IBM Uses Advanced Analytics to Transform Inventory Management for Retail Industry

German Retailer Max Bahr Innovates Business Process to Achieve 99 Percent Service Level

IBM today unveiled a new solution that uses advanced data analytics to help retailers achieve the delicate balance between demand and inventory levels. The new IBM Dynamic Inventory Optimization Solution mines data for customer order patterns and inventory levels and then applies patented optimizing technology -- enabling clients to potentially cut their inventory levels up to 40 percent in some cases while maintaining or even increasing overall service levels.

With the retail industry being driven by empowered shoppers who have
higher expectations, more information than ever and broader awareness of
their choices, retailers are moving to find inventory management
solutions which can help them manage in the midst of consumers' almost
daily shifting buying patterns.

The IBM Dynamic Inventory Optimization Solution for Retail leverages a
number of data sources once thought to be too detailed to quickly and
properly parse efficiently. In the retail industry for example, forecasts
using point of sale (POS) data are traditionally prepared weekly. However,
through the use of advanced algorithms, patented by IBM, the new solution
analyzes daily POS and other vital data to project stock overages and
shortages. It then evaluates retailer and vendor sourcing rules, and
suggests orders and replenishments to help maintain the optimal balance of
stock and service at the store level.

IBM recently deployed the Dynamic Inventory Optimization Solution for
Retail at Germany-based do-it-yourself retailer Max Bahr. Previously, Max
Bahr had relied on local planners from each of its 90 stores to manually
forecast inventory needs for over 70,000 items.

Working with Max Bahr's business leaders, IBM Global Business Services
implemented a system which automatically generates their order proposals
and provides improved forecasts for their network of retail outlets. Each
evening the solution takes the roughly 15 to 20 million POS transactions
from all 90 stores and analyzes them against a two-year history of each
product Max Bahr has sold. Overnight the solution calculates approximately
340 million replenishment targets and automatically turns 90 percent of
them into orders, allowing planners to focus on managing the exceptions.

"The Dynamic Inventory Optimization Solution has become one of the most
important business tools we have for positively impacting sales and keeping
us competitive," said Anja Schoning, project manager, Max Bahr. "We've seen
our service levels in all our stores and warehouses reach 99 percent,
significantly reducing the probability items will be out of stock and not
available for our customers."

"The ability to quickly analyze massive amounts of data, down to the Stock
Keeping Unit level, and automatically replenish stock gives our clients an
edge in today's fast-paced business environment," said William Pulleyblank,
vice president, IBM Center for Business Optimization. " In addition to
retailers, who must anticipate consumers' volatile purchasing decisions,
this solution is being used by manufacturing firms as they manage inventory
levels for urgently needed components and spare parts."

The Dynamic Inventory Optimization Solution is available from IBM either as
part of a services engagement or as a solution that can be integrated with
a client's business operations. The solution works in conjunction with
enterprise resource planning (ERP) solutions as an add-on planning
component and also operates in a non-ERP environment as a fully integrated
replenishment system.

Originally developed at the IBM Research Labs in Zurich, Switzerland, the
Dynamic Inventory Optimization Solution is available today through the IBM
Center for Business Optimization. This group is putting advanced analytics
to work by tapping into IBM's deep computing skills, industry consulting
expertise and IBM Research's mathematical modeling capabilities to develop
solutions that tackle complex problems involving massive data sets. In
addition to supply chain optimization, the Center offers solutions in the
areas of risk management optimization, marketing investment optimization
and dynamic pricing optimization. The Center is part of IBM Global Business

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