Thursday, 7 October 2010

2010: A Retail Store Odyssey

Stanley Kubrick’s film “2001: A Space Odyssey” was the epic 1968 science fiction film that explored human evolution, technology and artificial intelligence with both realism (and surrealism) and remains one of the top films of all time. In it, two astronauts battle the computer HAL for control of their spaceship and for their lives while investigating a series of strange monoliths left from an earlier civilization. For many years and for many people, the film has been symbolic of our struggle to master, and not be mastered by, computers. Kubrick and his co-author Sir Arthur C. Clark were both brilliant and far ahead of their time. In many respects, they still are.


In 2010 we are certainly wrestling with computers that occasionally seem to get the better of us. In our world, computers are ubiquitous and the software behind them has a pervasive impact on our daily lives but hardly in the way Kubrick and Clark envisioned. Consider this absolutely mundane sequence of events, at least in the developed world. We hop into our car to go shopping for groceries. As we turn the key one or more microprocessors start, employing sophisticated software to optimize efficiency, performance and emissions. Our cars talk to us, connecting phone calls routed through a cellular network. They entertain us with hundreds of channels from a satellite radio connection and give us visual and voice directions to where we want to go. All of this amazing hardware comes to life through the software that makes it work. And, of course the software makes considerable use of mathematics to accomplish what it does for us. So, you may ask, what’s the reference to a “retail odyssey”? We haven’t even gotten to the grocery store yet.

In my view, the most amazing thing at the Sainsbury I frequent in the UK or the Dominick’s near home isn’t the check out where they let me scan my items and coupons and pay with my credit card, all with a few taps of the touch-screen. It’s the realization that I’ve just walked through a store with literally thousands of unique items to meet my needs, each residing in a database linking the bar code on the package with a price, an inventory level, cost, supplier and even a “loyalty card” database that permits analysis of which shoppers bought which products and in which combinations. While you are pondering this miracle of modern technology, ponder this question: who set the price of the 2-pound package of Folgers coffee at the end of Aisle 2 and how did they do it?

The answer, if it’s not already obvious, is sophisticated software from companies like NAG partner DemandTec (NASDAQ: DMAN) whose demand management software is helping retailers and manufacturers worldwide optimize revenues, prices and inventories. We’ve worked with DemandTec since 2004, providing them sophisticated mathematical and statistical software to enable their application to help retailers manage demand.

One of the benefits of working with cutting edge companies like DemandTec is that we get to participate in events such as I have been involved with lately. NAG has partnered with DemandTec to sponsor the Chicago Regional scholarship competition in a national event called the DemandTec Retail Challenge. In it, high school seniors in teams of two get to apply their problem-solving and mathematical skills as pricing analysts managing an assortment of products in a grocery store. They set the price, order inventory and make decisions about promotions in a simulation-based competition with other teams in the Chicago area. The eventual winners will have maximized profitability and successfully communicated their approach to the problem to experts in the field. The winners earn a college scholarship and the right to compete in the national version of the contest at NASDAQ in New York City in January 2011. The national champions get a significant additional scholarship and the right to ring the closing bell for the trading day. For those of us at NAG it’s both a way of giving back to the community and helping the next generation apply their academic skills to real-world problems. From the conversations I’ve had with them thus far I suspect that the computer HAL would be no match for them.

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