IT Spending Priorities

Nov 26, 2008 12:54 AM  By

When the economy is way down, catalog/Internet companies may be tempted to suspend all IT investments until business picks up again.

But some IT investments are more critical than others – so you should focus on prioritizing your technical spending rather than suspending it altogether. Because most IT projects take months or years to fully implement, you don’t want to stop a project that your company will profit from in the not-too-distant future.

Here’s a quick guide to help you prioritize your tech spend:

Focus on features/functions to increase sales

Naturally your top priority should be any projects that generate an increase in sales. The most likely candidates are in e-commerce, marketing, merchandising or e-mail marketing.

I’ve seen clients giving the highest priority to marketing and merchandising, in terms of additional analysis tools and programming of special requests to assist in analysis. Several of our clients are increasing their traditional promotional post-mortem analysis.

Two of our multichannel retail clients are implementing analysis of net contribution to profit, to identify (at the classification level) how to expand or contract the number of items in each category. This analysis fully loads fulfillment and overhead costs rather than stopping at square-inch profitability.

Another multichannel client with 35 stores has been collecting customer purchase by category and address information, and they are now in a position to mail circulars to retail customers. (Many retailers still lack the ability to better promote in-store sales and events through such customer marketing.)

Manage your biggest asset

Any IT spending that improves managing inventory—the largest balance sheet asset in most companies—is bound to pay off. Mistakes made here have a direct affect on customer sales and satisfaction, with increased cost of back orders, lost sales and the liquidation of overstocks sharply reducing profitability.

To determine what changes and systems could help to improve inventory performance, do an assessment of your inventory strategies including planning, forecasting, purchasing, end of season analysis and liquidation.

A standalone internal inventory system and exception reporting can increase merchandise turnover, reduce back orders, improve initial customer order fill rates and allow you to take action on overstock more quickly. This type of system may have a 12- to 18-month ROI.

Use a WMS to tame complex operations

Picking, packing and shipping processes have to be efficient for both small orders in e-commerce/catalog and larger store replenishment and wholesale orders. The chief thing you can do to become efficient is to implement a full-function warehouse management system (WMS), which provides benefits in labor productivity, space utilization and inbound and outbound transportation.

Proper inventory slotting and full barcoding of the total inventory process is key. And multilevel bill of materials and kitting of products are handled more completely in WMS than many order management systems.

Schedule personnel efficiently

Labor is a huge expense, so consider any technology that can help you be more efficient here. Scheduling software is most prevalent in the call center: Our experience is that direct merchants can save as much as 10% to 15% in call center labor with more sophisticated scheduling software. The major benefits are improving schedule adherence and occupancy, and adding flexibility to the scheduling process.

Use business intelligence (BI) tools intelligently

Many companies are implementing executive dashboards and OLAP (online analytical processing) analysis across the enterprise. Senior management rarely gets more than 10% of their critical data from any one system; they rely on spreadsheets and analysis of others to get their information.

BI tools are now available with templates for the direct industry and can incorporate data from any and all systems, including fulfillment, call center and telephony systems, merchandising, marketing, inventory control, finance and spreadsheets. These BI tools also allow importing plans, history and other key performance indicators that have not been available in transactional systems.

There’s no doubt that with some creativity, IT can come up with many different possibilities for prioritizing and redirecting your company’s IT spend. The key lies in being objective, looking at everything from a fresh perspective, and having the ability to recognize potential.

Curt Barry is president of F. Curtis Barry & Co. (www.fcbco.com), a multichannel operations and fulfillment consultancy.

To read the full article, check the December issue of Multichannel Merchant magazine. Don’t have a subscription yet? Then click here.