Author: Ryan Kinzy

Lead Time Calculation is Hard

What’s in a delivery date? Turns out a lot in today’s complex supply chains making lead time calculation very difficult!  As discussed in our previous blog article Intersection of Price Product and Availability, customers want to know what product they’re getting, how much it costs, and when they can get it.  Each of these questions are answered in increasingly complex ways as manufacturers, distributors, and retailers optimize their operations, supply chains, and diversify their customer touchpoints.

Specifically here, we’ll touch on delivery date or lead time calculation and available-to-promise (ATP).  Delivery date comes into play before the order has been promised when a customer is trying to finalize an order.  As supply chains optimize, there aren’t as many finished goods in the system so determining delivery dates is more complex than simply checking inventory.  Also, in times of limited supply, goods may be tied up with contractual obligations on service levels and allocations.  Throw in build to order or mix options, and the myriad of permutations is even harder to predict.  Finally, there are transportation issues that could delay or complicate the answer. 

When we previously did this for a computer manufacturer, the permutations were so complex, we simply took a statistical average for lead time and used that, then when they couldn’t deliver on time, they’d notify the customer and take the customer satisfaction hit or make them happy by delivering early.  But when you’re a manufacturer selling to assemblers or selling through eTailers like Amazon or Ebay, they take delivery dates more seriously and if you miss your date there could be severe consequences.

Accurate Delivery Dates

So how do you limit your inventory exposure and also get an accurate delivery date back to customers?  Here are some of the ways we approach it:

• Standard Lead Time – As mentioned above, a standard lead time is the easiest to simply put on a product.  This is not always the most accurate or desirable method because it means you may have to keep more inventory than needed to maintain service levels.  In this case, we typically estimate the lead time by looking at past deliveries and then tweak that on products that are quicker to deliver or take longer using rules.
• Available to Promise – Available to promise is a complex mix that combines current orders with delivery dates, service levels, on hand inventory, and future deliveries.  Taking all these factors into consideration is difficult when you have a complex supply chain.  There are a couple products we use including BlueYonder’s Order Promiser and SAP IBP (formerly APO) that can accurately model all these moving parts and provide a good date.  With these systems, you also have the ability to move orders or delay them given service levels or a customer’s willingness to wait.
• Allocated Available to Promise – Building on ATP, in industries like semiconductor, there are also allocations to consider and limited supply.  These commitments complicate the delivery date answer because you may have firm orders further out that you’ve reserved inventory for, but need to satisfy an order now.  The AATP engines can see that you have replenishment orders pending and allow you to consume current inventory expecting that you will be able to satisfy the future orders with new inventory.
• Build to Order – Build to order needs a special mention because it complicates the process even more.  With build to order or configure to order we typically model the most constrained parts and don’t worry about the other parts that have more availability.  We have used the standard lead time method on the constrained parts in the past, such as processors for computer manufacturers, but have also used an ATP engine with the constrained parts.  Both methods work and it depends on the situation as to what we would recommend.

Customer Service and Lead Time

In all cases, customers and customer service people need the ability to query the ATP engine for availability or delivery dates when either taking orders, changing orders, or checking order status.  Customer service people also need the ability to make decisions like shifting availability when possible or pushing orders out when a customer allows it.  In large enterprises, these decisions must also happen in real time so that customers can make their own decisions.  As supply chains get more efficient and customers get more demanding, order promising quickly outgrows a customer service reps ability to simply check inventory and these ATP engines can fill that need.

What Next?

If calculating lead time and delivery dates is a problem for you, we can help. Whether you are using SAP, Oracle, some other ERP, or planning tool, we can extract the data and model your supply chain. For more information or to discuss how we can help, please schedule a call!

The goal of demand forecasting is typically to get a more accurate forecast and drive down inventory cost. A better forecast will lower costs for retailers by controlling inventory levels, lend insights to space planning, help back room inventory space, lower carrying costs, and limit excess inventory. When working with retailers, these are some of the areas we focus on.

Inventory Levels. A better forecast helps control inventory levels at stores as well as DCs and reduces the cost of carrying aged inventory, meaning less inventory dollars are aged out and can reduce shrink.

Space Planning. Forecasting allows for better space planning in stores with more accurate forecasts. For example, knowing that an item that sells 20 annually at any given location may not require 10 facings at every store, whereas a more popular item from a forecast perspective, may benefit from having more facings.

Storage. A better forecast aids in overstock/understock issues and saves “back room” inventory space due to just in time (JIT) replenishment. For example, as the old stock is about to run out, the new stock is being brought in and displayed resulting in less customer disappointment when items are out of stock.

Carrying Costs. Accurate forecasts allow for better allocation of purchasing dollars. For example, if an item is forecasting 1000 sales annually but is budgeted for 3000 items, the extra budget can be freed to put towards other items that may need more support.

Optimized Inventory. In retail, it is key to have the right amount of the right product at the right place at the right time which allows for money to be more intelligently spent on tactical decisions rather than excess inventory. A better forecast also allows for seasonality to be intelligently accounted for and included in the demand/inventory planning process.

These are a few of the areas we focus on when determining how a better forecast can benefit a retailer. Each area has a significant impact on cost. When we do a benefit analysis, we ask what the current forecast accuracy is and then calculate what impact a 3% or better improvement would mean across different categories. As more and better tools become available with machine learning, achieving a 3% improvement becomes much more feasible. We would be happy to do a high level assessment to help you justify a project.

In my other posts, I’ve talked about how to get a large number of products to the web and the difficulties with that.  Reaching the customer is the ultimate goal, not getting better product data to the web.  The customer’s perspective is often forgotten in messaging and marketing literature has a tone of “Look at me!” rather than “How can we help you.”  One technique I used in product management was to create a fictional character and write the user interface scenarios from that character’s perspective.

The same technique can be used from a marketing perspective to keep the site grounded if you remember to mirror your eCommerce site to the natural buying process for a customer.  They start by learning about your products, progress to shopping, then buying, waiting for delivery, and using the product. Of course this is a general approach, but it can be adapted to other areas of focus.   Taking this further, your eCommerce site’s job is to map to that process so that when a customer:

• Is exploring, you are pervasive
• Is shopping, you are selling to them
• Is buying, you make it easy to order
• Is waiting, you are getting the product to them fast

Taking the first bullet point, when the customer wants to learn they are trying to figure out the best product for their needs.  So, they ask questions like what are the products that might work for me?  Do I trust this company? Do my friends have recommendations?  They may touch your site at this point or more likely will be browsing the internet for information.

• Social media footprint: More and more, customers are reaching out to their trusted network first when starting the buying process.  For example, when you need a home service, the first place many people search are Yelp reviews or a Facebook network.  Next, they’ll pose a question to their Facebook page for recommendations.  For products, customers may turn to unbiased reviews or other sources.  Your job is to at least be in the conversation at this point.  A full breakdown of social media campaigns is beyond the scope of this short article – but the one nugget of advice here is to “be real”.  Customers don’t want to be sold to at this stage.  They want real information not marketing fluff, so if you get in the conversation don’t oversell.
• SEO:  Customers are going to use the search engines in tandem with asking their social media options.  Your product info should be prominently displayed when customers are researching your products.  Again, search engine optimization is beyond the scope of eComm, but it is one of the funnels that will drive customers to your site.  And when the search engines crawl your site you need to make sure that all your pages are indexed properly and the right keywords are identified in the meta data.  Bad data or bad links will compromise your search results.
• Affiliate sites:  When searching for your product or similar products, affiliate sites are bound to turn up.  They understand SEO much better than you will because their survival depends on it.  It’s a love/hate relationship with affiliates.  They will expose your pricing mistakes and over-publicize your secret deals, but you can’t ignore them.  You need to embrace them and provide information to them for the product exposure.
• eTailers:  Another route to product exposure is through eTailers.  Unlike affiliates, these sites will sell your product instead of routing them to your site.  They are your coop-itition since you get paid for the sale, but give up more margin.  These sites will pop up right along your site in search results, so make sure you have the right product information and correct pricing sent to these partners.

Once they narrow their options down to a handful of products and they find your site, they’re going to ask questions like what is the best product for my needs?  What are the features of the different products?  What is the best value?  And is it available?  You’re job is to answer these questions efficiently and effectively to sell to a customer who is shopping . . .

• Customized shopping experience:  Target different audiences by giving them their own store whether it is a personalized corporate site, a store for affinity relationships, or a public site.  Each store can share products or have their own special products that aren’t available to the public.  For those customers that span the globe, you can create individual stores for each country and share products or restrict options to the local parts.
• International catalog:  Keep all the product information that you need to educate your customer such as product characteristics, multiple units, technical specifications, and other details in any language.  You can keep all international products in a single catalog and automatically filter products by their location, so for example customers don’t buy a German keyboard in the US.
• Industrial strength configurator:  When your products are more complicated, allow the customer to select between compatible options to see what they cost and when they can get it.  Our configurator solves some of the world’s hardest configuration problems such as telecom equipment, but can easily deal with less complicated products, too.
• Integrated content:  We are an eCommerce tool and realize there more effective ways to handle product literature content.  For that reason, we integrate to external tools such as Adobe that deliver educational content to the sites.
• Faceted browse:  We make it easier for customers to find your products using faceted browse.  The technique lets customers hone in on products by selecting characteristics that are important to them, then refining the products that match.
• Standard configurations:  If a dealer or customer has standard configurations they want to buy on their site, you can incorporate them in their catalog allowing them to use that configuration as a starting point.  Then, individuals can customize it according to their needs.  You can restrict options that are typically available on all models so they won’t be shown on standard configuration.  For example, if a customer has a standard computer they buy in their personal storefront they could use this feature to prevent Microsoft products from displaying because they have an alternative route to purchase the software.
• Merchandise and campaign:  With campaigns you can dedicate landing pages to introduce specials.  Or, use eCoupons to target groups of people for special discounts driving them to the site.  Then, you can suggest additional products or promotions the customer might be interested in or bundle promotional products together at a better price.
• Customized pricing and contracts:  Pricing is one of our specialties.  Our sophisticated pricing solution handles the most complex sales channels such as when there are direct sales with retail promotions, contract prices to large customers, mid-market tiers, and third party fulfillment pricing.  It is all handled elegantly in the same tool world-wide.
• Shopping cart:  In self-service shopping, the customer can load their own shopping cart seeing their savings from different promotions and specials.

When a customer has decided what to buy, you need to make it as quick and painless to make the purchase.  Rather than questions at this point, the customer just wants to get the purchase done and the more time it takes the greater the chance they’ll abandon the purchase.  So, once a customer is ready to buy, make it easy for them . . .

• Social sign in: How many IDs do you have to remember?  You probably use the same ID from site to site and sometimes you have to vary your password depending on the security requirements of the new site.  Make it easy for customers to log in.  Social sign in is one of the easiest ways to do that.
• Quote:  For businesses, a customer can store their products in a quote, then route them to an approver for final purchase.
• Checkout:  When they’re ready to buy, they want to buy with local purchasing options.  Often in the US, we assume customers want to buy with Visa, Mastercard, AMEX, or paypal, but across the globe there are different credit card options like JCB in Japan and Boletto in Brazil that allows customers to pay over time.  If you are supporting global customers, you must be able to support the most common payment options they have.
• Third Party Checkout:  Another option is third party checkout like Amazon, Paypal, or Apple.  This reduces the friction for checkout on less frequented sites allowing the customer to utilize an existing payment process instead of re-entering their data.
• Merchandise:  While in the shopping cart, cross sell items the customer might want to buy or have inadvertently forgotten.  One customer we work with implemented this feature and saw sales of a printer increase 100%.

Once they have bought your product, you must service a customer who is waiting.  At this point, the customer really just wants to know when the product will arrive.

• Order Status:  When the customer is waiting, they can log in, find their order to see status and tracking numbers if it has been shipped.
• Automatic e-mail notification:  When the status of the order changes such as when it is shipped, customers will get an automatic notification letting them know their order has shipped.
• Order history:  If the customer wants to view their order history for an individual or business, they can search by date to see each order and in the case of a business each site and user where the purchase was made.

These points may seem obvious to those of us who are immersed in the process, but for others who are only cursorily involved it helps to list out the points so that you can have an educated conversation with your eCommerce team.  DoubleBlaze is well versed in all the processes and for a case study on how we approached this for Lenovo’s worldwide site servicing thousands of sessions daily you can read it here.

When a customer has decided what to buy, you need to make it as quick and painless as possible to make the purchase.  A 50% to 75% abandonment rate is not uncommon in the shopping cart.  Baymard Institute has aggregated a number of statistics here which shows various rates from a number of different collectors.  Checkout abandonment is not as high as shopping cart, but it is still real.  Some customers are simply window shopping or want to check shipping rates, but others start to have second thoughts once they get into the checkout process.  To overcome any obstacles, this process needs to be quick and efficient.

The steps might be arranged in a different order, but the customer has to complete this information:

1. Registered user or guest?
2. Enter billing and shipping address
3. Enter payment info
4. Summary page

When customers get to checkout, they have made their decision and just want to get the purchase done.  The more time it takes to complete the greater the chance they’ll abandon the purchase.  That doesn’t mean you can’t upsell, you just have to make it easy.  Amazon’s one-click purchasing is the best example of the most unobtrusive checkout possible which bypasses the first three steps and simply displays the purchase summary.  They have stored the customer ID, billing, shipping, and payment information and the customer acknowledges they want to make the purchase.

Unless your Amazon, though, most product companies won’t have enough customer data to streamline the process, but you can still make your checkout simple.

Guest checkout or sign in

You want your users to register so you can do follow up marketing but customers don’t want to register because they don’t want to get irrelevant information.  So you need to make it enticing and easy to register.  You have a few options for this.  Social sign in is the easiest.  Next, they could do a guest checkout or if they expect to make repeat purchases, they’ll register.

• Guest checkout: They can do a guest checkout, but you should really try to capture their information so you can provide a more personal experience the next time they log in as well as make it easier for customer service and support.  Also, if they do a guest checkout, they’ll need to enter their billing and shipping info.
• Social sign in: How many IDs do you have to remember? You probably use the same ID from site to site and sometimes you have to vary your password depending on the security requirements of the new site.  Make it easy for customers to log in.  Social sign in is one of the simplest ways to do that.  On the back end, you would still capture a shadow user ID in association with the user’s social ID to enable you to store additional info like addresses and preferences but this is hidden from the user and all they have to remember is their Facebook, Google, or LinkedIn ID.
• Custom user id management: The third option is custom user id management. Here you have to store the customers ID and password.  There are different security protocols for passwords and many require a capitol letter, numeral, and symbol but not all.  The tradeoff is that the more rules you require the more likely it is that it won’t match their existing passwords and they’ll forget it.  That drives up customer service issues because customers will call sales support even when they can reset their password automatically.  When you go down this path you’ll need login screens, reset/forgot password, forgot ID, and the data store for user name and encrypted password.  You can make it simpler by using an SSO (single sign on) solution that takes the hassle out of id management, but that is for another discussion.

Regardless of how you do it, customer information will hang off the customer if you can get them to sign in.  If not, the billing and shipping info will sit on the transaction.

Billing and shipping info

Typically in checkout, the next step is shipping and billing.  If the customer logged in, you can automatically populate the billing and shipping info with their customer profile information.  This step may look straightforward to the user, but on the back end it is very heavy.  Once you have the customer’s address then you can check the validity of their address, calculate shipping rate, tax, recycling fee if applicable, or check the denied party list if applicable.  These are all callouts to services that take time which could cause the customer to get impatient while they wait.

• Verifying address: To process credit cards and calculate shipping charges you need a valid address.  There are services that do this through a remote API where you can send the address and get a list of matching valid addresses back.  The customer then selects the correct one and continues.
• Display shipping rate: Once you have a valid address, you can send it to a shipper to calculate the cost.  Depending on the products and location you may offer just standard shipping or expedited at an additional cost.  The weight of the products could also affect the amount so they must be sent in the request as well.
• Calculate tax: Taxes are complicated in the US.  Brazil is complicated, too.  Other parts of the world are easier with straight percentages for Goods and Service Taxes, but you must provide a tax calculation which is another service that is called.
• Non-taxable entity: In some cases, you need to allow customers to opt out of taxes because they are a non-taxable entity.  This isn’t common, but you need a way of validating the request is legitimate.
• Recycling fees: For some products, recycling fees must be collected.  Once the customer enters their address info, you will know if they reside in California or other locations that require recycling fees.
• Denied party list: Again, this is another service for sensitive equipment.  You will need to send the customer name and address out to the service that will allow or deny the purchase from continuing.  If it is denied, then the order would be routed to sales support before processing.

For business customers, you may need to add a layer of complexity to the billing and shipping addresses.  In many cases, businesses will only allow specific addresses to be shipped to and you must provide a dropdown of their locations that the purchaser can select from.  Or in other cases, the business may allow a deviation from the addresses where the customer can freely enter an address.  Regardless, serving business customers can complicate the process some.

As you can see, the customer billing and shipping might appear simple to the customer, but all the back end services complicate this step and could cause a delay.  There are techniques you can employ to minimize this delay such as submitting the requests as soon as you get the address information, but you really are at the mercy of how quickly the services can respond.

Enter payment info

Payment info is the next step.  Sequentially, payment processing is dependent on the billing address so you need to enter it prior to selecting a payment method.  Here the checks are more obvious and in the interface you can alert the customer when there might be a delay such as when you process the credit card information.

There are services to assist in credit card processing, but unfortunately when you offer international sales, you might need to employ the use of multiple services for the local flavors of payment methods.  Often in the US, we assume customers want to buy with Visa, Mastercard, AMEX, or paypal, but across the globe there are different credit card options like JCB in Japan and Boletto in Brazil that allows customers to pay over time.  If you are supporting global customers, you must be able to support the most common payment options they have.  Some flavors include credit cards, purchase order, Boletto, Cheque, PayPal, bank draft, and consumer financing.

It’s also possible to bypass all the steps above by routing to either Amazon or PayPal checkout.  This simplifies the checkout process because the customer logs into the respective service and then can take advantage of any stored information they may have with the service.

Thank You Page

The thank you page is a simple summary of what was purchased and where it is being shipped to.  It also gives you an opportunity to register the user one more time.  You already have the customer’s email and address information and can capture that in association with a new user by allowing them to enter a password.

The explanation above describes the components of checkout at a high level.  Most eCommerce systems will have support for a lot of the functionality.  However, when you delve deeper into business customer needs and international payment options you may have to integrate multiple services as no service provides coverage of all international requirements.  In a future blog post, I will discuss these complexities and different marketing options you can employ in the process.

A warehouse is a vital part of every supply chain.  From retailers to grocers and distributors to manufacturers, the warehouse makes the supply chain work.  At its core, the warehouse is a central location where goods are bought, stored, and distributed for additional processing.  Making the warehouse as efficient as possible drives down cost, order delays, and errors which is critical in today’s competitive environment.

Small or large warehouse operations can require inspection, procurement, acceptance, put-away to picking, packing, order assembly and shipping.  The Warehouse Management System (WMS) directs every step in the process and captures accurate records of where the inventory is and where it is going.

As companies adapt to changing consumer purchasing patterns, the WMS has to keep up.  Whether you are handling individual orders from eCommerce or bulk orders from retailers, the WMS needs to perform operations efficiently and be adaptable to new technologies.

In our experience, the WMS must have:

• Seamless integration to ERP
• Real-time inbound and outbound processing
• Unified yard management
• Intelligent inventory management
• Resource orchestration
• Intuitive and configurable user experience

There are many different WMS solutions on the market of which for the most basic functionality, they all check the box.  Differences are more pronounced as the complexity of the facility increases with the more advanced systems incorporating more automation, usability, and are beginning to use machine learning to help make processes more efficient.

DoubleBlaze can help you whether you are implementing a new WMS, managing go lives, need changes to your existing systems, or migrating to cloud.

Grocery pricing can get complicated quickly. With a lot of products, tough competition, and fickle consumers, pricing is one of the most important levers a merchandiser can pull to increase margin and drive revenue.  But, you already know that.  How specifically can you improve pricing?

When we analyze pricing we first try to understand the process.  For instance:

• Are there competing prices and how conflicts are resolved?
• Do multiple systems own pricing?  One system for day to day pricing, a different one for promos, and a third for overrides at the store?
• How are competitive prices analyzed and responded to?
• What is the promo process?

Once we understand the landscape, we tackle the problem spots.  Below are some common issues we find and how we address them.

Too Many Owners of Prices

In grocery, many retailers have organically built systems that handle pricing.  In some cases, there might be one platform for permanent prices and a second for promotions.  Then, day to day pricing analysis might be done on spreadsheets and a custom built system moves those prices to stores.  Another process could be in place for manager’s specials at the store level.  All these different sources of prices make it hard for merchants and category managers to get a holistic view of prices which can lead to profit leaks and lower margin.  We address this by consolidating the different systems into a single one that simplifies the process. 

Resolving Competing Prices

A second area where we see profit leaks is in competing prices. What is a competing price?  A lot of pricing is often done in silos which results in multiple valid prices for an item at the same time. For example, in one grocery store we had the following competing prices:

1. Regular Retail
2. Weekly Special
3. Hard Limit Discount
4. Store Manager Special
5. Clearance

A winning price had to be selected for the item and store combinations.  When there are multiple systems that can set prices, the correct price doesn’t always win which can lead to confusion with customers and store associates.  We solved this problem by putting in a rules based pricing system that resolves conflicts. In some cases the hierarchy of price rules wins and in others the best price wins. 

Publishing Prices

Once the prices are set, how do they get to downstream systems?  Prices must get to point of sale systems, eCommerce, tagging systems, printers, store operations, and other users of prices.  Sometimes millions of prices need to be published in a short time.  Many grocers struggle with the volume of prices that need to go downstream and there are delays in getting prices out.  If an incorrect price or price change needs to be sent intraday, it can take hours.  We solve this by using a system that is optimized for making millions of calculations per hour and can operate in parallel to generate prices quickly.  Also, in some cases, we have put systems in place that allow stores to make real time calls to a central pricing service which greatly improves efficiency. We have also implemented a hybrid approach where eCommerce calls real time and stores get prices through a batch process.

Manager’s Special

Store managers have to adjust some prices on a daily basis.  Fresh produce is a prime example of where they might elect to discount when produce is about to expire or doesn’t look fresh.  Also, store managers might find out about a competitor’s promotion that the central pricing team is unaware of which could prompt a discount match.  Whatever the reason, store managers need to be able to discount at their discretion.  When allowing for these updates, the central system needs to be aware of the discount and then propagate the new price down to the stores.  We have solved this by putting in a central system which allows the store manager to enter the new price, reason for the change, capture the competitive price if available, and go through an approval process with the central pricing managers.  The price is then immediately visible in the store systems once approved.

Pricing Against Competition

Understanding competitor’s prices is paramount to doing analysis and setting the correct price.  Without accurate competitor prices, you are flying blind.  Second to that is what your competitive strategy is.  What is your process for gathering competitive data and who are your main competitors in a market?  Are you always trying to beat your competitor’s price on a certain category?  Are you trying to stay slightly above a competitor?  We help grocers answer these questions and put in a process for analysing competitive prices, setting rules for pricing against competitors, and review the sales performance after the prices are in place.

Promo Management and Optimization

What is your promotion process?  Are there cross organizational teams that execute promotions?  How do you coordinate dependent activities such as printing, advertising, tagging, and outbound campaigns along with pricing?  How do you analyze the promotional lift and coordinate with your supply chain?  Do you have trade funds that can offset marketing costs and how do you account for that when you’re analyzing your promotion?  Many companies address these questions with spreadsheets and emails which limits the effectiveness of the campaign.  We help grocers fix these processes and give them the tools they need to optimize their prices leading to much more effective campaigns.

Clearance Pricing Optimization

Do you have expiring items, limited inventory or end of season items?  What is your process for clearance pricing?  Are you following a prescribed discount schedule or optimizing price based on local inventory and sell through?  Better clearance pricing can improve profit up to 10% on these items.  In many cases, grocers will follow a prescribed discount schedule which leaves money on the table.  We help grocers by putting in a system that analyzes local conditions and optimizes the price for that store or zone.

These are just some of the tools and techniques we use to help grocers price better.  Every company is different and may have solved some, but not all of these processes.  When working with customers we tailor a plan to address the most pressing or profitable need first in short business releases.  This delivers business results quickly which we then follow on to address the remaining problem spots.  Contact us if you would like us to perform a free analysis to determine where your opportunities are.

If you would like more information on our approach, take a look at our in-depth pricing discussion here and here are some of the vendors we have used for pricing tools – BlueYonder and Rubikloud.

We strive to help customers achieve pricing excellence and in turn make more profit through better pricing.  Here, we explain the different parts of the process with respect to retailers through a series of info-graphics.

Journey to Pricing Excellence is where the journey starts.  How do you get from where you are now to achieving a culture of pricing excellence?  In this document we explain at a high level how we guide you along that path.

Next, what are the specific questions that better pricing can help you answer and how does that affect your business?  We align this to our pricing excellence path starting with the question a strong pricing execution foundation can solve.

• What if 1% of your prices were wrong?  This collateral describes the problems associated with pricing errors and the process we go through to understand the impact of pricing errors.

Next, we look at the different pricing activities merchandisers and marketers manage during a product life cycle.  First, a product is introduced with a price, next the price is managed day to day, promotions are used to elevate awareness of the products, and finally at the end of life a clearance price is used to sell through inventory.

• Could the right price increase your revenue 3%?  This info-graphic explores how better day to day pricing can lead to improved revenue.
• How do you improve the odds for a successful promo?  The next in the series describes how better promotion management can increase your margin 5% to 20%.
• Can selective clearance pricing improve margins 10%?  The final chapter in the series focuses on markdown or clearance pricing where you have finite inventory and want to maximize your goals when selling through.

These documents scratch the surface on how better pricing can help your business.  We discuss many of these topics in more detail and how to implement pricing projects in our blog.  Visit it here and share your thoughts.

Structurally, a pricing project isn’t much different than many enterprise software projects. Planning is the key to success.  The first step is to work with the client team to develop an implementation strategy that works for all parties. The plan would have a firm scope for the first phase and potential scope for subsequent phases.  This allows you to be agile as new information and situations come to light.

An implementation strategy will help guide the project and should address the following:

• Document the expected drivers of benefit and the changes that enable and sustain those benefits
• Define the business functions each application will cover during each phase
• Define the data flows and integration methods between the applications for each phase
• Assess the risks and plan mitigations to keep the project on track

In addition, implementation success factors should be discussed.  Some of the factors that might be included are:

• Involve key business users throughout the project. Users aid in defining requirements, setting scope, reviewing prototypes, performing acceptance testing, training other team members.
• Keep implementation phases small. Phases should focus on a “minimally viable product” approach to manage risk and maximize the opportunity to learn and adjust as you go.
• Maintain a consistent team from start to finish. This allows you to maintain institutional knowledge, minimize handoffs, more effectively support live issues and modify earlier work when needed.

Next, what are the pricing pain points you are trying to fix?  When we identify the pain points, we will also estimate the financial benefit or productivity gain expected from addressing the issue.  If you went through the process of identifying your pricing errors and analyzed the causes, you will have a good idea of what your pain points are.  Here are some typical pricing pain points that we have seen in implementations:

• Prices aren’t making it to stores quickly and reliably
• Customers are demanding instant access to their loyalty points and stored coupons
• Network connections are unreliable to the stores and often go down
• There are potential price conflicts or margin leaks between price changes, promotions, markdowns, and coupons
• Prices are managed in complex spreadsheets and there is an associated risk of making pricing errors often with the processes
• The need to keep prices and promotions across channels aligned

These are some example of pain points that might exist in an organization.  As mentioned, this list can be distilled from the analysis exercise of determining where your pricing errors are coming from.  The list might also contain tangential pain points that aren’t directly causing pricing errors, but do cause frustration with the team that manages prices.

Rather than a big bang approach we subscribe to many different business releases that focus on key functionality.  But where do you start?  For our projects, we initially use a broad brush to identify how complex the different features are and balance that against the pain points.  A business release would have well defined benefits that are attributed to specific feature requests.  There are typically many different business areas you could start with for example a specific set of features, brand, geography, set of stores, or channel.  We typically look at the following criteria in deciding where to start:

• Start with a quick win. Often one of the best places to start is something that would address one or more key pain points and keep the timeline short.  If you sized the complexity of the features and cataloged the pain points, you should be able to gauge what would be a quick win.
• Understand the quality of the current data sources. Poor data quality is an issue with most projects and can bog down any timeline.  A quick assessment of where and how to get the data, what kind of holes exist, and what kind of transformation should feed into your assessment of complexity.
• Supportive business group. Another factor is what business groups are supportive of change and have the bandwidth to help drive the early implementations.  If key personnel aren’t available such as business owners, users, or IT staff then your timeline could be in jeopardy.
• Participation. Determine what level of participation the business can provide during the project.
• Competing projects. Determine if there are other active projects that would impact the same resources or systems.
• Other priorities. Are there any business priorities that would need to take into account?  In retail, we often deal with back to school or black Friday and have to plan around those events to ensure we aren’t impacting those critical times.

All of these factors should be taken into consideration when determining where to start.  Once you nail down the initial business release, you can plan it in detail to determine the expected timeline and cost.  At the same time, you should identify the future business releases you expect to follow.  You don’t have to plan the future releases in depth but should have a rough idea of complexity and cost which will drive your overall resource allocation and budget.

If you’ve done your homework and are confident you have a pricing opportunity, it’s time to start thinking about a project.  Depending on what you’re doing, the project could be extensive or it could be a quick hit.  We’ll cover scoping the project in the next articles, but first some things to avoid.  Pricing projects, like any enterprise project, are subject to similar pitfalls that can be avoided or mitigated to ensure a successful project.  In our experience, here are some of them:

• No executive sponsorship. Pricing projects are resource intensive and touch a lot of parts in an organization.  Without executive sponsorship, these projects rarely have a chance.  Clear leadership helps align key resources that need to contribute on the project and ensures you have their attention.
• Competing priorities. In one company, the leadership had made a decision to go with one software solution but the project team didn’t support the decision.  The project team worked with the product and halfheartedly attempted to get it working but ultimately opted to abandon the solution for their preference of a custom-built solution in contrast to the leadership’s direction.
• Too many cooks in the kitchen. Without executive sponsorship and a clear direction, different factions in the organization align towards competing objectives.  Then, they’re compelled to ‘right the ship’ in accordance to their own objectives.
• Underestimating the scope. In another case, the level of effort for a pricing project was way under estimated because the scope had not been defined.  The inexperienced leadership made knee jerk decisions on timelines in contrast to the advice of the more experienced team members.  Pricing projects need well defined requirements and typically require a lot of integration which takes time.
• Data availability. Pricing projects require data.  Ultimately a pricing solution is a calculator – it brings data in, calculates and computes, then sends data downstream.  If you’re not prepared to get the data out of your systems, don’t start the pricing project.  As part of a readiness exercise, you might want to consider a master data management project or something similar to ensure data is available.
• Limited business experience from implementers or no technical expertise in business owners. Someone on the team needs to bridge the gap between the business side and technical side.  These are two different languages and unless someone translates, you won’t end up with what you want.  There are often tradeoffs in implementations and if the technical folks don’t understand the business benefits or the business folks don’t understand the difficulty of implementing features then you can end up with an end result that misses the mark or cost overruns.
• Ill-defined benefits. This is the big one.  When benefits are clearly defined, everything else follows.  Leaders support strong business benefits and competing priorities fade away.

These projects are typically transformational and affect a large part of your sales organization.  Because of that, they really need strategic sponsors at the executive level in a company.  They aren’t easy and the process changes that permeate after implementing these solutions are as complicated as the technical challenges.  Ignoring this reality just puts the project at risk.

All parties from the top down need to be in alignment.  If any link in the chain isn’t on board, it will again jeopardize the project.  This does not mean suppress critical thinking or challenges to the majority opinion, but there needs to be a set of strategic goals that everyone agrees with so everyone is marching in the same direction.  Here are some steps to take to mitigate the above risks prior to starting the project:

• Clearly define the business benefits. This is one of most important things to do when starting a project.  The business benefits guide the project and ensure when you have disagreement you can balance the discussion against the benefits you are trying to deliver.  In addition, as the project progresses you should measure the business benefits achieved and evangelize the results with business owners and executives.  On the flip side, if it is not achieving the expected business benefits, realign towards them, revaluate, or cut your losses.
• Align the business leadership. Once the business benefits are defined, it is easier to get an executive sponsor.  The executive sponsor should support the business case whole heartedly.  If the executive sponsor has a lukewarm feeling towards the business case, he or she is less likely to be the evangelist you will need with the other company leaders.
• Always listen to the end users. Success lives and dies with the users.  If they don’t accept the solution or it is too difficult to use, they won’t adopt it.  In our projects we rapidly prototype and regularly demonstrate the results to the end users to solicit feedback.  You run the risk of getting additional scope, but this can be managed by putting it in the queue and aligning to the business priorities.

Keeping these risks and mitigation points in mind when embarking on a project is important.  In the next articles, we will walk through project planning and scoping.

Pricing optimization is one of the best tools you have at your disposal to increase your profit.  Studies have shown base price optimization can yield an increase of 2% – 5% in margin, promotional optimization can yield 5% – 20% and mark down can lead to a 6% – 10% improvement.  That is too great of an opportunity to ignore.  If you are not using science and have a good amount of transaction data, then you could almost certainly benefit from using optimization.  If you are considering optimization, you can take steps to make sure you are fully prepared to take advantage of the solutions.

First, a brief explanation.  Products go through different lifecycles which closely tracks with what types of algorithms you can use to optimize prices.  Many products adhere to a lifecycle where the product is introduced, then sales increase, eventually even out, and finally decreases at the end of life as inventory is sold through.  Each stage in the product lifecycle requires different optimization techniques.  The initial and day-to-day price is established at introduction and you monitor performance for a period of time before using promotions to increase sales and profit.  The initial price can be optimized but is typically bounded by constraints and business rules you have which limits optimization.  Promotions allow more freedom in using elasticity to understand what the best price is and mark down optimizes your sell through.

The general barometer mentioned above is valid in most cases and you can do some high level analysis to determine what benefits you can achieve, but truthfully if there is an opportunity you won’t be able to realize the benefit unless you can actually do the optimization.  So, instead of discussing a process for estimating the opportunity, we’ll discuss how you can figure out if you can unlock the opportunity.

For optimization to work, you must have enough data and price variation.  The data elements needed depends on the type of optimization you are doing but you always need base data like products, location, and sales history.  You might also need things like inventory positions, marketing instruments, cost, and promotions.  Below we explain what each element is and how it relates to the specific optimization:

Sale price.  It is important to have the price the customer sees when they make a purchase.  As simple as this sounds, its sometimes difficult for companies to get this price.  For example, if you’re a manufacturer, distributor or any other entity that does not have control over the final price the customer sees, it may be difficult to get it.  Retailers have the transaction data, but in many cases the data isn’t clean and needs to be fixed.

Number of units sold.  The transaction data will also include the number of units sold per location.  Number of units sold and the sale price are the foundation of your historical data which is used in the forecast.  If you can’t get the number of units sold, you can possibly get the number of units shipped to a given location.  This isn’t ideal, but it’s better than nothing.

Price variation.  Sometimes it is difficult to get enough data to build an accurate demand curve.  But you can get it good enough then use basic analysis to set your price.  Price variation can come from many different sources such as discounts, coupons, and price errors.  It is essential to know the regular price, the promotional price, and the date range when the price was in effect.

Cost.  When optimizing for profit, you’ll need to know how much you paid for it.

Marketing instruments.  The marketing instrument used can influence the effectiveness of the promotion significantly.  When capturing the price variation, it is important to know exactly what instrument was used because not all instruments are created equal.

Competitive prices.  If you are in competitive markets, you’ll need the prices these competitors and the proximity to your stores.  The same is true for your eCommerce channel.  This data is tied to business rules which drive day to day pricing.

Inventory.  If you’re trying to do mark down optimization, you’ll need inventory positions at each location including stores or distribution centers.  Inventory would also include any future buys that have been made already.

Not all of this data is necessary to get started with optimization and you can add new data streams after your initial dip into the optimization pool.  The basis for optimization is the forecast.  If you don’t have enough price variation or data, you may need to substitute similar products, aggregate at a higher level, or use other forecasting techniques to get an accurate picture of demand.  When you are trying to evaluate whether or not you can do optimization, the data is analyzed to see if there is enough to feel statistically confident.

When you’ve verified you can do optimization, what is all this data used for?  For day-to-day pricing, a lot of the prices are dictated by business rules.  These typically restrict the prices in a narrow band based on competitive products, target price points, and other factors.  After that there is a small amount of room to maneuver using price elasticity.  Promotions have more latitude in using price elasticity and also consider cannibalization and halo effect from other products.  Finally, mark downs are constrained by available inventory and try to maximize your sell throughs based on your business goals.

If you pass the litmus test for having the data, you have an opportunity.  The next step is to go through the process of collecting, cleansing, and preparing the data for an optimization tool so that you can unlock the potential benefits.  In a future article, we will discuss how you use this data in each of the different types of optimization.