January 17, 2005

The saying that 'the customer is always right' comes from a desire to keep that customer happy. Retailers are always on the lookout for ways to satisfy consumers, and an increasingly popular strategy is not only to delight them at the time of purchase, but to predict accurately what they'll want before they come shopping.

Knowing what consumers want before they purchase it may sound mysterious. But it's not magic, it's just advanced networking technology at work. In fact, with the right connectivity infrastructure and services, retailers today can predict consumer buying habits much more accurately than ever before.

Retail is a behemoth among industry sectors. Across all major world economies, its size as a percentage of gross domestic product (GDP) ranges from 20 to 33 percent. So improvements and efficiencies mean billions of dollars in savings and/or avoided costs.

Over the past several decades, consumers have become more mobile, the corner store has given way to malls and superstores and store owners no longer have a personal relationship with their customers. As a result, the critical ability to forecast sales has become increasingly difficult.

At Cisco Systems, the Internet Business Solutions Group (IBSG) helps global leaders create more dynamic, real-time forecasting by taking advantage of the network. In particular, consumer-driven replenishment is a strategy for using technology to look forward and help create much more accurate sales forecasts. The results? Consumers are happy because what they want is in stock; and retailers are happy because they don't have to carry large inventory surpluses.

News@Cisco spoke with Mohsen Moazami, vice president of IBSG-Retail, to discuss recent advances in technology and how they benefit both consumers and business owners in the retail space.

Why is forecasting so important to retailers?

Mohsen Moazami: Forecasting drives inventory levels and the expenses associated with carrying inventory, such as storage and the cost of obsolescence.

The second highest source of retail customer dissatisfaction is when a store is out of stock. But, on the other hand, excess inventory is a $325 billion a year inventory efficiency cost. So retailers want to have just the right amount of stock on hand. The challenge is predicting what that is - and that's where technology can help.

How have retailers historically carried out forecasting, and what does technology offer to improve that process?

Mohsen Moazami: Demand prediction has typically been based on historical forecasting. And it has worked reasonably well - but it's a little like driving forward by looking in rearview mirror. You can probably get away with it some of the time, but you're going to have some accidents.

Today retailers need to add other dimensions. Technology lets them be more proactive and future-looking in driving forecasts.

There have been two waves of technology adoption in recent years. In the early 1990s, retailers focused on automating back office functions (e.g., payables and receivables). Then in the late 1990s and early 2000s, the focus shifted to supply chain efficiency - where, for example, Proctor & Gamble and Safeway worked collaboratively through joint planning, quick response and e-commerce.

What's important to note is that productivity improvements can be mapped exactly to those waves of application adoption.

So what can retailers do today to move forward?

Mohsen Moazami: Cisco believes there is a third, more forward-looking wave of application taking place - consumer-driven replenishment - and that technology will play a critical role to help promote it.

Radio Frequency Identification (RFID) tags - the smart tags in today's retail supply chain - help retailers manage stock more efficiently by letting them learn more, faster about where inventory is and how much is located where. With RFID tags, retailers can keep goods in stock more reliably; and, importantly, by allowing self check-out, they tackle long lines - the top source of customer dissatisfaction in retail.

Cross-channel integration is another way the network helps provide an excellent customer experience. By this, I mean no matter how you contact a company, that you always get a consistent experience. What you don't want to happen is that you buy an item online, then call the retailer's 800 number with a question, only to find that the person who answers knows nothing about your purchase. An intelligent information network helps enable cross-channel integration, which will increase the average amount spent by a consumer and increase overall customer satisfaction.

In-store plasma displays that can run customer-specific custom promotions are one more example. Based on previous purchases - or what is in a customer's cart - the store can offer specials and suggest additional purchases.

The goal here is to satisfy the customer, and the network helps retailers do that much more effectively. What we're saying is: we can attack that excess inventory opportunity of $325 billion by becoming more real-time and being more responsive.

Where does the network come in - and why is it important?

Mohsen Moazami: I find it difficult to name any other sectors where you have thousands of stores scattered across vast geographies, with enormous numbers of employees deployed against those geographies. In this environment, the network is crucial.

Consumer-driven replenishment requires retailers to do more things closer to the consumer. So if I'm at my headquarters in London, and people are buying my products at stores around the world, the only way to collect data on those purchases, turn it in to useful information and then react quickly is by having a capable, secure, reliable and available network.

All the examples I just provided require a lot of content and data going back and forth. The network is crucial to that process.

How do you see retail industry changing over the next few years - and what role will Cisco play in that transformation?

Mohsen Moazami: We're seeing a paradigm shift from a 'make and sell' mindset to more of a 'sense and respond,' customer-centric approach. The consumer is at the center of our equation.

At Cisco, we can provide intelligent retail networks. All these things we've talked about cannot be accomplished without universal connectivity.