February, 2005

Tindell’s Digs Deep

Home-grown data mining software provides pinpoint management controls

By Dan Emerson

Unlike most forms of mining, the activity known as "data mining” doesn’t require hard hats, flashlights or heavy equipment. For dealers, the primary data mining tool is software specially designed to gather and organize data on inventory levels, store locations, salespeople and customers. Used properly, data mining software can yield a mother-lode of information and insight to give sales and margins a boost.

In 2002, Knoxville, Tenn.-based Tindell’s Builder Supply combined its retail experience and in-house IT expertise to develop a suite of so-called "dashboard” software. The software’s ability to "slice and dice” relevant data has made it an integral part of Tindell’s operation, and is also being used by about a dozen other U.S. building supply dealers.

The term dashboard refers to the software’s ability to organize and present data in real time, in an easily understood format. The dashboard display format allows users to access more detailed, underlying information, with a simple mouse click. Tindell’s suite includes three modules designed to manage inventory, compare salespeople’s results, and analyze product margins.

The man behind the software is Johan van Tilburg, Tindell’s president, whose focus on improving the firm’s inventory management was the initial catalyst for its development.

"One of my pet peeves is inventory,” says van Tilburg, a former Iomega Corp. manager, who ran the IT firm’s European operation. "I came to this industry from high tech, where it wasn’t uncommon to do 24, 30, or 36 inventory turns within a year. In our industry, eight turns a year was once the accepted norm. That’s no longer the case; people have realized the value of inventory turns and everybody is trying to reach at least the double-digit level.”

Each night, following the end of the business day, the software automatically extracts data from the dealer’s enterprise resource planning (ERP) system, "whether it’s Oracle, Enterprise or whatever.” It then downloads the data into the access database where the program resides.

"This software allows us to compare inventory turns from the highest level—total, companywide inventory—all the way down to each and every unique item stocked at each store. If the data shows you’re getting ten or eleven turns at one yard and only six at other yards, you can look into what’s going on, and how you can fix that.

"Everything is driven by minimum and maximum settings on inventory levels, which are derived from ‘run rates,’” van Tilburg says. "The software examines sell-rates for four-, 13-, and 52-week intervals and comes up with an average weekly usage, based on where vendors are located and what the inbound supply chain looks like. Doing this every two weeks gives you 26 turns per year; every four weeks gives you 13 turns a year.”

Doing so also enables the dealer to identify "unreliable” vendors— those with no consistent supply-chain practices.

Tindell’s uses the Inventory module to produce daily exception reports showing what items are over desired inventory levels, items that have fallen beneath designated "safety” settings, and any out-of-stock items.

Tindell’s incents its store managers to achieve annual inventory turns. "They use the system to micro-manage their inventory to achieve the ultimate balance between inventory levels and customer service,” van Tilburg says. "You can have higher customer service levels with lower inventory levels. You just have to make sure your inventory dollars are invested correctly.”

Better information allows you to manage those dollars. Explains van Tilburg, "On the usage side, at every store location, each year we have set increasingly higher inventory turns as targets. Managers are responsible for their own destinies. They set the inventory levels they need to carry to achieve their turns. At the same time, to maintain sales volume we can’t have ‘stock-outs.’ It becomes a fine line in micro-managing inventory to assure that you have what your customers want and that you don’t continue to carry what doesn’t turn.”

To keep stock at the desired levels, the system generates daily replenishment orders to internal and external vendors, based on previous day’s sales. Individual users can order daily customized reports. For example, van Tilburg looks at total inventory dollars by location, and inventory turns by location, along with daily, out-of-stock reports. Tindell’s store managers use the data to set their minimum and maximum stock settings. "Once they have been approved by purchasing, the system will use these new levels to identify any exceptions,” says van Tilburg.

Tindell’s uses the Salesperson module to generate daily exception reports, showing any customer’s margins which are below pre-set objectives. The sales manager uses the module daily to compare margins by customer and salesperson, to identify margin opportunities. The sales manager also uses it regularly to understand the effectiveness and impact of spiffs and other promotions.

Tindell’s managers also use the Product module to generate daily exception reports, showing any product margins which have slipped below pre-set objectives. The purchasing manager uses it daily to compare margins by product and by salesperson, to identify profit opportunities. He also uses it to identify what is or is not selling, and to track the impacts of any changes he makes on the pricing or promotional side. Store managers use the module daily to identify margin opportunities by product/item, according to van Tilburg.

"At all times, the entire system is accessible for all users to perform detailed follow up and drilldown triggered by their exception reports,” he explains. No paper reports are used; everything is electronically generated and e-mailed to users. Since Tindell’s software has been used in the field by other dealers who have purchased it, it has evolved based on their input. "User suggestions have caused us to look at things a different way,” van Tilburg points out. "Whenever you roll out a new software product, people come back with requests for enhancements and changes.” One example was a user’s suggestion to add average-cost data.

Another customer suggested enhancements to its sales management capability. "We’ve added the ability to drill down and compare salespeople from the very highest level—from total sales dollars into groups, families, and down to the unique-item level. Just like the inventory module, it allows you to compare sales by each item, across multiple salespeople. For example, you can look at 2x4-10 spruce, analyze what price one person is selling it for and what kind of margin he’s getting, compared to another sales guy.”

Any identified discrepancies between salespeople become a tool to demonstrate to each salesperson what they need to focus on, van Tilburg explains. "You might point out to someone, ‘Each of your peers is 2% to 3% higher than you are; go work on that.’” On the customer side, the module can also be used to conduct individual profitability analyses: Call up the average order size and return rate, to understand the bottom-line impact of that customer.

Another request, to add store-comparison capability, came from Tindell’s in-house store managers. "You can use it to find out why a particular store might be selling 3% less of an item than another store across town. Is that because of competitive issues, because of the salespeople working there, or the manager? Now, store managers can look at both customers and items down to the unique item-code level to determine where they may be missing margin opportunities or in some cases selling an item too high or too low. Then you find out why.”

So far, Tindell’s efforts to market its software have been limited to an ad-hoc, word-of-mouth basis. Van Tilburg says the company may add additional modules in the future, "but for right now, we’re going to stick to these three. We’ve implemented them around the country; we know they’re reliable and capable, and we’re continuously making enhancements.”