Use Data to Create a Leaner Commerce Company (5 Steps)
If you have a problem with inventory management that’s costing you $8 million a year, what should you do? Replace your ERP? Hire a new logistics staff? Something else?
For one company, the solution was getting a better understanding of their data. Once they conquered their data, they started cutting costs, increasing sales and delivering better customer service. If you want to emulate their success, follow these five steps to use your data to create a leaner commerce company.
The company in question shall remain anonymous. They invent, develop, and market innovative kitchen products for national and global markets. They sell their products directly to professional chefs and consumers through Amazon and their own online store, as well as wholesale through brick and mortar retailers.
The challenge they had came in the form of last-minute surprises from their largest customer, Walmart. Walmart would order tens of thousands of a given SKU and then, days before delivery, change their order.
For example, Walmart would order 40,000 can openers. The kitchen products company would instruct their manufacturer in China to fulfill the order. The shipment would arrive from China three months later. But then, three days before the company was to ship the can openers to Walmart, Walmart would reduce the order by 25%, from 40,000 units to just 30,000.
The company then had the challenge of finding a home for their excess inventory. They solved the problem by leasing warehouse space. Over the space of hundreds of orders spread over many years, the company gradually developed an $8 million headache. Excess inventory, excess warehouse space and the overhead costs that go with it were harming the company’s bottom line and hindering its ability to take advantage of opportunities.
The fundamental problem was the data. “What really keeps me up at night is not being able to understand my inventory and what’s sitting in my warehouse and what’s not,” is how their general manager put it.
He would walk the warehouse floor with a clipboard that supposedly told him everything he needed to know. But that information was based on spreadsheets and manual entries and a manual pulling of data from one database or another. He was never 100% confident in the data he used to make strategic business decisions.
The company needed a way to become leaner and more agile. So, they hired a firm that specializes in data analytics and AI. Here are the steps they took. They’re the steps you can take to get leaner and more agile.
Step 1: Identify the business objective you’re trying to solve
Gather your key decision-makers and discover the business objectives that will impact your business. Aim to come up with at least four objectives.
Then dig a little deeper to understand if you have the data and infrastructure you need to achieve these business objectives. Be realistic. For example, someone at the table might say, “We need a drone that flies around our warehouse and scans all our inventory.” But the chances are that this represents a higher-risk project because you don’t have any of the infrastructure in place to make it happen.
A more realistic business objective looks something like this: “We have our data in our ERP. Yes, it’s in multiple tables, but if we can combine these tables, and if we can get someone to collate the data and organize it in a way that makes sense for our business, and present it to us in meaningful ways, we can achieve our business objective of becoming leaner.”
Step 2: Create a business case
Take each business objective and plot it on a grid. Make the Y-axis the anticipated value and the X-axis the anticipated risk.
In the top-right quadrant, you’ll find a cluster of the business objectives to focus on. Decide which objective or objectives you want to move forward with by building a business case for each one.
The easiest way to do this is to quantify the cost of the problem and the cost of the solution. For example, if the problem costs $8 million and the fix costs $300,000, the ROI is likely worth it and getting executive buy-in should not be an issue.
Step 3: Build a proof of concept
Build a proof of concept for solving your challenge. This includes getting the data and putting it into a visualization tool to see how the proof of concept is going to deliver the results you need.
Then pass this proof of concept past your executive team and get their approval to move forward with the project. They may have some objections. They might decide that the project is too much work, for example. Or that you will hit too many roadblocks. Or they might even decide that your company does not have the data you thought you had to make the project successful.
Your proof of concept is a vital step. It demonstrates how what you intend to build solves your business objective. And it’s the stage where your executive team decides to move forward or not. Don’t skip this step.
Step 4: Build the solution
The next steps are straightforward. You build what you designed in your proof of concept. This involves:
- gathering your team
- creating a budget
- creating a schedule with milestones and deliverables
- developing a project plan
- finalizing the design
- building the software
- buying hardware
- testing the solution with users
- testing the final data to make sure it is accurate
Step 5: Roll out the solution
Once the development stage is over, you roll out the solution. This step includes training users, conducting ongoing quality assurance testing and troubleshooting bugs.
The company that took these steps shrank their $8 million problem down to a $1 million problem. They got rid of their excess warehouse space and became leaner. Today, they have a better understanding of what is in inventory and what isn’t. They have a better handle on what customers have ordered in the past, in what quantities, and when, which helps the company anticipate demand and create accurate forecasts on what to order to keep pace with demand. And they now maintain optimum levels of inventory (not too much, which is costly; not too little, which hinders sale and hurts the customer experience).
If you operate a commerce business that could be a lot leaner, avoid the common mistake of thinking you know the tool to use. And also avoid the common blunder of taking IT’s lead and jumping straight to a proof of concept.
If you want to use your data to get leaner, start by identifying the business objective you’re trying to solve. Create a business case. Build proof of concept. Get executive buy-in. You will be leaner in no time.