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  Date: 19th January 2010

 Compiled by: M Sathya Kumar  


Retail analytics using Computer-Assisted Audit Tools and Techniques

Introduction :

‘Retail Performance Management’ enables decision-making for retailers of all sizes and segments by empowering them with comprehensive relevant ‘enterprise business intelligence’, across technology platforms.

With CAAT, users can jumpstart their analytic journey, and enjoy improved margins, better customer retention, inventory efficiency and promotion effectiveness.

CAATs :

(1) helps accelerate retail organisation’s analytic maturity, taking the user one step closer to achieving excellence.

(2) creates benefits by delivering enhanced usability by anticipating the evolving needs of decision-makers and ensuring a faster adoption rate.

(3) through simple screen-guided analytics, empowers every decision-maker in every role in the retail organisation. It takes the load off the IT group by being easily extendable and maintainable.

(4) avoid latency, cost and project management challenges associated with traditional business intelligence methods and enjoy unparalleled speed to benefits.

(5) transforms business intelligence from being a ‘decision support system’ to a ‘decision-making system’.

(6) makes business intelligence pervasive across the retail business by impacting both the top-line and bottom-line performance.

(7) take on a whole new revolutionary role in ‘Retail analytics’ where the tool is used for continuous monitoring by ‘process owners’ rather than the erstwhile traditional continuous auditing by internal auditors.

However, the significance of CAAT is greatly accentuated by the understanding of the underlying business process by the ‘Process Owner’. ‘Retail Analytics’ can thus deliver immeasurable business benefits.

Merchandising and assortment :

It’s a well-known fact that shoppers prefer to visit places that offer them the maximum options, deals and not to forget a good shopping experience. As a retailer, one does everything to attract and retain customers by providing excellent customer service in terms of variety of products, price and promotions to achieve ‘customer satisfaction’.

Here is where ‘merchandise and assortment planning’ comes in. CAAT provide merchandisers an analytic framework to plan and analyse business activities related to ‘merchandise and assortment’. It :

(1) compares historical, planned or forecasted data against actual data to define and optimise merchandise plans

(2) analyses merchandise hierarchy across departments, categories, product lines and ‘Stock Keeping Units’ — SKUs

(3) analyses the performance of new products

(4) determines customers’ seasonal requirements/ preferences.

In short, CAAT provides data of when and what customer needs and all this leads to customer satisfaction which results in customer loyalty.

Loss prevention :

In the retail industry, it is well known that losses due to fraudulent transactions, theft, pilferage, excessive stocking, wastage, shoplifting, internal theft, refunds, exchanges and excessive discounting are inevitable. While one can’t do away with these problems, retailers are always on the lookout for ways to minimise losses while keeping costs minimum.

Loss prevention analytics helps the retailer diagnose the root cause of the problem by identify exceptions and taking corrective measures. CAAT substantiates its analyses with historical, geographic, and demographic trends. It can identify :

(1) incorrect refunds which could be fraudulent

(2) spoilage, damage and write-offs

(3) price overrides and improper discounting

(4) supplier or warehousing issues

(5) administrative errors

(6) sales to customers with dubious shopping records — such sales indicate fraud.

(7) erroneous entries for product returns.

Supplier performance :

This is an area that tends to get neglected. However, focusing on this area can help you bring down operation costs because CAAT also enables to forecast optimal levels of inventory, optimise lead time, manage orders, improve fill rates, negotiate trade promotions, manage risks and improve supply chain efficiency — these are just a few challenges faced by retailers when it comes to managing supplier performance.

CAAT provides a decision-making framework that enables the retailer to identify new areas of synergy and avenues for bringing about operational excellence. It enables :

(1) improved inventory management by tracking slow and fast-moving goods, helps avoid ‘out-of-stock’ situations which lead to avoid loss of sales and profit. In other words, it enables the retailer gain better visibility into stock movement from warehouse to stores.

(2) improve vendor performance

(3) assist in rewarding performing vendors

(4) remove non-performing vendors

(5) negotiate supplier involvement in product trade promotions for better deals

(6) negotiate longer credit periods and shorter delivery cycles

(7) manage supply-related risks and take corrective measures proactively.

Store performance :

CAAT provides retail operation managers a framework to analyse ‘store performance’ to increase ‘store productivity’.

  • reclassify stores by local demographics, competitive density, store locations, size and age

  • reclassify merchandising categories based on the relationship between the customer, product and store — merchandise assortment required at the store.

  • measure contribution and competence of store employees by monitoring their contribution to total sales

  • benchmark, compare and rank peer groups based on metrics like yield per square area and average price per item sold.

Customers :

Customer data has long been touted as a key determinant in making better merchandising decisions; however it is an area/asset most retailers have struggled to use to its maximum potential. CAAT provides the retailer with the critical platform he needs to leverage customer loyalty data, sales transaction data, and store data to improve merchandise planning and sales tactics.

CAAT unveils hidden relationships with the customer, because it helps in identifying what the customer buys, how he pays and with what frequency he buys. This enables the manager to :

(1) identify which store needs what and when – thus reducing waste and ensuring optimum use of the shelfspace.

(2) evaluate performance of promotion schemes.

(3) measure campaign effectiveness – what media can be used to achieve better results by having customer feedback.

(4) identify regular — high-value customers who can be suitably rewarded

(5) identify what products customers buy together — for example — floor cleaners are bought alongwith utensil and crockery cleaners and vice-a-versa. In retail trade this is known as ‘product affinity’ or ‘market basket’. This enables the retailer to bunch products in promotional schemes and by placing them close to each other on the store-shelf, thereby increasing sales.

(6) identify seasonal trends – for example – increase in chocolate sales during festive season – what brand and in what ‘pack size’.

(7) identify ‘impulse buying’ generated by a new product or new packing.

(8) weigh loyalty schemes — consider whether the customer should be given more of what he normally buys or offer him/her a new product and/or offer him/her better service — for example — having a dedicated counter.

Conclusion :

CAAT creates an environment where the process owners — the retailer — can make informed and real-time decisions on :

  • Which customer segments are the most profitable ?

  • Which customers should a campaign target ?

  • When and how should he communicate with a customer ?

  • Which customers should he spend resources on retaining ?

  • Which products should be ‘cross-sold’ ?

We are at the dawn of mature retail analytics for the discerning retail customer. It is an ‘idea whose time has come’.

The use of CAAT by the internal auditor on a sample basis on ‘customer analysis’ motivates the retailer client to increase greater use of CAAT. The tool introduced by the internal audit led to increased ‘customer satisfaction’ and increased profits.

Article was earlier published in Deepjee Singhal Manish Pipalia Chartered Accountants

 

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