Role of Business Intelligence in FMCG and Retail Sector

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Team: Yottabytes Sriramagiri Srikanth 09BM8049 Varun Wadhwani 09BM8060

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Contents
Introduction ...................................................................................................................................... 3 Advantages of BI................................................................................................................................ 4 Challenges in implementing BI ........................................................................................................... 5 BI in FMCG ........................................................................................................................................ 6 BI in Retail ......................................................................................................................................... 7 Retail Solutions .............................................................................................................................. 8 BI at a US Food Distribution Major..................................................................................................... 8 BI at Nestle .................................................................................................................................... 9 BI Analytics (Past, Present and Future) ............................................................................................ 10 Data Transformation using BI .......................................................................................................... 11 Complete picture of a BI system (Source: ITC Infotech) .................................................................... 12 Major BI players in India (Source: India Business Directory) ............................................................. 12 Understanding of Key performance Measures ................................................................................. 14 Identifying Indicators of Organization .............................................................................................. 16 Retail Sales Schema ......................................................................................................................... 20 Balance Scorecard Report: Example................................................................................................. 21 Retail ........................................................................................................................................... 21 FMCG company:Raw Material Vendor Performance .................................................................... 21 Recommendations .......................................................................................................................... 22 References: ..................................................................................................................................... 23 Websites: .................................................................................................................................... 23 Reports: ....................................................................................................................................... 23

Introduction
“Business intelligence (BI) refers to computer-based techniques used in identifying, extracting and analyzing business data, such as sales revenue by products and/or departments, or by associated costs and incomes.” (Source: Wikipedia) BI technologies provide past, current and future views of business operations. Some of the common functions of BI tools are reporting, online analytical processing (OLAP), analytics, data mining, business performance management, benchmarking, and Text mining and predictive analytics. The basic aim of Business intelligence is to support better decision-making. Thus a BI system can be called a decision support system. The term business intelligence can be said to be a synonym for competitive intelligence, because they both support decision making. BI uses advanced technologies, applications and processes to analyze to a greater extent internal, structured data and business processes, while competitive intelligence gathers, analyzes and disseminates information with a topical focus on company competitors. Business intelligence in a larger context can be thought as a subset of competitive intelligence. In today’s highly competitive and challenging environment, companies need to continually assess and redirect their actions in order to stay on top of the markets they choose to serve. In order to make the needed changes, many companies are asking questions like: • Who are our most profitable customers? • Which products and services can be effectively cross-sold? • Effectiveness of sales channels vis-a-vis products? • How to boost marketing campaign results? • How to improve customer loyalty? • What are the costs involved in retaining a satisfied customer? • How do we enhance the overall customer experience? Business intelligence (BI) systems can help provide the answers to questions such as these.

Advantages of BI
(1) Quicker, fact-based decision making Business decisions are often delayed or changed due to frequent data changes or sometimes also due to lack of information received or in the way information is perceived. The data within an organization should be in a manner so as to allow the person who queries to get further and more useful information as per their requirement instead of just returning the raw data. Business intelligence enables an easier and quicker access to data in its actual format, thus enabling faster and factbased decision making. (2) Simplified reporting BI refers to a system that allows the collection of different types of data and metrics for the purpose of efficient decision making. It thus establishes a system wherein data is collected and distributed in an effective manner. It provides accurate data at real-time and ensuring the fact that all decisions are not only made quickly but also based on factual data. (3) Combination of multiple data sources put together, resulting increase in efficiency. Often the decisions made in a company impact more than a single aspect of business. Business or marketing decisions are usually based on the customers that an organization would like to concentrate on. Financial decisions maybe based on the sales and marketing prospects, HR decisions are based on employee requirements, attrition rate, and gaining new business deals. Therefore business decisions require data and metrics from different departments and verticals of an organization. BI provides data from various aspects in addition to ratios and formats that enable to compare these metrics to enable effective and efficient decision-making.

(4) Solutions are mapped as per user requirement A BI framework helps in organizing data according to the user. It could be based on departments, functions, verticals etc…This enables the user to concentrate on the

numbers related to his work and this would give him an insight into where to look for the problems affecting the efficiency and output. (5) Helps align the organization towards its key objectives Business intelligence helps align an organization towards its key objectives. To this end, an organization has to first design its Key Performance Indicators (KPI) keeping in mind it’s style and strategies. The KPIs need to be designed for the different levels in the organization starting from the highest and moving towards the lowest. In order to be successful, these KPIs must be in sync with the competitive edge of the organization, act as lead indicators that predict outcomes in the future, focus on performance rather than outcomes, and permit the combination of metrics. Again there should be both process-related and outcome-related KPIs and it is essential to maintain a healthy balance between these to ensure the success of its design. Ultimately organizations are built on the outcomes they deliver and not necessarily on its processes. The processes only enable the outcomes. Thus, BI effectively uses the KPIs and metrics to help the organization in achieving its key objectives.

Challenges in implementing BI
However, organizations implementing a BI solution may face several challenges: • Integrating complex data from heterogeneous hardware platforms and software environments. • Management of distributed systems that lack a single point of control and timesensitive operations. • Improving data access while reducing expenses. • Performing frequent updates across already overtaxed networks with rapidly increasing traffic. • Backing up, recovering and archiving data within diminishing availability windows • Incorporating efficiencies of new technologies without requiring massive downtime, costs or retraining. • Provision of scalable servers in order to run multi-terabyte applications.

BI in FMCG
As manufacturers deal with a complex array of daily issues, they can apply predictive analytics from Business Intelligence tools to enhance reporting capabilities, manage inventory, and improve the quality of goods. By evaluating a combination of ordering patterns, inventory levels, and replacement parts pricing using BI tools, manufacturing organizations improve margins while maintaining a high level of customer satisfaction. Business Intelligence with its predictive analytics enables fast, optimal calculation and evaluation of inventory replenishment policies that determine when certain items should be reordered and in what quantity. These policies help manufacturers achieve targeted customer service levels while minimizing ordering costs and inventory holding costs. Drastically reduce the time required to produce management reports, and to provide ad hoc reporting and analysis capabilities for a range of business applications. This can save up to 90% of previously manual reporting time. Reporting in a BI environment helps reduce the time required to produce management reports, and enables organizations to develop preformatted reports on a daily, weekly, and monthly basis. Manufacturers can use BI to monitor the quality of goods produced. With multidimensional analysis, manufacturing executives can drill down and quickly determine the causes of quality issues, enabling them to correct problems before products are shipped to customers. BI helps increase customer retention through a better understanding of their demand behaviour and feedback. Some other benefits are  Increase the value of customer relationships: Targeted campaigns can be launched for various customer segments based on their buying patterns and their recommendations and suggestions.  Respond quickly to the changing markets and company sensitivities: Nowadays, with the reduction in launch times of products and new products hitting the market in record times, the importance of changing strategies has assumed a new importance. Companies have to stop decisions midway or make drastic changes and in order to this they need the latest data arranged in a form which is easy to interpret and take actions.

 Launch new products sooner    Reduce inventory investment Improve scheduling, planning and the procurement schedule Maintain high quality standards Having BI also helps in easy implementation of standard quality practices such as Total Quality Management (TQM), Total Productivity Management (TPM) and Six Sigma etc.

BI in Retail
Business Intelligence provides solutions for retail industries. The retail business is most competitive industry segment. Retailers must satisfy their customers through multiple channels, and deal with the industry consolidations, growing profit targets, and shrinking margins. In this particular setting, the planning process must be collaborative and extend beyond finance to all the stakeholders. It must offer certain value to both managers and operational management thus ensuring participation and buy-in across the organization. With the Business Intelligence solutions, retail organizations can improve their ability to make timely, informed decisions in areas—store operations, marketing, merchandising, IT, and finance. BI solutions enable retailers and chains to:  Align their store and corporate operations around critical revenue and profitability targets; and also quickly adjust plans and resource allocations to achieve profitable growth.  Identify report on, and analyze trends to respond to consumer buying needs and behavior.  Gain visibility into key metrics across the chain: sales, labor, inventory, and promotions.  Monitor turnover and employee productivity.  Working on cost savings by comparing and benchmarking performance across stores, channels, regions, and divisions.  Optimize the merchandise levels, minimize out-of-stocks, and manage inventory costs.

Retail Solutions         Customer Profiling and Campaign Management Enterprise Performance Management Store Assortment Optimization Vendor Performance Management Labor Management Loss Prevention and Fraud Reduction Planning, Budgeting, and Forecasting for Retail Enterprise Information Management

BI at a US Food Distribution Major

BI at Nestle

BI Analytics (Past, Present and Future)

Data Transformation using BI

The first stage in any BI Transformation is the source of the data. There can be many sources such as Point of Sales data collected through hand help scanners, cash registers, RFID’s etc. Few other sources are through the Logistics and Distribution network, from the suppliers and the manufacturers. These data are then fed to the Operational systems from which it is stored in the central database. The BI starts acting here to convert the raw data into processed data using multi dimensional analytics and finally creating usable business reports.

Complete picture of a BI system (Source: ITC Infotech)

Major BI players in India (Source: India Business Directory)

(1) Teradata Corporation

The firm is world's biggest firm on increasing business intelligence through data warehousing and project analytics. Situated in around 40 nations, the firms provides a single source of reliable and precise data for professionals which help them in decision making and enhancing customer relationships, productivity and analytic competence to convert data into knowledge. Teradata has more than 850 clients and around 1,900 sub divisions all across over 100 nations. The firm has started its operations in India since 2001 and currently it has a R&D expansion facility in Bangalore and Hyderabad besides an international advisory centre in Mumbai. It aims to help in the expansion of Indian Business Intelligence

market as well as offer its customers knowledge on BI policies. The company desire to bring together the entire BI user group irrespective of the applications they have installed to satisfy their business requirements. (2) MAIA Intelligence The firm is dedicated to expanding and incessantly enhancing strong Business Intelligence reporting and assessment services to satisfy the requirements of corporate executions and application service suppliers. The firm stringently follows the administrative and professional norms and has in-house network and methods to provide their clients with BI tools and prospects to undertake the right instrument. The intelligence products are created keeping the client's existing and future requirements in consideration, raising the productivity and competence by converting data into actionable knowledge. The firm releases new product characteristics and improvisations after every three months to deal with commercial challenges that the firms undergo at present. (3) Binary Semantics Ltd Customer centric international software development firm, Binary Semantics Ltd offers software, research and development, website development, IT services besides optimization and calculated structuring solutions and advisory services. These services aim at reducing the business issues that the firm faces in its day to day operations across Europe, USA, Canada and India. The firm has a powerful software manufacturing techniques and has been authorized by American Quality Assessor (AQA) and ISO 9001 for software improvement and sustaining activities. The various technologies offered by the firm are Open Source, J2EE, Oracle, NET and PHP to wide range of sectors like fast moving consumer goods, insurance, automobile, hospitality, engineering, retail and travel. (4) IDC India Ltd Leading international provider of business intelligence, consultation services and IT, telecommunications and clients technology needs. The firm assists IT experts, business professionals and investment groups to make accurate decisions on equipment procurements and business guidelines. It has its operations spread across

110 nations for more than 45 years and is a subordinate of IDG, the primary media, research, and Events Company. IDC (India) Ltd., subordinate of CyberMedia, was established in the year 1987 and is an ISO certified firm. It is considered as India's most extensive, reliable and esteemed source for business intelligence and advisor in the IT, telecommunications and client technology sector. (5) TechAxes The self-motivated Indian based firms; Harbinger TechAxes is aspiring to lead the Business intelligence market all across the world. Analytics software and BI tools merchant, TechAxes offers complete services to the firms who desire to satisfy their systematic needs. The chief services of TechAxes are Incorporated Analytics, outsourced development, consumption & assistance services for BPM platforms, customization and Business Performance Assessment.

Understanding of Key performance Measures
Key performance measures (KPMs) are measures with the help of which the performances of organisations, their division, departments and employees are periodically assessed. In a corporate, where the role of Balanced Scorecard (BSC) methodology is to review and track performance, the KPMs are defined as a part of a hierarchical decisionmaking process. This process for this is briefly outlined below. 1. The strategy map of the firm is first formulated, and involves the definition of business and operational strategies in each of the four perspectives of the Balanced Scorecard, with due regard to the vertical, horizontal and other inter-dependencies between them. The four perspectives in this area are Financial, Customer, Internal Processes and Learning & Growth. 2. Objectives need to be defined under each strategy. These objectives should follow the SMART criteria - Systematic, Measurable, Achievable, Realistic and Track-able. 3. KPMs are to be determined under each objective.

a. KPMs should be acceptable, understood, meaningful as well as measurable. They should not be defined in a way that their fulfilment would be hampered by factors seen as non-controllable by the firms or individuals responsible. Such KPMs would not to be accepted. b. Sometimes, actual values of KPMs that are needed for comparison with target values during periodic performance review in the BSC process cannot be made, since there is no method in place to measure and collect the actual figures. In such as case, the use of these KPMs should be started after such a process is designed and deployed. All efforts should be made to put a method/process in place quickly. c. KPMs need to be meaningful in that the fulfilment of their targets actively contributes to organizational improvement. For example, the measure “Training man-days” under the objective “Provide adequate employee training” under the “Learning and Growth” perspective is not very meaningful since the fulfilment of the target in man-days alone does not indicate the usefulness of training itself. Hence, in addition, a suitable objective would be “Maximise Training Effectiveness”, and a measurable KPM may be defined under this new objective. This new KPM might, for instance, be called “Percentage of training programmes put to practical use within three months after training”. d. Typically, there will be certain variability in measures defined for each strategic business unit (SBU) of a company. The diversity of the KPMs would be due to differences in the product/service segments, business environments, markets, technologies, regional disparities, etc. in the business units. At the same time, however, the definers of KPMs must identify those measures that would be common irrespective of the nature, scope and location of the diverse businesses, and ensure that such KPMs are defined for all the SBUs. 4. The necessary inter-dependencies that exist between strategies defined in the strategy map means that the strategies of the lower-level perspectives of the Balanced Scorecard framework are aligned with those of the higher-level perspectives. For example, the strategies of the customer perspective are aligned with that of the financial perspective, hence achievement of the objectives of the customer perspective are important in itself, but also as a sort of necessary condition for the achievement of objectives of the financial perspectives. Thus the lower objectives need to be aligned with the higher ones. 5. From the above, it follows that there should be similar alignment of the measures selected for each objective with the measures of the “higher” objectives, and this fact must be kept firmly in mind while defining them.

6. Numerical targets are set for each KPM. These may be in terms of: a. A single value b. An upper limit c. A lower limit d. A range of values e. A percentage of a specific quantity/value f. A scheduled date by which a given task is to be completed, etc.

Identifying Indicators of Organization
Performance indicators do differ from business drivers & aims (or goals). Few schools may consider the failure rate of their students as a Key Performance Indicator which may help the school understand its position in the educational community, whereas a business may consider the percentage of income from return customers as a potential KPI. But it is necessary for an organization to at least identify its Key Performance Indicators. The key environments for identifying KPIs are:
   

Having a pre-defined business process (BP). Requirements for the business processes. Having a qualitative/quantitative measurement of the results and comparison with set goals. Investigating variances and tweaking resources or processes to achieve shortterm goals.

A KPI should follow the SMART criteria. This means that the measure has a Specific purpose for the business, it is Measurable to get a value of the KPI, the defined norms have to be Achievable, the KPI should be Relevant to measure (and thereby to manage) and it must be Time phased, which means the value or outcomes are shown for a predefined and relevant period. The major Key performance Indicators in the area of Supply Chain for an FMCG company like ITC, P&G can be divided into the following four areas:

 Supplier Perspective: The Business Intelligence reports and KPIs that we find in this perspective help a company to evaluate the performance of its suppliers. Some of the questions that are answered in these reports are: 1. 2. 3. 4. How efficient are the suppliers? How strong the relationship is between the supplier and the firm? What is the strength of the supplier? What has been the performance of the supplier in the past few months with respect to the on time delivery, percentage delay, responsiveness in case of urgency, and the quality of raw materials supplied?

Some of the important key performance indicators identified in this area are:  Supply Lead time against inventory norms  Reponse Delay  Rejection rate  Online Rejections  OTIF  Percentage delay  Responsiveness to urgent deliveries

 Manufacturing Perspective: The reports and data analyzed in this perspective help a firm to answer the following questions: 1. How efficiently are the materials utilized in the factory? 2. How is the performance of different factories in terms of the inventory management? 3. The trend of monetary loss due to write offs and stock outs? 4. What is the capacity utilization in the last few quarters? 5. What is the volume contribution of the top few products for the company? 6. Capacity Utilization and efficiency for each line for the plant? 7. Material Categories with large amount of wastages? 8. Stocks in the danger zone?

Some of the important key performance indicators identified in this area are:                 Rejection Rate Material utilization Capacity utilization efficiency Stockout loss Write offs Space utilization Volume contribution of top 20% SKUs Products with more than a specified number of days of inventory OEE Equipment failures Production service level Inventory days of supply Cost per operation hour Power consumption per ton produced Wastage/scrap loss

 Shipment Perspective: This perspective helps a firm to analyze the delivery of various products from the factory to the wholesale distributors or the warehouses. Some of the important key performance indicators identified in this area are:      Forecasting error Fill rates Confirmed fill rate OTIF backorders

 Financial Perspective: Following questions are answered in this area:

1. 2. 3. 4.

Finished goods inventory turns wrt. major competitors & ITC norms RM inventory turns and the month by month trend for the last year. Sales trend (brand wise) Supply chain cost components

Some of the important key performance indicators identified in this area are:  Inventory Turns  Sales  Asset turns  Cash Cycle time  Total supply chain cycle time  Purchase order cycle time  Input Freight Costs  Tax and Surcharges  Conversion cost  Manufacturing Cost  Inventory Carrying cost  K2 freight cost

Retail Sales Schema
The following diagram shows the retail sales schema with a set of fact tables and dimension tables:

Balance Scorecard Report: Example
Retail KPI Loyalty Cost of Services per Customer Plan 50% 50$ Actual 40% 60$ 20.00% 20% 15% -25.00% 100$ 95$ -5.00% Variance -20.00%

Rate of service charges / profits

Cost per agent per month

FMCG company:Raw Material Vendor Performance RM Vendor Name Shpmnts Cost/Unit Del.Shpmnt % Avg. Del.Days OTIF % Qty Rej% Category Clariant Chem. 22 Colors & B Pigments C 2 2 10 20 15 14 12 13 5% 50% 0% 100% 0% 70% 0 7 0 43 0 10 86% 50% 100% 0% 0% 10% 2% 1% 0% 0% 0% 0%

Cognis GmbH 1 Fatty D Substance 1

GODREJ IND. 10

Recommendations
 If an organization is big and complex, it is recommended that one should opt for a well established and robust Business Intelligence product like SAP BI or COGNOS.  Designing and developing a fact table with too many dimensions leads to significantly increased disk space requirements. Hence one should take care while selecting the dimensions.  One should clearly state the grain associated with the proposed dimensional schema  It is vitally important to populate our dimension tables with verbose, robust descriptive attributes.

References:
Websites:
(1) http://business.mapsofindia.com/business-intelligence/companies.html (Accessed on 15th April, 2011) (2) www.thorogood.com/Knowledge/BI+in+FMCG.htm (Accessed on 15th April, 2011) (3) www.en.wikipedia.org/wiki/Business_intelligence (Accessed on 11th April, 2011) (4) www.ibm.com/software/data/businessintelligence (Accessed on 12th April, 2011)

Reports:
(1) “Basics of business intelligence systems—an executive overview”, Published by IBM in June, 2003. (2) “IBM Retail Business Intelligence Solution”, Published by IBM in 2005.