In retail, having the right amount of product at the right price, place and time always has been as much art as science. But when manufacturers and retailers share key inventory, operational and promotional information, they can take a more scientific approach, resulting in greater efficiencies, sales and profits for suppliers and retailers alike.
In a collaborative data program, a retailer provides a manufacturer with, at the very least, real-time, or close to real-time, information about sales velocity and volume of the manufacturer's SKUs at each of its stores.
"Traditionally our job was to get the product to the retailer's warehouse, and then our job was over," says Rick Sather, vice president of customer supply chain for Dallas-based Kimberly-Clark Corp. "Now our bandwidth focuses on our SKUs all the way to the shelf. In an ideal scenario we would like to get daily data by store, by item, of stock levels, forecasting and any store-related data they may have regarding customers."
By analyzing and tracking that information, the manufacturer can fine-tune the amount and type of product it delivers to its retailer clients. "In the past, I may have gotten the total number of product correct–say, 1,000 cases of Cheerios–but I may need them in New York but they're now in California," explains Hanna Hamburger, director of Miami-based The Hackett Group's Strategy & Operations practice. "This would lead to additional costs for the manufacturer, possible lost customers for the retailer and lost revenue on both sides."
With real-time or daily data flowing into its supply-chain systems, the manufacturer can respond to changes in demand almost immediately. "As part of our normal daily activity of monitoring at shelf level and looking at exceptions," Sather says, "we can see where demand has shifted and respond to the customer, then in our supply chain, see if we need to adjust."
Out-of-stocks cost grocery retailers an estimated 4 percent of sales per year, according to a 2008 study for the Grocery Manufacturers Association, the Food Marketing Institute and CIES the Food Business Forum. As a result, reducing out-of-stocks has obvious financial benefits. In fact, one of Purchase, N.Y.-based PepsiCo's data-sharing analytic solutions, ShelfGenius, sends out-of-stock alerts via email and hand-held technology.
"Access to multiple points of in-store and supply-chain data have allowed us to improve accuracy of deliveries, detect the root cause of out-of-stocks, replenish inventory more quickly and better forecast demand," says John Phillips, PepsiCo's senior vice president, customer supply chain and logistics.
What's more, reducing intracompany transfers of stock between distribution centers (getting those Cheerios from the California distribution center to the New York warehouse) will cut transportation costs, and having less surplus product taking up warehouse space increases retailers' operational efficiencies.
Likewise, it's obvious that by having accurate, timely knowledge of retailers' stock levels and needs, manufacturers can better control their transportation costs, production streams and inventory levels as well. "The CPGs can even make decisions as to whether they should open up an additional product line for a certain product," says Joy Peters, a principal with Chicago-based consultancy A. T. Kearney.
There are less obvious, but just as significant, benefits as well. Sather credits data collaboration and what Kimberly-Clark calls "shelf-back replenishment" with reducing the costs of "product transitions"–replacing a product with an updated version. "We're better able to plan when old product will run out and can plan the promotion of the new product better," he says.
Similarly, Phillips says that information sharing has led to more effective new product launches. With real-time performance data, manufacturers can immediately react to unexpected shopping patterns and gaps in distribution. They also can make sure new products are on shelves when they're supposed to be, Hamburger adds, so that they sync properly with the accompanying advertising and promotions.
Retailers also can gain sales by sharing customer point-of-sale data with CPGs, such as what items besides the manufacturers' products shoppers are purchasing. If manufacturers know what certain stores' most popular products are, they can suggest end-unit displays that feature complementary items to increase incremental sales. And when retailers provide manufacturers access to their promotional plans, they can partner on more targeted marketing efforts.
A Few Stumbling Blocks
Retailers that participate in Kimberly-Clark's shelf-back replenishment programs can see "millions of dollars" in incremental savings and sales, according to Sather. "Every time we've worked in this space, with every customer we've worked with, it's been a proven program," he says.
Why, then, don't more retailers and manufacturers collaborate in this way?
Not all retailers have the technological infrastructure required to share data in real-time. Retailers need to provide transaction-level, shelf-level, or SKU-level data quickly and seamlessly to their manufacturer partners, be it via automated feeds, vendor portals, file sharing or other systems. Participants in PepsiCo's SAGE–Sales and Growth Enablers–program, for instance, share point-of-sale transaction-log scan data with the manufacturer, which in turn provides insights to the retailers, via a dashboard, to help it improve store-level and category performance.
The retailer has to be capable of providing the data for this approach to work, and it needs to do so in a format manufacturers can easily incorporate into their own systems. That means, in addition to the technology, retailers might have to adjust their data formatting and taxonomy to correspond with those of the manufacturer. "If I'm trying to integrate information from different sources," Hamburger says, "I need to have commonalities so that I can tie it all together."
For the manufacturers, acquiring the data is only the beginning. "The important thing is being able to have the technology to work through all the data so that it spits out the results, and then having the people to conduct the analysis," Hamburger says. "You need automation to help you get through the data so that you're focusing on analysis and actions rather than trying to cut through the data on your own."
Beyond the potential investment in technology, manufacturers may have to increase headcount as well. Kimberly-Clark, for instance, has somewhere between 10 and 20 employees dedicated exclusively to its data-sharing program, with analysts assigned to dedicated accounts, sometimes working on-site with their retail customers. "We're not looking to command a huge amount of their time," Sather notes. "We may have a weekly cadence where we connect."
Kimberly-Clark began ramping up its program two to three years ago. As more retailers come on board, it will need to hire more analysts and other specialists. For that reason, it is currently targeting only its largest customers for participation in its program.
While insufficient technology or infrastructure can be obstacles, a lack of trust between retailer and manufacturer also can prevent successful collaboration. In fact, Peters says, trust is "the primary element inhibiting the [desired] level of transparency."
In a traditional retailer-manufacturer relationship, "each company's goal is to try to maximize its own profits," he says. The retailer may wonder if he's getting the best possible deal, and the supplier may wonder if the retailer is giving away its potential sales to another supplier. When it comes to sharing data, a retailer may hesitate to, for example, share its promotional plan with a manufacturer for fear that, once the supplier sees which days the retailer is not promoting its products, it will strike a deal to have the retailer's competitor promote it during those days.
But the intimidating wealth of data might be a more formidable stumbling block than trust issues, which often can be smoothed over with nondisclosure agreements, Hamburger says. The sheer volume of available data can make it difficult for manufacturer and retailer to agree on the problems they want to solve, the goals they want to achieve and the metrics they'll use to measure progress.
Just as too many product options can overwhelm shoppers, too many options regarding which data to collect, analyze and act upon can do the same to retailers. It's the "ooh, oh syndrome: Ooh, there's all this new data. Oh, it's too overwhelming," Hamburger says.
That's why so far, data-sharing efforts are focusing on common goals both parties can agree to: "Better retail in-stock, better promotion execution and lower inventory," Sather says, "It's such a win-win."
Freelance editor and writer Sherry Chiger was editorial director of Multichannel Merchant magazine in the U.S. and Catalogue e-business magazine in the U.K. As editor at large for Penton Media, she produced the weekly Email Essentials newsletter and contributed to Chief Marketer magazine. Her first novel, Beyond Billicombe, was published in September.