profitability in itself is not necessarily the best measure, as a company may simply want to maximise revenue and the highest revenue contributors may not be the most profitable.

The ultimate goal, she says, is to persuade a customer to change their buying habits. "It's important to get your top customers behaving the way you want them to. But to get a customer to change and be loyal to a new outlet is expensive." Cross-selling and managing promotions is a way to gain this nirvana, she says, and ultimately this comes back to better supply chain management.

Set against all this, the online future looks hazy for retailers. While some have made bold moves onto the Internet, loyalty is to some extent thrown out of the window when it comes to Web shopping. "By and large, customers are not loyal on the Internet. Things will change significantly."