Analytical Engine

We recently interviewed Bill Dorion, who is the Director of IT at PepsiAmericas. He has been a pioneer of championing and executing key analytics initiatives for PepsiAmericas. Bill has been in the Information Technology sector for 30 years, which includes 22 years in the CPG industry. Bill, in his current role, manages IT applications development team for strategic solutions selection, development and implementation.. Reproduced below, are some of the excerpts from our conversation with Bill.

Question: Can you tell us something about the type of problems you are solving in the organization using analytics?
Bill: Given our current strategic priorities, we are using analytics for reducing out of stock at retail locations. There are three key components that we are focusing on:
• Better Inventory forecasting (having the right product at the right delivering location)
• Divisional Dispatch & Voice Pick (having the ordered product picked and delivered correctly)
• Suggested Order Solution (ordering the right product and quantity at the right time to fill the customer demand)

Question: How do you quantify the value realized by an analytics project?
Bill: Analytics has several quantifiable and measurable benefits for us, as we have realized during the learning process:
• Reduced out of stocks at retail locations
• Reduced inventory levels are at the retailer back room
• Optimized delivery schedules suitable to better meet demand
• Less time for sales reps. in the ordering process and more time focusing on selling

Question: What are some of the key challenges that you face in analytics focused projects?
Bill: PepsiAmericas did not have a lot of experience in handling analytics projects which presented us with some challenges. The key learning for us was to understand that analytics projects have a strong R&D component inbuilt into them. While our organization is very comfortable with execution projects, the test and learn cycles inherent in an R&D process took some time to get used to. Another challenge for us was selecting the assistance of right resources that bridge the gap between business, statistics and common sense, and can communicate between these groups effectively.

Question: How do you see analytics growing within your organization and within the CPG industry?
Bill: If you ask me about the present, I see analytics growing in two main areas, optimizing the ordering process and helping in pricing and trade promotion spend

Question: Since selection of the right analytics resources is a key component for the success of the project, what do you look for in an ideal analyst that you hire into your team?
Bill: From my perspective, there are three key ingredients to a key analyst hire in our team. First and foremost, the analyst should fit into the culture of the team . He/She should be good at understanding business problem and incorporating it into the statistical tools to solve the problem. Last but certainly not the least, effective communication skills are very important. I talked about it earlier when I mentioned the need to bridge the gap between business, statistics and common sense through effective communication.

A set of whitepapers for the executive who wants to leverage the data to make smart marketing investments:

1. Identifying attractive markets and understanding your customers
2. Increasing online sales
3. Focusing on profitable distribution partners
4. Improve customer experience through call center data
5. Retaining your customers

Two interesting statements from a recent report in American Banker (password required):

• In the decade from 1996 through 2005, banks added an average of 1,484 branches a year
• There is a direct correlation between the location of a branch and its success or failure in amassing deposits

Going by this, retail banks could certainly use the optimization methodology, we used recently (see related post) to map branch location to ‘desirable customer segments, to increase average deposit per branch

Note, the key word in the above question is ‘profitable’

Companies using multiple channels and/or multiple partners to sell their products usually track gross sales numbers to compare channel/partner performances. However, a top-line metric approach can be misleading. More importantly, getting to an accurate bottom-line view is not extremely challenging and does not require any significant IT investment or business intelligence tools.

Recently, we helped one of our clients to understand the profitability of their partnerships by taking a lifetime view of revenues and service costs of customers, acquired from the partner channel. The challenge we faced was in forecasting the attrition rate for each partner, to which our creative solution was to cluster similar partners together and calculate an average lifetime of each of the clusters.

In addition to lifetime revenues and service costs, we determined the cost of partner acquisition and maintenance (legal costs, business development and audit costs) along with the direct campaign related costs – to estimate a ‘true’ customer acquisition cost. An additional filter was added to control for variability of partner performance over multiple campaigns.

 

We discovered (to everyone’s surprise) that 86% of the client’s partners were unprofitable. More surprising was the fact that all these partners used to regularly pass the client finance department’s screening criteria as their metrics were focused on short-term benefits and not on ‘true’ lifetime value. Diamond’s analytical approach helped to fix the client’s issues and put the channel back on path to profitability (increased channel NPV by 190%)

It is interesting to note, that we did our entire analysis without requiring any support from client’s IT group. We directly queried client’s billing and other marketing databases to get the relevant data. Considering, how easy it is to perform the analysis; it is surprising that most companies do not have a good grasp of their partners in terms of profitability.

Our findings and more details of our methodology are documented in the whitepaper, Profitable Channels: The Right Metrics Make All the Difference

 

When Scottish hotelier Charles Forte was asked about the secret of success of his hotels, he is reputed to have said, “Location, location and location.” . This credo also seems to apply to almost all companies who do some form of brick and mortar distribution. Be it a retailer who wants to improve its productivity or companies who want to optimize the spend on distribution and associated trade marketing.

Companies have historically focused on removing inefficiencies from supply chains by optimizing inventory and logistics. Store location which falls at the intersection of operations research and marketing has only recently received some focus. The major challenge in being good at locating new stores or evaluating the future potential of existing stores, is integrating the customer segmentation strategy with the distribution data.

We recently helped a client to evaluate the retail distribution strategy and came across this problem. We solved this problem by creating a market potential index, by identifying the concentration of client’s most profitable customer segments, for every county within client’s footprint. We could then map the number of points of sale (POS) per each county to evaluate whether the client stores are in ‘desirable’ locations.

We found that 24% of client’s retail investments were made in locations that were less than desirable, and realignment of POS to desirable locations would save the company millions of dollars a year, even by conservative estimates