BAV Links People and Products

New software cuts carrying costs of out-of-stock retail items

A new Fayetteville company believes it’s got the answer to one of retailing’s biggest problems: out-of-stock items.

BAV Software Inc. has applied logistics to this problem that plagues every link in the retail chain, from manufacturer to distributor to retailer and, ultimately, the consumer. The company has developed a software product that helps determine which items and how many of each should be displayed on the retailer’s shelves.

The idea is to ensure that the consumer is happy but that the retailer’s inventory carrying costs are minimal.

Of their seven-month-old company, the founders say they’ve already seen evidence that its product, InitiaLink, can deliver “in the range of” 11 percent economic growth across a single product category. It uses mathematics to help predict consumer behavior.

In a business like discount retailing where profit margins are usually small but annual U.S. sales total about $250 billion, that percentage could be spectacular.

BAV Software’s founders have some impressive retailing credentials.

CEO Randy Laney spent 23 years with Wal-Mart Stores Inc., where he rose to become vice president of finance and treasurer before leaving for Rally’s Hamburgers, where he was chairman and CEO. He’s a University of Arkansas graduate with degrees in business and law.

Matthew Waller, who has a doctorate in business logistics and is an associate professor at the UA, is the company’s vice president of research and development. He’s been a consultant to companies that include Hewlett-Packard, Johnson & Johnson, Pillsbury and Nike.

Earl F. “Butch” Dulaney, whose doctorate is in communications, is vice president of product development. He previously worked for Flagstar (as did Laney), a $3 billion restaurant holding company now known as Advantica Restaurant Group. His experience includes designing, developing and implementing management and point-of-sale systems in more than 6,000 KFC, Rally’s and Denny’s restaurants.

And those are just the Arkansas principals.

BAV Software’s engineering team is in Washington, D.C., the nation’s so-called “Internet Alley” and home to many of the world’s biggest communication giants, including MCI, America Online and PSINet.

Dual offices allow the company to draw on the substantial engineering talent pool in the D.C. area while being conveniently located for the large vendor base in Northwest Arkansas – a living laboratory, if you will.

Laney, who’s a Fayetteville native, says the Arkansas office is important to the company’s operations.

“We think it’s very important because here we have a retailing … perspective, and a large vendor base. It makes a lot of sense for [us] to be here.”

BAV Software currently has about 20 employees and is a client of the UA’s Genesis Technology Incubator. It was founded this past December, but that’s not necessarily young for a technology company.

“Technology years are very similar to dog years,” says Paul Strzelec, only partially in jest. Strzelec (pronounced “stray-lik”), is BAV Software’s vice president of marketing and works from the Washington office.

Also, BAV Software had a basic product – a core research program – when it was founded. “Collaborative merchandise optimization” is what BAV calls its concept.

Laney refers to that concept as “the down payment on the vision we really had for the company.”

Strzelec says the technology team was impressed by that basic product, which he says was focused and capable of delivering high-value to clients. Key to that focus and high value, he says, was that the product was “non-intrusive.”

Laney and Strzelec say their concept is unique for several reasons. For one thing, it goes beyond the manufacturer, through each step in the retailing process. For another, its software is “nonintrusive,” meaning it doesn’t require huge computer resources. An Internet browser is all the client needs.

Also, to make it available for smaller and mid-tier businesses, InitiLink is available on a subscription basis so clients don’t have large initial capital outlays. Instead, they can become subscribers and are billed on a “pay-as-you-get-value basis,” Strzelec says.

Laney explained why the concept of “collaborative merchandise optimization” is important.

“The consumer, everyday, votes with their dollars on what they want to see displayed in the store. They don’t realize they’re doing that, but, by buying certain items, they’re casting their dollar votes and saying, ‘I want that item maintained in stock on the store shelves.’

“If you could capture that [thought] and set the store shelves like the consumer wants to see it, that’s really our objective. [The consumers] know what they want. They don’t think about it. They don’t verbalize it, but they know what they want to see displayed, and if you can display it that way, you can obviously maximize your sales and minimize your inventory,” he adds.

The founders believe their software helps retailers, as well as their suppliers, distributors and manufacturers, capture that information. It’s not easy because it’s a moving picture as products come and go. Laney points to the video industry as one fairly recent entry into retail.

‘Video didn’t exist several years ago. Now it has 30 to 40 linear feet of retail presentation [in many stores].”

That additional space wasn’t “just created,” Laney notes. Some other products had to go to make room for the video department, and someone had to decide what would go.

Laney, Strzelec and their partners hope their product will help more retailers make those decisions although they acknowledge that it doesn’t eliminate the need for the human factor.

Strzelec says the company has been involved in “very active discussions with a significant number of leading retailers and manufacturers.”

They continue to gather data showing the value of their product. In one case, Strzelec says, the company found “$22 million of identified value across a single product category.”

“That means that there’s $22 million of a combination of the wrong product, too much inventory and holding costs and the right product not being in stock and incurring too many lost sales,” he says.

Other experts in retailing agree that out-of-stocks can be devastating.

“It’s a turnoff to the consumer that has a huge impact on sales,” says Robin Lanier, senior vice president of industry affairs for the International Mass Retailers Association in Arlington, Va.

A recent study conducted by the IMRA showed that “out-of-stocks are clearly a huge turnoff” to customers, Lanier says.

But carrying large inventories is expensive, she says, so systems that can help pare inventories while avoiding bare shelves are much desired.

Also, retailers have begun forming “strategic partnerships” with manufacturers, she says.

“There have been all sorts of vendors of software programs that have sprung up to improve the forecasting and the supply chain management. It’s not surprising that you have a company with software to do it. There’s a high demand for it,” Lanier says.

Roger Blackwell is a marketing professor at Ohio State University in Columbus, president of his own consulting firm, Blackwell Associates Inc., and a renowned expert on marketing, cites the “five rights.”

“It’s absolutely critical [to have] the right product at the right shelf on the spot at the right time, as well as at the right price and in the right condition.”

Software systems that deal with that accomplish two things: They lower the cost for the whole supply chain, including the consumer; and they ensure that the products are on the shelves when consumers want them.