When poor data threatens performance

A specialty retailer—selling watches, perfume, wine and liquor, and other goods—needed better information to run its business efficiently. Two costly issues needed to be fixed: inaccurate forecasts and overly labor intensive financial planning and analysis (FP&A). Because the shops’ managers relied on manual forecasts that the company’s finance department prepared, they were unable to predict sales or even stock their shelves confidently. Managers frequently ran out of in-demand goods, built up costly inventories of less popular items, and had trouble matching staffing levels to store traffic. In addition, preparing budgets and performing monthly financial/management reporting required far too many people, and these people essentially did the same thing month after month.

An automated system improves forecast accuracy

One of the most important aspects of our assignment was to change mindsets. We met with key members of the finance department to explain how automating their routine processes would give them more time to work on more strategic tasks, which we formally dubbed “working smarter.” We then designed a forecasting system powered by digital automation technology. The system incorporates an algorithm we developed that draws on extensive historical sales data and overlying assumptions to predict sales and margins across every product category for every store location.

When it really matters 

Our work delivered multiple benefits to the specialty retailer. With better forecasting, the store managers could plan their inventories better and avoid stock-outs, reduce labor costs, and use staff more efficiently—which boosted earnings by more than 5%. The forecasts that the finance department produced were now five times more accurate than the earlier, manual versions. What’s more, using the system we designed as a foundation, the company was able to rapidly establish its first-ever business intelligence function. Now that many of its prior job functions have been automated, the FP&A team has extra time to use the new business intelligence system to pursue business improvement—and work smarter.