In an article on CNN – Why big data is suddenly sexy – the CEO of SAS says "For example, we are working with Macy's for markdown optimization. They have millions of items and they try to sell everything they can before the end of the season. This activity used to be done by hand, but now we can use data to forecast every item in every store and how much it should be marked down."
It seems to me that the reason Macy's has to mark down "millions of items" is because the forecast they used to buy them was no good. It further seems to me that it would be rather foolish to turn to the same 'big data' forecast thinking that created the need to mark stuff down to figure out the best way to get rid of it.
Of course, the reason for forecasting is long lead times to get stuff cheap from the other side of the planet. The accounting systems that lead people to think that stuff is cheaper without regard to lead times? How about SAS® Financial Management? It is a "a comprehensive solution for enterprise planning, budgeting, consolidation and reporting. With a proprietary calculation engine and accounting logic, this remarkable solution consolidates planning or historical information on demand, ensuring that the latest information is always available for decision makers and regulatory agencies."
It truly is a 'sexy' system that integrates inadequate cost data and inaccurate forecasts driving you to buy too much inventory, then closes the loop with more inaccurate forecasts and similar cost data to help you manage the loss. While that doesn't turn me on too much, some folks apparently think that moving massive amounts of data to optimize losing money by creating and writing off inventory waste is sexy. And that sort of sexiness doesn't come cheap.
The approach that is nowhere near as sexy as 'big data' is the one I wrote about a year ago – the one Nikki Tate described – the Zara model. Zara manufactures close to the customer with radically shorter lead times. It's customers see a different product mix 17 times a year instead of four. When a design is hot they quickly ramp up production. When a design is not they quickly shut off the tap.
No long lead times means no need to buy to forecasts. No forecast – no forecast error – no excess inventory to mark down – everything sells at full price. Customers get what they really want instead of something they don't want so much that they buy because it is on sale.
The downside, of course, is no big, sexy computer to arouse the passions of the executives at Macy's who apparently are really turned on by such things. I have a hard time seeing the Macy's/SAS model as particularly sexy. I may be in the minority, but I never went for the empty-headed types, no matter what the outside package looked like. I have always thought that sexiness begins by being smart.