By Keith Whaley and Greg Arthur
Imagine you’re playing Texas hold ‘em. At the beginning of a hand, the only things you know are what cards you’re holding, and how many other players are playing the hand. Each time community cards are dealt, your expectation of your odds is updated and you bet accordingly – betting more if you think you have a stronger hand and less if you think you are not likely to win.
But if you were to play poker the way many companies manage their inventory allocations, the betting pattern would be very different. You would blindly bet all of your chips after the first round of cards are dealt, before you have accessed your odds of winning the hand. It doesn’t take a seasoned gambler to understand that this is not exactly a recipe for maximizing winnings.
Betting with Retail Inventory
Think of the hand you are dealt as an inbound shipment of inventory and the chips you bet as the units of that inventory. You and the other players are the allocators that need to make the optimal bids with your chips in order to maximize your winnings. Given you can make better decisions the more information you have, doesn’t it make sense to start by betting just a percentage of your chips until you have more information?
Why go “all in” with your inventory allocations when you can be a more strategic player and place your bets as you learn more? Allocating products or betting on inventory allocations to stores requires utilizing strategies such as product modelling, profiling and size curve management. Additionally, it makes sense to “read” the business or the hand you have been dealt before betting your inventory. Allocating forward weeks of cover against demand enables you to react to the “reads” you’re getting from actual daily/weekly demand.
Also, not all the chips are the same. So just as you have many different types of chip values, you have different items in your inventory. The complexity multiples as you realize you have to place bets for each item. To deal with this complexity, many companies resort to using generic allocation polices. In most cases these generic policies enable the inventory to get allocated and shipped, however the inventory allocations that result are often mediocre bets at best.
A better option maybe to bet your inventory allocations based on individual item strategies rather than generic one-size-fits-all policies. Enabling this type of betting strategy can be accomplished through a system with allocation functionality that is flexible and allocators that can think strategically about placing bets on their inventory.
Betting Strategy is Important
For any product a retailer is stocking, every unit that leaves a distribution center is no different than throwing chips into the pot. Each allocation represents a bet on the sales potential of an item, and those bets need to be based around a strategy that makes sense for the item. Betting too much inventory against initial allocations just to clear the distribution center can be a recipe for a short night at the poker table.
If inventory is positioned incorrectly, the result can be markdowns or costly redistribution expenses. Implementing individual item strategies for allocations can present a significant potential source of profit by having the right products at the right place at the right time.
This is where a tightly integrated planning and execution process can help. Allocators should set their initial alloction plan and stick to it. Only after the player has had the opportunity to read their hand versus the community cards should a deviation occur in their betting strategy. Similarly, a good allocator will only deviate away from their initial strategy after they understand the actual demand patterns occurring in their stores.
Betting Techniques make a difference
Knowing the proper techniques to utilize in inventory management is critical to the overall health of sales and margin for a retailer. Understanding when to use allocation or replenishment techniques can have a significant impact on your inventory ROI. A core product with a six month lifespan and a relatively stable demand level is going to require a much different strategy and technique than a four-week fast fashion item with high upside coupled with extremely high volatility. Not all items are meant to be allocated and not all items are meant to be on forecasted and replenished. Assigning strategies and techniques to items based on anticipated behavior can be an extremely profitable approach.
Learning to place good bets
At JustEnough, we recognize the immense benefit leveraging the computational potential of an allocation system can represent, but also understand the limitations of what software can realistically accomplish. We’ve engineered an allocation solution that lets each user define a strategy for each item, defining the information a machine can’t know, such as what to model a new product on, where the product needs to go and how aggressively the user wants to bet.
At the same time, we take away the need to consider your supply chain on a daily basis, and by defining an exception-driven workflow, make sure that planners can spend as much time as possible improving item-level strategies. And once a strategy has been defined and actual demand signals begin to be recorded, the forecast of each item at a location level is continually updated to ensure you are maximizing sell-through and improving profitability. Now that’s a good bet!
The National Retail Federation last week announced that consumer spending and retail sales rebounded in May, signifying renewed momentum heading into the second half of the year. NRF reported that May retail sales, excluding autos, gas and restaurants, increased 0.8 percent from April and 1.9 percent on a year-over-year basis.
"Retail sales are growing at a reasonable pace and regaining momentum heading into the second half of the year," said NRF Chief Economist Jack Kleinhenz
Retail sales are growing at a reasonable pace and regaining momentum heading into the second half of the year.
“With consumer confidence, employment and income improving, consumers were encouraged to open their wallets in May,” Kleinhenz added. “Retail sales gains were evident across most business sectors with the exception of health and personal care stores. The improvement in retail sales is consistent with employment gains and the recent uptick in consumer credit. Adding to the strength of the report, sales for March and April were revised up.”
“On the whole, retail sales are growing at a reasonable pace and regaining momentum heading into the second half of the year,” Kleinhenz said. “Latest economic data show improvement in the economy and we expect stronger sales growth as jobs and income pick up. Nonetheless stronger wage growth will be necessary to sustain further gains in retail sales.”
Additional finding from NRF’s monthly retail sales analysis can be found here: https://nrf.com/news/retail-sales-regain-momentum-may
Discount Dance Supply (DDS), the largest specialty retailer of dancewear in North America, selected JustEnough Demand Forecasting, Inventory Planning, and Replenishment and Order Planning to forecast and plan inventory for the company’s stores and robust online business.
With over 200 suppliers and over 100 new product introductions per week, DDS was seeking a new solution to better respond to rapid changes in demand and reduce out-of-stocks. DDS’s current technology was unable to effectively react to all of the variables associated with their over 30,000 SKUs. DDS selected JustEnough products for their impressive features and intuitive user interface.
“By implementing JustEnough’s solutions we expect to decrease our stock outs while lowering our overall inventory levels through a more efficient forecasting and purchasing process,” said John Miller, CTO, Discount Dance Supply. “Additionally, we expect the solutions to provide improved visibility into trends and more accurate forecasting for new products.”
“We are very pleased to add Discount Dance Supply to our growing global customer base,” said Malcolm Buxton, president and CEO, JustEnough. “With our innovative, industry leading solutions, DDS can expect to achieve improved automation of its demand forecasting and inventory planning process, increasing their capability to anticipate out of stocks and improve customer service while minimizing inventory.”
Paula Rosenblum, co-founder and Managing Partner at RSR Research, recently posted an interesting article on Forbes.com about how fast fashion is disrupting apparel retail. She makes some good points including the fact that fast fashion requires a faster supply chain from ideation through delivery and a good demand forecast engine to help decide how much of a particular item to make and/or buy for shoppers. The JustEnough team is happy to already be helping fast fashion retailers to plan quicker and execute better - staying on the leading edge of retail trends.
Check out the post.
The IHL Group is reporting in its new research, Retailers and the Ghost Economy: $1.75 Trillion Reasons to be Afraid, that deficiencies in the retail market cost $1.75 trillion a year. Overstocks, out-of stocks and needless returns are the primary siphons on the $14.5-trillion retail economy worldwide.
The worldwide annual losses in these three categories are:
- Preventable Returns: $642.6 billion
- Out-of-stocks: $634.1 billion
- And overstocks: $471.9 billion
"Retailers all too often focus on a variety of ways to drive revenue and increase comparable year-over-year sales, but retailers can realize huge gains by addressing opportunities that are in hand and slipping through enterprise fingers," Greg Buzek, president of IHL Group. "These problems are within retailers' grasp to solve, but it requires more than data, more than business intelligence. It requires understanding the root causes of inventory and data disconnects and implementing the technology solutions and operational changes to address these revenue-limiting issues."
JustEnough has been focused for two decades on helping leading retailers to reduce the causes of these preventable losses. Our demand-driven retail planning solutions make it simple to plan better assortments, allocate products to the optimal stores, plan pricing and markdown strategies, maximize space-selling effectiveness and replenish inventory with accuracy. The result is the ultimate wish for any retailer – increased sales, fewer stock-outs, reduced markdowns and inventory costs and happier customers.
You can download your free copy of the IHL report here.
Today’s retail environment is more competitive and challenging than ever before. Retailers are faced with supporting new sales channels and fulfillment options, and the unpredictable digitally enabled consumer. At the same time they need to maximize revenues and margins while controlling inventory, minimizing markdowns and delighting customers. That, combined with keeping up with rapidly changing trends, can mean – as they say on Project Runway – one day you’re in and the next day you’re out. Retailers trying to survive and thrive in this environment need to rethink the old ways of doing things.
The end-to-end retail planning and execution process is complex, so there are lots of places retailers can focus in order to improve performance. For now let’s begin with assortment planning and space planning. In the more typical or traditional approach to these processes, the two are viewed as separate and distinct activities, each beginning and ending at different stages of the overall merchandise planning process. However, this traditional approach has its drawbacks and the outcome can be assortment plans that are not aligned with the space in which they must be presented and sold. The result can be over- or under-assorting, leading to negative impacts on sales and margins.
Today’s more successful retailers view assortment and space planning as integral and married processes. Combining the two results in product assortments that work with the space in which they will be seen and sold. Let’s take a look at why this is important and how it works in the real world.
Let the Planning Begin
As planning begins preseason, the goal is to create assortment plans across your categories that fulfill the trends of the business and drive sales and margin. It’s critical at this stage of the process to consider space to ensure you can support the right depth and breadth of assortment. By considering space, planners can build out assortment plans preseason with the confidence that when products are delivered to the channels they will be properly merchandised for the space.
Let’s look at how a US-based, international fashion apparel retailer with over $1B in annual sale approaches space-aware assortment planning.
The first decision they made was to measure space by store clusters with four clusters per brand. Within those clusters, they established the average number of stacks per cluster that could fit in a store. For instance, the largest cluster in terms of space is 365 stacks per gender. That provides roughly more than 700 stacks in which to assort products for stores in that cluster. That became the minimum requirement in terms of product assorting. By measuring the space and defining it by cluster, the planners have complete visibility into the number of options in the assortment and how it stacks up against the space within each cluster.
The next step is equating the items or options in the assortment to the appropriate number of stacks within that cluster. Once the assortment is filled out correctly, it is double checked against space and tweaked if needed.
Finally, before even one zipper, button or piece of thread is committed to, the assortment is reviewed from a visual merchandising viewpoint to ensure that aesthetically the store works given the planned assortment. The assortment is laid out in large rooms that represent the store cluster using simulated fixtures, drawings and actual sample products.
Planners walk through the “virtual” stores to make sure the store is accomplishing what is expected given the product assortments and space. Any changes made during that review, based on looking at the space and the assortment, are updated in the master plan and reconciled back to the financial targets. Only once that process is complete does the buying process begin.
It Takes Process and Systems
Integrating the assortment and space planning processes increases a retailer’s likelihood of success – leading to increased sales, margins, improved productivity and organizational alignment. Integrating these activities, particularly in preseason planning, requires not only sound process but systems that support the process and encourage collaboration; one can’t get the job done without the other.
Setting yourself up for success via sound process is the first step and the key to defining a sound process is to keep it simple and manageable while ensuring it works within your planning calendar. The process should follow a logical workflow which takes planners through the process ensuring nothing is overlooked. Once the process is defined, systems can be selected and implemented which automate the workflow and help planners to be more efficient and effective in their planning.
So it’s process first, systems second and when the two come together planners can confidently build better plans that meet the business objectives and satisfy and delight customers across all the buying channels.
The result of effectively marrying these once separate processes are assortments that are aligned with the physical and digital space in which they will be seen and sold; driving higher revenues, fewer markdowns, improved margins as well as happier and more loyal customers.
TEC recently posted this article to their blog and I wanted to share it as we have found that many of our most successful customers have followed these Mantras when undertaking their enterprise software selection projects.
Enterprise software selection is a big undertaking, and is often much more complicated than many organizations plan for at the outset. The software evaluation and selection process can involve a great deal of an organization’s time and resources. The best thing you can do to avoid losing valuable hours and assets at your company is to ensure due diligence at the very start of the process.
Technology Evaluation Centers (TEC) senior business systems analyst Denis Rousseau has helped dozens of companies with their software selection projects and has come up with three mantras to help you get your evaluation and selection process off to a good start. Keep them in mind when embarking on a software selection project—to ensure you minimize the costs to your company and maximize the chances for your selection success.
Software selection is a business decision, not an IT decision.
“Get me one of those ERP things, and tell me when it’s done.” Unfortunately, this is often the sentiment expressed by upper management, who mistakenly give the task of selecting an enterprise software solution solely to the information technology (IT) department. But what happens when a software solution is implemented that nobody knew was coming or had even been asked about?
To avoid coming up against huge resistance during implementation, or even worse, having to make a “bad fit” software solution somehow work with your business processes, it’s smart to realize from the outset that a software selection decision needs to be a business decision with high-level sponsorship. That means all of the C-level, and all of the people who are in charge of the affected departments, need to be aware and, more importantly, involved.
If it’s not a strategic decision, forget it.
Often when people embark on an enterprise software selection initiative, they make the mistake of focusing on things that don’t have anything to do with the software itself. Right off the bat many people ask “how much will the new system cost?” before they’ve even defined their requirements.
In the beginning stages, the only criteria appropriate to consider are the features and functions needed to support the relevant business processes. Everything else is secondary, including cost. What’s the point of getting a solution that is in your price range if it doesn’t actually do what you need it to do?
Every software provider is a professional software vendor. Professional software buyers are very rare.
Do you have professional buyers in your company to deal with the purchase of raw materials or components? Professional buyers have enough experience at what they do to be efficient and effective at selecting the right sources for the materials they need.
Software purchasing isn’t that far off from materials purchasing—in fact, it is likely even more important to your company’s business processes and bottom line. But very few companies employ professional software experts to select their next best-fit solution. It makes good sense to do so, as enterprise software selection on a large scale is a situation that does not arise that often—and as a result is something that most companies don’t have much experience with. Recognizing your limitations when it comes to evaluating and selecting software can be helpful. It will allow you to identify areas where you may need help, and to find experts who can provide that help.
Would you allow someone without any experience to do your materials selecting and purchasing for you? Probably not. Then why would you leave software selection to someone without the necessary experience? Consider who is in charge of your next software selection initiative, and if they don’t have the proper experience in this area, look to get them the help they need.
Keeping these three software selection mantras in mind will help you get off to a good start on your software section project, and increase the changes of a smooth selection process resulting in selection of the solution that best fits your company’s business needs.
You can access the TEC Blog here.
I was recently interviewed by OnWindows magazine and shared how JustEnough has made great strides in setting itself apart from the competition by, for example, tackling the challenges associated with assortment and space planning head on.
Here is the article. I hope you enjoy.
There’s no doubt that Keith Whaley understands retail. Having graduated from Ohio University in the mid-90s, he stepped into a much sought-after place in a retail management programme at US grocery giant Kroger. Here, he not only quickly worked his way up to become a category manager, but also played an instrumental role in developing the Kroger Fresh Fair and the Kroger Marketplace store formats – setups which still have a big presence in the US today.
After Kroger, Whaley moved into the speciality retail sector, landing a job with clothing brand Abercrombie & Fitch (A&F). “In my eight years with A&F, I led a team which created a model that allowed the company to successfully build assortments for its international, flagship and tourist stores worldwide,” he explains. “That experience was a huge highlight because it allowed me to be a part of taking a national retailer and making it into a global brand. As part of that process, we created all kinds of store models and formats in which to engage with customers and offer them compelling products that captured what we believed was our fair share of sales in the global market.
“We put tools in place to allow us to cater to stores that were now three to four times larger than the traditional mall-based formats that had been dominant in the company for many years. As it happens, we ended up implementing the JustEnough Merchandise Planning solution.” And this is where Whaley got a real taste of what would become his next career move.
It was helping to drive that transformation that struck a chord with Whaley, and which led to him joining JustEnough Software. “In my current role, I work closely with customers, prospective customers and industry thought leaders to understand what’s happening in the retail environment and ensure that our products remain the industry leading solutions retailers need to deal with today’s and tomorrow’s complex planning challenges,” Whaley explains.
In this role, Whaley can really put his experience to good use. “That’s the one thing that I think really sets us apart – we have people like myself on the team that are able to talk the talk but have also walked the walk,” he says. “We’re not just selling software; we’re actually selling processes and the technology to support them. That’s a big differentiator for us.”
Indeed, JustEnough has made great strides in setting itself apart from the competition by, for example, tackling the challenges associated with assortment and space planning head on. “Assortment and space planning processes within retail are key components of merchandise planning,” explains Whaley. “However, these two components have traditionally been viewed as separate activities within the retail industry, especially in the fashion and apparel industries. This type of siloed approach can lead to misalignment, difficulty in stocking, poor execution and an overall negative effect on sales and profit. What’s more, in today’s environment it’s quite common for retailers to create another team to manage their digital space. This further disconnects the processes, creating even more challenges.”
Whaley says that in order to achieve success, assortment and space planning should be integrated with proper organisational structure. “Retailers need to focus on building cross-functional teams that work together to build assortments and manage their space with common objectives, aligning their merchandising strategies to achieve those objectives,” he explains. “Additionally, it’s important for retailers to identify their space challenges and account for those challenges in the assortment planning process. By setting up and using key measures that combine productivity and space together, retailers can build and execute against focused assortments that have proper breadth and depth in the space they are managing. Lastly, retailers need a system that is designed to support an integrated structure. Systems that contain built-in processes and workflow addressing the two components together can provide for better execution in the overall merchandise planning process.”
There are many benefits to this type of approach, including inventory optimisation, increased sales and margin rates, reduced re-working of plans, improved organisational alignment, cost reductions in human resources and better overall execution of a retailer’s plans.
“An integrated assortment and space planning workflow will increase a retailer’s probability for success,” Whaley says. “However, retailers still have to understand that all their products will not be winners. Strategic assortment and space plans are not plans that contain ‘future actuals’, but set up a retailer to achieve their goals and objectives. Shaking and baking during the season is still required in order to get to the finish line. This approach requires that retailers make decisions related to space planning that may differ from the assortment plan that was created during the pre-season planning process. Adjusting item placements, item presentation quantities and store layouts are activities that will occur more frequently as retailers identify trends, manage inventory constraints and maintain their desired look and feel of the space they do business in.”
It’s this always-evolving environment that Whaley thrives in. “In retail, the environment is constantly changing and the strategies are constantly evolving,” he says. “Every day in retail is different from the last. I enjoy knowing that when I wake up tomorrow, I’m going to be presented with new, fresh and exciting challenges.”
Kathmandu Recognized for Streamlining Forecasting and Planning with JustEnough Software’s Retail Planning Solutions
One of our customers – Kathmandu - was chosen as a 2015 Top Innovator by Apparel Magazine. A specialty retailer focused on delivering outdoor gear to travel and adventure enthusiasts, Kathmandu was honored for its adoption of JustEnough’s retail planning solutions that support Kathmandu’s current forecasting and planning operations, as well as those needed to manage an increasingly global business.
Apparel Magazine devoted its May 2015 issue to recognizing innovative apparel retailers, brands and manufacturers that are pushing the envelope and using innovation to drive their business operations. The honored companies all demonstrated “innovation in action”, whether these advances occurred through a software implementation, avant garde product launch or new business strategy.
“Not long ago, Kathmandu recognized that existing legacy systems and processes were no longer going to be able to support our growth strategy,” said Jolann Van Dyk, CIO, Kathmandu. “We wanted to work with a leading global vendor that provides retail planning solutions, and also had the intellectual property to teach us what we should be doing, align bespoke processes and provide a single source of the truth.”
Kathmandu was recognized for its use of JustEnough’s Assortment and Item Planning, Demand Forecasting, Inventory Planning and Replenishment solutions which helped it to recognize benefits including:
- A significant reduction in overall stock holdings
- Real-time insights that enable planners to make smarter, more informed purchase decisions
- Better managed stock throughput and boundaries to deal with out-of-stock exceptions
- Improved visibility of operating stock requirements that contribute to better planning practices around assortment range planning, option counts and product lifecycle
“The JustEnough team provided very valuable thought leadership to improve and grow our processes. They helped successfully lead the Kathmandu team through the change management process,” Van Dyk said. “We look forward to continuing our partnership with JustEnough as we continue to grow and expand.”
“With Kathmandu being named a Top Innovator, their efforts highlight exactly how JustEnough’s robust planning technology helps retailers to better forecast and manage inventory reducing out-of-stocks and excess inventory,” said Malcolm Buxton, president and CEO, JustEnough. “Our retail planning solutions provide bottom-line benefits and a real competitive advantage for our customers, helping them to achieve their business and financial goals.”
Software license growth of 126% drives record first quarter.
Today we announced a 47% increase in first quarter 2015 revenues and a 75% increase in software revenue from licenses, cloud subscriptions and maintenance compared with the same period the previous year. Here are some of our Q1 highlights and thoughts from our CEO.
New customers signing in the first quarter included an internationally famous multi-national retailer of women’s, men’s and children’s clothing and accessories; the premier specialty retailer of home furnishings and gourmet cookware in the United States; the largest specialty retailer of dancewear in North America and Australia’s leading specialist lighting retailer. These companies - which span North America, EMEA and APAC - selected JustEnough solutions to help solve their most complex retail planning challenges.
“I’m pleased to share our record first quarter results and also report that software sales of our Promotion Management solution launched in late 2013 continue to gain significant momentum,” said Malcolm Buxton, president and CEO, JustEnough. “The Promotion Management solution complements and operates seamlessly within the end-to-end JustEnough Retail Planning suite which includes Merchandise Financial Planning, Assortment Planning, Allocation, Replenishment and Markdown Planning.”
“As retailers strive to win and retain customers in today’s highly competitive retail environment, the need for omni-channel promotion planning and execution capabilities grows. JustEnough is enabling retailers to address this need and helping them increase sales and brand awareness, lower costs, increase planning efficiency and reduce time to market,” Buxton added.
“We are also very excited about the recent launch of our Essentials suite of solutions,” added Buxton. “The first to market is Merchandise Financial Planning Essentials which gives retailers a flexible, accurate and automated financial planning solution that is easy to use and quick to implement. It comes preconfigured with all the key metrics needed to drive a successful end-to-end retail planning process. JustEnough Assortment Planning Essentials will launch in the second half of 2015.”