Managing the Supply Chain with a Retail Data Warehouse

(To subscribe to receive audio articles, click here for the audio article feed.)

by Dan Ross
Published: May 15, 2007
Few retailers use the data warehouse to full advantage in managing the supply chain. Learn how
to analyze supply-side information through key analytic and data subject areas.

In a previous article, we discussed the need for building a customer-centric data warehouse. In
this article, we focus on an equally important area: creating a data warehouse that captures the
data and provides the information needed to manage the inventory and supply chain to maximum
advantage.

Excellent supply chain and inventory management is a complex and vital part of retail strategy.
Getting this right can make the difference between success and failure, profit and loss, growth
and loss of market share. Nothing will send customers across the street to the competition faster
than a poor supply strategy that leaves shelves bare of the products they want. Allowing products
that do not sell to sit on shelves is also obviously counterproductive.

However, getting it right is not easy in this just-in-time world where supply chains typically
reach halfway around the world. The products you need may start with components and parts
manufactured in China, with precision part finishing and sub-assembly in the United States and
final assembly in Mexico before being shipped to the retail outlet, ideally just in time to go on
the shelves.

Managing such a complex supply chain requires sophisticated data analysis that can allow the
retailer to anticipate demand, and particularly shifts in that demand, ahead of time. As with
customer-centric data, capturing all the relevant data in a single, central location – a data
warehouse – where it can be mined for vital information is a key to gaining competitive
advantage. As with the customer-centric data warehouse, this takes effort, and not all retailers
have invested the resources to capture all the data and ensure that the data they do capture is high
quality. This, however, creates opportunity for those retailers who are willing to invest that
effort.

Analytic Subject Areas

The first question, then, is what main areas and sub-areas should the data warehouse cover? We
believe that the retailer needs to focus on five main areas:

Inventory Management

Inventory management breaks down the basic information on inventory into segments by several
metrics to track performance of the supply chain from purchase order to store, allowing analysis
and optimization of inventory to meet customer demand. An overall score of the supply chain's
efficiency can be determined by assessing metrics such as:
  The rate of stock turnover for the best and worst performing products

 Total investment in inventory over time

 Amount of inventory in each stage of the supply chain (order, shipping, en route
to store, on shelves) at a given time

 Products that are getting returned often (and why)

 In-stock position

There are a number of different ways to view inventory management depending on the class of
retailer, the kinds of merchandise they sell and their brand image with customers. For example, a
grocer with a mid-priced brand image selling staples such as milk and bread may offer a limited
selection of SKUs and put them on full replenishment, needing only a rate of sale and quantity
on hand to trigger automated re-ordering systems. This is inventory management at its simplest.
It is also very important to price staple items competitively; thus, an understanding of the
competitor's pricing is a vital data point.

On the other hand, a fashion retailer selling seasonal apparel items has a much more difficult set
of decisions to make, although the profit on each item may be higher than in our previous
example. Analysis of SKUs across a silhouette or class may be applicable in determining
whether to mark down or promote the product. Often, a season's worth of merchandise may be
purchased in only a few "buys" due to the shortness of the season and the need to clear the
merchandise by season's end to avoid massive markdowns.

Vendor Management

Vendor management looks at the state and value of the retailer's relationship with each supplier.
A quantitative measure of each vendor's value to the retailer can be obtained by analyzing areas
such as:

 Actual sales and returns of each vendor's products compared to predictions

 The vendor's ability to deliver products on time

 The flexibility of each vendor in handling changes

 Frequency of product returns for each vendor

Additionally, measuring how long the retailer takes to pay the vendor's invoices and whether
delays in payments are causing delays in order fulfillment can uncover problems in the retailer's
systems.

Sharing up-to-date sales and stock information with vendors is becoming more common, yet this
remains an underleveraged method for improving the relationship with each vendor. In previous
articles, the concept of a vendor business intelligence (BI) extranet has been discussed, along
with the value that can be gained from such a BI-based application. Allowing vendors to see the
retailer's view of their performance creates shared visibility into problems in the relationship and
minimizes the communication gap that can be created in supplier/retailer collaboration. It can be
helpful to have high-level metrics available in a vendor scorecard, along with the ability to drill
into order and shipment level detail to look for anomalies.

Product Cost Analysis

Product cost analysis creates a more granular insight into costs by analyzing markups, discounts
and other costs such as shipping, storage and stocking. It should answer key business questions
such as:

 How can product costs be reduced while enhancing product and customer
profitability?

 What is the impact on profit and revenue of changes in sales prices and product
mixes?

Cost of goods sold may be the vaguest metric in the entire retail business. While the definition is
universally understood from an accounting perspective, most retailers have many different
definitions of "cost" that are not always well understood. Most frequently, accounting and
merchandising view cost differently, and the store operations function may tack on additional
"costs" to incent particular store manager behavior. In this environment, creating an enterprise
repository of the components of cost and using that repository as the basis for calculating one or
many derived costs achieves the benefit of removing variations from different databases.

Merchandise and Assortment Planning

Merchandise and assortment planning valuates performance of assortments, stores and

departments. It can support optimization of store clusters and assortment plans based on actual
results by analyzing information such as:

 The open-to-buy position compared to the previous year

 Profiles of store clusters

 Performance of clusters in various locations

While not typically thought of as part of the "supply chain," the process of merchandise and
assortment planning initiates actions in the supply chain, namely the writing of orders to
suppliers for goods to be manufactured and delivered to distribution centers and stores. These
two processes are evolving retail disciplines. They are heavily data driven and require reliable
information stores and analytical tools to be effective. Many retailers purchase specialized tools
for these functions, but the inputs to those tools (SKU sales history) and the outputs from them
(assortments, financial targets) become key data warehouse elements to be analyzed historically.

Distribution Center Operations

Distribution center operations monitors performance of distribution centers. By aggregating
employee costs, shipments and receipts, shrinkage and weeks of supply, it can quantify the fixed
costs of managing distribution centers, how shipping costs have changed over time and the
relative level of efficiency of the distribution centers. That information can support investigation
of the potential for reducing costs through employee retraining or reassignment, the use of
alternative shipping methods and changes in handling methods to reduce breakage.

Data Subject Areas

Breaking down the data needed by a retailer to track the subject areas described would result in a
plan to source the following types of data into the retail data warehouse:

Merchandise and Assortment Plans (objectives for the business related to inventory and sales) –
Information on financial plans and targets, open-to-buy data and assortment plans by store
should be sourced to compare with actual results.

Vendors, Deals, Purchase Orders (vendor-centric data) – Contract and deal details, incentives
for bulk purchases and baseline inventory costs are vital for creating better strategies for
minimizing direct costs of re-supply.

Products (specific and general product information) – Segment-specific information can provide
the basis for reallocating shelf space to product segments (fashion, food, etc.) according to the
volume of sales of each segment in each store.

Inventory Movement and On-Hand – Physical and calculated inventories, inventory receipts and
adjusts, supplier shipments and intra-enterprise item movements are obviously vital to ensuring
optimal inventory levels. Data on transfers between distribution centers and stores can identify
excessive handling issues.

The Complete Picture

Many retailers have data warehouses, but relatively few use the retail data warehouse to analyze
their entire supply chain. Combining detailed supply chain data and analysis with sales and
customer data gives a complete picture of both demand and supply side factors in a retail
business.

Recent articles by Dan Ross

 Mining Text in a Retail Enterprise

 Building a Customer-Centric Data Warehouse
 Retail Data Warehouse

Dan Ross -
Dan is the Managing Partner of the Retail Practice at Claraview, a strategy and technology
consultancy that helps leading companies and government agencies use business intelligence to
achieve competitive advantage and operational excellence. Claraview clients realize measurable
results: faster time to decision, improved information quality and greater strategic insight. Dan is
a frequent contributor to business intelligence literature, writing on topics spanning technical
approaches and business impact, and the Claraview Retail Practice serves some of the world's
most advanced users of retail data warehouses.

Editor's note: More retail articles, resources, news and events are available in the Business
Intelligence Network's Retail Channel. Be sure to visit today!

If you found this article helpful and would like to receive the latest insights each week from
Claudia Imhoff and other experts featured on the Business Intelligence Network, please
subscribe to the Business Intelligence Network Newsletter.