Off the Shelf: The Retail & CPG Blog

People's Republic of China's annual average GDP growth for last decade (i.e. 2001 to 2010) was 10.5%, which was equivalent to the combined growth rate of all the G7 countries. The result of this express growth was that by the end of 2010, China's GDP was USD 6 trillion (next only to USA) and one fourth of this was accounted only by exports. China's exports value (as shown in the table) for 2010 reads USD 1.58 trillion, just about India's total GDP. From Apparels to toys, from electronics goods to furniture, you just name it... China produced almost everything at very competitive prices and Global retailers treated China as their one stop shop - the world's factory.

Posted by Arun Singh at 9:28 AM | Permalink | Comments (0) | TrackBacks (0)

This Thanksgiving Day and day following often referred to as Black Friday witnessed blockbuster results for online retailers.  Thanksgiving sales ended up 39.3% over the holiday last year. Mobile traffic on Black Friday was 14.3 percent of all retail traffic compared to 5.6 percent in 2010. This season will definitely be an interesting time for marketers.  The National Retail Federation (NRF) projects that 36% of holiday shopping will be done online (leveraging the Web for researching, comparison shopping before making a purchase). 

Continue reading "This holiday season, what will make shoppers click?" »

Posted by Tanveer Singh Khanuja at 11:33 PM | Permalink | Comments (0) | TrackBacks (0)

An immediate mention of the Bell curve would ensure no one reads my blog beyond the first line. Talking about the curves that mere mortals are interested in, I remember myself once hunting for a bean filled "Simba" toy in the neighborhood stores in NY. I couldn't find the thing I was looking for; to be handpicked and shipped to a destination of interest. Simba being the protagonist in "The Lion King" a landmark animation movie of our generation, not finding it left me a little disappointed. So, I turned to Amazon and found instantly an abundant choice of the product. I did not get to hand pick it, but got hold of the authentic Disney collection. The reviews helped making sure it was a good buy. Not wasting much time, I shipped it to be handed over on the desired date. Did it reach its destination on time? How was it received? Or it was redirected abruptly while in transit is a story to be told elsewhere.

The fact that I was not able to find it in the neighborhood Toys R Us and Sears but was able to find easily on Amazon.com with multiple vendors with recent reviews implied that there was considerable demand of the product. Did the assortment managers miss a trick somewhere?

Then I wondered the product would have lost out in the assortment optimization/SKU rationalization exercise.        

Then I came across a theory which contradicted the fundamental principle behind assortment optimization in the title, "The Long Tail" by Chris Anderson. It talks about how the endless choices available to the consumers are bending the 80-20 rule wherein the top 20% of products make up your 80% of revenues. With the advent of digital commerce, the incremental cost attached with carrying humongous assortment has drastically reduced to become almost negligible. The once seemingly endless aisles of Wal-Mart are no match when it comes to the practically endless, virtual aisles of Amazon.

An interesting statistics published in the book says, 25% of Amazon's music sales are with products which are not available in a brick and mortar retailers assortment. It's more interesting to know that this percentage is getting bigger by the day. The sales of these titles are frequent but small in number and geographically diverse, but they are not the constraints the online retailer has to lose sleep over.

The assortment optimization fundamentally tries to optimize the number of products that would make the maximum sales and SKU rationalization does the same with the SKUs within a product line assuming the consumer picks the product from within the available choices.

If I try and combine in a crude scenario:

A K-Mart aisle has 5 brands of a product line and after the SKU rationalization it decides to do away with one brand which makes the least numbers in terms of sales.

Now when a customer comes and tries to find the brand which has been rationalized, he/she might not go for the available brands but order it online. If this occurs a couple of times, the retailer might just lose out on the customer.

You can't mistake the brick and mortar retailer for optimizing its assortment as it has to maximize the returns owing to the ever increasing costs involved in physical sales viz. the inventory carrying costs, real estate prices, promotional expenses, etc. The only comforting factor is the limited geography a store has to cater to. For the online retailer though the market is limitless, the cost of sales is very low. Only thing is, it has to ensure the search results are accurate enough to show the relevant products on the first page or the consumer would switch websites in a jiffy.

Visualizing the scenario on the bell curve will tell you the brick and mortar retailers are trying to concentrate on the chunk that generates maximum revenue and it makes sense for the online retailers to spend larger efforts on the tail of it. In short, both are waging their battles on the either sides of the curve.

It's not a level playing field. Still, the game never stops!

-          Harshad Deshpande

Posted by Harshad Deshpande at 1:58 PM | Permalink | Comments (4) | TrackBacks (0)

Henry Ford once famously quipped about the Model T car in 1909- Any customer can have a car painted any color that he wants so long as it is black. As I hurriedly move around the aisle of the local Kroger Grocery store looking for a particular brand of I-forgot-what; I couldn't help but think that this was perhaps the best instance of SKU optimization ever done!

But this is 2011, and things have become a tad more complex ever since. CPG companies are looking to hold on to their market share- at the added cost of increasing their SKU portfolio; retailers are looking to streamline their aisles, lessening clutter and increasing their efficiency; and above all- customers are looking for simplicity in the choices they have once they enter the retail stores rather than the overwhelming assortment of confetti colored, similar looking products that craves for attention across the aisles.

Although many would have liked us to believe, but the fact is that just having a presence in the social networking bandwagon won't suffice if the CPG companies were to win the battle in the stores. Like a duck which is frenetically paddling underneath but shows a Zen like calmness on the surface- there is hard work being done by the enterprising CPG companies to stay ahead of the curve and optimize their SKU portfolios.

Michael E. Porter's 5-forces model more or less defines the market strategy that an organization can employ to gain the maximum on its limited resources, increase RoI and maintain their competitive advantage. For most CPG companies reducing SKU complexity and joining the lean-trim bandwagon might be the most obvious thing to do. CPG companies are looking deep at their tactical and strategic factors to come up with a win-win formula and SKU Optimization is a clog in that wheel of success; albeit an important one. An ideal situation for strategic decision makers keen on a strong SKU Optimization process is to keep on reducing the number of Stock keeping units as much as possible- which in turn would lower costs, reduce losses due to OOS (Out of stock) of the Power SKUs, and efficient economies of scale.

The devil is in the detail, or in the realm of BI we call it 'data'- sometimes for the lack of it and sometimes for the overkill. In order to generate reports on key SKU Optimization metrics we are looking at synergy between disparate data sources, business intelligence and reporting tools, and various departments within an organization with their own agenda. Moreover, there is always a trade-off between the cost of acquiring the data and analyzing it to make sense vs. the incremental benefit the business users derive out of the report. They must look for answers to critical questions like which bottom SKUs to trim, which are my power SKUs, how much market share I'm willing to lose to retain my cost competitiveness and so on.

BI professionals are looking at combining data from disparate sources like Shipments, SAP, Nielsen, AOD and then normalizing the metrics to give a clearer, common picture of the state of the business and making it simpler (1-2 click reports) for the users to analyze the report more effectively and make real time business decisions in a collaborative mode. For a truly global CPG company, we are talking about similar reports being generated across geographies and more standardized the process, more optimal is the output. A typical SKU Portfolio Optimization report typically consists of SKU Count, Productivity, and Ranking of SKUs details and the decision makers are able to slice and dice the filters to suit their needs.

The data is the hard fact, how it is interpreted to suit strategic and tactical needs is of the essence and to roll it out for multiple categories, brands, SKUs, Business Units, Channel will define the thin line between success and failure. For instance, A Loss Leader strategy employed by a CPG company will obviously have a different philosophy than say a Profit Maximization Strategy.

An example-

While analyzing the SKU Optimizations report details we might observe that a particular SKU is sold only to the Bottom 3-4 Customers.

The questions that immediately comes to our minds are-

·         Is that a strategic decision? Why are we even selling this product to the bottom customers only? Are they a strategic partner in some other Geography?

·         Can we stop manufacturing these SKUs and replace them by the Top selling SKUs? This will reduce my costs, reduce OOS and will give me more space in the aisles for my Top SKUs.

·         Or wait!! Are these my discontinued SKUs that are being liquidated and sold to the bottom customers?

Although the CPG companies may not like it, but reducing their long tail SKUs which makes up for say, the bottom 10-12% volume SKUs as their 'one-size-fits-all' SKU optimization strategy is an adventure waiting to unfold. The objective of a good SKU Optimization initiative remains the same- Reduce OOS, optimize the retail space and save on fixed and variable costs. SKU Optimization, for a fact, is the journey; the traveler needs to decide where they want to go!

At the Kroger store, I saw some promotional packs of a particular brand of chips in the aisles- and then I thought to myself- what a terrible waste!! Extra production shifts, marketing costs, extra packaging, one additional SKU, added complexity and what not.

Am I becoming cynical? I don't know. I just wish for a simpler, clutter free and efficient world. Well, isn't that a truism?!

Posted by Jagat J. Saikia at 6:53 PM | Permalink | Comments (3) | TrackBacks (0)

Continue reading "Are Brick and Mortar companies facing extinction?" »

Posted by Tanveer Singh Khanuja at 2:38 PM | Permalink | Comments (0) | TrackBacks (0)

I have discussed about some important strategies that a retailer's social media plan should entail, in one of my blogs earlier. It is extremely essential that we also provide the right features in our social solution.  In this blog I have discussed some very interesting features that a social solution must include. This list is a result of an extensive research of various social features currently available in the market and being put to effective use by various online businesses. We had also presented these ideas through a PoV last year. 

We have all known of the facebook and twitter share/like button and this has been extensively talked about thus far. We also know about features such as the "Shop" tab on facebook, But there are some very interesting features that can make your social shopping solution savvy and fun..... 

Continue reading "Essential and Savvy features for your Social Solution" »

Posted by Sanjeev Kulkarni at 9:25 PM | Permalink | Comments (0) | TrackBacks (0)

We do realize that social media plays an important role in the way we conduct business today. Every retailer yearns to be a part of the social revolution. In their quest to stay ahead of the competition, is very important for every online business to strategize a social media plan. How should retailers go about planning their social media strategy?

There are a few important facts that any retailer should analyze before they jump to a strategy:
- What is it that I want to achieve, through a social media strategy?
- Do I really believe this is an unearthed goldmine?
- How should I implement a successful social media plan? How easy is it to implement different social media strategies and what is the timeline I'm looking at?
- What is my budget?

Well, as we find answers to these questions, we do realize that there are two different strategies that a retailer may plan to implement:

1. Retail layer on a social layer:
This strategy aims to build a retail layer on a social layer (For eg. Building a retail layer on facebook). Very recent examples are that of J.C.Penny embedding their complete product catalogue on facebook, and Hallmark cards embedding the "Shop" tab on their facebook page to allow customers to buy cards on Facebook.
Features such as the Facebook "like" button and "share" on twitter may also be considered part of this strategy. Another very important feature would be open id or facebook/twitter login.

Amazon implemented facebook connect in order to provide product suggestions based on likes and favorites pulled from your social graph. By connecting your account, you allow Amazon to scrape the interests and favorites of your friends. You can then view suggested gift ideas based on this data. Amazon also will populate lists of items that are popular among all of your friends, as well as suggestions based on your own interests.

What can I achieve?
In simple words -
- Connectivity to customers and a more informed and a knowledgeable customer.
- Easy Viral marketing on social media.
- Personalized recommendations using interests/likes/dislikes etc of customers based on their social graph.

What about the time and budget?
Easy to achieve. The easiest parts being "Facebook like" and "Share" buttons. The overall strategy is easy to implement and requires a few months of efforts. An agile implementation model helps in interim analysis of the success of various features you implement.

2. Social layer on a retail layer:
This is a comparatively difficult and a time consuming strategy to implement. It aims at building a social network within your retail network. Mysears.com is an example of this. Department store Sears have given their website a social shopping makeover by adding a social layer that allows you to "message" and "follow" other users, see their profiles and their onsite social activity, like products (as well as dislike, want and own them), and join groups.

What can I achieve?
- Connectivity to customers and a more informed and a knowledgeable customer.
- Easy Viral marketing within the retail network.
- Personalized recommendations using interests/likes/dislikes etc of customers based on their social graph within the retail network.
- Though most of the results are same as the first strategy, the following points are worth taking a look at.

What about the time and budget?
Time required to implement this strategy is greater than leveraging an already existing social network like facebook or myspace or twitter to do your job. If you have a greater social media budget and want to own all the trends of your customers without letting a 3rd party to know what your customers like, what they dislike, what are their gift lists etc. then this is the strategy for you to implement.

Which strategy is the best for you?
The answer to this question depends on a multitude of factors, which have been considered above. But if I were to consult you, I would recommend you to go with the first strategy if your budget is not huge and you are ok to let facebook or whoever your social media partner may be, to own all of the shopping and activity trends of your customers. Also, this is the best strategy for you to implement as long as you feel you are only testing the waters and not actually swimming. You may take a plunge into the second strategy if you have a solid budget and have already tested waters for yourself. A detailed analysis of your business format, product portfolio, customer profiles, market demographics, customer preferences and your Social commerce budget will help portray a better picture of your future social strategy.

These are some thoughts that might help you as retailers, marketers, social media executives or as consultants to help align social media strategies of the future.

Posted by Sanjeev Kulkarni at 3:42 PM | Permalink | Comments (0) | TrackBacks (0)

There was a time when mainframes and AS400 machines used to run the world. I stand corrected - mainframes and AS400 machines still run most of the important business of the world. Coming from a mainframe background, that thought actually makes me feel proud. But again, all good things have to come to an end. The end may not be near, but it is not so far either. They have done their part in the grand scheme of things, but now it's time to lay down the sword and make way for newer, younger and better (at least some of you might be frowning by now) successors. In this discussion, I will try to limit my scope to mainframes so that I don't venture into unknown territory (read AS400).

Why are the mainframes so popular even after almost half a century since their introduction? Now that's a solid pedigree to try to emulate for all new comers. Reasons are many, but the most important in my opinion are their incredible computational capability with more than acceptable service levels, high levels of reliability, always-there-for-you type availability and security reminiscent of the Great Wall of China. It is not a surprise that the most important businesses in the world are still powered by these dinosaurs. And I do mean 'important' - banks, financial institutions, big retailers, health care and insurance companies.

Enough of eulogy. If Invariably Bulky Mainframes had any intent to monopolize and control the whole world, they should have made these machines PERFECT. Sadly, they are not. In the world of supply and demand, the prime factor which drives decisions is cost. The most important drawback of managing one's applications on a mainframe is its prohibitive cost. It does not matter whether you buy and keep one on your backyard garage or you host it in a secure and secret location. You have to pay your price to feed this monster. Let's say cost is not a concern for you. If you can bet millions on sports franchises, spending few of them on a computer system might not seem like a big deal. Most of the applications running on these mainframes are decades old and have gone under the knife of generations of programmers. Most of the people who have laid their hands on these machines have moved on - logically and/or physically. Proper skill sets are no longer available - well, how will they? The new generation of computer geeks likes the fancy stuff, not the 'green screens'.  Learning mainframe technologies is next to announcing yourself as a hippie. With no suitable talent available to look at these heavily customized legacy (this term might not be suitable here, since some of the Java applications would have become legacy by now) applications, how will these organizations maintain these systems 20 years down the line? So much for application maintainability, scalability and flexibility. It's time to act.

The first and most difficult step will be change management. People who have lived with the mainframe will swear by it and moving away from such an alliance will be difficult. However, in this era when couples married for decades divorce to find a better path, this change is not impossible. Most of this reluctance stems from a fear of the unknown. Our entire business logic is embedded in these 'little' frames. Will we have the same level of performance and availability in the new solution? How can we afford to have a disruption in our business if we undertake this massive migration? Once those concerns are demystified, the actual work can start.

For organizations wanting to move away from the mainframes, there are plenty of options. The three most common and popular options are briefly outlined below.

Package Implementation. Business transformation using an off-the-shelf ERP such as SAP or Oracle. Huge undertaking and usually a multi-year multi-million dollar engagement.

Re-engineering. New solution will be built from scratch, but by leveraging the existing business rules and logic as much as possible. May not be as costly as an ERP implementation program, but is comparable in terms of scale and risk.

Re-hosting. Lift and shift applications from mainframe to low cost platforms. Cheapest and easiest option for legacy modernization. Minimal risk and change management.

There is no magic formula to decide which option to choose. That depends on lot of factors, most of them specific to the organization in scope. But, that's the easy part. As I mentioned earlier, the toughest part is to take the first step - decide and get a consensus to move away from these antique gargantuan mammoths. If not, few years down the line, the so called dumb terminals will need to be renamed. Dumb will be those folks who will be sitting and staring (I mean literally) at those green characters on the screens without having the slightest clue on what to do. All the experts would be turning in their graves. How can they rest in peace?

Written by and submitted on behalf of Rajeev Mohankumar

Posted by Prasanna Ramaswamy at 4:54 AM | Permalink | Comments (0) | TrackBacks (0)

EAI (enterprise application integration) is an interesting leg in today's IT landscape. I remember the days when started my carrier 13 years back when we all wandered between mainframes, AS400, database and new age object oriented java. With the passage of time I focused my area to be more specialized as the demand of market was to identify from the lot.

Java specialization was becoming readily available as most of the application started becoming loosely coupled. With this said tier based application was the faces of IT in late 90's and start of 2000. With this distributed architecture EAI found its place. I decided to focus myself in EAI technology after putting my fingers in AS400, Java and database technology.

Since then I have been following EAI and its progression. EAI vendors have increased over the period and the stack based companies like SAP, IBM, and Oracle have come up with their own middleware. The top notch players were Tibco, BEA, Seebeyond, webMenthods, Vitria etc. Along with the same group IBM had is Websphere in the market. Enterprise offering company joined in the game late and most of them tried acquiring the independent vendors.

Middleware originally structured itself by hub and spoke or bus modal. With the new age offering SOA, shock wave transmitted within the EAI space.  The maturity of SOA was highly dependent on the EAI. The reason being was it actually in true sense de-coupled the application. It was already playing an orchestration role. The only thing needed was the face lift of middleware to SOA suite. It was not easy as said to change the face. It came with its own challenges.

Traditional EAI was even though decoupled the system but the internal offering was vendor dependent. Each vendor interpreted the transmission in its own ways. This led the dependency heavily on the tool. The challenges started visible when transformation business started within the organization. Industry started means of saving cost, improving efficiency and reducing redundancies by consolidating into ERP packaged implementation. During this this time the need of standardization was realized. Where ever the ERP packaged solution was implemented its native EAI came by with cost saving measure. The architecture community was put in spot once again to re-define the co-existence of dual middleware strategy. Lot of company decided to migrate to single EAI this became the revenue for the consulting companies. Even though the data transmission was standardize to an extent but the transformation, orchestration was native to the EAI vendor.

SOA guiding principle made an impact on the middleware strategy. The aspect of re-usability, standardization and discoverability was re-invented for middleware. There was a push within the community to standardize the transformation and orchestration code. Evolution of Standard Integrated Development Environment (IDE) came in place. Eclipse (IDE) for example widely accepted with major IT vendors. Most of the product vendors shipped their software with standard IDE environment with product specific wrappers. This internally became standardization of code.

The future of EAI is now redefined as SOA middleware. The development process is standardizing within the SOA Middleware. The output code (like BPEL) can be ported within any SOA Middleware. The discoverability, standardization and re-usability indeed changed the course of traditional middleware. The openness now largely welcomed by the architect group. Business is now getting more agreed upon technology changes.

Written by and submitted on behalf of Mukundan Iyengar

Posted by Prasanna Ramaswamy at 4:53 AM | Permalink | Comments (0) | TrackBacks (0)

The need of hour in Business modal is visibility and ability to react and adapt quickly. IT (Information Technology) being the backbone for any Business execution is in tremendous pressure to turn up tool which can be one pit stop for Business flow. The challenge the IT faces is the turnaround time and keeping cost low with minimal interruption to Business Process. The visibility of interaction is the key driver to success for Business execution.

IT department finds ways to integrate the system, orchestrate the business flow with keeping the rules for business separated from code. With the advent of Service Oriented Architecture (SOA), IT has more avenues for automations. With more company's moving towards business transformation middleware has come in best use than ever. On one hand Business has new technology like SAP, etc. with legacy still remaining on the other hand. Service offering has now become more value by wrapping up and exposing as enterprise service component. It is not a challenge anymore to integrate new technology used for Business Transformation like SAP and legacy system.

The new age middleware are now SOA based platform with integrated BPM that supports Application to Application, Business to Business, User intervention and Web Service scenario. It now fully supports Business process execution and monitoring. Since middleware is now being used as single point of entry for most data interchange it becomes easy choice of unified view enabler for the landscape.

Goal

The objective of the whitepaper is to take IT into next level where Business can run efficiently uninterruptedly and above all knowing what's coming ahead in its path which will help the Business prepare.

It is very important to provide a tool which monitors all the business transactions and flow and provide central monitoring features. Central Process monitoring (IT based Business Dashboard) with Process view and Business activity monitoring is the IT answers to Business.

Central Monitoring tool

The tool design is very important aspect and should be started from Business process requirements gathering stage. This will lead to Business work page of its processes. Upon identification of the processes modeling is an integral part to picture the upstream and downstream systems.

Taking this to the next step each application interacting mostly uses middleware for data exchange. This gives an opportunity to capture the status of each interaction. The BPM component in the middleware should be designed to replicate the Business process modal. The BPM at each step will be provided inputs from the Application component, middleware component and the legacy component as a web service module.

For any error situation notification is generated by each layer and sent to the BPM step which in turn determines the downstream impact for the process.  This quality turns the proactive monitoring ability for the tool.

The process view will also depict the work status of any business process. This is a true BPM capability. The next level of tool should be to proactively predict the behavior of pattern. This would be achieved by interacting with the Business intelligence system within the landscape. The Business Intelligence system holds the historic data. These historic data to be over lay with the current process flow and future coarse prediction becomes easily available. This will help the business to forecast. The pattern can be determined.

Summary

The point of view is to leverage the power of middleware outside just know myth "The black box". Take this to the new level of services and visibility to technology process is a key to success for any Business. Central monitoring should be able to provide all the capabilities for efficient issue handling, proactively reporting an issues and intelligently classify the priority and should be able to predict the pattern.

Written by and submitted on behalf of Mukundan Iyengar

Posted by Prasanna Ramaswamy at 4:52 AM | Permalink | Comments (0) | TrackBacks (0)