Running Head: Rocket Science Retailing 1

Rocket Science Retailing Is Almost Here - Are You Ready?

Course: Operations Management (MGT 402)

Submitted To: Ms. Aqsa Sultan

Submitted By:

Ayyaz Asif

Laiba Tariq

Minahil Khurram

Rasikh Khawar

Submission Date: 8th October, 2022

Rocket Science Retailing Is Almost Here - Are You Ready? 2

Contents
Introduction .................................................................................................................................................. 3
Forecasting ................................................................................................................................................ 3
Supply Chain Speed ................................................................................................................................... 4
Inventory Planning .................................................................................................................................... 5
Accurate, Available Data ........................................................................................................................... 5
Costs, customer satisfaction and morale. ................................................................................................. 6
Marriage of Art and Science ..................................................................................................................... 6
The Systems at the Core ........................................................................................................................... 7
International Examples ............................................................................................................................. 7
Local Examples .......................................................................................................................................... 8
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Introduction
The perfect formula for retailing to yield maximum profit is to provide the right product in the
right place at the right time for the right price. Retailers need to find out the right amount of
inventory they require in order to prevent inventory surplus or deficit. Retailers need to combine
their art of intuition and technology in computer models to calculate the right demand at any
specific time and place. This article did a multiyear survey of 32 firms to track their rocket
science retailing process, which consists of four techniques; forecasting, supply-chain speed,
inventory planning and gathering accurate, available data.
Forecasting
1. Update forecasts based on early sales data

When a product is launched in the market, the early days of sales can help the firm predict the
amount of inventory required in the following weeks. This variable is especially helpful for
shorter life cycle products such as apparel, electronics, books and music. Most of the 32
companies surveyed did not follow this forecast method.
Clothing brands, Zara and World Company, have successfully used this strategy to estimate the
upcoming demand of apparel and to immediately reorder the high selling designs right before
they stock out. World Company has yielded a return of 300% on their investment in this strategy.
Similarly CompUS, a computer selling company, has also updated their inventory after one or
two days of early sales, by estimating the demand. Often retailers contact their suppliers and
decline those items which are not doing well in the market. A book and music retailer, Borders
Group, keeps different products in their stores at different locations due to the difference in
consumer liking.
The following diagrams clearly show how much discrepancy in forecasting can occur when
forecasting sales before products reach the market (left graph) and when forecasting is done
based on early sales (right graph).

2. Track and predict forecast accuracy

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According to the survey conducted, only nine out of 32 retailers have applied this strategy. The
margin of error is a major issue which can cause a huge discrepancy between the actual amount
and the estimated amount. If there is a margin of error of +/- 50% on 10,000 units when
estimating through early sales, it can cause an error of 5000 units to 15,000 units which will lead
to either a shortage or surplus of inventory.
Forecast accuracy can be measure through the ‘Obermeyer method’, which is used by World
Company. Around 30 employees of the company act as target consumers towards the new
products which are displayed in front of them. According to the World Company’s findings,
products which cause greater disagreement among the employees, will cause a greater error in
forecasting.
3. Get the product testing right

A majority of retailers in the survey agreed that they do test a new product in a few stores before
launching it officially in the market. However, most of them agreed that this test was not
accurate because even those products who did not do well initially were launched in the market.
There are other external factors, such as the selection of store, which can hinder the test and give
inaccurate results. This inaccuracy can be improved by going through historical sales data and
choosing an appropriate test store.
4. Use a variety of forecasting approaches

Multiple forecasts are better than single forecast as they provide a better overall view of the
future of the company keeping in view different factors. For example, Old Navy, a division of
Gap, makes use of bottom-up and top-down forecasting approaches which look into different
factors. The bottom-up forecasting estimates the future demand based on factors such as ‘current
market trends’, ‘product’s “fit” with the target customer’ and ‘complimentary products offered
with the core product’. The top-down forecasting looks into factors such as ‘economic growth
rate’ and ‘corporate growth objectives’.
Supply Chain Speed
Supply-chain speed plays an important role mainly for the products which have shorter life
cycles. Many products take time to be produced and time for their production cannot be reduced
even if wanted to. One of the merchant said that tests are done to help in save time for production
but those tests merely gives any results, another retailer mentioned that 11 months are needed to
place orders even though the life cycle of the product is less but a company who has the ability to
respond efficiently can reduce the time period by observing sales which can also help in reducing
the cost of the product. For example World, a Japan based apparel company, applies this method
which helps them in producing and delivering the products within two weeks. How does the
company achieve such short response time?
First, they invest their time with their supply chain partners and stores large scale inventory like
buckles, zippers etc. Even though it’s a risk to store this much inventory but World finds it safe
to do so as their forecasts are accurate. Secondly their factories solve any kind of issues they
face. Their employees in the “debug area” work closely with the designers at World’s corporate
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office which resolves many issues and they make their production very efficient. Thirdly the
employees have the authority to make decisions on their own like the decision to design. They
hold a meeting in which there are five to six division managers which is a very time saving
method.
The main problem is that why can’t other companies be like this one as 11 month lead time is
very long period. Different companies attempt various methods to reduce the time but none of
them are efficient enough. One distribution manager mentioned about a video which can improve
the efficiency. The video discusses about a fast warehouse that how the shipments of garments
can be done in less time instead of taking longer time if the orders from different stores varies
according to their needs. A problem faced by companies is that they fall into a vicious cycle due
to which proper decisions are not taken instead they argue among themselves proving their own
points.
Inventory Planning
Inventory planning is to decide when and how much would be produced of different kinds of raw
material, components and finished goods. It is important to track the inventory to prevent from
stock outs as it results in the decrease of revenue and sales for the companies, as tracking the
stockouts would help the retailers to set an optimal amount of inventory and this could help
retailers in the betterment of their supply chain management.
A method was developed to evaluate lost sales. It had two steps as firstly, it would calculate the
demand rate for a product by evaluating the sales pattern when the product was in stock and
secondly it combined the demand rate with the products stockout at a specific store to obtain lost
sales. This method estimated lost sales with high level of certainty. For example, Bulgari
stockouts on a single product at one store resulted in 3.5% decrease in sales revenue and Bulgari
is looking for ways to improve its planning process.
Accurate, Available Data
Most of the retailers have difficulty in capturing and maintaining the sales data that are correct
and available for the employees. Store level data are inaccurate mostly because of improper
handling of data as for example in grocery stores when customers buy 2 containers of yogurt of
the same brand but of different flavors and the checkout clerk scans one of these items multiple
times which causes the inventories to be inaccurate for both of the items. Moreover, most of the
clerks do not spend extra time to check the price look up codes accurately which upsets the
customers. Besides this, warehouse employees sometimes ship the wrong item for example small
shirts instead of medium shirts. Not only this but, when the number of items shipped per box
weren’t instantly entered in the retailer’s merchandise replenishment systems.
Retailers are not aware that their information is inaccurate because they don’t track data.
However, zero balance walk is practiced at Staples as in this the employees walks around the
store to look for Stock Keeping Units that are not in stock and if any item is not in stock then a
stockout card is generated and is placed in the reserved space of that item and the other
employees check for the sudden increase in demand, computer data error etc. and if the stockout
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was due to faulty data then it is corrected. This helps Staples to estimate and improve data
accuracy.
It is important to keep the history of sales over year as it contains useful information about sales
patterns and average forecast errors are mostly similar from year to year. The retailers should
store sales data digitally so that’s its available for the merchants since the cost of computer
storage space has decreased.
Lastly, some of the retailers don’t make recent sales data available at the detailed level and this
causes stockouts which upsets the customers and this inaccurate and incomplete data causes
inflexible supply chain.
Costs, customer satisfaction and morale.
In order to completely achieve rocket science retailing apart from the 4 crucial areas that have
been mentioned before the metrics that these were based on included forecast accuracy,
inventory carrying costs etc. But one area that is often over looked by organization’s customer
satisfaction and employee morale. Businesses often try to cut costs in order to gain short term
benefits, while ignoring the bigger picture. These cost cuts often lead to dissatisfaction in the
customers and low employee morale. In the study one organizations senior managers put
pressure and emphasis on immediate rise in profits that lead to making some workers redundant
even though this proved to generate short term profits this made employees unhappy and
customers unsatisfied.
In order to avoid mistakes like this, retailers should keep a thorough check on employee morale
and customer satisfaction, they could engage an outside audit firm that keeps track of these
factors as without this the retailer would suffer worse in the long run. So retailers shouldn’t put
immense pressure on profit making that would benefit them in the short run as it has dire effects
later rather they should keep track of other factors that can result from these short term profits.
Marriage of Art and Science
Left brainers are those that rely on scientific technology based and factual data and right brainers
they rely on their instincts. The core foundations of rocket science retailing involves a fusion of
both as both need to blend together especially in planning. Organizations keeping in mind this
view have a left brained planning organization and right brained merchandising organization.
The planner will look at sales data in the absence of software’s to determine stock quantity,
while the merchandiser looks beyond these data and identified changing patterns in consumer
demand and develop new products.
This blend appears to work well at most retailers, but in majority areas there is room for
improvement. For example, a CEO in the study told the researches that the relationship between
merchandising and MIS is broken. These MIS specialists have no prior retailing experience they
have expertise in data base management and IT, so due to this they don’t fully understand the
needs of the merchandising organization. In majority cases there can be seen even a language
barrier as they don’t fully understand each other’s terms for example in an organization the MIS
group were shocked by the merchants in the same company when they said they follow
something the whole time but in reality they meant 75% of the time which is shocking to the
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MIS left brainers who take things literally and that meant 100% for them. It is unclear right now
how this relation would evolve but this is crucial, for merchandising to become scientific, that
these two groups understand each other.
The Systems at the Core
For rocket science retailing to become a reality, retailers must pay attention to their planning
systems and what they’re based on. Most retailers understand the basics but these software’s are
based on products with long life cycles and don’t consider products with shorter life cycles such
as a few months only. A catalogue retailer that bought a software for short life cycle products
used it project demand and inventory levels the software gave him an answer but that was based
on inflated sales because the product only had high sales in the first week and considerably lesser
in the next three, making the extra inventory left useless. Most of the software’s take into
account 2-3 years or demand history but some products have a measurement of only a few
months, so this can be a problem but in the near future this problem will be dealt with. Rocket
science retailing requires decision support tools, the existing ones have been a disappointment
for the ones using them as it does not use appropriate mathematical techniques and produce
substandard results.
For example, a simple take of using early sales data to order new stock, see what’s selling and
order more of it, but it’s not as easy as it sounds and requires careful details and analysis, such as
under what conditions did it sell like price and inventory levels. This is explained by example of
one retailer, that ordered a product that had promising early sales data and was selling in one
particular colour that was back ordered, but soon the sales declined contrary to the predictions of
the model. This wasn’t the models fault as it did not take into account the lack of stock when the
new order was placed as most stores had run out of sizes and once the new stock arrived sales
went back to the predicted number. If you don’t have it you can’t sell it this is often over looked
when collecting sales data.
There exists a vacuum which has to end, retailers must give consideration of the sales history
that is ignored and this vacuum that exists must end. Every decade a retailer brings about a
revolution like in the 1980s it was Walmart and in the 90s it was Amazon, the researchers
believe that the next coming revolution would be regarding one’s who combine access to
consumer transaction data with the ability to run information into action.
International Examples
I. Update forecasts based on early sales data. According to Apple’s early sales of their
latest iPhone, iPhone 14 series, the company has decided to reduce the production of
iPhone 14 model and increase the production of iPhone 14 Pro models. This was because
the iPhone 14 Pro models performed better than the entry level handsets from the latest
release.
II. Get the product testing right. McDonalds initially introduced their McCafe only in the
Y block DHA branch of McDonalds in Lahore back in 2018. After testing the products in
that particular branch, they decided to introduce the McCafe products in other branches
as well.
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III. Supply chain speed. The supply chain management system used by Samsung includes
constant risk factor monitoring, initiatives to boost supplier competitiveness, better
working conditions, active customer communication channels due to which Samsung
does not face issues when it comes to supply management.

Local Examples
I. Inventory planning & Costs, customer satisfaction and morale. The article is
profoundly relevant to the Pakistani market and the whole retailing industry here.
Mainly in Pakistan the small level retailers do not employ any sort of information
technology software in their inventory planning, forecasting. Gathering accurate and
available data is also a farfetched concept in Pakistan for these smaller retailers. On
the other hand, even big brands such as Pepsi co and Cadbury can also mess up. A
few years back Cadbury released a chocolate called “bubbly”, this chocolate was sold
out quiet instantly at all retailers as the demand was exceptionally high, as a result,
consumers were disappointed when they wanted to buy it and it was sold out at every
store.
The retailers did not forecast the demand or plan ahead by ordering sufficient
inventory this resulted in sales declining as the product wasn’t available consumers
became unsatisfied and the demand slowly died out. This could’ve been prevented if
the left brain and right brain wing worked together.
II. Inventory planning & Costs, customer satisfaction and morale. Similarly, the
same incident happened after a few years again when 7up released their new
Strawberry Lemonade, it was the Bubbly scenario all over again, retailers in these
years have not yet developed the systems and still are making these blunders.
Retailers in Pakistan must adopt these new methods and rocket science retailing must
become more and more prominent in Pakistan. Moreover, other retailers such as
Bagallery or other retailers, run out of stock quite frequently and this causes customer
dissatisfaction. Retailers should track the customer satisfaction data as it would aid
them in the long run. Moreover, retailers in Pakistan should study the market and the
consumers and collect accurate data and keep a track of this accurate data.
III. Update forecasts based on early sales data. The holy grail of retailing being able to
offer the right product at the right place, at the right time for the right price. Stores
like Alfatah are selling the same products in every location not considering the fact
that the consumers in different areas have different wants and different tastes, maybe
the products selling in DHA won’t sell that well in stores that aren’t located in more
posh areas, these retailers should keep a track of this sales data and incorporate it into
the forecasting and inventory planning. Supply chain speeds are also crucial as if a
product isn’t available it is very much possible that by the time it becomes available
the demand has significantly declined.