Anyone seeking proof of how cutthroat retail has become might try casting their gaze skyward.

In its latest push to stay ahead of the game, Amazon is testing drone parcel deliveries at a secret location in British Columbia. The world’s biggest Internet retailer is now looking at unmanned aerial vehicles – originally invented for military use – as the next frontier in the ongoing battle to serve shoppers better and faster.

Always an innovator, Amazon is known for selling nearly everything, shipping it for next to nothing and delivering it in almost no time. This has created an ‘Amazon effect’ for all retailers: customers increasingly expect to buy whatever they want, whenever they want it, wherever they are and however they want it.

That’s making it tougher than ever for retail supply chain management (SCM) systems to stock just the right product mix and inventory levels. Merchants that fail to adjust their SCM to this new reality risk serious business consequences. According to a 2013 Capgemini survey:

  • 89 per cent of U.S. consumers said they’ll simply “go elsewhere for future purchases if they experience out-of-stock items or order fulfillment issues” with a retailer
  • 86 per cent of retail supply chain managers said they struggle to “respond to volatile consumer demand in real time”
  • 54 per cent of those same managers said SCM issues have negatively affected their company’s revenue or profitability

“Having more (retail) channels (to service) with faster delivery cycles means more uncertainty,” said Avi Goldfarb, the Ellison professor of marketing at the University of Toronto’s Rotman School of Management. “When demand is more uncertain, you need a more efficient supply chain to get stuff from the retailer to the customer.”

To take some uncertainty out of SCM, more retailers are using data analytics to predict: 1) how consumers will behave; 2) what behaviors on the part of retailers themselves will boost their sales and operational efficiency.

BJ’s Wholesale Club is one of those retailers. Through its website and 200 warehouse-style stores in the U.S., it sells everything from groceries to electronics using a membership-based model similar to Costco’s.

“We analyze the data and make decisions based on what the data’s telling us,” said Adrian Sosa, senior vice-president of membership and analytics at BJ’s. “It leads to more effective (marketing) promotions and also a better (inventory) assortment.”

Adrian Sosa, senior VP of membership and analytics at BJ’s.
Adrian Sosa, senior VP of membership and analytics at BJ’s.

BJ’s uses the Self Serve analytics solution from Aimia Inc., the Montreal-based firm that manages loyalty programs such as Aeroplan. In Autumn 2013, BJ’s launched a pilot project of Self Serve with four of its major suppliers: Unilver, Kellogg’s, Clorox and Kimberly-Clark. Using BJ’s own membership and point-of-sale data, the platform helps the retailer fine-tune its product mix, inventory levels, pricing points and marketing strategy.

At last week’s Retail Advertising and Marketing Symposium in Toronto, Sosa explained how analytics has helped BJ’s refine its SCM during his joint presentation with David Buckingham, Aimia’s president of U.S. retail.

In one instance, BJ’s wanted to update the yogurt flavours it carried to mesh with changing market trends. Surprisingly, analytics data suggested that BJ’s should stop carrying one of its top-selling variety packs of Chobani brand yogurt and replace it with a new Chobani flavour.

Why? Data indicated that BJ’s customers had such strong loyalty to Chobani that they would switch to buying its new flavour instead of abandoning the brand completely. The move was made and, as predicted, loyal customers did buy the new flavour. Instead of losing sales from the delisted variety pack, BJ’s actually saw an incremental sales boost after swapping the products.

It’s a good example of how analytics “sometimes leads to business decisions that don’t seem to make sense” yet pay off in the end, said Buckingham.

In terms of ROI, BJ’s won’t reveal any specific numbers. But 74 per cent of the suppliers and merchants in its pilot project said Self Serve was “extremely or very effective” in helping them make better business decisions and adding value to their business. Among Aimia’s overall client base, retailers generally report that it increases their top line sales by two to fiveper cent, said Buckingham.

David Buckingham, Aimia’s president of U.S. retail.
David Buckingham, Aimia’s president of U.S. retail.

Yet there are potential downsides to adopting this type of sophisticated analytics, Goldfarb said, including cost and corporate commitment.

“It’s expensive to do and if you’re not willing to change some aspects of how you operate your business, then don’t go in too deep. Doing it wrong can be costly.”

After the pilot project, BJ’s officially adopted Self Serve for its SCM in November 2014 and the number of suppliers participating has grown to 20. It’s still difficult to estimate how many Canadian retailers are using this type of analytics, said Goldfarb.

“I haven’t seen any Canadian retailers promote how they’re doing in this area. They might be doing fantastically with it, but those stories are not out there yet… so we don’t know,” he said.

For those Canadian merchants that may be considering SCM analytics, Goldfarb, Sosa and Buckingham do have some advice:

Make it easy to use: Design your solution for core users, not IT managers. “(It’s) for the business users, for the merchant who won’t be well schooled in detailed analytics, but be able to use the tool,” said Buckingham.

Know predictive vs. prescriptive: Predictive analytics helps predict what will happen if no changes are made. Prescriptive analytics helps determine the best changes to make in order to affect the outcome in a desired way. “Often, people are selling prediction as prescription,” Goldfarb said. “Know what (technology) you’re buying.”

Be willing to change your ways: “Think about how you want data to affect your business and make sure your processes will allow that to happen. So if you want data to better inform the deals your salespeople make, then you have to empower them to make those deals,” said Goldfarb. “If you want to be data-driven, you have to have to be open-minded to changing other things.”

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