Improve Your Business Acumen with Broader Analytics
Analytics is a great tool for transforming the way we make decisions and it can be applied in virtually any functional area. However, there is growing evidence that the adoption of analytics by many teams is very slow. I speak on the topic of analytics to HR audiences about 10 times per year in person and through dozens of articles and blogs.
Today, regardless of your functional area, I would like you to read about the application of analytics to topics like customer demand and inventory optimization. Why? The more you know about the application of analytics to other business areas, the more you’ll understand the “big picture” and the better you’ll become at envisioning how to apply analytics within your own team and how you can connect your own analytics to analytics in other areas.
So, let’s get started with customer demand. Customers… we all need them, we all want to serve them well and we’d all like to keep them for a very long time to get their repeat business. Part of serving your customer well means being able to provide them with the products and services they need, when they need them. This is where analytics can help in the form of forecasting.
Whether you are a large company or a small one, perhaps you offer a long list of products. As the list of products becomes large, it becomes difficult to know what’s happening with customer ordering behaviour. Suppose you offer 1000 products. Are 500 of them high volume with roughly the same number ordered each month? Are only 10% of your products high volume? Is ordering sporadic or consistent? Knowing a bit about historical customer ordering patterns can provide you with great insight of expected future revenue in addition to forewarning you about inventory needs… but we’ll get to inventory a little bit later.
Are you reading this thinking that because you offer services instead of products that this category of analytics doesn’t apply to you? It does. I’ll use my own company as an example. Being an analytics person, I have a tracking tool in place so that I know exactly what the ordering patterns are for the various categories of services I provide. I also know where each service sits on a scale of profitability. This data is reviewed every six months and the decisions of what to offer in the future are adjusted accordingly. This is how we stay relevant and profitable. Regardless of your size, the same type of analysis can be performed for your own company. Based on volumes and profitability, you can adjust your “mix of offerings” as customer demands change.
Let’s see what we can do with inventory. If you’re not familiar with Supply Chain concepts, all you really need to know for this article is that inventory ties up cash, restricting the ability to use it for other business needs. So, the dilemma in Supply Chain is that you always want to have enough inventory to be able to meet your customer demand, but not tie up more cash than necessary.
When we start to look at historical customer ordering patterns, we can get some guidance regarding inventory. Do your customers order 100 of a certain product every month or do they only order 1 of something every 6 months? In most companies, when we look at the full list of product offerings, we see a mixture of “high runners” and low demand products. Data analytics can be used to guide decisions of what to stock, how many to stock and when to reorder supplies based on volumes and lead times.
In the end, the decisions are about maximizing revenue, profit and customer service while minimizing the amount of cash sitting on the shelf in the form of inventory. Analytics can be your guide in these areas.
Tracey Smith is an internationally recognized business author, speaker and consultant. She is the author of multiple books and hundreds of articles. Tracey has worked with and advised organizations, both well-known and little-known, on how to use data analytics to impact the bottom line. If you would like to talk to Tracey about speaking engagements, consulting projects or her writing, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn. You can check out her books on her Amazon Author Page.