How Retailers Can Measure ROI from New System Implementations
The retail landscape is constantly evolving, driven by technological advancements and changing consumer behavior.
Retailers are increasingly investing in new planning, allocation, and demand forecasting systems to gain a competitive edge. But how do they measure the return on investment (ROI) from these significant implementations?
This post explores key aspects of measuring ROI and offers insights into best practices.
The Evolution of Planning and the Need for Measurement
Retail planning has evolved significantly. While spreadsheets were once common, modern systems offer comprehensive solutions, integrating data from various sources and automating tasks. However, this technological advancement necessitates a robust methodology for tracking ROI to justify the investment. The lack of proper ROI measurement can lead to under-performing inventory, overstocked items, and missed opportunities.
Key Insights into Driving ROI
Several key questions must be addressed to maximize the return on investment in new retail systems:
Processes for ROI: What systems and processes should be put in place to effectively track and realize the ROI? This includes establishing clear KPIs and focusing on areas like sell-through, margin, and inventory turnover.
Main Benefits: What are the primary benefits these systems deliver? These include improved forecast accuracy, increased product availability, reduced markdowns, and lower operating costs.
Driving Benefits: Who is best positioned to drive these benefits? This involves fostering a new culture and ways of working within the organization, which necessitates changes in roles, capabilities, and organizational structures.
KPIs to Set: What key performance indicators (KPIs) should be defined and tracked? These include full price sell-through, stock turn, markdown costs, forecast accuracy, and availability. Careful selection of KPIs aligned with business goals is critical.
Measuring ROI: How can the ROI be calculated and measured? This requires a multi-faceted approach, considering both hard financial metrics and softer benefits such as time savings and improved customer experience.
Strategies for Success: Getting Closer to Customers and Beyond
The document highlights several strategies for retailers to achieve maximum ROI.
Understand Your Customers: Conduct thorough market research; engage in cultural anthropology-style approaches to deeply understanding your target customer segments.
Embrace Multi-Channel Inventory: Create a seamless inventory management system that integrates across all sales channels for a unified, holistic view.
Agility is Key: Adapt to market changes quickly and proactively through innovation and disruption rather than simply reacting to them.
Frictionless Retailing: Minimize disruption within the organization during implementation, facilitating smoother transitions and reducing resistance to change.
Diverse Teams: Build diverse teams to foster innovation and improved problem-solving.
Predictive Analytics: Leverage predictive analytics to improve forecasting, optimize inventory management, and enhance supply chain efficiency.
Calculating and Measuring ROI
The ROI calculation involves translating performance metrics into financial terms. This often requires collaboration between IT and finance teams to establish the relationship between process improvements and cost savings. Regular monitoring of ROI is crucial, with evaluations conducted at various intervals (e.g., monthly, quarterly, annually) to gauge the long-term impact of the implemented systems.
Conclusion
Investing in new retail systems presents significant opportunities for growth and improved profitability. However, maximizing ROI requires a strategic approach that involves meticulous planning, clear KPI definition, and continuous monitoring of performance. By adopting these strategies, retailers can ensure their investments deliver substantial and sustainable returns.
Written by
Richard Gaetano
CEO, Island Pacific Systems
