Case Study 1.1.

The chain store ALFA (a fictional store) is an important player in the market of discount stores with an ambition to become the leader in its business line. At present, its chain consists of several dozen stores spread across the northeastern United States. ALFA stores have identical exteriors, similar usable floor space, and an almost identical assortment of products: a few thousand indexes of groceries, cosmetics, tobacco, alcoholic beverages, newspapers, and so on. These stores are stocked from a logistics center (central warehouse) located in the center of the sales area (see Figure 1.2). The average customer is a middle-class person who prefers buying high-quality products or a great variety of products at a low price. The ALFA chain has a very effective procurement system, which has built a stable group of suppliers offering relatively low prices, and a selected assortment of ALFA’s own brand of products. The chain competes against a few similar chain discount stores and shopping malls by offering low prices and an almost all-day availability of standard product offerings.

ALFA’s management board is completely aware that because there is a limited diversification of products, it must focus on low prices and tight cost management to hold on to its competitive advantage. The fundamental strategic aim is to develop more quickly than its competitors (increase in the market share) and to improve its cost position. To realize its strategy, the board has formulated the following strategic initiatives (projects):

1. An intensive growth in market share by the rational selection of new locations and the fast opening of new stores in the chain
2. An increase in the average sales per store in comparison with competitors (benchmarking) by the selection of suitable product offerings, proper arrangement of products in the stores, and a quick response to changes in demand for individual products
3. Optimal cost management, mainly by a reduction of logistics costs

In taking steps to implement these strategic initiatives, the board was made aware that its management is based on intuition (“following one’s nose”) and that there is no suitable information about the chain store’s performance, which results in an inability to manage it rationally. The following points were discovered:

1. The new store locations were selected in most cases intuitively without taking into consideration knowledge of how chain stores function in similar locations and available demographic data, environmental data, and so on.
2. The board and regional managers get the sales results from all the stores for individual products weekly. A weekly interval in the observation of sales of certain products makes it impossible to respond effectively to radical change in demand in comparison with projections.
3. The managers of the individual stores independently and intuitively arrange products on shelves and use floor space.
4. The divergence between the controlling department and the sales department was found by a calculation of logistics costs. Therefore, those departments give different results regarding the retail margin on a given product when logistics costs are taken into account (a problem of a few versions of the truth).

In order to deal with the aforementioned problems, a consulting company was hired. After preliminary research, it proved that the data registered in ALFA’s IT system used are almost complete enough (after suitable processing and by means of some BI techniques) to provide information and support business decisions within the areas specified in Table 1.3.¹⁰ After a suitable analysis of the requirements and an estimation of implementation costs, a strategic decision was made to implement a BI system.