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Analyzing Location for the Most Profitable Supply Chain

Highlights

  • GIS generates full business location-specific reports for the chains, and each store can easily run its own reports.
  • Different functions can be chained together in GIS geoprocessing models.
  • ArcGIS can model the likelihood that residents from different areas will do business at new locations.

Chances are, if you are in need of groceries, gas, or other goods while in Finland, you will find yourself in an S Group store. S Group is the largest retailer in Finland, with business sectors including grocery retailing; service stations and fuel trade; utility goods; hotels, restaurants, and tourism; car dealerships; and agricultural trade. The corporation has more than 1,600 locations throughout its home country, the Baltic countries, and Russia.

A factor in the corporation's success (it controls more than 44 percent of the grocery marketplace in Finland) is its ability to understand local customers to profile business locations and plan the best product range at those locations.

Until a decade ago, if corporation reports were needed, they were created manually, and a report for a single business location took almost half an hour to make. The time involved meant it wasn't possible to create reports for every business location.

"Location is an important factor, and it is essential that we understand what kinds of customers there are in each business's area of influence," says director Jari Löppönen.

Furthermore, information must be created with the efficiency of factory production to be able to serve the large organization and huge number of business locations.

SOK's Internet map application makes it easy for staff to discover and analyze information for its best stores.

SOK's Internet map application makes it easy for staff to discover and analyze information for its best stores.

To attain these goals, S Group's development and support organization, SOK Corporation, has been using GIS technology since the early 2000s. SOK staff had been on the lookout for a solution that would assist them in understanding the entire supply chain of their business, from merchandising to marketing. After discussions with Esri Finland Oy, Esri's distributor, SOK staff decided ArcGIS was the only solution that could provide them with the scalability, data integration, and usability they needed.

Productizing Reporting with GIS

When SOK's Business Intelligence Competency Center (BICC) began using ArcGIS, the benefits became obvious. BICC staff used the software to automate profiling reports for each of its 1,600 business locations. Business location profiling reports are based on SOK's member-owner purchasing information, as well as Statistics Finland's annual Grid Database, which offers versatile statistical information on the population across all of Finland, divided into squares measuring 250 by 250 meters.

Profiling reports are generated by combining a report compiled using IBM Cognos with a map of a store's area of influence created using ArcGIS. They are created automatically for all of S Group's business sectors, with versions varying slightly depending on each sector's needs.

SOK can run a full business location-specific report for the chains, and each store may also run its own reports through a browser interface. For the purpose of concept design and strategic management, separate versions of the reports are created for the directors of the chains, indicating the distribution and highlights of each chain's customer profile. Different versions of the reports are also provided for the needs of management at regional cooperative societies.

"Geographic information has traditionally been an island of its own, separate from other reporting," says Juha Järvi, information manager. "In our solution, geographic information and IBM Cognos reporting are integrated together."

This solution has been successful in part because of the accurate geographic information on the population in Finland that exists in the Grid Database. Another factor of success has been the skill and cooperation between SOK, IBM, and Esri.

"As easy as a single report looks, there is a lot of work done in the background by all parties," says Järvi. "These kinds of results could not be achieved without merging the different parties' know-how."

Fine-Tuning the Product Range

Profiling reports are used to plan the merchandising in each business location. Information gathered this way is extremely important and is at the heart of business operations. For example, if in a certain area there are more families with children than the national average, the business location's product range can be fine-tuned to better meet the needs of those families.

Says Vesa Honkonen, GIS manager, "Our goal is to adapt the chain concept regionally so that each of our business locations is able to offer a product range that meets demand in its region. We are able to create reports that profile the types of households and people living in each business location's area of influence and show how far customers travel to visit each one."

This directly supports business operations and the planning of the product ranges at individual stores, which works to the advantage of both SOK and its member-owners. Customers receive services that are better targeted at them, and higher customer satisfaction increases the sales and profitability of each business location.

Accurately Forecasting Store Influence

SOK analyzes business locations' areas of influence for many other applications, such as network planning. Whether looking at opening a new location or closing one, ArcGIS is used to model potential regional influence, or the likelihood that residents from different areas will do business at the new location. This information, in turn, can be used to forecast the annual sales volume of the new business location.

"This is where GIS shows its strengths," says Honkonen, "as it can be used to build geoprocessing models where different functions are chained together, and all the steps that are necessary for an accurate forecast can be calculated in a single run."

This is very important, since every year, SOK opens several new business locations, some of which have millions of euros invested in them. In each case, forecasts provide the management of both the regional cooperative store and the chain with fact-based support for their investment decision.

ArcGIS can be used to calculate the effect of these new stores on the existing network of business locations. The calculation is used to forecast how much a new business location would eat away at the sales of other stores in the same retail chain or how much the discontinuation of an existing store would increase those stores' sales.

Targeting Direct Marketing

Millions of catalogs are sent out, and ArcGIS helps ensure they are sent to the right homes. Traditionally, distribution areas have been planned quite roughly, largely guessing at the most appropriate location. Using profile reporting and the area of influence information, the distribution of catalogs can be targeted much more effectively to serve the purpose of each.

"When we better target each customer group," says Löppönen, "we have more satisfied member-owners and achieve clear savings and more sales."

SOK also uses GIS to generate easy-to-use map services for different business areas, which contain statistical information on the population and member-owners and location information on competitors, all at different regional levels. Map services can also be tailored to the different needs of chains.

For more information, contact Vesa Honkonen, GIS manager, SOK (vesa.honkonen@sok.fi).

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Matt Carmichael, director of information for Ad Age magazine, discusses using GIS technology and data to understand demographics and consumer trends. Listen to the podcast. [11:00 | 11 MB]

 
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