Outliers are Special

Accurate prediction of the future demand is a mirage that every Demand planner aspires to achieve. Some do it better than the others, but no one has successfully cracked the cookie yet. Usually they take the historical data (for existing products), cleanse it (identify and tackle the Outliers), form a pattern (using an appropriate forecasting technique) and then predict the future demand (based on the same pattern).

There have been tons of articles written about the cleansing the data. I do not want to re-iterate here that why the data needs to be cleansed, what techniques are used for it and so on. There is a general perception (and rightly so) that the outliers sway the future predictions in wrong directions and hence they should be handled carefully. The outliers are often demonised and advised to be get rid of. But in my point of view the Outliers are not always bad. They sometimes help the planners in more ways they can think.

Depending upon the outliers, one can remove them completely from the historical data or replace them with an appropriate number but MUST NOT ignore them. Every outlier must be analysed properly and considered for future predictions. These outliers are more than just an anomaly. They sometimes give a hint of the things that are going to come in future -

Point Outliers

When a data point is entirely out of context, it can be termed as Point Outliers. For example, all the stores of brand XYZ are doing a certain average business of say $10,000 a month. Last year, for the month of June one particular store reports $20,000 a month sales and $10,000 at an average thereon. It definitely is a Point Outlier and maybe ignored while taking this as historical data for future predictions. But before ignoring it one must dig deeper and see the reasons behind it. Was it the case of mis-reporting? Were there some store level promotions on offer? Or Was there some Corporate order that the store manager managed from some organization? If later then there maybe the cases of some repeat orders. Getting more details about this outlier (instead of simply ignoring it) will help the planner predicting and planning better for the future season.

Group Outliers

When a group of continuous data points are significantly out of the pattern, they can be termed as Group Outliers. For example, total returns of goods sold by brand XYZ is say 5% items per week. However, for all the weeks of month November and December this increased to 20%. Again, these are Group Outliers for sure, but the planner must analyse if this spike was just because of the rush shopping during the Holiday Season? Or there is some issue with their winter clothing? If former, then they have to account for a similar returns next year as well. It stays an anomaly but no more it can be ignored. And if later, then they can ignore the numbers but better buckle up their suppliers for winter clothing.

There can be multiple such examples to prove that these outliers are not ‘just another’ abnormality in the pattern, but they sometimes worth much more than that. Hence, you may still like / dislike the outliers but must not make the mistake of ignoring the outliers!!!

Culture Of Innovation @JDA

Ideate: It was a late Friday evening—that time of day when most people usually leave behind their work for the week. But that evening, things were different at JDA Bangalore. Desks were illuminated, and a chorus of voices excitedly talking could be heard down the hall. Acronyms like ML, IOT, AI, NLP were used at an alarmingly high frequency.

It was the sound of innovation, the sound of ideas being born into reality. As I walked around, I could see JDA associates immersed in projects throughout the office floor. These innovation zones housed some of the most advanced technology available today (and in the future): Arduino devices, mixed reality gears - the type only seen in science-fiction movies - high tech heat/load/sound sensors, next-generation assistants such as Amazon Alexa and Google home, etc.

Energy was high and creativity at its peak, as JDA Bangalore, along with JDA Hyderabad, geared up for an innovation festival called: JDA Crystal Ball, an event across the company’s two India-based Centers of Excellence, established to tackle the constant shift in technology head-on through our best asset – our people.

The enthusiasm was contagious; everyone wanted to be part of this momentous JDA event. The teams worked days, nights and multiple weekends to not just to ideate but to convert their ideas into a prototype, into a proof of concept. Some teams had moon-shot ideas while the others were solving incremental problems. However, everyone had a single-point mindset to ‘Passionately Innovate’. Innovate how we work, innovate how our customers work, innovate how their vendors work.

Execute: Crystal Ball was a three-month effort toward creating a funnel for ideas that will fuel JDA’s transformation and customer experience. What an amazing event it was! Proof of concepts, not just ideas, ruled the floor with concepts spanning across a large spectrum of subject areas such as the Internet of Things, artificial intelligence, machine learning and cloud technologies impacting supply chain, supply chain optimization, etc. What had begun as simple “what if” transformed into a success that exceeded almost everyone’s expectations, and the JDA executive team applauded the visionary work of the collective teams.

Dream: Now, what’s next? Will anything change after this? Was this a onetime event? It cannot be! In fact, Crystal Ball was a catalyst for unleashing the hidden passion and talent of so many JDA associates. As with any journey, the first step is the hardest, but we’ve now taken it…and there’s no looking backward.

The impact of Crystal Ball can be seen, and felt, in every corner of JDA India. Those who presented their ideas are working to take them to next level. Some are talking about patents, and others are working on how to productize their ideas. This is attitude of innovation is infectious; we all feel it, we all want to be part of it. Those who were not able to present their ideas are highly motivated for the next time around (because we know there will be a next time!). Associates are staying late or coming to office during the weekends, not for their day-to-day stuff.. but 'to innovate'. This changed mindset, I believe, is the biggest achievement of the Crystal Ball showcase.

I can’t thank more to the JDA leadership for giving us this excellent opportunity (and the Crystal Ball Award for being the best idea in Bangalore :-)). I can confidently say that our leadership has kick started a new culture at JDA… The Culture of Innovation!!!

Divide and Rule

The Pizza Problem

I love Pizza and frequently order from a shop that guarantees to deliver a Pizza at my doorstep within 30 minutes from placing the order. I always wondered what it takes for them to receive an order, prepare a Pizza, get it packed with sides, travel to the destination locality, search for the correct house and then ring the bell – all within 30 minutes – every single time.

Usually it takes around 12-14 minutes to prepare a Pizza and they cannot cut short that time. Packing, billing etc. will take its own 2-3 minutes as well and then the delivery guy has to travel a certain distance which s/he cannot fly and cover (I stay in Bangalore and the traffic here is a maddening). So what are they doing differently for making the timely deliveries?

One fine day I happened to visit their store and peeped into their back room. There was a map of my area in a frame with the glass-top and on the glass they had drawn straight lines something like this –

Curious about the map and those partitioning I asked the store manager about the specifics of the map. He told me that he has divided full area into imaginary zones and assigned one each to his delivery boys. The delivery boys are supposed to know every main road, every cross road and every landmark of that zone. So that when they are out for delivery in their own assigned zone they do not waste time finding the destination. The manager said that it is impossible for 6 delivery boys to know full 6 Km² of that area but it is very much possible for one single person to know 1 Km² of the same area. Now, all he needs to do is that the right delivery person is assigned to the order placed from the right zone.
It struck to my mind that their problem is similar (if not the same) to the one in a typical warehouse, i.e. to fulfill an order quickly. And for a similar problem why can’t we have a similar solution? Why can't we too 'Divide and Rule'? –


Warehouse Partitioning
What if we partition the Warehouse Storage locations into zones and assign those zones to individual pickers? Take the example of a Warehouse which is 10,000 sq. ft., has roughly around 4000 storage locations and around 8 pickers cover those 4000 locations. Now it is impossible for 8 pickers to know what is where in 4000 locations. But it is very much possible for 1 picker to know what is where in his quota of 500 locations. This does not mean that the picker will have to know exactly which box contains what, but he can have a rough idea in his mind that the items in his zone are in so and so order, the smaller SKUs are kept here and next to them are the fragile ones… and so on.

This will solve two problems – first being the quickness in identifying an item, which can be a lot quicker than earlier when the picker was dependent on the system to guide him. It is like searching for a house in a neighborhood with the help of GPS (which more often than not will take you to the correct house) Vs. searching for a house in your own neighborhood (to which you are well versed of and you do not need a GPS). Obviously you will find the house (read location) faster when it is in your own neighborhood.

Secondly, one of the major pain points for the workforce in a warehouse is that they have to walk a lot. I read an interview of a Picker who worked in a large Amazon Warehouse that he had to walk over 30 miles a day (within the warehouse off course). This might be a one off case but we all know that a pickers typically has to walk a LOT. So if we go for ‘Warehouse partitioning’ approach, the distance travelled by the Pickers can be reduced drastically as well. Which in turn will keep them happy and less tired, which in turn will add to more productivity for the Warehouse.

There can be some challenges with this approach like what if a picker who is familiar from his zone is unavailable (then the business will run as it does today, depending on the systems available today – big deal) OR the picking traffic for one zone is more than the other (that is why the partitioning has to be done more sensibly in our case and we cannot just put squares like that in case of the Pizza Store) OR there can be some other similar problems, but with due diligence (I believe) those problems can certainly be tackled I believe.

There can be an argument against this approach saying that we are going back to old / manual ways. Well first of all, not everything is bad with ‘old ways’. Secondly, the suggested approach will be a hybrid between the old and the new ways of doing the job!!!

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“Same Day Delivery - Need Of The Hour”. Really?

E-commerce in India (though growing rapidly), is still in its nascent phase. People like me (not the early adopters) have moved from ‘Skeptical’ to ‘Comfortable’ zone while buying online. The motivators that took us to an Online store (or an ‘E-tailer’ so to say) from a Brick and Mortar store were heavy discounts, convenience of sitting at home and shopping, available reviews of products, ease of comparing the products, ease of returns, time to think and buy instead of impulse buying and a few more. Things that I lost in the process were to touch and feel the product before buying it and that immediate satisfaction / happiness when I pay for something and get that right then without any time delay. Well we are smart enough to overcome the first issue (more often than not) by visiting some mall over the weekend have a look at that phone or that shoe or that wrist watch that we intend to buy, come out of the store and order it right then through our smart phones. And that’s it, we are done, the item will be delivered at our door step. But wait… this might take its own sweet time. Depending on our location and the Online retailer’s warehouse, we might get the item somewhere between 3 to 15 days or more. Now, in this cut throat competition world of E-tailing, the top dogs have come up with the concepts of ‘Same Day Delivery’. Recently Amazon and Flipkart have launched ‘Amazon Now’ and ‘Flipkart Nearby’ respectively which promise a delivery within a few hours. Sounds crazy? Not really… Let’s see how is it possible -

How do they do it?

Same day delivery (or delivery within a few hours) is easier said than done. The E-tailers will probably need a separate Supply chain which works on a minimal lead time at every node. Among other things the E-tailer must have - 1) A highly efficient team that understands and plans according to the customers’ buying pattern 2) A smart warehouse 3) Swift logistics partners.

After the new system is built up and the customers start placing ‘Same day delivery’ orders at the Online store –

Needless to say that it will need a lot of Financial muscle for the E-tailer to build and then sustain this model. The product category has to be such that it requires less space and fetches high margin to the E-tailer. Price point cannot stay as competitive as it was before. But as they say “No pain - No gain”.

Will it really work?

As described above, the for the same day delivery all the components involved in the new model of supply chain have to work like an orchestra and produce a symphony. If any link of this chain gets broken the E-tailer is unable to live up to its promise. It results in an unhappy customer and a few unhappy customers in this internet enabled world may hurt badly to E-tailer’s brand image. So after putting so much effort, after spending loads in getting the infrastructure up the E-tailer still risks its brand image by promising something that it may not always control i.e. to deliver products within few hours. One needs to understand that this is way different from a ‘30 mins Pizza delivery’ (because of so many variables involved here).

And for a moment let us assume that the Orchestra is in sync and producing a beautiful symphony. Are the end users in India ready to pay more to get the product on the same day? I don’t think so. We are the people who do not mind waiting for weeks to get something along with our friends travelling back from the US just to save a few dollars. We are the people who stood in queues for kilometers and to whom police had to control (in Mumbai) when Big Bazar offered some discounts during their initial days. We are the people who do not mind travelling extra miles even to different cities sometimes to save some extra bucks. So we don’t really mind waiting for a few days if we get something cheaper (compared to receiving it the same day).

While it might be a great idea to beat the competition but there are things that attract Indian customers more than faster service, like MORE DISCOUNTS.

How much to buy: Stock-outs Vs. Over-buying

It has been a retailer’s dilemma for decades now, to decide whether to buy more or to buy less. Buyers try all permutations and combinations but no one really knows exactly ‘how much to buy’. How much to buy, so that none of his inventory goes into the markdowns; how much to buy so that his sell through remains 100%; how much to buy so that he never faces stock-outs… In fact these are all hypothetical situations. Hypothetical, not because they are unachievable but because no-one knows that right ‘Buying Quantity’ to fulfill these conditions. Well, neither do I.

But I know that there two things which if we can achieve we can get pretty close to the above highly desirable hypothetical situation –

·         Make the buying process more responsive

·         Take care of the under-performing inventory

By making the system more responsive, I mean that the buyer must have the ability to reconcile the in-season sale for an option with respect to its current inventory, at regular intervals. This will empower the buyer to take the course correction whenever required. The system should not only account for the selling trends of a certain option but also should get cues from the market/fashion dynamics about the potentially good options. Depending on the above two, the buyer can be in a better position to decide on whether to ask for more/less inventory from the vendor. But this will help the buyers only to a certain level because given the lead times and different supply chain constraints the buyer has to abide some timelines and he cannot buy beyond that.

So, if something has already been bought and is not selling well, what can the buyer do now with this under-performing inventory?

One option is - that the system should also allow the buyer to have the visibility of the planogram of the stores and in case the underperforming option is been displayed at some dead areas of the stores, probably the buyer can suggest the stores to keep it on certain focal points for some time and observe the trends.

And if the above doesn’t work, the buyer can always get the selling trends for that underperforming option from different set/grade of stores (or channels), and he can surely rearrange the option by taking it out from the underperforming set of stores (or channels) and sending them to the performing set of stores (or channels). In case if this also doesn’t work then it is better to keep that option out of shelves and it should be considered for promotions.

Now, all this is no rocket science and people know this more often than not. But Is it that easy to achieve all this? Do we have the right tools to achieve this? I doubt. The planning tools today are more focused upon what buyers ‘want’ instead of what buyers ‘need’. What buyers ‘want’ is a tool which enables them to buy. But what they ‘need’ is a tool that minimizes their markdowns and never lead to the stock-outs (and off-course helps them to buy). The provider who realizes this the earliest will be the one walking tall in future…

FDI in Indian Retail – A boon or a bane?

By allowing 51% FDI in multi-brand & 100% FDI in single brand retail sector, the Indian government conveyed to the foreign retailers that ‘We are Open’. The notification is out and in the midst of some resistance by the opposition parties, it is confirmed now that we are soon going to witness second major turnaround in Indian economy in the span of (close to) two decades.

Now the war of words is going on between parties trying to prove how good or bad this decision is for India. People in favor, quote Indian Staffing Federation (ISF) which says that this move will create around 10 million new jobs in India. But ‘what about the millions of people already employed in unorganized retail, who will be negatively affected?’ asks the opposition.

The second major petition that comes from the earlier camp is that the giant retailers will build an infrastructure of cold storages and warehouses and will manage the supply chain system more efficiently which will reduce the wastage and in turn will benefit the farmer as they will get the value for most of their produce. Well I was reading somewhere that in India we waste 1 out of 3 apples in the journey from farm to the refrigerator of the end user, whereas this figure is as low as 2 out of 100 in Australia. In a country where we see tons and tons of wheat rotting under the sun and rain, this betterment of supply chain surely makes a lot of sense. But then there is a flip side too which comes from same Australian example where wine industry is dominated by a cartel of few players. These giants dictate the prices and farmers have been heard of getting cheated / exploited at times.

As we see, there are hundreds of lucrative arguments in favor of FDI in retail but there are thousands that are horrifying as well… So what should we do? What should government of India do? Guess the answer is not as difficult as it looks like – people feared in a similar way when ‘Computers’ were brought to us for the first time. They said one machine will do the work of hundred people and will in turn make them jobless. Well today we are one of the biggest exporters of IT and ITES and the industry has created millions of new jobs. People also feared when the FDI in manufacturing was introduced that this will kill Indian manufacturers and so on. Well today we export cars to US and Europe; the big foreign car manufacturers became umbrellas to the small scale industries nearby and not only shielded them but also provided them business and employment.

So, being skeptical at times is OK, but not always. Today when countries in Europe are filling bankruptcy and the growth story of India is fading, I would say that this decision will be a major turnaround for the people of India. This will have much wider impact on employment than IT impact 12 years back as it will also open the doors for less skilled / educated people of India. Not only the supply chain network will grow and become efficient but also it will educate our farmers how to improve efficiency and use the best practices in their farming. Surely it is a dream today but 10 years down the line we may see many English breakfast tables in UK whose items will read ‘Grown in India’. Wow what a sight that’ll be…

Also, I don’t understand why we are underestimating our baniya sitting at the neighborhood Kirana stores. He has been innovative in selling since inception. He did not get impacted when the likes of ‘More’, ‘Food Bazar’ etc. opened in India. In fact this Kirana guy learnt the concepts like ‘Visual Merchandising’ (off course not using the planograms and all but the effective utilization of his space) and ‘Free home delivery’ etc. So I am sure he will thrive against this new competition as well. Now about the fear of monopoly and cartel formation by the international retail giants, there are 1609 cities/towns in India and only 52 of them (at max) are going to have these giants. And there too the Mandis will still be around and not banned. So I don’t think that anyone can ever form a cartel here in India and exploit the sellers/farmers.

In the end, I would just like to quote one good line (from a not so good soft drink’s add) – “Darr se mat daro, darr ke aage badho, kyunki darr ke aage jeet hai”. So let us put an end to our fears and welcome the FDI in retail and see what it has to offer.

A Mail to NOBODY

For decades now, Word-of-Mouth has been identified as one of the strongest means of communication in marketing community. It started in 1970's when George Silverman - a graduate from Harvard University discovered it, while conducting a focus group discussion with few physicians and he noticed that one physician who was having good experience with drugs was able to sway the entire group of skeptics. From Harvard it reached Hollywood (where promoters and distributers started creating a hype of their up-coming movies in advance through Word-of-Mouth) and finally it landed into the world of retailing. They started using Word-of-Mouth to create a marketing buzz to amplify the original message of their marketing campaigns.

Today the marketers have stepped up to the next level and are using mediums like blogs, tweets etc. to exploit the potentials of Word-of-Mouth. Marketers are increasingly using the Blogs not just for creating those 'pre-launch hypes' and 'the buzz' post-launch, but also for a variety of other corporate functions such as customer service, lead generations and brand marketing. They make their bloggers and other social media influencers (with presence at Twitter, Facebook etc.) to build a virtual relationship with the followers without letting them to get too close and argue the authors. The marketers feel that the followers think that they do actually have kind of a relationship with the blogger (the influencer). These followers feel connected, thus willing to follow the bloggers' footstep (though the blogger wouldn't define it as such). Following the above 'Follower - Influencer' relationship all major retailers and CPG players are increasingly getting involved into the Blogosphere for the Word-Of-Mouth Marketing. Recently 'e-marketer' revield a study which shows that the US companies have grown strength to strength in terms of spending on Blogs and they seem to carry-on with the same trend in near future (as predicted in the figure here).

But there is another school of thought, where I come from. The matter of fact is that a simple tweet or a status update at Facebook is not at all 'direct'. It is more like professional bloggers from different companies, sending mails to - NOBODY. Well I (and probably many consumers like me) would not really like to be influenced by a 'mail to nobody' while making my buying decisions. The basics of the Word-of-Mouth influence is that you know the 'influencer', you have faith on him and you know that his/her recommendations are tried and tested in past. That is how it works, at least for me. The tweets, the Facebook updates etc. can create a cult to start with those early adopters but that cult can never be a long lasting one, unless there is faith involved in it (which is very less likely with a 'mail to nobody'). Also it might work with some products related to teens, who are kind-off care free and ready to try out new and different things. But in general, the effect of blogging is not even comparable to the effect of face to face Word-of-Mouth. Yes, people do want to see some feedbacks, reviews etc. from trusted people/websites as and when they are confused while buying a car for example. But they buy a new car just because someone at Facebook says that it is "cool" - that's highly impossible.

Well I am not the only one, skeptical about the power of blogs. Some time back Target also showed similar intent deciding not to recognize the blogs when a blogger emailed them criticizing a billboard. During the controversy Target emphasized that their marketing policy is to focus limited resources on the big media outlets, like television stations and newspapers (and not really the blogs), which reach large numbers of shoppers.

All said and done, e-marketer's study still shows that marketers are spending a-lot on the blogosphere but it would be interesting to see how much is coming back!!!