ARTK Consulting, LLC Guide Retail Software Selection:Retail Systems ERP RFP (Request for Quote) Criteria and Selection Overview:Functions and Features:Retail Merchandise Management (RMM), Merchandise Management Systems (MMS), retail systems, and retailEnterprise Resource Planning (ERP) all designate information systems used by retailers. Essentially, RMM solutionscan record product performance to allow buyers to purchase merchandise according to this information and to makeaccurate merchandise decisions. To achieve this objective, communications to third party systems play an integralrole in an RMM system. Successful retail operations generally require communication between the SCM (SupplyChain Management) or ERP solutions and the RMM system.Due to the diversity of the retail market, a one size fit all approach to MMSs does not work. Depending on the retailsegment and strategy, different features and functions are needed for every retailer. For instance, an apparel luxuryretailer is product-oriented; a service retailer is usually client-oriented; and an e-retailer is likely transaction- orsecurity-oriented. Therefore, customizing retail systems according to the functionality required by different verticals isa common task for MMS vendors.Core Area Definition:Categorizing the requirements of various types of retailers into five main areas will aid in the understanding of thecomponents of a merchandising system. The following categories can be considered as the core or "must have"areas of a retail system. 1. Inventory management. No matter which proprietary title (e.g., merchandise management, merchandise inventory and analysis, or merchandise operations) inventory management goes by, this area covers basic functionality that relates to the inventory on hand or in transit. Inventory management tracks the ins and outs of a product down to its color and size level, using capabilities such as purchase order process, receipt process, allocation process, distribution process, transfer process, style consolidation process, physical count process, and inventory freeze process. The schematic below reveals why efficient inventory management is the first rule of thumb for a retailer. Inventory optimization. Inventory optimization consists of tools used by merchandisers to make important buying and selling decisions regarding inventory. Though vendors employ varied terms, such as strategic merchandise management, merchandise and assortment planning, planning decision support, and replenishment, to describe inventory optimization, all these terms refer to software that helps merchandisers make accurate decisions and that ensures products are placed at the right time, price, and place. The tools inventory optimization uses to do this often include planning, forecasting, replenishment, and stock optimization. These functions help users determine both where items have the best sell through rate and sales trends, so that the system can replenish stores appropriately. However, planning and forecasting capabilities are not necessarily integrated in all the retail systems available on the market. Some vendors instead choose to integrate with best-of-breed solutions specialized in those areas of interest. 2. Revenue management. Due to increased awareness among customers, product prices must be equitable; they cannot be higher than the competitors prices, but cannot be lower than the products cost. Thus, revenue managements main purpose is to ensure that inventory is sold at the right price. It does this by looking at sales history and trends, sometimes with the help of a planning and forecasting tool. Revenue management also aids in creating promotional events, such as "two for one sales", to attract more consumers into the store. In addition, it is responsible for determining markdowns, which allow retailers to liquidate discontinued or out of fashion products in order to lessen losses. Also known as price change management, retail profit optimization, or price management, revenue managements functionality includes markdown creation, markup creation, price change simulations, promotion creation, vendor discounts, and allowances. 3. Sales management. By definition, a sale is an exchange of goods (tangible or intangible) for money or its equivalent. Sales transactions are thus the primary objective of a retailer, and a sales management system structures these transactions. Sales management therefore handles sales entry, sales audit, consignment sale entry, and stock ledger aspects of the retail system. Retailers use the sales management system to close the month, a process also known as period end or stock ledger closing, by calculating the total profit for the merchandising period.
ARTK Consulting, LLC Guide Retail Software Selection: 4. POS (Point Of Sale) Not all retail system vendors include a POS in their package. Many MMS vendors will have a partnership with a third party POS system company, allowing them to offer a best-of-breed application. POS is also classified in the sales management area. Unlike the stock ledger or sales entry functionality, the POS system is part of the front-office system. It is this system that is used at the cash register where the sales transaction is entered. The POS system will transfer sale transactions data to the MMS, where the merchandiser can validate sales before the business day closing period. Retailers with only one or two stores can use a POS system, which is less expensive than an MMS, as their main system for tracking inventory and processing sales. 5. Reports and inquiries. Merchandisers use reports and inquiries daily to extract information that upper management can understand and can use to take appropriate actions, if necessary. This information provides a view of sales and quantity on hand at a corporate level. Reports and inquiries enable analysis of the performance of sites, of styles on numerous levels (e.g., color, dimension, size, characteristics, or attributes), of vendors, and of the various levels of the merchandising hierarchy (e.g., company, division, department, class, or sub-class). 6. Security. The systems selected must adhere to today’s growing security threats, both the front office (POS) and the back office (MMS,ERP) must support the basic requirements for PCI DSS (Payment Card Industry Data Security Standard) compliance developed by the Charge Card companies.Non-core AreasAs previously mentioned, many MMS vendors must adapt themselves to the different verticals within retail due to thediversity of the retail industry. Much of this customization relates to non-core areas. Some vendors even develop newfunctions and features to satisfy their clients. The down side of this approach is that these new capabilities are notalways used by all companies, and the added features can become confusing for end users.Another approach is for vendors to acquire, or enter in a partnership with, third party companies, and develop aninterface that allows the two solutions to communicate. By creating these interfaces, vendors can offer a best-of-breed solution to large enterprises, and they can also stay competitive for smaller retailers by customizing the MMSto their customers needs. However, since the software comes from different vendors, the graphical user interface(GUI) and navigation through the system is not consistent. Thus, more user training may be required.The following is a list of the third party systems or non-core components most commonly associated withmerchandise systems. 1. Financial. Financial software includes general ledger, fixed assets, cost accounting, cash management, budgeting, accounts payable (AP), reporting, and other bookkeeping requirements. 2. SCM. SCM pertains to the management of supplier, manufacturer, wholesaler, retailer, and customer business processes. SCM addresses demand management, warehouse management, international trade logistics, transportation execution, and many other issues that are necessary for a complete solution. 3. ERP. ERP systems support a range of additional production capabilities, such as production planning, shop floor control, product costing, batch control and reporting, formula and routing, and material management capabilities. 4. Customer relationship management (CRM). CRM modules have the capacity to manage customer interactions, marketing campaigns, sales force automation, help desk support, and other important CRM functions. 5. Warehouse management system (WMS). A WMS manages the movement and storage of products throughout the warehouse. It should include capabilities such as yard management, inventory management, order picking, receiving, logistics, shipping, and distribution.
ARTK Consulting, LLC Guide Retail Software Selection:To avoid costly and unsuccessful software implementation projects, retailers must therefore know their businessprocesses thoroughly and analyze the available functionality in terms of how it will help employee productivity beforechoosing an MMS. Retailers should also consider the trade-offs between out-of-the-box product functionality and thevendors service capabilities, based on the combination of core and non-core components required.ERP Selection Process:The following is meant to illustrate the steps associated with the selection of a new Enterprise resource planningsystem (ERP). Depending on our initial conversations these 4 steps I have outlined may be modified toaccommodate the company’s requirements.Step One: You’re Needs AssessmentEnterprise resource planning is an all-encompassing system, not just a single piece of software. It’s not meant to bean off-the-shelf solution, or all things to all people. The first step is critical, before even beginning to review vendorswe must determine what precisely you need and what is expected by all stakeholders within your organization.We will begin by conducting a thorough assessment by asking: “What are the primary business drivers?” Whatwe may find that you need certain functions and processes that another company would not, and in other cases thatyou will need some level of customization, this will assist in narrowing down the possible vendor list.We will consider what prompted you to consider ERP in the first place? ERP can accommodate multiple businessprocesses, with a primary focus on manufacturing, logistics, distribution, inventory, shipping, billing, and accounting. Itis a highly strategic system that incorporates processes from nearly every different department in the company.Which of these areas require improvement? Is there integration between those different processes? Where areyour biggest bottlenecks, and what do you hope to improve?In the first step we will outline the problems you are trying to solve, or the processes you are trying to improve, andwill help you identify and prioritize your needs.In order to accurately determine which ERP system fits best for the organization we will need to identify your keyperformance indicators ahead of time, and outline how you’ll measure them during and after implementation.Tracking critical metrics on an ongoing basis can help you determine if your ERP initiative is delivering the results youexpected, and allow you to make corrective changes if it isn’t.Review the Strategic goals of the company “Are your needs likely to change in the future?” While your short-term ERP needs must be addressed, you must also consider long-term plans and goals. When conducting yourassessment and defining your requirements, we will make sure we account for any future shifts that are likely to occurin your organizational structure or business model, so the solution you choose can grow and change as yourcompany does.Step Two: Vendor ReviewAfter talking to multiple stakeholders to complete the needs assessment in Step One, the input may beoverwhelming. In Step two we will decide what you need to have, identify some vendors, gather information on thosevendors and issue a request for proposal (RFP). This will include gathering information from vendors through face-to-face and phone meetings, or issuing a more formal RFP document to each of the vendors to solicit informationprior to setting meetings.The RFP can accelerate the evaluation process by helping you quickly identify the most credible vendors with themost viable solutions by creating a check list that identifies must-have and nice-to-have requirements By providingthe same check list to all vendors we will have an accurate apples to apples comparison and will assist in narrowingdown the vendor list.
ARTK Consulting, LLC Guide Retail Software Selection:We will then analyze each vendor’s history, including financial status, mission statement, and reputation. Do theirobjectives align with your own goals? Will the company still be around in five years? Have they built a solid base ofloyal customers? Are they committed to helping clients succeed after the solution has been installed? Does thevendor specialize in serving your industry? The answers to questions like these will help you determine which vendoris the right partner for you.Evaluate the RFPsAn RFP may be very lengthy, and the response may be even lengthier still. It would not be unusual for a response tobe 50 pages or more, depending on detail and scope requested. Naturally, evaluating these RFPs will be a time-consuming process and will require the input and help of all the major stakeholders.Check referencesIf the solution is as good as the vendor says it is there should be plenty of customers willing to share their successstories. We will conduct survey of the provided references, preferably from customers within your industry, or withsimilar needs and challenges.Step Three: Software Demos and TrialsAlthough the RFP response looks good on paper, we will need to see the application in action, and this requires avendor demo, or even a trial.A demo of an ERP system is very different from an ordinary software demo. It’s easy for example, for a vendor to runa demo of a basic software productivity suite that suits all potential buyers, because it is generic in nature. But ERP isa highly customized and specific proposition, so a generic trade show demo isn’t going to cut it.Vendors will be required to come on site and create a demo that is customized to your particular needs and situation.They may for example, create a simulation of how one of your existing processes or workflows would operate underthe new system. We may need to provide the vendor with a sample of your data to use for this demo. What you’rereally looking for is something beyond the standard sales pitch and demonstration of features. While that is importantas well, you need a presentation that answers your particular questions and concerns, and shows how the ERPsystem will work in your own environment.This too will require attendance from all the major stakeholders. Each person watching the demo will be looking outfor their own special interests, and this is what is important. After you’ve seen the demo, we will lead a stakeholdergroup discussion. Each stakeholder will be required to submit a written evaluation to the project manager.We may request a software trial, which can provide a more realistic experience, and give you a more accurate pictureof how the ERP solution will operate within the framework of your business. While not every ERP solution is availablefor trial, it is clearly an advantage to try before you buy.Step Four: Negotiating the ERP price:Make no mistake, midmarket ERP is a major investment, and it will be expensive, in terms of up-front licensing costs,integration and customization costs, and ongoing maintenance.The goal of course, is that the end result will deliver enough cost-savings and return on investment to make itworthwhile. ERP pricing is notoriously complex, but vendors have become sensitive to the needs of the midmarketboth in terms of feature set, and price. There is often room for negotiation.Understand what goes into the priceAlthough many of the major ERP vendors have taken steps to streamline ERP pricing, especially for midmarketcustomers, there are still multiple factors involved. Some of the biggest factors include the number of modulesdeployed, along with consulting fees, which can be substantial and are often difficult to determine ahead of time.
ARTK Consulting, LLC Guide Retail Software Selection:Training is another major cost, since your end users will need to become familiar with a new platform. The IT staff willrequire training on the back-end side of the platform as well.How many licenses?The number of licenses you will need to purchase isn’t as straightforward as it sounds. It’s not just a matter ofcounting the end users and buying that number of licenses. Many vendors will require a minimum number of licensesto be purchased, or may require licenses to be purchased in larger incremental amounts. This can often be a point ofnegotiation.Maintenance cost basisYour ongoing annual maintenance fees may be 20 or 30 percent of your initial cost or more. When presented withthis percentage, make sure you know whether that percentage is based on the list price, or the final discounted priceyou negotiated. Also, determine whether these maintenance costs are locked in for a period of time, or if they canincrease without notice.