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October 26, 1998 Decision Into Action Closed-loop systems are making retailers more responsive to inventory adjustments By Norbert Turek 
he term closed loop may have had its heyday in college electronics and cybernetics classes, but it's staging a comeback--especially in the area of retail-replenishment systems.At The Home Depot Inc., which has a diverse inventory in its more than 400 stores, most locations have installed a radio-frequency-transmitted data warehouse link, which Home Depot calls its Mobile Ordering Platform. The system uses Windows-based devices mounted on carts and lets floor clerks and department managers access data analyses of the store's 65-week, running-history inventory, then make order decisions while they're standing in front of the merchandise. The Home Depot's system is homegrown, but CIO Ron Griffin doesn't think of the company as a trendsetter. "We only take on new technology if it's proven, or if we get a high return on investment and a competitive edge," he says. Though the company doesn't disclose ROI information, Griffin says Home Depot is averaging a savings of "about one administrative person per store. More important, it gives the sales force more time on the floor with the customer." Decision-support software vendors are betting other companies will want to see similar results. They're developing products that combine all the information and applications--decision reporting, transaction, and operations software--on a single screen. MicroStrategy Inc. recently added DSS Broadcaster, which can send data to personal digital assistants and other devices, to its DSS Suite of decision-support tools. Intrepid Systems Inc. (which was recently bought by PeopleSoft and incorporated into its Retail Business Unit) is using some of those tools in its own product, InformAction, which integrates merchandise-management and decision-support applications. And Information Advantage Inc. is using the term closed loop to describe the return of information to a data warehouse that updates the decision-making process via its Demand Planning software. Ultimately, software-based closed-loop technology is about streamlining the process of turning decisions into actions. "Classically, closed loop means bringing information from the decision process back to the transaction process," says Liz Shahnam, a data warehouse analyst at Meta Group. To that end, MicroStrategy partnered with Intrepid, supplying its DSS Objects code for Intrepid's replenishment-tracking and support software. Intrepid, which specializes in data warehouse applications for the retail sector, is marketing the closed-loop concept under the InformAction name. Currently in beta testing at several retail operations, including FedCo Inc. and Mars Inc., InformAction lets users in the decision chain receive report alerts based on exception criteria--for instance, sales increasing over the previous month by at least 15%, or inventory that's less than 30% of full stock--then enter new orders immediately, without leaving the decision-support application. Intrepid is using DSS Objects--an open application programming interface--to display information pulled from DSS Agent reports, which are run at predefined intervals based on the user's needs.  
Keith Hammer, VP and CIO at Mars, a 2-year-old musical instrument and instruction chain store in Fort Lauderdale, Fla., likes the partnership. "Evolution [Intrepid's merchandise-management software] and Decision Master [the vendor's decision-support software for retailers] were far and away the most mature integrated products we looked at," he says. "But we also like the fact that it's built on MicroStrategy's open API, which makes us less dependent on Intrepid."Move Away From The Wall DSS Broadcaster--which can send reports to cellular phones and handheld units such as PDAs and pagers, as well as E-mail hypertext links to exact locations in the data warehouse--also promises to liberate managers from wall-jack dependency. And using the Intrepid application or a custom application for a vertical market, managers will be freed from exiting and entering other applications. The goal for many organizations: making multiple programs and paper order forms--which are traditionally forwarded to an ordering clerk--obsolete. Linda Morin, assistant VP for replenishment and planning at FedCo, a department-store chain in Santa Fe Springs, Calif., has had no problem getting upper management to buy into the future of a closed-loop system. "Our CEO [who has since left the company] was the executive sponsor for the project," Morin says. She says there is no hard ROI for a data warehouse upgrade like InformAction, but "increased sales and stock reduction are usually hard to match to any one thing." Nevertheless, such returns are certainly in evidence at her company now. Morin says a typical FedCo store has 200,000 products--and managers have traditionally wanted to know about every one of them, even if they're selling as expected. "In the past, management wanted to touch every item in the store. Every week, we generated a three-to four-inch paper report for every manager," she says. Morin sees the technology evolving to the point where executives are managing only exceptions. "[They can] look at the best and worst, and let the replenishment department take care of everything in the middle," she says. Morin, who began using Intrepid's Evolution and Decision Master tools last November, expects to have a closed-loop system running by the first quarter of 1999. Thanks to decision-support reports generated by the previous year's same-season sales, she says, "it will make it easier for new buyers to order, and orders can be generated automatically--without logging in and out of Decision Master." For FedCo, closed-loop decision-support software will be used by buyers, not in stores. But at Mars, the ability for line workers to order out-of-stock items will be programmed into the system. "Decision Master is enabled from the CEO to the merchandise specialists--the replenishers," CIO Hammer says. Mars uses an IBM AS/400 warehouse with a DB2 database to manage sales and inventory of more than 20,000 products and the largest music-education company in the United States. "Our goal is a seamless integration of decision support and transaction support," Hammer says. What Does It Mean? While that's also the goal of MicroStrategy and Intrepid, Rich Tanler, chairman of Information Advantage, disagrees with their interpretation of the term closed loop. Tanler defines it in the textbook sense of a system that contains internal feedback, which allows for constant internal updating before the end product is made. Tanler says Information Advantage has developed such a system in partnership with SPSS Inc., which sells reporting, analysis, and modeling software and developed the statistical models for Information Advantage's solution. Called Demand Planning, the software can generate customized exception reports, which are sent as alerts to users who are then able to make a decision that is tested against the statistical model. "If I get a beep and take an action, I should be informed if that was the correct action," Tanler says. For instance, say sales of cotton balls in a store are up 10%, but the manager doesn't do anything. Then the same manager gets another alert saying sales are up 15%, and he or she acts on that information. The action is entered and tested against the statistical model and, if appropriate, the statistical model updates how and when the next alert occurs (in this case, after sales are up 15% rather than 10%). The goal is to give the manager a smarter alert the next time around, based on his or her prior action--or lack thereof. But while closed-loop solutions have their proponents, not everyone is on board--or is even familiar with the term. For instance, although Cognos and Oracle offer decision-support products that provide alert features for exception reports with write-back capabilities for automatic reordering, representatives for both vendors say they aren't selling anything they call closed loop. And not everyone sees value in such systems. While Mike Wade Sr. manager of revenue reporting systems for business markets at MCI, thinks automatic responses and write-backs to the data warehouse have value for noncritical information, he is against using an intelligent decision-support system that responds before people get a chance to look at a given report. "Our information is too important to allow machines to carry out the resultant actions," Wade says. Wade uses DSS Broadcaster, DSS Web, and DecisionSuite--but he doesn't buy into the idea of an automated closed loop that lets the software make the decisions. "We push the reports to upper management," he says. "The trick is to apply data analysis in an intelligent way." Ultimately, whether MicroStrategy and Intrepid or Information Advantage redefine the term closed loop will depend on how effective the early users are at managing the way their workers can use their new-found power. Because, as the Home Depot's Griffin says, "Information in the absence of execution is simply overhead." View the table, "Select Decision-Support Software Vendors" as a PDF file. 
To view a PDF file,download the Adobe Acrobat Reader Photo by Tony Arrusa 
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