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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 strategic decisions.

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 outcome.

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 weeks.

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 level.

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.

Next: The Complexities of Retail BI

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