In the Final Analysis - SAS Executive Vice President Mikael Hagstrom on the challenges facing global leaders today

I recently had the opportunity to spend a full day with one of our European retail customers. We met with more than 50 of its managers to talk about some of the challenges facing its industry – and some of the approaches (processes, technology, etc.) that leaders are using to solve those problems.

Today’s business climate is brutal – even to companies with strong brand equity, well-established processes and strong leadership. We saw that earlier this year in the US, when the country’s second largest electronics retailer, Circuit City, closed its doors after 60 years of being in business. The company cited decreased consumer demand and the 2008-09 economic downturn as the cause of its demise.

In the May 18 Wall Street Journal there was a front-page article titled Clarity Is Missing Link in Supply Chain, on some of the challenges facing the electronics retail industry. According to the article, when demand sharply declined last fall, the merchandising executive of one large retailer reacted by deeply cutting orders to manufacturers, which, in turn, caused suppliers to reduce their manufacturing output. "Demand was shrinking so rapidly, [the executive] wasn’t even sure how deeply to cut." According to the executive, "You actually had to pick a number with no knowledge whatsoever, because nobody knows anything."

With low inventory, the retailer was unable to capitalize on the demand when it increased. The executive said that the company "could have sold more electronics equipment in the three months ended Feb. 28, but its suppliers’ deep cuts made it tough to keep shelves stocked."

This is a good example of how something that worked for decades is no longer effective. In this case, from-the-gut decision making resulted in lost opportunity and profitability. Today’s retailers need to forecast to demand – not to guesswork or supply. Fortunately, the science of advanced analytical forecasting can help. We’re helping one global food company with everything from anticipating demand (“Demand-Driven Forecasting”) to better management of the products that are already in their supply chain (“Inventory Optimization”).

In the final analysis, with these capabilities, the two problems mentioned in the Wall Street Journal article would have been addressed. The retailer would have known how deeply to cut orders last fall, and he would have been able to anticipate the higher demand in the three months that followed.

Today’s global business arena is a brutal place. And for many companies, analytics is the only way to survive.