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Retail IT Management

This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for Retail IT Management.

JNU, JaipurFirst Edition 2013

The content in the book is copyright of JNU. All rights reserved.No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of the publisher.

JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the content whenever the need arises, and to vary it at any time without prior notice.

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Index

ContentI. ...................................................................... II

List of FiguresII. ........................................................... V

List of TablesIII. ...........................................................VI

AbbreviationsIV. ....................................................... VII

Case StudyV. ................................................................ 90

BibliographyVI. ........................................................... 93

Self Assessment AnswersVII. ..................................... 96

Book at a Glance

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Contents

Chapter I ....................................................................................................................................................... 1IT Retailing .................................................................................................................................................. 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction ............................................................................................................................................. 21.2 Classification of IT in Retail .................................................................................................................... 21.3 Application of IT in Retailing .................................................................................................................. 41.4 First Moving Internet Retailing .............................................................................................................. 7Summary ....................................................................................................................................................... 9References ..................................................................................................................................................... 9Recommended Reading ............................................................................................................................... 9Self Assessment ........................................................................................................................................... 10

Chapter II ................................................................................................................................................... 12Application of IT in Retailing and Retail Enterprise Resource Planning ............................................ 12Aim .............................................................................................................................................................. 12Objectives .................................................................................................................................................... 12Learning outcome ........................................................................................................................................ 122.1 Introduction ............................................................................................................................................ 132.2 Role of IT in Retail ................................................................................................................................ 13 2.2.1 Retail Demand Forecasting ................................................................................................... 13 2.2.2 Inventory Management .......................................................................................................... 13 2.2.3 Store Management ................................................................................................................. 142.3 IT Solution for Retail Complexities ....................................................................................................... 14 2.3.1 Functional Area ...................................................................................................................... 14 2.3.2 Data Cleansing and Architecture Improvement ..................................................................... 142.4 New Technologies .................................................................................................................................. 14 2.4.1 Radio Frequency Identification (RFID) ................................................................................. 14 2.4.2 Smart Operating System ........................................................................................................ 15 2.4.3 Point of Sale ....................................................................................................................... 152.5 Retail Enterprise Resource Planning. .................................................................................................... 162.6 Challenges faced by Retail Industry ..................................................................................................... 162.7 Disadvantages of Enterprise Applications in Retail sector ................................................................... 162.8 Advantages of Retail ERP ..................................................................................................................... 172.9 Disadvantages of Retail ERP ................................................................................................................ 182.10 SWOT Analysis of Retail ERP ........................................................................................................... 192.11 Components of Retail ERP ................................................................................................................. 202.12 ERP Vendors and Market Share .......................................................................................................... 22 2.12.1 ERP Vendors ........................................................................................................................ 22 2.12.2 ERP Market Shares .............................................................................................................. 242.13 Profitability in Business ....................................................................................................................... 24Summary ..................................................................................................................................................... 26References ................................................................................................................................................... 26Recommended Reading ............................................................................................................................. 26Self Assessment ........................................................................................................................................... 27

Chapter III .................................................................................................................................................. 29E-Commerce in Retail Sector .................................................................................................................... 29Aim ............................................................................................................................................................. 29Objective ...................................................................................................................................................... 29Learning outcome ........................................................................................................................................ 293.1 Introduction ........................................................................................................................................... 30

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3.2 Drivers of e -Commerce ......................................................................................................................... 303.3 Role of Intermediaries in Retail E-commerce ...................................................................................... 313.4 E- commerce Mechanism in Retail Process .......................................................................................... 31Summary ..................................................................................................................................................... 36References ................................................................................................................................................... 36Recommended Reading ............................................................................................................................. 36Self Assessment ........................................................................................................................................... 37

Chapter IV .................................................................................................................................................. 39IT in Distribution Channel ........................................................................................................................ 39Aim ............................................................................................................................................................. 39Objectives ................................................................................................................................................... 39Learning outcome ........................................................................................................................................ 394.1 Introduction ............................................................................................................................................ 404.2 Components of Supply Chain ................................................................................................................ 414.3 Distribution Channel .............................................................................................................................. 414.4 Warehousing ........................................................................................................................................... 444.5 Warehouse Operational Activities .......................................................................................................... 444.6 Warehouse Management System (WMS) .............................................................................................. 444.7 Electronic Data Interchange (EDI) ........................................................................................................ 454.8 Vendor Management Inventory (VMI) .................................................................................................. 454.9 IT for Retail Store Management ........................................................................................................... 45Summary ..................................................................................................................................................... 47References .................................................................................................................................................. 47Recommended Reading ............................................................................................................................. 47Self Assessment ........................................................................................................................................... 48

Chapter V .................................................................................................................................................... 50Supply Chain Management ....................................................................................................................... 50Aim .............................................................................................................................................................. 50Objectives ................................................................................................................................................... 50Learning outcome ........................................................................................................................................ 505.1 Introduction ........................................................................................................................................... 515.2 Logistic in Business Model .................................................................................................................. 515.3 Supply Chain for Individual Firm ......................................................................................................... 525.4 Information Technology in Supply Chain Management ....................................................................... 535.5 Classification IT of SCM ...................................................................................................................... 54 5.5.1 Strategic planning for IT in SCM .......................................................................................... 54 5.5.2 Virtual Enterprise and SCM ................................................................................................... 56 5.5.3 E-commerce and SCM ........................................................................................................... 57 5.5.4 Infrastructure for IT in SCM .................................................................................................. 58Summary .................................................................................................................................................... 59References .................................................................................................................................................. 59Recommended Reading ............................................................................................................................ 59Self Assessment ........................................................................................................................................... 60

Chapter VI .................................................................................................................................................. 62Operation Strategy for Internet................................................................................................................ 62Aim .............................................................................................................................................................. 62Objectives ................................................................................................................................................... 62Learning outcome ........................................................................................................................................ 626.1 Introduction ........................................................................................................................................... 636.2 Types of Strategy ................................................................................................................................... 636.3 Production of Operating system ............................................................................................................. 646.4 Customer Service Management (CSM) ................................................................................................ 67

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6.4.1 Requirements for Customer Service .................................................................................... 67 6.4.2 Benefits for Provider ............................................................................................................. 68 6.4.3 Benefits for Customer ........................................................................................................... 69Summary .................................................................................................................................................... 70References ................................................................................................................................................... 70Recommended Reading ............................................................................................................................. 70Self Assessment ........................................................................................................................................... 71

Chapter VII ................................................................................................................................................ 73RFID ............................................................................................................................................................ 73Aim .............................................................................................................................................................. 73Objectives ................................................................................................................................................... 73Learning outcome ........................................................................................................................................ 737.1 Introduction ........................................................................................................................................... 747.2 RFID solution......................................................................................................................................... 747.3 Impact of RFID on Retailer .................................................................................................................. 757.4 Value Addition of RFID in Supply Chain .............................................................................................. 767.5 Market Demand for RFID ...................................................................................................................... 777.6 Road Ahead ........................................................................................................................................... 77Summary .................................................................................................................................................... 79References .................................................................................................................................................. 79Recommended Reading ............................................................................................................................. 79Self Assessment ........................................................................................................................................... 80

Chapter VIII ............................................................................................................................................... 82Multi-Channel Retailing ............................................................................................................................ 82Aim .............................................................................................................................................................. 82Objectives ................................................................................................................................................... 82Learning outcome ........................................................................................................................................ 828.1 Introduction ........................................................................................................................................... 838.2 Multi Channel Performance for Consumer Satisfaction ........................................................................ 838.3 Hypothesis Development for Consumer Satisfaction ............................................................................ 848.4 Benefits of Multi-channel Retailer ........................................................................................................ 848.5 Growth of Multichannel Retailing ......................................................................................................... 858.6 Challenges of Multichannel Retailers .................................................................................................... 858.7 Strategies for Multi-Channel Retailing .................................................................................................. 868.8 The Infosys Approach for Multi Channel Commerce ............................................................................ 86Summary .................................................................................................................................................... 87References ................................................................................................................................................... 87Recommended Reading ............................................................................................................................. 87Self Assessment ........................................................................................................................................... 88

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List of Figures

Fig. 1.1 eToys stock price movement ............................................................................................................ 7Fig. 2.1 Major component of retail ERP ...................................................................................................... 21Fig. 2.2 (a) ERP market share ...................................................................................................................... 24Fig. 2.2 (b) ERP market shares .................................................................................................................... 24Fig. 4.1 Components of supply chain .......................................................................................................... 41Fig. 4.2 Channels of distribution.................................................................................................................. 42Fig. 4.3 Intensity of distribution continuum ................................................................................................ 43Fig. 5.1 A model of supply chain management ............................................................................................ 52Fig. 5.2 The immediate supply chain for individual firm ............................................................................ 53Fig. 6.1 Levels of strategy in an organisation .............................................................................................. 63Fig. 6.2 The production system .................................................................................................................... 65Fig. 6.3 Integration of CSM system ............................................................................................................. 68Fig. 7.1 Value addition in supply chain ........................................................................................................ 76Fig. 7.2 Evolution of retail marketplace ...................................................................................................... 77Fig. 7.3 Store value chain ............................................................................................................................ 78

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List of Tables

Table 2.1 SWOT analysis of retail ERP ....................................................................................................... 19Table 2.2 ERP vendors ................................................................................................................................. 22Table 3.1 Characteristics of the new commerce .......................................................................................... 31Table 6.1 Types of strategy .......................................................................................................................... 64

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Abbreviations

B2B - Business to BusinessCAD - Computer Aided DesignCIO - ChiefInformationOfficersCPFR - Collaborative Planning, Forecasting, and ReplenishmentCPG - Consumer Packaged GoodsCRM - Customer Relationship ManagementCSM - Customer Service ManagementDBMS - Database Management SystemsEDI - Electronic Data ExchangeEPOS - Electronic Point of SaleERP - Enterprise Resource PlanningGUI - Graphical User InterfaceHRM - Human Resource ManagementICT - Information and Communication TechnologiesIS - Information SystemIT - Information TechnologyITAA - Information Technology Association of AmericaJIT - Just-In-TimeKM - Knowledge Management LAN - Local Area NetworkOLAP - Online Analytical ProcessingOLTP - On-line Transaction ProcessingORMS - Oracle Retail Merchandising SystemP/O - Purchase OrderRFID - RadioFrequencyIdentificationS&OP - Sales & Operations PlanningSCM - Supply Chain ManagementSLA - Service Level ArrangementTQM - Total Quality ManagementVE - Virtual enterprise VMI - Vendor Management InventoryVO - Virtual OrganisationWAP - Wireless Application ProtocolWMS - Warehouse Management SystemWWW - World Wide Web

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Chapter I

IT Retailing

Aim

The aim of this chapter is to:

introduce IT retailing•

explaintheclassificationofITinretail•

elaborate application of IT in retailing•

Objectives

The objectives of this chapter are to:

elucidate distributing processing power•

describe mainframes and downsizing•

explainfirstmovinginternetretailing•

Learning outcome

At the end of this chapter, you will be able to:

know IT investments in retail•

explain various IT tools used for business optimisation •

understand the • application of IT in retail


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1.1 Introduction The usage of internet started back in nineteenth century, as a tool to carry out purchases between buyers and sellers. Thus, it rose as an evolutionary step in commerce. A century later, internet technology entered into another radical change in commerce by further expending individual’s options to buy products from businesses as well as other individuals. At the beginning of the 21st century, internet brought revolutionary colours with the recognition that profitisacrucialpart,andgoodretailingstillrequiresrightproductatarightprice.Informationtechnologyhasbecome the backbone of modern retailing.

Traditional retailing was easier to manage because of its size, scope and uncompetitive nature; and usually the shops were managed by the owner-manager. But the modern retail formats, which are superstores and large chains ownedbylargeorganisations,aredifficulttomanagewithoutanefficientandreliableITsysteminplace.Retailinggrowth has demanded IT industry to broaden its arena and overcome challenges, namely; Business Optimisation, increasingSCMefficiency,innovatingshoppingexperienceandothermanuallimitations.

1.2 Classification of IT in RetailRetailing is the most active and attractive sector of last decade. The retailing industry in the recent past has witnessed so much dynamism. The emergence of retailing in India is due to the increased purchasing power of buyers, especially post-liberalisation, increase in product variety, and increase in economies of scale, with the aid of modern supply and distributions solution.

Indian retail sales are at the highest point in history and new technologies are improving retail productivity. Though there are many opportunities to start a new retail business, retailers are facing numerous challenges. With time the Indianmarketsarebecomingloadedwithnumerousdispersedfirms,andcompaniesthatdemandstoleadwithanextra mile so as to gain a competitive edge over their competitors for whom Information Technology has become a criticalmedium.TheclassificationofITinvestmentsinRetailingbasedontheneed/valueisasfollows:

Improving efficiency of supply chainRetail and CPG companies are facing a number of challenges due to increasing complexity of supply chains, caused mainly by off-shoring of manufacturing. Increased lead times, demand variability and supply disruptions are forcing companies to pile inventories, thus, leading to opportunity losses and higher cash conversion cycles. Demand forecastinghasassumedcriticalsignificanceinmanagingsupplychainsefficiently.

Having an agile supply chain network that seamlessly connects demand, supply and product remains the top •priority for retailer and consumer companies. IT helps the clients in the retailing and CPG industry to be more competitive by improving their time to execution. Theyoffersolutionsthathelpattainmoreefficientmovementofgoodsandinformationacrossthesupplychain.•These include monitoring and analysing real time inventory to forecast accurate sales, optimising store and shelfreplenishmenttoreducestockouts,improveROIandfinallyoptimisingutilisationoflabour,spaceandequipmenthandlinginreal-timetoimproveproductivityandprofitability.Supply chain improvement is a critical. Retailing investment comprises ERP packages, forecasting tools, and •others. The leading manufacturer-retailer Madura Garments in one of the interactions, after the implementation of the SAP ERP package, company could easily measure the success of the implementation by certain related indicators.

Improving the shopping experience & business optimisationThese investments comprises the value added services being provided by disperse retailers like the CRM packages byfirmstoaddvaluetotheirexistingproducts.Thesetypesofinvestmentsmayturnoutmostdifficulttomeasureofallespecially if thecompanylacksexperience inusingcustomerdata to increasecustomerprofitability.Forinstance, Fabmall’s e-commerce website tracks customer preferences and built-in business intelligence also sends suggestions to customers based on their earlier purchases.

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Critical avenues for IT Investment• : Indian retailers are intensively investing in Customer Relationship Management Solution for retaining; acquiring customers, brand management, to analyse consumer-buying behaviour, buying patterns of ‘loyalty cardholders’, integration of multi-channel sales and others. Few feasible CRM solution packages are Talisma, Siebel, SAP, Retek CRM and Sales Logix. Retailers like Pantaloon, Café Coffee Day, Barista and Shoppers Stop are some to deploy referred CRM packages.Business intelligence tools:• These comprises tools, namely; Data warehousing, data mining, Online Analytical Processing (OLAP) facilitating a wealth of information in terms of sales and behavioural analysis to retailers. BusinessIntelligencetoolsareidentifiedtobeveryversatilethatanalysesalesdatafromthePOS,determinestrendof sales for the categories and sub-categories of merchandise sold from disperse stores that enable the retailers to understand the frequency of sale, geographical spread of sales, types of sold merchandise and, thus, provide ‘what if’ analysis specially for projected sales and price changes. This would lead to increase in sales.RFID• :CurrentlyRFIDisprofitablybeingusedinretailfirmsofdevelopedcountriesprimarilyintwosections,namely, in supply chain, warehouses and Retail front. It ensures individual articles tagged by RFID enable quick billing and to ensure automated stock keeping.B2B Software• : B2B software is well suited for multi-channel retail business consolidating sales via Internet, mail catalogue, phone/fax and point-of-sale (POS) terminals installed in physical shops. The concept with multi-channel business is not new. However, the latest technological vehicles like Web/Internet, created a new possibilities for retailers indeed.

The brick-and-mortar business owners and mail catalogue retailers now have much more opportunities to �expand and reach wider clients nationally and internationally using such tools as Web stores and shopping portals. This has formulatednewchallenges for efficient businessmanagement and consolidationof all sales/ �marketing channels to save the operational cost. That’s why companies start looking for new multichannel retail software solutions that could help manage the business and increase productivity.Deployment B2B software provides with powerful features to observe variety of multi-channel retail �operationsinthecentralisedWeb-basedbackoffice.Managerscanreviewcustomer’sshoppingactivitiesfrom different sources like Internet, mail catalogue, and so on. This creates additional selling opportunities and helps to improve business performance. It also improves client shopping experience too, because customers can get real-time updates about products availability, special offers and active promotions. Optionally, B2B software also provides companies with rich functionality to manage inventory as well �assales/customerdataacrossWebsitesfromasinglebackoffice.Thesystemhasalsoin-builthelpdesk(customer service) capabilities to provide managers with better visibility of current business activities across multi-channel retail operations on the Web. Customer expectations from multi-channel retail are permanently growing, and companies must respond with �more capabilities in their solutions. And here, the most cost-effective solution is having the SLA from B2B to keep up-to-date the custom multi-channel business solution and be able to get on-demand development services to meet individual project requirements indeed.Business to business solutions usually implemented either through existing packages like C-ME, SOA or �custom made solutions are used by large retailers and manufacturer-retailers having a secure and stable network is a prerequisite for implementing B2B. ThisB2Bsitewouldentailconfirmingvendors,suppliersandotherchannelpartnerstosendthenecessary �information through the network that in turn ensures reduced costs and availability of merchandise at the stores.

Business optimisation software• : Significant prospects of profitability canbe achievedwith the advent ofsophisticated price optimisation/revenue management techniques offer. Currently two US-based software product vendors Demand Tech and Khimetrics have come up with products to optimise the prices of individual products. India will introduce such products in the coming years as retailers have started understanding the features of the products and their deployment in pricing decision-making.


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Merchandise optimisation software• : Merchandise planning is one of the biggest challenges that any multi store retailerfaces.Gettingtherightmixofproduct,whichisstorespecificacrossyourorganisation,isacombinationof customer insight, allocation, and assortment techniques.

ThebenefitsofMerchandisePlanningaccruedbyclientsincludereducedunplanneddiscountsandpromotions,properlyutilisedfloorspace,fewerstoretransfers,andincreasedturnsthroughoutthechainhelpingthebottomline immensely.

Mobile computing:• Mobile computing has facilitated employees in tracking the inventory and provided customers an innovative shopping experience through integration of PDAs in individual shopping carts that wouldprovideinformationontheproducts.Thisusehasoptimisedinefficienciesininventoryandsupplychainsections and leads to cost minimisation. A similar WAP (Wireless Application Protocol) enabled mobile phones are catching attention today in retailing sectors.

1.3 Application of IT in RetailingThe most important aspect of IT in retailing is the ability to connect the microprocessors in desktop computers, communications equipment, specialised equipment like electronic point of-sale terminals, the contemporary equivalents of the old mainframe computer, telephones, machine tools, warehouse systems, photocopiers, typewriters and printers, alarm systems, televisions and so on. In this way, the processing power that would once have been localised in a large central computer is liberated and distributed throughout an organisation.

This diffusion of intelligence has changed the way people use computers, the nature of computing, and the structure •and operations of organisations. It represents a challenge for large retailers – who have introduced computer technology in a more-or-less unplanned fashion in the past – and an opportunity for smaller retailers.With the price of very sophisticated technology continuing to drop, small retailers may have the means as well •astheflexibilitytoseizenewopportunitiesastheybecomeapparent.Communicationsnetworkscanprovideaquickandefficientwayofsearchingoutandcontactingnewsuppliers;•multimedia displays may allow a small retailer to hold less stock; smart-cards may help to avoid bad debt; low-cost computer-aided design (CAD) tools can give new impetus to craft retailers like tailors, cabinet-makers orhair-dressers,nottomentionkitchenandbathroomsuppliersandotherspecialistswhosetrademaybenefitfrom aids to visualisation.Larger retailers may be capable of using their market power to challenge smaller and specialist stores, but the •adoption of an information-based approach to retailing has changed the competitive environment, creating pressures from globally expanding competitors and from new types of retailer who combine technology and customer-focus. The applications of IT in retailing can be grouped into three broad categories:

in-store systems, �back-officesystems,and �communications- based systems �

All of these are witnessing fast-moving developments, with the main areas of activity currently being EFT and •smart-cards, database marketing, and EDI and high speed communications technologies. But technological progressissowide-rangingandrapidthatitisdifficulttodistinguishrelevantfromirrelevantdevelopments,andsignificantfrominsignificantproducts.MuchofthebadinvestmentinITisduetoaformofinformationoverload - ironically something that IT itself should long ago have helped to alleviate. The problems that really matter can often be eased, if not entirely eradicated, by the proper use of technology. •The priority for any existing or would-be IT user must be to identify the business processes and corporate strategies appropriate to a technological approach. To do so, it is important to understand the potential of IT and the direction in which the technology is being driven.

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Distributed ProcessingAt the heart of all IT development in recent years has been the idea of distributing processing power. This has many different guises, and a confusing multiplicity of names whose currency depends on which aspect of distribution is being emphasised, such as: client/server computing, networking, downsizing, computer-communications convergence, end-user computing, and enterprise-wide computing are a few of the commonest.

Briefly,thespreadofthemicroprocessorhasstimulatedthedevelopmentofamodelofinformationsystemsin•which many computers co-exist within an organisation, rather than the one large mainframe of earlier years. These computers are often smaller and cheaper than mainframes to install and run (downsizing emphasises cost) and are often programmed and controlled to a large extent by the people who use them (end-user computing emphasisesthewaysmallcomputerusersoftenruntheirownsoftwareandconfiguretheirownsystems).Within a single department or building, the computers are often linked together (networking) in such a way •that some of them, or the programmes running on them, provide services like printing, database management, or network control to other computers or programmes (client/server computing). Departmental or local area networks (LANs) are often linked together across many departments or buildings in •what is called a wide area network (WAN) facilitating an integrated approach to information systems within a whole organisation (enterprise-wide computing). WANs have always made use of telephone lines, but now that telephone systems are themselves increasingly •controlled by computer technology, the distinction between a network of telephones and a network of computers is beginning to fade. In time, we will learn to understand that a telephone is just a computer for processing speech signals (computer-communications convergence, or telematics). Theflowofinformation,ratherthantheprocessingofdataorthetransmissionofmessages,isnowtheparadigm•of computing and communications, to the extent that all the major nations and trading blocs of the world have declared their commitment to a policy of developing data or information superhighways as (to quote EC President Jacques Delors), the true arteries of the future economy.Within retail, these developments have had an impact in key areas. For example, in-store systems are increasingly •basedonnetworkedEPoSterminalswhichcanbelinkedusingaLANtoaback-officecomputermaintainingprice data and information about stock availability. Handheldbar-codescannerscanalsobenetworkedtothebackofficesystemtoinputinformationaboutshelf•levels,andthebackofficesystemmightbelinkedusingaWANtolocalsuppliers,adistributiondepot,oraheadofficesystemtosupportreplenishment,orderingandmanagementinformationsystems.Distributed processing in this context means that the right information, and the computing power to process it, •can be delivered just where it is needed in the supply, demand or management chains. Suppliers receive sales and order information, checkouts are updated with details of the latest prices and promotions, corporate management can extract data about store performance, and marketing departments can track campaigns and customers. Inevitably, there are problems connected with distributed processing - particularly relating to the precise nature and •extent of distribution. For example, it is far easier to maintain a single customer database - which, say, a marketing department can use to generate mail-out labels to a targeted group of customers - than to allow marketing to keep its own customer database which must be kept consistent with the corporate customer database. Yet, many retailers who embarked on the road to database or relationship marketing in the 1980s discovered •that their systems couldn’t handle the demands - capturing transaction data, producing regular sales reports and running so-called ad hoc queries from the marketing department meant that the system all but ground to a halt. Database queries are compute intensive and can tie-up machines for long periods. There is no simple technological •solution to this problem: it makes sense to give marketing a customer database of its own (a parallel marketing database or PMD) and make sure that it is checked against the central database periodically, but this can be a tiresome administrative problem or a complex technological one. It may make just as much sense to invest in a computer to maintain a single database with enough power to •supporttheprojectedtrafficintransactionsandqueries.Thisisarelativelyexpensiveapproach,butforacompanylike Wal-Mart, which runs a computer known as an AT&T Teradata parallel processing database engine, it has proved effective.


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Both approaches - one using a PMD machine networked into the corporate system and running a copy of a •central database, and the other using a parallel processing database engine as a server for all the computers across a corporate network - may be described as distributed. The lesson is that jargon can cover a multitude of sins and virtues. Just because your system is called the same thing as your neighbours doesn’t mean it does the same thing - and what a system does is immeasurably more important than what it is called.

Mainframes and downsizingThe Wal-Mart example demonstrates how it is possible to integrate systems spread throughout an organisation, so that store personnel, store managers, suppliers and corporate staff are linked by local area networks (LANs) at store andofficelevelandbyawideareanetwork(WAN)nationally.Butitalsodemonstrateshowprocessingpowercanbe distributed around the system, so that users at every level have access to the right management information, and thisisinmanywaysamoresignificanttechnologicaldevelopment.

At Wal-Mart stores, hard-wired EPoS terminals and handheld computers using wireless links send data on sales •and stock on display, via satellite transmitter, to company headquarters in Bentonville, Arkansas, and - in the case of many fast-moving items - direct to manufacturers. The company maintains a 1.3 terabyte database of purchase information that is roughly equivalent in size to 2 million average-length books. The ability to store, search and retrieve data in such quantities is itself a technical feat which new approaches to hardware and software have made cost-effective in recent years. The Wal-Mart system uses a Teradata parallel processing database engine - a dedicated computer using a number •of different processor units to split-up the tasks involved in maintaining and searching a huge database. The Teradata machine was for some years unique in its market, because its market was so specialised as to remain small. Recently, a number of manufacturers have developed similar systems to Teradata as many of them using off-the-shelf microprocessors to reduce costs. The very possibility of storing and processing vast amounts of data at relatively low cost has begun to encourage •a whole new growth area in software technology called data mining. This is based on the idea that data stored insufficientquantitywillyieldarichharvestofusefulinformationiflookedatintherightway.Wal-Marthasbeenapioneerinthisfield.About 1,000 of its suppliers have full on-line access to the information on the Wal-Mart database concerning •their products, while some 1,800 workstations at headquarters use the data to track sales trends across the country and all 1,600 store managers are supplied with information on local purchaser preferences analysed in terms of over 2,000 customer traits, such as, their propensity to buy garden equipment or patterned shirts.IT vendors talk a lot about distributed systems, or distributed computing, by which - broadly speaking - they •mean anything that isn’t a conventional mainframe arrangement. Until comparatively recently, the sort of information available to Wal-Mart as suppliers, store managers, or headquarters analysts would have come from a centralised mainframe-based data centre. Anyone requiring information would have submitted a written request. The mainframe staff would have prepared the appropriate program and, when there was some free time on the system, they would have run the program. The information would have been printed out and delivered to the original requester by internal mail. The data centre based mainframe operation is generally known as batch processing, since programs are run and •data entered in batches, at the most convenient time for the people who operate the mainframe. The alternative to batch processing in a conventional mainframe environment is on-line transaction processing (OLTP) in which programs are run continuously and data entered as and when it becomes available to the system's users. OLTP is the conventional model for sales and order processing and, of course, for EPoS systems: data, such as •item price and availability, may be retrieved from a central mainframe database, a transaction registered and the database updated. Probably, the most familiar variant of OLTP systems are to be found in banks and travel agents. But OLTP demands the use of structured data and strictly enforced transaction types. You can not use an OLTP system to ask speculative questions or to analyse trends - the very type of operation so typical of information or knowledge-based operation.Thetendencyforbusinessestorequireinformationratherthanmeredatahashighlightedthedeficienciesof•conventional mainframe operations. By contrast to the million-dollar mainframe, thousand-dollar PCs have been analysing trends, modelling operations and producing answers to what-if questions almost since they were firstinventedintheearly1970s.

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These capabilities of the PC have given rise to a whole family of ideas, which now inform management thinking. •The PC has encouraged widespread acceptance of a belief that computers enable a migration from accountancy and administrative functions to management information and decision support. The key aspect of PC technology is its interactivity - the ability of a user to control the system in real-time and to select, change and process data on-screen. Interactivity is the important and unifying characteristic of word-processing, spreadsheet modelling, desk-top •publishing, computer-aided design and almost everything else people use PCs for. It is not a characteristic of mainframes,whichhavebeendesignedtobefast,efficientandreliableprocessorsoflargevolumesofdata.Therehasusuallybeenatrade-offbetweentheflexibilitydistributedsystemsandthepowerandreliabilityof•mainframes. Increasingly, new small systems approach mainframe speed and reliability, and even surpass them, so that getting rid of your mainframe - downsizing - may become a realistic option (particularly for smaller companies) which can save money through the use of cheaper hardware and software, and the replacement of expensive development and maintenance staff by packaged software and support or maintenance supplied directly by system suppliers or third party specialists.That said, the distributed systems approach should also allow companies to expand their information systems •by adding more user workstations, or bringing in bigger server computers to run the network or manage a database. The ability to grow or shrink systems is called scalability, and distributed systems are always more scalable than mainframes. It is a pleasing irony that allows a mainframe to be connected to a networked distributed system if its special •characteristics are required for some function such as managing a large database, or processing payroll records. The idea that systems can be extended a well as shrunk has given rise to the term right sizing.

1.4 First Moving Internet Retailing Thekeycontributortothelandrushmentalitywasthefirstmoverfallacy:believingthebeginnersarethewinners.Conventionalwisdomarguesthatthefirstcompanytostakeoutthepositionwilldominatetheindustry.Butithasbeen witnessed that the opposite is often true.

Alookattheinternetretailingbouncestheideathatitisnotmandatorytobethefirstmovertosucceed.Foundedin1994,Amazonistheleaderintheinternetretailsales,butitdidnotachievefullyearprofitabilitytill2003anddidnotachievecumulativenetprofittill2008.Itremainsmarginallyprofitablewithnetincomeof3.4%in2010.Another early e-retailer, eToys, fared even worse. eToys went into operation in 1999 and declared bankruptcy in 2001 after its stock price plummeted from a high value of almost $85 registered in October 1999 as shown in the figurebelow.

Internet Retailing: From Experimentation To Execution

Note: eToys went public on 20 May 1999.

Stoc

k pr

ice

9080706050403020100May Jun Jul Jul Aug Sep Sep Oct Nov Nov Dec Jan Jan Feb 20 10 1 22 12 2 23 14 4 25 16 6 27 17

Fig. 1.1 eToys stock price movement


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By contrast, Newegg, which sells new and used computer and electronic equipment, was launched in 2001 and now is the second largest pure play internet retailer, with 2009 sales of $2.3 billion.

Firstmoverdoesnotnecessarilyfindthemostfertileground.Thosewhoexploremorepatiently,benefitfromtheexperiences of earlier settlers. FreshDirect, an online grocer, in New York, is a privately held company with an estimated $240 million in annual sales in 2009 and ranked as 70th among American Internet retailers. Its’s delivery model is just similar to early mover Webvan.

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SummaryThe emergence of retailing in India is due to the increased purchasing power of buyers, especially post-•liberalisation, increase in product variety, and increase in economies of scale, with the aid of modern supply and distributions solution.Retail and CPG companies are facing a number of challenges due to increasing complexity of supply chains, •caused mainly by off-shoring of manufacturing.Indian retailers are intensively investing in Customer Relationship Management Solution for retaining; acquiring •customers, brand management, to analyse consumer-buying behaviour, buying patterns of ‘loyalty cardholders’, integration of multi-channel sales and others.Business intelligence tools are Data warehousing, data mining, Online Analytical Processing (OLAP) facilitating •a wealth of information in terms of sales and behavioural analysis to retailers.B2B software is well suited for multi-channel retail business consolidating sales via Internet, mail catalogue, •phone/fax and point-of-sale (POS) terminals installed in physical shops.Merchandise planning is one of the biggest challenges that any multi store retailer faces.•Mobile computing has facilitated employees in tracking the inventory and provided customers an innovative •shopping experience through integration of PDAs in individual shopping carts that would provide information on the products.The most important aspect of IT in retailing is the ability to connect the microprocessors in desktop computers, •communications equipment, specialised equipment like electronic point of-sale terminals and so on.The spread of the microprocessor has stimulated the development of a model of information systems in which •many computers co-exist within an organisation.

ReferencesLaseter, T. M., 2011. .• Internet Retail Operations: Integrating Theory and Practice for Managers (Supply Chain Integration Modeling, Optimization and Application), 1st ed. Taylor & Francis.Turban, E., 2010. • Electronic Commerce: A Managerial Perspective 2006, Pearson Education.Pirakatheeswari. P., 2009. • Information Technology in Retailing with Indian Perspective. [Online] Available at: <http://www.articlesbase.com/information-technology-articles/information-technology-in-retailing-with-indian-perspective-1147819.html> [Accessed 2 December 2011].G. Herman.,1997. • IT in Retail - Transformation & Globalisation. [Online] Available at: <http://www.keywordsassociates.com/page.phtml?category=reports&id=37&msg=REPORTS> [Accessed 2 December 2011].Lossprevention, 2011. • Technology helps curb losses in retail sector. [Video Online] available at : <http://www.youtube.com/watch?v=FmWiTFS2DmI>. [Accessed 21 December 2011].FranchiseIndia, 2010. • Business Opportunity in Retail Sector. [Video online] Available at: <http://www.youtube.com/watch?v=hqBDOycGdvc>. [Accessed 21st December 2011].

Recommended ReadingGreen, C., 2011. • Retail Arbitrage, CreateSpace.Nelson, 2009., • The Retail Revolution, Metropolita.Turban, E., 2010. • Electronic Commerce: A Managerial Perspective 2006, 4th ed., Pearson Education.


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Self AssessmentWhich of the following is not a reason for the emergence of retailing in India?1.

Increased purchasing power of buyersa. Increase in product varietyb. Retail salec. Increase in economies of scaled.

WhichofthefollowingisnotaclassificationofITinvestmentsinRetailingbasedontheneeds?2. ImprovingefficiencyofSupplyChaina. Improving the Shopping Experience b. Critical Avenues for IT Investmentc. Retail investment toolsd.

Demandforecastinghasassumedcriticalsignificanceinmanaging________efficiently.3. supply chainsa. IT sectorb. IT investmentsc. business optimisationd.

Which of the following is comprised of tools such as data warehousing?4. Business Intelligence toolsa. Critical Avenues for IT Investmentb. RFIDc. B2B Softwared.

Which of the following is well suited for multi-channel retail business consolidating sales?5. Business Intelligence toolsa. Critical Avenues for IT Investmentb. RFIDc. B2B Softwared.

Deployment____________provideswithpowerfulfeaturestoobservevarietyofmulti-channelretailoperations6. inthecentralisedWeb-basedbackoffice.

B2B softwarea. Business Intelligence toolsb. Critical Avenues for IT Investmentc. RFIDd.

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Match the following:7. 1. B2B software A.IdentifiedtobeveryversatilethatanalysesalesdatafromthePOS.

2. Mobile computing B. Ensure automated stock keeping.

3. RFID C. Facilitated employees in tracking the inventory and provided customers an innovative shopping experience.

4. Business intelligence tool D. System has also in-built helpdesk capabilities.1-A; 2-C; 3-B; 4-Da. 1-D; 2-C; 3-B; 4-Ab. 1-C; 2-D; 3-A; 4-Bc. 1-A; 2-D; 3-C; 4-Bd.

Which of the following statements is false?8. The most important aspect of IT in retailing is the ability to connect the microprocessors in desktop computers, a. communications equipment.This diffusion of intelligence has changed the way people use computers, the nature of computing, and the b. structure and operations of organisations.Communicationsnetworks canprovide aquick and efficientwayof searchingout and contactingnewc. suppliersThebenefitsofmobilecomputingaccruedbyclientsincludereducedunplanneddiscountsandpromotionsd. andproperlyutilisedfloorspace.

Which of the following is not one of the three broad categories of applications of IT?9. in-store systemsa. back-officesystemsb. front-officesystemsc. communications- based systemsd.

Which of the following statements is false?10. Thetendencyforbusinessestorequireinformationratherthanmeredatahashighlightedthedeficienciesa. of unpredictable mainframe operations.The key aspect of PC technology is its interactivity - the ability of a user to control the system in real-b. time.The distributed systems approach should also allow companies to expand their information systems by c. adding more user workstations.The ability to grow or shrink systems is called scalability.d.


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Chapter II

Application of IT in Retailing and Retail Enterprise Resource Planning

Aim


introduce the role of IT in retail•

describe new technologies•

discuss the challenges of retail industry•

Objectives


elucidate retail’s complexities and IT’s solution•

discuss retail enterprise resource planning•

explain the cons of enterprise applications in the retail sector •

Learning outcome


understand the role of it in retail sector•

identify the pros and cons of SAP•

elaborat• ethecompetitivebenefitsofusingERPsystem

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2.1 IntroductionRetailingincludesalltheactivitiesinvolvedinsellinggoodsorservicesdirectlytofinalconsumerfortheirpersonal,nonbusinessuse.Retailisallaboutselling,sellingbigandsellinghuge.It’saboutensuringthatthecustomerfirstof all comes to the store and then buys. This also means that one should connect to the customer and should be able to hold him in one place and give him all that he desires from one location.

Oneofthekeyfactorsinachievinganorganisedandefficientretailoperationistheuseoftechnologyasanenabler.InformationTechnology is thekey to improvecustomersatisfaction,operationalefficienciesandbyextension,profitability.Ithasbeenthegreatenablerofbusinessandespeciallyretailenterprise.

Atypicalpannationalretailoperationwouldhavemultipleregionalwarehouses,officesandretailoutlets.Insuchan operation, how does the headquarters know the daily turnover at each of its outlets, how does it know which products are selling the most in which region at which outlet, how does one store know if a stock – out item in its own inventory is available at another store location for whom it is slow moving item? Most of these issues can be solved by the appropriate use of technology.

2.2 Role of IT in RetailInformationtechnology,asdefinedbytheInformationTechnologyAssociationofAmerica(ITAA),isthestudy,design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware. Information technology is the capability to electronically input process, store, output transmit, and receive data and information, including text, graphics, sound, and video, as well as the ability to control machines of all kinds electronically.

Every day, people use computers in new ways. Computers are increasingly affordable; they continue to be more powerful as information-processing tools as well as easier to use.

2.2.1 Retail Demand Forecasting Forecasting is the process of estimation in unknown situations. It’s an essential and very important process in any business organisation. Business leaders and economists are continually involved in the process of trying to forecast, or predict the future of business in the economy. Business leaders engage in this process because much of what happens in businesses today depends on what is going to happen in the future.

Modern demand-forecasting systems provide new opportunities to improve retail performance. Although the art oftheindividualmerchantmayneverbereplaced,itcanbeaugmentedbyanefficient,objectiveandscientificapproach to forecasting demand.

Large-scale systems are now capable of handling the mass of retail transaction data – organising it, mining it and projecting it into future customer behaviour. This new approach to demand forecasting in retail will contribute to theaccuracyoffutureplans,thesatisfactionoffuturecustomersandtheoverallefficiencyandprofitabilityofretailoperations.

2.2.2 Inventory ManagementInventorycanbeeitherrawmaterials,finisheditemsalreadyavailableforsale,orgoodsintheprocessofbeingmanufactured. Inventory is recorded as an asset on a company’s balance sheet.

To optimise the deployment of inventory, retailers need to manage the uncertainties, constraints, and complexities across their global supply chain on continuous basis. This allows them to improve their inventory forecasting ability and accurately set inventory targets. An IT solution is a proven and market leading solution for determining optimal time-varying inventory targets for every item, at every location throughout supply chain. This allows retailers you tosignificantlyreduceinventorywithoutadverselyaffectingservicelevels.


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2.2.3 Store ManagementAnotherexamplewhereInformationtechnologycanbebeneficialisastoremanagement.Thatalertsout-of-placeorstock-out items. A store, commonly a shop or stall for the retail sale of commodities, but also a place where wholesale supplies are kept, exhibited, or sold. A place where something is deposited for safekeeping is called store.

The in-store system uses magnetic strips or barcodes or RFID to monitor actual versus intended product location onthefloororinthestockroom.

2.3 IT Solution for Retail ComplexitiesMuch of the retail operations are driven by customised point solutions in areas, such as, merchandising, supply chain management, in-store operations, seasonality and promotions planning. This means that it is equally complex for the underlying IT systems to drive operations are equally complex.

IT systems are at the core of retail operations and hence play a central role in alleviating pressure points in the retailsector.TheconversealsoholdstrueretailerswhodonotmanagetheirITlandscapeeffectivelywillfindthat,in time, the IT systems become part of the problem rather than components of the solution. There are two critical areas where IT can reduce:

2.3.1 Functional AreaMerchandisingsystemimpactstop-linerevenuesand,therefore,needtobeconfigured,customisedandmanagedeffectively for the retailer to improve its top line. To achieve this, retailers need to effectively search large amounts of data and utilise this data to carry out effective forecasting, assortment planning, and collaboration with its suppliers sothatpromotionsandothermerchandisingactivitiesareeffectiveandefficient.

Supply chain systems are key from a bottom line point of view as they play a key role in getting the right product to therightplaceattherighttimewhichinturnimpactstheinventorylevelsandtherateofflowofproductsthroughtheretailer’sstores,bothofwhicharesignificantcomponentsoftheretailer’scostofdoingbusiness.

2.3.2 Data Cleansing and Architecture ImprovementData cleansing, and thereafter, effective mining (via large data warehouses) is fundamentally important in the retail spacebecausesomuchdecision-makingisbasedondata.Ifthedataisbad,theeffectivenessandefficiencyofcarrying out retail operations is hampered. This becomes particularly crucial when the retailer is implementing new systems and a large data conversion effort is required. It becomes essential that the old data be effectively cleaned, re-architect and made ready in the new system, so that the business functions can make decisions effectively.

In challenges, place ever-greater demands on retailers. Its systems are at the complexity of products, scale and processes, along with supply chain heart of retail operations and hence play a central role in alleviating pressure points in the retail sector.

2.4 New TechnologiesSome of the new technologies used in the retail industry are as follows:

2.4.1 Radio Frequency Identification (RFID)RadioFrequencyIdentificationintheretailindustryhassolvedmajorproblemsrelatedtocustomerservices.Withthe help of RFID it becomes easy for the sales staff to locate a particular item in the store and check its availability in less time.

It’s a data collection technology that uses electronic tags for storing data. The tag, also known as an “electronic label,” “transponder” or “code plate,” is made up of an RFID chip attached to an antenna. Transmitting in the kilohertz, megahertz and gigahertz ranges, tags may be battery-powered or derive their power from the RF waves coming from the reader.

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Like bar codes, RFID tags identify items. However, unlike bar codes, which must be in close proximity and line of sight to the scanner for reading, RFID tags do not require line of sight and can be embedded within packages. Depending on the type of tag and application, they can be read at a varying range of distances. In addition, RFID- tagged cartons rolling on a conveyer belt can be read many times faster than bar-coded boxes.

FID in retail helps in the following ways: Improves the level of customer service •Increases customers loyalty•Better Inventory Management•Item level tracking•

2.4.2 Smart Operating SystemSupplychainvariesfromindustrytoindustry.Butcompaniesshareacommonchallengeoffindingbetterwaystomanage growing uncertainty and complexity to improve supply chain performance.

To improve their supply chains, companies across industries have made major investments in a range of •technologysolutions,yetsignificantprofitabilityimprovementshaveremainedlimited.Largelyunnoticedhasbeen the opportunity to use enterprise and supply chain data to support key inventory planning decisions that fuel execution systems and activities something beyond a mere spreadsheet or desktop solution.SmartOps customers are keenly managing supply chain uncertainty across all stages to improve their total chain •inventory planning, so that their customer service levels can be stabilised and even increased while overall costs to the business are minimised.SmartOps enterprise software solution supports many initiatives and challenges associated with different •manufacturing and distribution industries, such as Lean Manufacturing, Just-In-Time (JIT), and Six Sigma initiatives, to postponement strategies, to Collaborative Planning, Forecasting, and Replenishment (CPFR), and Sales & Operations Planning (S&OP) activities.SmartOps inventory optimisation algorithms manage uncertainties in the data and offer visibility into the drivers •of inventory at the item-location-time period level of detail. SmartOps is able to do that because it looks at the right granularity of data to adequately manage safety stock levels and understand where the biggest ongoing opportunities for improvement are within their supply chains.

2.4.3 Point of Sale Point of sale systems is electronic systems that provide businesses with the capability to retain and analyse a wide variety of inventory and transaction data on a continuous basis. Point of sale systems (POS) use computers or specialised terminals that are co-ordinated with cash registers, bar code readers, optical scanners and magnetic stripe readers for accurately and instantly capturing the transaction.

Point of sale systems can be online to a main computer for credit checking and inventory updating, or stand-•alone machines that store the daily transactions until they can be delivered or transmitted to the main computer for processing.POSsystemsisoneofthevaluabletoolsusedforawidevarietyofbusinesspurposes,includingrefiningtarget•marketing strategies; tracking supplier purchases; determining customer purchasing patterns; analysing sales (on a daily, monthly, or annual basis) of each inventory item, department, or supplier; and creating reports for use in making purchases, reorders, and so on.Basic point of sale systems currently in use includes standalone electronic cash registers, also known as ECRs; •ECR-based network systems; and controller-based systems. All function essentially as sales and cash management tools, but each has features that are unique.


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2.5 Retail Enterprise Resource Planning.Enterprise Resource Planning systems (ERP) systems refer to the software packages that integrate all the data and therelatedprocessesofanorganisationintoaunifiedInformationSystem(IS).ERPsystemusesacentraldatabasethat holds all the data relating to the various system modules.

In order to achieve a seamless integration, an ERP system uses multiple hardware and software components. •ERP packages are heavily used by larger retail chains. Designed to facilitate the administration and optimisation of internal business processes across an enterprise, ERP packages have become the competitive tool for most large retail organisations. ERP software uses a single database that allows the different departments to communicate with each other through •informationsharing.ERPsystemscomprisefunction-specificcomponentsthataredesignedtointeractwiththe other modules such as the Order Entry, Accounts Payable, Accounts Receivable, Purchasing, Distribution and so on.

2.6 Challenges faced by Retail Industry Inthecurrentbusinessenvironment,theretailindustryfacestwomajorchallengesthatthreatenitsprofitabilityandthe long-term survival prospects. The twin challenges are:

Market competition• : To beat the competition, retailers have to understand consumer demand at the point of interaction and respond to the various inputs in real time across the enterprise. This calls for a proactive approach onthepartoftheretailorganisationtosensethespecificrequirementsoftheconsumerbeforeothercompetitorsand respond to them in real-time ensuring customer satisfaction in the process.

Moreover, margins in the retail business generally are very low and that removes any scope for waste or �inefficienciesinthebusinessprocesses.Efficiencyiscriticaltosurviveintheretailindustry.Aproactiveapproach on the part of the retail organisation requires an enterprise wide monitoring and control of the variousbusinessprocesses thatmayultimately lead to thedesiredefficienciesand long-termcustomersatisfactionandprofitability.

Regulatory pressures: • In order to meet the regulatory standards, the retailers require an enterprise wide process visibility,dataaccessandnear-instantperformancereporting.However,theneedforflexibility,processefficiency,reliable information, and responsiveness is very hard to achieve given the existing portfolio of legacy, home grown and packaged software applications used by a majority of the retail organisations.

Therefore,aretailbusinesswouldbenefitimmenselyfromanintegratedISinfrastructurewhichcontinuously �monitorsanddispatchesthenecessaryinformationoftheflowofgoodsallthewayfromsuppliertothecashregister and then back to accounting as well as other functions of the retail organisation.Acombinationofflexibility,processefficiency,reliableinformationandresponsivenessiscriticaltoaretail �business and ERP packages have been introduced to tackle the elimination of IT complexity albeit with some implementation challenges to the line of business and IT management staff.

2.7 Disadvantages of Enterprise Applications in Retail sector Integration of the various business functions is an essential requirement for synchronisation among the different business activities involved in a retail business. A number of large retail chains around the world have already invested in packaged software which suites to integrate their core business activities. However, a lot of retailers are still using fragmented legacy software applications to manage their core business functions which are likely toresultinlowerlevelsofeffectivenessandefficiency.Moreover,amajorityofChiefInformationOfficers(CIO)in the retail sector believes that it is tough to change and replace their existing information systems handling the routine management of the retail operations. Most of the existing retail applications used by the businesses lack an all encompassing approach and require some degree of customisation before they can be fully integrated with a business process. Major problematic sections in the existing enterprise applications in retail include:

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Outdated architecture:• Most of the legacy enterprise applications in retail have an outdated architecture that isinflexibleandrigid.Thisinflexibilityandrigidityresultsinachallengetothebusinessefficiency.Thelackofflexibilitypreventsthelegacysoftwaretobeusedwiththecontemporaryproductsavailableinthemarketthat may add muscle to the retail operations. Real time adaptability from the software systems is the need of today’s business environment.Limited scope:• Mostofthelegacysystemsweredesignedtotakecareofspecificproblemstasksandasaresult,lacked an enterprise wide approach to the problem solving process. This makes such systems unfriendly for use in the modern business environment that is highly competitive in nature. Modern business requires an enterprise wide approach to retail management process but legacy system fall short of such a requirement.High• maintenance costs: Legacy information systems are costly to maintain. The cost component is high because such systems are no longer used in the industry and require specialised personnel for maintenance purposes. Moreover, the maintenance cost of legacy systems keeps on increasing with the passage of time. The older an information system is, the higher are its associated maintenance costs to be borne by the retail business.Integration• and scalability problems: Legacy software does not allow addition and integration of new applications. This prevents such systems from scaling up or integrating with similar systems used by the associates or business partners. Such integration and scalability problems tend to multiply as the size and scope of retail operations increases.Increased• risk to the business: A combination of old and new information systems makes the whole system susceptible to failure or crash. The heterogeneity in the system is the primary cause of risk. The solution lies in a close knit, homogeneous information system that can integrate seamlessly with other such systems in real time while imparting the much-needed stability to the whole system.

2.8 Advantages of Retail ERP Primary advantages of retail ERP are as follows:

Retail specific components:• Unlike a general ERP package, retail ERP suite offers retail centric components thatarecustomisedtomeetthespecificrequirementsofaretailorganisationinaneffectiveandefficientmanner.ThismakesaretailERPsuitemuchmoresuitabletomeetthespecificrequirementsofaretailorganisation.Segment specific expandability option:• Within the retail sector, there is a wide variety of different segments that vary in their nature and scope of operations. A retail ERP package has provisions to meet the varying needs of the different segments within the retail sector. Support for the store system: • Retail ERP suite offers support for the store systems that form the pivot of a retail business. The critical functions include keeping track of the inventory, ordering and replenishment, loss prevention andtaskmanagement.ThismakesretailERPsystemsuitedtothespecificneedsofaretailorganisation.

Secondary advantages of Retail ERP are given below:

Configuration and scalability:• A good retail ERP system allows a high degree of customisation and is easily scalabletoattuneitselftothesizeoftheorganisationanditslevelandscopeofoperations.Suchconfigurationand scalability prove to be a boon in managing the retail operations across an enterprise. This allows a retail ERP system to grow with the organisation.Phased implementation support: • Modern retail ERP systems provide support for phased implementation. This feature allows the software package to be implemented in a step-by-step incremental manner rather than in one go. This makes the transition to an ERP package a lot easier. This feature allows the users to acclimatise themselves to an ERP package that may initially seem complicated to use.Support for advanced functionality:• Modern retail ERP systems provide support for advanced functionalities that is helpful in the decision making process such as formulating pricing strategies, merchandise planning, inventory optimisation and store execution. The advanced functionality helps the user to formulate business strategiestointroduceefficienciesinthecriticalbusinessprocesses.Thetopmanagementusesthisfeaturetoset the benchmarks and achieve the desired results.


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Workflow automation and enterprise process management:• ModerndayretailERPpackagesofferworkflowautomationandenterpriseprocessmanagementtomaketheworkflowsmoothandseamlessacrosstheentireenterprise.Thisallowsthemanagementtomonitorandkeeptrackoftheworkflowwhilealsoundertakingtheenterpriseprocessmanagementleadingtotheidentificationandremovalofanyinconsistenciesinthebusinessprocess.Technology and application integration: • A good retail ERP system allows technology and application integration to allow a platform independent, seamless transfer of processes across different modules running on different technologies in an enterprise wide environment that may include interaction with legacy systems and external entities such as the suppliers and the customers. Such integrations provide the critical enterprise-wide view to the management.

2.9 Disadvantages of Retail ERP The success of a retail ERP suite depends on the IT skills and the experience of the workforce, including training ontheutilisationof theinformationsysteminaneffectiveandefficientmanner.Manycompaniescutcostsbyreducing the training budgets for the retail ERP suite. Privately owned small enterprises are often short of funds and this leads to a situation that personnel often operate their ERP system with inadequate education in utilising the ERP package to its full potential. The common disadvantages of using a retail ERP package are a result of the lack of training of the employees to utilise the information system to the full extent. Other major disadvantages of using an ERP package include:

Lack of price differentiation:• ERP vendors usually charge annual license fee that has to be paid periodically andisindependentofthesizeorprofitabilityofthecompanyusingtheERP.Thislackofpricedifferentiationproves to be a barrier for the Small and Medium Enterprises (SME) wishing to use the retail ERP systems.High installation costs• : ERP systems are quite expensive to install and maintain.Non-customised technical support:• The callers often end up getting replies from the technical support personnel that are unsuitable to their corporate structure. This non-customised approach proves to be a barrier to address the unique problems in retail ERP implementation faced by a company.Security concerns• : Using an ERP package gives rise to a number of security issues. For example, telling a non-programmerhowtochangeadatabaseonthefly,atacompanythatrequiresanaudittrailofchangessoasto meet some regulatory standards might be tricky. Enforcing the various security protocols while using an ERP packageprovetobedifficultsinceanERPpackagesharesalotofdataamongitsvariouscomponents.Low flexibility:• One of the main causes for the failure of ERP systems is that they are often seen as too rigid anddifficulttoadapttothespecificworkflowandbusinessprocessneedsoftheclientcompanies.Theworkflowand business process needs to differ from one organisation to the other. This leads to minute customisation by the user organisation that may not be allowed by the ERP package.Situation misfit:• AnERPpackagemayprovetobeamisfitinaparticularsituation.Manycompaniesre-engineertheirbusinessprocessestofitthe“industrystandard”prescribedbytheERPsystemandthisleadstoalossofcompetitive advantage. Ideally, an ERP package should suit the requirements of a company and not the other way around.Limited scope for customisation:• The ERP software packages allow only a limited scope for customisation. Some customisation in the ERP package may involve making changes to the ERP software structure that are notallowedunderthelicenseagreement.ThiscanmakethesituationoftheERPpackageuserverydifficultindeed.Complex usage:• ERP systems can be complicated to use. In order to utilise an ERP package to its full potential, the users are required to undergo considerable training which obviously costs time and money.High restrictions: • SomeERPsystemsaretoorestrictiveanddonotallowmuchflexibilityintermsof theimplementationandusageofthesoftwarepackage.Theserestrictionsprovetobeabottleneckinefficientuseof this resource in streamlining the business process.

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Weakest link problem:• AnERPsystemcansufferfromthe“weakestlink”problemwhereinefficiencyinonedepartment or partner may affect the other parties. An ERP package measures an entire organisation while aiming tostreamlinethebusinessprocessaswholeandintroducingefficienciesthatultimatelyleadtoanincreaseinthebottomlineorprofitsoftheretailorganisations.Theintegrationofdifferentcomponentsproducesmoreproblems due to the weakest link effect.High switching costs:• Once a system is established, switching costs are quite high for any one of the partners involved.Thisleadstoreductioninflexibilityandstrategiccontrolatthecorporatelevel.Thehighswitchingcosts can be attributed to the fact that installation of an ERP package involves considerable investment of both time as well as the money.Reduced departmental insulation:• The erasing of company boundaries can cause problems in accountability, lines of responsibility, and lead to reduction in the employee morale. Since an ERP package measures an entire organisation, its implementation integrates the different departments in such a way that no department works in isolation from the rest of the organisation.Requires total transparency:• Hold on the sharing sensitive internal information between departments can reduce the effectiveness of the ERP package. An ERP package is designed in such a way that seamless information interchangebetweenthedifferentdepartmentsisanessentialprerequisitetoachieveitsfullbenefits.Compatibility issues:• There are many compatibility problems with the various legacy systems of the business partners. A company may have installed the latest ERP package but it has to be compatible with the legacy systems used by its associates or business partners.Overkill• : An ERP system may be over-engineered relative to the actual needs of the customer. Such a situation may be called overkill since an organisation may not require the functions or capabilities extended by an ERP system.

2.10 SWOT Analysis of Retail ERP

StrengthsProvides an enterprise wide view of the work •flowAllows integration with system of associates •and business partnersHelps in routine decision making•Allows streamlining of business processes•

WeaknessExpensive to procure•Requiressignificantemploytraining•Compatibility issues with other/ legacy •systemsSecurity concerns•

OpportunitiesBooming retail sector in the emerging global •marketsThe retail sector is overlooked by the major •ERP solution providersHighefficiencybecomingcriticalintheretail•sector due to the cut throat competition and paper thin margins

ThreatOpposition to globalisation and transitional •movements of goods.Increasing complexities of such systems•Divided opinion over the return on investment •(ROI) for such toolsSecurity concerns regarding sharing a data over •a network

Table 2.1 SWOT analysis of retail ERP


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2.11 Components of Retail ERP The main components of a retail ERP system include the following:

Merchandise management• : It constitutes the primary component of a retail ERP system that supports the merchandise management operations undertaken by the retailers. This component includes activities such as the setting up, maintenance and management of the retail outlet, keeping track of the prices of the items, inventory, and the different vendors and so on. This component of the Enterprise Resource Planning (ERP) system also offers some key reporting functions as well as the allied business intelligence modules.

The merchandise management component also offers an integrated interface to the other retail applications thereby acting as a bridge between the different retail applications supported by the retail ERP suite aimed at facilitating moreefficientretailoperations.Merchandisemaybedefinedasanyproduct,service,ideaorentityofvaluethatcanbe offered to someone in the market for a price and that offers to satisfy a genuine need or want of the consumer. A typical retail chain offers hundreds of thousands of different products to the customers. All such products may be termed as merchandise since they are of an economic value to the customer who pays for such products to satisfy his/her needs or wants. The merchandise management component takes care of all the activities related to the management of the merchandise offered for sale at the retail store. In a nutshell, the Merchandise management component of an Enterprise Resource Planning (ERP) package covers all the activities centered on the merchandise offered at the retail store.

Retail planning: • This element of the ERP system allows the retailers to undertake the planning activities at a large as well as a small scale as per the need of the situation. It focuses on the different strategies to be employed in order to help the retail store in increasing the sales of the merchandise. The retail-planning component focuses onachievingtheeconomiesofscaleandattainingthedesiredefficienciesbyincreasingthemerchandisesalesat the retail chain.

This component helps the retailers in planning the various sales and promotional events aimed at boosting or increasing the sales of the merchandise offered at the store. This way, retail planning forms an important and critical component of the retail ERP systems as it performs the critical function of offering the planning activities that may be undertaken at the micro as well as macro level to give a push to the merchandise sales at the retail store. The retail-planning component is extensively used by the middle and the upper management in formulating favorable promotional strategies to stimulate the sales and ensure increase in inventory turns at the retail store. Hence, retail planning may be called as a critical component of the retail ERP systems. Supply chain planning and execution – It provides support to the internal as well as the external supply chain process. It covers both the planning and the execution part of the supply chain management in retail. Supply chain forms the backboneoftheretailoperations.Thesupplychainrepresentstheflowofinformation,finances,andmaterialsastheymoveinaprocessfromthesuppliertothewholesalertotheretailerandfinallytotheend-userortheconsumerof merchandise. Supply chain planning and execution is an integral part of the retail ERP system. Retailers aim to take advantage of the operational synergies. To meet the requirements of such retail chains, the supply chain planning and execution component of the retail ERP systems allows the retailers to keep track of the entire supply chain beginning at the manufacturer and ending at the consumer. It allows a retailer to keep track of all the activities and processes comprising the supply chain of the merchandise offeredattheretailstore.Thishelpsretailersruntheirbusinessesinaneffectiveandefficientmannerbycloselymonitoringtheirsupplychainsandensuringitsmanagementinasmoothandefficientmannertoensureprofitabilityin the business.

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Inventory and vendor management

Merchandise Management Process

Reporting

Business Intelligence

Supply Chain Planning

Store Operations

Data Warehouse

Core Retail Module

Logical view of major Components of Retail ERP

Fig. 2.1 Major component of retail ERP

Store operations:• This element of the ERP system takes care of all the operations related to the store management function. The store operations are central to a retail chain since the retailers keep the majority of their inventory at the stores. Moreover, the store operations are unique to the retail ERP systems as the other ERP packages do not offer such a comprehensive component like the store operations as offered by a retail ERP system.

Thestoreoperationscomponentincludesthestorespecificinventorymanagement,salesaudit,returnsmanagement,perishables management and the labor management. The store operations component can also include the customer management and the associated promotion execution systems.

Corporate administration:• This component aims to serve the information needs of the administration and usually includes the process management and compliance reports required by the top management for the decision-makingpurposes.Thisfeaturealso includesothercorporatefinancial reportssuchas theaccountsreceivables, accounts payable, general ledger and the asset management reports.

The corporate administration component may also include the corporate-level Human Resource Management (HRM) systems. Thus we can see that the corporate administration component plays a critical role in providing the necessary information to the top management to get a general idea of the health of the retail business by way of the variousfinancialreportsgeneratedbythiscomponentprovidedintheretailERPsystems. The corporate administration component can be termed as the eyes and ears of the top management in the retail business.Thiscomponentmakesavailablethenecessarydatarequiredtoprovideaninsightintothefinancialhealthofaretailbusiness.Moreover,thiscomponentoftheretailERPsystemisusedforgeneratingspecificcompliancereports submitted to the industry watchdog or other monitoring agency that may require reporting of such data on a periodic basis. These reports not only help the management in meeting the mandatory disclosure norms but also helpintheformulationofeffectivemanagementstrategiestoachievethedesiredresultsintermsofsalesorprofitsthatarecalculatedusingthesamefinancialindicators.


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2.12 ERP Vendors and Market Share

2.12.1 ERP VendorsThe global Enterprise Resource Planning (ERP) market is dominated by relatively few niche players who command the lion’s share of the market. The retail ERP systems segment shows the same trends in terms of the relative market share of the major global vendors.

S.no Retail ERP vendor Product1. SAP SAP for retail2. Oracle Oracle retail merchandising system(ORMS)3. The sage system Sage Pro ERP4. Microsoft Dynamics Microsoft dynamics NAV5. Aldata Aldata G.O.L.D6. GDA software Portfolio Merchandise Management7. Jesta I.S Vision Merchandising suite8. NSB group Connected retailer merchandising9. IslandPacific IslandPacificmerchandisingSystem(IPMS)10. Tomax Tomax Merchandise Management11. GERS GERS Merchandising12. Retalix Retalix HQ

Table 2.2 ERP vendors

The top four retail ERP solution providers include the following vendors with their respective software packages:SAP (Systems, Applications and Products in Data Processing) SAP is a major global player in the Enterprise Resource Planning (ERP) domain based in Germany and commands around30%oftheglobalmarketshareoftheEnterpriseResourcePlanning(ERP)solutions.ItsproductSAPforRetail is aimed at the retail market and provides retail ERP solutions to the retail sector. The major advantages and disadvantages of SAP for Retail include:

Advantages:• Comprehensive features – The retail version of SAP offers comprehensive user-friendly features. �Universalstandard–BeingamarketleaderintheERPdomain,SAPproductsdefinethemarketstandards �in this segment.Scalability – SAP for Retail is highly scalable to adjust to the size and scope of the software user. �Customisation – SAP for Retail can be customised to a high degree by the retailer. �

Disadvantages• :The SAP for Retail software package is very expensive. �Training required – In order to use the ERP package, the end-users are expected to undergo a basic minimum �level of training for using the product effectively.

Oracle:Oracle is a global IT company based in the US that provides various software solutions including the database management systems (DBMS), Enterprise Resource Planning (ERP) software, Customer Relationship Management (CRM) software, and the Supply Chain Management (SCM) software. Oracle facilitates retail ERP is called the Oracle Retail Merchandising System (ORMS) for the retail sector. The major advantages and disadvantages of ORMS are as follows:

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Advantages• :Superior networking features: ORMS offers superior networking features for real-time applications. �Cost effective: In comparison to the SAP ERP solutions, ORMS provides a great alternative that is cost �effective for the user.

Disadvantages• :Lack of compatible systems: The product suffers from incompatibility issues with similar products in the �Market.Resource requirement: The product is demanding in terms of the hardware resources requirements. �

The Sage Group TheSagegroup isaUKbasedITfirmthatprovidessoftwaresolutions inpayroll,accounting,CRM,businessmanagement and ERP domain. The Sage group offers the Sage Pro ERP for the retail sector. The major advantages and disadvantages of Sage Pro ERP are as follows:

Advantages• :Easy to use: The Sage Pro ERP offers a Graphical User Interface (GUI) and is surprisingly easy even for �the new users.Resource requirements: The product requires minimum hardware resources. �

Disadvantages• :Integration issues: The product suffers from integration problems with other systems. �Scalability issues: The performance suffers when the product is scaled up. �

Microsoft DynamicsMicrosoft Dynamics is a Microsoft group company that provides the Enterprise Resource Planning (ERP) solutions forbusinessorganisations.MicrosoftDynamicsoffers itsflagshipproductTheMicrosoftDynamicsNAVERPsolutionthatisusedbytheretailorganisationstomanagetheiroperationsinaneffectiveandefficientmanner.Themajor advantages and disadvantages of Microsoft Dynamics NAV ERP are as follows:

Advantages• :Attractive interface: The Microsoft Dynamics NAV provides a very attractive user interface � .Easy to use: In comparison to similar products, the Microsoft Dynamics NAV is very simple easy to use. �

Disadvantages• :Security issues: The product suffers from certain security issues in an enterprise wide implementation. �Scalability issues: The product suffers from certain scalability issues. �


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2.12.2 ERP Market Shares

SAP

Oracle Applications

The Sage Group

Microsoft Dynamics

SSA Global Technologies

Other

ERP Market Share

29%

10%7%4%3%

47%

Fig. 2.2 (a) ERP market share

60

50

4030

20

10

0Microsoft

ERP Systems in the Evaluation List of Enterprises

Oracle SAP Geac Infor

S1

Fig. 2.2 (b) ERP market shares

2.13 Profitability in BusinessThe Business implications of a retail ERP system are immense indeed. In the contemporary business environment where liberalisation, privatisation and globalisation are the order of the day, most of the retail businesses around the worldoperateunderthefiercelycompetitivemarketconditions.Suchcompetitionhasledtothepaper-thinmarginsinthis sector. In order to be competitive, the retail organisations, surviving on thin margins, cannot afford the luxuries ofsystemicinefficienciesordelayeddecision-making.Boththeactivities,beitincreasingefficienciesinthebusinessprocess or the ability to take prudent decisions quickly requires an inside out awareness of the business process. A retailer ought to know the ‘complete picture’ that can indicate the true state of a retail business. Aretailorganisationmaycompriseofasmallchainofretailstoresconfinedtoasmalltownorcityormayincludea mammoth organisation having its presence around the world in the form of thousands of stores scattered across the different parts of the world. Wal-Mart is one example of a retail business with its operations spanning across different continents around the world. Management of such a distributed network of retail chains is a Herculean task indeed. The retail Enterprise Resource Planning (ERP) packages help the retailers in better management of their enterprise wide operations spanning the entire globe.

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The retail ERP systems provide one-stop solution for most of the retail information process. It challenges by providing a comprehensive solution to managing a complex retail business. An Enterprise Resource Planning (ERP) systemhelpstheretailersmanagetheirbusinessesinaneffectiveandefficientmannerbyprovidingintegratedandconsistentinformationflow.Itmakesthetaskofkeepingtrackofallthetransactionssomucheasier.AretailERPsystem provides automatic recording of the transactions in real-time environment. They have become important instrumentstosurviveandincreaseprofitabilityintheretailsectorforlargeretailorganisations.ThemajorcompetitivebenefitsofusingtheERPsysteminthemoderndayretailareasfollows:

Graphical User Interface (GUI) support: • The retail ERP systems extend a Graphical User Interface (GUI) to the users that make it very easy to interact with the software suite. The GUI is critical to make the retail ERP systems popular with the non-technical users.Allows• optimum utilisation of the resources: A retail ERP systems allows an organisation to utilise its resources in an optimum manner. This optimisation subsequently translates into less costs and correspondingly highprofits.Reduction in the overhead and Inventory:• A retail ERP system allows the organisation to considerably reduce the overhead and excess inventory thereby reducing the unnecessary costs to the company.Timely• responsiveness: Retail ERP systems allow the organisations to react to any challenges or constraints in the real time and thereby extend timely response to any customer demands.Enterprise• wide solution: The retail ERP systems offer an enterprise wide integration of the various Information Systems (IS) that allows the users to have an enterprise wide view of the problems and implement the appropriate solutions.Integrated• work environment: A retail ERP system offers an integrated work environment throughout the organisation that can be easily monitored and managed.Easy scalability and adaptability:• A retail ERP system offers easy scalability options as per the size and scope of an organisation while it also allows integration with the different technologies as well as the legacy systems running at the business associates or partners’ end.Knowledge transfer between industries:• A retail ERP system facilitates transfer of knowledge between related industries and this process stimulates innovation and subsequent growth.


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Summary Modern demand-forecasting systems provide new opportunities to improve retail performance.•Inventorycanbeeitherrawmaterials,finisheditemsalreadyavailableforsale,orgoodsintheprocessofbeing•manufactured.Informationtechnologyisverybeneficialforstoremanagement.•Much of the retail operations are driven by customised point solutions in areas, such as, merchandising, supply •chain management, in-store operations, seasonality and promotions planning.Merchandisingsystemimpactstop-linerevenuesand,therefore,needtobeconfigured,customisedandmanaged•effectively for the retailer to improve its top line.Data cleansing, and thereafter, effective mining (via large data warehouses) is fundamentally important in the •retail space because so much decision-making is based on data.RadioFrequencyIdentificationintheretailindustryhassolvedmajorproblemsrelatedtocustomerservices.•Point of sale systems is electronic systems that provide businesses with the capability to retain and analyse a •wide variety of inventory and transaction data on a continuous basis. Enterprise Resource Planning systems (ERP) systems refer to the software packages that integrate all the data •andtherelatedprocessesofanorganisationintoaunifiedInformationSystem(IS).In the current business environment, the retail industry faces two major challenges that is, market competitions •and regulatory pressures.Integration of the various business functions is an essential requirement for synchronisation among the different •business activities involved in a retail business.

ReferencesWailgum, T., 2007. • ERP definition and solutions.[pdf]Availableat:<http://www.ambriana.com/C298_website/ERP_CIO.pdf>.[Accessed20December2011].Leon, A., 2008. • Introduction to ERP. [pdf] Available at: <http://www.leon-leon.com/it/erpdse/downloads/sg02.pdf>. [Accessed 20 December 2011].Enterprise Resource Planning• , Available at: <http://www.dmsretail.com/erp.htm>. [Accessed 20 December 2011].Implementingsap, 2009. • Introduction to SAP ERP. [Video Online] Available at: <http://www.youtube.com/watch?v=I1fAcjEIEEM>. [Accessed 28 December 2011].Citixsys, 2010. • Retail for SAP Business [Video Online] Available at: <http://www.youtube.com/watch?v=GtZWllKI8LQ>. [Accessed 28 December 2011].Turban, E., 2010. • Electronic Commerce: A Managerial Perspective 2006, Pearson EducationDevelopers DevZone, 2011. • Building eCommerce Applications, O’Reilly Media.

Recommended ReadingSumner, M., 2004. • Enterprise Resource Planning. 1st ed. Prentice Hall.Saraf, V., Dr. Tiwari, P. and Malviya, V., • Applications of Information Technology in Retailing. Vidyasagar Institute of Management (VIM).Retail Information Technology for Non - IT Retail Managers. Available at: <http://www.dmsretail.com/erp.•htm> [Accessed 2 December 2011].

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Self AssessmentWhich of the following statements is false?1.

Retailingincludesalltheactivitiesinvolvedinsellinggoodsorservicesdirectlytofinalconsumerfortheira. personal, non business use.Retailingisaboutensuringthatthecustomerfirstofallcomestothestoreandthenbuys.b. Oneofthekeyfactorsinachievinganorganisedandefficientretailoperationistheuseoftechnology.c. RetailManagementisthekeytoimprovecustomersatisfaction,operationalefficienciesandbyextension,d. profitability.

____________istheprocessofestimationinunknownsituations.2. Forecastinga. Retailingb. IT managementc. Retail operationd.

An/A___________isaprovenandmarketleadingsolutionfordeterminingoptimaltime-varyinginventory3. targets for every item.

IT solutiona. Retailingb. IT managementc. Retail operationd.

Which of the following is not included in the role of IT in retail?4. Retail demand forecastinga. Inventory managementb. Retail marketingc. Store managementd.

________impactstop-linerevenuesand,therefore,needtobeconfigured.5. Merchandising systema. Retailingb. IT managementc. Retail operationd.

Which of the following is not one of the technology used in the retail industry?6. Radiofrequencyidentificationa. Data cleansingb. Smart operating systemc. Pont of Saled.

Which of the following statements is false?7. Data cleansing, and thereafter, effective mining is fundamentally important in the retail space.a. Ifthedataisbad,theeffectivenessandefficiencyofcarryingoutretailoperationsishampered.b. It becomes essential that the current data be effectively cleaned, re-architect and made ready in the new c. system.IT systems are at the core of retail operations and hence play a central role in alleviating pressure points in d. the retail sector.


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Which of the following is a data collection technology that uses electronic tags for storing data?8. RFIDa. Smart operating systemsb. Point of salec. ERPd.

Which of the following uses a central database that holds all the data relating to the various system modules?9. ERPa. Smart operating systemsb. Point of salec. RFIDd.

Which of the following is one of the challenges to the retail industry?10. Outdated architecturea. Limited scopeb. High maintenance costc. Market competitiond.

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Chapter III

E-Commerce in Retail Sector

Aim


introduce the drivers of e-commerce•

explain the role of intermediaries •

describe e-commerce mechanism in retail process •

Objective


elucidate stockholding, inventory and store merchandising•

describe retail branding•

discuss distribution of goods by or to the consumer•

Learning outcome


understand e-commerce in retail•

comprehend the importance of branding•

discuss • the role of intermediaries


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3.1 Introduction E-commerce means different things to different people. It might loosely be described as doing business by means of data communications networks. Electronic commerce itself became e-commerce and then generated e-business, e-services, e-trade, and e-retailing. Today, more and more people are beginning to realise that there are no clear dividing lines between e-commerce and EDI on the one hand and e-commerce and home shopping on the other.

Due to frequent references to Internet or e-commerce amounted to the launch of many company based websites. •Even today, when the Wall Street Journal announces that two out of three major European companies already use the Internet for business, it only takes a look at the Internet to see that they are including a very substantial number of ‘banner’ sites which do nothing but promote the company concerned, possibly inviting enquiries by e-mail. More often, the assumption is that e-commerce means a sophisticated form of home shopping using the Internet, •not television or printed catalogues. According to Ovum Consultancy, the exchange of value between a customer and a merchant over the Internet in exchange for goods or services is called e-commerce. This transaction is conducted using a browser-based user interface, involving human interaction and decisions, usually on the buyer side.Sometimes,itisspecificallyacknowledgedthate-commercemayincludeEDI.E-commerce is not a new concept. The idea was introduced some years ago, although its implementation was •expensive and sporadic. In the past, it was practised by large corporations that could afford private networks and maintain connectivity with their suppliers and distributors.Substantive distinction between e-commerce and EDI is the access to the appropriate technology. E-commerce •is a product of the widespread availability of the Internet.

3.2 Drivers of e -CommerceAnyformofelectronictradingcanhavebusinessbenefitsbyspeedingupthetradingcycle,improvingcashflow,allowing reductions in stock depth where appropriate, and eliminating many of the costs associated with paper processing and postage.There is also number of specific drivers pushing the development of Internet-basede-commerce as:

Reducing the cost of sales: • It means decreasing the expenditure associated with business operations. On one level, this may mean nothing more than reducing overheads, but cost of sales may also include expenditure on marketing,fulfilment,andcustomerservice.Estimatessuggestthatthecostofconventionalsalesmaybearoundten times the cost of equivalent e-commerce sales. Replacing technology• : It is simple. Because of the contracting upgrade cycle, it becomes necessary for companies to invest in new technology every few months. This enables companies to acquire the necessary systems to support e-commerce in the course of their routine purchasing operations.Pressure• to expand into new markets: It has developed as a driver of e-commerce because these new markets are likely to be outside a company’s normal geographical area of operations and outside its normal customer-base. In both cases, the Internet can deliver at minimal cost.Need to develop risk sharing partnership: • Partnership trading is increasingly important as a result of globalisation and market volatility and, as e-commerce allows the disintermediation of the supply chain and the virtualisation of organisations, it enables partnerships to develop in which business risk can be shared. This sort of phenomenon emerged with EDI when effectively instantaneous communication of sales trends allowed companies to provide their suppliers with the right information to adjust manufacturing levels, so changing the nature of their relationship. Fear• of competition: It speaks for itself. In an increasingly global market, competitors can be drawn from almost anywhere.Theriskofcompetitionisincreasednotjustbecausebusinessescannotrelyonprice-fixingorcartelagreements under these circumstances, but because the competitive environment is distorted. If e-commerce can cut overheads to a minimum, nobody can afford to ignore it.

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3.3 Role of Intermediaries in Retail E-commerce As known, intermediates handle the distribution between the original producer of a product and the ultimate consumer. While the growth of retail e-commerce may lead to the extinction of some of the intermediates, it appears that online marketers will compensate it by the promotion of new types of intermediaries, leading to re-intermediaries.

One reason is that online marketers are changing the constraints faced by the sellers in designing of their product •offerings, fostering the emergence of new types of intermediaries that create value by aggregating the services and products that traditionally offered by other industries.The current patterns or retail intermediaries seemed certain to be reshaped, erasing the wholesalers and distributers. •New intermediaries are emerging with expertise in running transportation and payment networks that will be important in e-retailing. The roles of intermediaries will also include providing trust relationship, ensuring the integrity of the Market, •matching customers and suppliers, and providing market information to suppliers. Also, intermediaries are emerging to help consumers evaluate non-price information.

3.4 E- commerce Mechanism in Retail Process A common debate in assessing the impact of ecommerce is the extent to which it complements existing store retailing, as an alternative channel, or replaces existing channels—the ‘‘clicks and bricks’’/‘‘clicks or bricks’’ scenarios prevalent in the jargon. The outcome of this debate in the form of consumer purchases and spending diversion or addition will, to large extent, determine the impact upon physical stores.

As stated earlier, the threat to established retail and distribution channels, systems and behaviours arises because of the process innovation inherent in e-retailing. Dawson (2001) points to ‘‘new commerce’’ as being comprised of an innovative force, laden with information, enabling companies to speed up activities and increase their scope as shown in the table below.

1. New commerce companies operate through multiple marketing channels.2. Channel structures in new commerce are intermediated in new ways.3. New commerce retailers operate internationally.4. New commerce uses new forms of non price competition.

5. In new commerce, organisational scale and scope economies become more important than establishment scale and scope economies.

6. New commerce companies do not subscribe to a traditional view of a difference between goods and services.

7. New commerce companies are using the convergence of information and communications technologies as a primary source of innovation.

8. New managerial ideas support innovation processes.9. Customer loyalty is a central concept in new commerce.

10. Public sector policies relate to old commerce not new commerce.

Table 3.1 Characteristics of the new commerce

Table 3.1 summarises what is new commerce. The table illustrates clearly that processes are altered both inside •and outside the business and that companies can differentially obtain advantages depending on their ability to effectively conduct their activities in this new era. Conversely, a failure to operate in these ways could lead to competitors moving ahead. Such are the potential impacts of the changes that there is little choice but to embrace them.


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As a process, innovation e-commerce provides the capability to transform traditional tasks and activities, and the •associatedcosts,withintheretailchannel.Theretailchannelistraditionallyviewedasaseriesoftasksandflows(information,inventory,paymentandsoon.)withspecificactorstakingresponsibilityforthese.Anyassessmentof e-commerce requires an exploration of how these activities, processes and ownership may change. Forexample,disintermediationhasbeenidentifiedasapossibleoutcomeaschannelmembersaredisplaced•or removed as traditional activities transfer from one channel member to another. Others have pointed to the ease of entry to the market as allowing re-intermediation in some channels, as more intermediaries set up as entry points to provide services, goods or information. In some cases, new activities emerge, but as in much channel change, many tasks and activities remain, although the process innovation alters the ownership, costs, efficiencyandpracticeofthesefunctions.Thesepotentialchangesare,weargue,thekeytounderstandingtheimpactofe-commerceuponfixedstores.

E-commerce has a number of implications for the retail process and how and where the tasks are performed. Retail process is considered as comprising the sourcing of products; stockholding, inventory and store merchandising; the marketing effort including branding; customer selection, picking and payment; and distribution of goods by or to the consumer. Each of these is discussed as follows:

The sourcing of productsRetailers have always worked in partnership with elected suppliers in product sourcing and the lessons learnt from key relationships have often been extended across the supply chain for that retailer. The Internet has opened up the possibilities for retailers to share such techniques with their suppliers and/or to force them to use business practices that help the retailer.

ThemostextensiveretailexamplewouldbeWal-Mart’sRetailLink.Wal-Martdefinesthisasaninformationor•array of products that allow a supplier to impact all aspects of their business. By using the information available in Retail Link suppliers can plan, execute and analyse their businesses, thus, providing better service to our common customers. Retail Link is a website that is accessible to any area within your company. Wal-Mart requires all suppliers to •participateinRetailLinkbecauseofthebenefitsitprovides.Thebenefitswouldappeartobecommonsystemsandtools,supplieruseofadvancedsystems,fasterandmore•reliable communications, and enhancement of planning, forecasting and replenishment. In the UK we can see a number of retailers moving the same way, most publicly Tesco with its information exchange. These closed communities offer the advantages of simplification, automation and elimination of problem•areas.Thesharingofinformationproducesthescopetomanagesourcingactivitiesmoreefficientlyandcosteffectively. Going beyond this single retailer approach, however, two major global retail exchanges have recently been •developed: Global NetXchange initiated by Carrefour and Sears Roebuck and World Wide Retail Exchange operated by a large consortium of retailers. These exchanges are aiming to be globally integrated retail supply chain networks, leveraging the Internet to seamlessly connect trading partners across extended retail supply chains, and have recruited many leading retailers as members. Exchangeshavethepotentialtoaltertradingrelationsthroughthecreationofopensystemsinwhichfirmscan•form short- or long-term relationships with one or many partners. Buyers and suppliers that previously had trouble reaching each other can connect. Suppliers can gain access to more buyers. Buyers can participate easily and view items from multiple suppliers. The electronic interface should lower transaction costs for both buyer and seller, and this transparency will likely drive down prices as well.Whilst exchanges are currently in their initial stages and are basically unproven, though some auctions and •purchasing have taken place, the potential to reduce cost and to streamline supply is clear. Whether organisational issues that restrict potential activities can be overcome is a major issue.

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Stockholding, inventory and store merchandisingFollowingonfromthesourcingofproducts,itispossibletoseeanumberoftimesandcostbenefitstoretailersfrom changes brought about by the use of ecommerce and Internet-based systems in stock allocation and inventory control. For years, this area has been technically complex and amenable to computer-based solutions and current developments extend this approach.

There are potential gains in terms of the volume and location of inventory held and opportunities to better use •data to improve availability. These issues may also encompass the ownership of inventory. It is also important to appreciate that as in some physical retail stores, the product displayed for sale may not be owned by the retailer, nor indeed may it be physically available at the time of purchase. Whilst consumers may accept this in some real stores, will they perceive virtual stores in the same way? It is •possiblethatonekeyhereistheconsistencyandreliabilityoffulfilmentsystems.Homedelivery(ifthatisthe solution) requires a different inventory and distribution system, though as some are showing (for example, Tesco) there may be an opportunity to utilise existing assets. An ancillary component of this area of stockholding and replenishment is that of changing needs for, and from, •physical space and retail property. Rather differently perhaps, merchandising becomes a considerable issue with e-commerce. How should virtual stores look? Can catalogues be replicated directly online, or are there other, better ways to present the same products? Therearemanypotentialopportunitiesanddifficultiesinvirtualretailingproductrepresentationandinformation.•There may also be synergies, however (for example, digital photography), between virtual (computer), virtual (catalogue) and physical shop product presentations.

The marketing effort including branding One fundamental impact upon retail processes is that of customer access and the marketing effort, in general. E-retailing and the virtual store provides a 24 hrs shopping opportunity and in theory widens the store catchment area from the local to global level. Thus, the traditional retail boundaries of store reach are changed both temporally and geographically. Customer access issues then become the ability to get ‘‘on-line’’ and the ability to pay rather than mobility, that is, it is a more ‘‘pure’’ marketing requirement in that spatial (trading) issues become reduced in importance, although access issues remain.

Whilst the current debate surrounding the payment process has concentrated upon security issues and consumer •perceptions of on-line payment risks, most now see this as a short-term barrier. In the longer term, and in respect to social exclusion issues, access to a payment card is more likely to determine usage rates. Whilst not minimising this social issue, it would appear that e-retailing does provide a bigger potential market for companies, though one that has many more potential competitors. Aseconddimensionofcustomeraccessistheaccesspointitself.Mostretailingoccursthroughfixedstores,with•existing operators having ‘‘sunk’’ investments in physical fabric. The importance of location has been stressed in traditional retailing. The physical location of a store is seen as a source of competitive advantage, provides crucial entry barriers to competitors and is in most cases an expensive asset—yet the use of these access points and their commercial value may require major reassessment in an e-retailing context. We have already seen the power of e-commerce to remove entry barriers through the appearance of retailers •suchasAmazon,whohavenohistory(andlegacy)offixedstoreretailing.However,thebrandpowerofexistingretailers should not be underestimated as a draw in the virtual world. There are also changes that the Internet brings to the property market itself. There are changes in the demand for property and particular forms of property. This encompasses both store and distribution facilities. As a recent report has stated, this area is unclear at the moment, but it is likely that commercial risks in this area will increase. In-store marketing activities are only one dimension of the marketing effort. E-retailing again provides the scope for significant changes in theway the retailmarketing function is•performed. Many commentators argue that as there is an issue of consumer trust to be overcome when dealing with a virtual retailer, brand building is crucial—yet a range of alternative strategies also appear to be in place. Questionsconcerningthetransferabilityofabrandbaseduponafixedstoreenvironmentarise,andperhapsmore importantly over the maintenance and development of an on-line brand either in isolation or in tandem with a store-based operation.


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Other marketing issues revolve around micro-level activities. On one hand the more individualised data collection •generatedbythesesystemsprovidestheopportunityformorerefinedsegmentationandtargetingofactivities.Yet on the other hand, the established mechanisms built around in-store ambience such as sight, smell, touch and human contact (how many times are we told that retailing is a people business?) are lost.Whilst some skills and activities may be easily transferred to the virtual shop it is clear that new skills, systems •and activities will be required to support the marketing activityIn some cases, the activities will be required amongst computers and involving, for example, intelligent agents. •It is possible that different marketing skills will be needed in a virtual store. Retailers are concerned to get consumers to visit their physical stores and to extend, in many cases, the time they •spend in the store. Repeat visits and long stays are also desirable in the virtual world. The techniques to improve the ‘‘stickiness’’ of virtual stores may, however, have to be different to those in the real world. However, some techniquesfromthevirtualworldmayfindtheirwayintophysicalshops,asdataisbetterusedtounderstandproduct cross-relationships.

Customer selection, picking and paymentOnce the customer has ‘‘reached’’ the virtual store, retailing processes change traditional selection and picking activities.Theintroductionofself-servicesawcostefficiencygainsforretailersastheeffort(andcosts)ofselectionand physically picking product, along with certain process associated with payment in some retail sectors, i.e., bag packing, were transferred from the retailer to customers.

E-retailingseparatesmoreclearlyordercapture(orselection)fromorderfulfilmentanddivertsphysicaltasks•and their associated costs back to the retailer. The costs of these tasks and the way they are performed become an issue for the retailer, and indeed is one of the major cost implications of the new business model. In addition, self-service allowing the customer to select goods themselves provided the opportunity for activities •to ease selection, make instant replacement or substitution decisions, increase choice and purchase opportunities and created the scope for impulse lines and add-ons, all of which generated additional sales. The way in which such opportunities are realised via e-retailing is certainly different, and arguably less effective, although ‘‘l-click’’ type buying operations are one-way forward to improving the situation from a retailers’ perspective.As noted previously, the decision making of consumers in ‘‘real’’ and ‘‘virtual’’ stores can not be assumed •to be the same and thus will have to be researched very carefully. Similarly, however, retailers may be able to adjust their activities to try to affect demand in different ways. Brynjolfsson and Smith (2000) show how on-line prices were lower but had a wider variation than equivalent product physical store prices, but that the incremental change in prices on-line was much smaller than in physical stores. There will be the development of new learning and possibly new skills in this regard.

Distribution of goods by or to the consumerThegreatestdebate ine-retailing,however,probablyrevolvesaroundthefulfilmentanddistributionprocesses.Supply chain developments have focused upon reducing inventory within the channel and improving service levels. E-retailing again requires existing processes and systems to be reassessed that will exist supply chain processes are appropriate or will new ones be required?

The role of intermediary institutions and facilities are questioned, and from a total channel perspective the •possibilities of disintermediation, with consumers dealing directly with suppliers or, re-intermediation through new types of intermediary being developed, arise. Fundamental issues such as where (manufacturer, depot or store) stock is held and in what volume arise. In •grocery, there is considerable debate over whether product should be held and picked in central distribution centresorinstores.Thescopeforreplicationoftasks,inefficientstocklevelsandreduced(orchanged)labourefficiencyexists.Split systems with some products supplied direct from the manufacturer or depot and others from the store may •be appropriate, as may be shared consolidation centres for certain product groups and retail sectors.

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On the logistics front, many argue that e-retailing will raise customer delivery expectations. The nature of the •product (bulk, fragility, perish ability and so on.) will play some role in the delivery process, as will delivery scheduling issues. In most sectors, the logistics process and associated activities have moved towards fewer large consolidated drops whether to a centralised depot or store. Thein-builtinefficienciesintermsofcostandservicelevelsofalargenumberofdirectdeliveries(tostore)•are recognised. However, e-retailing would appear to reverse or add to this process, requiring a large number of small drops (to the home). In reality these journeys currently take place but the scheduling and cost of this activity is borne by the customer. In an e-retailing system, the management of this process (and possibly the cost) will now be passed on to the retailer.Current business practice suggests that these activities can be outsourced and it is argued that courier company •skills rather than ‘‘pure’’ logistics skills will be required. Systems adaptation may involve the creation of a pickup facility either at a store or at some other point such as the workplace that would allow order consolidation and ensure that some of the logistics transportation cost is borne by the customer. This transference of activity from the consumer to the retailer has many problems and remains the subject of •much experimentation and concern. Different models are being implemented by different businesses. No single approach may be right. The cost and congestion implications are considerable as are the ability to meet (or not) expectations of service •quality.Thefiveprocessissuesdiscussedaboveprovideabroadindicationofhowsomeestablishedbusinessprocesses and the associated activities may change are at the very least will require examination. Whilst all these processes and activities take place in existing retail businesses in some form, the diversity of the sector means thatsomeofthe‘‘new’’processes,configurations,systemsandskillsmaybeinplace.Forexample,mailorderoperations will already have knowledge and experience of home delivery. For others, however, a new way of operating and new networks and relationships may be appropriate. The •outcomeoftheseactivityandprocesschangesarenewbusinessmodelsforretailingwhichcouldhavesignificantimpacts upon existing structures. With regard to cost structures, Table 6 illustrates one attempt to highlight the cost structure implications of e-retailing operations. Whilst the model appears simplistic it provides an indication ofthelevelofimpactuponsomecrucialcostfunctionsandemphasisesthepotentiallydifficultissuesformanybusinesses.We can summarise the discussion of the process issues above in the context of activity/process, ownership, •costandefficiency(seeTable5).Itillustratesthechangingbalanceofactivitiesthatretailershavetoperform.There are potential gains to be made from the enhancements in the supply chain, but these could be off-set by cost implications arising at the consumer end of the channel. Similarly,asthedevelopmentofverticalmarketingchannelshadimplicationsforownershipandefficiencyof•established channel activities. Thus, e-commerce too will alter the processes, practices and costs.At a more detailed level the ability of individual retailers to meet these new process challenges becomes key to •understanding the future possibilities. It would seem that retailers need two components of process change to be right to make e-commerce work for them.First,theyneedtobeabletoleveragetheirscaletogaincostand/ortimeefficienciesinsupply.Thiswouldseem•to give an advantage to big retailers or effective small retailers or product specialist exchanges. When customers are prepared to pay the full cost of delivery, this may not be a problem, but in other cases there will be a scale advantage to supply. Secondly, they have to convince consumers of their viability and effectiveness.Strong brand names or category killer depth appear to be the most successful strategies in this regard although, •qualityoffulfilmentwilleventuallydriverepeatbuying.The conclusion from this is that e-commerce does not derail existing retail structural change processes and •may indeed exacerbate them. Whilst there will be some new opportunities for smaller entrants, as there is now, theprocessesdiscussedhereasinherenttoe-commerceornewcommerce,benefitthelargercompaniesinthesector.


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SummaryAnyformofelectronictradingcanhavebusinessbenefitsbyspeedingupthetradingcycle,improvingcash•flow,allowingreductionsinstockdepthwhereappropriate,andeliminatingmanyofthecostsassociatedwithpaper processing and postage.New intermediaries are emerging with expertise in running transportation and payment networks that will be •important in e-retailing. As a process, innovation e-commerce provides the capability to transform traditional tasks and activities, and •the associated costs, within the retail channel. Theretailchannelistraditionallyviewedasaseriesoftasksandflows(information,inventory,payment,and•soon)withspecificfactorstakingresponsibilityforthese.Retail process is considered as comprising the sourcing of products; stockholding, inventory and store •merchandising; the marketing effort including branding; customer selection, picking and payment; and distribution of goods by or to the consumer.E-retailing and the virtual store provides a 24 hrs shopping opportunity and in theory widens the store catchment •area from the local to global level.Once the customer has ‘‘reached’’ the virtual store, retailing processes change traditional selection and picking •activities.

ReferencesDevelopers DevZone, 2011. • Building eCommerce Applications, O’Reilly Media.Daniel, I., 2011. • E-commerce Get It Right! Essential Step-by-Step Guide for Selling & Marketing Products Online. Insider Secrets, Key Strategies & Practical Tips - Simplified for Start-Ups & Small Businesses, NeuroDigital Samat, S• . Director of Product Management at Google, e-Commerce for Retailers [Video online] Available at: <http://www.thinkwithgoogle.com/insights/library/videos/e-commerce-for-retailers/>. [Accessed 20 December 2011].Skyline2, 2006• . E- commerce. [Video online] Available at: <http://www.youtube.com/watch?v=43kRAgmulug>. [Accessed 20 December 2011].Herman, G., 2001. • E-Commerce [Online] Available at: <http://www.keywordsassociates.com/page.phtml?category=reports&id=17&msg=REPORTS>. [Accessed 20 December 2011].DMSRetail, • Retail Information Technology for Non - IT Retail Managers. Available at: <http://www.dmsretail.com/erp.htm>. [Accessed 2 December 2011].

Recommended ReadingBakos, Y., • The Emerging Landscape for Retail E-Commerce. Stern School of Business. Burt, S. and Sparks, L., • E-commerce and the Retail Process.Entrepreneur Press and Arden, L., 2009. • Start Your Own E-Business. 2nd ed, Entrepreneur Press.

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Self Assessment________isaproductofthewidespreadavailabilityoftheInternet.1.

E-commercea. Retailingb. IT managementc. Electronicsd.

Which of the following is not a driver pushing the development of Internet-based e-commerce?2. Replacing technologya. Reducing the cost of salesb. Pressure to expand into new marketsc. Fear of new technologyd.

Which of the following is not one of the characteristics of new commerce?3. New managerial ideas support innovation processes.a. Customer loyalty is a central concept in new commerce.b. New commerce uses new forms of non price competition.c. New commerce companies operate through single marketing channel.d.

___________ is considered as comprising the sourcing of products; stockholding, inventory and store4. merchandising.

Retail processa. IT managementb. Electronicsc. E-commerced.

Which of the following is not one of the implication of e- commerce?5. Sourcing of customersa. Sourcing of productb. Stock holdingc. Store merchandisingd.

Which of the following provides a 24 hrs shopping opportunities?6. Retailinga. IT managementb. Electronicsc. E- retailingd.

Which of the following is false?7. It is possible that different marketing skills will be needed in a virtual store.a. E-retailing provides the scope for significant changes in the way the retail marketing function is b. performed.Traditionalretailingseparatesmoreclearlyorderselectionfromorderfulfilmentanddivertsphysicaltasksc. and their associated costs back to the retailer.Self-service allows the customer to select goods themselves provided the opportunity for activities to ease d. selection.


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Which of the following is true?8. Supply structures in new commerce are intermediated in new ways.a. Channel structures in new commerce are substantial in new ways.b. Supply structures in new commerce are preferred in substantial ways.c. Channel structures in new commerce are intermediated in new ways.d.

The_____________istraditionallyviewedasaseriesoftasksandflowsofinformation,paymentandsoon.9. IT managementa. electronicsb. e-commercec. retail channeld.

The roles of new__________will also include providing trust relationship, ensuring the integrity of the10. market.

retailera. supplierb. intermediariesc. wholesalerd.

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Chapter IV

IT in Distribution Channel

Aim


explain supply chain•

highlight the importance of distribution channel management•

explain the importance of IT in retail store management•

Objectives


explain the stages of supply chain•

explain major channels of distribution with the help of diagram•

elucidate warehouse operational activities•

Learning outcome


understand the components of supply chain•

defineVMI•

explai• n EDI


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4.1 IntroductionAsupplychainconsistsofallpartiesinvolved,directlyorindirectly,infulfillingacustomerrequest.Thesupplychain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves. Within each organisation, such as manufacturer, the supply chain includes all functions involved in receivingandfillingacustomerrequest.Thesefunctionsinclude,butarenotlimitedto,newproductdevelopment,marketing,operations,distribution,finance,andcustomerservice.

Consider a customer walking into a Wal-Mart store to purchase detergent. The supply chain begins with the •customer and their need for detergent. The next stage of this supply chain is the Wal-Mart retail store that the customervisits.Wal-Martstocksitsshelvesusinginventorythatmayhavebeensuppliedfromafinished-goodswarehouse that Wal-Mart manages or from a distributor using trucks supplied by a third party. The distributor in turn is stocked by the manufacturer. The P&G manufacturing plant receives raw material •from a variety of suppliers who may themselves have been supplied by lower tier suppliers. For example, packaging material may come from Tenneco packaging while Tenneco receives raw materials to manufacture the packaging from other suppliers.Asupplychainisdynamicandinvolvestheconstantflowofinformation,product,andfundsbetweendifferent•stages. In our example, Wal-Mart provides the product, as well as pricing and availability information, to the customer. The customer transfers funds to Wal-Mart. Wal-Mart convey point-of-sales data as well as replenishment order via trucks back to the store. Wal-Mart •transfers funds to the distributor after the replenishment. The distributor also provides pricing information and sendsdeliveryschedulestoWal-Mart.Similarinformation,material,andfundflowstakeplaceacrosstheentiresupply chain.In another example, when a customer purchases online from Dell Computer, the supply chain includes, among •others, the customer, Dell’s Web site that takes the customer’s order, the Dell assembly plant, and all of Dell’s suppliers and their suppliers.The Web site provides the customer with information regarding pricing, product variety, and product availability. •Having made a product choice, the customer enters the site to check the status of the order. Stages further up thesupplychainusecustomerorderinformationtofilltheorder.Thatprocessinvolvesanadditionalflowofinformation, product, and funds between various stages of the supply chain.These examples illustrate that the customer is an integral part of the supply chain. The primary purpose from the •existenceofanysupplychainistosatisfycustomerneeds,intheprocessgeneratingprofitsforitself.Supplychainactivitiesbeginwithacustomerorderandendwhenasatisfiedcustomerhaspaidforhisorherpurchase.The term supply chain conjures up images of product or supply moving from suppliers to manufacturers to •distributors to retailers to customers along a chain. It is important to visualise information, funds, and product flowsalongbothdirectionsofthischain.Thetermsupplychainmayalsoimplythatonlyoneplayerisinvolvedat each stage. In reality, a manufacturer may receive material from several suppliers and then supply several distributors. Thus, most supply chains are actually networks. It may be more accurate to use the term supply network or supply web to describe the structure of most supply chains.A typical supply chain may involve a variety of stages. These supply chain stages include:•

Customers �Retailers �Wholesalers/Distributors �Manufacturers �Component/Raw material suppliers �

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4.2 Components of Supply ChainSupply chain strategy is divided into two categories, namely, operational excellence and customer closeness. The formerfocusesonsupplysideefficiency,dependabilityandreliabilityastheyreflectthetotalsupplychainefficientand effective in operation, the total cost reduction. The latter highlights on the agile supply chain to cope with demandoncustomersideandbestmeettherequirements.Theflexibility,proactivequality,value-addingservice,and dependability are the main focus, which needed the intensive communication.

Business Strategy

Supply Chain Strategy

Supply Chain Capabilities and Combination

Supply Chain Performance

Business Strategy

Supply Chain Strategy

Supply Chain Capabilities and Combination

Supply Chain Performance

Overall Cost Leadership Versus Differentiation

Operational excellence versus customer’s closeness

Low logistics costs, availability, coverage, speed, value added customer service

Cost and productivity versus customer service and proactive quality

Components Examples:

Fig. 4.1 Components of supply chain

4.3 Distribution ChannelDistributionchannelmanagementisverycriticalfor thefirmswhentheydecidetoenteroneormoremarkets.Distributionchannelstructuresarenotdifficulttochange;however,primarywrongdecisionsmightleadtodreadfulresults for the organisations. In accordance with Gattorna and Walters (1996), depict that distribution channel management follows a structured approach, using criteria, which help to evaluate optional channel structures during which alignment (compatibility), trade-offs and channel relationships are considered.


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Increasingly,therolesoflogisticsservicefirmsareincludedinthedecisionprocessfordistributionchannel,especiallywhen they are a dominant element within the supply chain. All products whether consumer products, industrial products or services require the use of distribution channel. To describe more about distribution channel, present thatadistributionchannelconsistsofthegroupofpeopleandfirmsinvolvedinthetransferoftitleofproductsmovefromproducertofinalconsumerorbusinessuser.

Mostinternationalfirmswouldprefertorunadirectchanneldistributionhowever,insteadthefirmsthemselvesareforced to use intermediaries and most distribution channels consider and consist of middlemen. A channel that has onlyproducerandfinalcustomer,withnomiddlemenprovidingassistanceiscalleddirectdistribution,whereasachannelofproducer,finalcustomer,andatleastonelevelofmiddlemenrepresentsindirectchannel.Themostcommon distribution channels for consumer goods can be seen from Fig. 4.2, which illustrates major channels of distribution.

Producers of consumer goods

Ultimate Consumers

Retailers

Merchant Wholesaler

Agents Agents

Merchant Wholesaler

RetailersRetailersRetailers

Fig. 4.2 Channels of distribution

Producer to Consumer:• The shortest, simplest distribution channels for consumer goods involve no middlemen. Producer to Retailer Consumer• : Goods ship directly from manufacturers and agricultural producers to large retailers.Producer to Wholesaler to Retailer Consumer:• If there is a traditional channel for consumer goods, this is the onenormalway.Thesmallretailersandmanufacturersbythethousandfindthischanneltheonlyeconomicallyfeasible choice.Producer to Agent to Retailer to Consumer:• Instead of using wholesaler, many producers prefer to rely on agent middlemen to reach the retail market, especially in large-scale retailers.Producer to Agent to Wholesaler to Retailer to Consumer:• To reach small retailers, producers often use agent middlemen, who in turn call on wholesalers that sell to large retail chains/or small retail store. After designing achannel,nextthingthatfirmsmustconsideris,ontheintensityofdistributionwhichmeanshowmiddlemenwill be used at the wholesale and retail level in a particular territory. There are three degrees of intensity as shown in the following Fig 4.3:

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Distribution through every

reasonable outlet in the

market

Distribution through multiples

but not all, reasonable outlets

in the markets

Distribution through a single

wholesaling middleman and/or retailer in market

Fig. 4.3 Intensity of distribution continuum

Intensive distributionIn intensive distribution producers sell their products or services through each available store in the market where consumers might reasonably look for the products or services by projecting the ultimately consumers demand satisfactionfromconveniencegoodsimmediately,andtheywillnotadjournpurchasestofindaparticularbrand.

Intensive distribution is commonly needed for convenience products and as well as, it is stated that it is usual to •use intensive distribution with, for instance, everyday use products and it also obtains for consumable industrial products such as abrasives, lubricants, drill bits, and so on. Moreover, they mention that the objective of the vendors are to offer convenience, which mean local and •easily obtainable, availability for the reason that the pattern of purchasing is typically short-term with end user maintaining low (or nil) inventories.

Selective distribution In this kind of distribution, producers sell their products through multiple wholesalers and retailers (but not all possible) in a market, where consumers might reasonable look for it. It usually involves a limited number of intermediaries within a limited market area.

Therefore,withthistypeofdistribution,thefirmdoesnothavetodissipateitseffortsovertoomanyoutlets.•This means that selective distribution enables producers to gain adequate market coverage with more control and less cost than intensive one. Examples of consumer goods, which are appropriate for selective distribution arevarioustypesofclothingandappliances,officeequipments,DVDs,computersandcamerasandsoon.Selective distribution covers the broad and wide area of the market exposure between intensive and exclusive •distribution and moreover in the selective distribution is selling through only those middlemen who will give the product special attention.

Exclusive distribution In exclusive distribution, suppliers agree to sell their products only to a single wholesaling middleman and/or retailer inagivenmarketanditisjustanextremecaseofselectivedistribution,whichisthefirminsellingthroughonlyone middleman in particular geographic area.

Thepartnershiprequiresmutualsupportindevelopingsalesandsupportingservicestothefinaluserssuchas•maintenance plan and emergency service requirements. They also mention that exclusive distribution is found for the customer product groups of which large inventories are required to offer consumers a wide selection. This kind of distribution is used when producers be interested in to maintain and control over their service level •and service outputs offered by the retailers.


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4.4 WarehousingNew cars can be stored outside on the dealer’s lot, fuel oil can be stored in a specially designed tank, coal and other raw material can be stored in open pits but most products must be stored inside protective building. According to Higginson and Bookbinder (2005), “Warehouses store all products in four cycle (receive, store, pick and ship)”.

Firm can decide and select among the different kinds of specialised storing facilities, and the right choice might •assistthefirmreducingcostsandservingcustomerbetter.Theuseofspecifictypeofthesestoringfacilitiesisaimedtoreduce/cutcostsandsmooththedistributionas•well as operation to enhance service level to the customer. Private warehouses is a storing facility owned or leased by the company for its own use, additionally, most manufacturers, wholesalers, and retailers have some storing facilities whether in their main building or in different separate location.Firms use private warehouse when a large volume of goods and products must be stored regularly, nonetheless •privatewarehousecanbeexpensiveindealingwiththechangesneedsasitmightbedifficultorimpossibleforthe extra space to rent to others. Public warehouse is an independent storing facility. Public warehouse usually provides all services that a company’s own warehouse can provide. They also cite •that public warehouses are functional and useful for manufacturers who are required to maintain stock in many differentlocations.Thefirstandmostsignificantreasonforusingpublicwarehouseisfinancial;itrequiresnoor limited capital investment by the company.

4.5 Warehouse Operational ActivitiesPerreault and McCarthy (2003) has mentioned that more competitive markets, improved technology, coordination amongfirms,andefficientnewdistributioncenters,thosebringsuchahugeimprovementtophysicaldistribution,(physical distribution or PD is a common name for logistics, which provides time and place utility and make possession utilitypossible),areasandyetbiggestchallengesmaybemorebasic.Astorage/orderfulfilmentorwarehouse/DCoperation has the following activities:

Receiving operation• - This operation means receiving goods and products from the transport network into the warehouseandatthereceivingoperationpoint,theinboundcarrierisscheduledtodeliverthegoodataspecifictimesoastoimprovewarehouselabourproductivityandunloadingefficiency.Theitems/SKUarecheckedagainst the purchase order (P/O) in this process;Put-away operation• : This process involves identifying the product, typically scanning the product’s barcode, identifieslocationfortheitemsandmovingtheproductsandgoodstotheappropriatelocation.Furthermoreinthisoperation,depositandwithdrawalinaninventoryprogramofidentifiedstorageorpickpositionsandupdatinginventoryfileaswellasinventorycontrol(suchasaSKUinventorycyclecount,andsoon)needed.Order-picking process: • In order-picking process requires warehouse personnel to select the items ordered by the customer or manufacturing operation from the storage place or area.Shipping process• : The process concerns with loading goods for shipping to the customer or to the production line.Thefinalmovementprocessoccursattheshippingoperation.Afteroutboundcarrierarrivesattheloadingdock, the goods and products are moved to the loading dock from the staging area and into the carrier’s vehicle Lastly,thewarehouseinformationsystemwillupdatetheinformationreflectingtheremovalofthegoodsandproducts from warehouse inventory, the shipment of products to the customer (Coyle et al., 2003). It facilitates the process of shipping.

4.6 Warehouse Management System (WMS)Lots of companies are implementing warehouse management system that assists the warehouse manager in controlling various warehouse operations, and track inventory or service to the customers at the lowest possible operational costs.WMSisthecomputersoftware,whichtracks,plans,controls,analyses,andrecordstheflowofgoodsandproducts through warehouse or DC.

Additionally,iteasestheflowsinmanyways.WarehousetypehasdifferentSKU,customerorderandinformationflowsthatarethefoundationsforafuturewarehousewithWMSprogram.

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4.7 Electronic Data Interchange (EDI)AnotherinformationtechnologythathasamajorroleforthefirminhelpingtheflowofinformationisElectronicData Interchange. This EDI has been used in transportation industry more than twenty years by mainly large shipping and railroad companies, freight forwarders, trucking companies, and others.

EDI is an approach that puts information in a standardised format, which is easy to share between different •computer systems. Besides, the purchase orders, shipping reports, and other paper documents are replaced with computerised system. EDI itself is a simple concept through which information is retrieved, translated in a standard format message; subsequently it is transmitted through a network to the seller. Then the seller will interpret the message back into his/her in-house format and submit the message to the sales application automatically. Companies using internet and companies using EDI are believed to be at least 1:10 out of the total companies and •this fact is acknowledged as a huge potential for using internet as a communication method in communicating businessinformationbetweenfirmsinthefuture.WithEDI,customerscantransmittheirorderinformationdirectly to suppliers’ computer. Therefore, EDI makes communication easier for suppliers and customers and obviously shorten order cycle time. There are three components of EDI which are:

EDI Enabling Software �Communications and Networks �Standard Messages �

HavingEDI-Enablingsoftware inorder to translate incoming/outgoingmessage toa specific formatwhile•two components, communications and networks, and standard messages, ensure the electronic communication between the partners, so that the involved computers can exchange information in the highly demanding structure.

4.8 Vendor Management Inventory (VMI)Different industries and market sectors have given different terms for VMI, but most are based essentially on the same idea is that VMI is a supply chain strategy where the vendor or supplier is given the responsibility of managing the customer’s stock. For clarity the terms distributor for the customer in the VMI relationship and manufacturer for the supplier or vendor in the VMI relationship will be used.

Vendormanagedinventory(VMI)isoneofthemostwidelydiscussedpartneringinitiativesforimprovingmulti-firmsupplychainefficiency.Continuousreplenishmentorsupplier-managedinventorywaspopularisedinthelate1980’sby Wal-Mart and Procter & Gamble (P&G). VMI became one of the key programs in the grocery industry’s Quick Response.

It is stated thatvariouspublishedaccountshaveexplainedVMIbenefits that range fromcheapernewproductintroductionstoreducedreturnsatproductendoflife,buttheliteratureoftenfailstoexplainjustwhythesebenefitshave resulted from VMI.

4.9 IT for Retail Store Management IT-Application for Retail Store Management Strategic management views technology as a source for creating sustainable competitive advantages. It is stated that technology can change the structure of an industry by setting up entry and exit barriers. There are three basic types of technology:

Cais technology has no impact on the industry structure as any player in an industry can use it without any •problems. It represents simple technologies. The example of information technology in distribution is a fax machine, which can be used for information transmission, order transmission, and so on; Keytechnologyhasahugeimpactespeciallyinaspecificsituationinamarket.Noteveryplayercanorhas•applied this type of technology. One example of key information technology for distribution is the EDIFACT-standards that allow paperless communication between distribution process members;Pacemakertechnologyhaspotentialtoinfluencethecompetitivesituationofanindustry.Referringtodistribution,•RFID or eXite are counted and used as relevant pacemaker information technology.


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For instance, IT in the form of in-store media assists and helps to achieve in increasing the average time spent in the store and the number of aisles visited and so on. Even so, there are electronic price systems and information systems which are been used within a retail store.

Whenever prices of products are changed, the price tags have to be replaced. The mentioned activity refers to an assortment, which can take time; moreover, it is not an error-free activity. By using electronic shelf labels, retailers canavoidtheseinconveniencesbyexecutionfrombackoffice,whichcanbetransmittedusingradiofrequencytotheshelves.Thisisnotonlyleadstoefficientuseofmanpowerinthestore,butalsoincreasecustomersatisfactionas the prices shown on the shelves are the same prices as shown at the cashier desk.

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SummaryAsupplychainisdynamicandinvolvestheconstantflowofinformation,product,andfundsbetweendifferent•stages.Supply chain strategy is divided loosely into two categories, namely, operational excellence and customer •closeness.Distributionchannelstructuresarenotdifficulttochange;however,primarywrongdecisionsmightleadto•dreadful results for the organisations.EDI is an approach that puts information in a standardised format, which is easily to share between different •computer systems.With EDI, customers can transmit their order information directly to suppliers’ computer.•VMI is a supply chain strategy where the vendor or supplier is given the responsibility of managing the •customer’s stock.Vendor managed inventory (VMI) is one of the most widely discussed partnering initiatives for improving •multi-firmsupplychainefficiency.It is stated that technology can change the structure of an industry by setting up entry and exit barriers.•

References Dr. Bharadwaj, S. • Distribution and Channel Management [pdf] Available at: <http://nptel.iitm.ac.in/courses/IIT-MADRAS/Management_Science_II/Pdf/1_4.pdf>.[Accessed21December2011].The Retail Distribution Channel• . [pdf]Available at: <http://media.wiley.com/product_data/excerpt/45/EHEP0006/EHEP000645.pdf>. [Accessed on 21 December 2011].UtahStateCES, 2010. • Distribution Channel. [Video Online] Available at: <http://www.youtube.com/watch?v=IhkdSi6_5MY>.[Accesses21December2011].Euromonitor, 2011• . How Retailing Changes are Effecting the Distribution of Beauty and Personal Goods. [Video Online] Available at: <http://www.youtube.com/watch?v=GGTX2B1471c>. [Accessed 21st December 2011].Gorchels, L., West, C. and Marien, E. J., 2004. • The Managers Guide to Distribution Channel, McGraw-Hill Professional.Developers DevZone, 2011. • Building eCommerce Applications, O’Reilly Media.

Recommended ReadingLewis, R., 2010. • The New Rules of Retail: Competing in the World’s Toughest Marketplace, Palgrave Macmillan.Gorchels, L., 2004. • The Manager’s Guide to Distribution Channels, McGraw-Hill.Rolnicki, K., 1998. • Managing Channels of Distribution: The Marketing Executive’s Complete Guide, AMACOM.


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Self Assessment___________isdynamicandinvolvestheconstantflowofinformation,product,andfundsbetweendifferent1. stages.

Supply chaina. ITb. Advertisementc. Retailingd.

Which of the following stage is not included in supply chain?2. Customers a. Retailersb. Wholesalersc. Stored.

Which of the following is not a component of supply chain?3. Business strategya. Supply chain strategyb. RFID in supply chainc. Supply chain performanced.

Allproductswhetherconsumerproducts,industrialproductsorservicesrequiretheuseof_____________.4. distribution channela. storesb. retailingc. e- commerced.

Whatisachannelthathasonlyproducerandfinalcustomer,withnomiddlemencalled?5. Direct distributiona. Indirect channelb. Indirect distributionc. Direct channeld.

Which of the following producers sell their products or services through each available store in the market?6. Intensive distributiona. Selective distributionb. Exclusive distributionc. Direct distributiond.

Which of the following suppliers agree to sell their products only to a single wholesaling middleman and/or 7. retailer in a given market?

Intensive distributiona. Selective distributionb. Exclusive distributionc. Direct distributiond.

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Which of the following is not included in the storage cycle of products in warehouse?8. Receivea. Distributeb. Pickc. Shipd.

Match the following:9.

1. Receiving operation a. Requires warehouse personnel to select the items ordered by the customer or manufacturing operation from the storage place or area.

2. Put-away operation b. Means receiving goods and products from the transport network into the warehouse

3. Order-picking process c. Concerns with loading goods for shipping to the customer or to the production line.

4. Shipping process d. Involves identifying the product, typically scanning the product’s barcode

1-b; 2-d; 3-a; 4-ca. 1-b; 2-c; 3-d; 4-ab. 1-b; 2-a; 3-d; 4-cc. 1-a; 2-c; 3-b; 4-dd.

___________isanapproachthatputsinformationinastandardisedformatwhichiseasytosharebetween10. different computer systems.

RFIDa. Distribution channelb. EDIc. IT managementd.


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Chapter V

Supply Chain Management

Aim


definelogisticinbusinessmodel•

explainsupplychainforindividualfirm•

introduce the supply chain management model•

Objectives


elucidate the marketing and economic reasons for SCM•

explainclassificationofITinSCM•

describe IT in supply chain management•

Learning outcome


understand e-commerce and SCM•

recognise virtual enterprise and SCM•

identif• y strategic planning for IT in SCM

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5.1 Introduction Logistical activities have always been vital to organisations, so business logistics and supply chain management represents a synthesis of many concepts, principles, and methods from the more traditional areas of marketing, production, accounting, purchasing, and transportation, as well as from the disciplines of applied mathematics, organisational behaviour, and economics. As logistics system improved, consumption and production began to separate geographically.

Efficient logisticssystemsallowworldbusinesses to takeadvantageof thefact that lands,andthepeoplewhooccupy them, are not equally productive. Logistics is the very essence of trade. It contributes to a higher economic standard of living for us all.

Totheindividualfirmoperatinginahigh-leveleconomy,goodmanagementoflogisticsactivitiesisvital.Marketsareoften national or international in scope, whereas production may be concentrated at relatively few points. Logistics activities provide the bridge between production and market locations that are separated by time and distance.

5.2 Logistic in Business Model Business logistics is a newfield of integratedmanagement study in comparisonwith the traditionalfields offinance,marketing,andproduction.Asknown,logisticsactivitieshavebeencarriedoutbyindividualsformanyyears.Businessesalsohavecontinuallyengagedintransportationactivities.Thenewnessofthefieldresultsduetocoordinated management of the related activities, rather than the historical practice of managing them separately, and the concept that logistics adds value to products or services that are essential to customer satisfaction and sales. Logisticsisalsoconcernedwiththeflowofservicesaswellasphysicalgoods,anareaofgrowingopportunityforimprovement. It also suggests that logistics is a process, which includes all the activities that have an impact on making goods and services available to customers when and where they wish to acquire them.

Supply chain management (SCM) is a term that captures the essence of integrated logistics and even goes beyond it. Supply chain management emphasises the logistics interactions that take place among the functions of marketing, logistics,andproductionwithinafirmandthoseinteractionsthattakeplacebetweenthelegallyseparatefirmswithintheproduct-flowchannel.Opportunitiesforcostorcustomerserviceimprovementaregainedthroughco-ordinationand collaboration among the channel members, where some essential supply chain activities may not be under thedirectcontrolofthelogistician.Supplychainmanagementisabouttheco-ordinationofproductflowsacrossfunctionsandacrosscompaniestoachievecompetitiveadvantageandprofitabilityfortheindividualcompaniesinthe supply chain and the supply chain members collectively.


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The supply chainThe Global Environment

Intercorporate Co-Ordination (Functional Shifting, Third Party Providers,

Relationship Management, Supply Chain Structures)

Supply Chain Flows

Products

Services

Information

Financial Resources

Demand

Forecasts

customer satisfaction/

value/ profitability/competitive advantages

Supplier’s Supplier supplier Focal FirmCustomer’s Customer Customer

Marketing................................................................Sales................................................................

Research and Development................................................................Forecasting................................................................Production................................................................Purchasing................................................................Logistics................................................................

Information Systems................................................................Finance................................................................

Customer Service

Interfunctional Coordination (Trust, Commitment, Risk, Dependent Behaviour)

Fig. 5.1 A model of supply chain management

5.3 Supply Chain for Individual Firm Logistics/SC is a collection of functional activities (transportation, inventory control, and so on) which are repeated manytimesthroughoutthechannelthroughwhichrawmaterialsareconvertedintofinishedproductsandconsumervalue is added. Because raw material sources, plants, and selling points are not typically located at the same places and the channel represents a sequence of manufacturing steps, logistics activities recur many times before a product arrives in the marketplace.

Even then, logistics activities are repeated once again as used products are recycled upstream in the logistics channel.

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Transportation Transportation

Transportation

Transportation

Warehousing

Warehousing

Customers

Information flows

Factory

vendors/plants/ports

Fig. 5.2 The immediate supply chain for individual firm

Asinglefirmgenerallyisnotabletocontrolitsentireproductflowchannelfromrawmaterialsourcetopointsofthefinalconsumption,althoughthisisanemergingopportunity.Forpracticalpurposes,thebusinesslogisticsfortheindividualfirmhasanarrowerscope.Usually,themaximummanagerialcontrolthatcanbeexpectedisoverthe immediate physical supply and physical distribution channels.

Thephysicalsupplychannelreferstothetimeandspacegapbetweenafirm’simmediatematerialsourcesanditsprocessingpoints.Similarly,thephysicaldistributionchannelreferstothetimeandspacegapbetweenthefirms’processing points and its customers. Due to the similarities in the activities between the two channels, physical supply (more commonly referred to as materials management) and physical distribution comprise those activities that are integrated into business logistics.

Business logistics management is now popularly referred to as supply chain management. Others have used terms such as value nets, value stream, and lean logistics to describe a similar scope and purpose.

5.4 Information Technology in Supply Chain Management Recently the concepts of supply chain design and management have become a popular operations paradigm. This hasintensifiedwiththedevelopmentofinformationandcommunicationtechnologies(ICT)thatincludeelectronicdata interchange (EDI), the Internet and World Wide Web (WWW) to overcome the ever-increasing complexity of the systems driving buyer–supplier relationships.

The complexity of SCM has also forced companies to go for online communication systems. For example, the Internetincreasestherichnessofcommunicationsthroughgreaterinteractivitybetweenthefirmandthecustomer.Graham and Hardaker (2000) highlighted the role of the Internet in building commercially viable supply chains in order to meet the challenges of virtual enterprises. Philip and Pedersen (1997) attempted to study the ways in which the business community harnesses EDI with the help of a literature survey based on the application. Armstrong and Hagel (1996) argued that there is beginning of an evolution in supply chain towards online business communities. For example, General Electrics trading process network is an online business community that allows the company to transact about $1 billion dollar worth of business with their suppliers located all over the globe.


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Big three auto makers in the US are in the process of Supply chain management emphasises the overall and long-termbenefitofallpartiesonthechainthroughco-operationandinformationsharing.Thissignifiestheimportanceof communication and the application of IT in SCM. This is largely caused by variability of ordering.

Information sharing between members of a supply chain using EDI technology should be increased to reduce uncertainty and enhance shipment performance of suppliers and greatly improve the performance of the supply chain system.

Companies need to invest large amount of money for redesigning internal organisational and technical processes, changing traditional and fundamental product distribution channels and customer service procedure and training staff to achieve IT-enabled supply chain (Motwani et al., 2000). The following problems are often cited in the literature both by the researchers and practitioners when developing an IT-integrated SCM:

lack of integration between IT and business model•lack of proper strategic planning•poor IT infrastructure•insufficientapplicationofITinvirtualenterprise• inadequate implementation knowledge of IT in SCM •

There is no comprehensive framework available on the application of IT for achieving an effective SCM. Considering the importance of such a framework, an attempt has been made in this paper to develop such a framework based on a more systemic literature review.

5.5 Classification IT of SCM This classification has the objective of bringingout pertinent factors thatwould support practitioners in theirefforts to successfully achieving an IT-enabled SCM. This literature survey is aimed to identify the critical success factors for the applications of IT in SCM, integration of partners/ suppliers and IT, B2B e-commerce in SCM, and forsuccessfulimplementationofITinasupplychain.Theclassificationisbasedontheimplicationsofstrategicdecisions, potential areas of IT applications in SCM, and the level of interaction between various constituents in developing an effective supply chain. For example, virtual enterprise and SCM are inseparable objectives. Therefore, the role and the development of virtual enterprise have been brought up into while studying the applications of IT in SCM. Similarly, e-commerce is one of the key enabling technologies for achieving an effective SCM and knowledge management(KM)isessentialinInternet-enabledSCM.Nevertheless,implementationissueshavebeensignificantin achieving the full potential of IT in SCM.

5.5.1 Strategic planning for IT in SCMCompanies are now focusing on the strategic planning with the objective of developing long term plans and changes to their organisation and in turn to improve their competitiveness. Planning for strategies require top management involvement taking into account both external and internal factors to an organisation. Strategic planning of IT should supportthelong-termobjectivesandgoalsofSCMbothintermsofflexibilityandresponsivenesstochangingmarketrequirements. For example, IT will facilitate quick partnership formation by making available the right information and hence developing a virtual enterprise.

Organisational restructuring may be required if a company decides to go for an enterprise resource planning (ERP) systems such as SAP, Oracle, Peoplesoft, and BAAN with the objective establishing an effective supply chain. There are also other potential implications such as investment in IT and reengineering business process, market orientation, technology position and employee relations, and workforce characteristics. The issue of societal implications and knowledge management should be given due consideration in developing strategic planning for ITinSCM.However,itisessentialtoprioritisestrategicdimensionsthatinfluenceITinSCMtakingintoaccountan individual organisational structure.

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Marketing reasonsTocompeteinanewmarket,organisationsneedtobecapableofreconfiguringitsresourcestomeetthechangingrequirements. This requires organisations to have an effective supply chain or physically distributed enterprises. However, there is a need to address the alignment between operations strategy and IT strategy.

Astrategicalignmentmodelforamanufacturinginformationsystemthatspecificallyaddressestherequirements•of leveraging the emerging developments in information technologies would be useful. AccordingtoHo(1996),firmsarenowcapabletodesigningadevelopingITplatformsascompetitiveweapon•as a fraction of the cost that prevailed only a few years ago. The second issue is the increased connectivity capabilities over time.Webster (1995) draws upon the insights developed within the sociology of technology, in which innovation is •not simply a technical-rational process of solving problems; it also involves economic and political processes in articulating interests, building alliances and struggling over outcomes.

Economic reasonsThe market is the driving force for any changes in an organisation. Market factors such as customer requirements, competitors and price, force organisations the way they manage their operations. For example, companies select IT enabled SCM in order for companies to compete in a networked economy wherein you have to compete in a globalmarketbymultiplecompetitiveperformanceobjectivessuchasprice,quality,flexibility,responsivenessanddependability.

Theeconomicreasonshereisthecostreason.Thoughflexibilityandresponsivenessareimportantinorderto•compete in a global and networked market, the cost still plays an important role in being competitive. In order to reduce the cost of production, companies have implemented the concept of SCM with a view to •eliminatenonvalue-addingactivities.IThelpstoimprovetheaccurateinformationflowandinturnaccuratedecisions to support the business process in an effort to meet the changing market requirements.Availability of resources locally make some companies to opt for global outsourcing and this again demands •an IT-enabled SCM with a view to overcome lack of resources.Adaptability and previous experience of both data processing management and the user managers will be crucial •for the planning and implementation of new systems.However, the top management support and due investment in training and education are essential for successful •application of IT in SCM. Talluri (2000) presented a multi-objective model that incorporates both tangibles and intangibles criteria for evaluation of IT/information systems for SCM. Hismodelintegratesfourcriticalperformancemeasures,suchas,flexibility,quality,timeandcost.Thefocus•on economic reasons have been misunderstood and misread due to lack of models and framework for decision making on IT in SCM.

Organisational IssuesStrategic planning of IT in SCM includes organisational issues such as organisational structure, awareness of topmanagement, business processes, strategic alliances, and information technology that influence theoverallperformance of IT-enabled SCM. Considering the organisations business and top level strategies, suitable information systems should be selected with a view to support the application of IT and in turn to develop an effective supply chain.

Since the current enterprise structure is complex in nature and therefore, there is a need for an effective IT •system to manage the system in a more productive manner. Total quality management (TQM) requires teamwork, collaborative supported work, training and education in value adding processes. The application of multimedia willenhancethecommunicationandhenceagooddecisionsupportsystemthatisflexibleandresponsive.Thisis an interesting article wherein the author integrates the issues of TQM with IT in SCM.The value chain, that is the chain of activities that creates customer value are interrelated. Business strategies •require the organisation to change. IS can be a supportive facilitator of change––extending and enhancing organisation choice and improving the quality of decision, Henderson and Venkataraman (1993) proposed a comprehensive framework of IS strategic alignment incorporating four fundamental domain of strategic choice: business strategy, IT strategy, organisational infrastructure and processes, and IT infrastructure and processes.


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Nevertheless, the strategic human aspects have been ignored. Organisational design for IT-enabled SCM is •ratherflexibleasittakesthestructuredependinguponthebusinessnatureandstrategicalliancesincludingthecharacteristics of the market and business processes.

Organisational forms that have neither too little nor too much structure �Organisations that have an adaptive culture with semi-structures use real-time communications �

Technological Strategic planning involves decisions that affect the long-term performance of an organisation. For example, lack of IT in an organisation can make the organisation obsolete and not to qualify being as one of the partners in a virtual enterprise.Themarketcharacteristicshavechanged;itwouldbedifficult tosurviveinaglobalmarketwithoutan IT-enabled SCM. IT helps to improve collaborative- supported work using different automation that includes computer-aided design/computer-aided manufacturing (CAD/CAM) and CIM. Using e-business technologies and hence ultimately providing a fully integrated e-business process can integrate activities along the value chain.

Integration of the physical processes and e- businesses applications is essential to achieve an effective SCM. •They proposed method to help clarify a strategic e-business vision and to solicit management commitment to change and on new business opportunities. This also takes into account the unique possibilities of organisations IT architecture, this further advancing the value of past investments in IT. Strategic consideration of IT-enabled SCM is important since companies are interested in long term survival •and success with the objective of meeting changing market requirements. Global market and competitiveness center around global outsourcing and partnership and these signify the ICT-integrated SCM. The risk of not having IT enabled SCM is enormous both in terms of survival and productivity of an organisation. •For example, competitor action influences the strategies of each otherwhether in terms of strategies ortechnologies. Therefore, strategic planning of IT enabled SCM is important in the development of a supply chain.

5.5.2 Virtual Enterprise and SCMVirtualenterprise (VE)/virtualorganisation(VO) isbasedondevelopinganetworkofcollaborativefirmswithnecessarycorecompetenciesforreachingthemarketontimewithrightproducts.Developinganetworkoffirmsrequires a communication system to achieve a co-operative supported work. This could be achieved by utilising various telecommunication technologies. IT is so important in developing and operating a VE/VO.

Virtual enterprise is a network of independent companies, often former competitors, who come together quickly •to exploit fast-changing opportunities. The business partners are integrated using information and communication technology. Virtual Corporation is the industrial strategy for structuring and revitalising the corporation for the 21st century. The extended enterprise and the virtual enterprise can be seen in the context of enterprise partnerships, designed •to facilitate co-operation and integration across the value chain. Some of the key factors in virtual enterprise development are IT-enabled SCM, partnership, virtual enterprise and supply chain, and virtual enterprise and IT. The literature available on virtual enterprise for SCM has been reviewed using these factors with the objective •of identifying critical success factors for the development of VE.

PartnershipGrowth of networking, both human and technological creates a virtual world with virtual products and services, virtual workplaces and virtual organisations. The virtual products and services are produced, delivered and sold through electronic networks. It is contradicted that the managerial and cultural aspects of strategic partnerships in logistics involving such issues as openness to innovation and trust are just as critical as IT.

Virtual team and supply chainThe design, manufacture and delivery of a product require ever-higher levels of knowledge and expertise within the supply chain. Virtual teaming is the most appropriate mechanism to examine the relationship between all parties along the value chain, created across a distributed supply chain, with members separated geographically.

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In principle, virtual teaming could allow joint commitment, feelings of mutuality, trust and creativity and rapid •decision making to operate within a supply chain.Virtual team needs to be built by concentrating on process, teaming and technology factors. However, experience •from other IT-based initiatives is that technology will be concentrated onto exclusion of other factors.

Virtual Enterprise and ITVirtual enterprise is based on strategic alliances of partners based core competencies. The partners may be dispersed geographically either nationally or internationally. It becomes more complicated to integrate partners with different objectives and platforms to function.

This could be achieved by suitable enterprise resource planning systems including e-commerce and IT for a •co-operative supported work in such a virtual enterprise environment.Without IT, one could hardly imagine a virtual enterprise development. A supply chain-wide information •infrastructure is used to directly disseminate relevant market information throughout the chain as a whole, avoiding a loss of time. Information is used for long-term innovation and enhanced customer relationship.

5.5.3 E-commerce and SCME-commerce can take a variety of forms such as EDI, direct link-ups with suppliers, Internet, Intranet, Extranet, electronic catalogue ordering, and e-mail. To support the inter-organisational sharing of resources and competencies in network structure, communication and co-ordination need to be maintained. E-business is the establishment of a computer network to search and retrieve information in support of business decision making and inter-organisational cooperation.

The Internet helps to manage supply chain activities by offering information about what kind of product is •demanded, what is available in the warehouse, what is in the manufacturing process, and what is entering and exiting the physical facilities and customer sites. Forexample,ERPsystemssuchasSAP,viaExtranetsconnectnotonlydifferentfunctionswithinafirmbutalso•amongthefirmssupplychainpartners(thatis,suppliers,distributors,andthirdpartylogistics(3PL)providers),enabling the partners to share information such as order status, product schedules, and sales records, to integrate major supply chain processes and to plan production, logistics and marketing promotions.

PurchasingTheincreasedpopularityofe-commerceisduetoamultitudeofoperationalbenefitsitcanbringtopurchasingpractices.Examplesofthesebenefitsarecostsavingsresultingfromreducedpapertransactions,shorterordercycletime and the subsequent inventory reduction resulting from speedy transmission of purchase order related information, and enhanced opportunities for the supplier/buyer partnership through establishment of a web of business-to-business communication networks. E-commerce is changing the competitive environment in a number of ways:

reshaping buyer-supplier relationships, •improving core business processes, •providing electronic intermediation,•reaching new segments and markets•

OperationInternet trade is not without problems for the supplier. They also discuss several issues of co-operation, building trust,confidenceandsecurity;andtheneedforaregulatoryandlegalframework.Nowadays,collaborativenetworkofpartnersismorepopularwithcompaniesthanbeforetobeflexibleandresponsivetochangingmarket/customerrequirements.

These collaborative networks of partners are emerging to support business to consumers (B2C), B2B and government to citizen interactivity through Intranet. There are numerous web-based exchanges that connect buyers and suppliers inreal-timehavingasignificantimpactonprocurementandsupplychainmanagement.MostoftheB2Bactivityfalls under the sphere of portals that dynamically match buyers and sellers or e-procurement, where buyers and sellers are aggregated.


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5.5.4 Infrastructure for IT in SCMInfrastructure for IT in SCM consists of Internet connectivity, hardware and software including application systems integration. Nevertheless, training and education cell for IT is important to fully utilise the IT available for SCM. There are different IT platforms and systems available to enable the application of IT in SCM. Walsh and Koumpis (1998) presented a decomposable, autonomous agents approach was adopted to specify information supply chain agents (for example, suppliers, buyers, distributors, and so on), including their structural relationships, interaction protocolsandco-ordinationpoliciesabsorbedforthebenefitofSCM.

Organisational Adaptation of e-business infrastructure involves deep level changes that affect core elements of an organisation, including mission, vision, business strategy, goals, culture, technology, training and policies. The organisational infrastructure requirements include topmanagement involvement, strategicfitness of IT,major players in theorganisation (power brokers), IT skills available, and so on.

AnorganisationshouldbealearningunitsothattheITcanbeabsorbedforthebenefitofSCM.Theinfrastructurefocuses on resource planning, teamwork, process improvement tools and techniques, and information management, training and development, and performance measurement. The information systems for supply chain management should be accessibility, compatibility, user-friendly, stability and reliability, minimal training and strong after-sales service. Within the scope of the business needs, the business architecture offers the possibility to choose the best IT solutions.

TechnologicalThe industrial revolution that took place in the past decade can be traced to technological innovation such as the Internet and the web. Subsequently, ERP systems have played a major in developing SCM. Also, developments in hardware and telecommunication technologies have occurred in order to meet the rising demands from companies.

The ERP systems represent an optimum technology infrastructure that when integrated properly with a process-oriented business design can support the supply chain management systems effectively.

Lau and Lee (2000) propose an infrastructure of a supply chain information system, focusing on the component module necessary for the building up of such a system with a description of the creation of these modules.

Theproposedsupplychainembracestheconceptofdistributedobjecttechnologytoenableefficientdataexchangeamong various data objects that may reside in distributed platforms over geographically isolated regions. SAP R/3 has been widely implemented to create value-oriented supply chains that enable a high level of integration, improve communication within internal and external business networks, and enhance the decision-making process.

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Summary Efficientlogisticssystemsallowworldbusinessestotakeadvantageofthefactthatlands,andthepeoplewho•occupy them, are not equally productive.Businesslogisticsisanewfieldofintegratedmanagementstudyincomparisonwiththetraditionalfieldsof•finance,marketing,andproduction.Supply chain management (SCM) is a term that captures the essence of integrated logistics and even goes •beyond it.Thephysicalsupplychannelreferstothetimeandspacegapbetweenafirm’simmediatematerialsourcesand•its processing points.The complexity of SCM has also forced companies to go for online communication systems.•Planning for strategies require top management involvement taking into account both external and internal •factors to an organisation.The issue of societal implications and knowledge management should be given due consideration in developing •strategic planning for IT in SCM.Tocompeteinanewmarket,organisationsneedtobecapableofreconfiguringitsresourcestomeetthechanging•requirements.Market factors such as customer requirements, competitors and price force organisations the way they manage •their operations.The value chain, that is the chain of activities that creates customer value are interrelated.•Strategic planning involves decisions that affect the long-term performance of an organisation.•

References Anderson, S., Chapman, M., Goodner, M. And Rekasius, R., 2003. • Supply Chain Management, [pdf] Available at: <http://www.ws-i.org/SampleApplications/SupplyChainManagement/2003-12/SCMUseCases1.0.pdf>. [Accessed 20 December 2011]. Zigiaris, S., 2000, • Supply Chain Management. [pdf]Availableat:<http://www.urenio.org/tools/en/supply_chain_management.pdf>.[Accessed20December2011].Hume, J., 2003, • Business Guide to a Sustainable Supply Chain [pdf] Available at: <http://www.nzbcsd.org.nz/supplychain/SupplyChain.pdf>. [Accessed 20 December 2011].MIT, 2008. • Lec 1 Special Topics in Supply Chain Management [Video Online] Available at: <http://www.youtube.com/watch?v=IqmrNUoiy7g>. [Accessed 23 December 2011].MIT, 2008. • Lec 2 Special Topics in Supply Chain Management [Video Online] Available at: <http://www.youtube.com/watch?v=djrhQK-dBx0>. [Accessed 23 December 2011].

Recommended Reading Hugos, M.H., 2011. • Essentials of Supply Chain Management, 3rd ed., Wiley.Balnchard, D., 2010. • Supply Chain Management Best Practices, 2nd ed.,Wiley.Martin, J.,2006. • Lean Six Sigma for Supply Chain Management, McGraw-Hill Professional.


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Self AssessmentWhich of the following represents a synthesis of concepts, principles and methods from traditional areas of 1. marketing?

Retailinga. E-commerceb. Supply chain managementc. Productiond.

Business____________isanewfieldofintegratedmanagementstudyincomparisonwiththetraditionalfields2. offinance,marketing,andproduction.

retailinga. logisticsb. commercec. marketingd.

______________isatermthatcapturestheessenceofintegratedlogisticsandevengoesbeyondit.3. Supply chain managementa. Retailingb. E-commercec. Marketingd.

Which of the following refers to the time and space gap between the firms’ processing points and its4. customers?

SCMa. Distributionb. Physical distribution channelc. Retailingd.

Which of the following is not a problem while developing an IT-integrated SCM?5. Poor IT infrastructurea. Lack of proper strategic planningb. Lack of marketc. Lack of integration between IT and business modeld.

______________willbecrucialfortheplanningandimplementationofnewsystems.6. Adaptabilitya. Supply chain managementb. E-commercec. Knowledge managementd.

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Which of the following statements is false?7. The market is the driving force for any changes in an organisation.a. Market factors such as customer requirements, competitors and price force organisations the way they b. manage their operations.Firms are now capable to designing a developing IT platforms as competitive weapon as a fraction of the c. cost that prevailed only a few years ago.To compete in a new market, organisations need to be capable of sticking to traditional resources to meet d. the changing requirements.

Which one of the following is not one of the four critical measures in the model developed by Talluri?8. Quantitya. Flexibilityb. Timec. Costd.

_____________involvesdecisionsthataffectthelong-termperformanceofanorganisation.9. Supply chain managementa. E-commerceb. Knowledge managementc. Strategic managementd.

Which of the following statements is false?10. The design, manufacture and delivery of a product require ever-higher levels of knowledge and expertise a. within the supply chain.Virtual enterprise is based on strategic alliances of partners based on core competencies.b. A supply chain-wide information infrastructure is used to directly disseminate relevant market information c. throughout the chain as a wholeTime is used for long-term innovation and enhanced customer relationship.d.


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Chapter VI

Operation Strategy for Internet

Aim


introduce strategy planning•

explain production of operating system•

enlist the types of strategy•

Objectives


elucidate the customer service management•

explain the requirements for customer service•

describetheconfigurationandchangemanagement•

Learning outcome


understand the customer satisfaction•

recognisebenefitsofcustomersatisfactiontotheprovider•

identify• thebenefitsofcustomerservicemanagement

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6.1 Introduction Strategy is one of the most over-used words in the business dictionary. Yet, surprisingly, there is no agreement on what the term actually means. None challenges its military origin, used with regard to how a commander might deploy his resources (i.e. armed forces) throughout a campaign aimed at achieving a particular objective (for example, conquering territory or thwarting an invasion).

Theideathatabusinessorganisationcouldhaveastrategyseemstohavefirstemergedinthe1960s,whenthetechniquesoflong-termbusinessplanningwerefirstpopularised.Sincethenmanydifferentinterpretationsoftheconcept and practice of strategic management have been developed. Indeed, entire books have been given over to contemplating the nature of strategy. For example, characterise ten ‘schools of thought’ in their consideration of what constitutes strategy.

AwidelyaccepteddefinitionisofferedbyJohnsonetal.(2005),whodefinestrategyas‘thedirectionandscopeofanorganisationoverthelong-term,whichachievesadvantageinachangingenvironmentthroughitsconfigurationofresourceswiththeaimoffulfillingstakeholderexpectations.Initsdeterminationofthelong-termdirectionofanorganisation, strategy involves the interplay of three elements: the organisation’s external environment, its resources and its objectives (in meeting the expectations of its stakeholders).

Operations management is concerned with the organisational resources. However, the way that the operations functions and manages resources, it impact both the way that the organisation interacts with its external environment and its ability to meet the needs of its stakeholders. Thus, operations management is an integral part of an organisation’s strategy.

6.2 Types of StrategyStrategy can be considered to exist at three levels in an organisation, namely, corporate, business and functional.

Corporate

Business

Functional

Fig. 6.1 Levels of strategy in an organisation

Corporate level strategy: • Corporate level strategy is the highest level of strategy. It sets the long-term direction and scope for the whole organisation. If the organisation consists of more than one business unit, corporate level strategy will be concerned with the facts like what those businesses should be, how resources (for example, cash) will be allocated between them, and how relationships between the various business units and between the corporate centre and the business units should be managed. Organisations often express their strategy in the form of a corporate mission or vision statement.Business level strategy: • Business level strategy is primarily concerned with how a particular business unit should compete within its industry, and what its strategic aims and objectives should be. Depending upon the organisation’s corporate strategy and the relationship between the corporate centre and its business units, a business unit’s strategy may be restricted by a lack of resources or strategic limitations placed upon it by the centre. In single business organisations, business level strategy is in sync with corporate level strategy.


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Functional level strategy: • The bottom level of strategy is that of the individual function (operations, marketing, finance,andsoon)Thesestrategiesareconcernedwithhoweachfunctioncontributestothebusinessstrategy,what their strategic objectives should be and how they should manage their resources in pursuit of those objectives.

This is further summarised in the table given below.

Strategy level Key issue

Corporate

What businesses shall we be in?•What businesses shall we acquire or divest?•How do we allocate resources between businesses?•What is the relationship between businesses?•What is the relationship between the centre and the businesses?•

BusinessHow do we compete in this business?•What is the mission of this business?•What are the strategic objectives of this business?•

Function

How does the function contribute to the business strategy? •What are the strategic objectives of the function?•How are resources managed in the function? •What technology do we use in the function?•What skills are required by workers in the function?•

Table 6.1 Types of strategy

6.3 Production of Operating systemOrganisations create value and operations involve tasks that create value. Michael Hammer (2004) maintains that operational innovation can provide organisations with long-term strategic advantages over their competitors.

Regardless ofwhether the organisation is for-profit or non-profit, primarily service ormanufacturer, public orprivate,itexiststocreatevalue.Thus,evennonprofitorganisationsliketheRedCrossstrivetocreatevalueforthe recipients of their service in excess of their costs. Moreover, this has always been true, from the earliest days of bartering to the modern-day corporations.

ConsiderMcDonald’sasanexample.Thisfirmusesanumberofinputs,includingingredients,labour,equipment,and facilities; transforms them in a way that adds value to them (for example, by frying); and obtains an output, suchasachickensandwich,thatcanbesoldataprofit.Thisconversionprocess,termedaproductionsystem,isillustratedinthefigure6.1.Theelementsofthefigurerepresentwhatisknownasasystem:apurposefulcollectionof people, objects, and procedures for operating within an environment.

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Environment

Strategy InputsTransformation Processes Output

Control

Action Action ActionData Data Data

•Customer•Government

•Customer Value

•Vision/Mission•Strategic

Frameworks•Core

Capabilities

•Capital•Materials•Equipment•Facilities•Suppliers•Labour•Knowledge•Time

•Alteration•Transportation•Storage•Inspection

•Facilitatinggoods

•Services

•Measure•Compare•Plan

improvements•Implement

improvements

•Competitors•Technology

•Suppliers•Economy

Fig. 6.2 The production system

Asthefigureaboveillustrates,aproductionsystemisdefinedintermsoftheenvironment,astrategy,asetofinputs,the transformation process, the outputs, and some mechanism for controlling the overall system. The strategy includes such elements as what customer’s value, the vision and mission of the organisation, an appropriate framework to execute this vision, and the core capabilities of the organisation.

Theenvironmentincludesthosethingsthatareoutsidetheactualproductionsystembutthatinfluenceitin•someway.Becauseofitsinfluence,weneedtoconsidertheenvironment,eventhoughitisbeyondthecontrolof decision makers within the system. For example, a large portion of the inputs to a production system are acquired from the environment. Also, government regulations related to pollution control and workplace safety affect the transformation system. •Theenvironmentexertsagreatdealofinfluenceontheproductionsystem.Because the world around us is constantly changing, it is necessary to monitor the production system and take •action when the system is not meeting its strategic goals.It may be that the current strategy is no longer appropriate, indicating a need to revise the strategy. On the other •hand,itmaybefoundthatthestrategyisfinebutthattheinputsortransformationprocesses,orboth,shouldbemodifiedinsomeway.In either case, it is important to continuously collect data from the environment, the transformation processes, •and the outputs, compare that data to the strategic plan, and if substantial deviations exist, design and implement improvements to the system, or perhaps the strategy, so that results agree with the strategic goals.


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Thinking in terms of systems provides decision makers with numerous advantages. To begin, the systems •perspective focuses on how the individual components that make up a system interact. Thus, the systems perspective provides decision makers with a broad and complete picture of an entire situation. Furthermore, the systems perspective emphasises the relationships between the various system components.Without considering these relationships, decision makers are prone to a problem called sub-optimisation. Sub-•optimisation occurs when one part of the system is improved to the detriment of other parts of the system, and perhaps the organisation as a whole. For example, if a retailer decides to broaden its product line in an effort to increasesales,thiscouldactuallyenduphurtingtheretailerasawholeifitdoesnothavesufficientshelfspaceor service personnel available to accommodate the broader product line.

Thus, decisions need to be evaluated in terms of their effect on the entire system, not simply in terms of how they will affect one component of the system.

InputsThe set of inputs used in a production system is extremely complex and typically involves many other areas such asmarketing,finance,engineering,andhumanresourcemanagement.Obvious inputs includefacilities, labour,capital, equipment, raw materials, and supplies. Supplies are distinguished from raw materials by the fact that they arenotusuallyapartofthefinaloutput.Oil,paperclips,pens,tape,andothersuchitemsarecommonlyclassifiedas supplies because they only aid in producing the output.

Another very important but perhaps less obvious input is knowledge of how to transform the inputs into outputs. Theemployeesoftheorganisationholdthisknowledge.Finally,havingsufficienttimetoaccomplishtheoperationsis always critical. Indeed, the operations function quite frequently fails in its task because it cannot complete the transformation activities within the required time limit.

Transformation processThe transformation processe is a part of the system that adds value to the inputs. Value can be added to an entity in a number of ways. Four major ways are described here.

Alter:• Something can be changed structurally. That would be a physical change, and this approach is basic to our manufacturing industries where goods are cut, stamped, formed, and assembled, and so on. We then go out and buy the shirt, or computer, or whatever the good is.

But it need not be a separate object or entity; for example, what are altered may be us. We might get our �hair cut, or we might have our appendix removed.Other, more subtle, alterations may also have value. Sensual alterations, such as heat when we are cold, or �music, or beauty may be highly valued on certain occasions. Beyond this, even psychological alterations can have value, such as the feeling of worth from obtaining a college degree or the feeling of friendship from a long-distance phone call.

Transport:• An entity, again including ourselves, may have more value if it is located somewhere other than whereitcurrentlyis.Wemayappreciatehavingthingsbroughttous,suchasflowers,orremovedfromus,such as garbage.Store: • The value of an entity may be enhanced for us if it is kept in a protected environment for some period oftime.Someexamplesarestockcertificateskeptinasafe-depositbox,ourpetboardedatakennelwhilewego on vacation, or ourselves staying in a hotel.Inspect:• Last, an entity may be more valued because we better understand its properties. This may apply to something we own, plan to use, or are considering purchasing, or, again, even to ourselves. Medical exams, elevatorcertifications,andjewelleryappraisalsfallintothiscategory.

Thus, we see that value may be added to an entity in a number of different ways. The entity may be changed �directly, in space, in time, or even just in our mind. Additionally, value may be added using a combination of these methods.

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To illustrate, an appliance store may create value by both storing merchandise and transporting (delivering) �it. There are other, less frequent, ways of adding value as well, such as by “guaranteeing” something. These many varieties of transformations, and how they are managed, constitute some of the major issues to be discussed in this text.

OutputsTwo types of outputs commonly result from a production process:

Services •Products •

Generally, products are physical goods, such as a personal computer, and services are abstract or nonphysical. However,thisclassificationmaybemoreconfusingthanhelpful.Forexample,considerapizzadeliverychain.Does this organisation produce a product or provide a service? If you answered “a service,” suppose that instead of delivering its pizzas to the actual consumer, it made the pizzas in a factory and sold them in the frozen-food section of grocery stores.

Clearly, the actual process of making pizzas for immediate consumption or to be frozen involves basically the same tasks, although one may be done on a larger scale and use more automated equipment. The point is, however, that bothorganisationsproduceapizza,anddefiningoneorganisationasaserviceandtheotherasamanufacturerseemsto be a little arbitrary.

In addition, both products and services can be produced as commodities or individually customised. We avoid this ambiguity by adopting the point of view that any physical entity accompanying a transformation that adds value is a facilitating good (for example, the pizza). In many cases, of course, there may be no facilitating good; we refer to these cases as pure services.

6.4 Customer Service Management (CSM) ThediscussionintheprevioussectionpointedoutthattheCNMapproachisnotsufficienttoaddressthecriticalissues. Therefore, we promote a service and platform independent Customer Service Management service (CSM service) that enhances service management of providers towards their customers.

6.4.1 Requirements for Customer Service The CSM service has to be part of the provider’s service management and has to offer functionality on all functional areas of management that seem reasonable for a given service:

Configuration and change management Thisprovidesfunctionalitytoaccessserviceconfigurationdetails,theabilitytochangetheconfiguration(andtheassociated QoS parameters) and the complete service ordering process, including (un)subscribing services and subservices.

Fault and performance management: This facilitates monitoring and controlling of QoS parameters and SLA violations,especiallytheautomaticnotificationonproblems(bytheprovider)

Theinformationprovidedhastobemeaningful,up-to-dateandadequate.Thus,ithastoreflecttheSLAsand•the QoS parameter that have been negotiated. The information has to be useful especially in situations where problems and/or failures affect the quality of the service. In this case, the CSM service must help to detect the source of the problem disregarding organisational and management domains as well as areas of responsibilities. The information has to be presented by means of adequate visualisation techniques, and it must be possible to integrate the information into the management platforms of the customer.Allinformationandfunctionalityhastobeprovidedbymeansofviewsthatarefreelyconfigurablebythe•provider for each customer and each service. This ensures that only relevant information in a suitable granularity is passed on, and appropriate action can be taken by the customer.


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Figure 6.2 depicts the CSM service, which can be implemented by means of a dedicated, service-independent •CSM platform that is run by the provider and acts as an intermediary between the provider’s service management and the customer’s management.

CSM platform

Management Systems

Management Systems

TTS

TTS

Network and System Mgmt. platform

Network and System Mgmt. platform

Tool

Tool

Service level agreement service provisioning

e.g. LAN-Service

e.g. WAN-Service

provides service(s)

uses service(s)

provisioning of mgmt- information

aggregation and views

monitoring of QoS parameters

CSM service

Customer

Provider

service management

QoS

Fig 6.3 Integration of CSM system

In comparison to the CNM approach, our CSM service allows for monitoring and controlling. The information providedconsistsofvaluable,meaningful,condensedandcustomer-specificinformationthatclearlyreflectstheSLAs, not network devices or end systems. The service-oriented approach allows for the applicability on arbitrary servicesasopposedtotheCNMapproach,whichistechnology-specific.ThededicatedCSMplatformsetsupasecure and scalable environment for implementing this CSM service.

6.4.2 Benefits for Provider Someofthebenefitsfortheproviderarementionedbelow:

One face to the customer:• The CSM service offers one interface to all customers that have subscribed the service.Itoffersanefficientwaytomergeanddistributeinformationamongstallcustomerson-the-fly.Thisimproves response-times and results in better informed customers. The workload on the hotlines and support services is lowered, as many problems can be solved without consulting the provider.Full control over the published information:• As the service is run by the provider, he can decide, which informationtopublish.Inaddition,hecanfreelyconfigurecustomerspecificviewsonthisinformationandprovide the appropriate granularity of information for each customer. He can limit and control the actions to be taken by the customer.Integration of workflow management:• DuetotheclearlydefinedinterfacesandSLAs,problemareascanbeassignedtoservicesandthecorrespondingprovider.Responsibilitiesareclearandtherelatedworkflowmanagement procedures (such as troubleshooting and escalation procedures) can be triggered automatically.Service life-cycling:• The information collected and provided can be used to optimise resources for a given service. Statistics can be used for network and service planning purposes. Low effort – high impact: At least part of the information is necessary for the provider and has to be collected anyway. Implementing a CSM service that provides subsets of this information to customers costs comparably little resources. The impact is way higher: Increased customer satisfaction and strong bonds make long-term planning easier.

The CSM service is an additional feature of an existing service that clearly distinguishes the provider from his competitors without such a feature; CSM is a competitive advantage in deregulated markets with strong competition.

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6.4.3 Benefits for Customer Someofthebenefitsforcustomerarementionedbelow:

Single source of information:• Alltheinformationnecessaryforthecustomerisavailableonthe-flybytheCSMservice. There is no need to check out the various WWW-servers, news groups, mailing-lists, hotlines, and so on,asitiscommonthesedays.Fault-localisationgetssimplifiedandlesstime-consuming;requestsconcerninga problem that is caused by the provider can be forwarded to the provider.Value added information:• TheCSMservicedeliverscustomer-specific,meaningful,adequateandup-to-dateinformation about the subscribed service. It renders the customer’s ambitions to collect information on the QoS parameters obsolete, as these are available by the provider. The provided information is an indispensable prerequisite to set up value added services on top of an existing service.Increased• service transparency: For the customer, the service becomes more transparent and facilitates end-to-end service management, as the provided information can be integrated into his management facilities.Service-on-demand:• Customerscanconfigurethesubscribedserviceinaprovidercontrolled,restrictedway.Thisimprovestheflexibilityofserviceusageaccordingtothecurrentneeds.

Forthecustomer,theCSMserviceoffersawiderangeofinformationthatisnecessarybutdifficultorimpossibleto collect. It facilitates value-added-services and increases the transparency of the subscribed service.


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Summary Strategy can be considered to exist at three levels in an organisation.•Corporate level strategy is the highest level of strategy.•Business level strategy is primarily concerned with how a particular business unit should compete within its •industry, and what its strategic aims and objectives should be.Thebottomlevelofstrategyisthatoftheindividualfunction(operations,marketing,finance,andsoon)•The transformation processes are the part of the system that adds value to the inputs.•TheCSMserviceoffersoneinterfacetoallcustomersthathavesubscribedtheservice.Itoffersanefficient•waytomergeanddistributeinformationamongstallcustomerson-the-fly.Alltheinformationnecessaryforthecustomerisavailableonthe-flybytheCSMservice.•TheCSM service delivers customer-specific,meaningful, adequate and up-to-date information about the•subscribed service.

ReferencesOperation Strategy and Competitiveness. [pdf]Available at: <http://media.wiley.com/product_data/•excerpt/48/04713472/0471347248.pdf>. [Accessed on 21 December 2011].2003. Operations Strategy, [pdf] Available at: <http://highered.mcgraw-hill.com/sites/dl/free/0070922837/158533/•sample_ch2.pdf>.[Accessedon21December2011].Oracle Video, 2010. • Jeff Epstein. [VideoOnline]Availableat:<http://www.youtube.com/watch?v=-qBpA_xTX6Y>. [Accessed 21 December 2011].4bluehost, 2008, • Internet Strategy. [Video Online] Available at: <http://www.youtube.com/watch?v=wmzjRQCFhQ0 >. [Accessed 21 December 2011].Stallings, W., 2006. • Operating Systems, 5th ed., Pearson Education India. Silberschatz, A., Galvin, P. B. and Gagne, G., 2006. • Operating System Principles, Wiley-India.

Recommended ReadingSlack, N., 2007., • Operations Strategy. 2nd ed. Prentice Hall.Hayes, R.H., 2004, • Operations, Strategy, and Technology. 1st ed. Wiley.Stallings, W., 2009. Operating Systems: Internals and Design Principles, 6th ed., Pearson Education, India.•

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Self AssessmentWhichofthefollowingisdefinedasthedirectionandscopeofanorganisationoverthelong-term?1.

E-commercea. Strategyb. Marketingc. Resourcingd.

Which of the following is not one of the elements involved in strategy?2. The organisation’s external environmenta. Organisation’s resourcesb. Organisation’s objectivesc. Organisation’s internal environmentd.

Which of the following is not one of the level on which strategy exists?3. Corporate levela. Business level b. Market level c. Functional leveld.

____________isprimarilyconcernedwithhowaparticularbusinessunitshouldcompetewithinitsindustry,4. and what its strategic aims and objectives should be.

Corporate level strategya. Business level strategyb. Market level strategyc. Functional level strategyd.

Which of the following statements is true?5. Corporate level strategy is the highest level of strategy.a. Business level strategy is the highest level of strategy.b. Functional level strategy is the highest level of strategy.c. Business level strategy sets the long-term direction and scope for the whole organisation.d.

Which of the following is not one of the ways of transformation process?6. Altera. Transportb. Inspectc. Timed.

Whichofthefollowingisnotoneofthebenefitsforproviderincustomerservice?7. One face to the customera. Full control on the published informationb. Service life cyclingc. Value added informationd.


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Whichoneofthefollowingisnotabenefittocustomerincustomerservice?8. Single source of informationa. Increased service transparencyb. Integrationofwork-flowmanagementc. Service on demandd.

The___________delivers customer-specific,meaningful, adequate and up-to-date information about the9. subscribed service.

CSMa. Operating systemb. Strategic planningc. Operation managementd.

__________areconcernedwithhoweachfunctioncontributestothebusinessstrategy.10. Corporate level strategya. Business level strategyb. Market level strategyc. Functional level strategyd.

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Chapter VII

RFID

Aim


introduce RFID technology •

explain impact of RFID on retailer•

enlist different RFID solutions•

Objectives


elucidate totally integrated opportunities in RFID•

explain value addition of RFID in supply chain•

describe market demand in RFID•

Learning outcome


understand the importance of RFID technology•

recognise the connection of RFID with supply chain•

identify• the role of RFID in improving the retail market


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7.1 Introduction Radiofrequencyidentification(RFID)technologyisusedtotag,identifyandtrackindividualitems,casesandpalletsastheymovefromthemanufacturingfloorthroughthesupplychainandintothehandsofthebuyerorconsumer.As the objects move through the supply chain, wireless RFID readers can communicate with an RFID tag on the object, collect information about the object (such as a unique number) and match that number in a database to access a complete record about the object.

Thisreal-timetechnologyprovidesunprecedentedspeedandaccuracyinthesupplychain.Significantperformanceimprovement in RFID hardware has led to a leap in capability. Drastically improved read rates have made previously untouchable applications effective and economically attractive to users. Access to more accurate and frequent inventory data for both retailers and vendors improves product availability and reduces inventory costs.

Brand authentication technology enables an elegant and highly-effective method for ensuring that a high-value product is the real thing and not a cheap knock-off – protecting both brand and customer satisfaction. Promotional display deployment tracking ensures high-impact marketing and high ROI on marketing dollars. Asset tracking applicationsensureefficientcapitalusageandaccuratebillingforpooledassetslikepallets.

7.2 RFID solutionRFID-enabled item level inventory tracking projects can produce stock availability improvements by more than 50 percent in targeted merchandise categories, with in store labour investments required to manage stock and handle replenishment lowered by as much as 20 percent.

RFID provides the real-time inventory visibility required to react more rapidly to inventory demand and stocking •levels, helping ensure that the right product is available for your customers at the right time. By deploying RFID, fashion retailers can achieve the real-time inventory visibility required to improve the •many aspects of inventory management with very little effort.

For example, a complete manual cycle count may often take days but an employee equipped with a handheld RFID reader or a mobile RFID reader on a cart can take a complete inventory in minutes. In a market characterised by seasonal product with a short shelf life, real-time inventory visibility can create real business advantage.

Ordering is improved through the ‘right now’ ability to see what is truly in stock, enabling more rapid reaction •to inventory demand and stocking levels. High levels of safety stock excess inventory ordered to protect against out-of-stocks can be reduced or •eliminated. Lost sales due to the inability to locate inventory are eliminated, since even items in dressing rooms are visible. Sinceeachproductinaspecificshipmenthasauniqueidentifier,qualityassuranceandcounterfeitprevention•areenhanced improvedaccuracy inpickingandpackingoperations translates into theproper fulfilmentofpurchase orders. Imitation products are easy to spot. •Missingshipmentsthatcanimpacttheassortmentonshelvesarequicklyidentified.•

Point of manufacturer to point of sale- design to destination/ rackWhile consumer packaged goods (CPG) RFID applications began with pallet and case tagging to improve supply chain visibility, industry experts believe that fashion retailers can realise the largest and immediate returns by moving straight to item level tagging with a customer-facing focus. RFID tags applied to each item at the point of manufacture enables the automated and granular tracking of each item from creation to purchase.

As a result, orders are easily tracked all the way through the supply chain; order processing at the distribution levelismoreefficient,counterfeitgoodsinsertedanywhereinthesupplychainareeasytoidentify,andgranularvisibility of items in the retail store ensure that the right item is available at the right time to increase sales and protectprofitability.

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7.3 Impact of RFID on Retailer Interest in RFID technology is driven by the desire of companies to achieve greater speed and visibility into their supplychains,whileincreasingbothoperationalefficiencyandstoreeffectiveness.Anefficientsupplychainoperationensures that goods can be delivered to the place and at the same time consumers are ready to purchase.

Potential gains from the visibility RFID generates include lower inventory levels, reduced labour costs and increased sales—thebottomline:increasedprofitability.Severalmajorretailersandconsumerpackagedgoods(CPG)companieshave designed and deployed successful pilots of EPC-RFID.

Benefitofspeed•Eliminate lost sales due to out of stocks �Speed up store receiving, processing, replenishment and returns processing �Notificationofunitsneededonsalesflooruponstorereceipt �Satisfycustomerrequestsimmediatelybylocatingproductsonsalesfloorandinthebackroom �Faster and more accurate inventory audits �Increaseddistributioncentreefficiencyandaccuracy �

Benefitofvisibility•Unit, carton and pallet-level visibility throughout supply chain �Immediateidentificationofexceptionsatcheckpoints �Visibility to replenish the right product to the right place at the right time �Block receipt of defective and counterfeit merchandise �

The impact of RFID on retailer is as follows:

Real time inventory informationRFID provides retailers with real-time inventory information that can help to prevent stock outs, locate stock within a store to avoid ‘shrinkage’ of inventories, and can help to enable retailers to use more yield effective pricing strategies.

A recent study cited in the Harvard Business Review looked at survey data from 71,000 consumers in 29 •countriestodecipherwhatshoppersdowhentheyfaceastockoutofadesiredproduct.Theresultsconfirmedwhat many retailers feared.Acrosstheentireretailindustrystockoutsonaverage,costeachretailerapproximately4%ofsales.Consumers•are not patient with stock outs; in fact fewer than half will purchase a replacement item, with almost a third goingelsewheretofindtheitem.Acrosstheretailindustrystockoutlevelsremainnear8%,andrepresentakeyissuethatretailershopetoreduce•drastically with RFID. One manufacturer currently using RFID technology to help reduce stock out statistics is Proctor and Gamble. •Paul J Grieger, the director of supply-chain innovation at P&G recently noted that if the company could reduce stockoutlevelsfrom8to10%tomorelike2to3%ofsales,thereturnoninvestmentinRFIDwouldbemorethan pay for itself. Lastly, the use of real time inventory information to track stock will enable retailers to provide a greater level •of service and sales support. Sales associates will be able to see when and where stock will be delivered to a particular store, thus, avoiding the relentless request that customers ‘check back’ to see if an item has been brought into the store.Decreased labour costs• : RFID provides technology that practically eliminates the need for human checking of stock. Labour reductions are realised in the following areas of retail operations; receiving, stocking, check out, cycle counting and physical counting.


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Prevention of theft, shrink and inventory write offs• : Shrink is a retailing term used to describe inaccurate inventory counts as a result of customer theft, employee theft, inaccurate inventory counts due to misplaced items, and stock reordered because items are on a display shelf in another area of the store.

This can assist in theft reduction and also provide real-time accurate inventory counts automatically. �Inventorywrite-offsoccurwhengoodsarenolongerfitforconsumption,thegoodsarenolongerindemand �by consumers, or they have been damaged while in the retailer’s possession. RFID technology offers solutions to track sell-by-dates of each product on the shelf. The collection and utilisation of this information will help retailers maintain a better inventory management �system that can react to demand much more quickly than current systems.

Totally integrated opportunities: • In addition to improving the Supply Chain, the advent of RFID technologies offers retailers new and unlimited marketing opportunities. Tracking a customers’ purchases before they leave the store offers retailers information that can immediately be used for the cross selling other related products.

In-store suggestive selling allows retailers to communicate with shoppers while they are shopping in an �effort to encourage them to buy an additional and/or complimentary item. The implementation of RFID technology offer retailers the ability to change their pricing moment by moment. Real time inventory can allow for automatic price changes to be made depending on the remaining �inventories.Retailers will be able to maximise their yield on high-in-demand items. The concept is similar to the system �of selling airline seats.

7.4 Value Addition of RFID in Supply ChainRFIDadoptionratesattheunitlevel:Tounderstandthis,followingsituationsarecreatedasillustratedinthefigurebelow: necessary for the implementation of RFID technology throughout the supply chain:

Increased Sales

Reduced Stock Outs

Reduction in: •LabourCosts•Waste•Inventory

Carrying Costs•Shrinkage•Recalls•Inventory

Write Off’s

Hardware and

Middleware

Tag Costs

The Economy Regulations Consumer Acceptance

Increase InProfits

Money Saved

Fixed Costs

Variable Costs

Fig. 7.1 Value addition in supply chain

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7.5 Market Demand for RFIDRFID technology has been in existence since the 1950s, yet today’s adoption of RFID in the retail environment is beingstimulatedbyglobalretailgiants;notjustbecauseoftheinherentbenefitsofthetechnology.Retailermandatespushed on manufacturers to adopt RFID chips are forcing compliance, yet until the manufacturing sector integrates RFID to make their supply chain more effective, the implementation of RFID may stall.

Integrated RFID technology not only provides supply chain cost savings, but also provides retailers with •integrated marketing opportunities, and the ability to speed up the service experience in stores. Although truly valuable,neitherofthesebenefitscanberealiseduntilRFIDtagsappearattheunitlevel.As a result, we conclude that widespread adoption of RFID technology will require an evolution in the market •place – ultimately a shift from retailers pushing this technology to manufacturers demanding RFID.As the manufacturing sector adopts RFID and integrates its technology within their existing systems they will •achieve economies of scale, which will reduce RFID tag costs and middleware costs. The evolution of retail market is best illustrated through the diagram below.

Tier One Manufacturer

Tier TwoManufacturer

Tier ThreeManufacturer

Private Label Goods

Tier One Retailers

TODAY

GOINGFORWARD

Tier Two Retailers

Tier Three Retailers

Fig 7.2 Evolution of retail marketplace

7.6 Road Ahead The real-time features of RFID open the way for a variety of innovative applications. This is especially true in retail where having visibility into actions and accuracy of information is critical to speed of execution. Several retail executiveshaveidentifiedpointsinwhichRFIDsolutionswouldincreaseprofitability.Theseinclude:

Scan-based trading (SBT) for merchandise Item-level information that can be leveraged by management•Real-time, supply chain-wide inventory visibility by reading the RFID tags that are incorporated in the •merchandise at the manufacturer, supply chain and store levelsA barrier to the sale and distribution of counterfeit merchandise•An in-store customer service platform and a high-value, in-store selling tool •True integrated retailing, where the inventory in transit, in the distribution centre and in every store could be •leveraged to complete sales.

A barrier to the return of stolen merchandise for cash. �An item-level quality control tool to provide enhanced control over suppliers. �


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Thisisalsoshownwiththehelpoffollowingfigure:

The Store Value Chain

Business Objectives and Measurements

TECHNOLOGY: THE RFID PROCESS

A more profitable store= increased shareholder value

SG&ACOGS/Gross MarginStoreLabourExpense%,

Enable Trading Partner Collaboration

Drive Category Management

Empower Teams

Streaming Store Operations

Motivate Shoppers

Satisfy Customers

Inventory TurnoverSame Store GrowthDays On Hands InventorySales Per Square Foot

ROI/ROA, ROEEBITDA/Net Income $ Per Customer Transaction

Take Cost Out Enable Your People Transform The Experience

Fig 7.3 Store value chain

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Summary RFID technology is used to tag, identify and track individual items, cases and pallets as they move from the •manufacturingfloorthroughthesupplychainandintothehandsofthebuyerorconsumer.Promotional display deployment tracking ensures high-impact marketing and high ROI on marketing dollars.•Assettrackingapplicationsensureefficientcapitalusageandaccuratebillingforpooledassetslikepallets.•RFID tags applied to each item at the point of manufacture enables the automated and granular tracking of each •item from creation to purchase.Anefficient supplychainoperationensures thatgoodscanbedelivered to theplaceandat the same time•consumers are ready to purchase.In-store suggestive selling allows retailers to communicate with shoppers while they are shopping in an effort •to encourage them to buy an additional and/or complimentary item.The implementation of RFID technology offer retailers the ability to change their pricing moment by •moment.Integrated RFID technology not only provides supply chain cost savings, but also provides retailers with integrated •marketing opportunities, and the ability to speed up the service experience in stores.

References Lowry Computer Products, • Keeping Pace with RFID.[pdf]Availableat:<http://rfid.ctu.edu.tw/8_lab/RFID3.pdf> [Accessed 21 December 2011].ThehistoryofRFID,2005.[pdf]Availableat:<http://autoid.mit.edu/pickup/RFID_Papers/008.pdf>[Accessed•21 December 2011].Austio, 2006• . RFID Technology. [Video Online] Available at: <http://www.youtube.com/watch?v=4Zj7txoDxbE> [Accessed 21 December 2011].Datamars, 2009. • Datamars Radio Frequency Identification (RFID) Inventory Tracking System for Party Linens. [VideoOnline]Available at: <http://www.youtube.com/watch?v=8zn2YsUV_x8> [Accessed21December2011].Che• n, R., 2011. International Conference in Electrics, Communication and Automatic Control Proceedings. Springer.Ray, 2010. • Supply Chain Management for Retailing, Tata McGraw-Hill Education.

Recommended ReadingGlover, B., 2006. • RFID Essentials (Theory in Practice). O’Reilly Media.Finkenzeller, K., 2010. • RFID Handbook: Fundamentals and Applications in Contactless Smart Cards, Radio Frequency Identification and Near-Field Communication. 3rd ed. Wiley.Evdokimov, S., Fabian, B., Günther, O., Ivantysynova, L. and Ziekow, H., 2011. • RFID and the Internet of Things: Technology, Applications, and Security Challenges. Now Publishers Inc.

http://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Ran+Chen%22


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Self Assessment________________providesunprecedentedspeedandaccuracyinthesupplychain.1.

Retailinga. E- retailingb. RFIDc. E- commerce d.

Which of the following statements is false?2. Promotional display deployment tracking does not ensure high-impact marketing and high ROI on marketing a. dollars.Asset tracking applications ensure efficient capital usage and accurate billing for pooled assets likeb. pallets.RFID-enabled item level inventory tracking projects can produce stock availability improvements.c. RFID provides the supply chain visibility required to react more rapidly to inventory demand and stocking d. levels.

Which of the following ensures that goods can be delivered to the place and at the time consumers are ready 3. to purchase?

RFIDa. Supply chainb. Distributerc. Wholesalerd.

Which of the following provides technology that practically eliminates the need for human checking of 4. stock?

RFIDa. Supply chainb. Inventory managementc. CPGd.

WhichofthefollowingisnotthebenefitofspeedinimpactofRFIDonretailer?5. Eliminate lost sales due to out of stocka. Faster and more accurate inventory audits b. Block receipt of defective and counterfeit merchandisec. Increaseddistributioncentreefficiencyandaccuracyd.

Which of the following is not an impact of RFID on retailer?6. Real time inventory informationa. Decreased labour costb. Prevention of theft, shrink and inventory write offsc. Value addition to the productd.

__________isaretailingtermusedtodescribeinaccurateinventorycountsasaresultofcustomertheft.7. Customer servicea. Shrinkb. Managementc. Securityd.

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Which of the following can assist in theft reduction and also provide real-time accurate inventory counts?8. Customer servicea. Shrinkb. Managementc. Securityd.

WhichofthefollowingisnotoneofthebenefitsofvisibilityinanimpactofRFIDonretailer?9. Unit, carton and pallet-level visibility throughout supply chaina. Visibility to replenish the right product to the right placeb. Immediateidentificationofexceptionsatcheckpointsc. Satisfy customer requests immediatelyd.

Which of the following can allow for automatic price changes, depending on the remaining inventories?10. Real time inventorya. RFIDb. CSMc. SCMd.


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Chapter VIII

Multi-Channel Retailing

Aim


introduce multi-channel retailing•

explain multi-channel performance for consumer satisfaction•

enlist hypothesis development for consumer satisfaction•

Objectives


elucidatebenefitsofmulti-channelretailer•

explain the growth of the multi-channel retailing•

describe the challenges of multi-channel retailers•

Learning outcome


understand multi-channel retailing•

recognise obstacles in multi-channel retailing•

identify• the various strategies for multi-channel retailing

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8.1 Introduction The number of retailers that adopt a multi-channel strategy to service customers appears to be growing. For instance, retailers, such asBorders,TheLimited,OfficeDepot, andLand’sEndhave engaged in strategic co-brandingalliances with online companies, such as Amazon.com. Firms that provide interchangeable service channels appear increasingly appealing to customers.

Specifically,thetelephoneandtheinternetarefastbecomingfeasiblealternativestothetraditionalface-to-facechannel as they are integrated into multi-channel servicing systems. For customers, the opportunity to use additional service channels may mean more service outputs, convenience, time savings, and reliability, while organisational benefitsincludecross-selling,serviceinnovations,costreductions,customisation,andflexibility.Researchonmulti-channel servicing has left three important issues virtually unaddressed.

First, with a few notable exceptions, studies addressing the relationship between satisfaction with multi-channel •performance and behavioural consequences are rare. Although a recent study by Wallace et al. (2004) reveals that multiple channels operating side-by-side may drive customer patronage, empirical validation of this effect is scarce. Second, while channel performance evaluation behavioural consequence relationships represent relevant issues, •they seem to mask the underlying complexities of a multi-channel service system. Indeed, Reinhartz and Kumar (2000)arguethatthecommonlyobservedsatisfactionbehavioursequencesimplifiesreality.Interactioneffectsbetween multi-channel performance evaluations have not yet received substantial attention in the literature.Third, whereas several studies have formally analysed channel interactions at the aggregate level, recent •evidenceindicatesthatsuchfindingsmaydifferfromindividual-levelresults.Thisislikelyduetocross-sectionalheterogeneitybetweencustomersanddifferencesacrossservicesettings.Therefore,itseemsnecessarytorefinethe understanding of the relationship between customer satisfaction with multi-channel servicing and behavioural intentions by taking into account different levels of aggregation, as well as different customer characteristics and service types.

Today’s consumers are moving away from traditional media and becoming attached to new digital media. These are not mere technology advancements but also cultural, market and behavioural changes among consumers as mobile andInternethaveevolvedastwoofthemostinfluentialmediainrecenttimes.

AccordingtoarecentsurveybyGoogle,itisevidentthatmorethan50%ofthetechnology&lifestyleproductsareresearchedonlinebutpurchasedoffline.Thisgrowingphenomenonisthemajorgrowthdriverformulti-channelretailing practices in India. Right from providing comprehensive catalogues to managing customer relationships, each stage of shopping and brand experience can be enriched to improve in-store sales as well as online sales.

8.2 Multi Channel Performance for Consumer SatisfactionTheservicesliteraturedistinguishesbetweentransactionspecificsatisfactionandoverallsatisfaction:

Thefirstfollowsfromcustomersevaluatingspecificencounters(forexample,thefacetofaceinteractionwith•a service employee).The second represents an overall evaluative judgment emerging on the basis of multiple service encounters.•

Inamulti-channelservicesetting,weconceptualiseoverallsatisfactionasaresultoftransaction-specificsatisfactionwith the performance of the individual channels used.

Similarly, previous research has conceptualised satisfaction as an attitude which is formed by aggregating underlying beliefs and evaluations. These evaluations may pertain to be tangible (that is, physical environment) and intangible (that is, employee behaviour) factors. For the face-to-face channel, it is assumed that satisfaction with the performance oftangibleofficefacilities,aswellassatisfactionwithemployeeperformanceshouldbediscerned.Thesesatisfactionjudgments should be combined with technology-mediated channel satisfaction judgments when assessing overall customer satisfaction with a multi-channel servicing system.


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Another distinction pertains to the nature of the service delivered. Davis (1999) proposes that services should be classifiedalongaroutineornon-routinecontinuum,asdifferentlevelsofreutilisationrequirefirmstofocusondifferent service attributes. Routine services involve standardised procedures with relatively simple decisions, whereas non-routine services require higher customisation and more complex, knowledge intensive procedures.

Customers may have different channel preferences and expectations for different service types depending on their needs and demands, as well as on the capabilities of the service delivery channel. For example, the delivery of non-routinefinancialservices,suchasmortgageandinvestmentconsulting, ismorelikelytoleadtoapositivecustomer evaluation through a face-to-face contact than routine services, such as credit applications, for which customers increasingly use internet banking.

8.3 Hypothesis Development for Consumer SatisfactionPrior research on consumer satisfaction and behavioural consequence frameworks has resulted in a substantive body of evidence concerning the direct effects of customer satisfaction on behavioural intentions. The theoretical rationale, often left implicit in the literature, can be derived from Bagozzi’s (1992) appraisal-emotional response-coping framework.

This framework suggests that perceptions of customers (that is, appraisals) may trigger customer satisfaction (that is, affective response), which in turn stimulates the development of future favourable behavioural intentions (that is, coping), often directed at maintaining satisfaction levels. Furthermore, it has been argued that given the relatively high degree of perceived risk associated with services, the post-evaluation of an actual experience forms an important antecedent of consecutive behaviour.

There will be a positive relationship between customer satisfaction with service retailer employee performance •and behavioural intentions for non-routine and routine services.There is a positive relationship between online satisfaction and loyalty and the satisfaction–loyalty relationship •isstrongeronlinethanoffline.Givenacertainleveloftechnologicalsophisticationandtrainingofstaff,bothchannels should be able to be used effectively. Therefore, there will be a positive relationship between customer satisfaction with e-service performance and behavioural intentions for non-routine and routine services.There will be a positive relationship between customer satisfaction with telephone service performance and •behavioural intentions for (a) non-routine and (b) routine services.

Besides the unique effects of channel performance satisfaction on behavioural intentions, combined effects are hypothesised as below:

First,satisfactionisexpectedwithe-serviceperformancetoinfluencetheemployeeperformancesatisfaction–•behavioural intentions relationship. Two, lines of reasoning may hold. First, the web can reduce information asymmetry and facilitate information •exchangebetweenfirmandcustomer.Baueretal.(2002)findthatasatisfactorye-functionalityimpliesthatboth customers and employees have more and easier access to information.Customer satisfaction with e-service performance will strengthen the positive effect of customer satisfaction •with service retailer employee performance on behavioural intentions for non-routine and routine services.

8.4 Benefits of Multi-channel Retailer AstrongmultichannelretailingstrategyoffersbenefitsthatcanextendbeyondInternet&mobilesalestostreamliningin-store ordering processes and increasing sales through cross-selling and up-selling.

Thekeybenefitforretailersofbeingmultichannelisthatitgivesthemmoreopportunitiestogettheirproductinfront of customers whom they wouldn’t have been able to reach with a single channel. This allows them to increase revenuesandprofitability,whichisfundamentallywhatbeinginbusiness,isallabout.Customerloyaltyisoneofthebiggest challenges in today’s retail market regardless of whether you’re a single or multichannel retailer, therefore, the more opportunities you have to get customers engaged with your product, the bigger your advantage. Consumers are now bombarded with so many messages persuading them to buy products, if retailers don’t take this seriously; they are effectively conceding defeat to the opposition.

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Multi-channel retailing helps in fostering customer engagement and, thus, empowering the retailer to communicate an extensive variety of product and promotional information to remain competitive. Few of the many envisaged benefitsofMCRare:

Overcome the limitations of existing format•Expanding market presence•On-demand self service storefront means 24/7 virtual salesman•Ability to capture and analyse the insights into customer shopping behaviour•Testing products before stocking them•Cross-channel strategies increase sales conversion•Enhance overall experience to foster loyalty•

8.5 Growth of Multichannel RetailingRetailers are increasingly leveraging their presence across channels - catalogue, web, stores, call centre and kiosks - to increase their share of the customer’s wallet and expand across consumer segments. Recent studies of consumershoppingbehaviourindicatethatmulti-channelshoppersshowasignificantlyhighervalueandfrequencyofpurchasethansinglechannelshoppers.Over65%ofonlineshoppersalsousecataloguesand60%ofretailersfound multi-channelcustomersmoreprofitablethansinglechannelbuyers.

8.6 Challenges of Multichannel RetailersRetailers face several obstacles as they attempt to integrate their web, call center and catalog operations with the full-line store business.

Organisation structures•Organisational leadership, structures, objectives and metrics that align responsibilities by channel, which �canbepotentiallyconflictingFear of channel cannibalisation from disparate business units �Incentives and commission programs that are not designed to promote cross-channel selling �

Merchandising and inventory management•Inconsistent merchandising direction across channels �Lackofintegratedmerchandising,orderfulfillmentandinventorymanagementprocesses �Limited visibility into inventory across channels resulting in poor synergies for cross channel selling �Lack of aggregation of demand across channels to seek economies of procurement and better vendor �terms

Customer operations•Inconsistent customer experience and branding across channels �Lack of common understanding of customers and their shopping habits across channels �Lack of customer loyalty due to low cost of switching and inability to extend loyalty programs/incentives �across channelsDisparate views of the customer and customer interactions across multiple channels �Limitedavailablemetricstocaptureprofitabilityofmulti-channelcustomers �

Technology•Multiple databases of disaggregated customer and order data �Substantial investments to integrate disparate enterprise systems �Multiple order and inventory management systems by channels resulting in lack of a single source of truth, �order and inventory visibility strategies for multi-channel retailing.


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8.7 Strategies for Multi-Channel RetailingMulti-channel retailers have developed strategies that begin wit h a customer centric perspective and build an organisation structure to support change. The implementation of this strategy involves a complex organisational change process and IT strategy to support a common merchandise hierarchy, centralised order management capability andcentralisedcustomerandinventorydatabases.Anintegratedmulti-channelretailingstrategyentailssignificantchange that includes:

Organisation structuresMost store and catalogue/web operations are likely to have different merchandising and inventory planning organisation structures. Some of the aspects that need to be considered while integrating stores and direct channel organisation structures are:

Need to maintain single or multiple merchandising and inventory management organisations for different sales •channels to determine merchandising direction.Definerelevantperformancemetricstoevaluatebusinessfunctions.•Manageownershipandaccountabilityforcategoryperformanceandprofitability.•Ensurethattheneworganisationstructuredoesnotimpedetheflexibilityanddynamicresponsivenessofthe•Internet business.

Business processesBusiness processes such as demand planning, assortment selection and offer management can vary by channel. However, there are synergies in some business processes that can be harnessed as stores and direct channels integrate. These include:

PeopleAside from empowering the staff to make decisions that are in the best interests of customers, it is important that sales incentive and commission programs be structured to promote employee collaboration across channels.

TechnologyIt is imperative that retailers invest in building open standards and scalable technology architectures that provides ease of integration with incumbent systems. Integrating item and customer databases and building centralised inventory and order management applications are critical towards servicing the needs of a multi-channel business.

Supplier relationshipsA significant opportunity exists tomake consolidated buying decisions, seek economies of scale and bettersupplier terms if there is a high degree of merchandise overlap across channels. Although some metrics of supplier performance may vary by sales channel, synergies can be harnessed through a corporate level supplier compliance and performance management program.

Customer relationship managementSignificantopportunityexists toanalysecustomerdataandpresentcompellingofferings to retainand increasecustomershareofwallet.Trendsinpersonalisation-providingcustom-fitapparel,presentingmulti-lingualcontenton the websites etc - should be adopted to attract and retain customers through an enriching channel experience.

8.8 The Infosys Approach for Multi Channel CommerceThe Infosys approach helps retailers achieve their goal of building scalable multi-channel retailing capabilities and realisethebenefitsofleveragingcrosschannelefficiencies.Itincludes:

Businessstrategyassessment,benchmarkingandroadmapdefinition•Organisational structure alignment and business process re-engineering•Technology capability assessment and technology options analysis•Website enhancement and performance optimisation•

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Summary Telephone and the internet are fast becoming feasible alternatives to the traditional face-to-face channel as they •are integrated into multi-channel servicing systems.While channel performance evaluation behavioural consequence relationships represent relevant issues, they •seem to mask the underlying complexities of a multi-channel service system.Routine services involve standardised procedures with relatively simple decisions, whereas non-routine services •require higher customisation and more complex, knowledge intensive procedures.Customers may have different channel preferences and expectations for different service types depending on •their needs and demands, as well as on the capabilities of the service delivery channel.There is a positive relationship between online satisfaction and loyalty and the satisfaction–loyalty relationship •isstrongeronlinethanoffline.Multi-channel retailing helps in fostering customer engagement and, thus, empowering the retailer to communicate •an extensive variety of product and promotional information to remain competitive.Multi-channel retailers have developed strategies that begin with a customer centric perspective and build an •organisation structure to support change.The Infosys approach helps retailers achieve their goal of building scalable multi-channel retailing •capabilities

ReferencesMorris, A., • Multichannel Retailing - Its here to stay. [Online]Availableat:<http://www.fibre2fashion.com/industry-article/31/3067/multichannel-retailing-its-here-to-stay1.asp> [Last Accessed 20 December 2011].Roseli Morena Porto, 2004, • Multichannel Retail and Integrated Strategies. [pdf] Available at: <http://www.revistaleadership.com/cladea/doctoral/coloquio_II/ROSELIMORENA.pdf>[Accessed21December2011].ACRS Secondary Research Report, 2007. • Multi-Channel Retailing. Available at: <http://www.buseco.monash.edu.au/centres/acrs/index/multi-channel-retailing-report.pdf> [Accessed 21December 2011].Davidhall60, 2011. • Multi -Channel Retail strategy. [Video Online] Available at: <http://www.youtube.com/watch?v=O9_ro6f8qso>.[Accessed21December2011].Your Business Channel, 2008. • Industry Tips for Multichannel Retailers. [Video Online] Available at: <http://www.youtube.com/watch?v=gousbT2qStU> [Accessed 21 December 2011].Poloian, L. G., 2009.• Multichannel Retailing, Fairchild Books.Madaan. • Fundamentals of Retailing, Tata McGraw-Hill Education.

Recommended ReadingPoloian, L., 2009. • Multi-Channel Retailing, 1st ed. Fairchild Pubns.Dahmen, P., 2004.• Multi-Channel Strategies for Retail Financial Services, DUV.Berman, 2007. • Retail Management: A Strategic Approach 10/E, Pearson Education.


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Self AssessmentFirmsthatprovideinterchangeableservicechannelsappearincreasinglyappealingto___________.1.

customersa. retailerb. wholesalerc. distributerd.

Which of the following represents an overall evaluative judgment emerging on the basis of multiple service 2. encounters?

Overall satisfactiona. Specificsatisfactionb. Customer satisfactionc. Employee satisfactiond.

Which of the following attitude has been formed by aggregating underlying beliefs and evaluations?3. Multi channel servicea. Satisfactionb. Curiosityc. Researchd.

_____________offersbenefitsthatcanextendbeyondInternet&mobilesalestostreamliningin-storeordering4. processes and increasing sales through cross-selling and up-selling.

E- retailinga. Multichannel retailing strategyb. E- commercec. Customer satisfactiond.

WhichofthefollowingisnotabenefitofMCR?5. Expanding market presencea. On-demand self service storefront means 24/7 virtual salesmanb. Testing products before stocking themc. Single- channel strategies increase sales conversiond.

Which of the following challenges is included in merchandising and inventory management?6. Inconsistent merchandising direction across channelsa. Fear of channel cannibalisationb. Incentives and commission programsc. Multiple databases of disaggregated customer and order datad.

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Match the following:7.

1. Organisation structures a. Lack of aggregation of demand across channels

2. Merchandising and inventory management

b. Substantial investments to integrate disparate enterprise systems

3. Customer operations c. Fear of channel cannibalisation

4. Technology d.Limitedavailablemetricstocaptureprofitability1-c; 2-b; 3-d; 4-aa. 1-a; 2-b; 3-c; 4-db. 1-c; 2-a; 3-d; 4-bc. 1-d; 2-c; 3-a; 4-bd.

Which of the following significant change doesn’t come under the purview of multichannel retailing 8. strategy?

Customer relation managementa. Business processb. Organisation structurec. Retail marketingd.

Which of the following synergies cannot be harnessed as stores and direct channel integrate?9. Peoplea. Technologyb. Supplier relationshipc. Store spaced.

The____________helpsretailersachievetheirgoalofbuildingscalablemulti-channelretailingcapabilities10. andrealisethebenefitsofleveragingcrosschannelefficiencies.

supply chaina. RFIDb. Infosys approachc. consumer satisfactiond.


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Case Study I

Carrefourwas founded inFrance byMarcelFournier andLouisDefforey in 1960.Carrefour opened its firsthypermarketinUnitedState.Ahypermarketiscommonlydefinedasanout-of-townoutletretailingmixedfoodandnon-food products. Carrefour success has been based on foreign expansion and investments. These two approaches were stimulated by the rapid growth of hypermarkets. Carrefour itself had 37 stores and faced aggressive competition on both price and location. Carrefour’s response was threefold: it grew vertically by developing and marketing a comprehensive range of own-brand products under the advertising slogan.

The company’s fundamental approach has been the same in all regional or national markets: to combine low prices, wherever possible, with a specialist focus on all its product lines (so-called multi specialisation), and managerial autonomy at the lowest possible level (typically, the individual store). In foreign territories, the company has displayed a critical awareness of cultural variables and the importance of good relationships with local suppliers.

Carrefour’suseofIThasbeenevidentintheemphasisthecompanyhasgiventothedevelopmentoffinancialservices. A company trading across borders has an inevitable interest in treasury management, which - in Carrefour’s case - has reinforced its commitment to medium-term investment, most frequently in innovative retailers.

A number of companies are operating in different countries selling variously sports goods, frozen foods, discount shoes, furniture, household appliances, electrical goods, and carpets. Managing this portfolio and the various currency dealsassociatedwithit,hasrequiredasignificantinvestmentinITandalso(moreimportantly,perhaps)infinancialexpertise.Asaresult,financialserviceshavebecomeanincreasinglysignificantcomponentofCarrefour’sactivities- particularly important since in other respects the company remains committed to decentralised management.

QuestionsWhat are the two success factors for Carrefour?1. AnswerThe major two success factors of Carrefour are based on foreign expansion and investments.

What is the company’s fundamental approach in all regional or national market?2. Answer Important fundamental approaches of Carrefour are as such:

Low price strategy �Focus on all product lines which is also called as multi specialisation �Managerial implications at lowest possible level �

Why investment in IT is required?3. Answer MajorITinvestmentisrequiredforfinancialimplications.ManagingtheproductportfolioandvariouscurrencydealsareassociatedwiththeproductportfoliorequiredasignificantinvestmentinIT.

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Case Study II

Bigger Is Riskier

‘Getbigfast’servedasthemantraoftheera,butsuchastrategyoffersbothbenefitsandrisks.Wal–Martcanbuyand then transport goods at a lower cost because it sells more than $400 billion of goods each year. In addition to having the resources to scour the world in search of the lowest – cost suppliers, Wal-Mart can invest in state of the artRadioFrequencyIdentification(RFID)technologytorunthisdistributionnetwork.

The distribution network has enough density for economical cross-docking operations, which transfer goods between trucks without the extra cost of storing them for long periods of time. As a result, Wal- Mart turns its inventory eight times per year versus a median of four times for the industry as a whole.

However, a “get big fast” strategy in pursuit of scale economics has a dark side, especially in unpredictable markets. Webvan,forexample,wasfoundedin1996,wentpublicin1999,andfiledforbankruptcyprotectionin2001.Inthe summer 1999 it reported that revenues from the six months ending in June totaled $395,000, with net losses of $35.1million.Despitethosefinancialresults,thecompanysigneda$1billioncontractwithBechtelCorporationto build 26 distribution centers across the country.

Webvan ultimately built three of highly automated, large scale distribution centers, and none of them reached break-even utilisation levels. Each distribution center offered sales potential equivalent to 18 traditional grocery stores- a huge amount of capacity to bring online at one time in a mature industry.

Webvan’sprojectionshadestimatedcostsbasedonhighutilisationrate,butatthe30%to40%utilisationratesactually achieved by the facilities, the company’s costs were well above those of the traditional model, and its cash quickly dissipated.

By contrast, Wal-Mart achieved its scale over a very long time. Wal- Mart went public with $44 million in sales from18stores.Italsoopeneditsfirstdistributioncenterin1970.Wal-Martexpandedmuchmoreslowlyandonlyafterprovingtheprofitabilityofthesmall-towndiscountstrategy.

QuestionsExplain “Get big Fast” concept in retail.1. Is “Get big Fast” is positive or negative sign to Webvan?2. Which of the retail mall adopt the better strategy Webvan or Wal-Mart?3.


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Case Study III

The Key to Wal-Mart Supply Chain

Wal-Mart is committed to improving operations, lowering costs and improving customer service. But the key to retailerWal-Mart’ssuccessisitsabilitytodrivecostsoutofitssupplychainandmanageitefficiently.Manysupplychain experts refer to Wal-Mart as a supply chain-driven company that also has retail stores.

Wal-Mart’s company philosophy (‘The Wal-Mart Way’) is to be at the leading edge of logistics, distribution, transportation, and technology. The Wal-Mart business model would fail instantly without its advanced technology (Wal-Mart has the largest IT systems of any private company in the world) and supply chain (Wal-Mart has made significantinvestmentsinsupplychainmanagement).

Wal-Mart’s business model is based on a low price strategy and low transportation costs allow it to sell its products at the lowest possible prices. In return for its strategy (Everyday Low Price Strategy), Wal-Mart’s suppliers - both largeandsmall-eitherbreakevenormakeprofitsupplyingatWal-Mart’sstores.TherealwinnersareWal-Mart’scustomers who save thousands of dollars buying at low prices.

Since Wal-Mart stores began selling groceries almost three dozen regional grocery suppliers have struggled to match or simply run out of business. Nearly two million employees at Wal-Mart focus on cost, customers, and continuous improvement on a daily basis. Other major retailers like Target and Home Depot have emulated Wal-Mart’s logistics strategies.

QuestionsHow supply chain management is one of the success factors for Wal-Mart?1. Explain the philosophy of Wal-Mart “The Wal-Mart Way”.2. What is the concept behind Wal-Mart’s business model?3.

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Zigiaris, S., 2000, • Supply Chain Management. [pdf]Available at: <http://www.urenio.org/tools/en/supply_chain_management.pdf>.[Accessed20December2011].

Recommended ReadingBakos, Y., • The Emerging Landscape for Retail E-Commerce. Stern School of Business. Balnchard, D., 2010. • Supply Chain Management Best Practices, 2nd ed.,Wiley.Berman, 2007. • Retail Management: A Strategic Approach, 10th ed., Pearson Education.Burt, S. and Sparks, L., • E-commerce and the Retail Process.Dahmen, P., 2004.• Multi-Channel Strategies for Retail Financial Services, DUV.Entrepreneur Press and Arden, L., 2009. • Start Your Own E-Business. 2nd ed, Entrepreneur Press.Evdokimov, S., Fabian, B., Günther, O., Ivantysynova, L. and Ziekow, H., 2011. • RFID and the Internet of Things: Technology, Applications, and Security Challenges, Now Publishers Inc.Finkenzeller, K., 2010. • RFID Handbook: Fundamentals and Applications in Contactless Smart Cards, Radio Frequency Identification and Near-Field Communication, 3rd ed, Wiley.Glover, B., 2006. • RFID Essentials (Theory in Practice), O’Reilly Media.Gorchels, L., 2004. • The Manager’s Guide to Distribution Channels, McGraw-Hill.Green, C., 2011. • Retail Arbitrage, CreateSpace.Hayes, R.H., 2004. • Operations, Strategy, and Technology, 1st ed. Wiley.Hugos, M.H., 2011. • Essentials of Supply Chain Management, 3rd ed., Wiley.Lewis, R., 2010. • The New Rules of Retail: Competing in the World’s Toughest Marketplace, Palgrave Macmillan.Martin, J.,2006. • Lean Six Sigma for Supply Chain Management, McGraw-Hill Professional.Nelson, 2009., • The Retail Revolution, Metropolita.Poloian, L., 2009. • Multi-Channel Retailing, 1st ed. Fairchild Pubns.Retail Information Technology for Non - IT Retail Managers. Available at: <http://www.dmsretail.com/erp.•htm> [Accessed 2 December 2011].Rolnicki, K., 1998. • Managing Channels of Distribution: The Marketing Executive’s Complete Guide, AMACOM.Saraf, V., Dr. Tiwari, P. and Malviya, V., • Applications of Information Technology in Retailing. Vidyasagar Institute of Management (VIM).Slack, N., 2007. • Operations Strategy, 2nd ed. Prentice Hall.Stallings, W., 2009. Operating Systems: Internals and Design Principles, 6th ed., Pearson Education, India.•Sumner, M., 2004. • Enterprise Resource Planning. 1st ed. Prentice Hall.Turban, E., 2010. • Electronic Commerce: A Managerial Perspective 2006, 4th ed., Pearson Education.


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Self Assessment Answers

Chapter Ic1. d2. a3. a4. d5. a6. b7. d8. c9. a10.

Chapter IId1. a2. a3. c4. a5. b6. c7. a8. a9. d10.

Chapter IIIa1. d2. d3. a4. a5. d6. c7. d8. d9. c10.

Chapter IVa1. d2. c3. a4. a5. a6. c7. b8. a9. c10.

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Chapter Vd1. d2. a3. c4. c5. a6. d7. a8. d9. d10.

Chapter VIb1. d2. c3. b4. a5. d6. d7. d8. a9. d10.

Chapter VIIc1. d2. b3. a4. c5. d6. b7. b8. d9. a10.

Chapter VIIIa1. a2. b3. b4. a5. a6. c7. d8. d9. c10.

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