Retailers are collecting more data than ever, but putting that data to good use is apparently proving to be more challenging than many anticipated.
According to a study conducted by IHL Group for DynamicAction, retailers around the world lost well over half a trillion dollars in the past year due to out-of-stock inventory.
That’s a jump of nearly 40% from 2012. At the same time, they lost just under $500bn due to overstocks, an amount nearly a third greater than in 2012.
While issues like spoilage, supplier problems and weather combined to account for approximately $160bn in overstock losses, forecasting failures were the greatest single source of losses with a whopping price tag of $170.20bn.
Given the significant investments retailers have been making in data collection and forecasting technologies, what gives?
DynamicAction points out that forecasting performance varies from region to region.
While North America and Europe have seen slight improvements to their loss figures in recent years, “economic growth in emerging countries where there is little technology and sophistication of forecasting technologies caused the total numbers worldwide to grow from 2011.”
But this doesn’t mean that there aren’t broader problems retailers are facing.
As DynamicAction’s Lindsay Conwell has explained, the deluge of big data and the systems that have been built around it have created numerous challenges, including “insight to trends, but no action,” “more questions with less answers,” and “uncertainty, as [different] systems [seem] to show a slightly different story.”
Put simply, data has become ”handcuffs.” Retailers are also struggling to get the right data to the right people and places.
According to DynamicAction, “There is a great disconnect in most retailers between marketing and the supply chain. Often, marketing has planned a promotion for a certain date but if the product doesn’t reach the dock in China in time, there is no visibility back to marketing.”
This marketing disconnect alone is costing retailers $38.4bn a year.
Holiday shopping brings shortcomings to the forefront
The problems retailers are grappling with have been exacerbated by the holiday shopping season. In fact, Cyber Monday 2015 broke a dubious record.
Out of stock is at an all time high this Cyber Monday 15 out of 100 product views are retruning out of stock messages
— Adobe Digital Index (@AdobeIndex) November 30, 2015
Not surprisingly, when customers encounter out-of-stock messages, the results are not favorable for retailers.
GT Nexus, a cloud-based supply chain platform, says that the majority of shoppers go elsewhere when they can’t purchase a product they’re looking for.
Such behavior is particularly costly during the last two months of the year when retailers are spending heavily on marketing and cutting into their margins to lure consumers.
Don’t blame Big Data, yet
While some might argue that the figures from DynamicAction and record-breaking out-of-stock issues this Cyber Monday are an indictment of the Big Data craze, the better argument is that these are a demonstration of the limitations of Big Data on its own.
Many retailers have spent the past several years putting in place the necessary data collection tools. Now it’s time for them to ensure they’re collecting the right data, using the right tools to analyze it, and delivering actionable insight to the right people.
Expect to see more retailers shift their focus and investments to these areas in the coming months and year.