Is ‘Clicks-And-Mortar’ Bringing The House Down For Grocery Retailers?

Richard Barrett

trolleyIn my last post, I mentioned the importance of having tools like in-memory analytics to help find and exploit growth segments at this time when most markets are flat.

Well here in the UK, on line shopping was the channel that kept most retailers buoyant over the Christmas season with some reporting that 25% of their revenue came from home delivery or click and collect.

Even the grocery retailers benefited from the trend but I doubt if any will be reporting major hikes in profits because the economics of on-line business for them look horrendous. It is estimated that picking, packing and delivering the average on-line order costs between £15 and £20 despite the fact that most simply charge £5, (and one even delivers orders over £50 for free).

Now that’s probably fine for low volume, value high orders, such as champagne and caviar, delivered in high density metropolitan districts where the time and distance between stops is low. But for the cost of picking and delivering orders for the average family that live in lower density rural areas must be crippling – and you can bet that there are considerably more of these using the home delivery service as for them it’s good value – better than getting the car out for a trip into town.

Analysts estimate the UK market on-line groceries is worth £5bn and growing at 20% a year, so this sector can’t be ignored, but the more grocery retailers expand into it, the more they cannibalize the footfall passing through their capital-intensive stores where volume is reported to be falling at 3-5% annually.

Talk about being caught between the devil and the deep blue sea! Some of the newer pricing plans, such as the once only sixth monthly fee of £60 for all deliveries worth over £40 that one retailer is offering for home deliveries, shows they are battling with the issue. But it’s not likely to have much effect when the reality is they need to charging the customer far more for such a labor intensive service that has limited economies of scale.

Rolling out a stratified tariff that better reflects the number of items in the order and population density of the customer’s address might also help but I doubt if that will happen though as complexity is something most retailers abhor. So my first piece of advice is to divest your investment portfolio of grocery stocks as they’re likely to be on the slippery slope.

But secondly, once you’ve discovered the magical growth segment, make sure you understand the cost to serve involved using solutions such as SAP Profitability and Cost Management to provide the insight into the complexity of how fixed and variable costs behave. Without it strategies such as ‘clicks-and-mortar’ could destroy value for you too.


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9 Tips On Writing An Effective Management Discussion And Analysis ( MD&A ) Report

Richard Barrett

Management Discussion And Analysis ReportAny company that has a financial year that ended on 31 December will soon be faced with the issue of what to include in the management discussion and analysis (MD&A) section of their annual financial report.

Given that most economies are still in a state of ‘austeria’ and business confidence is not good – something Deloitte’s latest CFO Signals survey for Q4 yet again picked up on –  it’s not an easy task. Most regulators, such as the US Securities and Exchange Commission (SEC), provide guidance, but it’s not meant to be a definitive checklist and still calls for a heap of judgement, especially when commenting on the uncertainties about the future that the SEC asks for.

Speaking at an AICPA conference last month, Brian Lane, a corporate securities lawyer with Gibson, Dunn & Crutcher, who has considerable expertise in SEC issues, shared some timely tips for effective MD&A reporting to ease the pain:

  • Use plain language rather than jargon and make optimal use of tables and charts.
  • Keep the overview brief.
  • Give the important top-down analysis before getting into the detail.
  • Make sure you explain ‘Why?’ the results are like they are – it’s the most important thing readers are looking for!
  • Monitor what competitors and peers are disclosing.
  • Try to weave risk factors into the narrative rather than simply listing the same old checklist.
  • Follow SEC guidance and endeavour to quantify the effect that each of the external and internal factors you mention had on your results.
  • When talking about year on year comparisons, combine the data into a single easy-to-grasp chart.
  • Use your disclosure committee to audit that important issues are covered off, namely:
    • Financial covenants, liquidity and cash reserves.
    • Changes in legislation and regulation.
    • Any business critical issues with customers or suppliers.
    • Disproportionate reliance on particular products, segments or geographies.
    • Significant swings in quarterly results across the year that may need to be disclosed.
    • Any important litigation that may be imminent.
    • Both the good and bad news that is bothering the executives and senior management team – it may not have hit results yet, but it’s a good way to health check the future.

Excellent advice and it goes without saying that best way to ensure the timely production of a quality MD&A like Brian recommends is by empowering the team responsible for its delivery with a solution such as SAP Disclosure Management that allows them to assign responsibilities, share information and automate workflows and sign off.  The PWC white paper on building a business case for disclosure management comes highly recommended. But if you’ve got any tips about how you go about producing your MD&A section, I’m sure there’s lots of folk out there looking for guidance of any kind that smooths the process for them this year.


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Can Companies Operate In A Risk-Free Environment?

Greg Ertel

There are many ways people rationalize away risk when it comes to their companies.

Ever heard someone say, “We don’t manufacture a tangible product, therefore, we’re not at risk for global trade violations”? Or, “We only sell to domestic markets.” Or even, “Our product is simple and clearly for civilian use, so it poses no military threat.”

Assumptions like these could be putting your company at extreme risk.

Screening Business Partners Is Good

Companies that do any type of business must, at a minimum, screen all business partners against the lists published by regulatory authorities. These lists include the denied party lists (DPL), the specially designated national (SND) list, and many more.

Selling products or technology to individuals or companies on these lists carries civil and criminal penalties. If gross negligence is found during an audit, individual people can be charged with a crime in addition to incurring severe penalties and costly fines. These fines are extremely high, and the damage to the company’s brand is never fully repairable.

Just recently, a large bank mitigated down a risk to a fine of $327 million for violating U.S. sanctions on Iraq. And on nearly the same day, another bank was fined $1.92 million for allowing terrorists and drug lords access to U.S. financial systems.

Companies should never think they aren’t at risk if they aren’t screening their business partners. Manual screening is better than nothing at all and documenting the process is even better. The major factor in preventing the levying of fines and penalties is proof that the company did due diligence and checked the business partners prior to shipping goods or technology, or completing financial transactions.

Unfortunately, manually checking business partners is prone to error and resource intensive. Names are added or removed from these lists daily, making it impossible to reasonably keep up with checking updates when in manual mode.

Automated Screening Is Better

Automation is the best way to screen your business partners. The system should include data content that has undergone rigorous quality controls, and be built directly into the back-end systems for real-time checking and updates. Business partners and documents are checked and all activities are recorded in an electronic audit trail.

If your product falls into the wrong hands, this audit trail can be produced for the authorities to demonstrate that every reasonable care was taken. Usually, fines and penalties aren’t levied or are kept to a minimum. The authorities will want to know what corrective action has been taken, but the U.S. Customs and Border Protection knows items can make their way through.

Take Extra Care with Trade Regulations

Check your company’s policies for complying with trade screening regulations. The regulations and lists have different requirements. For example, some entities are categorized as “unverified”, which simply means it isn’t known if a company can or cannot transact business. This would have to be reviewed by a trade compliance professional, with the resulting decision (and all reasons for release or block) captured in the audit trail.

The Office of Foreign Asset Controls (OFAC) is responsible for ensuring that economic sanctions declared on other countries or regimes are enforced. However, there’s no standard issued by OFAC. Companies are required to have their own standard that is documented, implemented, and run as prescribed. This is very important for companies in the financial sector (as illustrated by the banking examples).

So can companies operate in a risk-free environment? No—there’s no such thing as risk free. However, companies can significantly reduce their risk with reasonable effort and care. With the proper systems in place, companies can rest assured they’ve done their part in complying with the regulatory authorities.

I’d like to hear from you. Is your global trade compliance strategy automated and integrated throughout the financial and supply chain business processes? Have you assessed your risk exposure and developed plans to close and reduce this risk? Are you comfortable that you have all the resources to keep you compliant today, as well as the ability to rapidly adapt to new regulations?


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Know Your Position - SAP Risk Seminar Overview [Video]

Experts from the FSA, Deloitte, Celent and SAP offer exclusive insights into the new risk management landscape.

Sir Ranulph Fiennes, legendary explorer talks about risk at the limits of human endeavour.


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How To Fight Pirates (With Big Data)

Nicholas Carlson and Dylan Love

Piracy is a serious problem on the world’s seas.

A U.S. consultancy called Oceans Beyond Piracy estimates that pirates caused $7 billion of damage in 2011.

The good news is that, thanks to technological advances, the problem is getting solved.

The International Maritime Bureau reported a 54% drop in piracy incidents during the first half of 2012 versus the same timeframe in 2011.

The reason: Government agencies and law enforcement entities have started harnessing big data to prevent piracy before it happens.

“Big data” is a a buzzy tech term that addresses the nearly boundless amounts of information generated every day on a given topic and how computers process it. Remember Watson, IBM’s Jeopardy genius? It’s a totally similar idea–a computer is fed more information than a person could ever handle, then processes and makes sense of it.

How to Fight Pirates With Big DataThere is a nearly unmanageable amount of data collected as it relates to piracy on the seas. News stories about piracy incidents, interviews with captured pirates, social media posts and emails from pirates, and the like.

These all come from a variety of sources that authorities are now pulling together and processing with computers to learn how to better stop pirates.

With enough information to pull from, a computer can find patterns or trends that would normally evade humans. And when you find a pattern, you can have a good idea when or where something will happen before it actually happens.

More Esri data

A company called Esri runs advanced mapping software that pulls in nuggets of information to help visually point out when and where incidents of piracy are likely to occur in the future.

Authorities are now able to turn an incomprehensible mass of information that no one would be able to sift through or organize, and forecast where they need to be to keep the seas safe.

It is, as Harvard Business Review puts it, a “genuine predictive model.”

SEE ALSO: Future Of Business

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