Wednesday, February 10, 2016

Embedded in retail: finding hidden value in the lowly SKU

To pay the bills while searching for my return to professional life, I did what a lot of displaced professionals have done.  I worked retail, as a sales associate.

Since this is a blog about technology and business, here is an important thing about that experience:  while I was in retail, I was also a stealth business analyst embedded in the front lines, with completely candid access to what the front line really thinks, and what they experience.

That experience led to this report.  In this case, it starts with the lowly SKU, the Stock Keeping Unit, the number next to the bar code that uniquely identifies each item you sell.

Funny thing about SKUs.  They are actually a really powerful part of the entire retail environment.  In much the same way that URLs are a window into the entire internet, the SKU is shorthand for everything you can know about the things you sell at retail.  But could it be that SKUs are really underappreciated?  As I found by working at a big national retailer, if you look at them with the right background, you might find hidden value.

I'll write more about the SKU's role in a modern retail system in another post, but here's one of the most glaring examples I found of SKU-sourced value in retail that is not being exploited:

It's the listing of SKUs in the store matched to the location of the item.  

Why does this even matter?
  • People who work on the sales floor eventually learn where most SKUs are stocked, but there's a learning curve.  Experienced workers and managers spend non-value-added time showing new employees where to find things. 
  • The store "map" changes every time there's a new floor set or changes in vendor-managed inventory. 
  • Replenishment of stock, and restocking go-backs, can be a game of reverse scavenger hunt for retail staff, who have an item in their hand and must search for its shelf location.  
  • To make it worse, the logic of stock location is often based on differing criteria. Some things are grouped by type or function, some by manufacturer, some by associated marketing campaign, some even by color.  To the restocking person on the floor, a logical placement of items with others of its same type would be a sensible thing to do. But what if "same type" is not the underlying plan, and there's no key to the intended location? 
  • Staff can inadvertently tell customers items are out of stock, when in fact, they are in stock but were misplaced within your store, or have moved to a different location because of a floor set change.  
  • This is where your supply chain ends.
    Image used under Creative Commons license
  • A conservative estimate of time wasted as a result of this report's absence is not huge, but it is significant, perhaps worth $2000 a year per store. And this retailer has over 100 stores. If you could add $200K in value to your annual budget, would you think it's worth the investment of a few hours work by an IT staff member?  This does not include the lost opportunity cost of sales lost due to false stockouts or customer frustration. 
You already have this information in your marketing and inventory systems.  At one retailer where I worked, managers received new floor sets from corporate as photos of displays-to-be, with a nice tabular listing of the SKUs by shelf alongside.  So SKU location was in the system. What was not available was reverse lookup: I have the SKU, where does it belong?  This would be a really simple report to generate along with the floor set.  At its simplest, it would live as a sequential-SKU printout in a ring binder at the registers, each discrete SKU linked to its location in the current planogram and floor set mix.

Even better would be integration into the point of sale (POS) system.  Sales staff at this retailer could already scan a barcode, and the POS system would display stock information for any SKU, whether more were in the upcoming shipment from the distribution center, and even what stock was available at other stores and in the warehouse.  This is pretty basic supply chain.  But it failed to combine SKU with display location.  

To leverage the power of the SKU/location report, it could also easily be extended to the SKUs location in backstock, and for stock replenishment shipments, which one of dozens of incoming boxes contained the SKU in question.  

This latter piece of information personally cost me many sales, because there was a built in issue with the inventory report.  The store received merchandise once a week from the distribution center, in pallet after pallet of boxes containing multiple SKUs. The moment the shipment arrived on the loading dock, it was checked into inventory, but it could take days for the staff to unpack every box.  In the meantime, a SKU would show as in stock. To make a successful sale, i would have to interrupt a manager doing useful work to access a report (only accessible to managers) that linked the SKUs to the shipment box, then dig through many dozens of SKUs within the warehouse box to find the item the customer was willing to buy.  It was cumbersome, time consuming, and wasteful--so much so, that cash-in-hand sales often walked out the door from impatience.  

If you are in retail management, you know full well how much work it took to select a product, market it, get it made and shipped to your store, get a customer in the door, and help them decide to do business with you.  All of it wasted because of a SKU hiding in plain sight that lost you the sale.

There are a couple of lessons in this story.  First, I learned that there is untapped value in something as simple--yet as powerful--as a SKU.  Second, I think it's common, especially at the level of the C-suite and their direct reports, to think in terms of new solutions, rather than exploring ways to get more value out of what is already in place.  If you're a senior manager of a retail organization, you already have the resources in place to help you find that value: your own front line staff.

The front line alone deals with stock management at a granular enough level to appreciate opportunities like the SKU/location report.  But without any insight into inventory system design, or any perception that their information is valued, the value capture opportunity is lost.

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