Information technology for retailing 9780070159228, 007015922X

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Information Technology for

Retailing

About the Author Professor Ajeet Khurana is well known for his contribution to education. With two decades of experience, Prof Khurana has mentored many students, both in India and in the US. His experience in consulting, entrepreneurship, retail, hospitality, training, web technologies, among others, has given him a perspective on all areas of business. A computer engineer from University of Mumbai, India and an MBA in Information Systems and Finance from the University of Texas at Austin, USA, Prof Khurana is referenced in many national and international books. His contribution to education has been covered extensively by the media. He has trained executives and managers from organisations such as IBM, Pharmaco, LSR and Johnson & Johnson. Prof Khurana’s heart has always been in student welfare. As a result, he is an admissions interviewer for the MBA program at the McCombs School of Business at The University of Texas at Austin. In the past, he has been the Vice President of the International MBA Students’ Association and a member of the education review board of the student body AIESEC. Presently he is Chief Mentor at Peak Seekers, a test-prep institute for management career aspirants. Much before credit cards became commonplace in Indian retail, Prof Khurana was teaching about them to undergrad students in the US. As an IT trainer, he has coached students to develop several programs for retail business applications. He has also written extensively on the retail business. This multi-faceted personality makes Professor Ajeet Khurana the ideal author for this pioneering work on Information Technology in Retail Management.

Information Technology for

Retailing Ajeet Khurana Director Peak Seekers

Tata McGraw Hill Education Private Limited NEW DELHI McGraw-Hill Of ces New Delhi New York St Loui s San Francisco Auckland Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal San uan J Santiago Singapore Sydney Tokyo Toronto

Tata McGraw Hill Published by the Tata McGraw Hill Education Private Limited, 7 West Patel Nagar, New Delhi 110 008. Information Technology for Retailing Copyright © 2010 by Tata McGraw Hill Education Private Limited No part of this publication may be reproduced or distributed in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise or stored in a database or retrieval system without the prior written permission of the publishers. The program listings (if any) may be entered, stored and executed in a computer system, but they may not be reproduced for publication. This edition can be exported from India only by the publishers, Tata McGraw Hill Education Private Limited. ISBN (13): 978-0-07-015922-8 ISBN (10): 0-07-015922-X Managing Director: Ajay Shukla Head—Higher Education Publishing: Vibha Mahajan Publishing Manager—B&E/HSSL: Tapas K Maji Associate Sponsoring Editor: Piyali Ganguly Editorial Executive: Hemant K Jha Development Editor: Shalini Negi Assistant Manager (Editorial Services): Anubha Srivastava Senior Production Manager: Manohar Lal Production Executive: Atul Gupta General Manager—Marketing (Higher Ed & School): Michael J Cruz Product Manager: Vijay S Jagannathan General Manager—Production: Rajender P Ghansela Assistant General Manager—Production: B L Dogra Information contained in this work has been obtained by Tata McGraw Hill, from sources believed to be reliable. However, neither Tata McGraw Hill nor its authors guarantee the accuracy or completeness of any information published herein, and neither Tata McGraw Hill nor its authors shall be responsible for any errors, omissions, or damages arising out of use of this information. This work is published with the understanding that Tata McGraw Hill and its authors are supplying information but are not attempting to render engineering or other professional services. If such services are required, the assistance of an appropriate professional should be sought. Typeset at Bharati Composers, D-6/159, Sector-VI, Rohini, Delhi 110 085, and printed at Lalit Offset, 219, F.I.E., Patpar Ganj, Industrial Area, Delhi – 110 092 Cover Design: K Anoop Cover Printer: Rashtriya Printers RADCRRBFRZRRL The McGraw-Hill Companies

To my wife Simran whose patience and support were vital for writing this book

Preface

These are exciting days for the retail industry in India. Over the past decade, organised retail has dramatically increased its share in the total retail business. Large store formats have altered the shopping experience for consumers and ushered in a new era in retailing. While business houses rush in to capitalise on this burgeoning opportunity, young professional too can gain from the new career opportunities in this sector. If you are a budding retail professional, you must be fully equipped in the ways of organised retail. This begs the question, “What is different between organised retail and its traditional cousin, the unorganised retail?” There are several differences: superior supply chain management, inventory management, people management money management among others. However, at the heart of all these difference lies Information Technology. That is the inspiration for writing this book. Today, Information Technology has become so pervasive that all professionals need to acquaint themselves with its advances. There was a time when one would immediately think of engineers when one mentioned technology. That is no longer the case. Every retail professional needs to understand the role played by technology in the workplace. When I set out to write this book, I found several challenges staring me in the face. On the one hand, there were hardly any texts on Information Technology applications in retail. On the other, much of the material on retail technology was too technical for non-engineers to appreciate. My book attempts to bridge this gap. After reading this book, you should be able to get a good idea about: • The technology being used in various functions of the retail industry • The managerial implications of that technology.

Salient Features of this Book • Classic literature on Information Technology was meant for engineers. As a result, definitions of common concepts were complex and cumbersome. This book has been written for retail managers. Consequently, it simplifies concepts and definitions. • The book is based as much on technology as it is based the people working with it. It presents the reader with a real-world view of retail technology. • This book is about Information Technology and about Retail Management. This two-dimensional approach leads to the biggest advantage of reading this book.

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Preface

• Information Technology is so deeply entrenched in business processes that many regard it as a ‘black box’, i.e., they know what goes into a computer system and what comes out. But they do not know how the input is processed. In such a scenario, it is vital that retail professionals understand the perspective that different participants have towards technology. This book attempts to explain technology from multiple perspectives. For instance, in explaining the Cash Register, the perspectives of the customer, manager and operator are explored separately.

How Students and Teachers can Use this Book Each chapter begins with a listing of the learning objectives. When the chapter is completed, students and teachers should evaluate whether the learning objectives were met. Some concepts mentioned in the text can be interesting to retail professionals, but might not be congruent with the main learning objectives. These have been elaborated upon in ‘Asides’ that are sprinkled throughout each chapter. These ‘Asides’ can be the basis of interesting classroom discussion. Since Retail Management is a practitioner’s discipline, I have incorporated my experiences in the form of ‘Retail Episodes’. Each ‘Retail Episode’ brings out an important learning about retail management and is closely linked to the concept being discussed. For freshers, these retail episodes should be a goldmine as they present real-world situations that retailers face. At the end of each chapter, there are concept questions that test all concepts in the chapter. The long list of questions will ensure that the student has understood every concept explained in the chapter. Some of the questions are of the type: ‘Explain the statement…’ These questions are based on the most important statements in the chapter. An emphasis on these statements will help teachers focus on the important aspects of each topic. In addition, the Creative Thinking Questions, Case Studies and Project Ideas will infuse relevance and practicality in the learning experience. I hope that you enjoy reading this book as much as I enjoyed writing it. If this book equips students better to participate in the retail world, it would have met its objectives. I must thank my colleagues and friends who encouraged me to write this book. Specifically, I must thank my wife Simran and sons, Aks and Bux, who tolerated my strange hours, and have been a constant source of inspiration. This is my second book with the publisher, Tata McGraw Hill, and I am glad to see the way it has shaped up. I thank Mr Biju Kumar who has led the team at Tata McGraw Hill. I am most indebted to Tapas Maji who demonstrated great faith in me. His belief in my capability is actually a reflection of his own extraordinary capabilities. In addition, I am grateful to Piyali Ganguly who was my day-to-day contact. She is a woman of great patience, creativity and enthusiasm. With over a decade of publishing experience, she still demonstrates freshness in approach and openness of mind. We will surely see great results from her. In addition, I am grateful to Anubha Srivastava for working on the copy at lightning speed. Manohar Lal and Atul Gupta have also been instrumental in the creation of this book, and I thank them. If you have any comments, queries or feedback, please write to me at: [email protected] Ajeet Khurana

Contents

Preface

vii

1. Management Information Systems Information Technology to the Assistance of Business Managers Introduction 1 From Data to Information 2 Functions of MIS 4 Old MIS Systems 6 New MIS Systems 6 Characteristics of Good Management Information Systems 7 Marketing Support System: An Application of MIS 8 Retail Information Systems: MIS for the Retail Industry 9 Why Does an Organisation Need MIS? 11 Concept Questions: Test Your Understanding 13 Five Creative Thinking Questions: For Beyond the Text Understanding Case Study 15 Three Project Ideas: On Concepts in this Chapter 16

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2. IT @ PoS Hardware at the Point of Sale Introduction 17 What is a Cash Register? 18 Computer Based Point of Sale System 22 Concept Questions: Test Your Understanding 26 Five Creative Thinking Questions: For Beyond the Text Understanding Case Study 27 Three Project Ideas: On Concepts in this Chapter 28

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Contents

3. IT @ PoS, Part 2 Software at the Point of Sale Introduction 29 Understanding EPoS Software 30 Choosing Between BoB and FIS 31 What Does EPoS Software Do? 32 Concept Questions: Test Your Understanding 39 Five Creative Thinking Questions: For Beyond the Text Understanding Case Study 40 Three Project Ideas: On Concepts in this Chapter 41

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4. Credit Cards The Payment Mechanism of the Emerging Retail Introduction 42 Cash: The Time-Tested Mode 43 Enter: Credit Cards 45 Other New Age Payment Mechanisms 49 Concept Questions: Test Your Understanding 51 Five Creative Thinking Questions: For Beyond the Text Understanding Case Study 52 Three Project Ideas: On Concepts in this Chapter 53

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5. Automatic Identi cation & Data Capture Using Technology to Identify Products and Capture Data Introduction 54 Objectives of Auto ID and Auto Data Capture 55 Bar Codes 57 RFID (Radio Frequency Identification) 63 Concept Questions: Test Your Understanding 66 Five Creative Thinking Questions: For Beyond the Text Understanding Case Study 67 Three Project Ideas: On Concepts in this Chapter 68

6. Enterprise Resource Planning (ERP) Interconnecting the Retailer’s Information Technology Resources Introduction 69 Purpose of ERP 70

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Benefits of ERP to a Retailer 70 Disadvantages of an ERP System to a Retailer 74 The True Cost of Retail ERP 75 The ERP Paradox 76 How can ERP Systems be Customised to a Specific Retailer? 77 What are the Requirements for Successful Retail ERP Implementation? 80 Concept Questions: Test Your Understanding 82 Five Creative Thinking Questions: For Beyond the Text Understanding 85 Case Study 85 Three Project Ideas: On Concepts in this Chapter 86

7. Customer Relationship Management Technology That Helps Build Relations with Customers Introduction 87 Is CRM the Same as CRM Software? 88 What is CRM? 88 Concept Questions: Test Your Understanding 95 Five Creative Thinking Questions: For Beyond the Text Understanding Case Study 97 Three Project Ideas: On Concepts in this Chapter 98

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8. Data Mining Discovering Purchase Patterns and Correlations Introduction 99 What is Data Mining? 100 Why is Data Mining Gaining Significance? 102 How Does Data Mining Work? 103 What are the Applications of Data Mining in Retail Management? 105 What Kind of Technology Does Data Mining Need? 106 Errors in Data Mining 106 Limitations of Data Mining 107 Privacy Concerns Regarding Data Mining 107 Concept Questions: Test Your Understanding 108 Five Creative Thinking Questions: For Beyond the Text Understanding 109 Case Study 110 Three Project Ideas: On Concepts in this Chapter 111

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9. Supply Chain Management From Raw Material to Finished Product

112

Introduction 112 Managing all Components of the Supply Chain 113 Components of a Supply Chain 114 Span of Supply Chain Management and Control 115 Objectives of Information Technology in Retail Supply Chain Management 116 Reverse Logistics: A Special Case of Supply Chain Management 120 Concept Questions: Test Your Understanding 121 Five Creative Thinking Questions: For Beyond the Text Understanding 122 Case Study 122 Three Project Ideas: On Concepts in this Chapter 123

10. E-Tailing The Compelling New World of Electronic Retailing Introduction 124 The World of Electronic Retail 125 Benefits of e-tailing 125 Who are the Parties Involved in e-tailing? 130 What Must an e-tail Website be Like? 132 Issues Influencing the Growth of e-tailing in India 135 Concept Questions: Test Your Understanding 137 Five Creative Thinking Questions: For Beyond the Text Understanding Case Study 139 Three Project Ideas: On Concepts in this Chapter 140

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Cha pt e r

Management Information Systems Information Technology to the Assistance of Business Managers

INTRODUCTION Computers have been around for decades. As hardware and software evolved, newer applications were found for computer technology. It seems hard to believe that there was a time when computers were used merely for accounting or military purposes. It also seems unbelievable that computing power was once so little that after the data had been fed to the computer, one would have to wait for a long time for the computer to generate its output. The advances in microprocessor technology and digital storage media have made it possible to develop software for a wide variety of applications. In this chapter, we will look at the application of technology in the area of Management Information Systems (MIS).

D

e nition: MIS is the application of Information Technology to Business Management. It deals with the capture, processing, storage, distribution and presentation of data and information.

LEARNING OBJECTIVES

To understand the components, functionality and advantages of Management Information Systems (MIS) To specifically explore the working of a Retail Information System (RIS) After studying this chapter, you should be able to ■ Understand the relationship and difference between data and information ■ Understand the concept of a Management Information System (MIS) ■ Understand the functioning of an MIS ■ Compare old MIS systems with new age MIS systems ■ Learn about the characteristics of a good MIS ■ Explore Marketing Support Systems as an example of MIS ■ Understand Retail Information Systems (RIS) ■ Establish a preliminary understanding of several aspects of the application of Information Technology to Retail business. These include: Customer Relationship Management, Supply Chain Management, Data Mining, Point of Sale software, Inventory Management, eCommerce, Payments ■ Appreciate the benefits of an MIS.

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Information Technology for Retailing

ASIDE

What are microprocessor, digital storage media and software? A microprocessor is the brain of the computer. It consists of millions of electronic components that are placed in a microscopic space. The speed and complex functionality of the microprocessor determine the processing capability of a computer. A Storage Medium is any device which can record data that can be retrieved later. A paper notebook can also be called a storage medium. But when it comes to computers, we talk about digital storage media. Examples are: Floppy disks, pen drives, hard disks, CDs, DVDs. Software is a set of instructions that are programmed to tell the computer what functions need to be performed. Common examples of software packages are: Microsoft Word (which is programmed to work as a word processor on your desktop computer), FireFox (which is programmed to work as an Internet browser on your desktop computer), Google Search Engine (which is programmed to run on computers that the company called Google Inc. runs. The output of the Google Search Engine program is sent to your Internet browser).

From Data to Information With large corporations, such as chains of retail stores, becoming the order of the day there is large amount of data that gets created every day. This could be in the form of transactiondata created every time a customer makes a purchase, to product-data based on inventory levels, to category-data that can be used to correlate consumption of different products. This data is useless unless it can be converted to a form that managers can understand and use. This begins our journey “from Data to Information”. Sometimes the terms ‘data’ and ‘information’ are used interchangeably. This is incorrect though there is a relation between the two terms. Here is an example that will explain the relation as well as the difference between data and information:

RETAIL EPIS ODE Here is a small table that lists the purchases made by 10 different customers at Buy-Everything Retail Stores: Customer

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Item 1

Item 2

Item 3

Item 4

Item 5 Toothbrush

1

Toothpaste

Bread

Cream Biscuits

Salted Chips

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Item 6

Item 7

Notebook

Cola

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����n Box

3

Management Information Systems

�

3

Broom

Bread

Toothpaste

Spinach

Cough Drops

Toothbrush

Mints

4

Bhel Mix

Flour

Battery Cells

Ball Pen

Chocolate

Bread

Mineral Water

��

����n Box

Toothbrush

Salted Chips

Toothpaste

Mineral Water

Ball Pen

Carrots

6

Battery Cells

Cream Biscuits

Broom

Cough Drops

Bread

Notebook

Mints

7

Ball Pen

Bhel mix

Toothbrush

Spinach

Carrots

Flour

Toothpaste

8

Cough Drops

Notebook

Salted Chips

Bread

Broom

Chocolate

Cola

9

Bread

Battery Cells

Cream Biscuits

Mints

Bhel mix

Toothpaste

Carrots

10

Cola

Spinach

Flour

Carrots

Bread

Salted Chips

Chocolate

What you are seeing above is sales data. It contains valuable information. But unless there is a method to ��������������������������������������������������������������������������������������������������������������� some information and a description of how it can assist retail managers:

(A) Information 1: Customers who buy toothpaste tend to also buy a toothbrush. Though this is not easily visible in the table above, an MIS system could easily establish such a correlation. This information will allow retail managers to locate toothbrushes and toothpastes close to each other. If this is a small store where store employees talk to customers, then the employees could actually suggest to customers who buy toothpastes that they consider buying a toothbrush too (or vice versa). Additionally, regardless of the size of the retailer, the retail manager could consider creating promotional schemes that incentivise customers to buy toothbrushes and tooth pastes at the same time.

(B) Information 2: Talcum powder does not sell well. Mere observation of the table above might not be enough, but an MIS system could easily point out the items that did not sell well. For instance, in the above data, we could learn that certain products, such as talcum powder, are not selling well. This could then assist retail managers in making important decisions such as: • Talcum powder does not sell well so stop carrying talcum powder. • Or do the opposite, and give talcum powder greater prominence.

(C) Information 3: Almost everyone wants to buy bread. The moment retail managers realise that some item is doing very well, they can use that information for ��������������������������������������������������������������������

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Information Technology for Retailing

• Get a larger variety of bread • Make bread more prominent • Offer a really discounted price on bread thereby leading more customers to the store. This would be done with the hope that customers would then buy other higher priced goods too. Naturally, the above example is simplistic. No retail manager would really make a decision based on data relating to ten customers! Also, it is unrealistic for all customers to buy the same number of items. But MIS has the ability to store large amounts of information and retrieve it at a later point of time. This archival feature of MIS could give us data over long periods of time. When information is derived from this data, it could lead to some crucial business decisions.

Functions of MIS With the understanding of data and information, let us move ahead and explore the various functions of MIS. MIS primarily is about: • Capture of Data • Storage of Data • Processing of Data • Distribution of Information • Presentation of Information

Capture of Data In every organisation, data is created at various locations and points of time. Here are some examples: • The time that each individual employee shows up to work is a type of employee data. • The products purchased by customers are a type of sales data. �� �����������������������������������������������������������������nancial data. • The money that has to be collected from customers for goods already sold is a type of accounts data. • The number of customers making repeat purchases is a type of CRM (Customer Relationship Management) data. • The difference between goods that a business is supposed to have and the goods that it actually has arises from stolen or misplaced goods. This is a type of security or vigilance data. • The increase in sales of a product owing to implementation of promotional schemes is a type of marketing data. …and the list can go on. Most businesses have more data than they can capture, store, process, or interpret. This is ���������������������������������������������rst step is to capture such data. This can be

Management Information Systems

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in the form of transaction data being recorded at the Point of Sale (PoS) or in the automation of inventory management systems. Sometimes the capture of data is manual, such as asking a customer her/his name. At other times it is automatic, such as recording the attendance of an employee based on scanning their electronic identity cards.

Storage of Data Once data is captured, it needs to be stored in a way that it can be used later. For instance, when students create data, such as reports and documents, they store them on the hard disk of their computer. This simple method of storage works for students, as the data is limited and they are the only ones creating it. The storage challenge to large corporations is that data is captured from numerous sources, many of which may be remotelly located. In addition, there are a large number of people who contribute to the capture of this data. So, one hard disk may not do the trick. Organisational data is stored in large hard disks, optical devices such as CDs, and large storage devices such as spools of magnetic tapes. But the storage medium is not crucial. What is important is that data be stored in such a way that it can be retrieved when the need arises. � ���� ���������� ��� �� ������� �������� ��� ���� ����� ������� ������ ��� ����� ������ ���������� ���� �������������������������������������������������������������������������������������������� desktop. If access to the relevant data needs a lot of time or effort, MIS develops bottlenecks that defeat its very purpose.

Processing of Data Once the data has been captured and stored, it needs to be processed in a way that makes the data meaningful. Recollect the example of the purchase data for ten customers. Merely possessing the data does not endow the organisation with any actionable information. Data must be processed in a way that information can be extracted from it. There is a complex science of data mining that we will explore in some depth later in this book. For now, ����ce it to say that processing of data is one of the most important functions of the MIS. ��������������������������������������������������������������������cant business advantage over organisations that do not.

Distribution of Data and Information After the data is captured, stored and processed, we reach the important stage of making sure that the right people receive the raw data and processed data (i.e., information). Without the relevant people receiving timely data, MIS departments become irrelevant paper-producing departments within organisations. Classically MIS departments have been derided as factories that produce paper that no one reads. Of course, that is now a story of the past. As �������������������������������������������������������������������������������������������� �����������������������������������������������������������

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Information Technology for Retailing

Presentation of Information Having made a case for effective and timely distribution of data and information, it is important to present it in a way that can lead to quick decisions. This could mean different things in different situations: • Comparative data for sale of different products could be represented in the form of pie charts that immediately make the comparison evident. Even when the choice of pie charts has been made, MIS managers will still need to decide if the pie charts should represent number of units sold or value of units sold. • Increases and decreases in sales of products could be represented using percentages instead of actual values. For instance, though sale of blue widgets could rise by 300 units that might represent a 1 percent increase in sales, while sale of red widgets could rise by 100 units, but that might represent a 20 percent increase in sales. As in the earlier example, the MIS manager will have to make the decision whether the percentage data should represent the percentage increase in units sold or percentage increase in value of goods sold.

Old MIS Systems The earliest MIS was restricted to creating data for account auditing. Since accounting is a legally necessary function for any organisation, it was felt that computers could assist with the tracking of records that constituted books of accounts. Hence, old MIS systems essentially consisted of stocks, money, bank accounts and balances, records of wages and attendance, tax paid and payable, and the like. But all that changed with modern management methods. Today, MIS has evolved into areas that were earlier unthinkable. It assists managers in making decisions in all areas of business, be it marketing, personnel, cash management, investment, production, operations, logistics and others.

New MIS Systems There are several reasons why MIS evolved from being paper-factories to meaningful tools for management decisions. Some of them are: • Advancements in technology, both hardware and software: This gave more power to computers. This increased power led to more capable applications that could analyse large data sets in split seconds. • Increased networking between computers: This reduced the time that it took to access data and communicate it to other machines. • Advancements in data capture technology: Bar coding, RFID, and other data capture methods led to greater quantity of data being captured, right at the source. • Increased business competition: From being a business luxury, growth has become a business necessity. Businesses that do not grow rapidly face extinction.

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Management Information Systems

ASIDE

Is MIS the same as computer science? Due to the close relationship of computers with MIS, many people wrongly assume that MIS is the same as Computer Science. MIS is the business application of Information Technology, while Computer Science is the technology. Computer Science deals with hardware, software, architecture and algorithms. MIS prefers to be blind to the underlying technology, and instead focuses on the output of the system. Computer Science is the foundation on which systems such as MIS are built.

Characteristics of Good Management Information Systems Good MIS serves the intended purpose of business. This is attained by meeting the following requirements: • Information should be available when it is needed. • Accuracy of information should not be compromised upon. • Information should be complete. • Information must be relevant to its users.

Information should be Available When it is Needed Businesses are facing rapid changes in markets, consumer preferences and the economic climate. In this scenario, delays in accessing information can be costly to businesses. It is not about making annual or quarterly reviews. Today, technology has evolved to the point that MIS can send up-to-the-minute information to hand-held computers. This allows managers to be constantly clued into information as it unfolds. It is no exaggeration to say that decisionmaking time has been compressed to days instead of years.

Accuracy of Information should not be Compromised Upon In the desire to be fast, MIS cannot afford to be inaccurate. Hence, there needs to be some ������������� ���� �������� �������� ����� ������ ��� ��� ���� ����� ��� �������������������� ����� ��� entry, data capture from multiple sources and the like. Inaccurate information can be more dangerous than no information.

Information should be Complete Though there is no benchmark for what constitutes ‘complete’ information, MIS should strive to present all the relevant facts to managers to assist them in making high quality decisions. MIS that presents only partial information can bias the manager into making incorrect decisions. Additionally, incomplete information can draw the manager into focusing only on issues where information is available.

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Information Technology for Retailing

Information must be Relevant to the Users of that Information The problem of ‘information overload’ is a real problem for today’s manager. With the �������������������������������������������������������������������������������������������� is expected to sift through piles of information and pull out relevant data, the manager is quite likely not going to have enough time to do any other work. MIS must be designed in a way that percolates only relevant information to managers. In itself this requirement ensures that MIS must constantly be redesigned, upgraded and streamlined. It also ensures that MIS needs to be customised to each organisation, as what is relevant to one may not be relevant to another.

Marketing Support System: An Application of MIS ��� ����������� ���� �������� ���� ��� ����� ��� �� ��������� ������������� ���� ���������� �������� System. Money spent on marketing could be considered as the best investment made by an organisation if the returns generated are positive. But if marketing expenses get out of hand, they can represent an outrageous bleed of organisational wealth. As a result, the function of Marketing Support Systems is crucial to organisations. Some of the objectives of a Marketing Support System are: • Differentiating One’s Offering • Establishing Credibility • Developing Distribution Channels • Creating and Maintaining Relationships with Customers • Reducing the Time-to-Market

Differentiating One’s Offering With the clutter in the marketplace, each product starts looking like a me-too. A marketing manager needs to create a USP (Unique Selling Proposition) to differentiate a product in the minds of the consumer. The Marketing Support System should provide the marketing manager with relevant information about their own products, as well as the competitor’s products.

Establishing Credibility Old and established brands come with a lot of credibility. But newer offerings need to establish a foothold in the minds of consumers. A good Marketing Support System will give adequate information and tools to help marketing managers read into consumer preferences and consumer behaviour.

Developing Distribution Channels One school of thought believes that marketing is all about channel management. Even if we do not go that far, we have to agree that effective distribution channels present businesses with a formidable competitive advantage. One of the roles of a Marketing Support System would be to help identify, create, incubate, and develop channels and channel partners.

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Management Information Systems

Creating and Maintaining Relationships with Customers CRM (Customer Relationship Management) started out as a buzzword, but soon became the lifeline for all B2C (business to consumer) businesses. With consumers spoilt for choice and discounting being the order of the day, relationships are the only enduring value that brands can create. Effective tools for CRM are an important feature of a Marketing Support System.

Reducing the Time-to-Market Gone are the days when board meetings and committee meetings would take months to make basic marketing decisions. With thinning margins and ever increasing investor demands, businesses need to quickly deploy their products and offerings in the marketplace. Marketing Support Systems need to assist the marketing manager with the task of reducing the time taken for a product to be taken from the drawing board to the consumer’s homes.

Retail Information Systems: MIS for the Retail Industry As we have seen this far, an MIS is primarily a system of internal control. As an organisation grows, it runs the risk of becoming chaotic if its systems of internal control are not effective �������cient. This is where a robust MIS, that grows with the needs of the organisation, is desirable.

ASIDE

Management Thought: Efficiency and Effectiveness Any system needs to achieve the function that it was intended for. The extent to which it meets its intended purpose is called its effectiveness. In addition to being effective, every system must utilise the least resources to achieve its objective. Resources could be in the form of time, money, people, materials and the like. The ���������������������������������������������������������������������������������������������

Components of an RIS Consider the case of the retail industry. Like every industry, it has its own requirements from technology. MIS that is tailor-made for the retail industry is called a Retail Information System (RIS). Here are some of the most crucial components of an RIS: • Point of Sale (PoS) • Sourcing • Inventory Management • Networking and Communication • Customer Relationship Management (CRM) • Optional: Payroll

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Information Technology for Retailing

• Optional: Ecommerce • Optional: Accounting

Point of Sale (PoS) The most crucial retail functions take place at the actual Point of Sale. In a later chapter, we explore PoS software in greater detail. For now, we can just keep in mind that PoS functions of the RIS consist of being able to: • Identify products using barcodes, RFID, etc. • Record customer purchases • Record refunds • Print bills • Record payment amounts and payment mode • Handle discounts

Sourcing Purchasing the right products from the right vendors at the right time is called ‘sourcing’. ����������������������������������������������������������������������������������������������� RIS should be able to track, manage, and maintain sourcing data, relationships, payments and transactions. Sourcing is an important part of Supply Chain Management (SCM).

Inventory Management Inventory occupies space and costs money. Hence, minimising inventory is a valid objective for a retail business. But low inventory leads to the risk of stockouts, i.e., situations in which a product is completely out of stock and customers are not able to buy it. Stockouts are the bane of retail business. In addition to reducing the earning of the organisation, they also lead to customer dissatisfaction. At an extreme, stockouts could lead a customer to change their choice of retailer. Additionally, different products, which are sourced from the same or different vendors, need to be reordered at different frequencies. As a result, optimal inventory level management is a complex, yet important, function of an RIS.

Networking and Communication What has really given wings to the functionality of an RIS is it ability to interact with other computer systems. For instance, the automated and instantaneous re-ordering of products has revolutionised inventory management. Management decisions are hastened by triggering �������� ������ ��� ������ ������ ��� �������������� ��� ��������� ������ ����� �� �������� ������ occurs. Given that retailers often have more than one sales terminal or for that matter more than one sales outlet, networked RIS can collate data from multiple sources and give a complete picture of the state of affairs in the retail enterprise. The ability of an RIS to network using the Internet or a Local Area Network (LAN) is hence one its most powerful features.

Management Information Systems

11

Customer Relationship Management (CRM) Capturing, storing, mining, and using customer data is one of the important functions of an RIS. These functions are so important to a retailer that this book devotes two entire chapters to this topic: one for CRM and another for data mining. For now, let us understand that there ���������������������������������������������������������������������������������������������� based on the relationship that the retailer shares with the customers. Effective CRM, hence, is the backbone of the successful business practices at a retailer.

Optional: Payroll When a retailer employs a large number of employees, it becomes important to have a system of managing payroll and associated functions. Though most RIS packages have a payroll module, many retailers prefer to use specialised (known as ‘best of breed’, as explained in Chapter 3) software for payroll management.

Optional: eCommerce Not all retailers have an online store. But that is soon changing. This is because of the: • high price of real estate to the retailer • inconvenience of physical shopping to the consumer • increased penetration of Internet connectivity • evolution of secure payment options online • availability of reliable logistics providers. As a result of all of the above, eCommerce is becoming increasingly popular. It is not inconceivable that there will come a time when half of all retail would be transacted online. Given its importance, we are dedicating an entire chapter to eCommerce later in this textbook.

Optional: Accounting Accounting is not just a statutory requirement; it also forms one of the most important system of internal control for any organisation. Retail organisations are no different. As a result, RIS packages tend to include accounting modules. But, experience shows that, as in the case of payroll software, most retailers prefer to use specialised accounting software, such as Tally, instead of relying on the accounting module of their RIS.

Why Does an Organisation Need MIS? ������� ����������� ���� ��� �������� ���� ���� ��� ���������� ���� ��� ��������� ����� �������� ��� understanding why organisations need MIS. • Developing and enhancing core competences • Enhancing supply chain management (SCM) • Facilitating quicker decision-making �� �������������������������������������������������������������

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Information Technology for Retailing

• Facilitating CRM • Improving organisational control • Developing competitive advantage

Developing and Enhancing Core Competences Different organisations have different core competences. For instance, some retail stores could be located prominently, while others could have great success at optimising inventory levels. Effective MIS helps organisations discover and enhance their core competence.

Enhancing Supply Chain Management (SCM) The supply chain for an organisation starts at the point where the basic raw material is produced and ends at the Point of Sale (PoS). Bottlenecks in the supply chain can increase lead time and costs. MIS assists in tracking and managing the supply chain better.

Facilitating Quicker Decision-Making Good business is about making good decisions. MIS also acts as a DSS (Decision Support System). By making relevant information available to managers in a timely manner, MIS assists in superior quality decisions being made in lesser time.

Improving the Effectiveness and Efficiency of Retail Managers Given the customer interface, retail managers have to constantly think on their feet. Also, they have to juggle a whole host of responsibilities. MIS helps these managers become more �����������������cient.

Facilitating CRM Customer relationships were always important. In the era of self-owned Mom-and-Pop stores, retailers personally knew their customers. But with the advent of large format retailing, businesses and customers alike rue the absence of the personal touch. To some extent effective CRM mitigates this loss. To help attain organisational objectives, MIS should facilitate CRM.

Improving Organisational Control Large businesses have several processes, systems, people, locations, products and services. To prevent matters from going out of hand, there has to be high degree of internal control. MIS has historically been a system of internal control. That continues to be one of its biggest objectives.

Developing Competitive Advantage Intense competition has changed the landscape of business. Also, businesses are leveraged and often borrow money to grow. In this scenario, being competitive and growing fast is imperative. MIS can play a role in developing competitive advantage for an organisation.

Management Information Systems

Concept Questions: Test Your Understanding �

��� ���ne: (a) MIS (b) Data (c) Information 2. Explain the following concepts: (a) Capture of data (b) Processing of data (c) Storage of data (d) Distribution of information (e) Presentation of information (f) Employee data (g) Sales data (h) Financial data (i) Accounts data (j) CRM data (k) Security or vigilance data (l) Marketing data (m) Information should be available when it is needed (n) Accuracy of information should not be compromised (o) Information should be complete (p) Information must be relevant to the users of that information (q) Information overload (r) Differentiating one’s offering (s) Establishing credibility (t) Developing distribution channels (u) Creating and maintaining relationships with customers (v) Reducing the time-to-market (w) Point of sale (PoS) (x) Sourcing (y) Inventory management (z) Networking and communication (aa) Core competences (bb) Supply chain management (SCM) (cc) Organisational control (dd) Competitive advantage

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Information Technology for Retailing

�

3. What is the difference between data and information? Explain with the help of examples. 4. What are the functions of MIS? List and explain each. 5. Explain the statement, ‘In every organisation, data is created at various locations and points of time’. 6. Explain the statement, ‘Most businesses have more data than they can capture, store, process, or interpret’. 7. Explain the statement, ‘Once data has been captured and stored, it needs to be processed in a way that makes it meaningful’. 8. Explain the statement, ‘Without the relevant people receiving timely data, MIS departments become irrelevant paper-producing departments within organizations’. 9. Explain the statement, ‘Decision-making time has been compressed to days instead of years’. 10. Differentiate between old and new MIS systems. 11. What are the characteristics of a good MIS? 12. Explain the statement, ‘If the manager is expected to sift through piles of information and pull out relevant data, the manager is quite likely not going to have enough time to do any other work’. 13. Explain the statement, ‘MIS must constantly be redesigned, upgraded and streamlined’. 14. What is a Marketing Support System? 15. Explain the statement, ‘Effective distribution channels present businesses with a formidable competitive advantage’. 16. Explain the statement, ‘Relationships are the only enduring value that brands can create’. 17. What are the crucial components of an RIS? ���� ������������������������������������������������������������������������������table operation of a retail enterprise’. 19. Explain the statement, ‘Stockouts are the bane of retail business’. 20. Explain the statement, ‘Optimal inventory level management is a complex, yet important, function of an RIS’. 21. Explain the statement, ‘CRM is the backbone of successful business practices at a retailer’. 22. What are the reasons for the increased popularity of eCommerce? 23. Explain the statement, ‘It is not inconceivable that there will come a time where half of all retail would be transacted online’. 24. Why does an organisation need MIS? 25. Explain the statement, ‘retail managers have to constantly think on their feet’.

Management Information Systems

Five Creative Thinking Questions: For Beyond the Text Understanding

�

1. Without getting into the technical details, explain what you would seek from an ideal RIS? 2. One hundred years from now, how would RIS be different? ��� ��������������������������������������������������������������������������� 4. ‘If data is not interpreted accurately, it could lead to absurd conclusions.’ Explain with the help of examples. 5. If complete data about the purchase habits of all human beings on the planet were made available to you, how would you best use it?

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.) S. Ramalingam is the Vice President of Retail Technologies at Best-Product retailers. Best-Product has recently purchased the world’s most advanced Retail Information System (RIS) that has all the features that one could imagine in an RIS. In addition, S. Ramalingam has made sure that the hardware used to run the RIS is the latest and most advanced. That makes the RIS platform of Best-Product one of the best in India. With the advanced hardware and software in place, S. Ramalingam has run into an unexpected problem. Though the technology is all there, it seems impossible to harness it. Managers keep getting RIS reports but are unsure about how to use them. Given that the RIS is highly advanced, there are no readily trained employees available. S. Ramalingam has to make a crucial decision. He has three options: • Scrap the current system and buy the most common RIS being used in India. • Hire more skilled employees and invest in their training. • Use only part of the functionality of the RIS and ignore the rest.

Five Discussion Questions for the Case Study 1. What are the advantages of each of the three options that S. Ramalingam is exploring?

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Information Technology for Retailing

2. What are the disadvantages of each of the three options that S. Ramalingam is exploring? 3. Come up with one more option for S. Ramalingam. 4. If you were the Technology Head at a new retailer, what lessons would you learn from S. Ramalingam’s experience? 5. ‘Advanced technology can be double-edged sword’. Explain this with reference to the case above.

Three Project Ideas: On Concepts in this Chapter

�

1. Make a checklist of all the criteria you would use to purchase an RIS. Contact managers at a retail store and ask them to rank these criteria. Prepare a report to explain the ranking. ��� �������ve different large format retailers, visit all areas of the retail store and observe people making purchases. Make a note of all the CRM efforts that the retailers are making. List them down and add your comments for each. 3. Visit the websites of three vendors that offer different RIS packages. Compare their offerings based on the information available on the websites. If you were a consultant assigned with the task of choosing one of these three RIS packages, which one would you choose? Why?

2

IT @ PoS Hardware at the Point of Sale

Cha pt e r

INTRODUCTION It is often said that the most important job in the retail industry is that of the Cash Register operator. Though certainly an exaggeration, this statement re ects the culmination of the retail supply chain. And that chain ends with the customer purchasing the product (later we will talk about post-sale relationship too). The Point of Sale (PoS) is a critical point for a retail business. The ease and speed of checkout at the PoS signi cantly contribute to the shopping experience of the consumer. In large format retailers, consumers walk around and select their own merchandise. This is often done without the assistance of a store agent. In such a situation, the only personal contact with customers occurs at the PoS. Also, once customers have made up their mind about what they need to purchase, the PoS agent has one last opportunity to try and get them to buy more.

D

e nition: The Point of Sale (PoS) is that speci c location within a retail store where the customer pays for the goods. It should be noted that usually the physically delivery of the goods is given to the customers at the PoS, but sometimes there is a delivery counter. Another, less popular, de nition, calls a retail store itself the Point of Sale.

LEARNING OBJECTIVES

To understand the Cash Register, EPoS Terminals, and other hardware technologies used at the Point of Sale (PoS) After studying this chapter, you should be able to ■ Understand Cash Registers: their functioning, components, advantages and limitations ■ Grasp the customer’s perspective of a Cash Register ■ Know the manager’s perspective of a Cash Register ■ Understand the benefits and limitations of a Cash Register ■ Understand the Computerised PoS machine (EPoS): its functioning and components ■ Know the benefits of an EPoS over conventional Cash Registers ■ Understand the operation of a Cash Register or EPoS

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Information Technology for Retailing

What is a Cash Register? A Cash Register is the place where retail purchase is tallied, billed and paid for. The seemingly simple device actually has several dimensions that are hidden from the general public. Note that the oldest Cash Registers were not electronic in nature and their operation required rotation of gears and punching of levers which was something similar to an old fashioned typewriter. Today, all Cash Registers are electronic. Hence, when this book uses the term Cash Register, it means Electronic Cash Register.

Components of a Cash Register There are several manufacturers of Cash Registers and each has a somewhat different design. But the basic components of a Cash Register are as follows:

Display This is an LED display with enough space to list the item that is currently being scanned as well as its unit price.

Cash Drawer One of the important functions of the Cash Register is to store cash. As a result, there is a cash drawer at the base of the Cash Register. This drawer has sections and columns to categorise currency notes and coins by denomination.

Operating Software The operating software controls the functions of the Cash Register. Usually the software is provided free of charge by the manufacturer of the Cash Register. In addition, retailers are usually eligible for software upgrades in exchange of an annual maintenance fees. The operating software can be used to program the Cash Register to handle issues related to

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branding (including the retailers name / messages on the bills), security (locking, passwords), tax computation (service tax, VAT, sales tax…) and the like.

Keypad Naturally, there has to be a keypad to control basic operations. If the Cash Registers capture sales data from a scanner, keypad operation is minimal. If the data has to be entered, then a full functional keypad with digits is required.

Function Keys There are several common functions that need to be performed by the Cash Register operator. Some of these include: 1. Totaling up of all entries made thus far 2. Printing the bill or a duplicate copy of the bill 3. Deleting an entry 4. Applying a discount 5. Capturing the mode of payment and the like… To speed up these repetitive functions, most Cash Registers have function keys. A onetouch operation to initiate these functions makes the Cash Register easy to operate.

Printer There is usually a ribbon based dot-matrix printer in Cash Registers. This printer can print on a roll of paper and generates bills for customers. For noiseless operation, some Cash Registers use thermal printers. Thermal printers are faster and noiseless. But they require special coated paper. Also, thermal printing disappears after a couple of months.

Scanner There has to be some mode of entering data into the Cash Register. In lower end models, the Cash Register operator has to key in the data. But if some automated system, such as bar codes is used, a scanner can rapidly capture the product data.

Memory Each Cash Register has some amount of memory built in. Usually, retailers have the option to increase the installed memory. Memory stores the tariff card (price list) of the retailers. It also stores data from recent transactions.

Optional: Battery Back-Up For energy ef ciency, most Cash Registers work on a regular power supply from a power outlet. But given the critical nature of its function, many models of Cash Registers have a battery back-up system. If there is a power failure, the system migrates to the battery mode of operation without a hitch.

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Information Technology for Retailing

Optional: Additional Customer Display Though optional, the presence of a customer display unit is getting to be the standard. In the checkout area, the Cash Register operator and the customer stand on adjacent sides of the counter. As a result, the customer cannot conveniently view the display that is visible to the operator. Most modern Cash Registers have an additional display unit speci cally for the customer. This is also called the pole display.

Optional: Card Swipe Slot Retail outlets that accept credit cards often like to store credit card data for their records. The easiest way to capture that data is to provide a slot for swiping the credit card. Remember that swiping the credit card in the Cash Register is not a substitute for swiping the credit card in the credit card authorising machine that is made available to the retailer.

ASIDE

History of the Cash Register It is said that necessity is the mother of all invention. This was certainly true about the invention of the Cash Register. One of the common problems with old-style Mom-and-Pop retail outlets was that non-owners could not be trusted to handle the cash in the business. As a result, expansion of one’s retail business was nearly impossible. In 1883, James Ritty, a saloonkeeper in Dayton, Ohio, USA, invented the Cash Register. He called it the “Incorruptible Cashier” thereby listing what he thought was its most important feature. Unlike the modern Cash Register, the earliest Cash Registers were mechanical devices and not electronic devices. Despite being mechanical devices, early Cash Registers too could tally totals at the end of the day. This was done by punching holes in a roll of paper. At the end of the day, the retailer could tally up the holes and gure out the amount of sales that were generated in the store. In 1906, a Cash Register was designed that ran on an electric motor. This became the predecessor of the modern day Cash Register. Now, over a century later, modern retail cannot imagine existing without the Cash Register or its more evolved cousin, the EPoS.

Customer’s Perspective of a Cash Register Let us see the Cash Register from the customer’s point of view. 1. The details of the purchased goods are captured (a whole chapter is dedicated to the capture of data later in this book). This tells the Cash Register what goods were purchased, their quantity, and their unit price. 2. The customer can inspect the details of the purchased goods, as well as the total amount due as they are being entered into the Cash Register. 3. The Cash Register operator then queries the customer on the mode of payment. This has to be entered into the system for the accounting department to be able to tally payments.

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4. When the customer chooses the mode of payment (typically: cash, credit card, debit card), the Cash Register operator enters it into the Cash Register. 5. If the customer is paying cash, the amount of money tendered is also entered. The Cash Register then computes the change that needs to be returned. If a customer is paying by credit card, many Cash Registers require the card to be swiped to capture the card details. This swipe is in addition to the swipe needed to get money from the credit card. 6. At the press of a key, the bill gets generated and the cash drawer opens automatically. This allows the operator to put the money in and also withdraw the required change. However, there is lot more to a Cash Register than functioning as a glori ed calculator cum cash box. In fact, when we talk about Point of Sale technology in retail, we are mainly talking about the Cash Register and its multitude of functions. To understand this further, let us look at it from the perspective of the Cash Manager of the store. If the store is a small outlet then the Cash Manager is quite likely the owner of the store. In larger stores, cash management is a specialised function.

Cash Manager’s Perspective of a Cash Register 1. To begin with, every customer transaction should be attributable to a speci c sales representative. In case of any discrepancy, this will allow the cash manager to pinpoint the person responsible. To this end, the Cash Register needs the operator to login with a password. Once an operator has been logged in, all transactions that take place until logout will be attributed to that operator. 2. At the end of the day or at the change of a shift, the Cash Register can provide a tally of the total money that should be part of this register’s collection. This is categorised as cash, credit card slips and the like. At the time of logging out, the cash manager counts the money that the operator hands over and tallies it with the money that the Cash Register reports as collected. If this money tallies, then the responsibility of the Cash Register operator is over. 3. For the purpose of accounts and internal control, Cash Registers have an option of printing all transactions conducted in a speci ed period of time. Several large retail stores print out these transactions and submit them to the accounting department.

Benefits of Using a Cash Register Whenever one has to evaluate the bene ts of any system, one needs to compare it with another option. So what is the alternative to a Cash Register? To nd the answer, we just need to see the systems that were operational earlier. In the absence of a dedicated device, the system was manual and the only degree of automation came in from the use of a calculator to total the sales amount. Compared to the manual system, Cash Registers are better because: 1. The likelihood of human-error is minimised. 2. The store is able to trace the person who recorded the transaction.

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Information Technology for Retailing

3. All functions of checkout are clubbed into one device, making the operation seamless. 4. The time taken for operations to commence at new retail outlets is minimised, as standard Cash Registers are easily available. 5. The time taken to checkout is lowered. 6. The use of paper is minimised or eliminated. But there are several limitations of the Cash Register. Most of these are related to the restrictions of memory and storage devices. Additionally, the software used in Cash Registers cannot handle a high level of complexity. This is where the computer based Point of Sale system gains importance. At most of the large outlets, the point of sale device is a computer that performs all the functions of a Cash Register and provides many additional bene ts.

Computer Based Point of Sale System A computer based Point of Sale System, commonly called Electronic Point of Sale System (EPoS for short), is a computer system that serves as a Cash Register. It appears similar to the PC (Personal Computer), but with some differences.

Components of an EPoS For all practical purposes, the EPoS is an evolved version of a Cash Register. Hence, it has all the components of the Cash Register mentioned earlier in the chapter. These are the: • Printer • Cash Drawer • Optional: Battery Back-Up • Optional: Additional Customer Display

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• Optional: Card Swipe Slot • Scanner These tend to be identical to the ones found in a Cash Register. The enhanced functionality of the EPoS is due to the:

Full Function Keyboard Unlike the Cash Register, the EPoS is often put to more advanced use. Hence, it has a keyboard akin to the regular PC. This means that the full QWERTY keyboard is often present in an EPoS. Storage Device One of the greatest differences between the Cash Register and the EPoS is that the EPoS has virtually unlimited storage. This is because it can use the usual hard disks that PCs use. Hence, the storage capacity can be expanded. In some cases, removable storage devices can also be attached. Communication Ports Given the substantially enhanced computing power of the EPoS, retailers often use them for more functions than they use the humble Cash Register. Hence, ports are provided in the back panel of the EPoS to allow it to communicate with other devices, computers and EPoSs. Connectivity The presence of communication ports would be meaningful only if connectivity were provided to the EPoS. This can be in the form connectivity on a Local Area Network (LAN) or on the Internet. This connectivity could be provided by cables or by wireless connections. Larger Screen The screen of the EPoS tends to be identical to the screens used by PCs. This allows for the display to be larger and include several more elements. Optional: Touch Screen Input To further simplify the process of customer checkout, EPoS manufacturers offer the touch screen facility. This makes the process of data entry intuitive. More Evolved Software Functions With the use of the PC as its basic processing device, the functionality of the EPoS software is limited only by the imagination of its creator. Graphics, complex computation, database management and all other software routines available on the PC are also available on the EPoS.

Advantages of an EPoS Over the Plain Vanilla Cash Register All the advantages of an EPoS arise from the fact that it is based on a computer system. Some of these advantages are: Ability to Create and Access Databases The information that retailers can derive from data can be a formidable competitive advantage. Though customer data is collated from several sources, the most critical form of customer data is sales data. Since EPoS systems create each transaction, there is a wealth of information stored in the data. EPoS systems can create databases from the transaction data. They can also access existing data. Here is an example:

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Information Technology for Retailing

RETAIL EPIS ODE On swiping the customer’s credit card, the EPoS operator can see the customer’s previous purchase: a oor vacuum cleaner. This allows the operator to immediately ask the customer, “How is the vacuum cleaner working?” The operator can further ask, “Would you like to buy an extension cord to reach distant corners of the room?” This is just one of the examples of how data mining can be used at the Point of Sale to create a great customer experience. Later in the book, we have an entire chapter on data mining. EPoS systems are well equipped to access databases and hence can assist greatly in data mining.

Ability to Display Multimedia While the simple cash register simply show LED or LCD based characters, the EPoS can show different kinds of information. When business is slow, the screens can go into a screen saver mode and display advertisements and other promotional messages. Networking with Other EPoS Machines, Back-Office, ERP Systems, Inventory Control and Supply Chain One of the greatest advancements in retail technology occurred when EPoS systems were networked. This allowed them to ‘talk’ to other computer systems in real-time. The bene ts are immense. Here are some examples: • If the centralised inventory management system is constantly updated with stock position, reordering from the vendor can be more ef cient. In fact, if a retailer has a chain of stores, the EPoS systems in each store can connect to a centralised computer that can manage reorder levels. • A stockout is when a customer wants a product that a retailer usually stocks, but has currently run out of. Stockouts are undesirable in a retail setup. The EPoS can be programmed to assist the operator in case of a stockout. This can be in the form of: – recommending an alternative product to the customer – locating the product from a nearby sister-outlet and offering free home delivery – automatically registering an urgent replenishment request. • In case an EPoS system detects that a certain product has to be manually keyed in, the store manager can immediately be alerted to investigate the reason for the manual entry. If it is found that mislabeling occurred, the situation can be recti ed immediately without inconveniencing any more customers. Remote Maintenance Until recently, this would have been regarded as pure science ction, but it is now common occurrence. As Information Technology in the retail industry has become more widespread, retailers have become dependent on it. Hence, even small downtime can hurt business signi cantly. As a result, equipment vendors now offer retailers the option of remote maintenance.

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IT @ PoS

Since EPoS systems are networked, vendors can perform several operations without actually visiting the machines. In some cases, vendors provide these maintenance operations from across national borders. Some of the remotely maintained functions can include: • Upgrading the EPoS software • Backing up of data • Resetting hanged machines • Upgrading data in the machine (e.g., upgrading tariff cards, product lists…)

Operating a Cash Register or EPoS It is important to operate the cash machine in a form that makes shopping convenient for the customer as well as achieves the retail store’s objectives. Here are some issues to be kept in mind: 1. When a customer purchases multiple units of the same article, Cash Registers offer the option of not scanning each object and simply entering the quantity. If the operator is sure that all items are of the same type and price, this is ne. But stores generally discourage this. Here are the reasons: (a) though identical, the goods might be from different batches and there could be a difference in price (b) though identical in all other respects, including price, the goods might have an expiry date associated with them (c) the goods might seem similar, but might differ from each other on some factor that might not be easily visible, e.g., multiple fragrances in the same brand of body soap. 2. It is not enough to simply tally the money, but also match the exact goods sold. Otherwise, inventory taking will not be able to decipher what happened to the unaccounted goods. 3. If the customer presents an item and the Cash Register operator is unable to identify the price or other details of the item, the operator should have recourse to manually entering the details of the item without making the customer wait for a long time.

ASIDE

Retail Technology to Spot Sweethearting! An article published in the Times of India on May 12th, 2009, talked about a retailer called Big Y in Massachusetts, USA. This retailer has installed security cameras that have been programmed to intelligently detect sweethearting. Sweethearting is “when cashiers use subtle tricks to pass free goods to friends: obscuring the bar code, slipping an item behind the scanner, passing two items at a time but charging for one.” Interestingly, it is not security personnel peering at security camera screens are detecting sweethearting. Instead, software programs are looking for tell tale signs and reporting it to retail managers, along with a clip of the relevant camera footage.

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Information Technology for Retailing

Concept Questions: Test Your Understanding 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

De ne PoS. What is a Cash Register? What are the components of the Cash Register? For what functions are function keys in a Cash Register typically programmed? What are some of the optional features in a Cash Register? What are these features used for? How does the customer view the Cash Register? How does the cash manager view the Cash Register? What are the advantages of a Cash Register over a manual system? Explain the statement, ‘With a Cash Register, all functions of checkout are clubbed into one device, making the operation seamless’. What are the limitations of a Cash Register? What is an EPoS? Explain the statement, ‘For all practical purposes, the EPoS is an evolved version of a Cash Register’. What extra features does an EPoS have, compared to a Cash Register? How does communication and connectivity help an EPoS? How does the ability of an EPoS to create databases help? What other systems can an EPoS network with and how does that help the retailer? What is a stockout? How can EPoS software help in the case of stockouts? What is remote maintenance? What issues must an EPoS operator keep in mind?

Five Creative Thinking Questions: For Beyond the Text Understanding 1. First there was the manual system, then the Cash Register and then the EPoS. What could be the next step in this evolution? 2. What feature, if added to the EPoS, would enhance the shopping experience of the customer? 3. What features of the EPoS add the most complexity to its operation? 4. In what ways should retail managers secure the checkout process to prevent pilferage by the customers or operators? 5. How could wireless connectivity help EPoS systems?

IT @ PoS

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.) Shyam Gaonkar is the Technology head at All-in-One retailers. So far, All-in-One had only one outlet. Their cash management and accounting functions were partially automated. Customer checkout was automated with the use of a barcode scanner and a Cash Register. But the rest of the process was manual. Gaonkar introduced some amount of automation by making it mandatory to prepare spreadsheets for important data. Recently, All-in-One raised private equity investment and is planning on expanding state-wide. Gaonkar is worried that their current technology may prove inadequate in the multi-locational setup. But Gaonkar is facing resistance from his colleagues. Most of the employees of Allin-One regard it as a model business enterprise. As a result, they consider that its present systems and processes are responsible for getting it to the point that it is at. A much more automated system would require tremendous investment in terms of hardware, software, training and personnel. Luckily, the recent private equity investment makes it possible for All-in-One to afford the technology upgrade. But that is only if the senior management is convinced that there is a high return on investment. Gaonkar hires consultants to evaluate the parameters on which return on investment could be measured. He would like to give a true indicator of the return on investment that is possible. Think of yourself as a member of the team of consultants.

Five Discussion Questions for the Case Study 1. What parameters of business would you measure to gure out the return on investment? 2. Would you recommend that the old system be replaced by a new system? Or would you advocate that the old and new system work hand in hand? 3. What kind of hardware and software would you recommend to All-in-One? 4. If there comes a time when All-in-One decides to expand nationwide or even internationally, would your recommendations change? 5. Which non- nancial bene ts of automation will you list to the senior management?

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Three Project Ideas: On Concepts in this Chapter 1. Visit a large retailer with multiple checkout terminals and a small retailer who performs checkout and billing by manual systems. What is the basic difference? What are the advantages of each method? Present your observations in the form of a report. 2. Observe different EPoS operators in the same retailer. Each of them operates the EPoS in somewhat different ways. What are the differences? How do they affect the ef ciency of checkout? Write a report that shares your ndings. 3. Interview the following: (a) an EPoS operator (b) a Customer (c) a Marketing Manager (d) a Technology Manager at a large retailer. Ask them about the technology used in the store. Identify the differences in their perspectives. Prepare a report to provide an explanation for the different perspectives.

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IT @ PoS, Part 2 Software at the Point of Sale

Cha pt e r

INTRODUCTION In the previous chapter, we studied the hardware that is used at the Point of Sale (PoS). But hardware, in the absence of software, does not achieve the functions one desires it to. The computerisation of EPoS technology has opened doors for virtually unlimited software application development. When EPoS systems are connected to the Internet or local area networks (LANs), they become a potent tool. EPoS software can then talk to other software systems in the enterprise and offer the retail manager information that helps in rapid decision-making. But incorporating technology is not an end in itself. What we need is the right technology, at the right time, at the right price, implemented at the right speed.

D

e nition: Software refers to the written programs or procedures or rules and associated documentation pertaining to the operation of a computer system, that are stored in read/write memory (Courtesy: WordNet: Princeton University, USA).

LEARNING OBJECTIVES

To gain an insight into EPoS software: its types, components, functioning, benefits and limitations After studying this chapter, you should be able to ■ To understand EPoS software ■ To learn about the types of EPoS software: Legacy, Best of Breed, Fully Integrated Software ■ To choose between different types of software ■ To understand transaction-related functions of EPoS software ■ To understand management-related functions of EPoS software ■ To learn about the self-checkout ■ To appreciate different EPoS software for different types of retail stores.

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Understanding EPoS Software Information Technology has evolved to a point where the user is not always able to distinguish between the hardware and software in the system. For the technologist, the difference is immense. Software performs periodically changing functions. Non-changing functions are often hardwired into the system. EPoS hardware and software work hand in hand. The hardware is like your brain and the software is what you are currently thinking. Given the exibility of modern EPoS systems, one machine can handle complex functions that earlier required an entire customer service department to excute. Note that the retailer can control which functions are available to which operator. For instance, general billing might be available to all levels of operators, but only a supervisor-level operator might be able to authorise refunds. This system of userlevels lends to better management and control of retail functions. EPoS software is of three types: • Legacy • Best of Breed • Fully Integrated Software, e.g., ERP software

Legacy Software As the name indicates, Legacy software has been carried forward for years. Typically, the software platform that Legacy EPoS software works on is either out of date, or cumbersome. The reason Legacy software continues to exist, and spread, is that it is always easier to expand the existing system than implement a new one, even if that new system were intrinsically superior. This is a typical case of ‘old habits dying hard’.

Best of Breed Software (BoB) Best of Breed is a term used to describe software that does a single function really well. As opposed to this, a Fully Integrated Software (FIS) covers the entire gamut of required software functions, but may not be the best for any speci c function. Best of Breed software has the major advantage that it is the best solution in the market to achieve a certain function. Its biggest disadvantage is that it performs a narrow role and interfacing it with other software is a headache. Consider the following scenario:

RETAIL EPIS ODE A department store decides to install the BoB software for inventory-management as well as order-processing. It buys the best inventory management software. This software has the best features and is intelligent enough to recognise sales patterns. This helps the department store in making effective forecasts. The department

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store also purchases the BoB order-processing software. This software can manage multiple vendors, credit periods and payment mechanisms. The problem is that once the BoB inventory-management system recommends the purchase of certain products, there is no automated way to make the order-processing system place the order. Instead, the recommendations of the inventory-management software have to be exported to a text le. This text le has to then be imported into the order-processing software to place orders with the vendors.

Fully Integrated Software (FIS) Unlike BoB software, Fully Integrated Software can perform a wide range of functions. If it is indeed ‘fully’ integrated, then it should be able to manage all the software requirements of a retailer. An extreme example of FIS is ERP (Enterprise Resource Planning) software. ERP not just fully integrates all functions related to sales, but also provides modules to manage marketing, human resources, taxation, legal, training, CRM, scheduling, maintenance, documentation, archiving, audit, transport, logistics, inventory, forecasting and a host of other functions. As is apparent, FIS makes software operation seamless. The problem with FIS is that it is very expensive and requires specialists to implement it.

Choosing Between BoB and FIS The primary points of comparison are • Fit • Ease of use • Cost and resources • Implementation

Fit Think of it as a visit to the tailor. You might get the best apparel, but if it does not t right, it is not an appropriate dress. In quite the same way, t indicates how well the software meets the requirements of the customer. If you need to transact foreign currency based purchases, then a software package that does not have this feature does not t your needs. A software package that ts the customer’s needs one hundred percent is not likely to exist. But a retail manager must work hard on getting the maximum t. Also, in critical functions, the t must be a hundred percent.

Ease of Use If the EPoS software has all the required features, it may still not be a good choice if it is cumbersome to use. With visual software becoming the norm, today we can simply click

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icons on the screen instead of typing commands. Better yet, we can have a touch screen interface where the operator simply has to touch the right icons on the screen.

Cost and Resources If the EPoS software requires the use of very powerful computers or operating systems, it is too resource intensive and may not be a good choice of EPoS software. At the same time, software that is too expensive may not be a good choice, as it will adversely affect the cash ow and pro tability of the retail venture.

Implementation The EPoS software that the retail manager chooses could be the best of all worlds, but could be quite complex to install. Typically, large ERP platforms take several specialists to install. This delays implementation and raises costs substantially. For a retailer who has decided to set up shop, such delays in implementation are highly undesirable as they delay the time to break even.

FIS v/s BoB: The Verdict As it turns out, retail industry managers show a distinct preference towards FIS software, especially ERP software that links the entire enterprise. But this preference is only in the case of large deployments, e.g., a chain of retail outlets. In the case of stand-alone outlets or a network of few outlets, BoB is often the software of choice. ERP software is much more expensive. But if the expense is divided over a large number of terminals, it could actually turn out to be inexpensive in the long run.

What Does EPoS Software Do? Now that we have gured out how to choose EPoS software, let us learn the various functions of the EPoS software: There are two categories of functions that EPoS software performs: 1. Transaction-related: This is where each purchase by a customer is facilitated and recorded. 2. Management-related: These are higher level business functions that assists senior management in effectively running the retail business.

Transaction-Related Functions of the EPoS Software Some of the transaction-related functions are: • Sales Management • Refunds (including Credit Notes) • Discounts

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• • • •

Estimates Error Correction Overrides Foreign Exchange Management Loyalty Programs, Membership Programs, Rewards Programs

1. Sales Management First and foremost, EPoS software should be able to process transactions. So, when a customer purchases goods, the software should be able to: (a) identify the barcodes or other labels and pull up the relevant prices (b) compute the totals (c) print the bills (d) record the mode and amount of payment (e) keep a running tally of all transactions at a particular EPoS terminal (f) keep a tally of the amount transacted by each EPoS terminal operator

2. Refunds (including Credit Notes) Depending upon the store’s policies, certain customers could be eligible for a refund. Some stores do not refund money, but give a credit note (sometimes also referred to as store credit). The EPoS software should be able to process refund and credit note transactions.

RETAIL EPIS ODE Hyper-Retail-Store has a refund policy that takes care of the customer’s need as well as its own. If the customer returns goods in brand new condition within one week of purchase, the customer is given a credit note. This note makes the customer eligible for purchasing goods worth an amount equivalent to the price of the returned goods. Since the customers are able to return goods, they are happy. Since the store does not have to actually give money back, it is happy to get the opportunity to have the customer buy alternative goods.

3. Discounts Discounts, bargains, promotional offers co-branded offers, and other similar deals have become the order of the day in the retail world. These deals attract customers and encourage them to spend more. EPoS software should be able to compute the correct discount based on applicable schemes and bill the customer accordingly.

4. Estimates In some retail sectors, purchases require the retailers to rst submit an ‘estimate’. This means that the buyer is budgeting for the purchase or evaluating multiple retailers. In this case, the EPoS terminal should be equipped to generate the estimate and print it out.

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5. Error Correction Overrides Despite the best efforts of the retailer, there will be situations where the EPoS will not be able to recognise a certain item. This can occur when an item is not labeled or when it is mislabeled. In this case, the operator will have to manually rectify the error and enter the correct information. But this creates the risk that the operator might mischievously alter the price of a product. As a result, error correction overrides typically are available only to supervisors and higher-level store personnel.

6. Foreign Exchange Management In some retail segments, customers are likely to pay in foreign currency. For instance, a retail store in the shopping area of a ve-star hotel could attract many foreigners who would want to pay in foreign currency. The EPoS terminal should be able to record the currency, convert the currency price based on the latest prices, and be able to issue a bill that re ects the foreign currency transaction. (Note that the popular terminology for Foreign Exchange is Fx. So this function of an EPoS terminal is called Fx Management).

7. Loyalty Programs, Membership Programs, Rewards Programs In order to encourage repeat purchase at a speci c outlet, retailers often create their own loyalty programs. Every time a customer purchases goods at a retailer, some points are credited to the customer’s loyalty membership account. After the points accumulate, the customer can avail of free goods or discounts. Some retailers also accept multi-retailer loyalty programs, such as the iMint program in India. EPoS software has to be programmed to record details of these loyalty programs and also permit customers to redeem reward points.

ASIDE The airline industry has long rewarded frequent iers. In 1981, American Airlines created the rst successful ‘frequent ier program’. As part of this program, every time someone ew, they would accumulate points. When a suf cient number of points had accumulated, the customer was eligible for a free air ticket. Today the frequent ier points (usually called miles) are not only used for free tickets, but also for ticket-class upgrades, free rental vehicles, hotel stays, travel packages and more.

Management-Related Functions of the EPoS Software For the management-related functions listed below, EPoS software acts as just an interface. These management functions are performed by other software in the case of BoB software or by other modules in the case of FIS or ERP software. But the EPoS software provides vital transaction data to be able to perform these management functions.

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• • • • •

Pricing Management Operator Management Inventory Management CRM (Customer Relationship Management) Supply Chain Management (SCM)

1. Pricing Management There was a time when the concept of MRP (Maximum Retail Price) decided the price that a product sold for in India. Though MRP is still printed on products, retailers often offer discounts and bundled offers. EPoS software has the provision for updating price lists. In addition, there is the option of automatically computing package prices, as will be illustrated with the help of the following retail episode.

RETAIL EPIS ODE Big Hero Sandwiches outlet sells sandwiches for Rs. 75, cold drinks for Rs. 25 and chips for Rs. 10. However, if one buys all three, it is called a ‘meal’ and priced at Rs. 99. The EPoS that Big Hero Sandwiches uses should automatically be able to combine purchases into ‘meals’ in case the person purchases all three items. If it does not, these two customers, who purchase the same food, will be charged different amounts: (a) Ram buys 2 sandwiches, one cold drink and one bag of chips (Rs. 185). (b) Shyam buys 1 meal and one sandwich (Rs. 174).

2. Operator Management The person who interacts with the customer at the checkout counter plays a pivotal role in the customer’s shopping experience. As mentioned at the beginning of the previous chapter, some people rate the EPoS operator’s job as the most important in the retail industry. EPoS software requires each operator to login using a password. Hence, all transactions that an operator performs can easily be logged in. This can give senior management a good idea of how different operators are performing. One can measure how much time each operator takes to process a transaction.

3. Inventory Management EPoS software does not perform the entire function of inventory management. However, it is networked with the central computer that takes care of stores and inventory. As stock levels of certain products go below the desirable level, purchase managers know that it is time to reorder.

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4. CRM (Customer Relationship Management) Since the PoS is where interaction with the customer is the maximum, it presents a good interface point for initiating CRM. Akin to inventory management, CRM is not the function of EPoS software, but EPoS software is networked with central computers to feed customer data. Though it is easy to know the total quantity of goods sold, it is the EPoS software that holds the key to guring out the purchase pattern of speci c customers. Consider the following example:

RETAIL EPIS ODE Among other things, a store sells 10 packs of dental oss and 25 bottles of high priced imported mineral water. Consider two distinct possibilities: (a) Dental oss was not purchased by the same customers who purchased the expensive mineral water. (b) In eight out of ten cases the customer purchasing the dental oss also purchased the expensive mineral water. In the rst possibility, there is no startling revelation. But in the second case, the store manager could infer that people who buy dental oss are quite likely to buy expensive mineral water. There might be several explanations for this: (a) a high regard for health and hygiene (b) high amount of disposable income (c) international exposure… If such correlation between dental oss and expensive mineral water was established over a period of time, the retail store could use this information for cross-selling opportunities. This could be in the form of: (a) locating the two items closer together (b) offering bundled offerings… And how would the retail manager know whether such opportunities are available? The answer lies in the transaction data that is logged by the EPoS software. We will look at data mining in a separate chapter, but this example shows how EPoS software can make a contribution in effectively running a retail store.

5. Supply Chain Management (SCM) There was a time when retail stores referred to the neighbourhood grocery store basically a Mom and Pop outlet. The present generation is witnessing the advent of large format and organised retailing. The biggest reason for this has been technological intervention. But effective supply chain management (SCM) lies at the heart of networks of retail outlets. Effective SCM also permits large stores to offer better-than-MRP prices.

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EPoS software can be advanced enough to talk to the computers of the entire supply chain. Here is an example.

RETAIL EPIS ODE Manus Veggies supplies vegetables and fruit to retail outlets. Some of these vegetables are presented in a freshly-cut state. Some examples are: pineapple slices, beans-carrots-peas mixes for Chinese cooking, peeled sugarcane slices and the like. If these are cut much in advance, they rot and lead to customer complaints. If the EPoS systems of the retailer could constantly talk to the Production Software at Manus Veggies, then current stock levels at the retailers would indicate the timing and quantity of the fruits and vegetables that need to be cut.

Variation of the EPoS: the Self-Checkout In several economies, the most important component of an organisation’s expenses is employee cost. In these economies, coin or currency notes based vending machines are quite popular. From the EPoS point of view, the self-checkout presents an interesting non-contact system of accepting payments. The way self-checkout works is that customers scan barcodes of their products or otherwise enter the details of their purchases into the checkout machines. Then they pay using plastic money (credit cards or debit cards), coins, currency notes or make electronic payments.

The Advantages of Self-Checkout 1. The human element is reduced, and hence employee costs of the retailer are lowered. 2. When customers are queued up, they tend to get impatient with the EPoS operator. But when they are scanning the purchased goods themselves, they do not get impatient as they are busy.

The Disadvantages of Self-Checkout 1. Reduced human interaction makes the shopping experience more impersonal. This reduces the retail store’s ability to create a relationship with the customer. 2. Several customers do not feel capable enough to operate the self-checkout equipment. 3. Employees are needed to oversee the self-checkout terminals. 4. If items are unlabeled or mislabeled, self-checkout leads to a lot of frustration for the customer. 5. The risk of theft or pilferage is higher.

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ASIDE The San Francisco Chronicle reported on June 29, 2007 that a man exchanged the price label on his plasma television from $984 to $4.88. Then this man proceeded to self-checkout and purchased the television for the ridiculously low price. Though the man was eventually arrested, this incident points out the risk of pilferage.

Self-Checkout in the Indian Context Self-checkout has not gained popularity in India. Among other factors, the primary reason for this is that semi-skilled labour is not too expensive. Additionally, uctuating and nonreliable power supply make the self-checkout systems undependable.

Different Strokes for Different Folks: Differences of EPoS Systems in Different Types of Retail Stores Much of the explanation in this chapter relates to large format retail chains. But those are not the only type. What if it is a single store with a single EPoS or Cash Register? The answer is that there is no difference. It is possible that only one person, the owner, operates the store. Even in that case, the primary functions of billing, inventory, purchase, refunds, and others will have to be performed. It is true that several of the functions of the EPoS software will not be needed in this case. That is why, EPoS software purchase decisions need to be made judiciously depending upon the application that they are intended for.

IT @ PoS, Part 2

Concept Questions: Test Your Understanding 1. De ne ‘software’. 2. Explain the statement, ‘Hardware, in the absence of software, does not achieve the functions one desires’. 3. What is EPoS software? 4. Explain the statement, ‘Hardware is like your brain and the software is what you are currently thinking’. 5. What are the three types of EPoS software? 6. Why do organisations still use legacy software? 7. How is Best of Breed (BoB) software better than Fully Integrated Software (FIS)? 8. How is FIS better than BoB software? 9. How do you choose between BoB and FIS? 10. In the context of EPoS software, explain: (a) Fit (b) Ease of use (c) Cost and resources (d) Implementation 11. What are the transaction-related functions of EPoS software? 12. What are the management-related functions of EPoS software? 13. Explain, with examples, the following transactions in a retail store: (a) Sales Management (b) Refunds (including Credit Notes) (c) Discounts (d) Estimates (e) Error Correction Overrides (f) Foreign Exchange Management (g) Loyalty Programs, Membership Programs, Rewards Programs 14. Explain, with examples, the following tasks of a retail manager: (a) Pricing Management (b) Operator Management (c) Inventory Management (d) CRM (Customer Relationship Management) (e) Supply Chain Management (SCM) 15. What is the self-checkout? 16. What are the advantages and disadvantages of the self-checkout? 17. Why has self-checkout not taken off in India?

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18. What are the different functions that EPoS software needs to perform for a small retailer versus a large retailer? 19. Explain the statement, ‘Incorporating technology is not an end in itself’. 20. Explain the statement, ‘EPoS hardware and software work hand in hand’. 21. Explain the statement, ‘Legacy software systems are a case of old habits dying hard’. 22. Explain the statement, ‘FIS software makes software operation seamless’. 23. Explain the statement, ‘Discounts attract customers and encourage them to spend more’. 24. Explain the statement, ‘The present generation is witnessing the advent of large format and organised retailing’.

Five Creative Thinking Questions: For Beyond the Text Understanding 1. There is Legacy, BoB and FIS software for the EPoS. What other type of software could there be? 2. If you were a salesperson for BoB retail software, how would you convince a retailer to prefer your software to FIS software? 3. Extend the concept of ‘ERP software links the entire enterprise’ to explore how far these linkages could go. 4. First there was the manual checkout, then there came the EPoS based operator scanned product checkout, then there is the self-checkout. What could the next step in this evolution be? 5. If one retail manager is using EPoS software more effectively than another, what is that retail manager quite likely doing differently?

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.) Anand Vithal Retail Stores is a third generation retailer. Their rst store was established over a hundred years ago. Today, the grand children of the founder are managing the

IT @ PoS, Part 2

business. Their retail empire now spans 30 outlets spread over four cities in two adjoining states. But times have changed. Large multinationals have entered the fray. In addition, retailers now have the backing of large investors who seem to be more intent on growing revenues than pro ts. Also, the loyal customer, the traditional base of Anand Vithal Retail Stores, has shown decreasing loyalty. They are now easily lured by discounts, convenience and enhanced shopping experiences. In some cases, Anand Vithal Retail Stores nds that it is not able to buy goods for as low a price as the competitors are selling it for. This is because of the supply chain management strategies being used by larger competitors. Now Anand Vithal Retail Stores has reached a point where they feel that the marketplace will break its back. So urgent measures are called for. To begin their modernisation, they decide to rst incorporate EPoS systems.

Five Discussion Questions for the Case Study 1. Are EPoS systems a good place to start the journey towards modernising Anand Vithal Retail Stores? 2. How would effective EPoS technology help Anand Vithal Retail Stores develop a competitive advantage? 3. How can Anand Vithal Retail Stores use its traditional advantage of superior customer relationships to its advantage in this era of automated relationships? 4. If you were to purchase Anand Vithal Retail Stores today, what would you do differently than what the current management is doing? 5. With the bene t of hindsight, what should the management of Anand Vithal Retail Stores have done as soon as the marketplace started becoming competitive?

Three Project Ideas: On Concepts in this Chapter 1. Visit a large grocery store, which seems to have advanced EPoS systems. What are the functions that the EPoS operator is able to perform? Make a report of what the limitations of that system are. 2. Imagine that you are designing the EPoS software for the future. What are the new functions that you will add to it? 3. If employee costs shoot through the roof, fewer EPoS operators would need to checkout larger number of customers, without causing additional delays. How could this be made possible?

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Cha pt e r

Credit Cards The Payment Mechanism of the Emerging Retail

INTRODUCTION The retail industry supply chain starts from the production of raw material and ends at the Point of Sale (PoS). This is where the customer receives goods in exchange of payment. This payment from the customer nances the entire retail industry supply chain. It is hence of paramount importance to facilitate and understand the mechanism of this payment. There was a time when you would buy retail goods and pay for them solely with cash. If you were purchasing high value goods such as a motorcar, you would probably pay by issuing a cheque.

D

e nition: Payment mechanisms in retail business refer to the method in which money goes from the customer to the retailer. Another term for payment mechanism is payment system.

LEARNING OBJECTIVES

In this chapter, we will focus on retail businesses accepting payments from customers. We will primarily focus on credit card payments. After studying this chapter, you should be able to ■ Understand the advantages and disadvantages of using cash and cheque for retail purchases ■ Understand the convenience of a credit card ■ Understand the actual process by which a credit card gets processed ■ Focus attention on credit card fraud and its prevention ■ Explore new age payment options such as electronic transfers, online stored value accounts, e-cheques and mobile phone based payment mechanisms.

Credit Cards

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Cash: The Time-Tested Mode There was once a time when cash was king. In referring to cash, we mean using currency notes. That was the time when customers would hand over the money to the owner of the shop. In small Mom-and-Pop kind of outlets, this would do. But in the world of large and organised retail, a lot can go wrong with cash. Despite this, cash remains a common payment mechanism. For most retailers in India, cash is still the most common payment type they receive from customers. But that is fast changing as plastic money, with all its conveniences, catches up.

The Accountant’s ‘Cash’ In this chapter, we continue to use the word ‘cash’ as if it means currency notes. But in the world of business accounting, including retail business accounting, cash has another meaning too. Cash means paying immediately. In this sense, cash is the opposite of credit. By that token, all forms of immediate payment discussed in this chapter would qualify as ‘cash payments’.

The Problem With Cash Cash has several limitations. 1. The foremost problem with cash is that it belongs to the person who possesses it. For instance, if a person drops a Rs. 10 note and someone else nds it, how would a third person be able to identify the true owner of that money? 2. Cash needs to physically exchange hands. Suppose a customer in Mumbai needs to buy something from New Delhi. If the customer decides to pay by cash, the money will have to be sent across the country in order to make the payment. 3. Cash, especially in large amounts, creates a security issue. Suppose a customer has to buy a lot of furniture. This customer could spend as much as Rs. 50,000 or even much more. If he carries so much money in the form of currency notes, and travels from one furniture shop to another, there always the chance that the money could get lost. Worse, it could get stolen. 4. Yet another problem with cash is that one needs to count several notes to come up with the actual amount needed. For instance, if one is at a grocery store and purchases Rs. 542 worth of goods, several currency notes will be needed to make up that amount. 5. The niggling problem of ‘change’ is another limitation of cash. Often when one is at a retail store, the retailer insists on the exact change. If neither the customer nor the retailer has the exact change, a lot of time could get wasted asking around for change. Worse, the customer might actually have to leave without making a purchase. 6. When cash payments are made using foreign exchange, EPoS systems and operators may not be in a position to know how to deal with the situation.

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Despite these problems, cash remains highly popular. This is because: 1. People think of money as cash. 2. All other forms of payment: cheque, credit card, online payments, etc. have the requirement of steep upfront effort. This is typically in the form of documentation and identi cation required to set up an account.

Cheques Solve Some Problems, but Create a New One Some of the limitations of cash can be overcome by using a cheque. Here is how a cheque can be better than cash: 1. If you need to send money from Mumbai to New Delhi, sending a cheque by courier is quite convenient. 2. Since you have to write the payment amount on the cheque, you can always make the exact payment without inconvenience. For instance, if you have to pay Rs. 346 and 23 paise, this is easily done with a cheque. Attempting to do this with cash could be a nightmare. 3. Cheques offer a greater degree of security, as they are simply pieces of paper. Your real money lies in a bank.

ASIDE

The Cheque Payment Mechanism If a customer pays a retailer by cheque, the following payment mechanism is triggered: The customer writes a cheque for the correct amount and addresses the cheque to the name of the retailer. The retailer deposits the cheque in its account. Depending upon the time of the day that the cheque was deposited, it usually goes for clearing the same day or the next. In yet another day, the customer’s bank withdraws money from the customer’s account and sends it to the retailer’s bank. The retailer’s bank credits that money to the retailer’s account.

In India, cheques have not gained popularity in retail sales as they bring with them one serious limitation: the person receiving a cheque cannot be sure of actually receiving the money until the cheque clears. There are two reasons for this: 1. The person issuing the cheque may be using somebody else’s cheque. 2. The issuer may not have enough money in the bank account. As a result of this serious limitation, retailers in India do not accept cheques as a mode of payment. Contrast this with retailers in USA, where most stores accept cheques. Though

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American retailers too run the risk of non-clearance of cheques, they are able to overcome the rst limitation by verifying the issuers name against a photo id, such as a driving license.

ASIDE

Cheques Can Go Bad For understanding how a conman can cheat retailers out of large sums of money by passing fake cheques, watch the 2002 Steven Spielberg movie, Catch Me If You Can. In this movie, Frank Abagnale Jr., played by Leonardo DiCaprio, passes fake cheques and buys millions of dollars worth of goods.

Enter: Credit Cards The fastest growing payment mechanism at retail outlets is the use of credit cards. Given that they are in the form of plastic cards, they are commonly referred to as plastic money. These pieces of plastic have become so common that many people possess more than ve credit cards each. Procuring your rst credit card can be dif cult. But once you get your rst card, several credit card issuers will happily issue you a credit card based on your payment history of the rst card. There are several outstanding features of credit cards that make them so attractive. The biggest reason is the ‘credit’. In the world of nance, credit means money that you borrow. So a credit card lets you spend money that you do not have. This is unlike cash or cheque where you must rst have the money. In the case of credit cards, you can buy an expensive item without possessing money and repay the ‘credit’ over a period of time by making small monthly payments. In addition to the credit, credit cards have several other features that make them an attractive mode of payment. 1. They provide the safety of a cheque, as a signature is required for using them. 2. Exact payments can be made as the retailer has to simply key-in the amount. 3. You can keep track of your expenditure as you get monthly statements that list the expenditure you made on the credit card. 4. Just one credit card can help you make multiple payments, unlike a cheque where you need to get a new chequebook once the cheques have been used. 5. Large payments can be made without the need to carry pocketfuls of cash. 6. Most credit cards work internationally. There is no hassle with carrying cash in different foreign currencies. 7. If you lose a credit card, and immediately notify the issuer, you do not lost any money. Losing cash is distinctly worse.

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8. Credit cards can be used for payment at online-retailers (more details in the chapter on eCommerce). Cash or cheque cannot be used in this case. 9. Most credit card issuers have some sort of a rewards program. Without any extra cost to the user, credit card companies provide rewards based on the extent of usage. 10. Some credit cards run promotions where users receive ‘cash back’. Depending upon the amount of expenditure, this cash back could amount to a lot of discount. In addition to the conveniences listed above, there are some more social reasons that have promoted the use of credit cards. 1. People can now use a product before being able to afford it. 2. Several consumers hesitate when handing over large amounts of cash. There is a certain amount of guilt when physically handing over currency notes. But spending with a credit card does not really feel like ‘spending’. As a result, there is a greater willingness to use a credit card. All these advantages of a credit card lead to greater spending at the retailer’s. This is why retailers welcome credit cards. In fact, if the credit card swipe machine is non-functional even for a few hours, retailers lose out on a lot of potential income.

ASIDE Though we discuss credit cards in this chapter, there is a close cousin of such cards that is popular too. This is the debit card. Unlike a credit card, a debit card directly withdraws money from the cardholder’s bank account. Instead of a signature, a debit card uses a PIN that the cardholder must input at the checkout counter.

How Does a Credit Card Transaction Get Processed?

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Credit Cards

At the checkout counter of a retail store, the cashier asks you for payment, and you present your credit card. The cashier swipes the card in the swipe machine. A few moments later the swipe machine prints a slip of paper. You sign the slip of paper and that is it. You just paid for your purchase. But what really happened here? The seemingly simple card swipe actually initiates a complex payment process. Before we understand the credit card mechanism, let us understand the role of the various parties involved. Let us do this with the help of an example.

RETAIL EPIS ODE Mr. Ram Verma shops at Big Bazaar for Rs. 720. At the checkout counter, he presents his ICICI Bank Visa Gold Card. The cashier swipes this card in a machine that has been issued to Big Bazaar by Canara Bank. In the above example: Ram Verma is the Cardholder. Big Bazaar is the Merchant. ICICI Bank is the Credit Card Issuer. Visa is the Card Association. Canara Bank is the Acquirer.

The Merchant sells the products that the Cardholder buys. The Issuer allots the card to the Cardholder. It is the Issuer’s job to check whether the credit card should be issued. The issuer also has the job of ensuring that the Cardholder is billed for expenses and payments are collected. The Card Association (such as Visa or MasterCard) acts as an in-between for the Credit Card Issuer and the Acquirer. The Acquirer is the organisation that issues the swipe machine to the Merchant and settles payments with the Merchant.

The Actual Process The credit card payment process consists of the following steps: • Authorisation • Batch Processing • Settlement • Funding

Authorisation When the cardholder hands over the credit card to the merchant, the card is swiped. This submits the details of the transaction to the acquirer’s computer. The acquirer’s computer then communicates with the computer of the issuer to make sure that the cardholder’s transaction should be permitted. The issuer’s computer performs several checks—does the cardholder

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have enough credit limit left, has the card been reported as stolen and the like. If all is well, the issuer’s computer gives a go ahead to the acquirer’s computer, which in turn gives a go ahead to the merchant’s Point of Sale (PoS) swipe machine. A slip of paper is generated in duplicate. The cardholder signs one copy and returns it to the merchant. The other copy is handed over to the cardholder. This entire process is called authorisation.

Batch Processing When several payments are authorised, their details are stored in a batch. The merchant sends this batch to the acquirer. This is often done at the end of a working day.

Settlement The acquirer receives the processed batches from all its merchants and forwards these payment authorisations to the card association. In turn the card association withdraws money from the issuer’s account and deposits it into the acquirer’s account. To provide this service, the card association charges a fee to the acquirer.

Funding Once the acquirer receives the money, it pays the merchant. The acquirer passes on the card association’s fee to the merchant and also levies an additional fee for its own pro t. This entire cycle of authorisation–batch processing–settlement–funding takes between one and three days. Interestingly, though the merchant receives the money, the cardholder is required to pay the money much later, as much as one and a half months later.

Credit Card Fraud Credit card fraud is a big threat to the retail industry. Stolen credit cards, if not reported, will clear the four processes listed earlier. Even the merchant will get paid. But later there will be a reversal of payment and the merchant will end up losing money. In more evolved markets, this problem is of an unthinkable magnitude. For instance, in the US, annual credit card fraud is in the excess of US$ 1 billion (i.e., the equivalent of Rs. 5000 crores). India is still far behind, but the fraud levels are increasing.

What can Employees of Retailers Do to Reduce Credit Card Fraud As participants in the retail industry, employees of retailers who deal with customers’ credit cards should be attentive when processing payments. Here are some steps that can be taken to reduce the likelihood of credit card fraud. 1. Each credit card has a signature panel. If the signature on the credit card is smudged or unreadable, there is a chance of fraud. This should be reported to a supervisor immediately. 2. The signature on the authorisation slip should be carefully compared with the signature on the credit card.

Credit Cards

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3. In the background of the signature panel, there is always a repeated design, in colour. This design shows either the MasterCard or Visa name. A fraudster might try to stick a new piece of paper on this panel and include her/his name. Make sure that the signature panel has the original design. 4. There is a chance that the card itself is a fake. So check for the presence of a 3-D hologram. This hologram should appear to move as you move the card. 5. In case you have been given a list of invalid or stolen credit cards, compare the card number with the numbers on that list. 6. Some retailers print the credit card number on the payment receipt. This is helpful, but if a carbon paper is used in the process, it can lead to a security risk. This is because the carbon paper can fall into wrong hands and the credit card details, including the name of the cardholder can be stolen. Some retailers have been hit really hard by credit card fraud. These retailers have initiated extraordinary measures to detect credit card fraud. Also, several card issuers have created checklists to identify fraudulent behaviour. Naturally, consumer behaviour is not a sure-shot give-away of fraud, but it can act as a reason for caution.

Other New Age Payment Mechanisms Though cash and credit cards dominate the scene in the retail industry, there are other emerging payment mechanisms. Whether these mechanisms will ever gain momentum for retail payments is not clear. We take a quick look at several of these payment mechanisms.

Electronic Transfers The concept of electronic transfers is simple: you have an account at some place and you can transfer the money to the retailer at the PoS by pressing some keys. In a sense the use of a debit card is a form of electronic transfer as it transfers money from your bank account to the retailer’s. There are several companies that offer e-transfers. These are also called net-payments as the Internet usually facilitates them. The problem with electronic transfer at present is that the retailer and the customer must be on the same system. Though this happens in the case of debit cards, most other electronic payment options don’t have a wide acceptance.

Online Stored Value Accounts Online stored value accounts are much like bank accounts, except that the nancial institution that holds these accounts is entirely present online. Typically, these institutions do not provide any other bank-like functions either. The biggest name in online stored value accounts is PayPal. Founded in 1998 PayPal currently transacts more than $60 billion per year (i.e., approx Rs. 3,00,000 crores). Some would argue that it has become the de facto standard for online payments, other than accepting credit cards online.

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There are other destinations for online payment options. These include MoneyBookers, Digital River, 2checkout.com, AlertPay, e-gold, and others. The common point in all these online accounts is that they are highly suitable for online retail (eCommerce), but not suitable for physical retail. (Source: http://www.paypal-media.com Date Accessed May 15, 2009)

E-Cheques Just like you write a cheque, you can ll an online form to make the payment. This is called an e-cheque. Since a signature is not possible, the issuer uses a digital signature. E-cheques have not proved popular in India.

Mobile Phone Payments One of the promising payment options of the future is Mobile Phone Payments, or Mobile Payments for short. Mobile payments are primarily of two types: • Proximity based • SMS based Proximity based systems involve placing your mobile phone in front of a reader-device. If your service provider offers the option of mobile payments, and you have money in your mobile payment account, then the reader-device will be able to withdraw money from your account. This would require you to key in a PIN (Personal Identi cation Number) to approve the transaction. At this point of time, proximity based mobile payments in India are being done only on an experimental basis. SMS based mobile payments do not operate in a standardised way. Most people have encountered the option of purchasing a ring tone, a wallpaper, or some other cell phone software by sending an SMS. In a sense that too is retail of value added service. But that does not allow for SMS to be used for general retail purchase. There are technologies available to transfer money from your bank account or credit card to that of the retailer by using SMS. But the acceptance of these technologies is very low at this point of time.

Credit Cards

Concept Questions: Test Your Understanding 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

16. 17. 18. 19. 20.

21.

De ne payment mechanism. Explain the statement, ‘The retail industry supply chain ends at the Point of Sale’. What are the two meanings of the word ‘Cash’? Explain the statement, ‘There was once a time when cash was king’. What are the advantages of buying goods with cash? What are the disadvantages of buying goods with cash? Explain the statement, ‘Cash belongs to the person who possesses it’. Explain the statement, ‘Cash needs to physically exchange hands’. Explain the statement, ‘Cash creates a security issue’. Explain the statement, ‘The problem of “change” is a limitation of cash’. Explain the statement, ‘People think of money as cash’. In what way is a cheque a better mode of payment than cash? Why has the credit card emerged as the most preferred mode of payment at retail stores? Why is ‘plastic money’ so called? Which are the ve parties involved in any credit card transaction? Explain the role of the following in processing a credit card transaction: (a) Cardholder (b) Merchant (c) Credit Card Issuer (d) Card Association (e) Acquirer Explain the statement, ‘It is the issuer’s job to check whether the credit card should be issued’. Explain the statement, ‘There is a certain amount of guilt when physically handing over currency notes’. Describe the four-step process in which credit card transactions are conducted. What is credit card fraud? Why is it such a big problem? If you are operating the cash register and a customer presents a credit card for payment, what are the points that you need to keep in mind to prevent credit card fraud? What are: (a) Electronic Transfers (b) Online Stored Value Accounts (c) E-cheques (d) Proximity Based Mobile Payments (e) SMS Based Mobile Payments

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Five Creative Thinking Questions: For Beyond the Text Understanding 1. What are the psychological reasons that compel people to pay by cash? 2. Given that there are so many credit card issuers, how can one differentiate their offering from another? 3. If you were a debit card issuer, how would you encourage people to use your debit card more? 4. What is the real reason that new age payment mechanisms have not caught on? 5. Describe a perfect payment mechanism for the future.

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.) Raju Rau is a store manager at Big and Easy stores. Almost all his customers pay him by cash or credit card. Some big customers with old relationships also pay by cheque. Mr. Rau is nervous about cheques not clearing, so he is not permitting new customers to avail of the cheque payment option. But he cannot make up his mind about encouraging or discouraging credit card payments. Several competitors of Big and Easy stipulate transaction restrictions for cardholders. These could be in the form of a certain minimum amount of billing required. In some cases, credit cardholders even have to stand in separate queues. Mr. Rau dislikes the fact that he has to pay a three percent fee to the acquirer and card association. He also dislikes the fact that the authorisation process slows down checkout. Even the two-day delay in receiving the payment makes him nervous. At the same time he acknowledges that on the whole credit cardholders spend more than those who pay by cash. Also, his risk of cash handling is minimised. With all these pros and cons, Raju Rau is left undecided on his approach towards credit cards.

Credit Cards

Five Discussion Questions for the Case Study 1. What restrictions, if any, should Big and Easy stores place on credit card users? Why? 2. If you were a sales person from the credit card acquirer, how would you convince Mr. Rau to encourage credit cards? 3. Despite the fee levied on credit card transactions, is it possible to make a case that the store saves money by accepting credit card payments? 4. Is there any other payment mechanism you would recommend to Mr. Rau? Why? 5. What are the real risks of cash handling? How big are these risks?

Three Project Ideas: On Concepts in this Chapter 1. Visit a retail store that accepts credit cards. Compare the time taken to checkout customers paying by cash and by credit card. How do you explain this difference? 2. Talk to ten customers who pay by cash and ten customers who pay by credit card. Ask them why they chose that mode of payment. Collate their responses and present an analytical report on consumer’s payment preferences. 3. Several customers possess more than one credit card. At the PoS, they make a decision about which credit card to use. What prompts this choice?

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Automatic Identification & Data Capture Using Technology to Identify Products and Capture Data

INTRODUCTION

e nition: (1) Automatic Identi cation (2) Automatic Data Capture

LEARNING OBJECTIVES

In this chapter, we will focus on automatically identifying objects primarily using bar codes and RFID. After studying this chapter, you should be able to ■ Understand Auto ID and Auto Data Capture ■ Understand bar codes, their functioning, benefits and limitations ■ Understand the precise structure of the bar code and the check digit ■ Differentiate between standardised and proprietary bar codes ■ Gain familiarity with bar code related hardware ■ Explore ISSN, ISBN and other types of coding standards ■ Understand RFID, its components, types and functioning ■ Explore the advantages, disadvantages, and problems associated with the use of RFID technology.

Automatic Identification & Data Capture

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Objectives of Auto ID and Auto Data Capture

RETAIL EPIS ODE

Examples of Auto ID and Auto Data Capture Employees swiping their identity cards upon entering the of ce:

Cars with smart cards passing toll booths:

Tags attached to products to prevent pilferage from large format retail stores:

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ASIDE

Recall the Self-Checkout

Some of the Technologies Used for Auto-ID

ASIDE

ASIDE

Automatic Identification & Data Capture

Bar Codes

Important: Price is Not Coded into the Bar Code

The Need for Standardisation

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EAN (European Article Number)

UPC (Universal Product Code)

Bar Codes in India http://www.gs1india.org

Advantages of Bar Coding

challans

RETAIL EPIS ODE

Automatic Identification & Data Capture

How a Product Bar Code in India Looks Like

8 9 0 4000 2 1 003 7 Check digit Item ID Company Prefix (Source: http://www.gs1india.org Date Accessed May 15, 2009)

The Company Prefix

The Item ID

The Check Digit

What Qualifies as an Item?

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Computing the Check Digit

Calculate Result 1

9

4

3

5

1

0

Calculate Result 2

8

Get the Modulo-10

6

0

0

0

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Automatic Identification & Data Capture

Standardised Bar Codes v/s Proprietary Bar Codes Standardised Bar Codes Proprietary Bar Code

Advantages of a Proprietary Bar Code

Disadvantages of a Proprietary Bar Code

Bar Code Related Hardware

Bar Code Printer

Bar code Scanner

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Types of Bar Code Scanners

Portable Data Collection Terminals

Bar Code Labels

Precaution to be Taken While Printing Bar Codes

Automatic Identification & Data Capture

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Source:

ISSN, ISBN and Other Types of Codes

RFID (Radio Frequency Identification)

RFID RFID tags RFID readers

How Does RFID Work?

Active Versus Passive RFID Tags

RFID transponder

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Advantages of RFID Over Bar Codes

Disadvantages of RFID Over Bar Codes

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de facto

ASIDE

The Marauder’s Map in Harry Potter

Problems with RFID

Tag Collision

tag collision

Reader Collision tag collision, reader collision

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Concept Questions: Test Your Understanding

Automatic Identification & Data Capture

Five Creative Thinking Questions: For Beyond the Text Understanding

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.)

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Five Discussion Questions for the Case Study

Three Project Ideas: On Concepts in this Chapter

6

Cha pt e r

Enterprise Resource Planning (ERP) Interconnecting the Retailer’s Information Technology Resources

INTRODUCTION

enterprise

e nition: An Enterprise Resource Planning (ERP)

resource

planning

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LEARNING OBJECTIVES

In this chapter, we will understand what retail ERP software does and understand its benefits and disadvantages. After studying this chapter, you should be able to ■ Know what a retail ERP system is ■ Understand the benefits of ERP to a retailer ■ Be aware of the disadvantage of an ERP system to a retailer ■ Know management issues that retail managers must deal with while implementing ERP systems ■ Grasp the true cost of retail ERP ■ Understand the ERP paradox ■ Know how to customise and configure retail ERP systems ■ Grasp the issues faced in implementing ERP systems ■ Know the approaches to implementing ERP systems ■ Know about on demand retail ERP ■ Understand how to successfully implement retail ERP

Purpose of ERP

Benefits of ERP to a Retailer

Enterprise Resource Planning (ERP)

Point of Sale (PoS) Management

Supply Chain Management (SCM)

Inventory Management

RETAIL EPIS ODE

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Customer Relationship Management (CRM)

Customer service and ful llment: Communication:

Data Mining

Designing Product Portfolio

Enterprise Resource Planning (ERP)

Pricing

Managing Marketing Initiatives

Real Time Management of the Entire Operation

Information Consistency

Human Resource Management

Financial Management

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Metrics and Evaluation

Disadvantages of an ERP System to a Retailer

Price

Limited Customisability

Commoditisation of Business Processes

Complexity of Operation

Reduced Emphasis on the Individual

Enterprise Resource Planning (ERP)

The True Cost of Retail ERP

The ERP Package

The Hardware

Training

Customisation and Configuration

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Implementation

Data Management

Maintenance

ASIDE

The ERP Paradox ERP paradox

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Enterprise Resource Planning (ERP)

How can ERP Systems be Customised to a Specific Retailer?

ASIDE

Customisation v/s Configuration

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How are ERP Systems Implemented at a New Retailer?

How are ERP Systems Implemented at Existing Retailers?

Cost

Complexity

Business Disruption

All at Once

Enterprise Resource Planning (ERP)

One Function at a Time

One Location at a Time

On Demand Retail ERP: A New Paradigm for Retailers

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What are the Requirements for Successful Retail ERP Implementation?

Top Management Buy-In

Enterprise Resource Planning (ERP)

The Need for an ERP Champion

Money

Best Practices

Scalable Architecture

Hardware

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Concept Questions: Test Your Understanding

Enterprise Resource Planning (ERP)

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Enterprise Resource Planning (ERP)

Five Creative Thinking Questions: For Beyond the Text Understanding

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.)

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Five Discussion Questions for the Case Study

Three Project Ideas: On Concepts in this Chapter

7

Cha pt e r

Customer Relationship Management Technology That Helps Build Relations with Customers

INTRODUCTION

e nition: Customer Relationship Management (CRM)

LEARNING OBJECTIVES

To understand the philosophy and technological approach to managing relationships with customers After studying this chapter, you should be able to ■ Understand the basic idea of CRM ■ Differentiate CRM from CRM software ■ Understand the activities and approaches that constitute CRM ■ Understand the applications of CRM technology in various aspects of retail business

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Is CRM the Same as CRM Software?

RETAIL EPIS ODE

What is CRM?

Customer Relationship Management

Applications of CRM Systems

Marketing Applications of CRM

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Budgeting

Discovering New Customers

Customer Segmentation

Event and Campaign Management

Customer Loyalty Programs

Leads Management

Customer Relationship Management

Measurement of Marketing Initiatives

Sales Applications of CRM

Increasing Sales per Customer

Cross-Selling and Up-Selling

De nition: Cross-selling

De nition: Up-selling

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RETAIL EPIS ODE

Why are there are candy shelves at the checkout counter?

Planning and Execution of Sales Promotion Programs

ASIDE

The four P’s of marketing

Sales Force Management

Quotations, Orders, Bills, Contracts and Other Document Management

Customer Relationship Management

Customer Service and Customer Contact Applications of CRM

Delivery and Fulfillment

Repair and Service

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ASIDE

What are White Goods?

Refunds and Exchanges

Customer Communication

Customer Query Responses

Call Centre and Customer Interaction Management Applications of CRM

eCommerce Applications of CRM

Customer Relationship Management

Concept Questions: Test Your Understanding

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Five Creative Thinking Questions: For Beyond the Text Understanding

Customer Relationship Management

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.)

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Five Discussion Questions for the Case Study

Three Project Ideas: On Concepts in this Chapter

8

Data Mining

Cha pt e r

Discovering Purchase Patterns and Correlations

INTRODUCTION New York Times What Does Your Credit-Card Company Know About You ? The New York Times

Source: What Does Your Credit-Card Company Know About You? http://www. nytimes.com/2009/05/17/magazine/17credit-t.html

e nition: Data Mining

LEARNING OBJECTIVES

To understand the concept and technology of data mining, and its benefits to the retail industry. After studying this chapter, you should be able to understand ■ The concept of Data Mining and its various characteristics ■ Why Data Mining is important to a retailer ■ Why Data Mining is gaining significance

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■ ■ ■ ■ ■ ■ ■ ■

The issue of ever increasing data The effect of increasingly powerful computers and statistical algorithms The steps involved in Data Mining The applications of Data Mining in retail management The technology requirements of Data Mining The errors that can take place in Data Mining The limits of Data Mining The privacy concerns of Data Mining

What is Data Mining?

Data Mining is an Automated Process

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Data Mining

Data Mining Must Unearth Hidden Relationships

RETAIL EPIS ODE

Data Mining Must Lead to Predictive Relationships

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The Predictive Patterns should be Useful to the Retailer

Why is Data Mining Gaining Significance?

Increased Amounts of Data

Much Information 2003 edu/research/projects/how-much-info-2003/

How http://www2.sims.berkeley.

Data Mining

Increased Computational Power

Improved Statistical Algorithms

How Does Data Mining Work?

Capturing of Data

(1) The data might have to be collected from multiple sources

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(2) The data set will invariably have missing data

(3) The data could have errors

Storage and Databasing of the Data

Data Access

Creation of Clusters

Data Analysis

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Relationship Representation

What are the Applications of Data Mining in Retail Management?

RETAIL EPIS ODE

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What Kind of Technology Does Data Mining Need?

Data Processing

Queries

Errors in Data Mining

RETAIL EPIS ODE

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ASIDE

Limitations of Data Mining

Privacy Concerns Regarding Data Mining

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Concept Questions: Test Your Understanding

Data Mining

Five Creative Thinking Questions: For Beyond the Text Understanding

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C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.)

Five Discussion Questions for the Case Study

Data Mining

Three Project Ideas: On Concepts in this Chapter

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Cha pt e r

Supply Chain Management From Raw Material to Finished Product

INTRODUCTION The hardworking farmer who tills his eld from sunrise to sundown can probably not imagine the journey that his tomatoes will undertake once he sells them in the wholesale market. Being perishable goods, these tomatoes will rapidly pass through the hands of agents and intermediaries and land up at different locations based on their nal application. Let us consider those that will end up in tomato ketchup. These tomatoes will move from the cultivator to the wholesale buyer to a foodprocessing unit where they will be converted to ketchup. But that is just the beginning of a huge chain of events. The ketchup would then be packaged and moved to the logistics arm of the chain. From here it would be warehoused, transported and would pass through the hands of wholesalers and stockists. Finally, it would end up on the shelves of retail outlets from where customers would purchase it. As if this chain of events is not long enough, consider the overlap it has with several other chains of events. For instance, the ketchup-manufacturing unit itself would depend upon the chain that brings it spices, preservatives, machinery, storage bottles, labels and the like. In this chain, we have only considered the ow of the raw material and nal product. There are other ows too: for instance, the ow of money, documents and information. This entire chain of events and activities, put together, formulates the supply chain for tomato ketchup.

D

e nition: Supply Chain Management (SCM) is the set of steps and techniques involved in ef ciently managing the ow of goods, information and money from the raw material stage to the point where it reaches the hands of the nal consumer. Since one stage leads to another, the set of activities are in the form of a chain. Hence, the term supply chain management.

LEARNING OBJECTIVES

In this chapter, we will learn about the application of Information Technology to assist the retailer in managing the supply chain.

Supply Chain Management

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After studying this chapter, you should be able to understand ■ The components of the retail supply chain ■ The concept of span of Supply Chain Management control ■ Objectives of Information Technology in retail Supply Chain Management ■ Reverse logistics

Managing all Components of the Supply Chain A lot of literature on supply chain management deals with the creation and movement of products. This misses out on lot of real world issues that accompany any supply chain management endeavour. In reality, supply chains consist of three major resources that need to be managed: • Product • Information • Money

Product The management of a product’s supply chain involves procuring the raw material, manufacturing the goods, storing and transporting them until they reach the store shelves of the retailer. Most supply chain management literature focuses only on managing the supply chain of the product and hence misses out the other two important components of practical supply chain management.

Information Merely moving products is not enough. Effective supply chain management should document such movement and share information with other interested parties in the chain. Information could be in the form of raw data, documents, bills, receipts, vouchers, challans, emails, data entry on electronic data interchange websites and others. It is only when there is a real-time exchange of accurate information that a supply chain management venture succeeds.

Money Most business runs on credit. The supply chain of the product also creates a supply chain of payments. Each participant in the supply chain owes money to some other participant. As a result, there is a chain of payables and receivables. While each participant might have some ability to withstand delays in receiving payments, large delays can have a debilitating effect on participants. Much like a delay in the movement of goods can present severe obstacles in

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the supply chain, a delay in payments can have the same effect. Hence, the software used to manage the supply chain always has modules to manage payments also.

Components of a Supply Chain There are primarily three activities that constitute Supply Chain Management: • Supplying the raw material • Manufacturing the product • Distributing the nished product

Supplying the Raw Material Consider the tomato ketchup example at the beginning of this chapter. Tomatoes, salt, spices, preservatives, bottles, and any other raw material that is required for the manufacture of the ketchup needs to be assembled at the point of manufacturing. Each raw material has its own special requirements. For instance, some of the raw materials might be perishable, while others might have special storage requirements. Some of the raw materials might need to be transported over long distances, including overseas, while others might be a by-product of another manufacturing process. The raw material supply component of supply chain management must manage the unique characteristics of each raw material and make sure that the right quantities are available at the right place when needed.

Manufacturing the Product Once the manufacturer knows that products have to be manufactured and that the raw material is in place, the second phase of supply chain management begins. The manufacturing stage involves scheduling, planning, production, quality checks, management of resources, packaging and storage. Many resources go into the manufacturing of products. These include: plant, machinery, people, time, energy, among others. The manufacturing stage of supply chain management has to manage all these resources ef ciently in addition to making important timing decisions. Some manufacturing is based on demand. The product gets made only when the customer demands it. But manufacturing facilities would end up idle for a signi cant portion of time if they only produce on demand. As a result, even if production is based on demand, manufacturers uses complex methods of forecasting demand to ef ciently manage their resources. Some manufacturing processes are continuous as they cannot be stopped and restarted without a signi cant cost. In such a continuous process, it is vital that the manufacturers have a good idea of the expected demand over short periods of time. Otherwise, we could face alternating cycles of shortage and over-supply.

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Distributing the Finished Product Once goods are produced, they need to be at the right place at the right time. Owing to economies of scale, typically, manufacturing is centralised. So one product is typically manufactured only at one (or few) location(s). These nished products then need to be transported over long distances. Multiple modes of transportation are used to reach these products to the required locations. Along the way, different entities: wholesalers, stockists, C & F agents and the like, deal with these products. Finally, the product reaches the retailer where the consumer purchases it.

Span of Supply Chain Management and Control One of the most crucial aspects of supply chain management is the extent to which one participant controls it. This is extremely important for two reasons: (1) Almost no participant can manage the entire supply chain. (2) Despite that, most available literature does not deal with this issue and assumes that all participants intend to manage the entire supply chain. Here are some examples to understand the span of control issue:

RETAIL EPIS ODE Bhimji Khimji Kirana is a small grocery store in a northern suburb of Mumbai. It has monthly sales of about Rs. 5 lakhs. It would always like to hold the minimal inventory without a stockout situation. For Bhimji Khimji Kirana, supply chain management means: (i) Making sure to place an order with the stockist a little before running out of a particular product (ii) Following up with the stockist to ensure timely delivery.

RETAIL EPIS ODE Hypershop is a chain of retail outlets spread all over western India. Put together, they sell about Rs. 40 crores of goods each month. Hypershop’s supply chain management method will go far beyond talking to the stockist. Given the volume, Hypershop will quite likely directly deal with some manufacturers. In some cases, this could involve special packaging exclusively for Hypershop. The manufacturer would rework the production cycle to accommodate Hypershop’s requirements. Delays in transportation would adversely affect the sales at Hypershop. As a result, Hypershop’s supply chain management system would also have to take logistics into account.

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RETAIL EPIS ODE AutoMakers of India Ltd. is introducing a low priced people’s car. It expects to sell large numbers and intends to outsource the manufacturing of many of the components of the car, e.g., mirrors, car battery, steering mechanisms, tyres and so on. For this automobile manufacturer, supply chain management would actually include getting suppliers to set up manufacturing facilities to service their requirements. It might have to go to the extent of funding the vendors and providing them with assured orders.

As you can see from the three preceding Retail Episodes, the extent to which a participant attempts to control and manage the supply chain varies depending upon the size and relative strength of the participant. The span of supply chain management control hence is an extremely important concept for migrating theoretical textbook concepts to practical application.

Objectives of Information Technology in Retail Supply Chain Management A complete objective statement for supply chain management would be: to ensure that the right product reaches the right location in the right quantity at the right time and in making this happen, the right amount of time, money and resources are expended, all along ensuring that the right information, documents and money are being passed along between the right partners. To look at these objectives, one at a time, we could list the following objectives of supply chain management: • Maximising the value generated by the sale of a product • Forecasting the demand of goods • Minimising the inventory that needs to be stocked • Processing orders • Hastening the exchange of information, documents and payments • Optimising route and delivery • Scheduling the manufacture of goods • Smoothening the process of stocktaking and warehousing • Managing the eet of transportation vehicles • Measuring key performance indicators in real time …among others. Let us look at each of these in detail:

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Maximising the Value Generated by the Sale of a Product The use of software systems for supply chain management has ensured that we can microscopically monitor each cost to ensure that the value of selling a product is maximised. Consider the following retail episode to understand this well:

RETAIL EPIS ODE Goods-n-Goods is a retailer of sports goods. In an attempt to maximise the value of each sale, the retail manager implements a new supply chain management software. This makes her realise that the biggest supply cost is the cost of the product itself. She decides to change that by changing vendors. For example, instead of buying 100 tennis balls at a time from Vendor 1 at Rs. 23 per ball, she nds that she can lower the cost of each ball to Rs. 16 if she buys 2000 balls at a time from Vendor 2. This would mean a substantially increased margin for her. When she sources her rst order from Vendor 2, she nds that the storage cost increases from Re. 0.5 per ball per month to Re. 1 per ball per month. Additionally, since she has to use a new storage location, her cost of transportation from the storage facility to the retail outlet increases. Further, the increased handling of inventory causes greater damage. As a result, increasing the value at one point in the supply chain can reduce the value at another point in the supply chain.

Though there are several participants in the supply chain, the payments that they make to each other are B2B (business to business) payments. These payments stand on the pillar of the payment made by the nal customer. For instance, take the case of a television set that is retailed for Rs. 10,000. There are several costs that were expended by the supply chain to get the television set to the retail store. This includes money on raw material, manufacture, packaging, logistics, taxes and others. All of those costs should be lower than the Rs. 10,000 recovered from the customer. The difference between Rs. 10,000 and the total money spent in the supply chain is the value generated by selling the television set. Effective supply chain management technology attempts to reduce the cost spent on the supply chain, thereby increasing the value of each sale.

Forecasting the Demand of Goods Ordering goods after stockout occurs is like locking the barn door after the horse has bolted. A good system of supply chain management at the retailer should be able to keep track of every unit, as it is sold, and forecast the demand of each product. This forecast needs to be as accurate as possible.

Minimising the Inventory that Needs to Be Stocked Inventories are a necessary evil. If a high level of inventory is maintained at a retailer, the likelihood of stockouts is minimised. At the same time, the cost of storing the inventory shoots up. More space is required, more people are required, more damage occurs due to

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increased handling and more time is require to sift through the inventory. As a result, retailers like to stock the lowest level of inventory, even if that means assuming a small risk of stockouts. But that does not mean that the loss due to stockouts can be ignored. The consequence of this is that inventory needs to be maintained at the optimal level. The inventory control module of the supply chain management software of a retailer contributes signi cantly, one way or the other, to the pro tability of the retailer. The inventory control system should accurately report the present inventory levels. If the EPoS software is integrated into the inventory system, we can have up-to-the-minute information. Using the forecasting function listed earlier, the inventory control system can make recommendations about the orders that need to be placed.

Processing Orders The retailer needs to place orders based on the inventory levels and forecasts described earlier. There should be minimal time and resources expended in placing orders. Since placing orders is a routine task for a retailer, a slight increase in time or cost of placing each order will have a cascading effect, and the net result will be lowered pro tability. Most modern systems of supply chain management have the facility of placing and receiving orders electronically. So a retailer should be able to login to the EDI (Electronic Data Interchange) system of the vendor and place the order with the vendor. Based on the SLA (Service Level Agreement) with the vendor, the retailer will have a good idea of the delay expected between placing the order and receiving the goods.

Hastening the Exchange of Information, Documents and Payments Earlier, we described inventory as a necessary evil. A bigger, but necessary, evil in supply chain management is the creation and storage of a large number of documents. Many of the documents required for effective supply chain management can be migrated to the electronic platform. But there will still be some documents that need to be generated physically. An effective supply chain management software system will create electronic documents where possible. In other cases, it will facilitate the creation of physical documents. Where documents need to be stored, advanced supply chain management software packages incorporate features of document management systems that permit the retailer to scan and store the electronic version of the document. The actual physical document could be stored remotely as it will quite likely never be required again.

Optimising Route and Delivery The forecasting module of the supply chain management software system, in tandem with the inventory control module, creates an order. The order-processing module places this order with the supplier. The physical movement of goods must then begin and the goods must reach the retailer.

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The supply chain management technology at the vendor’s end now has to gure out the best path of making this delivery. This could involve clubbing this delivery with the delivery to be made to other retailers in the vicinity. Or it could involve waiting for some time for more orders to come in so that the cost of delivery is reduced. The objective of the route and delivery planning modules of supply chain management software is to reduce time and cost of delivery. This lowered cost will bene t the vendor who will pass on some of the bene ts to the rest of the supply chain. This will increase the value and competitiveness of the entire supply chain.

Scheduling the Manufacture of Goods A manufacturer needs to produce goods based on speci c orders or forecasted ones. The supply chain between the manufacturer and the retailer can be quite long, sometimes spanning continents. It is important to schedule production in a way that causes neither excess inventory build-up at the manufacturer, nor excessive delays in delivering the product to retailers. The supply chain management technology at the manufacturer’s end should be able to constantly monitor inventory and order levels at major retailers and intermediaries in the supply chain. This will allow the manufacturer to make more accurate forecasts for production scheduling.

Smoothening the Process of Stocktaking and Warehousing In the case of large retailers and intermediaries, there are huge warehouses that store inventories. Periodically, there has to be a stocktaking exercise to reconcile the expected level of inventory based on EPoS technology and the actual inventory. If this stocktaking exercise has low accuracy or takes too much time, then the very purpose of stocktaking is defeated. Supply chain management technology at these retailers or intermediaries should be able to assist in automatic identi cation and automatic data capture of stocks so as to hasten stocktaking. Use of bar codes, RFID or other identi cation technology must be integrated into the Supply Chain Management software for faster stocktaking.

Managing the Fleet of Transportation Vehicles In some cases, retailers, intermediaries and other vendors actually maintain a eet of vehicles for effective logistics management. Upkeep, maintenance, route-planning and driver management of these vehicles can lower the cost of maintaining the eet. Hence, these are functions that are incorporated into supply chain management technology.

Measuring Key Performance Indicators in Real Time In all areas of technology, managers need to embed Key Performance Indicators (KPIs) that constantly track how well the system is working. Retail technology is no different.

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Given that technology tends be somewhat of a black box (i.e. not transparent), there is the risk that a retailer is using technology for the sake of it. Hence, it is necessary that at all stages retail managers track the use of information technology in supply chain management.

Reverse Logistics: A Special Case of Supply Chain Management Like for all other areas of information technology in retail management, application is limited only by the availability of data and the imagination of the retail manager. A case in point is reverse logistics. Reverse logistics is the process and methodology of capturing value from returned, recycled, waste, used and excess goods. The word ‘reverse’ indicates that the ow of goods in this case is opposite to the usual movement of goods in the supply chain. Supply chain management technology should be able to manage and capture value from reverse logistics. Reverse logistics is a growing area of interest as it can lower costs and make the supply chain more ef cient.

Supply Chain Management

Concept Questions: Test Your Understanding 1. De ne supply chain management. 2. What are the three major resources that need to be managed in a supply chain? Explain each in detail. 3. Explain the statement, ‘Merely moving products is not enough’. 4. Explain the statement, ‘Most business runs on credit’. 5. What are the three primary activities that constitute supply chain management? Explain each in detail. 6. Explain the statement, ‘We could face alternating cycles of shortage and oversupply’. 7. Explain the statement, ‘Economies of scale’. 8. Explain the statement, ‘Finally the product reaches the retailer where the consumer purchases it’. 9. Explain the statement, ‘The extent to which a participant attempts to control and manage the supply chain varies depending upon the size and relative strength of the participant’. 10. Why is the span of supply chain management an important issue? 11. Write the complete objective statement for supply chain management. Explain it. 12. List the objectives of supply chain management. 13. Explain each of these objectives of supply chain management: (i) Maximising the value generated by the sale of a product (ii) Forecasting the demand of goods (iii) Minimising the inventory that needs to be stocked (iv) Hastening the exchange of information, documents and payments (v) Optimising the path for replenishing stocks (vi) Processing orders (vii) Scheduling the manufacture of goods (viii) Smoothening the process of stocktaking and warehousing (ix) Managing the eet of transportation vehicles (x) Measuring key performance indicators in real time 14. Explain the statement ‘Inventories are a necessary evil’. 15. Explain the statement, ‘Retailers like to stock the lowest level of inventory even if that means assuming a small risk of stockouts’. 16. In the statement, ‘The inventory control module of the supply chain management software of a retailer contributes signi cantly, one way or the other, to the pro tability of the retailer’, explain the term ‘one way or the other’. 17. Explain the statement, ‘A slight increase in time or cost of placing each order will have a cascading effect’.

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18. Explain the statement ‘The creation and storage of a large amount of documents is a necessary evil in supply chain management’. 19. Explain the statement, ‘The actual physical document could be stored remotely as it will quite likely never be required again’. 20. Explain the statement, ‘Lowered cost will bene t the vendor who will pass on some of the bene ts to the rest of the supply chain’. 21. Explain the statement, ‘The supply chain management technology at the manufacturer’s end should be able to constantly monitor inventory and order levels at major retailers and intermediaries in the supply chain’. 22. Explain the statement, ‘Managers need to embed key performance indicators that constantly track how well the system is working’. 23. Explain the statement, ‘Technology tends be somewhat of a black box’. 24. De ne reverse logistics. Why is reverse logistics important?

Five Creative Thinking Questions: For Beyond the Text Understanding 1. For supply chain management, create ve key performance indicators. 2. There are several practical limitations that prevent retail managers from achieving their desired supply chain objectives. What could some of these practical limitations be? 3. If you had unlimited resources at your disposal, what advances would you try to incorporate into supply chain management systems? 4. ‘In the best case, only one unit of each item would need to be stocked’. Explore the meaning of this statement. 5. Create ow charts depicting supply chain of common products that you use on daily basis. Explain these supply chains.

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.) Everything For 100 is a retailer of novelty goods that are priced at Rs. 100 each. Due to the special nature of this retail, Everything For 100 does not nd it pro table to retail

Supply Chain Management

common branded goods. Instead, it focuses on procuring low priced imported goods. Most of them are surplus inventory products. Given its special procurement method, Everything For 100 can never be sure of what it will stock next. At the same time, its loyal customer base always expects some products in each category that the retailer stocks. The problem that Everything For 100 faces is that it can never forecast the pricing, availability or quantity of the goods it receives. Sometimes when it places an order for 1000 bottles of shampoo, it barely receives 50, at other times all 1000. Since the goods are purchased from the overseas surplus stock market, orders are based on an auction mechanism. Things have reached a point where there are occasional severe stockouts. Sometimes an entire category, such as ready-to-eat food items, might be missing. Everything For 100 has several options that it is evaluating. 1. Change the nature of its offerings from fancy novelty items to self-manufactured items 2. Continue selling in its present format 3. Change the Rs. 100 benchmark and become a general discount seller. You are hired as a consultant to solve this supply chain driven business problem.

Five Discussion Questions for the Case Study 1. Is the basic business model of Everything For 100 sustainable? 2. What recommendation would you give to Everything For 100? 3. What are the pros and cons of each of the three options being considered by the retailer? 4. Create a fourth, fth and sixth option for the retailer. 5. How can more effective supply chain management solve the problem, at least partially?

Three Project Ideas: On Concepts in this Chapter 1. Secure permission to visit the storeroom or warehouse of a large retailer. Observe the various processes at work there, and submit a report based on that. 2. Visit a manufacturer of some consumer product. Try and follow the entire supply chain from the manufacture of the product to the store shelves. Write a detailed explanation about each step in the supply chain and make recommendations to improve the ef ciency at each stage. 3. Swiss chocolates are produced in Switzerland and sold all over the world. Try and imagine the entire supply chain from cocoa beans to production to logistics to nally landing up on shelves in Indian stores. Create a ow chart of this supply chain and describe each step in a report.

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10 Cha pt e r

E-Tailing The Compelling New World of Electronic Retailing

INTRODUCTION

e nitions: (i) E-tailing (ii) E-commerce

LEARNING OBJECTIVES

To understand e-tailing, its advantages, applications and limitations. After studying this chapter, you should be able to understand ■ What constitutes e-tailing ■ The golden rule of e-tailing ■ The benefits of e-tailing ■ The parties involved in e-tailing ■ The features of a successful e-tailer’s website ■ The issues influencing the growth of e-tailing in India.

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The World of Electronic Retail

Golden Rule of e-tailing

Explanation of the Golden Rule of e-tailing

ASIDE

Benefits of e-tailing

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Lower Costs

Geography-Neutral Business Expansion

Dramatically Increased Speed to Market

Visibility Through Search Engines as Well as Online Communities

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ASIDE

Greater Customer Reach

RETAIL EPIS ODE

Customised Shopping Experience

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RETAIL EPIS ODE

Always Open

Virtually Unlimited Shelf Space

Information

Ability to Create a Community Experience

E-Tailing

Superior Customer Data Collection

Integrated Supply Chain Technology

Lower Inventory Requirement

Paperless Operation

Analytics

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Preparedness for New Electronic Retail Formats

Distributed Fulfillment

Who are the Parties Involved in e-tailing?

The Seller

The Buyer

E-Tailing

The Support Providers

Physical delivery: Delivery and installation: Delivery, installation and maintenance:

Delivery at a speci c time:

The Government

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The Technology Providers

What Must an e-tail Website be Like?

Brand

E-Tailing

Design

User Experience

Information and Communication

Navigation

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ASIDE

Shopping cart abandonment

Options

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Backend

ASIDE

What types of products can be sold electronically?

Issues Influencing the Growth of e-tailing in India

Absence of Strong Brands

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Absence of the Multilingual Web

Discount Orientation

Payment

Logistics

Connectivity

E-Tailing

Concept Questions: Test Your Understanding

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E-Tailing

Five Creative Thinking Questions: For Beyond the Text Understanding

C a s e

S t u d y

(The following case presents a hypothetical situation. Several important facts are mentioned, but some important facts are deliberately left out. As a prospective retail professional, you should use the presented facts, your experience and judgment, and come up with solutions to the discussion questions that follow.)

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Five Discussion Questions for the Case Study

Three Project Ideas: On Concepts in this Chapter