Business Intelligence Network - The Vision for BI and Beyond

Retail Business Intelligence Extranets—Collaborating with Suppliers

Published: May 24, 2005

This is the first article in a two-part series discussing a business intelligence extranet.

This article will review, the business benefits retailers and suppliers are able to drive through information sharing and how forward-thinking retailers are aligning their interests with key suppliers. The next article will discuss the technologies and architectures that can be used to bring these systems to life, and how you need to select the right architecture for your particular situation.

A growing number of retailers are realizing the benefits of sharing up-to-date, point-of-sale and inventory information with their suppliers. Delivered through a Business Intelligence extranet or EDI (electronic data interchange) feed, information can be provided directly to a supplier’s sales team supporting the retailer. This timely information gives the supplier the ability to track their products’ performance and more intelligently work with its retailer/customer to improve the business.

The gold standard in Business Intelligence extranets within the retail community has been Wal-Mart, with their Retail Link system. Wal-Mart’s system provides forecast, actual sales and inventory levels through web-based reporting and/or a data feed that can be incorporated into a supplier’s data warehouse or analytical application. More than one software vendor offers a packaged analytical application specifically designed to analyze Wal-Mart supply chain data, and suppliers are continuing to push other retailers to offer a mixed set of reporting options such as data downloads or online reporting.

While Wal-Mart certainly has the clout to encourage suppliers to do business “their way” and the resources to be able to offer high-end reporting capabilities, you don’t have to be an industry behemoth to be able to implement and benefit from sharing data with suppliers. Let’s examine the case for sharing key data between retailer and supplier.

Benefits for the Retailer

Many retailers might ask the question: “Why should I pay to build a system that benefits people who sell things to me, when all I want is lower prices from them?” This is a fair question to ask, if one views the system itself as merely a cost, rather than an investment with a potentially high return. Specifically, those retailers who have put in place an information-sharing strategy with their vendors have realized the following significant benefits: 

1. Minimized Lost Sales and Improved Inventory Turns. If a supplier can discover pockets of fast- or slow-selling products in the inventory mix, they can proactively tweak the supply they provide or sell to the retailer. The results are either quicker replenishment of items that are selling quickly, or slower reordering of more stock for items selling slowly. The former minimizes lost sales and maximizes customer satisfaction. The latter minimizes supply gluts and costly clearance sales. Overall, the result is less capital tied up in inventory at any one time and faster inventory turns. Given the thin margins in the retail business and the volume involved, even a small percentage change in these key values can very quickly repay the investment in a system to share information.
2. More Effective Dispute Resolution. The system or data feed itself can be used as a basis of regular discussion between merchants and vendors about the sales of items and particular inventory levels. Given regular “misunderstandings” about shipments, supply levels and sales that often occur between retailers and vendors, a standard set of information sharing reports or feeds can ensure that the retailer and supplier are on the same page and looking at the same set of data. Without this shared “version of the truth,” a supplier may be forced to look into its own systems to review what it believes was shipped to the retailer, when its customer is looking at its own internal systems. Not surprisingly, these often say something else. By proactively providing data to a supplier, the retailer can ensure there are no surprises. Additionally, shipping problems such as damage, loss or misclassification can be discovered early.

  Benefits for the Supplier

Suppliers also derive real benefits from accessing information via a retailer’s Business Intelligence extranet. The users of the system from the supplier’s side are commonly sales teams dedicated to driving business with one or more retailers. The benefits to suppliers include:

1. View into Actual Sales. Simply put, a retailer’s Business Intelligence extranet is the only true consumer sales data a supplier can receive, or at least the only free source. The supplier can gauge for itself which factors (other than price) can affect sales of its products, including demographics (based on retailer store locations) and time periods (days of week, times of year). The supplier can begin to understand its market share vs. competition. The bottom line is that this information can help the supplier to become a better-performing vendor to its customers. 
2. Full Lifecycle View of Products. Taken to its logical extension, a supplier can load sales information for many of its top retailcustomers in its own internal systems (typically ERP systems and enterprise data warehouses), giving a complete lifecycle view of its products from design and manufacturing through marketing, sales shipment and sales to end customers. For this reason, suppliers continue to encourage retailers to provide information in standard formats (e.g., EDI 852) to simplify their efforts to get a cross-retailer picture of their own actual sales.

Clearly, there are benefits to be gained from sharing data in the supply chain. Both suppliers and retailers benefit, and measurable ROI can be driven for both of them. There are several successful implementations that have been in production for years with proven results. The good news is that the skills and approaches needed to bring up a Business Intelligence extranet are not very different from general data warehousing skills.

The next article will discuss the technologies and architectures that can be used to develop retail Business Intelligence extranets. We will find that these systems are affordable for even small- and medium-sized retailers. However, the strategies employed may differ depending on the relative sizes of a retailer and its suppliers.