Markdown optimisation example

The Optimal, Best Markdown Rules During COVID-19 and Beyond

When my friends talk to me about managing a retail store they all enjoy it apart from one thing. They tell me that seeing the latest trends, working with cool brands and meeting some of the stars promoting the articles is great. It’s just that there is a recurring event that makes long days longer and they are sure can be done better – markdowns.

My friends imagine that a set of retail analysts spend days figuring out the optimal markdown to make sure customers buy the remaining goods at the highest possible price to maximise the possible gross profit. 

However, in many cases, there is no group of analysts.

Instead there is a fixed set of well-worn rules, year after year: first a 10% reduction, then a 30% reduction, and finally a 60% reduction until the product clears.

It’s artificial ignorance not artificial intelligence. The retailer’s have the data, it’s whether they use it – and can make use of it – or not.

As if typical markdown cycles weren’t difficult enough, COVID-19 has turned these processes into a nightmare. Companies are now stuck in a vice trying to clear stock but doing so in a way that loses minimal money and keeps the company afloat. 

The old rules are no longer working so companies are experimenting with new permanent discounts – 50%, 70% and 90%! Just whatever it takes to get the stock out the door before it’s too late…

What is needed, now more than ever, is a data driven, machine learning approach to suit each individual business. The best markdown rules use analytics.

Biarri’s research has shown that too many goods are too heavily marked down, even in a time of crisis like this, meaning lost profit margins. In addition, a one-size-fits-all approach doesn’t work – each business needs to take its own unique conditions into account for such markdowns to be successful.

The early conclusion? The best markdown rules

In the current situation, you need advanced analytics tool (AI, Machine Learning, Optimisation) that takes into account the unique circumstances of your business and can answer questions such as:

  1. Each store has different stock coverage for an article, so how do we balance a single store’s need with a regional markdown strategy that mandates one markdown for all stores in a region? Or even more difficult, a national markdown strategy?
  2. If we allow markdowns to vary between stores, then how do we create a markdown strategy that prevents customers shopping between your different stores searching for the biggest discount?
  3. How do we accurately model price elasticity for goods with only a few sales each month and even fewer historic price points?
  4. When marking down, how do we pick a smart price point – an “anchor” – that increases demand much more than the surrounding price possibilities? 
  5. How do we accurately predict the demand for each individual article to know what it’s markdown sticker should show to maximise profit?

As well as much more.

A tool that maximises your gross profit needs to get all the above right for you and your business, not for a generic retailer in a generic retail environment – these disappeared a long time ago.

The way you resolve these challenges is by having an analytics tool which can:

  1. Group stores together using geographic and sales profiles to provide simplified markdown strategies which staff are prepared to implement
  2. Provide a set of optimal markdowns, determined from the historic sales data, which can be applied equally across all stores in a similar area
  3. Compute accurate price elasticities. Price elasticity is often like sausages; everyone likes them, but it’s better not to see them being made. Biarri avoids elasticity problems by bootstrapping data to measure how volatile the elasticity estimates are and then weights them accordingly.
  4. Cleverly choose price points based on known rules of customer pricing behaviour instead of just basing it on the markdown percentage times the price.
  5. Predict accurately the demand for an article at a given price point by not predicting a number at all – we predict a range.

The last point is key as merely having a “point” forecast is of little value, you need ranges of values so that you can meet your business needs to ensure that you will either:

  • Sell all stock with a high certainty at a good price, or
  • Ensure the shelves are never empty and you don’t leave customers with a bad impression.
Best Markdown rules forecasts

How do I use it?

So now that we’ve identified the key criteria to create the optimal set of markdowns to maximise profit but also clear out the goods, the final step of a successful markdown strategy tailored to your business is building trust in it. This means rolling out the new AI driven marks in a smart way. If you roll it out across your entire range and there are any issues, the entire project will be doomed to fail – even if it was immensely successful on some articles.

The way to make this succeed is to do some simple tests in a scientifically correct way. Create a control group where you do what you normally do and test it against the new optimal markdowns. This can be done either on a store by store basis (A/B tests), but if that is not possible then it should be done across similar product categories so we can draw valid conclusions from the experiment to find the best markdown rules.

What are the benefits?

If instead of using intuition and “What we always did” to markdown products, you turn to analytics to do this smarter, the gross profit improvements can be significant. This technique has been the success story of a number of giants such as Walmart and Target Corporation in their retail divisions. Not only has Biarri seen significant benefits from using optimal markdowns, studies have also concluded that it is possible to improve profits by up to 20% by using analytics instead of gut feelings.

COVID-19 is affecting everyone, irrespective of industry, however the retail industry is one of the worst hit. People are scared and not visiting stores leading to a drop in foot traffic of up to 50% and supply chains malfunctioning with over half of retailers impacted by supply chain issues. 

So something smart needs to be done and right now. Analytics based markdowns are exactly what are needed to turn the retail industry around. Off the shelf tools don’t cut it for a situation like this as they are not customised to cope with so-called “out of sample” events like the current coronavirus crisis.

So reach out now to find out how you can clear out unwanted stocks effectively and maximise profit at the same time. Biarri’s tools are simple to use, customised to each customer and driven by accurate and correct mathematics to ensure the best result. They provide you with the best markdown rules every time.

Better yet, to simplify things, Biarri is offering its markdown tools as a managed service, so no IT work for you to do! We’ll do the analysis and provide you with the best possible markdowns.

Biarri’s tools are trusted by

Get in touch

  • This field is for validation purposes and should be left unchanged.

Agribusiness Optimisation Solutions

Maths and Machine Learning for Agribusinesses

Mathematics powered by computers is changing the world we live in. At Biarri we see this everywhere, across every industry, and I’m sure you do too. Recently we have delivered a number of Machine Learning and Mathematical Optimisation solutions for Agriculture businesses in Australia and were fortunate enough to be invited to speak at the recent Case IH agri-business conference in Mackay.

Ash Nelson, Biarri’s co-founder, presented on Maths and Predictive Analytics for better business decisions. He described how our everyday lives are being changed by corporations leveraging large data sets, advanced statistical analysis and powerful computing resources. Ash then outlined how these same set of technologies can be utilised to improve business decisions in agriculture. This includes optimising agricultural supply chains and port operations, reducing unplanned equipment failures by using intelligent predictive maintenance algorithms or to improve health and safety outcomes for farm workers by better identifying areas of best practice to inform injury prevention initiatives.

Are you interested in leveraging your data using advanced maths to make better business decisions? Don’t hesitate to get in touch with our friendly team.

Healthcare Solutions Thumbnail

The Biarri Score: Predictive Analytics for better integrated healthcare

Many Health and Hospital services around the world have introduced integrated care activities to coordinate Primary (Community and GPs) and Secondary (Hospitals) care levels in order to increase the effectiveness of care being provided at all levels. 

Biarri delivered a predictive data analytics solution which successfully identified hospital patients in the community who were most likely to readmit to hospitals. Statistical analysis proved the Biarri Solution is able to identify the top 1% of the population at risk of hospitalisation with 90% accuracy.

In January 2018, Ron Calvert, the CEO of Gold Coast Health and Hospital Services (GCHHS) was in the news recognising Biarri’s predictive analytics in the form of a ‘Biarri Score’, which predicts an individual’s likelihood of readmission to hospital with ‘remarkable levels of accuracy’. Check out the article here.

The Biarri Score is now in place in the Gold Coast University Hospital emergency department. Also, patient criticality scores are integrated into local GP practices to provide intra-facility collaboration of healthcare services and prevent unnecessary admissions.

This application of Commercial Mathematics has resulted in increasingly better identification of patient who are likely to readmit, in order to improve the effectiveness of the Integrated Care activities and reduce demand on emergency departments.

 

Get in touch to learn more about Biarri’s Predictive Analytics capability or to learn more about applicaitons of Commercial Mathematics in other areas!

Biarri -Hospital and Health Services

Trimming away hospital costs: A bi-product of saving lives with statistics

Healthcare service delivery in most systems can be described as fragmented at best. In many healthcare systems, there has been very little continuity of care and integration for services provided by General Practices (GP), Hospital and Health Services (HHS) and other healthcare providers. Integrated Care is a worldwide trend in healthcare reforms that focuses on co-ordinating these different services.

Read more

Supply Chain planning

Making the most of storage facilities in large construction projects

Large construction projects have a huge logistics component often requiring equipment from all over the globe to be brought together through a complex supply chain. In an ideal world, our suppliers would produce items on time and they would be transported to our construction contractors just as they needed them.

Unfortunately, we don’t work in an ideal world – suppliers can fail to produce on time, problems can occur in transit, and external forces outside our control can interrupt the construction schedule. For this reason, we want a contingency plan – usually in the form of a storage facility where we can hold spare or excess items if our supply and demand schedules don’t match up.

These facilities are used heavily over a short period of time, meaning that any inefficiencies quickly add up to large, unnecessary costs. However, given the size of these projects, identifying and fixing these issues is far from easy or intuitive. It is through analytics that you can drive quantitative answers and support effective decisions in your logistics and facility planning.

Read more

Mitigation by Iteration

Mitigation by Iteration – Facilitating the Optimisation Journey

For companies to remain competitive, they require smart systems that solve their unique day to day business problems. However, when applying these systems many decision makers get lost in the complexity due to limited communication and collaboration within the implementation process.

We are at the cutting edge of the latest optimisation methodologies and web technologies. However, unlike many other optimisation, and analytics companies out there, one of our main goals is to make powerful optimisation accessible in the real world to bring value to our clients.

We specialise in the development of web applications and smart optimisation engines– delivered in less time than you would probably think. It’s not unusual for us to go from an initial workshop with a client, to understanding their problem, and then having a fully functional optimiser in a production environment within three months.

On top of this the same people are often involved through the entire SDLC (software development life cycle) i.e. from the spec/design, theory, implementation and delivery/support. This reduces the overhead many organisations incur by having different people in business analytics and developer positions. The people implementing the solution actually understand and work with you to solve your problem.

Read more

Biarri Workbench - optimisaiton through the cloud

Optimisation through the cloud – The Biarri Workbench

Optimising your business; by operating in the most efficient and effective way; is essential in delivering a greater competitive advantage and is key to driving business success.

But, how can you drive innovation, empower your business decisions and survive in a highly competitive and volatile global marketplace?

A KPMG Report on elevating business in the cloud found that,

As cloud adoption picks up pace, cloud is poised not only to grow in scale, but will also increasingly impact more and more areas of the business. They do not only result in cost savings, but they can help organisations increase workforce flexibility, improve customer service, and enhance data analytics. In other words, the cloud should be considered a key enabler of the corporate strategy, driving strategic business transformations of all kinds.

Gartner Research supports this by naming the cloud as one of the top 10 strategic technology trends for 2015 that will have a significant impact on organisations during the next three years.

Agile Analytics driving business optimisaiton through the cloud

Anayltics delivered through the cloud empowers you to make adaptable decisions quickly, with far more rigour. Having access to your data anywhere, any time, on any device means that you no longer require large IT systems that are overly complex and not built for your specific problem. Cloud solutions allow you to scale up and down, and adapt depending on your specific target requirements. This means you can have point solutions targeting specific pain points within your business.

How does cloud based optimisation fit in my business?

Optimisaiton can be applied to most business problems. The question you should be asking yourself is; What is the best possible outcome of the decisions i’m about to make?

For your Supply ChainHow can I best support effective capital decisions to ensure end-to-end efficiency? – Learn More

For your Logistics – How should I best manage my fleet, workforce, facilities and work communications? – Learn More

For your WorkforceHow should I best plan my workforce across the next few hours, days, and months into the future? – Learn More

For your AnalyticsHow can I be sure that I am making the right decisions and considering all variables? – Learn More

How do we do it?

With our team of mathematicians, software developers and UI designers we use The Biarri Workbench which is an intuitive cloud based platform designed to support the rapid development on powerful web based software solutions.

With the powerful development platform of The Biarri Workbench, we are able to easily customise, alter, and build a solution for your specific business requirements.

The Workbench is Accessible. Empowering you to reduce your companies IT footprint and access world class optimisation anywhere, anytime, on any device.

The Workbench is Customisable. Built from the ground up to allow for rapid, bespoke deployment of software, built for your specific optimisation requirements.

The Workbench is Easy To Use. Through simple linear workflows, and customised visualisation widgets anyone in your business can easily master your software, reducing the need for long training and workforce upskilling.

The Workbench is Scalable. Regardless of business size or project complexity, through cloud based delivery, and bespoke software solutions built around your requirements, there is no more one size fits all approach.

The Workbench is Powerful. At the core of the Workbench are complex mathematical engines powered by industry grade commercial solvers. This means you can be certain in the justification around your decision making.

The Workbench is Efficient. Cloud based software delivery gives you the power to determine who sees what the data when– providing you with more control and rigour over your optimisation processes.

The Workbench is Secure. Security measures exceed both industry and customer requirements with the ability to easily accommodate your specific needs.

 Ask us how we can deliver optimisation via the cloud for your business!

Biarri FIFO Management

Grounding the complexity to Fly in Fly Out management

Being able to close the labour and skill gap is a critical factor in sustaining growth and maximising profitability for remote operations. It is imperative that companies have the tools and skills available to unravel the complexity to FIFO management.

FIFO workforces are commonly used by large infrastructure and resource projects in remote regions including rural and offshore. These regions often don’t have adequate infrastructure or an available local workforce with the right skillset which leads to companies requiring the use of workers from interstate and sometimes overseas.

The FIFO problem is complex for many companies. It involves determining efficient ways to move people via aircraft, taking into consideration: multiple projects at various phases over multiple locations, with a dynamic workforce utilising different skillsets on a variety of roster patterns, as well as using a fleet consisting of different types and numbers of aircraft.

Often the goal with FIFO management is to determine the number, and type, of aircraft needed in order to minimise cost whilst working with the opposing objectives of ensuring: the staff arrive before the start of their shift (but not too early), depart after the end of their shift (but not too late) and keeping travel durations to acceptable lengths (to ensure low fatigue).

Balancing FIFO Complexity

Analytics to break through the complexity

With this level of complexity, a traditional excel approach lacks the rigour and power to find the most efficient and effective results. As a result we’ve developed a number of different FIFO optimisers at Biarri to help ensure the best outcome for clients.

The reality is that there are often many more factors that need to be considered which complicates the problem further. Each FIFO optimisation problem often turns out to be quite different once the detail of the problem is better understood.

High Level FIFO Requirements

Some companies just want us to help them “define their fleet, or travel requirements” so they can then go out to tender (it also helps to keep the vendors honest), others actually want an operational tool. Others may be looking to see if there is a business case for upgrading an airport (e.g. if the airport is upgraded, then larger aircraft can be used which can reduce the need for bus in bus out (BIBO) which will alter their risk profile due to road km and can dramatically alter travel durations).

Specific FIFO requirements

Our clients often want different levels of detail in the solution. Some are happy with a solution that ensures adequate movements at the week level (e.g. 15 flights of aircraft type A between locations B and C per week), others want very detailed minute by minute schedules which take into account: turnaround time, time between takeoff and landing, number of aircraft gates with solutions showing exactly who is travelling on which flight and aircraft and when.

Across Multiple Projects

Our clients have also had multiple projects which are often on the go at the same time and sometimes different priorities are given to different projects. These priorities can be used to ensure that if all the people movement demands can’t be met, then the lower priority movements are less likely to be satisfied.

Optimising the time horizon

The optimisation time horizon can also vary significantly with some clients optimising over a 24 hour period (or even less if they want to re-optimise in the middle of the day due to unpredictable events such as delays due to weather) through to clients wanting higher level schedules over several years to help them make strategic decisions and determine how their fleet needs to change over time.

Understanding the constraints

Constraints such as: the maximum distance an aircraft can travel before needing to refuel, maintenance schedules and the refuelling locations themselves often also need to be considered. We’ve dealt with both fixed and rotary wing (helicopters) aircraft. Helicopters have the additional complication of sometimes having to take more fuel (and thus weight) to travel further, which results in the reduction of passengers because of the helicopter’s limited total payload capacity.

Finding the right FIFO parameters

We have outlined some of the parameters that our FIFO optimisers have considered. It is by no means comprehensive and we can always include new parameters if a different problem requires them but it gives a good understanding into the different variables that can, and should be considered.

Some of the typical inputs include:

  • Location
  • Hours of operation
  • Refuelling capability
  • Refuelling duration
  • Availability (i.e. you can specify a start and end date for which the airport is available)

  • Serial number
  • Category (e.g. fixed wing or rotary wing)
  • Type (e.g. DASH 8-200)
  • Average speed
  • Passenger seats
  • Maximum payload
  • Fuel density
  • Fuel tank capacity
  • Re-fuelling time
  • Fuel burn rate
  • Base location
  • Availability (i.e. you can specify a start and end date for which the aircraft is available)
  • Costs

  • From location
  • To Location
  • Distance
  • Aircraft types able to fly this leg

  • Origin
  • Destination
  • Project
  • Number of passengers
  • From Date
  • To Date
  • Arrive Before (i.e. must arrive on their first working day of the roster by this time)
  • Depart After (i.e. must depart after this time on the last working day of the roster)
  • Roster Pattern (e.g. 14:14 = 14 days on, 14 days off)
  • Day of week (i.e. which day of the week can this person travel)
  • Group (demands can be grouped together to allow the user to specify which demands can be grouped on the same aircraft)

Some of the typical outputs include:

  • Total flights
  • Total distance flown
  • Total fuel burned
  • Total number of aircraft required
  • Utilisation Percentage
  • Total unused pax capacity
  • Total passenger demand
  • Total passenger demand satisfied

  • Serial number
  • Date
  • Total pax
  • Total hours flown
  • Total distance flown
  • Total fuel burned
  • Total flights
  • Total legs
  • Cost

  • Flight ID
  • Resource ID
  • Pax capacity
  • Available pax capacity (this is < pax capacity if the fuel weight is a limiting factor)
  • Total used pax
  • Utilisation Percentage
  • Departure location
  • Departure date and time
  • Arrival location
  • Arrival date and time
  • Day of week
  • Total distance
  • Total hours flown
  • Total fuel burned
  • Fuel weight at start of leg
  • Refuel at destination (true or false)
  • Turn around time
  • Cost

  • Flight ID
  • Origin
  • Departure date and time
  • Destination
  • Arrival date and time
  • Project
  • Pax

  • Project name
  • Total demand
  • Total satisfied demand
  • Total unsatisfied demand (e.g. this will be non zero if there is not enough capacity to transport demand)
  • Total impossible to satisfy demand (e.g. this will be non zero if a flight path has not been specified in the inputs that results in some demand being impossible to satisfy regardless of aircraft resources available)

  • Flight ID
  • Number of instances (i.e. how many times is this flight route flown at the same time – but on different dates)
  • Resource
  • Date of first flight
  • Date of last flight
  • Day of week
  • Departure time
  • Arrival time
  • Total people
  • Total distance
  • Total hours flown
  • Total fuel burned

Unravel the complexity to FIFO Management

The work we have done for companies such as Arrow, Origin, QGC, BMA, IBS, and Santos has shown us that despite having FIFO problems, they all required different approaches in order to achieve the right result.

This has demonstrated to us that when approaching a FIFO problem, where so many different variables have to be considered depending on the client, a standard approach (Commercial off the shelf product) and excel models will generally struggle with the complexity.

Having a tool built around specific variables demonstrates the benefits to bespoke solutions for FIFO problems.

Find out more about Biarri in Mining >>
Find out more about Biarri in Oil & Gas >>
Find out more about Biarri and FIFO Scheduling >>

Or, Get in contact so we can discuss your requirements.

People Logistics in oil and gas

The role of people logistics in oil and gas projects

Efficient and effective logistics is vital to large Oil & Gas projects – equipment must be transported to work sites and raw products need to be processed and then delivered to customers, often using multiple modes of transport in a complex supply chain. In addition to this complexity, another important part of the overall logistics problem is people logistics – How do we move personnel to and from a worksite both safely and efficiently?

Why should I invest in personnel?

Particularly in Australia, where many work sites exist in remote areas, it is not always feasible to relocate employees and their families to a town near the work site. As a result, many workforce personnel are employed on a fly-in fly-out (FIFO) or bus-in bus-out (BIBO) basis, where the employer is responsible for moving personnel to and from the work site.

A 2013 report from Ernst & Young indicated that human capital deficit is one of the top ten risks facing the global Oil & Gas industry, affirming that

as the sector develops technologically . . . companies that can retain and mobilize people will be able to sustain their competitive advantage.

Effective and efficient personnel mobilization is crucial to any significant oil and gas project. Research published in 2012 by the Australian Centre of Excellence for Local Government (ACELG) into the prevalence of FIFO in Australia predicts that percentage of Australian mining sector jobs filled by FIFO roles will only increase over the coming years.

Improper workforce utilisation increases susceptibility to many internal and external issues, such as: a high employee turnover, high ongoing operational costs to the business, and under- or over-allocation of staff to specific jobs.

Analytics to cut through complexity

People logistics for a large project requires the coordination of travel and accommodation for hundreds, sometimes thousands of people in various remote locations. As with traditional logistics, several crucial decisions have to be made including BIBO vs FIFO, choice of airports or bus routes and staff roster schedules. In addition to this complexity, working with personnel often requires much greater scrutiny – we don’t always require a minimal-cost solution – we need to balance cost, project risk, employee safety and employee satisfaction.

Trying to weigh up all these variables and make decisions in an intelligent way for all of the personnel involved in a project very quickly becomes complex. A 2014 interview by Mining Australia notes that “for many companies [workforce management] is man­ual, or only semi-automated, which increases the risk of error or processing in­efficiencies, increasing costs”. Managing a large workforce is difficult, and only with the right technology can companies provide efficient and effective workforce management.

Through analytics companies can cut through the complexity involved in workforce management. By considering specific variables and how they affect outcomes companies can make better decisions.

Analytics empowers organisations through quantitative justification so that decision makers can be certain that employees will be spending less time in transit, and working on the right jobs at the right times, with the right people.

Biarri and People Logistics

Biarri delivers consulting and SaaS solutions to provide the right technology to enable effective workforce management.

Biarri has a proven track record, delivering people logistics and FIFO solutions for Oil & Gas and Mining companies in Australia including Santos, BMA, and Arrow Energy.

To learn more about how Biarri can help your organisation benefit from analytics and optimisation for people logistics get in touch today!