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White Paper - Embracing the new world - Challenges and Options for Retailers

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Optimization of the business processes specifically the retail and warehousing operations, a detailed view of the inventory throughout the chain is critical. Furthermore, fluctuations in demand, speed …

Optimization of the business processes specifically the retail and warehousing operations, a detailed view of the inventory throughout the chain is critical. Furthermore, fluctuations in demand, speed of replenishment, effective movement of goods from the warehouse/distribution center to their respective destinations – be it the retail stores or the end consumer, are the critical pieces of information that should be made available to the decision makers in the quickest possible time.
While most of the large scale retail chains have established processes, it is the small and medium retailer – be it a small four (4) store specialty retail chain or a complex multi-store environment, who struggle to piece together increasing amounts of information from different processes via disparate communication channels to make an informed, effective decision with the pressures from upper management to increase revenue.
CitiXsys Technologies, a leading provider of Retail, Warehousing & Distribution applications and SAP have been working together to make this a distinct possibility. With the backend Enterprise Application provided by SAP, CitiXsys offers an application suite to the small & medium retailer to effectively and better manage their business operations.
CitiXsys offers to its customers the power of an SAP powered business management suite encompassing financials, warehousing & distribution and retail. The application set is scalable and stackable to suit the growing demands of the small and medium retailer.
iVend Retail, Optimized Inventory Management Solution and Inventory Pro are applications, tightly and seamlessly integrated with SAP Business One and can either be deployed all together or in phases as the organization grows.

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  • 1. Embracing the new World: Challenges and Options for Retailers April 2010 Manish Chaturvedi Paula Goncalves
  • 2. In recent months a general sentiment of optimism has been shared by most. The turbulent recessionary months appear to be almost behind us with a display of renewed confidence amongst businesses as well as consumers. Government bailouts and the overhaul of economic policies have boosted consumer confidence, the effects of which appear to be influencing decision making amongst Small and Medium sized Enterprises. Small or medium as they may be, they represent the lower segment of the pyramid. However, by virtue of their status they also represent the foundation for their larger counterparts. For the overall economy to eventually resemble a “V” shape in economic recession and recovery charting (a sharp decline in economic measures followed by a sharp rise to its previous peak) or for that matter a “U” shaped recovery, industry must perform at the highest level possible to ignite the market. At the heart of all this is the consumer. All the good work by governments will only sustain the economy if the consumer starts spending. Large-scale job losses and reductions in incomes are still so vivid in the minds of consumers, affecting consumer willingness to return to the same level of spending experienced prior to the Global Financial Crisis. Consumer spending habits have changed in today’s markets. What we are seeing today is a trend where consumers are generally positive and happy with a slightly lower quality product simply because the price tag is attractive. Still consumers appear generally happy with the alternative. The economic downturn has led the customer to be far more demanding and retailers must be ready to accept these pressures and meet customer expectations. Added competition today provided by on-line retailers has also contributed to retailer’s challenges as numerous product comparison sites – though enabling the customer to get their money’s worth, by the same measure exerts enormous pressure on the retailer to have an optimized warehousing & distribution system. Inventory is the largest investment that a retailer is required to make and keeping the inventory levels optimized to alleviate stock-out / over-stock situations is an area which can contribute significantly to increase the bottom line - operational as well as profit margins. Retailers have always been faced with the challenge of maximizing profits with lower margins. New retail channels, unpredictable demands, poor visibility and control over supply chains have further reduced margins. Nevertheless retailers must have the right merchandize available on hand and the tools to forecast accurately the demand for a product in a particular location. As retailers aim to cope with such pressures, they often struggle with how best to prioritize – should one concentrate on reducing Cost of Goods Sold (COGS) by sourcing goods from more Page 2 of 8
  • 3. price competitive suppliers OR on optimizing the distribution functions of the business OR simply investing in expanding the retail chain reach to more consumers through multi channel retailing. To improve on the process of ensuring sufficient product availability when and where it is most needed which will minimize working capital and inventory holding costs. Most retailers have invested in inventory management applications. Though such applications increase the visibility of inventory, in isolation they do not provide complete visibility. Disparate systems within an organization often leave the key decisions makers struggling to piece together the necessary information important for more informed decision making. With multichannel retailing growing with popularity amongst small retailers in an effort to increase revenues and gain new customers, who in turn can be marketed to through alternative channels. Managing stock replenishment demands from the traditional “Bricks & Mortar” stores and order fulfillment from other channels like mail order catalogues and online shopping. All of which places increased demands on the distribution center to effectively and efficiently manage such centralized planning processes. The answer to such business challenges in today’s re-emerging economies, is to have an integrated business management solution seamlessly integrating the different aspects of business operations – centralized finance, sales and procurement processes at headquarters, inventory and warehousing functions spread across the distribution centers and in store, customer facing retail operations across the entire retail chain. This however, requires a substantial capital investment, notwithstanding the enormous change management challenges such a transformation may bring along with it. A small retailer today needs a well-defined step-by-step growth path to meet these challenges without exerting undue pressures on upfront investment. !"#$"%&'()%&*+#$",(&-&"%).#)//.$,)%$0"#1%),2#30(#(&%)$.&(1# Optimization of the business processes specifically the retail and warehousing operations, a detailed view of the inventory throughout the chain is critical. Furthermore, fluctuations in demand, speed of replenishment, effective movement of goods from the warehouse/distribution center to their respective destinations – be it the retail stores or the end consumer, are the critical Page 3 of 8
  • 4. pieces of information that should be made available to the decision makers in the quickest possible time. While most of the large scale retail chains have established processes, it is the small and medium retailer – be it a small four (4) store specialty retail chain or a complex multi-store environment, who struggle to piece together increasing amounts of information from different processes via disparate communication channels to make an informed, effective decision with the pressures from upper management to increase revenue. CitiXsys Technologies, a leading provider of Retail, Warehousing & Distribution applications and SAP have been working together to make this a distinct possibility. With the backend Enterprise Application provided by SAP, CitiXsys offers an application suite to the small & medium retailer to effectively and better manage their business operations. CitiXsys offers to its customers the power of an SAP powered business management suite encompassing financials, warehousing & distribution and retail. The application set is scalable and stackable to suit the growing demands of the small and medium retailer. iVend Retail, Optimized Inventory Management Solution and Inventory Pro are applications, tightly and seamlessly integrated with SAP Business One and can either be deployed all together or in phases as the organization grows. The incumbent here could be a small retailer with a few stores OR a more complex multi store retail chain with a distribution center catering to the replenishment demands of the stores. On reflection a typical real life scenario in the world of small to medium retailers may sound something like this… Upon not being able to locate the desired shade of trousers in the retail store aisle, the customer enquires directly from the “May I help you” person in the store. The assistant rushes to the back office store and unable to locate the specific shade proceeds to place the same enquiry to the store manager. The store manager promptly calls the distribution center to find out if relevant stock is available. And to their dismay, the distribution center neither has the stock nor is aware of any such shipment in transit. A call is then place on the merchandizing manager at head office, only to realize that the shipment was to be delivered directly to the relevant store and should have already arrived. The merchandizing manager, by now seething with anger, calls the Third Party Logistics (3PL) Company who informs that the shipment is yet to be cleared from customs. Page 4 of 8
  • 5. The customer, in the mean time has left the store quite some time ago– with a promise of not returning any time soon. Sadly, many more similar scenarios are the norm in a completely disjointed business operation and could have easily been avoided in an integrated environment. The store manager could have looked up the availability of the requested item in the nearby store. A lookup in the system could have also provided the necessary information on items in transit due to arrive by what date in the warehouse. The customer could have been assured of the expected delivery date and placed an order with a deposit. In an effort to improve on the customer experience and ensure customer satisfaction, additional loyalty points for the inconvenience caused could have Figure 1 iVend Retail – Deployment Diagram been offered. A potential lost sale could have also been recorded, which would have provided the organization with valuable information to allow for better stock forecasting and overall planning on fast moving items. The customer would have left the store happy and suitably Page 5 of 8
  • 6. impressed. The store manager would not have been required to frantically call the distribution center or the merchandizing manager at the head office. All this at 5 pm on a Saturday! With iVend Retail implemented throughout the entire landscape the three (3) main business functions – merchandizing, warehousing and retail can all work in tandem. The retail processes which require high levels of coordination between the planning process at the head office and its execution process at the retail stores are best achieved by implementing a seamlessly integrated Retail Management Solution on top of an industry standard Enterprise Resources Planning (ERP) solution from SAP. The retail processes at the head office not only become more streamlined, but also allow such industry best practices to influence and hence accelerate the growth path for the retail chain. The merchandizing division can now carry out processes where operations receive complete visibility of stock across the retail chain and can effectively push stock rather than relying on store requisitions. Additionally, the merchandising department can raise purchase orders in time to avoid stock out situations. With comprehensive Pricing & Promotions management, head office can run targeted campaigns for specific stores, with period & volume discounts. Promotions can also be based around buy-some-get-some, sale totals, and happy hour. The integrated Loyalty Management module can achieve an improvement in customer retention. It enables the setup and management of multiple loyalty schemes that allows the assigning of points on customer purchases. With the added ability to define ageing criteria for loyalty points, customers can redeem loyalty points across the entire network of stores. Multiple gift card setups, up-sell / cross-sell and layaway management ensure that the customer does not leave the store empty handed. Information availability and hence the decision making is further improved with numerous reports & enquiries in different categories of business operations including sales, collections, inventory and fulfillment which can be exported to office Excel and Word. Depending on the sales process, the application allows the user to configure different replenishment policies and levels for items in a store. This combined with the ability to run replenishment routines at the organization level churns out recommendations for either stock transfers from the distribution centers to the stores OR across stores OR recommendations for centralized procurement. This seemingly logical and simple routine drastically reduces the capital investment in stock and inventory holding costs. Page 6 of 8
  • 7. In addition to the pre-season and in-season replenishment pressures, the warehouse/distribution center has to cope with the ever-changing demand fluctuations exerting pressures on the in-warehouse functions. Not only is the goal to ensure that over 70% of the inventory flows through, it is equally important to ensure that routine operations like put away, picks, creation of cartons and delivery are performed to absolute perfection. With the objective of minimum inventory on hand, there is no scope for error in delayed or incorrect shipments. A stock on hand report is no longer sufficient. The warehouse manager and eventually the organization need to know where that stock is located, what has been allocated and what is available to promise (ATP). Inventory Pro is the warehousing and inventory management application to assist the warehouse manager to effectively manage and control the warehouse and its operations. Inventory Pro increases the automation and item tracking capabilities resulting in improved inventory accuracy all enabling to better match the demands with current stock availabilities. Extending the core inventory management capabilities of SAP Business One, Inventory Pro offers inbuilt sophisticated engines to calculate ATP and allow head office or warehouse managers to hard or soft allocate goods in the warehouse. In addition to this Inventory Pro extends the unit of measure functions of core SAP Business One by allowing transactions in alternate units of measure. Further granulating a warehouse into logical partitions of zones & bins OR isles & racks, enables the warehouse manager to effectively track inventory in different bins but also allows different replenishment and consumption policies to manage the items across the warehouses. The overall operations at the warehouse or the distribution center can be further optimized by deploying Radio Frequency (RF) handheld devices extending the power of the application to wireless handheld devices, further reducing the chance of errors. Most of the small and mid-sized retailers today may not have the need (or the resources) to manage the entire supply chain. Instead they rely heavily on third party logistics (3PLs) providers to manage the movement of goods across the enterprise. Employees from different departments enter the same information into different, and sometimes incompatible, programs or systems, wasting time and increasing the chance of error. Inventory Pro bridges this gap by providing seamless integration with applications from shipping carriers such as UPS –World Ship. Page 7 of 8
  • 8. Figure 2 - Proposed Application Landscape To conclude, despite constraints on additional spending in the current economic environment, retailers are compelled to think beyond the traditional operating models and adopt new ways to increase operational efficiencies and maintain competitive advantages. The Enterprise, the warehouse and the retail processes have to work in a far more integrated and harmonious fashion. They need to undergo a paradigm shift to align to the current economic reality, escalating capital investments in inventory and increased customer service demands. And such a paradigm shift can come only when the small and mid-sized retailers adopt a fully integrated enterprise wide application set. With over 12 years of experience in Consulting and Channel management, Manish Chaturvedi is VP Indirect Sales (Retail) at CitiXsys. An avid blogger and a weekend baker, Manish is currently expanding the existing channel base of CitiXsys in the European market. Paula Goncalves serves as the Business Development Director for CitiXsys Australia, with responsibility of expansion throughout the Asia Pacific region including a large focus on revenue growth through direct and channel sales. Paula has been instrumental for the accelerated revenue growth and improved profitability through a renewed focus on targeted expansion. Page 8 of 8