Using BI in Retail - A Strategic Insight
Business intelligence is all maintaining business performance and
gaining an edge over the competition. At a technical level, its
all about data.
Many a Monday morning is spent by store managers going over last
weeks sales data in an effort to determine if current promotions
and merchandising tactics are working as expected, and if stock
levels are at the right levels.
The stock to sales ratio of a key line on the report - one of several
key performance indicators that determine the effectiveness of prior
In fact, all data stems from processes designed to execute the
business strategy. These strategic systems support the translation
of strategic goals in to tactical actions.
CSFs and KPIs
Effective business intelligence aligns key measures that define
the effectiveness of both the strategies and the systems executing
them, to ensure that the business continues to perform in accordance
with its goals.
Determining'critical success factors' [CSFs] and their measures
[KPIs] are essential in monitoring any variation from the desired
More effective, is the relationship of one KPI to another. For
example, a critical success factor for a merchandising strategy
may be to improve gross margin return on investment (GMROI). To
achieve this, a decision may be made to increase gross margin whilst
reducing stock cover.
Typical Retail KPIs
Both the gross margin and stock cover are key performance indicators
or KPIs. A key performance indicator is a quantitative measure that
allows the monitoring and control of the CSFs. In this case, they
will be presented as gross margin % and forward weeks cover. The
target KPIs, therefore will be something like: Increase our gross
margin to 45% whilst reducing our stock cover to an average of 10
A KPI is always an answer to a strategic question, and is nearly
always numeric. This is essential to be able to measure it based
upon transactional data.
The KPI typically relates to multiple products, such that it can
be applied to a single product, a product category and over variable
dimensions such as time, region, store etc.
KPIS also have hierachial relationships, such that departmental
KPIs aggregate at store level, then regional level and finally corporate
They may also overlap with other KPI's. FOr instance, in an effort
to increase profit, multiple KPI targets may be set around CSFs
across multiple functions:
- Reduce store costs
- Reduce central staff costs
- Reduce stockholdings
- Increase margin
- Reduce the number of suppliers
- Reduce the quantity of SKUs.
Each KPI attached to these individual CSF's will link back to the
overall strategy and the degree of success will be measured by looking
at both the aggregate level, and directly at each relevant KPI.
The set of CSFs and their associated KPIs are set by executives
interpreting the business strategy and setting highly relevant goals.
A business intelligence systems must be sufficiently flexible
to react to changes imposed on the strategy by outside forces. Behind
this lie a number of complexities that must be considered.
Complexities of Retail BI
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More Detail on Retail BI Strategy, Program & Technology
Index | BI Strategy | Complexities
| Barriers | Retail
IT Systems | BI IT Optimisation
| BI Evolution | Integrated
Retail BI | Implementation
| Business Benefits | RMS