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Data-driven cost optimization in retail

Dinand Tinholt

In part one of this blog, I made the case for using data to optimize cost. Opportunities exist across the retail value chain, including marketing, buying and merchandising, supply chain, inventory, distribution, delivery and operations, and across functions such as IT, finance, HR, and legal processes. Historical data can be deployed to identify trends, scrutinize every business process, and arrive at an optimal strategy.

In part two, we will explore what companies need to actually do to achieve this functionality.

Moving to a data-driven approach for cost optimization

Cost optimization must be a business-focused, technology-enabled strategic discipline to drive cost reduction. It must be a continuous effort, rather than a one-off initiative, and your strategy must address all levers of the cost. So, where do you start?

The best way to kick-start your journey is with analyzing and understanding the current cost structure and spend patterns from the historical data and insights. You can then benchmark these with internal and external practices to identify opportunities. Once the opportunities are identified and prioritized, set a savings target by business area or sub-area (e.g. 3% in digital marketing, 2% in procurement, 5% in accounts-receivable processes, etc.)

We at Capgemini suggest a unique hybrid approach by combining a technology-based scan of the cost structure to rapidly understand the major pain points along with the classic management approach of tools, framework, and methodologies (e.g. operating-model analysis, business architecture, focus interviews, etc.). We can then define, prioritize, and set targets to proceed with the execution of these initiatives.

The end-to-end insights-driven approach for cost excellence should take your strategic and operating vision into account. Once we identify the key cost drivers, we select a few KPIs to benchmark it with internal and external practices. This will help to set sustainable targets for the future state.

In order to stay relevant in the era of digital natives, retailers need to apply a broad-based and comprehensive cost optimization strategy that is tied to their overall business strategy. In the data-driven era, it is detrimental to focus on disconnected one-off approaches for cost optimization without fully exploiting the potential of data and insights. The best-run retailers think of cost management as a lever to support their strategy and treat it is as a precious investment to fuel their growth.

The emergence of new technologies to capture, analyze, and collaborate with data promises a step change in the identification, prioritization, execution, and continuous refinement of cost-optimization initiatives. It calls for superior and differentiated capabilities to harness the power of data abundance by seamlessly integrating and orchestrating data across the value chain. By visualizing and analyzing data from the end-to-end retail value chain using real-time and historical data as well as forecasts, projections, and what-if scenarios, retailers can significantly optimize their costs.

Retail executives need to challenge themselves by asking tough questions like

  • Are you setting bold targets around cost optimization to deliver a sustained growth margin?
  • Are you maximizing your cost-optimization journey by truly exploiting data and insights?
  • Do you fully understand where you need to function as a best-in-class cost leader?
  • Do you fully embrace and promote a data-driven culture?

Capgemini has a structured approach for data-driven cost optimization. Our proven methodologies, framework, and tools will help you benchmark against external practices and help re-shape your journey towards cost excellence.

Please contact me to learn more about data-driven cost-optimization.