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Some retailers are beginning to routinely feed point-of-sale data back into demand-based planning, scheduling and replenishment systems in order to boost sales and increase profit. But this difficult exercise is itself not routine.
"A lot of people are talking. Fewer retailers are actually doing it," said Chris Verheuvel, vice president of retail for Manugistics of Rockville, Md.
And those retailers now using the POS data aren't fully leveraging it, said Kara Romanow, an analyst with AMR Research, a Boston consulting firm, who recently completed a study on the subject. "It is a daunting task for them," she said.
However, those pioneering retailers are forging ahead, turning their backs on conventional planning systems that rely strictly on historical sales data that merchants periodically tweak to reflect new, best-guess demand forecasts. Instead, they're more effectively adjusting replenishment plans based on analysis of updated POS data.
"POS is the source of all information within a retail enterprise," said Colin Hague, senior director of business development at Triversity Inc. of Toronto, a firm that helps retailers better organize and utilize such data.
"POS data is where the facts are," says Matt Johnson, chief technology officer at Waltham, Mass.-based Syncra Systems, a leading supplier of supply-chain planning and inventory replenishment software. Retailers about three years ago began using that data to drive more accurate replenishment systems, he said.
The goal, according to Johnson, is to translate unconstrained consumer demand into retail-store-ready/case-level orders or shipments that better reflect anticipated consumption, based on recent consumer behavior.
Concurrently, some consumer goods makers are using customer-provided POS data to build category-wide forecasts, which retailers use to maximize sales space. Manufacturers offer these forecasts gratis to retailers as a sales incentive to win new business.
A couple of grocery and drug stores are using POS data to "keep shoppers happy," Christine Overby, an analyst with Forrester Research, said in her 2003 year-end review report.
The value of both of these sales plans stems from the fact that they use POS data, the best building block for accurate forecasts at both the store and stocking-keeping unit or product level, said Ed Thompson, vice president of consumer goods and retail business optimization at i2 Technologies Inc. of Dallas. Stated another way, he said, "The most accurate representation of [planning] data is at the point of sales." i2 is a leading provider of constraint-based fulfillment and replenishment plans.
|"A lot of people talk about using POS data in planning systems. Fewer retailers are actually doing it."|
- Chris Verheuvel of Manugistics
|Profitability Based on Good POS Tools is No Pipedream|
|Using JDA Software Group Inc.'s Efficient Items Assortment and Space Planning POS-data products is a win-win proposition. So says, Joe Teller, the marketing manager of non-cigarette-related products for the American subsidiary of Swedish Match, based in Richmond, Va.|
The large maker of a full line of tobacco products, other than cigarettes, credits JDA's software for allowing customers "to make the category (covered) bigger and more profitable," Teller says. In fact, Swedish Match is the largest single domestic supplier of this range of items.
It's not surprising then that JDA Software usage has also driven the significant market share gains that Swedish Match has registered among convenience stores, a major outlet for its products.
In fact, these tobacco products are the eighth-biggest category, in terms of sales, for convenience stores, excluding gasoline, according to Teller. Such second-tier status makes these products ideally suited for the free, value-add service that Swedish Match provides using JDA's two POS-based tools.
Essentially Swedish Match relies on the tools to win retailers' confidence, boost the satisfaction they provide shoppers and ultimately generate new or incremental business. This is how it works.
Swedish Match asks the retailer for complete POS data, dating back a year or two, for all the items in the "other than cigarette" category, including its own. They include: White Owl brand cigars; Timberwolf brand snuff; chewing, pipe and rolling tobaccos, and related accessories such as lighters and matches.
Ideally, that data addresses every item, for every store for every week, according to Teller.
Then the fun begins. Swedish Match loads retailer-specific POS data, cluster-specific third-party data it purchases and internal knowledge about the specific market into the JDA software to determine the optimum assortment for that location and similar ones.
The software, which now takes into account the limited retail floor space, ultimately will address shelf assortment should Swedish Match buy that JDA module, as planned, Teller says.
Invariably the analysis pinpoints premium items that a retailer lacks in its assortment. Or else the software determines which potentially big sellers that the vendor isn't giving proportionate space.
The simple solution for the retailer: change in the mix and test the results.
In every instance, Swedish Match has more than covered the cost of the exercise through increased sales. It also generates invaluable goodwill among customers.
Consider that the company ran information for 70 clusters last year and hopes to do almost double that amount in 2004, according to Teller.
Contributing to the success of the exercise is the fact that Swedish Match respects the confidentiality of the data it receives from retailers, many of them direct competitors, Teller says.
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