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Business intelligence in retail

by Shweta Jain on Apr 15, 2011

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Shyam Viking, Technical Architect at Happiest Minds Technologiesnice thoughts. thanks for sharing. 4
months ago

Soydan Cengiz, Managing Director at ECR Turkey / SBC Marketing & Retailing ConsultancyExcellent

paper. Thanks for sharing. Can I have a copy of the report to use in my training sessions please. Regards Soydan10 months ago

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Business intelligence in retail Document Transcript

1. Business Intelligence in Retail IndustryAnalysis of Role of BI in Retail/FMCG Industry Submitted By: Team: Phoenix Shweta Jain (09BM8031) Abhirup Das (09BM8002) VGSOM, IIT Kharagpur MBA Batch 09-11 2. BI in Retail/FMCG IndustryTable of ContentsIntroduction ................................................................................................................. ................................. 4Overview of Retail/FMCG Industry ............................................................................................................... 5 Major Changes ................................................................................................................. ......................... 5 Current Needs ................................................................................................................. .......................... 6 Key Performance Indicators (KPIs) in Retail Industry ............................................................................... 7BI in Retail ................................................................................................................. .................................... 8 BI System Framework in Retail ................................................................................................................. 8 BI Applications ................................................................................................................. ......................... 9 Evolution in BI .................................................................................................................

........................ 11 Business Intelligence Advantages in Retail Industry ............................................................................... 12Data Modeling: Retail Scenario................................................................................................... ................ 13 Dimensional Design Techniques ............................................................................................................. 13 Brief Description of the Business Scenario ............................................................................................. 13 Dimensional Design Steps ................................................................................................................. ...... 14Key Players in Retail BI Market ................................................................................................................. .. 18BI Tools ................................................................................................................. ....................................... 19 Type of BI tools ................................................................................................................. ...................... 19 Various BI tools ................................................................................................................. ...................... 19 Key Data set used for BI tools ................................................................................................................. 20Top Trends in FMCG & Retail Sector ........................................................................................................... 21 IT Budget Outlook by CIOs from the FMCG & Retail sectors .................................................................. 21 Technologies which companies will invest in to save operational costs using IT ................................... 22 Top challenges faced by CIOs / CTOs ...................................................................................................... 22 2 3. BI in Retail/FMCG Industry Predictions by Gartner about the BI (Retail) Market .............................................................................. 23Conclusion ................................................................................................................. .................................. 23References ................................................................................................................. ................................. 24 3

4. BI in Retail/FMCG IndustryIntroductionEvery organization generates large amount of data from their day to day operation. From the pool ofhumongous data, some of them are able to harvest useful information; termed as Business Intelligence(BI). Organizations which are able to develop business intelligence as a competitive advantage not onlyfocus on descriptive analytics and reporting, rather on predictive analytics to take more effective stepstowards delivering better performance and stronger bottom-line. Extended supply chains and globallydispersed customer base has made managers more keen to use decision support systems based onsound logical framework rather than going with their experience and gut-feelings.BI refers to the skills, processes, technologies, applications and practices used to support decisionmaking. Thus a BI system can be called a decision support system (DSS).In nutshell we can say Business intelligence (BI) is computer based techniques that are used to spot, digout, and analyze business data, such as Sales compared to budget/target or Sales compared to last year(or any other period) or revenues per department/product. BI not only provides historical and currentview of business but also helps in predicting future view of business operations.Various functions of Business Intelligence technologies are reporting, OLAP, analytics, data mining,business performance management, benchmarking, text mining, and predictive analytics. 4

5. BI in Retail/FMCG IndustryOverview of Retail/FMCG IndustryMajor Changes Increasing Competition FMCG as an industry has experienced explosion of products; division of markets (traditional individual stores & organized retail); entry of new players, especially in organized sector; increasing competition as a result of this; innovation and process capability of global players Increasing Customer Expectations Customers, with larger disposable income now have greater appetite & demand for global products. The global exposure has also resulted in requirements differentiated product & service without any compromise on quality. In India a middle class segment bulging can be observed which is full of vibrant young stars; fully conscious about the value proposition of the product. Retail-FMCG space dynamics Industry dynamic has evolved with time. Currently it

has become commoditized market. There is very low customer switching cost and high completion. Impact on strategy & operations The industry is suffering from increasing supply chain bottlenecks due to internal and external issues. Changes in these fronts have impacted strategy & operations of the industry. Organizations are taking below steps to improve their operations Increasing Flexibility Outsourced Contract Manufacturing Demand driven supply chain Improving Customer service 5 6. BI in Retail/FMCG Industry Retail outlet segmentation Customized Retail service Supply Chain segmentation Greater Organizational Alignment EPM, Divisional Scorecards Integrated Sales & operations planning Greater Customer focus Demand analysis Product characteristicsCurrent NeedsBelow are the current needs of FMCG/Retail Industry Organization Alignment & Strategy Management Financial Analytics for greater ROCE Customer Analytics Trade Marketing Analytics Workforce Analytics Supply Chain Analytics Operations Analytics 6 7. BI in Retail/FMCG IndustryKey Performance Indicators (KPIs) in Retail IndustryThe Supply Chain Council in their Supply Chain Operations Reference (SCOR) framework has developeda system of metrics applicable to retailer-supplier context. The highest level is level 1 which ismentioned here along with respective performance attributes. Level 1 metrics can be drilled down tosubsequent levels to get more specific answers. KPIs can be combined into sets according to the needof different functions.SCOR Defined KPIs Other Popular KPIsPerformance Attributes Level 1 Metric 1. Sales compared to budget/targetReliability Perfect order fulfillment 2. Sales compared to lastResponsiveness Order fulfillment cycle time year (or any other period) 3. Sales per Square FootFlexibility Capacity change (Upside and 4. Wage Cost Recovery downside ) 5. Average Sale perCosts Cost of goods sold and Supply Customer/Transaction chain management cost 6. Units per Customer/TransactionAsset Management Cash to cash cycle and ROA 7. Conversion rate 8. Sales per Hour (for store or

associate) selling hours only 9. Sales per Hour (for store or associate) total labor hours 10. Time Spent in the Store 7 8. BI in Retail/FMCG IndustryBI in RetailBI System Framework in RetailThe BI System Framework involves establishment and integration of hardware and softwarecomponents. Hardwares facilitates data possession, storage, access and management. Source system comprises of RFID and barcode reader, handheld scanner, sales force and CRM, visual audits, SAP ERP, WD System, PLM, human resource management system etc. which capture and store data from daily transactions. ETL layer is responsible for data extraction, cleansing, staging, transformation & loading. Data warehouse stores data to serve different needs in terms of business plan, forecast, market research, outlet sales, Invoices, purchase orders, inventory, transport orders, stock orders, salary advice, re-distribution costs , account receivable, account payable, visual merch audit, production plans and jobs etc. 8 9. BI in Retail/FMCG Industry The BI layer does with number crunching applying business logic and generates metrics, regular and ad hock report. Output of this layer feeds performance management system of corporate office.BI ApplicationsBI generally supports analytics function of an organization. Major areas under this function are listedbelow:Financial MarketingWorking Capital Optimization (C2C Cycle) Trade promotion effectiveness, WD profitability, Outlet performance, Channel utility, Integrated(Including Receivable Analytics, Payables consumer demand & market performanceAnalytics, Inventory management) and visibility, ResponsivenessTreasury Cash AnalysisSupply Chain Organization StrategySupply Chain Performance Management Balanced Scorecards (Strategy Maps, Dashboards)Product cost & profitability analysis Budgeting, Planning & Consolidation systemsOperational planning and execution Operational performance managementInventory visibility & safety OperationsRoute optimization Plant Performance ManagementSupply network efficiency MES AnalyticsSpend Analytics Bottleneck alerts 9 10. BI in Retail/FMCG IndustryBI helps to raise the level of collaboration among supply chain partners. In a retail-FMCG set-up

asretailer-supplier relationship matures, risk sharing occurs among supply chain partners. Partners can beconvinced of sharing risk only when the proper information is available across the chain through BI sothat they can take right decision at the right time.Most basic type of alliances is called a Quick Response Program (QRP) where retailer provides point ofsale (POS) information to supplier. Supplier may use this for scheduling production and delivery ordetermining inventory level. The retailer still submits individual orders and supplier maintain ownforecasting system.In a Continuous Replenishment program (CR), supplier delivers at an interval mutually agreed by boththe parties. The relationship gradually moves to an on-going relation from a transactional one.Vendor managed inventory (VMI) is a more sophisticated collaboration than QRP or CR and still evolving.Here, supplier takes over inventory functions that the customer would deal with in a traditionalarrangement (e.g. decisions regarding storage and display of products, access to bins or storagefacilities, replenishment, record keeping and managing delivery ).Collaborative planning, forecasting and replenishment (CPFR) is a set of best practices formalized in1998 by the Voluntary Inter industry Commerce Standards Association (VICS).It provides a model fortrading partners to jointly plan key activities from production to delivery of products and encompassesjoint strategic planning, demand & supply management, execution and analysis based on sharingrelevant information. To be successful, VMI and CPFR both needs intensive sharing of not mere data, butthe predictive power of the data that resides in the systems of collaborators. 10 11. BI in Retail/FMCG IndustryEvolution in BIBI has evolved with time; initially it was more about MIS Reports. Since the BI has matured form juststatic reports to on the spot answers via dynamic Dashboard at gives current and updated snapshot ofinformation enabling Real time analysis.Instead of just showing data, BI gives insights into the data, alerts and root cause analysis that helps indecision making. BI has gained greater integration power, thus enabling data merger for variousexternal and internal sources. It has become a collaborative business planning tool. 11

12. BI in Retail/FMCG IndustryBusiness Intelligence Advantages in Retail IndustryBusiness Intelligence addresses issues like business strategy planning, location wise analysis, quickresponse to market volatility, cash flow management and inventory rationale, and merging data fromvaried internal as well as external sources. Below are few advantages of using BI in Retail Industry Align business with client needs: Help managers design marketing campaigns for specific products by identifying opportunities. Differentiate from competitors: Improved business by collecting and analyzing data from various systems (financial, point of sale, inventory, distributors, and customer relationship management systems) in various formats. Optimize resource allocation: Integrate financial data to control operation costs and optimize business performance with better profitability. Input to Decision Support Systems o Reporting capabilities for key performance metrics o Performing complex analysis (e.g. promotion, pricing strategy, product mix) o Developing statistical models that predict client needs and behaviors 12

13. BI in Retail/FMCG IndustryData Modeling: Retail ScenarioDimensional Design TechniquesThe data modeling can be done by applying dimensional design techniques. It arranges the data in a waythat it can satisfy specific business query. Steps involved in dimensional design are: Select the Business Process: A major operational process that is supported by some kind of legacy system(s) from which data can be collected for the purpose of the storage and modeling Example: sales , orders, invoices, shipments, inventory Decide Granularity: The fundamental level of data represented in a fact table for the selected process. Every data mart / warehouse should be based on the most atomic)data that can possibly be collected and stored. Example: individual transactions, individual daily snapshots Choose the Dimensions: Choose the dimensions that will apply to each fact table record Identify the Facts: Choose the measured facts that will populate each fact table record Conforming the dimensions: Common dimensions across the Facts/ data marts required to be exactly same or subset of the main dimension table Adding Attributes to Dimension Tables: The depth of analysis can be augmented by

increased number of attributesBrief Description of the Business Scenario Smart-Mart is a leading grocery retail chain Each stores has departments like grocery, bakery, dairy, healthcare, cosmetics etc 60,000 individual products(SKUs) Bar Codes (UPCs) imprinted on packages 13 14. BI in Retail/FMCG Industry Hand-held scanners feed data directly to POS Management goal is efficient ordering , stocking and selling of products while maximizing profit Decisions to do with pricing and promotionDimensional Design Steps 1. Select the Business Process: POS retail sales process to be analyzed: what products are selling on what stores on what date under what promotion scheme? 2. Decide Granularity : Individual line item on a POS transaction 3. Choose the Dimensions: 4. Identify the Facts: 14 15. BI in Retail/FMCG Industry5. Dimensional Table Attributes: Product Dimension: It is used to describe the stock keeping units (SKU) in a store and contains many descriptive attributes of each SKU. Some of them represent the merchandise hierarchy (e.g. individual items can be combined to brands and brands to category and so on). The analyst can browse through dimension attributes and we can roll up and drill down using attributes as constraints even if they do not belong to the merchandise hierarchy. Drilling down actually adds one column more. Product Dimension table design should be taken with great care covering almost all necessary attributes to ensure exhaustiveness.Date Dimension: This is a very familiar dimension across all industry. Qualitative attributes bearmore significance for this dimension (e.g. sales on weekends versus working days). Due attentionshould be paid to ensure that the columns had important values such as holiday/no holiday/weekends etc versus a cryptic substitute (e.g. yes/no)for them; which in turn will reduce the 15 16. BI in Retail/FMCG Industry decoding effort required by reporting department. More time series factors like retailing season or fiscal periods can be included to make the design robust as the business needs to slice and dice data by these nonstandard attributes.Store Dimension: This is the primary geographic dimension which describes

every store in a retail chain.Stores can be rolled up using attributes like ZIP code, districts, regions and county etc. Store dimensionis mainly used in the corporate reporting and the necessary components of the store dimension frommultiple operational sources assemble generally assembled at headquarters.Promotion Dimension: Common promotion activities are end of the season sales, provisional pricereductions, festival offers and coupons etc. which are represented by promotion dimension. Tradepromotion effectiveness is a management concern for achieving volume and profitability. Variouspromotional measures should be judged individually for a more straightforward administration. As thesemeasures are highly correlated, multi-co linearity factor need to be accounted for decision making. 16 17. BI in Retail/FMCG Industry17 18. BI in Retail/FMCG IndustryKey Players in Retail BI Market1) IBM Cognos2) SAS3) Microsoft Dynamics4) SAP5) SRIC BI6) WebFOCUS BI7) QLIKVIEW 18 19. BI in Retail/FMCG IndustryBI ToolsType of BI tools 1. Spreadsheets 2. Reporting and querying software: tools that extract, sort, summarize, and present selected data 3. OLAP: Online analytical processing 4. Digital Dashboards 5. Data mining 6. Decision engineering 7. Process mining 8. Business performance management 9. Local information systemsVarious BI tools 1. Open source free products a. Eclipse BIRT b. Rapid Miner 2. Open source commercial products a. Palo (OLAP database): OLAP Server, Worksheet Server and ETL Server 19 20. BI in Retail/FMCG Industry b. Pentaho 3. Proprietary free products a. InetSoft b. MicroStrategy: MicroStrategy Reporting Suite 4. Proprietary products a. IBM Cognos b. Informatica c. TeradataKey Data set used for BI tools 1. Sales Data a. POS b. Turns c. GMROI 2. Market Data a. Market share b. Competitor pricing c. Competitor product lines 3. Promotional and marketing data a. Success of past promotions / customer feedback b. Total cost of promotion 20

21. BI in Retail/FMCG Industry c. ROI on promotion 4. Customercentric data a. Demographics b. Frequency c. Loyalty 5. Supply chain and operations data a. Demand b. Identify profitable products c. Keep track of units sold 6. Merchandising dataTop Trends in FMCG & Retail SectorBusiness Intelligence is Top Technology Priority (Source: Survey - FMCG - Infrastructure Agenda2010)IT Budget Outlook by CIOs from the FMCG & Retail sectorsMost of the IT budget would be allocated to BI, ERP, CRM, Security and Virtualization tools 21

22. BI in Retail/FMCG IndustryTechnologies which companies will invest in to save operational costs using ITTop challenges faced by CIOs / CTOs 22

23. BI in Retail/FMCG IndustryPredictions by Gartner about the BI (Retail) Market 1. By 2012, more than 34% of the leading 5,000 international firms will fail to make astute choices about considerable alterations in their operations and markets, due to inadequate data, equipments and techniques. 2. By 2012, business units will control at least 40% of the total budget for business intelligence 3. By 2012, 33% of analytic applications applied to business processes will be delivered through course-grained application mash ups. 4. By 2012, half of the systematic functions related to business operations will be supplied via coarse-grained appliance. 5. By 2013, the commercial divisions will administer at least 40% of the entire financial plan for BI. 6. Asia Pacific BI market will grow at CAGR of 15.3% through 2012, reaching across US$150 million. 7. The local BI market will be sustained through maintenance revenue.ConclusionTODAY IN EVERY BUSINESS the most challenging job is to make you efficient enough for surviving inthis volatile market place. With increase in growing completion in Retail industry the profit marginshave become thinner. In order to address the ever changing business demands retailers need to have asecure and dynamically scalable infrastructure. As a solution, companies should focus on implementingtechnologies that will enhance the customer experience. They should view IT initiatives as majorcomponent that will help the business drive market share rather that just supporting the business. Ingiven scenario Business Intelligence and analytics will play

a key role and using BI tools will makedecision making easier and faster. 23 24. BI in Retail/FMCG IndustryReferences 1. Gartner Reveals Five Business Intelligence Predictions for 2009 and Beyond Gartner Report 2. Kimball R. & Ross M., The Data Warehouse Toolkit, 2nd Ed., John Wiley & Sons, Inc. 3. Enterprise BI Strategy for ITC by ITC Ltd. 4. http://www.dmsretail.com/kpis.htm 5. http://en.wikipedia.org/wiki/Business_intelligence 6. http://www.apics.org/Resources/ 7. http://supplychain.org/resources/scor 8. http://business.mapsofindia.com/businessintelligence/for-retail-industry.html 9. http://www.prlog.org/10123229the-competitive-game-is-changing-for-retail-business- intelligence-forretail-industry.html 24
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