Measuring your KPIs allows you an opportunity to gain an edge over your competition. Of course, you do need to ensure you’ve adopted the correct KPIs. After all, KPIs that work for one retail business might not necessarily affect positive change in yours. That said, while there is no golden KPI to track - there is one that you should seriously consider: GMROI.
We've written previously about GMROI also referred to as GMROII - Gross Margin Return on Inventory Investment - and why you should measure it. You can read that piece here. At its heart, measuring it allows you to determine how efficient you are at both buying and selling stock.
That said, you can’t measure it manually. At least, you can't if you want to track it accurately and timeously. Instead, you need reliable and specialised software to help you, such as DotActiv.
How do you know when your inventory investment is not up to scratch?
Before we take a look at how you can track GMROI (or any other KPI) in DotActiv software, it’s crucial that you first know if your investment in your inventory is paying off.
That’s because of this simple fact: you won’t know what you need to do to improve if you don’t have a solid foundation from which to begin.
By that, we mean you need to watch out for any signs, which are clear indicators to you that you need to relook at your inventory investment.
As a side note, the below are only a few of the many clues you need to watch out for when tracking your inventory. All of these signs are a result of inadequate inventory management.
1. If your inventory levels are rising
One visible sign that your investment has gone wrong, and your GMROI is off kilter, is that you’re not moving stock off your shelves. At least not quickly enough.
Besides the issue of not selling stock, which can result in dead stock, you’ll find yourself forced to introduce discounts to get rid of any slow-moving items. That’s a loss of sales and profits right there.
On the other hand, by not moving merchandise quickly, you’re using up valuable shelf space that could have otherwise been used by high-selling products.
That said, your usual fast-selling products or high unit movement items could also become slow movers because you have too much stock of it.
So what can you do in response?
The first thing you could do is assess your pricing strategy. After that, you can determine your space planning tactics to see if they must be tweaked. Also, if the inventory levels in your distribution centres are rising, why not consider expanding that range into your stores to push the stock out. That will spread the stock out across your business.
2. If you’re facing out of stocks regularly
The opposite of not moving stock quick enough is when you’re selling it faster than you are buying. So much so that you’re facing out of stocks. And not just now and then. That’s somewhat acceptable. It’s when your shelves are empty more often than not.
What is that saying to shoppers? It’s subconsciously telling them that you don’t have the products they need. In fact, it’s a surefire way of losing customers, if it happens too often.
As for how you can combat this issue, you can read this piece. In summary, it includes understanding customer demand trends and building planograms correctly.
More than that, though, you could ask yourself if you’re feeding back the right information from your space planning system to your replenishment engine. Is that taking your cross merchandising stock into account? That could be a reason why you’re facing this issue, which is affecting your GMROI.
3. If your inventory management system isn’t integrated
If you want to ensure complete control over your inventory, you need to ensure that you have an inventory management system that is fully integrated.
For that, you’d consider your replenishment engine.
Most replenishment engines work on the rate of sale. For example, let’s say Product A sells one a week. Therefore the lead time to deliver stock to store is three weeks. That means you need to deliver a minimum of three to the store every time I do a delivery. Of course, that’s the simple version. There are also your supply chains and other factors to consider.
But now, what happens when you decide to stock Product A in one part of your store. You’ve chosen to cross-merchandise it elsewhere as well. Suddenly your stock requirement in-store doubles while your sales might not necessarily double. However, it could have an elastic effect where it could go up one and a half times, as an example.
That’s because you’re exposing your customer to this product twice, which means you can capitalise on impulse buying, and increase their basket sizes.
But back to your replenishment system. You need to make sure that it understands the stock that is sitting on the shelf. When DotActiv runs planograms through our software, it exports all the causal data such as facings, facings deep, capacity and so on. With all of this information, your replenishment engine can take that and factor it into its calculations.
How do you go about tracking GMROI in DotActiv?
When it comes to measuring and tracking GMROI in DotActiv, there are two specific routes to take. These two routes depend on if you want to measure or track GMROI in DotActiv. Or both.
1. Using our Range Optimiser tool
If you’re looking to measure your GMROI and intend to use DotActiv, it’s all about using our Range Optimiser tool, which helps you decide which products to stock. In short, it’s a snapshot measure to assist you in decision making.
It would be included in your ranging analysis. Thus, it would follow all the steps when ranging your products.
That said, it’s worth pointing out that the range optimiser tool is set up based on the range and caps that you decide on.
That’s because you’re saying you want to look at product performance. But it’s only one measure to decide if you’re going to keep a product in your business or if you’re going to give it the boot.
Also, remember there is no golden KPI. It’s only one part of the story. It’s one thing to measure a KPI, but you also need to know what that KPI itself is looking at and then from there, look at the levers you have at your disposal to affect those things that affect the KPI.
2. Advanced reporting functionality
While it’s easy to measure your GMROI, and that is the primary option for you when using DotActiv’s software, you can also track it.
That said when talk settles on how to track it - where you want to monitor it continuously, be that by product, category, sub-category or brand - it is a little more complicated.
For that, you can look to using our advanced reporting functionality.
Let us explain:
You could set your GMROI up as a formula in a data cube. For the sake of clarity, a data cube, when mentioned in conjunction with DotActiv is a multi-dimensional array of value. In this case, we include information around Market, Product, Fact, Period.
To set up one in DotActiv software, you’d first navigate to File, scroll down to Setup and then to the Database section where you’d find ‘Data Cubes’. A window will pop-up where you can input your information. You can watch this video for a step-by-step guide.
On the other hand, you could also set it up as a Formulated Field once and then pull it in your data cubes, so that you can generate a report on it. And you can use the report again and again as and when you need it.
Once you’ve set up your GMROI as a formulated field, you can then create a data visualisation that is a graphic representation of the report.
Using DotActiv, you have a variety of different interactive visualisations that can help you in this instance. We’ve written about a few key visualisations from a drill-down pie chart to a double bar graph that you’d need specifically for a category analysis. You can read that here.
How that relates to GMROI is that it’s one consideration of your analysis.