Embracing Data Warehousing as a Strategic Tool

Transcription

1 Embracing Data Warehousing as a Strategic Tool by Kurt Salmon Associates Data warehousing has become a prerequisite for doing business in today s competitive envi-ronment. It has become the information back-bone that enables companies to leverage integrated systems and point solutions across their businesses. Supply chain applications and Internet use are quickly becoming equally as critical to competitive success. Ultimately, winning companies will be those that continue to deploy advanced technology efficiently, such as data warehousing techniques, and use its capabilities to the fullest extent. In April, 1999, Kurt Salmon Associates (KSA) con-ducted a survey of retailers and consumer products manufacturers to learn about their business chal-lenges as well as current and planned technology investments to support business initiatives. From survey results, KSA developed a benchmark report for retailers and manufacturers to help them evaluate their choices more efficiently. Survey results helped shed light on the relationship between respondents business challenges and their strategic responses, including the deployment of enabling technology data warehousing, Internet applications and Supply Chain Management (SCM) solutions. Respondents were asked to identify organiza-tional initiatives on which they expect to place increased emphasis (more time and money) in 1999 compared to Primary Focus on Leveraging Value from Existing Operations Both retailers and manufacturers indicated their primary focus for 1999 is to leverage and derive greater value from existing organizations and operations. This is a fun-damental shift from the past, when efforts targeted sales growth. Particularly striking is the diminished impor-tance placed on growth through acquisitions. The top three target areas for increased emphasis in 1999 are: Controlling costs, especially by improving employee efficiency Reducing inventory turns or cycle time Increasing revenue productivity (revenue per square foot or per customer) Manufacturer and retailer responses differed in some important respects. For example, manufacturers plan to focus more on improving internal operations (e.g., man-ufacturing processes and communication between man-ufacturing and other departments). Retailers, on the other hand, indicated plans for a more external focus, with increasing concern for marketing and merchandis-ing issues like promotional effectiveness, category management, floor lay-outs and assortments. Most respondents said they have implemented data warehousing to support their strategic initiatives. However, based on KSA s industry observations, the number of respon-dents who indicated they use data warehouses seemed high. For a large enterprise, a data warehouse devel-opment project can take several years to fully deploy. It is possible that some respondents confused an oper-ational data store (ODS) with a true data warehouse. An ODS is actually a precursor to a data warehouse, and is used pri-marily to streamline 1 What is a Data Warehouse? This discussion would be incom-plete without an exploration of the technical differences that make data warehouses unique data repositories.the sole purpose of a data warehouse is to provide con-sistently high-quality analytical data for an enterprise. Its data structure is designed to support queries and analysis with speed that enables faster, better informed decision making. An Operational Data Store (ODS), on the other hand, incorporates data structures that are normalized to speed trans-action response time. Data warehousing is not just a technology, but a process and architecture designed to support decision making.

2 query response time, not to conduct data analysis. A data warehouse contains non-volatile data to determine patterns and trends, through data analysis, within their businesses. By defini-tion, data warehouse data structure is subject-oriented, integrated and time-variant. (See sidebar) Some of the unique characteristics of a data warehouse are: KSA consultants reviewing the survey results recognized the value of examin-ing data warehousing deployment within the context of other important technological initiatives. Deployment of Internet and SCM applications are also top information technology (IT) priori-ties for most consumer goods retailers and manufacturers. Data warehousing provides a complex system integration facility that enables an enterprise to achieve the benefits of IT point solu-tions (e.g., Internet and SCM) by inte-grating those solutions through a data warehouse. While many companies appear to have implemented data warehousing, they may not be making the best use of the business data they capture. Unfortunately, the focus is on managing existing data, such as inventory or customer information, and not on analyzing this data to identify business anomalies, such as product trends or customer loyalty, explains Kathryn Cullen, a KSA principal who special-izes in ERP data warehousing. Food and Apparel Retailers Lead in Data Warehousing for Inventory Management Food and apparel retailers reported they are currently using data ware- housing for most of their inventory management efforts. All of the apparel, hosiery and footwear retailer respondents indicated they are currently using data warehous-ing for inventory planning and fore-casting, replenishment planning and assortment planning. Sixty-seven percent of food retailers said they use data warehousing for replenish-ment planning. This may be due to the need to incorporate historical factors in replenishment forecasting and assortment planning by SKU-site location. In addition, the majority of food and apparel retailers are sup-porting their shopper loyalty pro-grams and category management efforts with data warehouses. Subject-Oriented Data classi-fied and organized around sub-jects that are meaningful to a company (e.g., critical success factors of the business). Integrated Data combined from internal and external sources, enabling a cross-func-tional view of the company. Time-Variant Data containing both historical and nearly cur-rent data organized to support time-based analysis. Non-Volatile Data extracted and transformed from opera-tional systems as needed. The focus of retailers is to increase sales per customer and make shopping an enjoyable experience so that they (customers) will come into the store again. After all, the cost of maintaining a customer is much lower than soliciting a new one. Data ware-housing can help retailers understand their customer profiles much better and use programs like frequent shop-per and customer loyalty to their maximum advantage, said John Stiehler, KSA manager. Half of non-sewn manufacturers reported they are using data ware-housing to enable on-time shipments and manage their systems and pro-cesses. As further evidence of the widespread use of data warehousing in systems and process management, 60 percent of the medium-sized (rev-enue between $500 million and $1 billion) manufacturers reported they are currently using data warehousing in their businesses. Among all manufacturers, use of data warehouse information for managing operating efficiency and inventory management was reported most frequently, indicating the importance manufacturers place on controlling costs and improving inventory turns. Department Stores and Specialty Retailers Use Data Warehousing to Realize More Value from Their Operations KSA asked respondents to indicate their current use for data ware-housing, as well as their plans for future use. Reflecting their need to catch up, department stores and specialty retailers, who reported the least use in 1998, disclosed plans for aggressive adoption of this technology in 1999 and Sixty percent of department stores and 45 percent of specialty retailers divulged plans for data warehous-ing projects. They are focusing their initiatives on 2

3 improving fre-quent shopper/loyalty programs, advertising and promotional effec-tiveness, and store brand develop-ment. These initiatives will serve as the foundation for retailers to bet-ter understand how customers contribute to improved profitability through complex customer analy-sis. In sharp contrast to manufac-turers, this also reflects a more external focus on growing revenues and building customer loyalty. Larger (annual revenue exceeding $1 billion) manufacturers reported current data warehousing efforts that focus on supporting operating effi-ciency and inventory management. While manufacturers reported they intend to continue this emphasis, 50 percent indicated plans to support supply chain effectiveness with data warehousing next year. Trend Toward Web-Enabled Business Department store retailers reported the highest current use of Internet technology, with a focus on marketing and merchandising. Sixty-seven per-cent of department stores reported using the Internet to enable frequent shopper loyalty programs and 60 per-cent of mid-sized retailers reported using the Internet for store and brand development initiatives. Manufacturers are using the Internet more for their back office systems. Reflecting the pervasiveness of Webenabling applications, manufacturers reported using intranets for improved communication with other departments within their companies. Current use of the Internet among manufacturers is skewed toward large firms and the support of supply chain effectiveness. Fifty percent of large manufacturers said they use the Internet to support partnering and sourcing in their supply chain management efforts. Marketing and merchandising will see the greatest growth in Internet utilization among retailers. When asked about future use of the Internet, retailers responded unequivocally that they would focus on support for frequent shopper loy-alty programs. Two out of three department store retailers said they would use the Internet in 1999 to enable frequent shopper loyalty ini-tiatives. Sharing their enthusiasm, more than half of small (revenue under $500 million) retailers reported plans to use the Internet to boost frequent shopper programs. Large Manufacturing and Food Companies Using Supply Chain Applications Most Effectively Thirty-nine percent of manufacturers and 48 percent of retailers are cur-rently using supply chain applications for inventory management, improving operating efficiency, marketing and merchandising. Manufacturing com-panies indicated that they are making extensive use of these applications to improve operating efficiency. Large manufacturing companies are using supply chain applications more effec-tively than small and medium sized manufacturers. Half of the large manufacturers also reported using supply chain applications for reducing operating costs, improving systems and processes, and distribution center automation and logistics. All manu- facturing companies that are either currently using or planning to use supply chain applications are focused on reducing operating costs and improving operating efficiency. Among retailers, food companies are leading in the utiliza-tion of supply chain management applications. About 60 per-cent of food retailers reported using supply chain applications for inventory management, improving operating efficiency, marketing and merchandising. The most frequently reported use, at 80 percent, was for inventory replenishment. Department stores are also utilizing supply chain appli-cations more effectively to improve operating efficiency and inventory management. Though merchandising and mar-keting are crucial functions for department stores, many are not currently using supply chain applications in these efforts. This is somewhat surprising because of the poten-tial for excellent results from these applications. Sixty-seven percent of these department stores, however, said they plan to use supply chain applications for frequent shopper or loyalty programs and category management. Though all types of retailers were most interested in using supply chain applications in product development, department stores reported the most utilization in this area. They also reported 100 percent utilization for partnering and sourcing efforts. 3

4 In today s highly competitive retail and consumer prod-ucts marketplace, successful companies will be those who create breakthrough strategies that deliver a sustainable competitive advantage. The benchmarking survey results indicate data warehousing has become a critical strategic tool in this environment, enabling companies to leverage integrated systems and point solutions across their enter-prises. Results also indicate supply chain applications and Internet use are becoming increasingly critical compo-nents of a winning strategy for profitable growth. Ultimately, winning companies will be those that continue to invest in and apply advanced technology to the cornerstones of their business functions. If the survey results ignite an interest in getting started with data warehousing, here are some ideas for consideration. Strategies for Successful Data Warehouse Implementations Utilize an interactive, incremental approach Build data marts first to speed deployment. Data marts focus on a subset of the enter-prise (i.e., marketing or human resources) which mitigates complexity. Building on quick wins allows more robust data ware-houses to evolve over time, thus minimizing risk when compared to an initial enterprise-wide rollout. Select the Right Data Warehouse Tool Organizations with limited data warehouse experience should consider mature products for the initial implementation. Investigate end-to-end solutions (one product for data acquisition, database management and data analysis) to speed deployment. Plan for Data Quality Management Over seventy percent of the effort in data warehousing is consumed in assuring data accuracy (data warehouses are a classic example of "garbage in Select the Right Skill Set These projects are by definition technically complex. A finely tuned team of technologist and business process owners is required. Key users are always high-level decision makers, thus guaranteeing high visibility. Success requires a unique blend of data management skills, system administration, and excellent project management. Trends in Data Warehousing Virtual Data Warehouses Increased integration with external data sources is creating virtual data warehouses, which only extract the information needed for specific queries. This can vastly expand the content of the data warehouse without necessitating gigantic database storage requirements. Internet/Intranet Deployment Many OLAP (On-Line Analytical Processing) tools now offer web deployment functional-ity to allow users to access, process and dis-tribute data. ERP Convergence with Data Warehousing Many enterprise resource planning (ERP) vendors have introduced integrated products, which tie the data warehouse directly to the ERP. 4

5 garbage out"). This holds true for both the initial implementation and on-going maintenance. Cross-enterprise input in the data design can avoid later dis-crepancies (i.e., sales should be defined the same for marketing, sales, finance and opera-tions) and increase the reusability of initial data marts in later implementations. These integrated data warehouses with preconfigured information cubes can jump start an implementation. 5