IBM Retail | Boost integration, ROI & innovation with SOA

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

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.

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

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

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.


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.


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

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.


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.


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-


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.


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


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.


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



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.


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.


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


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


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


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.


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)


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.


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.


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.


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March 2009
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