Magasin automates stock replenishment forecasting
Automated purchasing based on proactive forecasting frees-up valuable resources for Magasin, Denmark's well-known department store
With a history stretching back to 1868 Magasin Du Nord has positioned itself as Denmark´s most well-known department store. Magasin has six stores, including a flagship on Kongens Nytorv in Copenhagen’s city centre, and serves 20 million customers a year. In 2009, the Danish retail giant was bought by Debenhams in the UK.
Magasin came out of the last fiscal year looking good in spite of the financial crisis and new ownership. In a press release on the annual report, CEO Jón Björnsson of Magasin Du Nord said that the improved results "show that the investments placed in our department stores and the purchasing and merchandising function have been effective." One of these 'back office' initiatives is a project for automated stock replenishment in which Magasin has partnered with SAS. Every night, sales figures for the day and stock count are scanned automatically into SAS®. At 5:30am. the next day, purchasing proposals flow back to Magasin's own IT system for conversion into orders placed with Magasin suppliers. The automated reordering system covers 40,000 articles to replenish stock that must be available at each of the six Magasin department stores.
"We recognised that software can do something that people cannot do. With automation we optimize our purchasing because this solution crunches a multitude of data and sees patterns that the human eye does not see. The SAS solution covers some forecasting techniques that we ourselves do not have," says Peter Fabricius, CFO at Magasin.
Advantages for the back office
It is still too early to draw a definite line under the financial gains, and the success of the project is still not fully recognised throughout the company. In the back office however, the budgeting, purchasing and merchandising staff see real advantages. The merchandising team no longer need to order goods for maintenance of minimum stock. This gives them time to focus on more important business functions rather than reacting to sales, stock and purchasing trends. For example, they have more time to invest in discount and sales campaign initiatives.
"We're coming from a situation where the shops in our department stores placed manual orders for all of our merchandise. In the first phase, we made the minimum stock a central function. In the second phase we automated the stock replenishment of reorder items. The system is still being tested, so it is understandable that some of the shop managers are skeptical. That is why we see this project as an integrated management task, respecting both technology and culture," Fabricius remarks.
It is beneficial that the purchasing decision is not reliant on gut feel and personal perceptions of the individual shop manager. However, the flip side is that a computer calculation does not automatically instill confidence in the 'traditional' manager. The individual shop manager might receive a selection of merchandise for the shop that he or she does not understand. On top of that, quantities may swing from week to week.
Confidence in the forecast
"We see this as a management task. On one side, we have to tweek SAS continuously to make the forecast better and better. On the other side, we must build confidence in the forecast throughout the organisation," Fabricius says. The SAS solution development staff go out and meet regularly with all of the 65 shop managers who sell the merchandise for Magasin. They listen to problem issues experienced on the floor of the department store, and explain how the forecast is generated and how many variables the SAS solution actually includes in the calculation.
The SAS solution works with advanced analyses and complex arithmetic calculations to forecast the demand for reorders, considering the seasons and geography as well as overall product and social trends. In general, Magasin knows that customers still come to the store and find what they are looking for even when inventory levels are lower. Magasin offers a widely diversified selection of merchandise, as the department store sells home articles, clothing and food products, therefore the buying patterns, lifetime and storage demands for such different product groups range very widely. In practice, the systemised process prompts Magasin to revise and correct internal processes.
"We may be complex as a business, but on the other hand we are not so unique that we could offer logistics as well," says Henrik Julius, Operation Manager for Magasin. "That is why we are trying to adjust to the SAS solution, which builds on experience with many clients around the world. We also have great respect for their knowledge of the retail business and the competence of Danish staff at SAS."
Magasin decided to collaborate with SAS after discussions with several other suppliers. In the end, having Danish consultants in Copenhagen was the decisive strongpoint.
The future vision for automated reordering is to use SAS to extend the process to incorporate space management because optimal purchasing varies with the size of available shelf capacity and available area.
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Magasin Du Nord (owned by Debenhams)
Manual and decentralised ordering of products without use of data and advanced forecasting
SAS® receives new data on sales and stock and provides automated proposals for procurement on all reordering articles in six department stores
Merchandising people are freed up for other tasks, and less capital is tied up in stock whilst also ensuring that the products that customers coming to Magasin Du Nord want, are available on the shelves.
SAS® Service Parts Optimisation, SAS® Enterprise BI Server, SAS® Data Integration Server
“With automation we optimise our purchasing, because this solution crunches a multitude of data and sees patterns that the human eye does not see. The SAS solution covers some forecasting techniques that we ourselves do not have”
CFO, Magasin Du Nord