Bottoms Up!
“We think in generalities, but we live in detail.” - Alfred North Whitehead (1861-1947)
It’s official.
The most overused phrase in the retail industry for 2008 is (drum roll please)... “customer centric”.
Like many of you, I also subscribe to and collect many industry journals, white papers and research reports. In the last 2-3 months alone, here are some of the titles that have made it into my email inbox:
The Customer-Centric Store
Customer Centric Retailing
Deeper Customer Insight
Customer-Centric Merchandising
The New Customer-Centric Supply Chain
The tone and focus of each is slightly different, but the underlying message is the same: High level segmentation and demographic analysis is not good enough anymore. Retailers must strive to be flexible enough to understand and respond to the needs of individual customers.
More and more, store layouts and assortments – even those of mass merchandisers - need to be at least partially customized to meet the unique demands of the communities they serve.
Unfortunately, these discussions do little to address the kind of supply chain needed to support such a strategy. Most large retail organizations continue to use a “top down” process for planning their supply chains – an approach that’s inherently flawed when it comes to trying to support a customer centric model.
In the survey titled The New Customer-Centric Supply Chain from Retail Systems Research, the responses tell us that retailers intuitively understand the “bits and pieces” required to have a customer centric supply chain:
When asked about some of the challenges they face in adapting their supply chains to be customer centric, the most popular responses are:
“The forecast never matches demand - leaving us to scramble in execution”“Customer service requirements demand ore precision from the supply chain for delivery quantities and time”
“Optimizing inventory across channels”
Even more promising are the responses when asked about the top opportunities for the supply chain to contribute to the company’s performance:
“Increase supply chain visibility”“The ability to re-optimize plans in real time based on what’s happening in execution”
“Increase our ability to recognize and respond to supply chain exceptions”
And specific to the question of what capabilities are needed to provide the necessary visibility to be customer centric, it’s becoming clear that retailers are really starting to “get it”. Here were some of the responses at or near the top of that list:
“A rolling forecast of demand”“Real-time inventory visibility in store”
“Promotion planning tied to supply forecast”
The real question now is: How will retailers tie all of this together? How quickly will they realize that they must abandon “top down” strategies in favour of a “bottom up” approach – starting with the act of a customer making a purchase at a store?
For me, the need for retailers to be more customer centric became clear many years ago – long before it became the “flavour of the month”.
In a simulation of the Flowcasting process, consumer demand for several different beer brands was modeled for a small convenience store chain with 10 stores in the greater Montreal area. When analyzing the history, we noticed that 9 of the 10 stores had a classic seasonal pattern for beer in Canada – higher sales in the summer months, lower sales in the fall and winter with a spike during the holidays.
The tenth store, however, had an inverted seasonal profile (higher sales during the fall and winter with lower sales in the summer). What could explain such a difference in the seasonal profile, given that this store was less than 30 miles from any other store in the study?
It turns out that this tenth store was located adjacent to a university campus. Far fewer students in the neighbourhood during the summer months means lower demand for beer in that store.
The same type of phenomenon happens regularly in the grocery business. Stores that are geographically very close can have vastly different demand patterns on certain items due to the ethnic makeup of the neighbourhoods they serve.
Looking at aggregate numbers would never allow us to capture these types of important demand influencers – they only apply at store level.
“Consumer segments” don’t buy “product categories” from “store clusters”... customers buy products from stores. To be effective at customer centric retailing, a top-down approach simply won’t do - we need to forecast and plan where it is most useful and required, not where it’s most accurate or convenient.
Bottoms up!