Posts Tagged ‘replenishment’

Hardlines Optimization – Part 4: The Death of Min/Max Replenishment

by Greg Wilson • September 7th, 2011 • Write a comment »

Most retailers have products that are managed by extremely simple replenishment methodologies. The most common of these philosophies is to send one unit to start and apply a “sell one, get one” or “min/max” replenishment approach. For very slow movers, both philosophies effectively do the same thing. One unit is in stores and if it sells, another is sent. In min/max, the min is one and the max is one.

Products that most often fall into being managed this way are commonly referred to as “image items.” The store doesn’t sell a lot of them, but it’s important to carry one to maintain an image for the shelf. These items also frequently have high retail prices.

There are a few ways to view this replenishment problem. Remember, only a small increase in selling or decrease in inventory units is substantial due to the value of these items often being very high. One of the most effective ways to discuss this is to compare against traditional approaches and their weaknesses.

Four important flaws in this approach are:

  1. Every store gets one (or more)
  2. They don’t get another until there’s a sale, then they get one – in one lead time
  3. The point in the product’s life doesn’t get considered unless it’s managed manually by store
  4. The min/max is typically managed by SKU (therefore size when used with apparel). Even if not, understanding of size behavior is usually severely biased and limited

There are a few things we can do that are more effective than the above approaches. Which approach to pick depends on what your objectives and constraints are. Those objectives are built into our merchandise strategy.

If the need to have one of each of these image items is a hard constraint that must be adhered to, then choices are limited. There is still opportunity, however, because even slow movers can move more than one occasionally.

It is possible to interpret the likelihood of selling a unit. It is also possible to consider the likelihood of selling two or three, etc. Doing this allows you to send two units to a store that may sell two but would otherwise only be stocked with a single unit. This can capture sales that would otherwise be lost because conventional systems would take one lead time to replenish the unit, in which time the sale would be missed.

Another concept similar to this is a variation on the same theme called ”lumpy” demand. This refers to situations where some items have the propensity to sell either nothing or multiple units. Different than above, these items either sell zero or three, for example, never one or two. Knowing this enables you to make the decision to stock three, therefore capturing the sales as opposed to losing them if only one or two units are stocked when a customer wants three or nothing.

If the item is an image item, is it the only image item? If not, where you have a number of image items that share some commonality we can use what we call an aggregate constraint. This allows you to look at the group of similar image items and apply a strategy that sets a minimum service level for the group with a much lower service level for the individual items. What this does is allows you to maintain a presence for the group, while focusing on those items that have the most chance of selling one of the items and limiting those that have less of a chance. It is a very effective way of reducing the investment while maintaining the image.

For sized merchandise, this concept can apply across styles and or colors, but even if a strategy dictates that all styles or style/colors be represented, forcing all sizes of a style/color to be represented is a costly and flawed philosophy. In the process of understanding store behavior, you can get a detailed understanding of how stores sell different sizes. This knowledge can be used to limit the allocated or replenished image items to the size selling behavior of the individual store (as opposed to a user-biased representation of a cluster of stores).

Intuitively most retailers think this limits sizes to the midrange “core” sizes, but inevitably there are behavior patterns that move some store to being able to sell more of some fringe sizes. Put the sizes where they will sell and only those sizes that will sell. The presentation of the image is not dependent on size, only the sale is. So, it’s only a waste of inventory to send a size that will never sell at full price on such an item.

Two other strategies allow us to minimize the inventory investment. These include sending the initial unit but sending the replenishment unit only if demand (forecast demand vs. reacting to a sale) dictates it. Operating this way, a lower service goal will allow the store to be out of stock on the image item if there is little likelihood of selling another. The second variation of this applies to seasonal or short life merchandise. For these items it is important to understand product lifecycle. This allows you to determine when an item is nearing the end of its full price life, something that happens differently across locations. Knowing this will raise the implied cost of sending a unit (more likely to mark down and erode margin) for items that are nearing their end of life. This can save you from sending units late in the item’s season or life that have no hope of selling at full price.

With all of the options you have to react more effectively to true store demand and maximize the profit you make on your inventory, it is time to put your “min/max” or “sell one/get one” techniques to bed. All stores have unique demand, but the more you can pay attention to that demand on an ongoing basis, the more you will increase your margins and fulfill your customers needs.

Thank you for following along with this series! Look out for our next series on efficiently managing grocery inventory.

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Hardlines Optimization—Part 1: Clustering is Not Localization

by Quantum Retail • August 17th, 2011 • Write a comment »

There was a time when it was enough to have individual store managers make the decisions of which products to carry and how much to order. As hardlines retailers have grown, their offerings have become more elaborate and competition has become more sophisticated. Customers and their behavior have become more complex as well. It’s no longer possible for people to keep track of all the variations and trends making each location unique.

For the last two or more decades, conventional wisdom has been that clustering stores is the way to address this problem. While, conceptually, grouping stores with similar characteristics makes sense – the reality is that it’s very difficult if not impossible to do this in a consistent and effective manner. From volume clusters to attribute clusters and even more recently devised mechanisms for deriving “intelligent” clusters using BI tools, all suffer from flaws that keep them from achieving the elusive goal of localization. Let’s look at some of these to understand why that is.

Inherent problems with volume based clusters:

The most widely used of these decades-old methods to cluster stores is volume clustering. Typically using historical sales for a group of merchandise presumed to be similar then finding apparently logical breaks as that volume is ranked high to low. The breaks represent boundaries which define which cluster stores fall into. Most commonly the result is a set of 10 or fewer cluster groups (although we’ve witnessed organizations that do many more). The three most common flaws in this process are:

  1. The clusters are virtually always based on historical sales
  2. The clusters are not updated frequently enough
  3. The clusters don’t incorporate any attributes of the merchandise or the stores

Typically a retailer looks at a store’s performance over the last year or compares like for like seasons to group stores that performed similarly together. The problem is that usually its only historical sales that are used to group the stores together. This creates a bit of a self-fulfilling prophecy. If a store underperformed in a department because of an inordinate amount of out-of-stocks, could the store have performed better?

The better option is to use either historical demand, or better yet, a demand forecast. When we refer to demand we look for what would have happened had the store been in stock. This allows us to understand any missed opportunity that may have resulted from out of stock situations. Of course using a true, forward looking demand forecast which includes understanding those missed historical opportunities to cluster would be the best of both worlds. Not only are you incorporating lost sales, but you would be incorporating future trends of store behavior as well.

Another problem is timing of when clusters are used and how often they are evaluated. Store assignment to clusters should be evaluated as often as possible. Customers change their shopping behavior constantly and this changes the behavior of individual stores constantly. As a result, store clusters need to be re-evaluated as frequently as possible using the most current understanding of behavior. At a minimum cluster should be updated prior to each merchandising activity that is consuming them. For example, updates should occur pre-season when an assortment plan is created (which products in which locations), again when a buy plan is made (soft commitments for how much), again when the actual order is placed (time has passed, things have changed), again when commitments to DC shipping locations (DC splits) are confirmed, again if the buy is pre-distributed to commit stock to stores, another when the goods hit the DC, and so on.

Furthermore, clusters should never be used to drive replenishment decisions. Once the goods have hit the stores, any re-allocation/replenishment activities should be based on actual, individual item/store behavior. There is simply no good reason to use clusters after the first allocation – and even then a sound argument can be made as to whether they should be used at all. This is especially true for hardlines and commodity products that don’t have the volatility or size complexity seen in hardlines. Today’s technology is capable of identifying and leveraging the uniqueness of individual products in individual stores, so each store can be treated as it needs to be. This is where true localization can truly begin to provide huge benefits.

Clustering beyond volume

Retailers use more than just volume clusters but as of yet no standards have been adopted. Climate, an attribute of physical location, is one of the most commonly seen attribute clustering criteria. While useful, categorizing a location as one of three or four climate groupings is an inexact science at best. And there are surely many other attributes of location and product that can refine the quality of the result. In traditional execution, however, more attributes leads to more groups needing to be managed. These groups are often nested into artificial hierarchies and quickly become difficult to navigate and virtually useless when complexity reaches the point that execution is impossible.

More recently many have tried to utilize Business Intelligence solutions and statistical analysis to find more refined groupings of stores that behave similarly. One of the most common flaws of this approach is that the resulting clusters have no definition of what makes them similar. While it may be accurate that they have similar behavior, that conclusion alone is useless unless a merchant understands what makes a group unique. Without that there is nothing available to guide a cluster specific decision.

Where does that leave us?

Ultimately, newer technologies that have been focused on solving these problems in retail have refined the utilization of clusters significantly. Better solutions constantly review and update clusters based on current behavior and the processes that consume clusters are able to accept and modify their conclusions accordingly and without unnecessary user intervention. They analyze and update activity across a variety of attributes proven to impact the products and locations within the grouping and offer flexibility to navigate across those without being tied to unmanageable hierarchical relationships. They also derive learning about individual products to the point that the need for clusters is either significantly reduced or eliminated in many processes throughout the management of inventory (such as replenishment). If your processes are not supporting that level of locating management and practical clustering, it’s simply not possible to achieve what is expected when discussing localization in retail.

Consider the following as you think about the quality of your clustering practices:

  1. Do you cluster only on volume or on other attributes or KPIs too?
  2. Do you cluster only on historical sales or do you incorporate missed opportunities / lost sales?
  3. Do you cluster based on a forecast of demand for the periods you’re using the clusters to represent?
  4. Do you re-evaluate your cluster assignments as often as possible?
  5. Do you re-cluster in-season?
  6. Do you cluster the stores as low on the merchandise hierarchy as is reasonable for your business?
  7. If you change cluster definitions can the systems that use them accept that change cleanly?
  8. Do you drive re-allocations or replenishment by clusters?

If the answer to any of the above questions is “no”, there is room for some self-evaluation and improvement to your localization strategy.

Look out for next week’s blog on SKU Rationalization.

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This Retail Life – Part 2: Insider Stories – Building Confidence for Guitar Center

by Quantum Retail • April 20th, 2011 • 1 Comment »

“The advice I would give to executives who are looking to help their company evolve, and to reach their goals, is to really vet out what partner you want to help you do that, and what types of solutions are really required. And if you can find a solution that is holistic to many of your needs – it really can help the company operate far more efficiently than putting in several different pieces.”

LISTEN TO PART 2:

speaking with Irene Messier, former SVP of Planning and Allocation at Guitar Center, now Head of the Product Execution Team at Quantum Retail • April 2011

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Audio Transcript

Thanks to our audience for joining us again this week. I am Dan Brown from Mulberry Marketing, San Francisco, and I am joined with Irene Messier, former SVP of Planning and Allocation at Guitar Center, now Heading up the Product Execution Team at Quantum Retail.

Thanks for having me Dan. I’m glad to be here.

So let’s dive right in to what everyone wants to know. How did Quantum win you over? I understand the words “stroke of genius” mean something you…

Um yes – the phrase has somewhat grown to be very near and dear to my heart. First off – I had known some of the founders of Quantum before they formed Quantum and so when they approached me, I had already started understanding how truly talented some of the individuals were behind the creation of this tool. I was at Guitar Center and I was looking for a very different tool. I have been associated with several different traditional replenishment applications. And what was unique at Guitar Center, was the fact that it was $1,000, and $2,000, guitars, and our vendors were using our forecasts to actually plan their production lines and at Guitar Center, they were certainly significantly the largest player in their industry and the vendors were very reliant on good forecasting. When I got there, there was significantly room for improvement.

So I needed something that would give me “the next good order,” if you will. As most traditional replenishment systems do, they look down at the SKU Loc, they figure out what demand might be, and they look over a certain time horizon and cut it or suggest a purchase order. What I needed in a addition to that, was a vehicle that had some real strength behind order forecasting and demand forecasting across long time horizons. And that was one of the things that was very special about Quantum. I couldn’t find it anywhere I looked. So that was probably the biggest reason I engaged in conversations with Quantum early on.

Actually, one of the partners, Mike Hrabe, bought a guitar from Guitar Center, and once I became aware of the fact that, A. He was trying to speak with me, and B. He had purchased a guitar from Guitar Center, now I was dealing with a customer relation issue! It’s a funny story, it’s a joke between us. But yes, he did bribe me, in some respects, to speak with him, and I shouldn’t say that – he purchased a wonderful guitar, and I think his son loved it.

So they actually found me and when I was speaking with them, and the more conversations we had, what was really truly the stroke of genius, was that, I had, as we peeled the onion back, what I was really beginning to understand was that I didn’t have to go buy a replenishment system and a assortment planning system and a long-range forecasting system – what Quantum was able to offer and what Quantum was able to deliver was going to take probably at least two if not three capital requests and roll it all into one. So that’s where the term “stroke of genius” came from. And actually, the correct acronym is F.S.G, meaning “fantastic stroke of genius.”

The F stood for “fantastic,” ha!

(Laughs) Um, the F was really used for something else, but if anyone asks it’s “fantastic stroke of genius.” Which was really, very, very, special, and it was one of the main reasons and selling points back at G.C. to management, to say, hey we’ve got a chance to knock it out of the park. And it was a staged approach – that’s how we implemented it – but it was always with the forethought of having a very comprehensive solution.

You touched on this briefly – but what were they using before? Do you have any retail horror stories prior to using Q?

Um, I can say this because I was responsible for the team, but, we had a few hiccups there. Before I joined Guitar Center, they went from all the vendors sending product direct to stores, to putting in a distribution center, and when they did that they put in an allocation system which was very good. And they had already arranged their merchandising team with the roles of a planner and a forecaster to complement the buying staff – so a lot of the change, if you will, had already started. Going from a singular buyer doing it all, to a more holistic merchandising team, with skillsets that balance each other out, but what was evident when I got there, is that when we were looking at procuring product, and it was in a monthly cycle, so the vendors got a bunch of orders once a month, well what was driving that, and the methodology behind that was based in Excel and Access, and I was, you know, wow I wasn’t in Kansas anymore that’s for sure.

You know, you’ve got a multi-billion dollar company there, someone pulling things out of Access and working it in Excel, you know there were times when instead of cutting and pasting the receipt quantity that we wanted the vendor to ship, we’d paste our beginning of period inventories! Luckily – the vendors would call and say, “Are you sure you want this much?” Which of course, we didn’t, and they knew it. And that was one of the opportunities that was very visible when I got to Guitar Center.

There were many, many, vendors that were very, very, unsatisfied with the quality of the forecasting of the products demand. And back then – it required a lot of hand-holding and the buyer got involved and the vendors were involved, in fact, the first week I was there, one of our major vendors, actually our largest vendor at the time, spent a week in our executive board room going over SKU by SKU, each SKU’s forecast for the fourth quarter, and that isn’t what the buying team should be doing and it certainly isn’t what the vendor should be doing either. So there was definitely an opportunity to help the existing staff and the developing staff to provide a better tool that gave them a far better answer, a more sustainable answer, an answer that everyone could have a higher degree of confidence in.

So were you already looking for a new school solution? Or did you feel like you became a “change leader” for the company?

Um, yes they had been looking for a solution like Q, in fact there was some money saved aside in their budget to address that. The expectation was – you know, let’s go out and get the basic type of replenishment system, and I was able to communicate – that if all we sold was sticks and strings, that had a very high rate of sale, a very stable demand, and the vendor had a really strong supply chain – that those systems would be outstanding and our search would be over very quickly. But that was not the bulk of our revenue, and it would not address the instability in the long range forecasting because those systems today wouldn’t be able to provide that.

So there was a change agent needed in that respect, that while the teams were somewhat organized we needed to provide a tool, and to create a process such that the output was one that again, people were confident in, and then people could go back and people could do the jobs that they were really employed to do.

A buyer could go out and negotiate with the vendor great costs, a financial planner could do the open to buy and manage the quote un quote checkbook, if you will. And the forecaster really could focus in on doing the forecasting and ordering of the product.

And once we were able to deliver that and people understood, Oh, not everyone has to look at this? We actually got a good team and the team has individual roles and when there was confidence that we could all do our individual role very well, there was a lot of change that came out of that. There was a lot of ability to really leverage the existing staff in ways that we didn’t before, because everybody was so focused on – do we have the right forecasts out there so the vendor can go build the product?

Once you chose Quantum – being their first customer – you must have built a strong relationship from the start – could you talk a little bit about that?

Certainly. Again, I’d known some of the principles before they started up Quantum and I knew how talented they were and still obviously are. What is incredibly unique about Quantum is that everybody just kind of roles up their sleeves a pitches in, and even today, you can have an idea or want to bounce something out and have a shower thought, if you will, and you can approach Mike Hrabe or Vicki or Linda or Chris or Morgan and say – hey I was thinking about this – what do you think? And they really do want to hear and be engaged in how we’re maintaining, supporting, and developing their “baby” and it is very, very, refreshing in today’s environment to work with a company that you can feel that vibe, it’s being a part of something really special and dynamic.

And from way back on when we were the first customer, they were obviously fully engaged with doing things right down to asking us – hey, what’s the process flow going to be? You know – we’ll provide this tool – we’ll have alerts and work flows etc., but how are we really going to use it? Really challenging Guitar Center to think things all the way through – and re-question themselves, and go the extra mile to make sure that when we put pieces in – they were fully vetted, not only from Quantum – but from Guitar Center – and they really work – I think that is one of the key differences with Quantum as a solution provider.

When you provide a solution, if it’s not easily integrated and accepted into either the existing process or the processes as they evolve, then your solution is not optimized. And being one of the first customers of Quantum, I was able to witness first hand the principles themselves – living that attitude – that we are definitely in it together – we are here to provide a solution with you and for you – and we are both going to figure it out as we go. And I can honestly say that approach and that feeling is still evident at Quantum today – which is neat.

When you sat down with Quantum early on – how did you decide on the strategies that you would be using?

You know it’s funny, at a former retailer, I won’t use any names, one of the approaches that they took was to do portfolio management during their business planning cycle. And not every category was a stake in the ground, and not every category was a loss leader, or a traffic builder, so I was very much already accustomed to the approach that when you are planning or doing something in business that you don’t treat everything you are affecting the same way.

So for instance at this past retailer if you were a stake in the ground, you probably got more advertising, you were probably not challenged as much to increase your gross margin return on investment (GMROI), because you were a stake in the ground relative to that company, to that product offering the company had in the industry.

So dial ahead – many, many, years later, I’m working with Quantum Retailer, and one of the very unique aspects of Quantum Retail is that they don’t try and have you treat every item the same way, but you don’t have to turn a thousand dials and dial in everything in uniquely for that SKU. Whether you have 10,000 SKUs or 80,000 SKUs you can’t do it that way, or at least it’s not very effective that way.

So what the strategies allow people to do is to say, okay – I don’t bring items in to my assortment for the same reason, every item has its own reason for being part of the assortment. So because I was accustomed to that thought process already, it was a very natural and easy step to take it down to the item level. With Q, we would assign a strategy to an item, and the system would take that strategy and affect the order processing and the management of the inventory level accordingly. So I didn’t have to tweak a thousand dials to get it right. There were items that we wanted to maximize profit, there were items where we wanted to be more aggressive with sales, there were items that just rounded out the assortment that would maybe not be in every door, so I was more than happy with a little bit of a lower service level to achieve other objectives.

So in trying to get Guitar Center to understand the strategy approach we, at Guitar Center, got the merchandising management team together and we spoke. I said, well why do we bring different items in? And it seems like a silly question to be asking, but it was actually a very, very, good conversation. And the head merchandising, and the vice presidents of each of their areas felt very engaged, and felt as though they were defining how we were going to be managing the inventory flow and managing our business going forward.

So it allowed us to A. Be very surgical at a very high level, at an item level, and B. Allowed an opportunity for the merchandising teams’ executive team to be fully engaged, which was really very powerful.

So the strategies that you chose for each product are automatically kept up by the system – did the automation factor make you nervous, or what is it about that word that scares some retailers?

Well you know, there can be an expression – everybody has a little black box – all these software companies have a little black box. And you put information in, you don’t understand what happens, and then it outputs something and you’re supposed to execute your business on the output. And so for automation, particularly, in the role that I had, SVP of Planning, there and in another company, you’re looked at and you’re responsible for providing solutions that are obviously credible. It seems like a stupid thing to say, but the fear is, well if I can’t explain every single thing the system does and the automation just happens, how am I going to be sure it’s going to do everything I want in every single situation.

And you know what – there isn’t a solution that does everything absolutely perfect in every situation because for example – you could have an item that sells once every 26 weeks and all of a sudden in a month it sells two. And go figure. No system is ever going to forecast that, because it’s an aberration, if you will.

So one of the things that you need to get comfortable with – is you have to make sure that you are putting enough due diligence in, to test enough scenarios and conditions that your people operate under – scarcity of product, abundance of product, variability of forecasting, stores going into remodels, and you know, just everything that you could imagine that might impact the stores ability to sell product or the natural demand of the product. If you’ve done that and you’ve fully vetted that out, then you can say, ok you know what, the, well it isn’t a black box, but you can say that if you have 10,000 SKUs across 200 stores, no human being can do that calculation every single day when they’re doing allocation. Or you know, twice a month, when they’re re-looking at the ordering processes.

You need to have a system that can understand and do the math and the automation at the SKU Loc level, because that’s where it’s really happening. And you need to have faith that the system that’s doing that gives you the ability to – at a higher level – to go in and understand what’s truly driving the applications that are truly running your businesses.

And Quantum allows you to do that. They give you alerts, they give you work flows – you can go in at an item level and understand what’s going on. You know one of the things with Guitar Center very early on – if we were at an X number of weeks worth of supply and it looked like we had enough product out there – we could have been understocked in half our stores and overstocked in the other half of our stores. Well no human being is going to go through or could they, with hundreds and hundreds of SKUs, go through and say ok I’m going to order this product – well let me go through, by store, and see what they need and aggregate that up. It would have taken way too long.

So that automation of understanding what’s going on at a very low level and raising it up and providing someone with what is going on in a digestible format in a format that gives them alerts and work flows to understand so they don’t have to look at every single product. Because the product is operating dead on to the forecast, and the service levels are more than acceptable, there’s no reason to go in and spend a half an hour looking at that SKU. You might have to spend half an hour looking at another SKU where there could have been cannibalization or where there could have been a product entering the end of its life cycle, etc.

So that’s what the automation piece does. People at times want to be able to say that they know every single algorithm driving everything, and you’ll get bogged down in doing that. And once you have the comfort level that the application is going to execute its math, if you will, in a way in which you would expect it to, in a way in which you affirm, and then just take it from there, and then you free up your team to really start doing analysis – you’ve got forecasters going back to buyers saying, hey you know what – this SKU looks like it might be entering its end of lifecycle. Or you know what, this SKU is really taking off – and this is what I’m seeing, it’s tripped an alert three weeks running, lets go in and see what’s happening. And the buying team really starts getting very engaged because they have a growing comfort level in that, wow, I have somebody and some thing and some process that’s empowering me – and I do not need to not invest thousands of man hours doing it – but I have a vehicle and a process and a team that’s going to be able to give me this critical information and they go back and work with the vendors and its just a great cycle that you get into.

And you have a story about a big alert you received, right before the recession, don’t you? Can we hear that story?

It was the “Mother of Alerts,” what happened was – it was August and at Guitar Center in August, every SKU’s fourth quarter analysis is executed and because by that time you need to make sure that everything’s I’s are dotted and T’s are crossed. Well what happened was, from the beginning of August to the end of August, we could see the demand softening across the majority of our SKUs. We were beginning to get alerts across the board that said, downtrending, downtrending, downtrending… And what happened was the forecasted orders, and those orders result from a combination of what the current demand looks like, what your existing inventory already is, plus your future orders that you already have coming in.

And within a very short period of time, Q was saying hey – you need to cut back your orders – and it wasn’t a small amount it was a very large amount. And each week we could go in and we could see it happening and – when I answered one of the first questions – about being a change agent, you try and put a process in place and develop skillsets and put a tool in place that allows people to do their job, right? Well – what Q was witnessing and attesting to and serving up to us was so significant that at certain points in time, when you’re in a company such as Guitar Center you need to say, ok – stop, I brought the the head of merchandising in, the executive vice president of merchandising in, the vice president of merchandising in, and I said guys, look at this – this is substantially different than the forecast we gave the vendors a month ago. And you guys own the vendor relationship, I need you to understand this, and I need you to be a partner in this.

I walked into the CFO’s and the President’s offices and said guys, I believe this is rock solid. I can show you this, vet it, forwards, backwards, sideways, every which way you look at it, it is telling us to take this much inventory out and we had already started seeing softening comps, certainly nothing like what was going to happen in the next couple months, but we were seeing it starting to happen. So we sat down with the executives and the merchant community, with the President and CFO, and we all held hands and said, we think this is right. And it was a significant impact.

The buyers grew to understand and have confidence in those forecasts and went and had some tough conversations with the vendors, but I can tell you this – they were some tough conversations, but they were 1000% better than it would have been, had we not have been so proactive about it. One of the things I said to the CFO who was, as he should be during the whole acceptance process and the selling of Quantum at GC, he was very, very, challenging.

And after we put it in, the first engagement, if you will, we happened to deliver everything that was promised, in fact, the inventory reduction that we said would take two years, it happened it in a year, and he called me a sandbagger! But I went in and I said, you know, I want you to understand, if Q wasn’t in place, and I had a staff of people doing this manually, there is no way I would have suggested the amount of reductions that Q suggested, there is just no way I would have had enough confidence in what people were able to do manually, not going down to the SKU Loc level, looking at it at an item level, nor would the buyers have accepted that. Because, if we were wrong, we were leaving some serious sales on the table. And he kind of looked at me and smiled and I smiled back and thanked him for his time and left his office.

But the point was and the point still is, it was never envisioned, when we were trying to sell this solution to senior management, we made claims for service level, for sales, for inventory efficiencies, but we never, ever, even had the inkling to suggest that if a major recession is going to hit, this is going to see it and it’s going to save our skin. Because had we not done that, we would have ordered more than we needed, and we would have had the stores filled to the brim and the vendors would have gotten very very few orders first quarter, and in that vendor community it would have been significant. It would have been extremely hard to have lived through.

So while the buyers went out and had some tough conversations with the vendors, it at least allowed them to be proactive about it, and to have the vendors feel that they were privy to it as well, that they understood and knew what was happening. And I bet the vendors took that information and probably used it in other client sites as well. So I don’t want to call it a happy ending, because no recession has a happy ending, but it was a very gratifying process to actually be able to manage through some very difficult times.

That’s amazing – so after that experience – after you saw that Q really was dead on – did that instill a lot of confidence in the system?

Yes it did. Well that and confidence is, you know what’s the expression, you make money the old fashion way, we earn it every single day. Well, we, Quantum, and it’s application, really had earned the confidence every single day. Even from the pilot. From the initial pilot, within twelve weeks we were up and running and Quantum was affecting forecasts. And within 4-5 weeks – in a test and control environment – we were able to show that the forecasts that Quantum was just spitting out from the beginning, pure vanilla, were 20-25% better than what a human being was producing. And then time went on, and we trained the allocators to use it, and then we trained some of the key members from forecasting to use it, and then guess what? A trained professional with a better tool gets an even better forecast, so then it jumped as high as 29% forecast improvement.

So even from the very beginnings we were able to show very factual improvements, if you will. Another aspect of it – when we launched the Quantum initiative, we formed an executive committee, which had members from the head of the supply chain, the head of stores, so we got the people involved that would be impacted by this solution, and we had steering committee meetings. And every 4-6 weeks you were out there showing them what’s happening, showing them the differences in the processes, showing them the results, and so – you could really see as time progressed, the confidence level building and building and building.

Then once we were able to assess after the implementation of the phase one, which was delivering the order planning, forecasting, and the changes to allocation and replenishment. Basically, we were able to hit all the metrics that were promised in the analysis that was required to approve the project. The president was new at the time and he was in with the CFO as they were grilling me – and he looked over at the CFO and said okay, okay, she’s proved it okay, it works, it’s done it’s job.

(laughs)

So you know, it was icing on the cake. Again it’s hard to be happy about that recession, but it was another way that people at all levels of the company could understand the positive impact that the solution provided the company. And confidence is a great word. It really continued to solidify the confidence.

Awesome. So I understand that you now work with Quantum, can you talk to us about what that’s like?

Sure. You know I mentioned it, I think a little bit earlier. That it is being part of something special. Because it is not just a software application. It is a solution. It is applicable in grocery, it’s applicable in hard lines, it is applicable in soft lines, there is so much power behind what it can do that you really feel good going to work every single day. But really truly, it’s the people. You know, it’s the founders that are still fully engaged, and still very much care about the output. It’s working with a new person coming in and understanding, wow, this really is different, this really does help provide a different way of doing business. It is being a part of that. You know, I feel as though I’ve been part of it from the beginning, but being on this side of it – it’s a lot of fun. I am very grateful. It’s different for me, you know, I was a retailer basically all of my adult life, and so it’s a different set of shoes, but it is lots of fun and I couldn’t think of a company that I would be doing it with other than Quantum.

And we’re running out of time – but lastly, do you have any advice for retailers evaluating new technology like Q?

You know- often times in fact, I was told this – to go out and find the “Best of Breed” – and “Best of Breed” does not necessarily mean that which has been employed over and over and over again. In today’s changing retail environment, it is absolutely critical that when you implement a solution, it should be a holistic approach. There’s definitely some process changes, some system changes, maybe some people re-alignment changes, and you want to choose a solution that is truly going to be part of the solution and is going to be able to work with you as a partner to find the path that is right for that company, at that company’s point in time of its history.

I’ve worked with companies that were at early stages and really wanted to try and grow market share, I’ve worked with companies that were the largest in its industry and were really sure companies and were trying to focus on the bottom line. And at different parts in a companies life cycle they are going to be focusing on different things, you know, driving sales and growing market share – you need great processes and great people and great tools to do that. Optimizing profit and understanding, you’re mature, and you need to be extremely efficient in everything you do – you need some great people and tools and processes to do that too. And Quantum can help you in both scenarios. Which is terrific.The system is very, very, flexible.

I don’t want to sound like I’m trying to sell Quantum here, but the advice I would give to executives who are looking to help their company evolve, and to reach their goals, is to really vet out what partner you want to help you do that, and what types of solutions are really required.

And if you can find a solution that is holistic to many of your needs – it really can help the company operate far more efficiently than putting in several different pieces. If they’re looking to make a lot of changes, that’s probably something you might want to keep in mind.

Wonderful – thanks so much for joining us Irene!

Thanks for having me.

Tune in next week when we will be speaking to Greg Wilson, Director of Field Strategies at Quantum Retail.

Download a PDF of This Retail Life: Changing the Game in Retail»

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Matalan Selects Quantum Retail’s Software for Store-Level Replenishment

by Quantum Retail • July 27th, 2010 • Write a comment »

LONDON & MINNEAPOLIS (BUSINESS WIRE) –
Quantum Retail, a next generation merchandising optimization software provider, is pleased to announce that Matalan, the United Kingdom’s leading value fashion and homeware retailer with more than 200 stores, has chosen Quantum’s Q software to optimize store-level replenishment activities. With a deep understanding of shopper behavior and merchandise strategies, Matalan hopes to service its customers better.

“Matalan recognizes the urgency and importance of aligning their inventory investment with their customers’ continuously changing demands,” commented Chris Allan, Quantum Retail’s chief strategy officer. “Q will assist Matalan in better meeting those demands by understanding localized inventory behavior.”

With Q: Allocation and Replenishment, Matalan can now monitor and react to the unique customer behavior in real-time at each store to easily determine inventory need throughout its supply chain.

“We expect significant results from a leading edge technology like Q,” stated Andrew Scott, Matalan’s head of merchandise planning. “The system is a necessary investment that will enable us to understand exactly what our customers want and need at every location so we can provide them unparalleled service.”

Quantum Retail, winner of Supply Chain Solution of the Year and Supply Chain Excellence awards, offers Q to retailers seeking a hyper responsive, consumer driven, merchandise optimization platform to localize inventory placement and increase sales, profits, and inventory efficiency. Solutions include Allocation and Replenishment, Forecasting and Order Planning, and Assortment and Range Planning.

Matalan joins Quantum Retail’s growing list of successful clients, including Marks & Spencer, New Look, and Guitar Center.

About Matalan

Matalan is a leading UK ‘value’ retailer, with annual sales of GBP 1bn through 200 stores. Matalan recently reported an increase of 30% in annual profit. Womenswear accounts for 35-40% of sales, followed by menswear at 25-30%, and childrenswear 10-15%. The remainder is made up by homewares, accessories, footwear, luggage, books, videos, etc. Matalan’s prime target market is 25–55 year old women with families.

About Quantum Retail Technology, Inc.

Quantum Retail answers the new questions facing retailers with a merchandise optimization suite designed for the increasing pace and complexity of the consumer revolution and today’s competitive landscape. Quantum Retail’s award winning solutions solve the most difficult and costly problems retailers face — quickly and permanently.

The Q solution is the new answer for: Forecasting and Order Planning — Replenishment and Allocation — Assortment and Range Planning.

Read more about Quantum Retail»

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Fashion Innovation Series – Part 3: Replenishment Optimization – Avoiding Markdowns

by Linda Whitaker • April 30th, 2010 • Write a comment »

This is the part 3 of a 4 part series on Fashion Innovation and Optimization. To read part 2 CLICK HERE. Look out for part 4 – Allocation: Seeking profit, a 4-part guide for creating a hold-back strategy

KEY TOPICS IN THIS SERIES:

  1. Size & Pack Optimization
  2. Assortment & Range Planning
  3. In-season Replenishment
  4. Allocation Optimization

You can also follow our 4-part 2010 Retail Outlook series here.

Inventory Execution and Replenishment Optimization

Inventory execution and replenishment optimization should focus on efforts to reduce stock-outs through better replenishment and fulfillment strategies. Some stores are out of stock way too soon in the product lifecycle and others are left with far too much stock at the end, which has to be marked down. These are fundamental errors in the fulfillment operation that retailers cannot afford to make, but they happen all too often. The key operation between the initial buying decision and the final end of line markdown is in inventory execution – managing the supply of goods to minimize out of stocks, lost sales and overstocking.

If markdowns are up – Your Inventory Management system is down

Inventory management systems have helped retailers to improve in this area of inventory imbalance, but the continued use of significant markdowns suggests that things are not getting any better for retailers.

In fact, there are two separate areas where better decision making is required:

  • The initial purchase stage – deciding how much product the retailer needs in total
  • Distribution – how and when to allocate that quantity across stores and channels

Markdowns are often a fix for things that did not go to plan earlier in the product lifecycle, so improvements in product planning and inventory execution to reduce excess inventory will have a marked impact in reducing the need for markdowns and maximizing profit. Many of the mistakes being made at the product planning and inventory execution stages are as the result of simplification – aggregation of data and assumptions across multiple stores – which rides roughshod over the variability of customer profiles and demand from one store to another.

A fashionable downtown store in a major city may need a stock richer in traffic generators and high value image items, whereas an out-of-town store in a low income area may need its mix of products to be higher in value items. Fashion retailers have the added complexity of garment size, which means that they need to have a different mix of sizes too, depending on the stores location.

Most of the technology being deployed today to optimize the productivity of inventory is designed to operate at the end of the product lifecycle and is focused on price. Of course the end of the lifecycle is the time to execute markdown strategies, but in fact the most effective and profitable strategy is one based on the whole of the product life and also focuses on inventory.

Product Lifecycle management

There are three key points in the lifecycle of any product where the retailer needs to make the right decisions in order to control demand, price and profitability.

These are:

  1. The initial buy, including packaging
  2. The re-buying and distribution of the product throughout its lifecycle
  3. The pricing of the product, including markdowns

A holistic approach is recommended for managing the complete lifecycle of a product. There are a few key points that most people can agree upon:

  • Understand customer demand
  • Marry the art of merchandising with the science of execution
  • Learn and build knowledge
  • Track and react to product performance

The key is to understand customer demand at the micro or store/product level. Maximizing profitability depends upon knowing what customers wanted and when, not just what you sold.

Stock smart

Markdown Optimization has become all the rage of retailers and retail technologists, but what is a markdown and how should we optimize it? A simple definition is a reduction in price, or the amount by which a price is reduced. To mark down is to alter price in order to raise demand. At one time retailers called this exercise ‘clearance’ and marked down the price of their goods just once a year, if ever. That was in the annual sale, a time when demand was low and the retailer wanted to clear excess stock in order to make way for new products.

Today markdowns are a continuous process for the retailer. Clearance sales are seldom annual events. They may be seasonal, and in the fastest moving retailers – fashion in particular – the retailer may choose to mark down items literally every week.

5 tips to avoid markdowns:

  1. Determine the role of every product In the overall assortment and at an individual store level. Have the power to execute the inventory allocation process with a strategy necessary to meet that role.
  2. Understand the type of stock needed at every location by building better clusters or achieving store specific inventory allocation.
  3. Optimize inventory execution so that you have optimal stock in higher traffic stores and avoid overstocking lower traffic stores. You need to understand your current and forecasted customer demand at the store level and convert that into the best stock distributions, considering pack constraints.
  4. Follow a fast fashion model where product lifecycles are shorter. Constantly rotating inventory, especially in fashion keeps your store fresh and gives the customer something new to see.
  5. Create a holdback strategy. Do not push all of your inventory at once, wait to see what sells. Release inventory to high traffic or trend leading stores first to get an idea of consumer interest before allocating to all stores. Retailers can also release their assortment online to see what customers are buying – this will allow you to save on production, distribution and purchasing costs because you will have a much more accurate understanding of what products there is demand for and which products will actually be profitable.

A holistic approach

A new holistic approach to retailing integrates merchandising and fulfillment processes while managing and reporting on inventory from the store-level up, in real-time. It provides merchandising plans, goals and strategies that directly drive product fulfillment. This allows the fulfillment process to be driven by a bottoms-up view of item behavior, fused with plans, goals and strategies. Real-time performance analysis enables a rapid response if a product or location is failing to achieve its goals or has the ability to exceed them.

This concept derives trends from relatively short and recent learning to make accurate predictions of future behavior and drive decisions that maximize inventory productivity. It is unlike traditional ’number-crunching‘ approaches that rely on interpreting trends and forecasts based on huge pools of historical data. As a result this method of analysis has the flexibility to respond in real time and at a much finer level of detail (store level) than would conventionally be possible.

Listen >>

Managing Markdowns: Why prevention is better than the optimization cure
Dr. Linda Whitaker, Chief Scientist, Quantum Retail

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Get back in the game

Are you ready to know exactly what your customers are asking for at every location and to have the ability to react as their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail. Our customers see valuable results in 8 to 12 weeks and our implementation approach gives your team access to the system from early on, so you can manage changes to your processes with ease. Quantum Retail continues to help all of its clients drive positive business value more rapidly than anything seen in retail.

For more information on replenishment, markdown optimization and allocation, visit: http://quantumretail.com/services/markdown-exit-management/

You can also follow our 4-part 2010 Retail Outlook series here.

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Retail opportunities in the global community: overcoming the complexity of expansion

by Morgan Day • February 23rd, 2010 • Write a comment »

Blog part 2:

Last week, in part 1 of this blog series, I discussed issues and ideas around outsourcing and offshoring. In part 2 of this series I will discuss overcoming the complexity of global expansion. These ideas are based on a key-note speech I gave in India two weeks ago – on retail opportunities in the global community. Thanks for your interest – please feel free to comment!

- Morgan CTO // Quantum Retail

Supply-chain complexity comes from balancing both local and foreign sources to meet the localized consumer demand, on a global stage.

Emerging markets don’t represent opportunity for every retail vertical. First, you need to know:

  • What is your goal in expansion and how are you going to measure success?
  • Who is your customer in this new market?
  • Is the culture going to accept your brand, or do you need to create a new brand?
  • Is there enough demand to achieve your goal?
  • Who will your competition be and how are they likely to react to your presence?
  • What does your offering look like in this new market?
  • How will you manage your supply chain – distribution, allocation and replenishment?
  • How will you manage the people and processes in a global environment?
  • How will you deal with trade challenges such as tax complexity and product restrictions?

Integrating Processes:

How we can make it work:

  • Use of partnership – technology and fluid processes that blend the relationship into a strategic workflow
  • Value driven approach – common goals, measured results.
  • Process Efficiencies in – demand driven sourcing, multi-channel selling.
  • Leverage technology and partners – reduce system complexity, eliminate artificial boundaries.

What is the difference between a business process outsourcing (BPO) challenge and an IT challenge?

In many cases current enterprise systems and business processes are what constrain retailers from taking advantage of business opportunities. Today, every initiative have to show rapid, significant return on investment . If the current operating model is too restrictive then the cost can outweigh the short term benefits and fail to deliver that return on investment. This means that BPO has to be strategically planned, controlled and have the flexibility to be change, reflecting a retailers changing strategic priorities. The IT challenge is then to integrate the BPO with the entirety of their global supply chain.

Simplifying the complexity:

Retail is complex and it gets more complex every day. Global expansion and localization challenges are at the heart of this complexity. We can’t eliminate these challenges, but we can embrace them and simplify the processes and the way solutions are delivered.

Key components of a successful strategy:

  1. Combine strategic partnerships in ‘end2end outsourcing’ (not offshoring) that creates result-driven alliances
  2. Continuous process refinement that strengthens these partnerships and allows open sharing of ideas
  3. Seek process innovation (not just technology) – because retail is changing every day and solutions need to evolve at the same pace
  4. Embrace processes that localize assortments and create a dynamic supply network that integrates factory to shelf visibility

Seeking innovative partnerships:

A new look at partnerships will change the landscape of global solution delivery in retail. In order to get the most out of these relationships, the partners must create fluid, transparent communication based on information, not just data – giving trust and authority to both sides in order to steer the relationship in the most efficient direction. Integrating business processes to make partners an integral part of idea creation, solution development, delivery and support.

Fundamentals of successful partnerships:

  • Require a joint business plan with an incremental multiplier on potential revenue and margin
  • Provide a compelling and unique selling proposition – it is not sufficient to just offer a service
  • Address global market-space rather than look to multiple partners to solve one problem regionally. It needs to focus on a global service provider
  • Eliminate barriers to entry – IT, barriers due to corporate scalability, technology.

Get resources on how to adapt to the challenges of today’s retail market HERE »

Download this blog as a PDF »

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Quantum Retail wins ‘Supply Chain Solution of the Year’ at the Retail Systems Awards, 2008

by Quantum Retail • November 17th, 2008 • Write a comment »

Quantum Retail is awarded the 2008 Retail Systems Supply Chain Solution of the Year Award for its work with leading EMEA fashion retailer, New Look.

LONDON, UK – November 17 2008. Since 2007, Quantum’s Q solution has been used by New Look to manage its inventory replenishment and allocation processes across its 600 locations. Having increased its retail space by 20% and diversified into online and franchise channels, New Look were seeking a superior replenishment solution to improve management of store/SKU demand and supply.

As well as Q’s ability to help New Look manage and maintain its stock levels and provide visibility across the entire organization, the judges were impressed with Q’s return on investment: going live in under seven months and paying for itself five months later.

Speaking after the award was announced at London’s Grosvenor House, Quantum CEO Tarik Taman said, “In Q we’ve created a next generation inventory fulfillment module that determines inventory need anywhere in the supply network. We’re very proud of what we’ve achieved but most importantly of what our clients have achieved.”

After less than 6 months of operation, New Look was able to realize an increase in full price sales across the estate by 2%, with less stock. At the same time by reducing markdowns, gross margin increased by 4%.

New Look’s Executive Chairman Phil Wrigley commented “Q has enabled New Look to move our supply chain from being buy driven to customer driven, whilst delivering impressive financial results. It is truly first class.”

About Quantum Retail Technology, Inc.

Quantum Retail answers the new questions facing retailers with a merchandise optimization suite designed for the increasing pace and complexity of the consumer revolution and today’s competitive landscape. Quantum Retail’s solutions solve the most difficult and costly problems retailers face – quickly and permanently. Our Q solution is the answer for: Forecasting and Order Planning – Replenishment and Allocation – Assortment and Range Planning.

About New Look

  • New Look has 604 stores in the UK and Eire, and 265 stores in France & Belgium trading under the name Mim. In addition, New Look has 19 New Look branded stores in France and Belgium, and has recently opened 16 franchise stores in Dubai, Kuwait and Saudi Arabia.
  • New Look has a volume share of 5.6% in the Women’s Outer/Sportswear age 16 market, and is the 3rd largest retailer by volume in this market.
  • New Look also has a growing market share in Mens & Kidswear.
  • New Look is now the number 1 retailer of women’s shoes in the UK by volume, with a market share of 7.4%. (Source – TNS).
  • 38% of the British female population has purchased an item of Womenswear** from New Look in the past year (52 w/e 30th March 2008). This amounts to just under 9.2 million individuals. The average age of shoppers in New Look is 31.
  • Further information can be found on http://www.newlook.co.uk and Product and Management photos are available upon request.

**includes Women’s Outer/Sports, Nightwear, Underwear, Hosiery, Footwear & Accessories

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New Look selects Quantum Retail’s Q to optimize inventory fulfillment on path to growth

by Quantum Retail • January 14th, 2008 • Write a comment »

Bolt-on solution set to quickly optimize inventory forecasting and replenishment at top fashion retailer

LONDON, UK - Jan, 2008 – Bolt-on solution set to quickly optimize inventory forecasting and replenishment at top fashion retailer. New Look, a leading European apparel retailer known for its fast fashion proposition and leading designer ranges, has selected and implemented Quantum Retail’s inventory optimization solution, Q, to manage the replenishment of its 600 stores.

“As a fast fashion business with our customers at the core of everything we do, we recognized that Quantum Retail’s demand forecast model offered us an opportunity for our customers to further influence our decision-making,” said New Look Director of IT, Adrian Thompson. “It’s innovative science allowed us to continue to support our fast fashion model with speedy and accurate decisions based on our latest sales and stock figures.”

“The compelling business case that supported this investment was based on a number of metrics ranging from stock imbalance, improved service levels and a reduction in markdown,” Thompson added. “Put simply, Quantum Retail is able to more accurately reflect where our customers would like the product and at what level. It effectively bridges the gap between planning and execution.”

Quantum Retail’s Q solution has been implemented alongside the retailer’s existing Oracle retail merchandising system, initially optimizing the replenishment part of the business. Future planned phases include multi channel lifecycle management, initial allocation and reorder planning. vii.

“The successful delivery of this program was based on an exhaustive proof of concept and a speedy implementation,” Thompson said. “The Quantum team integrated seamlessly with my own. Their well thought through designs included system and integration, great business engagement and training at both commercial and functional levels. Quantum is now live with no adverse impact to either IT or the business and is already giving us confidence that the business case will be delivered successfully.”

After an initial monitoring period, service levels showed an increase in availability alongside a reduction in total inventory when compared to a control group. As the rollout of Q continues, it will be rebalancing stock throughout New Look’s 600 UK and international stores, leading to fewer stock outs and improved sales and profit. Through the use of Q’s advanced forecasting and order planning module, New Look will be able to gain greater visibility of long range inventory need and be able to optimally flow inventory to its stores.

“Q uses a proprietary approach that is designed to be the most accurate, responsive and reliable inventory fulfillment tool in the fast-changing world of retail,” said Chris Allan, head of product strategy for Quantum Retail. “At the same time Q has been designed to be a highly practical and useable solution that operates alongside existing systems for simple and quick implementation.”

“Its simple user interface means Q can be used by our allocators, rather than having to rely on experienced forecasters and mathematicians,” Thompson concluded.

About Quantum Retail Technology, Inc.

Quantum Retail answers the new questions facing retailers with a merchandise optimization suite designed for the increasing pace and complexity of the consumer revolution and today’s competitive landscape. Quantum Retail’s solutions solve the most difficult and costly problems retailers face – quickly and permanently. Our Q solution is the answer for: Forecasting and Order Planning – Replenishment and Allocation – Assortment and Range Planning.

About New Look

New Look has 590 stores in the UK and Eire, and 263 stores in France trading under the name Mim. In addition, New Look has 13 branded stores in France and Belgium, and has recently opened franchise stores in Dubai, Kuwait and Saudi Arabia. In the UK New Look has a 4.8% market share, making it among the leading womenswear retailers in the UK (Source – TNS).

New Look also has a growing market share in Mens & Kidswear and is now the number 1 retailer of women’s shoes in the UK by volume, with a market share of 7.3%. (Source – TNS). 25% of British women have bought an item of outerwear from New Look – amounting to over 6 million customers (Source – TNS). New Look’s competitors include H&M, Next, Top Shop and Dorothy Perkins. The average age of shoppers in New Look is 30.

Further information can be found on http://www.newlook.co.uk and Product and Management photos are available upon request.

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