Report • 16.02.2011

Analysis and projection automate inventory flow

Empty shelves are just as bad as non-saleable surplus. That’s why commercial enterprises place ever stronger demands on logistics. Ordering times are shortened. At the same time, retailers are trying to better forecast future demand of products by implementing analysis and forecasting software. The starting point however is a working inventory management. The goal is an automation of ordering processes as extensively as possible.“

The modernization of an existing IT landscape is not easy. This is illustrated for instance by the Lunar-project by Edeka. The members of the cooperative have already spent more than 200 million Euros for the IT standardization based on SAP. They have worked for several years on this project. Other retailers are also dealing with drawn-out IT projects.

But IT is not just a question of software and hardware. Oftentimes new IT projects are tied to drastic changes in one’s own organization. It also depends on the employees who are intended to use the new support. Today such an in-house change is called “change process“. You need to motivate your employees, so that they don’t experience this change from the familiar as an abrupt upheaval. It is about the love for learning versus the fear of something new.

Small specialty retailers have a much tougher time with this. They are experts of their products, but they are not IT specialists. But they are aware that they cannot keep up with today’s competition with their 10 or 20 year old solutions. They realize that they need to invest. They know this, but they don’t know how to do it, because for the most part they don’t have an IT department at their own store. Some have “home-made“ solutions which reach their limits.

In-house solution or standard software

Those who have their own in-house solutions depend on someone being in their store to be proficient in it. External assistants often find it difficult to see through these patterns. In light of this, it’s not surprising that lately more and more retailers choose standard software they have adapted to their store. Standard software already has interfaces to all trade relevant IT systems, so that an integrated IT landscape is created. Many retailers believe however that particularly for them some special features need to absolutely be incorporated into their software. And this works just like at a car dealership: extras cost extra.

Is it cheaper to adapt the software to a company or to adapt the company to the software? The answer is not an easy one. Programs certainly can be changed much easier. Those whose processes deviate considerably from standard solutions should ask themselves whether their own structures are still current. After all, standard solutions are not inflexible cookie-cutter offers. The service providers continuously adapt them to the conditions in the particular industry sector. The conditions – those are the average requirements of the clients.

Inventory management is the basis

Today’s customers are less loyal than in the old days. They are well informed about products and pricing like never before. They buy at local businesses, online and in the future per smartphone. Time to market becomes a key success criterion for retailers. Time to market – that’s the lead time you need until a product design finally hits the market and doesn’t just cost money, but also makes some. Time to market on the one hand means one’s own investment decisions in new hardware, software and structures. But time to market also means products you want to sell. Since many products have a shorter and shorter life time cycle, the lead time becomes more and more critical. Those that are the first ones to have a product in their store can demand higher prices. But the product that sits on the shelf today could possibly be outdated tomorrow.

Software instead of gut instinct

With a great analysis- and prognosis software, retail is on the cutting edge. Even experienced business people and managers and their gut instinct are actually frequently wrong in their ordering system. A functioning inventory management is essential as the foundation of a well-founded analysis. It needs to cover all distribution channels and generate coherent data. This requires integrated IT structures, the connection between inventory management and modern webshop systems, integrated retail management systems, planning systems or order systems.

One path through the data jungle searches for special software for Business Intelligence. BI software analyzes historical processes as well as current incidents and makes forecasting possible. It collects the required information from a multitude of data sources, edits it consistently and presents it to the decision-makers in a compressed way on a user-friendly interface.

One of the most important procedures in forecasts is time series analysis. Weather observations and stock exchange prices are typical examples of this. In retail, product sales data illustrate a time series. Every retailer wants to know: which product and how much of it needs to be on the shelf at what time? Based on the time series of previous sales figures, prognosis software deduces regularities. If a product is steadily sold over a day, a week, a month, the sales values are plotted on a straight line. However, if sales at the beginning of the week are always particularly high, but very low at the end of the week, it results in a sinus curve.

Parameters improve forecasts

Prognosis software extends the curves or straight lines into the future by extrapolation of historical sales data. But this also means: forecasts are complicated if historical data for new products is missing. Then you need to fall back on comparable cases and their courses. In addition to time series analysis, other statistical methods can be used, for instance artificial intelligence with which human intelligent behavior is meant to be recreated. Computers are meant to independently work on problems with it.

But it depends on the right parameter. Aside from the chronological sequence of historical data, many external factors also affect a time series. In retail those are holidays or vacation times. A sales promotion assists the sale of a product and reduces the sales of items that are not being advertised. Forecasts are thus only as good as the parameters that are entered in addition.

Flowers before Mother’s Day, beer and barbeque meat before a sporting event is shown on TV – those are moments where a manager’s gut instinct makes the difference. This gut instinct, this intuition can not be replaced by any software. But in everyday business, software computes more data than every manager possibly ever could.

René Schellbach, EuroCIS
 

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