Eating big data for breakfast: A “Supply Chain Now” interview

Date Posted: April 13, 2020

Since its start in 2017, Supply Chain Now Radio has become the leading channel for supply chain news and thought leadership. Alloy Regional Sales Director Tom Jones recently sat down with hosts Greg White and Scott W. Luton for an episode of its flagship “Supply Chain Now” podcast.

Their conversation described how retailers’ and brands’ roles are shifting, and how a brand can significantly improve its position by responding to those changes. Together, Greg’s experience as a merchant and Tom’s experience with manufacturers painted a well-rounded picture of how brands can become retailers’ trusted partners, rather than just suppliers of goods.

We’ve collected some highlights below. Listen to the entire show here for more lessons about making yourself indispensable to retailers – and to learn why they actually don’t want your product in stock 100% of the time.

A changing role for today’s brands

For decades, category captains have played a large role in retail merchandising decisions, including making assortment and inventory management recommendations. That dynamic seems to be changing now that retailers are ramping up their own efforts to use data. As retailers invest in data and analytics to introduce their own data-driven improvements, brands must also step up their game if they hope to influence how their products are carried in stores and online.

Vague, high-level recommendations simply won’t suffice, nor will those with flimsy backing. Retailers will only pay attention to those brands with precise, actionable proposals based on rigorous data analysis. If you want an audience with your retail buyers and replenishment managers, you must arrive with better data-driven insights than they can get independently.

Brands who lack those insights will remain tied to the plans retailers make without them… which can harm both the brands and the retailers themselves. Because of the variety of what they sell, retailers can rarely concentrate on the specifics of a single brand’s products. Greg, who once managed 4,000 SKUs in 700 stores, describes his experience:

“A retailer can’t focus enough on any vendor’s particular product line, because among 4,000 SKUs, we might have a thousand vendors.”

Instead, they rely on forecasting and ordering algorithms to decide what and how much to buy. But those algorithms can have disastrous consequences for manufacturers if left unchecked.

In a catastrophic example of a self-fulfilling prophecy, if an item goes out of stock, sales may be lower than true demand; the algorithms then place orders based on these artificially lower sales, which lead to more out-of-stocks and further depressed sales for a product that could perform much better.

“If you want to break out of that, you need really strong data to go to these retailers and say, ‘Listen, I understand why your algorithms are saying what they’re saying. Here is data that supports what I’m saying. Let’s try it, and if it works, then we’ve proven the premise. And, by the way, we both benefit.’”
-Tom Jones
Brands’ surprising advantage over retailers

Since retailers own and operate their point-of-sale (POS) systems, you might think they have the best information on what’s selling. It’s not that simple, Tom says.

As a supplier, you have something retailers don’t have: the data from other retailers who sell your products. You can combine data on your product sales from all your retail partners, as well as your own direct-to-consumer and e-commerce business to gain better insight into performance and become more than mere order-takers. For instance, Greg says:

“When you give [retailers] an additional perspective that says somebody’s selling 40% more [of a product] than you are…that suddenly opens their eyes to a greater possibility for that product. The greatest power that you deliver is the macro knowledge of the marketplace. A retailer can only see the possibility of their sales in terms of their perspective.”

A brand transforms from a merchandise supplier to a valued partner when it provides unique insights. Sales and supply chain management insights can come from having a macro view into what consumers are buying, or diving deep into the details of SKU-store level performance in a way retailers aren’t able to.

Creating actionable recommendations

Equipped with better data and insights, brands should be important collaborators in planning and replenishment to ensure consumer demand for your products is met. This role isn’t reserved for the largest manufacturers either; companies of any size can achieve it by presenting a data-driven case and recommendations for specific actions to improve performance.

For example, based on cross-channel data, you might identify a product that is not performing as well at a specific retailer than others. Then by conducting granular store-level analysis, you can pinpoint specific problem stores at that retailer where there are frequent out-of-stocks. You might advise increasing DC orders, changing replenishment strategies, or investigating phantom inventory issues, depending on what the data directs you to as the root cause.

Or you might identify stores that are performing above average and highlight those to the retailer. The insight will help them identify and export the best practices to other stores to drive further growth.

“I want brands to understand that you can change retailer behavior as long as you have a message that resonates with the retailer,” says Tom. “They want people that can give them something new. That means giving them recommendations based on proof, rather than guesswork.”

Greg added to the point based on his experience as a merchant:

“A vendor that was valuable to me was not one who said, ‘I know you can sell more.’ They were the ones who said, ‘I can prove you can sell more.’ And what you’re enabling those suppliers to do is create that defensible business case that says, ‘I can prove that you can sell more.’”
-Greg White

In the end, Tom’s advice to brands about working with over-stretched retailers is:

“They’ll give you the time of day as long as they feel like you’re bringing something to the table…And that’s what Alloy’s doing. It’s giving [brands] the information that lets [retailers] do their job better – because now you can do a big part of their job for them, and they trust you to do it.”

The true beauty of this relationship is captured in a cliché: “A rising tide lifts all boats.” In this case, rising sales – prompted by market-level and granular insights – benefit brand and retailer both.

 

There’s plenty more in the podcast. Check out the entire interview here, and read more from Tom in this recent post about what to do when crisis hits.

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