Guest post from Anuj Marfatia, Senior Market Manager, IBM Predictive Analytics Solutions
Not to frighten anyone, but there are only five weeks before the holidays. The pressure is on.
In the U.S., the holiday shopping chaos, advertisements, music and decorations now begins on Nov. 1, right after Halloween. I actually feel bad for Thanksgiving. Somehow the poor bird has lost its mojo, though I don’t have time to think about it.
With the holiday season in full swing and Black Friday looming, I’m already worried about missing out on this year’s most popular toys for my family.
Like everyone, I promise myself that I will shop earlier, but in the end, I am usually sifting through the shelves of Toys R Us or Target on Christmas Eve that are stocked with items that no one wants or are insanely overpriced.
So, I end up scrounging the floors, hoping that someone else had mistakenly dropped a toy that I could use. (How does it go? Someone’s garbage is another’s treasure?)
I have always been late to the popular Christmas toy party. Even as a child, I remember getting the Rubik’s cube not in the early 1980s when it was hot, but a mere 15 years later. I was determined not to be last when it made its comeback.
What always surprises me is that the popular items are usually talked about and expected to be popular a month or two before the holiday shopping season begins (I could bet today that the XBOX Kinect and My Pillow pets are going to be hot this year), and yet there is never any in stock – either on the shelf or online?
So what gives?
Aligning Marketing, Inventory and the Supply Chain
Assuming that the corporate strategy was not to provide fewer products, it has become apparent that organizations have a difficult time aligning inventory with demand – and the holiday season always puts a strain on operational processes.
Granted, it’s not an easy task for retailers to determine which product and how many of them need to be on which shelf of which retail location and then streamline the manufacturing and distribution processes to meet demand for that specific product.
Or is it?
Organizations traditionally have used the approach of viewing sales from previous months or years and extrapolating how many will be sold in the coming year. Then, manufacturing follows that schedule. At times, this process is more art than science.
And, these organizations aren’t receiving ample feedback from customers, nor are they listening to what their customers are discussing in the socialsphere. In addition, they don’t take into consideration:
· The complaints that recently came up on Facebook regarding a competitive product or an earlier version of its own product
· What to do if 10% of the warehouse team just quit?
· The operational processes affected knowing that raw material prices have increased by over 30% in just a few days
· How to account for decreased consumer income due to the economy?
The Gift that Keeps on Giving
Now, more than ever before, technology exists to analyze all the consumer and organizational data so decisions can be made in real-time to account for macro or micro changes.
Wouldn’t it be great to be able to predict price elasticity, how many products are needed to meet demand, where on the shelf it should go to maximize sales, and how much product can be manufactured with the raw materials and resources that are at hand?
Take, for example, a US-based consumer electronics retailer. The past few holiday seasons, some specific tablets were purchased almost immediately when placed on the shelf.
There was a lot of lag in the supply chain process and by the time additional products arrived to the store, the season was over, so they were leaving much money on the table and were overstocked during the New Year. In order to eliminate their excess stock, they were forced to provide additional discounts to try to open shelf space.
Last year, by deploying predictive analytics software they were able to better predict customer purchasing behavior and demand, and better anticipate failures in the manufacturing and supply chain processes to ensure that they had enough inventory during the holiday season.
Predictive analytics leverages all the consumer, distribution, inventory, and manufacturing data inside the organization, as well as all the social media conversations happening outside. It then runs that data through predictive models, so organizations have a probability or likelihood of what products need to be on the shelves (and always on the shelves) for the holiday shopping spree.
I’m not just being selfish when I say this, but, I know I can speak for many that if more organizations utilized predictive analytics to align supply and demand during the holiday season, there might actually be an XBOX Kinect under the tree this year.
Otherwise, it may be another year of extra Halloween candy stuffed in stockings. Sorry family!
For more information:
· Watch the Predictive Operational Analytics video
· Read the whitepaper on Predictive Operational Analytics
· Get insight into how an auto parts retailer used predictive analytics to align inventory and customer demand