With consumers demanding more than ever before, both retailers and manufacturers of consumer products are being squeezed. Emerging technology such as predictive analytics might help them get ahead of the game, but are the Australian and New Zealand markets lagging too far behind to take advantage of these opportunities? Freya Purnell reports.
Over the last decade, there has been a dramatic power shift – first from manufacturers to retailers, and now to consumers. “Where the last century was focused on telling customers what they should have, the 21st century customer is digitally armed and probably knows more about your product than you do,” says Merijn Helle, industry principal – consumer and trade, SAP Australia. “There is full price transparency, and they are also socially connected and make decisions based on that. Consumers are eight times more likely to believe a social media reference than they are a TV or radio ad. The choice is exploding for consumers and that’s what they demand.”
Though there has been much talk in the media about how difficult the retail environment is, Helle says that the consumer products sector is actually doing it very tough because retailers are placing enormous pressure on manufacturers.
“The pressure on the manufacturers is to stay ahead of the commodity curve, because retailers are introducing private label products,” Helle says, adding that both are in reactive mode to the demands of consumers.
Consumer products manufacturing
For consumer products manufacturers, there is a heavy focus on optimising the supply chain and the direct to consumer channel, according to Helle.
Getting smarter with sales and operations planning is a key priority, and SAP has released its Sales and Operations Planning solution on HANA for this purpose. “It’s focused on balancing the supply side – what resources do I have, what factory utilisation should I be aiming for, what inventory levels and service levels to customers – with the demand side, and making optimal decisions that improve profit. It may mean, in times like these, culling the range, it may mean that manufacturers move away from channels,” Helle says.
With consumers increasingly using social media to discuss brands and products, consumer products companies are also seeking to include social media sentiment in their forecasting, and another new solution, called SAP Demand Signal Management, will be released around the end of the year to utilise this information.
Though retailers are putting enormous pressure on manufacturers, there is also a renewed focus on better collaboration.
“They are saying, let’s really collaborate closely on joint forecasts, so that we can reduce inventory across the network in both of our supply chains, reduce costs for everyone, and ultimately get the consumer a better deal,” Helle says. For example, with retailing giant Woolworths currently implementing SAP, there are many opportunities for manufacturers to hook into the SAP process. “Take, for example, being able to share sales information in real time so when a bottle of Coke or bread roll is sold, it immediately gets passed back to the manufacturer. That can help them improve their demand sensing, to be much closer to what the consumer is doing and be able to react in real time,” Helle says. “That’s the ultimate goal, because the retailers want to maintain those service levels with customers and reduce out of stocks, which accounts for around 4 per cent of lost sales every year.”
SAP solutions such as SAP Information Interchange (formerly Crossgate) and SAP Forecasting and Replenishment help to achieve this aim, allowing retailers to provide suppliers with a forecast of the order they will be placing into the future, giving manufacturers greater visibility of the demand pipeline.
CIBER director, Australia and New Zealand, Michael Niestroy says he is also seeing more collaboration between suppliers and manufacturers.
“In probably two-thirds of our customers now, EDI (Electronic Data Interchange) has become a big topic again through proper hubs and master data synchronisation. But there are still a lot of efficiency gains that can be leveraged from a supply chain perspective between retailers and suppliers,” Niestroy says.
With consumer products manufacturers also looking at direct to consumer channels, such as online stores, wholesalers are feeling the pinch.
“The imperative for distributors is to add value to the end-to-end value chain. We are seeing them do that by providing not only the products but also the services into the smaller retail customers, and we are seeing a lot of momentum in that space as well, basically with our end-toend ERP but also customer relationship management solutions,” Helle says.
Retailing
Among the key trends for the global retail industry in 2012, according to the Deloitte ‘Global Power of Retail 2012’ report, are multi-channel retailing, mobile shopping, and use of data analytics for personalisation. Niestroy says that though retail CIOs and CEOs held back on IT spend in 2011, it has been a different story this year. “All of a sudden the floodgates have opened in 2012. They are all investing like crazy,” he says.
Helle says retailers are now putting the customer at the core of everything they do.
“Enabled by the technology we provide, such as mobility and in-memory computing, there is a new era of targeted one-on-one marketing,” he says.
With many retailers having a presence across multiple channels, the Deloitte report says it will become more important than ever for retailer to truly understand how consumers are using and shopping across each of their channels. Once armed with this information, retailers can begin to go down the predictive analytics route. Overseas, SAP has achieved good results from a pilot of ‘precision retailing’ with French supermarket operator Casino, which uses applications powered by HANA to deliver rich product information and special offers in real time to consumer devices, in line with their predicted buying behaviour. The group has seen double digit growth in conversion rates of promotions and offers, as well as a double digit lift in basket size. Casino has also been able to obtain a single inventory view using HANA, which helps to inform promotional decisions.
Later this year, SAP will release BusinessObjects Predictive Analysis based on HANA, which will allow for modelling of different store behaviours in clusters, to enable retailers to optimise their ranges and assortments. “Those are enablers that would greatly increase sales and stock clearance in those stores,” Helle says. Locally, Officeworks has deployed SAP Point of Sale Data Management, to aggregate customer data at a basket level from across its multiple channels.
“They have essentially got one single view of the customer which they can leverage to understand recency, frequency and monetary value of individual customers, measure the success of promotions, and get an understanding of the relationships between categories,” Helle says.
Niestroy believes the take-up of analytics among retailers hasn’t yet gathered steam because it is literally slow – the number of products, store and customer combinations creates massive data volumes, to the tune of multiple terabytes. “Basket analysis and companion sales or association analysis – the likelihood of product A and product B being bought in one single transaction – is very, very tedious with the current technology,” Niestroy says. “That’s where HANA or BWA comes in. So you can run through a lot more information more quickly, but the technology also allows retailers to think about things they couldn’t do before such as predictive analytics and some real-time scenarios like online shelf availability, for example,” Niestroy says. Helle says SAP is seeing great momentum for HANA in the ANZ market, with the first customers on board or in proof of concept.
However, Niestroy says customers are still weighing up the respective benefits of HANA and BWA, with cost remaining a deciding factor in the equation.
“BWA has become a lot more attractive than HANA for a number of reasons, so our customers are actively evaluating BWA,” says Niestroy, adding that long-term, HANA will be a “no-brainer”, but it’s not there yet.
More broadly, Niestroy says many Australian and New Zealand retailers are still trying to get the basics right –including getting online channels in place. The last 12 months has seen movement in this direction, with four of CIBER’s customers establishing an online presence, often by using an off-the-shelf product linked with their POS system. One customer has gone the next step to implement SAP Loyalty Management to segment and target customers specifically. “It’s basically the platform that allows you to go omnichannel, looking at mobile and social media, and then the next step after that is predictive analytics,” Niestroy says. Social media usage by ANZ retailers is also still lagging behind the activities of US and European retailers. “You have companies such as Harvey Norman, for example, who have employed a whole team to communicate and interact with their customers via Twitter and Facebook,” Niestroy says. “But a lot of retailers in this market still only have a presence on Facebook, and they don’t use in their day-to-day interaction with their customers – for example, through coupon offers or communication with customer service.”
This article was first published in Inside SAP Winter 2012.
