IBM Global Business Services

 IBM Institute for Business Value


                                     Application Innovat...
IBM Institute for Business Value
   IBM Global Business Services, through the IBM Institute for Business Value,
 develops ...
Rethinking retailing with SOA
New levels of flexibility, agility and cost-efficiency
By Vish Ganapathy, Melody Badgett and...
Today’s retailers source products from all              By making IT systems flexible and reus-
      corners of the globe...
Rethinking retailing with SOA
New levels of flexibility, agility and cost-efficiency

                      Optimizing ven...
FIGURE 1.
       The planning process – from forecasting through sales.

       Retailer          Develop            Place...
Having consistent,     FIGURE 2.
                                Revised sales planning with integrated systems support.
 ...
FIGURE 3.                                                                      In the SOA world, services are designed to
...
FIGURE 4.
     The impact of tighter supplier and retailer collaboration.
         Key performance
                       ...
SOA can support      dise receiving and stocking while reducing staff    The business challenge
                          ...
FIGURE 5.
     Snapshot of global sourcing processes showing landed cost calculations.

     Retailer           Negotiate ...
Standardizing access to realtime                                                               When Sourcing and Purchasin...
actual landed costs. This software is also able                                        crucial information needed to calcu...
Typically, third party logistics organizations       • Early visibility of landed cost variances and
      have their own ...
As the need for new services inevitably arises,     The business challenge
     SOA permits the retailer to target precise...
To effectively share    associate and store manager pull a second            The second opportunity to enhance the
       ...
FIGURE 8.                                                                        “see” and update inventory levels outside...
Increasingly, retailers are also bundling value-     Conclusion
      added services with the products they sell.         ...
Rarely will retailers find that all applications       - Supply-chain visibility (purchase orders,
     are services-enabl...
Once you’ve established a foundation for SOA
      and created your first reusable services, you’ll
      be ready to star...
About the authors                                   Jay DiMare is an Associate Partner within
     Vish Ganapathy is an As...
The Right Partner for a Changing                   References
      World                                              1
 ...
© Copyright IBM Corporation 2009

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  Somers, NY 10589
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  Produced in the United ...
IBM Retail | Boost integration, ROI & innovation with SOA
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IBM Retail | Boost integration, ROI & innovation with SOA

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Retailers today face the challenge of keeping up with the pace and complexity of the marketplace dynamics. Learn why a powerful technology model – service-oriented architecture (SOA) – is capturing the attention of both business and IT executives and how you can leverage SOA to improve collaboration, build new capabilities and drive innovation at every point in the value chain.

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IBM Retail | Boost integration, ROI & innovation with SOA

  1. 1. IBM Global Business Services IBM Institute for Business Value Application Innovation Services Retail Rethinking retailing with SOA New levels of flexibility, agility and cost-efficiency
  2. 2. IBM Institute for Business Value IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior executives around critical public and private sector issues. This executive brief is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an e-mail to iibv@us.ibm.com for more information.
  3. 3. Rethinking retailing with SOA New levels of flexibility, agility and cost-efficiency By Vish Ganapathy, Melody Badgett and Jay DiMare Today’s retail institutions obtain products from multiple sources across the globe. Getting the right quantity of these items on the right shelves to meet consumer demand involves a complex set of processes and extensive collaboration among retailers, suppliers and manufacturers. Yet in an industry that depends on innovation, many retailers wage constant and costly struggles to keep up with change. It’s no wonder that a powerful technology model – service-oriented architecture (SOA) – is capturing the attention of both business and IT executives. Introduction apparel and grocery, are mature and slow- Retailers have always had to grapple with growing, and fighting to protect market share change – in their customers’ needs and pref- as consumer choices expand exponentially. erences, in the product assortments offered This has created a huge shift: Retailers can from season to season, in their sourcing no longer afford to focus on the two traditional relationships and supply chain capabilities, dimensions of product and store. Competitive and in their strategies for creating differen- differentiation now requires com-panies to tiation. Today, the pace and complexity of understand who is in the store and why. the industry is such that it can be exceed- “Who” takes into account details such as an ingly difficult to keep up with marketplace individual’s lifestyle, needs, interests, expecta- dynamics, much less capitalize on them. At tions, shopping behaviors and preferences. the same time, the penalties for those who fail “Why” focuses on understanding the shopping to do so can be severe. occasion and value drivers. By deepening their customer insight, retailers can develop The challenges retailers currently face – a integrated, proactive strate-gies for addressing difficult new economic environment, increasing everything from cross-channel integration and competition , information transparency and private-label development, to global sourcing heightened expectations from diverse, more and import logistics, localized assortments informed customers – define the retail playing and markdown optimization. field. Most major retail segments, such as 1 Rethinking retailing with SOA
  4. 4. Today’s retailers source products from all By making IT systems flexible and reus- corners of the globe. Typically, a number of able, SOA can help support critical business manufacturers, suppliers and distributors are capabilities aimed at boosting revenue and involved in the process – creating the need to improving customer satisfaction. SOA can seamlessly integrate information and applica- also aid in increasing the accuracy and accel- tions across internal and external networks. erating the delivery of realtime information, The IT systems a company relies on to support unifying disparate systems, and exposing its business must keep pace. While this might services to link vendors, suppliers, shippers, seem like a daunting task, it doesn’t have to channels and stores. Additionally, SOA permits be. Service-oriented architecture (SOA) can an organization to reduce disruption and risks help retail organizations simplify complexities to its existing IT systems and improve key and resolve incompatibilities that may inhibit performance metrics – including return on data integrity, information integration and investment for IT expenditures and reaping partner collaboration. more value from IT solutions. What is SOA? In the following sections, we will describe Service-oriented architecture (SOA) involves three typical retail industry scenarios, and breaking an application down into common, how SOA can help overcome some common reusable “services” that can be used by other challenges. Specifically, we will look at how applications, both internal and external, in an SOA’s remarkable flexibility can help retail organization – independent of the applications and organizations: computing platforms on which the business and • Optimize vendor-managed programs its partners rely. Using this approach, enterprises can assemble and reassemble these open, • Tighten cost controls in global sourcing standards-based services to extend and improve • Improve inventory and order visibility. collaboration among existing applications, build new capabilities, and drive innovation at every point in the value chain. 22 IBM Global Business Services IBM Global Business Services
  5. 5. Rethinking retailing with SOA New levels of flexibility, agility and cost-efficiency Optimizing vendor-managed The new book is released, the speaking inventory programs engagements are held, but the projections While vendor-managed inventory programs remain projections. Despite rave reviews for have taken hold throughout the retail world, the book, sell-outs for every speaking engage- success demands high levels of integration ment and increased sales reported by other among suppliers, vendors and their corre- competitive retailers, revenues from the promo- sponding applications. Without seamless tion never get off the ground. Customers are integration, incongruities across partners’ IT furious to find no inventory of the author’s systems can create information backlogs, older books. Stores are overwhelmed with rain which typically translate into longer lead times, check requests. As it enters the January sales larger safety stocks, persistent demand-supply doldrums, the company is left with unsold imbalances, and drops in profitability – not to stacks of the new book. mention less customer satisfaction. Let’s look Why did the promotion sputter and die? Quite at this problem in the context of a specific simply, there was a failure to communicate and scenario. coordinate. Even the most careful promotional The business challenge planning, demand forecasting and program Consider the hypothetical case of a retailer execution will be for naught if a retailer’s that handles its in-store book business sup-pliers can’t see deeply enough into the through a vendor-managed in-ventory (VMI) process to support it with the right supply program. The retailer’s marketing team is and replenishment strategies and execu- elated to hear that one of the most popular tions. Likewise, if a supplier can’t immediately authors will soon release a new book soon. monitor store and warehouse inventory levels, The retailer’s excitement only increases when chances are those levels will be either too high the author announces that he will support the or too low – with potentially dire consequences release with his first speaking tour in a decade, in today’s ultra-competitive mar-ketplace. including stops in 17 of the retailer’s biggest The problem began with the book supplier market areas. having little or no visibility into the retailer’s Eager to fully exploit the potential of these plans and demand forecasts. Consequently, events, the marketing group devises a promo- the supplier made no special provision to tion to offer consumers a 50 percent discount accelerate replenishment of the author’s old on any of the author’s older books with every books. The existing inventory quickly disap- purchase of the new release. To support the peared from store bins. For the new book, the promo-tion, significant investments are made supplier stuck to its standard replen-ishment across the country – in marketing, as well as system for major new releases and kept in filling projected inventory re-quirements. flooding the chain with the new book (see 1 Of course, revenue projections are adjusted Figure 1). skyward. 3 Rethinking retailing with SOA
  6. 6. FIGURE 1. The planning process – from forecasting through sales. Retailer Develop Place Match Allocate Update sales forecast and purchase invoices, pay inventory merchandise promotions orders supplier Retail distributor Pick, pack, Receive Ship to store using merchandise stores allocations Retail store Receive Sell and display merchandise merchandise Vendor/ Develop supplier Notify delivery Ship manufacturing supply and and Advance merchandise deliver schedules Ship Notice to retailer Partner external External Supplier systems Shipping Systems Systems Retail Planning systems Merchandise Warehouse Warehouse Shipping Store and Forecast Systems Systems Systems Systems Systems Systems Plan Merchandise Distribute Sell Source: IBM Institute for Business Value analysis. This unfortunate situation is one of many that Enhancing vendor-managed inventory retailers can suffer when partners lack the When vendors and suppliers have realtime realtime information they need to efficiently access to consistent information, they can coordinate mission-critical processes such as better plan the production and distribution demand forecasting, allocations and replen- of products. In order to do this, they need a ishment planning. If the IT systems used by controlled and secure way to integrate with a retailers, suppliers, carriers, consolidators retailer’s systems, including planning and fore- and other supply chain partners can’t easily casting, promotion management and inventory. communicate and adjust to fast-changing This level of integration must be more flex- needs and opportunities, profits and customer ible, secure and cost effective than current, satisfaction can be exceedingly difficult to point-to-point integration solutions to avoid the sustain and grow. At the same time, there problems described in our scenario. Figure 2 are now options that permit organizations to shows a revised process that employs inte- improve visibility into their partners’ systems, grated systems during sales activities. and to support any number of retailers and vendors. 4 IBM Global Business Services
  7. 7. Having consistent, FIGURE 2. Revised sales planning with integrated systems support. realtime access to critical information and processes Retailer Develop Place Allocate Match Update sales Refine plans forecast and purchase invoices, pay based on inventory allows retailers, vendors promotions orders merchandise supplier sales and suppliers to better Retail distributor Pick, pack, Monitor retail Receive Ship to coordinate the production merchandise store using stores sales and allocations inventory and distribution of Retail store Receive products at every point in and display Sell merchandise merchandise the planning stage – from Vendor/ Develop forecasting to sales. supplier manufacturing Notify delivery and Advance Ship merchandise Monitor retail sales and Refine plans based on supply and deliver schedules Ship Notice to retailer inventory sales Partner external Supplier Shipping Supplier systems Systems Systems Systems Retail Planning systems Merchandise Warehouse Warehouse Shipping Store Warehouse and Forecast Systems Systems Systems Systems Systems Systems Systems Planning and Forecast Merchandise Warehouse Shipping Store Systems Systems Systems Systems Systems Source: IBM Institute for Business Value analysis. Although the process did not change, the custom applications can be costly to maintain, systems are better positioned to support the and hard to link to other systems. Furthermore, process. In this revised approach, the supplier changing business strategies and models can see in realtime what is happening in the often require new applications or more func- stores. Stores can communicate sales and tionality – adding one more application that inventory status to their suppliers. Similarly, also requires custom, point-to-point connec- store systems and warehouse systems can tions. The complexity grows. Figure 2 shows communicate with other core retail systems. partners accessing a retailer’s core systems This enhanced connectivity positions the using the same approach as the retailer uses retailer and its suppliers to better respond to internally. changing conditions. SOA provides a way to build a single, reus- The challenge is how to accomplish this level able interface for multiple purposes. Partners of integration. Today, point-to-point, direct connecting to the services do not need to connections between applications are the acquire additional software. This type of prevalent approach. Legacy, “off-the-shelf” and connectivity is illustrated in Figure 3. 5 Rethinking retailing with SOA
  8. 8. FIGURE 3. In the SOA world, services are designed to Retail systems using SOA to improve partner support information that is needed the most. collaboration. A level of security is inherent in the design, Vendors/ and only the approved data is returned by suppliers Retailers Get forecasted demand the service. A service can be used to control Supplier A for product Planning and Systems Forecasting Systems business partners’ access to information, or Get forecasted demand employed by intra-company systems as an Supplier A for product Portal Merchandising internal integration solution. For example, a Systems SOA services Get inventory level for Planning and Forecasting System may use Supplier B product Warehouse and the same “Get backorder levels” service that Systems Shipping Systems a Store System uses. To aid retailers in the design of SOA services, organizations like the Supplier N Store Systems Association for Retail Technology Standards Systems (ARTS) are creating models specific to retail Demand forecast services that can expedite the design and implementa- • Get forecasted demand for product Promotion information services tion process. ARTS recently released the SOA • Get active promotions Blueprint for Retail, a comprehensive, vendor- • Get promotion details 2 Inventory services neutral approach to applying SOA in retail. • Get inventory level for product Designed to transcend • Get backorder levels The value to the business • Update in-stock inventory levels Shipping and delivery services An IT environment built around SOA can systems, channels • Get shipping status help retailers and their partners avoid issues and organizational Source: IBM Institute for Business Value. created by a lack of integration and process boundaries, SOA can orchestration. Designed to transcend systems, accelerate the speed channels and organizational boundaries, SOA and effectiveness of To build this solution, the retailer would imple- can accelerate the speed and effectiveness ment the SOA services as shown in Figure 3 of information-sharing and process automa- information-sharing and – providing controlled access to specific func- tion. The Web-based services that are central process automation tions within the company’s existing systems. In to SOA can make key performance indicators some cases, there may be more than one core of the end-to-end supply chain visible to all system that leverages a particular service; for appropriate parties. Additionally, since SOA example, planning, replenishment and ware- permits realtime access to information, condi- house systems may all be supported by the tions, events and metrics can instantly trigger “Get inventory levels for product” service. In optimal responses – before problems have a the SOA-enabled scenario, the service would chance to compound. This type of flexibility mask the complexity of the back-end systems. has the potential to impact several key perfor- The requester of the information need only mance indicators used by the industry (see ask to “Get inventory level for product” and not Figure 4). worry about where the service resides. 6 IBM Global Business Services
  9. 9. FIGURE 4. The impact of tighter supplier and retailer collaboration. Key performance Measure Benefits indicator Store availability Percentage of time that store inventory for a given Store inventory visibility services can improve retailers’ SKU is greater than zero. and suppliers’ ability to manage inventory levels. Days in inventory The total amount of time between placement of a Promotions and sales services can help reduce this replenishment order to a supplier and its arrival time by providing more realtime inventory levels, thus at the store. condensing the reorder cycle. DC cycle time Amount of time inventory spends in “buffer” at a distribution center (DC). Supplier cycle time Amount of time between placement of a Logistics-related services can provide visibility to latency replenishment order and the carrier pickup of the issues in transportation, which can help improve this same order. metric. Supplier fill rate The supplier’s ability to fulfill the total amount Earlier visibility to plans, forecasts promotions and ordered within a given time window. inventory can increase the supplier’s ability to meet demand, and reduce the PO to ASN variances. Supplier ASN The supplier’s ability to generate accurate advance accuracy shipping notices (ASNs). DC fill rate The distribution center’s (DC’s) ability to fulfill the Reducing the PO to ASN variances can help improve the total amount allocated to an individual store within distribution center fill rate, since “pre-allocations” will a given time window. likely be more accurate. Source: IBM Institute for Business Value. Consider the book promotion scenario This level of integration, coordination and discussed earlier, and how SOA could benefit collaboration can have dramatic and positive the retailer. From the start, the open stan- effects across the value chain – from inventory dards used to build SOA services would allow and logistics, to sales, service and overall busi- the supplier to see the retailer’s plans and ness performance. respond with a special replenishment program for the old book titles. This would help assure Think about how the retailer might have reduced that the right amount of inventory of the old operational and implementation costs. By and the new books was in the stores – without better aligning the timing of inventory delivery requiring major, resource-consuming applica- to in-store sales, the company’s expenditures tion development on the part of either the for advertising, in-store displays and other retailer or the supplier. Shipments of merchan- promotional items could have been better dise to the retailer’s distribution warehouse coordinated and more effective. As the promo- and stores would be synchronized with sales. tion progressed, realtime feedback on sales Unanticipated shortfalls, overages or delays would have enabled the supplier to refine its could be quickly de-tected and corrected replenishment strategies accordingly. Likewise, before creating their own set of problems. these forecasts would sup-port management decisions to optimize scheduling of merchan- 7 Rethinking retailing with SOA
  10. 10. SOA can support dise receiving and stocking while reducing staff The business challenge over-time. Had the author suddenly changed his One of the biggest challenges retailers face is the global sourcing plans – by adding a city to the tour or canceling estimating landed costs. Estimate too high and process by permitting a scheduled speaking engagement, for pricing may turn customers away. Estimate companies to have “one example – the supplier would have had the lead too low and margins can erode. Meanwhile, version of the truth” for time and tools to easily adjust the replenishment key opportunities for cost reductions might calculating both actual for the affected stores. As the tour wound to a go unnoticed, and valuable time slips away and landed costs. close and publicity for the new release declined, because critical information is not available to inventory replenish-ment could have been support sound decision making. scaled back – reducing the amount of unsold For example, a large retailer might contract goods. with a Chinese company to manufacture the Tightening cost controls in global chain’s own brand of lawn mowers. The retail- sourcing er’s finance teams recognize that by the time Creating differentiation with private-label a container of mowers reaches its domestic products sourced from around the world has warehouse, their cost will often be significantly become a key strategy for retailers, especially higher than what it was at the manufacturer’s as global trade barriers fall. Yet a McKinsey loading docks. The question is, by how much study concludes that while companies are and why? realizing revenue lift with a unique product To estimate the actual landed cost (ALC), the set, they may be missing out on operational retailer figures in all the expenditures incurred savings. For organizations purchasing from on both the export and import side of the China alone, only 25 percent of the potential 3 equation – through banks, forwarders, agents, savings have been achieved. To help optimize customs agencies, port authorities, stevedores, profit margins in this lucrative opportunity, transport firms and other parties. But gauging retailers are increasingly bypassing intermedi- that cost, then calculating the actual cost, can aries to handle sourcing and import logistics be a very complicated process given all the on their own. But it’s a complex process steps and entities involved. involving many different entities and innumer- able data transactions – often among different Figure 5 shows the parties involved and the information systems and parties. number of independent processes that must be orchestrated to support the estimating process. 8 IBM Global Business Services
  11. 11. FIGURE 5. Snapshot of global sourcing processes showing landed cost calculations. Retailer Negotiate for Select Develop Place (sourcing Calculate costs, products and source and including ELC forecast and purchase and sourcing suppliers promotions orders Actual landed costs calculated purchasing) Duties and Transport Transport Duties and Transport tariffs rates rates tariffs rates Time Estimated landed costs derived Bill of lading Supplier Take orders Manufacture Transport to Transport Transport to Transport to goods shipper overseas importer retailer Retailer Record ELC Request Determine (finance) Receive Reconcile Authorize Calculate for purchase letter of ELC to ALC invoices invoices payments ALC order credit variance Systems Logistics Sourcing and Contracts Global Trade Financials Key Purchasing Management Management ELC Estimated landed cost ALC Actual landed cost Source: IBM Institute for Business Value analysis. In the case of the lawn mowers, the retailer’s tariff costs. In the finance department, invoices transportation team relies on special software arrive in numerous formats from vendors, to optimize carrier bids. But the estimating customs brokers, carriers and other parties. tools use a different source to look up carrier There is a 90-day backlog in calculating and rates – and these figures depend on manual comparing actual versus estimated landed updates that often lag behind the latest costs. rates. Because of this, the estimates usually fail to match the actual costs. Similarly, the With so many departments using various customs compliance group uses a global processes and applications (and producing trade-management tool to calculate duties data that serves different purposes), and tariffs. Every day, these numbers change, merchants often make pricing decisions but no one ever seems to have the time based on inaccurate and inconsistent infor- to incorporate all of them all into the tool. mation. Profit margins can suffer for months Consequently, it’s usually impossible for before estimating variances are even noticed. anyone to accurately estimate the duty and More time may go by before the cause is iden- tified and corrected. 9 Rethinking retailing with SOA
  12. 12. Standardizing access to realtime When Sourcing and Purchasing personnel information calculate estimated landed costs, they have There are multiple ways to address this software supporting them. If that software problem. One solution is to standardize and had direct access to the systems that support centralize the calculation and distribution of duties, tariffs and transport costs, the applica- rates, tariffs and other information. Going one tion could present and include these costs in step further, making such information avail- the calculation. Realtime access would verify able in realtime to all systems involved in that the correct rates are used. The Sourcing calculating landed costs could create a single and Purchasing department would continue to “version of the truth” to be used for figuring execute its business processes – with accu- both estimated and actual landed costs. If rate and current information. the systems involved in the calculations could access the same source in realtime, most of At the other end of the process, the Finance the problems would go away (see Figure 6). department would use its financial manage- ment software to support the calculation of the FIGURE 6. Global sourcing process support by SOA systems. Retailer Negotiate for Select Develop Place (sourcing Calculate costs, products and source and including ELC forecast and purchase and sourcing suppliers promotions orders Actual landed costs calculated purchasing) ELC and ALC calculated using same source information accessed in realtime Time Estimated landed costs derived Bill of lading Supplier Take orders Manufacture Transport to Transport Transport to Transport to goods shipper overseas importer retailer Retailer Record ELC Request Determine (finance) Receive Reconcile Authorize Calculate for purchase letter of ELC to ALC invoices invoices payments ALC order credit variance Systems Sourcing and Financials Key Purchasing ELC Estimated landed cost ALC Actual landed cost Logistics Logistics Global Trade Contracts Global Trade Contracts Management Management Management Management Source: IBM Institute for Business Value analysis. 10 IBM Global Business Services
  13. 13. actual landed costs. This software is also able crucial information needed to calculate landed to directly access duties, tariffs and transport costs. Figure 7 shows how SOA services can costs in realtime. The business processes are be used to support access to duties, tariffs not changed, but the information sources now and transport costs from the source systems provide a single version of the truth. that control them. There are multiple ways to build this solu- To create the solution in Figure 7 a retailer , tion; many are in use today. However, most would build a layer of services that connects are point-to-point, custom solutions that are its Logistics Management Systems and the costly to maintain and hard to change. For Global Trade Management System. This layer example, many large retailers have multiple, of services would be used by any application best-of-breed applications supporting logis- that needs to get to the functionality and data tics management. With multiple sourcing and controlled by these systems. The SOA services purchasing systems connected to multiple could allow a more secure and controlled logistics management systems, the number access to needed information in realtime of custom integration scenarios increases – helping to enable continuous access to exponentially, and reduces an organization’s current and accurate data. ability to accommodate change. SOA presents an appealing alternative that uses a single The same SOA services could be used interface to access key functionality. In our by other applications, and even exposed example, SOA services can be used to access externally to the retailer’s business partners. FIGURE 7. SOA services supporting transportation and tariff information. Retailer systems Get tariffs for country Sourcing and Get transport rates SOA services SOA services Global Trade purchasing systems Logistics Management Management System System Get tariffs for country Get transport rates Financial systems Import-export regulation services Transport information services • Get import regulations for port • Get carriers for product type • Get import regulations for product • Get carriers for location Duty services • Get transport rates for carrier • Get duty for product • Get transport cost (from, to) Tariff services • Get bill-of-lading for shipment • Get tariffs for shipment Transport schedule for carrier • Get tariffs for country • Get schedule for carrier • Get tariffs for port • Reserve cargo space for carrier Source: IBM Institute for Business Value. 11 Rethinking retailing with SOA
  14. 14. Typically, third party logistics organizations • Early visibility of landed cost variances and have their own applications to run the trans- taking appropriate action to reduce landed portation business. While not covered in this costs can help positively affect the gross scenario, the same SOA services and SOA margin. infrastructure could be used to allow these transportation and logistics partners’ systems With SOA, information developed in one to access the retailer’s systems. department or by one application becomes instantly available, wherever it is needed. For The value to the business example, carrier and tariff rates maintained The key issue in the global sourcing scenario in one system can be automatically updated is that the numerous information systems and instantly accessible to trade management, operating across a typical retail organization purchase order management and other appli- can’t communicate information to each other cations. in a timely and consistent manner. As a result, those who depend on accurate, timely and For our hypothetical retailer, SOA simplifies efficient cost estimates and analyses can find and streamlines the task of estimating landed them all but impossible to obtain. costs. As costs are actually incurred in each step of the sourcing process – sourcing, However, if the retailer takes an SOA approach purchasing, logistics, customs compliance and to its IT architecture, all the domains and finance processes, for example – the totals systems can have rapid access and respond can be tallied and analyzed much faster. The to key information changes. Interactions retailer is then able to use realtime information between sourcing, IT, financial, regulatory, to support vendor selection, transportation logistics and other areas can flow more planning, pricing strategies and other key deci- smoothly and without surprises, as orches- sions. trated. With our example, benefits to the retailer from the SOA solution can include: SOA as an IT systems integration approach can bring benefits to the retailer because • Up-to-date information accessed in the components of SOA are based on open realtime, which can improve the accuracy of standards; individual services such as “Look estimated landed costs. up the latest tariff” are interoperable across • Faster, better visibility of landed costs can applications. A “write once, deploy repeatedly” yield greater control, which can improve strategy can save the retailer money, since operating costs and positively affect the cost one service can be exposed to many different of goods sold (COGS), as well as margins. applications across the enterprise and to The financial control process itself becomes supply chain partners. This type of reuse more cost-efficient. may lead to other benefits, such as reduced • With accurate costs known to all appro- systems integration time and lower mainte- priate parties earlier in the process, retailers nance costs. have the opportunity to reduce variances between estimated and actual landed costs that historically lead to margin erosion. 12 IBM Global Business Services
  15. 15. As the need for new services inevitably arises, The business challenge SOA permits the retailer to target precise For most retailers, in virtually every case, requirements. It helps eliminate the delays, online and catalog channels are managed redundancies and expenditures that are tradi- separately from the physical stores. It is not tionally associated with complete application uncommon for the IT infrastructure for each replacement – particularly those systems that channel to utilize separate applications. Data are not built on open standards. With time and that is shared by the channels, such as inven- money deterrents substantially reduced, the tory levels, is most often handled by nightly retailer can begin to automate more cost-esti- batch updates. Consider the example of a mating and cost-tracking functions – helping shopper visiting his favorite Web shop with the to improve both the accuracy and cost-effi- intent to purchase a new jacket for outdoor ciency of the processes involved. adventures, along with a hiking backpack. The buyer selects a jacket in a specific size and Improving inventory and order color (it happens to be on sale), and indicates visibility that both items will be picked up at the local Today’s customers demand (and expect) store (#1234). At checkout time, the Web site a seamless, coherent experience between confirms that the items are in stock and avail- “click” “brick” and any other channel they elect , able for pickup at the specified location. to use. Visibility of inventory and customer orders across the retail chain and at the store The online commerce application generates a level is therefore critical to consumer satisfac- customer order and transmits the details to the tion and multichannel selling opportunities. store location indicated by our shopper. (While This in turn increases the need for interoper- communication approaches vary, and are defi- ability and integration among store systems, nitely in transition, e-mail remains the common e-commerce systems and the retailer’s back- communication for such cross-channel trans- office merchandising and inventory systems. actions). At the store, a sales associate prints Key foundational capabilities need to be in the order, pulls the backpack from the store’s place, the most important being: inventory but does not find the jacket in the correct size. After calling one of the company’s • Cross-channel inventory visibility – secure, other locations, the associate is ultimately reliable access to inventory levels at the successful in convincing another store to channel/style/size/color levels to support transfer a jacket in the right size. The associate new services (online, product availability then sets aside the backpack and holds the lookup and “buy online, pick-up in store,” for customer order until the jacket is delivered. example). Unfortunately, when the customer arrives • Cross-channel order visibility – realtime, at store #1234, the order is nowhere to be multichannel order management capabilities found. Store associates cannot view customer to optimize available-to-promise decisions, orders from the point-of-sale system. Working inventory utilization and customer service. from the customer’s printed confirmation, the 13 Rethinking retailing with SOA
  16. 16. To effectively share associate and store manager pull a second The second opportunity to enhance the backpack from inventory, process a new sales process involves the communication of the physical inventory with transaction and credit the online order. This customer order from the online system to stores, online commerce distorts several metrics, including inventory the fulfilling store. Our retailer used e-mail. In systems need realtime (remember the backpack that was already this case, the order was not accessible from data exchange with store pulled from the sales floor), demand by color/ store systems. Nor was it available to the store and inventory systems. size and credit for sale (the consumer actually associate and store manager who had the bought the backpack online but the store got challenge of piecing together the customer’s the revenue). order history and saving the sale. Hardware, software and networks alike were working in Collaborative systems enable better isolation. In order to change the processes consumer experiences and improve results, the IT systems supporting Clearly, there are improvements our retailer those processes must also change. can make to improve the outcomes and effectiveness of the cross-channel processes There are a number of ways to address these described in our scenario. First, the online challenges. Many e-commerce initiatives commerce application does not have real- support a variety of integration approaches, time access to inventory levels across the and many involve ETL (extract-transform- enterprise. The desired jacket may have been load) software for moving data and files. In available at the start of the day, but without our example, however, file transfer is a solution realtime inventory updates, the online system for creating realtime visibility. With the jackets incorrectly promises the size medium jacket flying out of the store, the online commerce to our shopper. Ideally, the online commerce application needs constant, realtime access application should have inventory visibility at to chain-wide inventory levels to support store the channel/style/size/color levels. For direct- pickup. SOA provides a standards-based to-consumer fulfillment, the challenge is to approach to achieving this level of realtime aggregate inventory information from all store connectivity (see Figure 8). and warehouse locations. In our buy-online, pickup-in-store scenario, the commerce Figure 8 shows an environment where the systems should have reliable, up-to-date retailer has built a set of SOA services that act visibility, down to a single store. In the above as the access path to the different systems scenario, the store associate took the initia- involved. There would be a single service to tive to transfer the jacket from another store; “Get inventory level for product” that would however, the lack of inventory visibility required hide the complexity of collecting the inven- this additional step, which increases operating tory levels for a jacket, for example, at all of costs and skews actual demand. the retailer’s stores and warehouse locations. Likewise, a single service would be developed 14 IBM Global Business Services
  17. 17. FIGURE 8. “see” and update inventory levels outside the SOA services supporting realtime inventory and store, as well as view and manipulate online order visibility. orders. In our example, the store could easily Get inventory level have annotated the order to note that the Online at store Merchandising commerce store Systems customer had picked up the backpack, and that the jacket was coming from another store. SOA services SOA services Inventory Availability These two SOA services implementations System could share the same supporting infrastructure Update in-stock Store POS inventory levels – setting the base for additional SOA imple- Systems Store Systems mentations in the future. Inventory services The value to the business • Get inventory level for product • Get backorder levels This type of solution can deliver numerous • Update in-stock inventory levels benefits to the retailer. First and foremost, • Get inventory level at store Shipping and delivery services programmatic and realtime access to inven- • Get shipping status tory levels at the store level and across the • Get store list • Get store details enterprise can help improve the order process Order management services • Get order for pickup in every channel – with wide-ranging advan- tages that can extend to replenishment, Source: IBM Institute for Business Value. sourcing and purchasing systems, as well as to logistics management. to collect the inventory level at a particular While our scenario focused on “buy online, store. These same services can be used by pick up at store,” cross-channel integra- the online commerce application, as well as tion offers many other benefits. For example, store systems (or any application in the retail- retailers can create personalized dialogues er’s domain). with consumers. Offers and promotions can This layer of services could be extended to be utilized to move customer traffic from one provide access to information created by or channel (the store) to another (the Web) to managed in the online commerce application. help increase wallet share. Similarly, customer Many commerce applications already support returns (such as buy online, return in store), application programming interfaces, including while not a direct revenue generator, can have Web services. This approach to extending the a huge positive impact on customer percep- application would allow other applications to tions and a halo effect on total sales. access customer order history that may have been generated online. Store systems could 15 Rethinking retailing with SOA
  18. 18. Increasingly, retailers are also bundling value- Conclusion added services with the products they sell. In many ways, retailing might be one of the These services are often fulfilled through most fertile grounds for reaping the benefits of the store by tapping into a network of local SOA. At the same time: suppliers and contractors. For example, • Fast and easy process integration is a retailers that offer home delivery, installations, must – internally, as well as externally, to service warranties and at-home repairs essen- support changing business models, global tially use the store as a hub, or as an extension expansion, mergers and acquisitions. of the fulfillment supply chain. Cross-channel integration is vital to this type of seamless • The industry often involves extensive, experience. dynamic sets of suppliers, shippers and other entities serving functions that must be As an implementation approach, SOA brings a closely matched with a retailer’s strategies standards-based method to systems integra- and needs. tion that doesn’t require the purchase of new • Business processes require heavy IT applications. In our example, higher-quality support and control a wide variety of information is available – without changing the software applications and interfaces that inventory-management, commerce or store must respond to fast-breaking demands systems. Functionality in the existing online – either on their own or in concert. commerce system was simply exposed for other application software to use. • There is no room for changes that might hinder or disrupt the flow of business. SOA services can be used to mask the complexity of multiple applications or data Not surprisingly, major retailers are rapidly sources. In our example, there are various structuring their IT plans around SOA. For systems managing inventory levels. In the them, SOA is a practical path to transforming case of some retailers, there may be many their operations to become more responsive to formats – each operating their own set of the demands of a highly dynamic marketplace. commerce and supply-chain applications. A By exploiting SOA capabilities internally, as single SOA service can be used to shield this well as with external entities, retailers can forge complexity – resulting in a potentially lower new connections and support new levels of cost for systems integration, as well as shorter collaboration and innovation. There is virtually development times. no limit to the number of connections and con- figurations. In this way, IBM believes, SOA is potentially as transformative as the Internet. 16 IBM Global Business Services
  19. 19. Rarely will retailers find that all applications - Supply-chain visibility (purchase orders, are services-enabled. Custom and legacy advance shipping notices, receipts, code, inflexible vendor packages and varying shipments, logistics) integration methods often impose major - Cross-channel capabilities (store constraints. Changing the architecture and inventory visibility via the Web, buy-online/ redesigning all applications for SOA costs time store-pickup, single view of customer and money. Fortunately, SOA doesn’t require across channels). an “all-or-nothing” commitment from day one. Retailers can begin by carefully identifying and • Start small. Use your first SOA project to prioritizing those services that are most appro- “learn the ropes.” If it is successful, show it to priate to enable and hold the greatest potential other parts of the business to demonstrate benefit. what can be done with SOA. • Begin to build new staff capabilities. SOA SOA can be a little daunting to the organiza- requires some specialized skills that entail a tion that has yet to use it. Like anything else learning curve. It is best to instill these skills of this scale, it should be employed respon- now. sibly and intelligently – with a sense of vision, purpose and strategy. Through our own use of • Think long-term. The hardest, most SOA and in thousands of SOA engagements prolonged and most expensive part of SOA across the world, IBM has gained a very good is building the initial architecture. Once sense of how to proceed with SOA: that’s in place, additions or changes – new channels, back-office functions or business • Focus on a business problem, and use SOA lines – can be made much faster, and at to help solve it. SOA is a means to an end less cost. Over time, the return on this initial – not an end in itself. investment can be dramatic. • If possible, start with revenue-generating capabilities. The idea is to look for a kick- Whether you build, buy or evolve to an SOA off project that offers real tactical value. In infrastructure, the time to start is now. Optimum this way, the SOA pilot becomes more than results usually come from starting with a just an exercise. SOA really shines when small project aimed at solving a real business implemented to provide multiple users with problem, and progressing from there. This will instant, up-to-date access to information. establish a working SOA infrastructure and Excellent candidates for your first SOA reusable services that subsequent projects project could include: can build upon – first within one part of your organization, then others, and externally to - Information integration (product, price, suppliers and partners. promotions, inventory, customer) 17 Rethinking retailing with SOA
  20. 20. Once you’ve established a foundation for SOA and created your first reusable services, you’ll be ready to start building on that foundation and adding new services to the portfolio. You might focus on areas where you could profit from instantaneous information about an aspect of your business, or make information available to multiple users – even beyond your firewall. The experiences and services you can gain there can then prepare you to roll out the SOA approach – and its benefits – to your entire enterprise. 18 IBM Global Business Services
  21. 21. About the authors Jay DiMare is an Associate Partner within Vish Ganapathy is an Associate Partner IBM Global Business Services. He has over and Chief Architect, Retail, with IBM Global 25 years experience in the development of Business Services. He has over 19 years large-scale, complex, cross-organization appli- of experience in implementing large-scale, cations in the financial markets, banking and complex business applications in the distribu- insurance industries. He is currently the global tion, retail and supply-chain industries. He is leader for the Application Innovation Services currently the Industry Solutions Architect for team at the IBM Institute for Business Value. IBM Global Retail, where he focuses on iden- His recently published paper, “Service-oriented tifying and developing assets that accelerate architecture: A practical guide to measuring IBM hardware, software and services delivery return on that investment,” presents a frame- capabilities. He has a patent-pending for a work for measuring the business value of SOA quantitative analytical model for SOA-based investments. He holds a patent for software integration realization decisions. Vish is an IBM algorithms applicable to document manage- Certified IT Architect and a certified Master IT ment applications, and has developed IBM Architect with The Open Group, as well as a software products in partnership with clients. member of the IBM IT Architect Certification Jay is an IBM Certified IT Architect and a certi- Board. Vish can be contacted at vishg@ fied Master IT Architect with The Open Group, us.ibm.com. as well as a member of the IBM IT Architect Certification Board. Jay can be contacted at Melody Badgett is Senior Managing jdimare@us.ibm.com. Consultant with IBM Global Business Services, Institute for Business Value. She has over 15 years of experience in business strategy and analysis in retail and other consumer-related industries, and is currently the Retail Team Leader in the IBM Institute for Business Value. She works with retailers to understand and effectively respond to the competitive and consumer trends that are redefining the retail landscape. She can be reach at mbadgett@ us.ibm.com. 19 Rethinking retailing with SOA
  22. 22. The Right Partner for a Changing References World 1 Adapted from “Blueprint for supply chain At IBM Global Business Services, we visibility: Service-oriented architecture can collaborate with our clients, bringing together help drive agility, supplier collaboration and business insight, advanced research and demand-driven replenishment.” IBM Institute technology to give them a distinct advantage for Business Value. in today’s rapidly changing environment. 2 National Retail Federation. “ARTS Releases Through our integrated approach to business Service Oriented Architecture Blueprint for design and execution, we help turn strategies Retail.” http://www.nrf-arts.org/press/2008/ into action. And with expertise in 17 industries SOA_blueprint_01132008.htm. January 13, and global capabilities that span 170 countries, 2008. we can help clients anticipate change and 3 From “The challenges in Chinese procure- profit from new opportunities. ment,” 2006, originally published in The Related publications McKinsey Quarterly, www.mckinseyquarterly. • Butner, Karen, “Blueprint for supply chain com visibility: Service-oriented architecture can help drive agility, supplier collaboration and demand-driven replenishment.” IBM Institute for Business Value. August 2007 . • DiMare, Jay. “Service-oriented architecture: A practical guide to measuring return on that investment.” IBM Institute for Business Value. October 2006. • DiMare, Jay. “Changing the way industries work: The impacts of service-oriented archi- tecture.” IBM Institute for Business Value. October 2006. 20 IBM Global Business Services
  23. 23. © Copyright IBM Corporation 2009 IBM Global Services Route 100 Somers, NY 10589 U.S.A. Produced in the United States of America March 2009 All Rights Reserved IBM, the IBM logo and ibm.com are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol (® or ™), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and trademark information” at ibm.com/legal/copytrade.shtml Other company, product and service names may be trademarks or service marks of others. References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates. GBE03032-USEN-01

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