Staying Flexible with CAO

How to be Flexible and Successful in a Tough Economy

As the economy continues to shift, many are speculating the future of retail. With more and more stores going out of business, retailers are evaluating technology solutions to optimize business processes and maintain a competitive advantage. However, as retailers continue to tighten their belts and budgets, many wonder if now is even the right time to think about implementing a new technology process. If it will lower the overall cost of business, the answer is yes. Ironically, a tough economy is an ideal time to invest in technology because you get more for your dollar and the benefits are invaluable.

According to the Supermarket News 15th annual State of the Industry Report on Supermarket Technology, computer-based ordering ranked first as an application that will be tested or launched in 2009. Retailers are implementing computer generated ordering (CGO) systems to achieve the highly sought after benefits of perfect store orders: high customer satisfaction levels, increased merchandise availability, optimum inventory levels, automated ordering processes, reduced capital costs and streamlined processes. However, retailers are also using this tool to continuously optimize business processes during any change in the retail climate. This is possible because CGO solutions enable retailers to easily shift variables to adapt to different factors affecting demand, such as current economic situation.

Understanding and Fulfilling Demand

Implementing CGO provides retailers with the flexibility to quickly adapt to future situations. It’s an investment in having the speed and capability to increase and decrease specific variables that affect orders and store performance. These variables include inventory level, labor and service level - the percentage of forecasted sales a retailer aims to capture. With a CGO solution, retailers have the capability to view future orders and forecasts to truly understand demand and fulfill it efficiently.

Using CGO, retailers can set service levels for each category depending on demand. By looking at future forecasts, a retailer with a 96 percent service level in its frozen dinner category may notice that demand from its shoppers has been decreasing. With that knowledge, the retailer can decrease the amount of inventory and labor for that category, but still reach its service level. Doing so enables the retailer to maximize sales with the least cost of service. With this visibility, it is possible to optimize various changes in demand by making immediate decisions at the store level. This capability enables retailers to do better in any economy, much less a bad one.

Setting a Strategy for Success

Retailers may also want to alter variables in order to change and improve their strategy. It’s true across the board that having the knowledge and visibility to successfully take advantage of incentives and contracts can separate good businesses from great businesses. For example, Southwest Airlines was able to profit during a financial crisis that threatened the survival of other airlines by locking in jet fuel prices and paying for large amounts years ahead of time. Doing so has protected the airline from spikes in oil prices and dramatically cut its fuel expenses. Since 1998, it has saved $3.5 billion over what it would have spent if it had paid the industry's average price for jet fuel.

In the retail environment, manufacturers provide retailers with incentives, such as price cuts, to sell particular products. In order for retailers to take full advantage of these deals, they must increase their inventory by stocking up. However, it is important for retailers to weigh in factors such as how much extra labor will be needed and how much sales will increase to ensure it is a profitable decision. This would be nearly impossible to do without using a CGO system that provides future forecast visibility along with the ability to modify such factors. With this technology, retailers have the tools necessary to make educated business decisions to increase profit.

Preparing for the Future

CGO is an area that retailers do not want to get behind in. Everyday, more and more retailers are implementing systems, gaining the knowledge, visibility and capability to adapt to changing factors in the environment. Those who lack this flexibility will not be able to react to situations as quickly and will ultimately lose their competitive advantage. However, to be successful, it’s important for retailers to understand demand at a store-item level. If the organization truly understands all factors of the operation including inventory, shelf, labor, schedules for delivery, etc. – it can manipulate these variables to lower overall business costs.

If there is one thing we all know, it’s that retail is going to change. It could be good, or it could be bad. In any situation it’s important to have flexibility. Set a strategy and quickly shift in or out of it depending on the current business situation.