Friday, August 16, 2013

Category Management Series: Considering Inventory As An Asset (Inspired by The Ikea Edge)

One new post in the category management series, linked to my reading of Anders Dahlvig book. Ikea has based its success on low pricing. But more than buying cheaper than the competition, one of the key component of this low price strategy is the mastery of supply chain and inventory. 

Most of retailers consider inventory as a liability. Indeed, a high inventory leads to decreasing the cash flow. Cash flow is important in the retail business. A positive cashflow, allowed by buying products with 30 to 60 days to a supplier and selling the merchandises in 5 to 10 days, allow the retailer to invest in opening new stores or new activities. Owning a high inventory is therefore considered as a bargain.

But rather than that, Ikea believes that Inventory is an asset. Having a high inventory allows your store to minimize the stock out situations, and then maximizes your sales. Low inventory leads to low stock in store, and hence you miss some sales. Ikea's main goal remain the sales.

Here is an example of how low inventory management has a bad impact on sales and the overal performance of one retailer: Most of retailers deliver its results at the end of the fiscal year, on december, 31st. Hence, most retailers tend to order as less as possible, to get as low stocks as possible. But the end of the year is a very important time of the year for a retailer, a period where retailers make most of their sales. By giving too much importance to low inventory, one retailer may miss some important sales.

Also, one more thing: Instead of trying to pay its supplier as far as possible, Ikea would rather pay their supplier on time. Indeed, paying suppliers far allows the retailer to play with its positive cashflow. But Ikea think differently: By paying its supplier on time, the supplier has less financing issues with its cashflow, which allows Ikea to gets better buying conditions, and then lower the cost of its inventory (because they get better conditions).

I believe it is a very unique way to consider inventory, but what I like about this philosophy is to always prefer stock availability than low stocks, because sales must always be the main and primarly goal of one retailer.

Wednesday, August 14, 2013

The Ikea Edge: The Best Gears Don't Make The Best Cars

I wanted to share with you in my series about Anders Dahlvig's book his thought about management and team work. It has been based on a quote of Russel Ackoff, a trailblazer in management sciences.

Let's imagine you gather all the best cars in the world in one single room. Then you pick the best gears of each modells: The best engine, the best wheel, the best breaks... In the end, you get all what you need in order to build a car, with all the pieces you need. The question is: If you put it all together, would you have the best car in the world? Would you at least have a car that would move forward? Maybe not. The fact that each part works well individually does not mean that it would work all together. Success comes from the ability to work together. That is what makes the best car.

I believe it is very important to understand this part. I am totally agree with this quote. How many times a pro sport team build up dream teams on the paper but those teams never work together.
One example that comes up in my mind is the Lakers team of the 2000s with O'Neal, Bryant, Payton, Malone. All of these guys were all of famers, and despite a really will to work together, that did not happen the way they wanted and they failed in the finals.

Human interactions are key in business, with partners (suppliers, clients, investors), but also with employees, wether they work directly together or not. Great lessons, and great story to tell.

Monday, August 12, 2013

Category Management Series: Managing The Product Range And Its Consequences Inspired By The Ikea Edge From Anders Dahlvig

The first blog post I wanted to share about my reading of Anders Dahlvig's book The Ikea edge is actually linked to category management. Indeed, as a category manager, we are responsible of the listing and unlisting of products, and therefore, we need to master the width of one product range.

Most of the time, category manager tends to look after the largest product range. Indeed, owning the largest listing allows your category to become a leader in its trade: The more you have products, the more customers will consider your category as performing. Also, the larger the product range, the larger the sales, as you cover the most customer needs.

But as a category manager, it is also important to always understand what impact having a large range also implies:
  • High inventory,
  • Larger stores to show out your range
  • High wadges due to the manutention cost to put products on shelves.
Ikea is for sure the definition of a hard discounter, or a low cost company as you like. Anders Dahlvig's philosophy is: while choosing between a large product range and supply chain/ operationnal efficiency, Ikea will always choose operationnal efficiency.

As Dahlvig says, Ikea has a target of 2 500 products in its listing. Ikea, thanks to its concept and the attraction of its store, could sell almost anything, and has a lot of great products that supplier show them all the time. But because of their eagerness to get high efficiency on the operationnal point of view, they always keep their 2 500 products threshold. Keeping a short product range allows Ikea to keep low prices because they master their retailing costs.

Should you apply this rule to any kind of retail? Of course not! Amazon's goal is to get as much products as they can, because their business modell is much different than a hard discounter. But when thinking about category management, it is important to always keep in mind the cost of one new product in the range is.

In the Category Management Series:

Sunday, August 11, 2013

Book Review: Anders Dahlvig The Ikea Edge

I have juste finished reading the excellent book of Anders Dahlvig about Ikea's success story. Anders Dahlvig has been the CEO of Ikea for 10 years, between 1999 and 2009, but more than that has spent about his whole career at Ikea, working in different business units of the group. Hence, rather than telling the story of how Ikea has grown, Anders Dahlvig analyzes what makes Ikea a remarkable success story.

This book has really inspired me as a retail professionnal. Indeed, Ikea has great ideas on how to run a retail business, and some of them are quite different from how retailers usually think. This book has so many great ideas, that I decided to make a series of posts instead of one, in order to analyze the favorite parts I have from the books.

Why you should read this book:
  • The Story of Ikea: Even though it is not the sole purpose of the book, you learn a lot of details on the key dates, but also how and why Ikea grew the way it did.
  • The retail strategy: there are great ideas that retail businessmen should read carefully, in order to understand very specific parts of Ikea's success. I will write couple of notes about them.
  • The management style: Beyond retail parts, Ikea has a management styles that have thrived throughout the years. It could be very inspiring.
  • Understanding how to settle in new markets: Dahlvig tells us about how happened the launch of new business units in new markets. It is important to know for companies that wants to go abroad.

Wednesday, August 07, 2013

The Recency Theory

I was going through my saved favorite tweets on my account @schriver and I found this article about the "recency theory".  

Maybe the term "theory" may be too much about this concept but I believe it is interesting: In order to be efficient in your advertizing, it is important to focus on the time when your customers may most likely be making their decision.

For example, it is no use to have a commercial about a pizza at 9 am, because people will tend to forget about the commercial once lunch times come. Instead, having the right mobile coupon ringing around 11:30 AM will have a high change to trigger the sale.

In nowadays society, we are all overwhelmed with advertizing overload. Basically everything and anything is an advertizing medium: TV, websites, radio, smartphones, billboards, newspaper you read... It implies people can't keep in mind for long a commercial, and therefore, they must be able to make a decision out of it quickly.

Thanks to new technologies, it is now easier to communicate with one customer when he is in his decision making process. It is very important to be efficient in this timing in order to get customers' responses rate high.

Monday, August 05, 2013

Some Thoughts About Facebook Graph Search

Earlier this summer Facebook launched on a larger scale its new search engine called Graph Search. Search Engine is a very strategic tool in the online advertizing business. Indeed, most of the advertizing revenues Google get is from its search engine activities. And as Facebook owns a large number of users, it is important they leverage this base in order to get revenues. This is the reason why they have launched their own branded search engine.

I believe it was very important for Facebook to own their search engine. After having seen the Bing experience with Yahoo, I am convinced it is better to own the search engine in order to maximize revenue. Now, you also need to have a powerful and efficient search engine, especially while comparing to Google excellent system. 

Facebook took an innovative approach, trying to focus on its main strength, the social links its users have with each others. That is the reason why Graph Search has been designed that way.

The problem is that a lot of people raised the confidentiality issues that Graph Search will bring on the table. I understand that issue, but once again, Facebook also need to leverage the data it has in order to improve its users experience. I believe that people using Facebook are now well aware of the confidentiality problems that may occur.

I have not really used Facebook Search yet, so it is difficult for me to talk a lot about it. But I really wonder if people will actually use Graph Search a lot. 

What do you think about it?