ERP in Retail Industry
Abstract
In today’s world, information systems have become integral part of any organization’s long term vision. It Is not Just considered as an enabler. These systems have become part of strategic decisions and play a very crucial role in organization‘s success or failure.
In the past two decades, Retail Industry across the globe had seen major IT transformational programs and most of these programs involved migration from legacy application to high end ERP software.
ERP in Retail Industry
The term ‘ERP‘ refers to the business software that has been designed to record and manage enterprise data for any organization. An ERP System automates and integrates core business processes and typically uses a central database that holds all the data relating to the various system modules.
ERP systems comprise of different module such as order entry, purchase, sales, finance, inventory management, production planning and human resources. The components are designed to work effortlessly with the rest of the system and provide a consistent user interface throughout the system.
ERP sofiware packages have an enterprise wide reach that offers cross-functional capabilities to the organization. The different functional departments involved in the operations or inventory processes are integrated into a single system. An ERP package takes care of the various business processes such as order entry, logistics and warehousing. It also caters to the different business functions such as accounting, marketing, strategic management and the human resource management.

Retail Industry challenges
1. Changing Customer behavior – Across the globe the change in customer behavior had become eminent and visible. Todays customer asks for personalization when he/she is shopping and this demand is not just limited to prices but is also extended to personalized products, offers and services. with this kind of demands from customers, retailers in today’s world need to be more dynamic in their analysis of data, need to be more efficient and flexible in their offerings to customers.
2. Competition – To remain competitive, retailers need to understand consumer demand at each point of interaction and respond to the various inputs in real time across the enterprise. This needs a proactive approach on the part of the retail organization to sense the specific requirements of the consumer before other competitors and respond to them in real-time ensuring customer satisfaction in the process.
Moreover, margins in the retail business generally are very low and that removes any scope for waste or inefficiencies in the business processes. Efficiency is critical to survive in the retail industry. A proactive approach on the part of the retail organization requires an enterprise wide monitoring and control of the various business processes that may ultimately lead to the desired efficiencies and long-term customer satisfaction and profitability.
Socioeconomic environment and adherence to Regulations – In order to meet the regulatory standards, the retailers require an enterprise wide process visibility, data access and near-instant performance reporting. However, the need for flexibility, process efficiency, reliable information, and responsiveness is very hard to achieve given the existing portfolio of legacy,homegrown and packaged software applications used by a majority of the retail organizations.
Therefore, a retail business would benefit immensely from an integrated Information System infrastructure which continuously monitors and dispatches the necessary information of the flaw of goods all the way from supplier to the cash register and then had to accounting as well as other functions of tie retail organization.
A combination of flexibility, process efficiency, reliable information and responsiveness is critical to a retail business and ERP package have been introduced to tackle the elimination of IT complexity albeit with some implementation challenges to the line of business and IT management staff.
Integration of the various business functions is an essential prerequisite for synchronization among the different business activities involved in a retail business. A number of large retail chains around the world have already invested in packaged software suites to integrate their core business activities. However, a lot of retailers are still using fragmented legacy software applications to manage their core business functions which results in somewhat lower levels of effectiveness and efficiency.
Moreover, a majority of Chief Information Officers [CIO] in the retail sector believes that it is cumbersome to rip and replace their existing information systems handling the routine management of the retail operations.
Advantages of Retail ERP Suite
Major advantages:
1. Retail specific components — Unlike a general ERP package, retail ERP suite offers retail centric components that are customized to meet the specific requirements of a retail organization in an effective and efficient manner. this makes a retail ERP suite much more suitable to meet the specific requirements of a retail organization.
2. Sub Segment expansion option — Within the retail sector, there is a wide variety of different segments that vary in their nature and scope of operations. A retail ERP package has provisions to meet the varying needs of the different segments within the retail sector.
3. Support for the store system — Retail ERP suite offers support for the store systems that form the pivot of a retail business. The critical functions include keeping track of the inventory, ordering and replenishment, loss prevention and task management. This makes retail ERP system suited to the specific needs of a retail organization.
Minor Advantages:
1. Configuration and scalability — A good retail ERP system allows a high degree of customization and is easily scalable to attune itself to the size of the organization and its level and scope of operations. Such configuration and scalability prove to be a boon in managing the retail operations across an enterprise. This allows a retail ERP system to grow with the organization.
2. Phased implementation support — Modern retail ERP systems provide support for phased implementation. This feature allows the software package to be implemented in a step-by-step incremental manner rather than in one go. This makes the transition to an ERP package a lot easier. This feature allows the users to acclimatize themselves to an ERP package that may initially seem complicated to use.
3. Support for advanced functionality — Modern retail ERP systems provide support for advanced functionalities that is helpful in the decision making process such as formulating pricing strategies, merchandise planning, inventory optimization and store execution. The advanced functionalities help the users formulate business strategies to introduce efficiencies in the critical business processes. The top management uses this feature to set the benchmarks and achieve the desired results.
4. Workflow automation and enterprise process management — Modern day retail ERP packages offer workflow automation and enterprise process management to make the workfiow smooth and seamless across the entire enterprise. This allows the management to monitor and keep track of the workflow while also undertaking the enterprise process management leading to the identification and removal of any inconsistencies in the business process.
5. Technology and application integration — A good retail ERP system allows technology and application integration to allow a platform independent, seamless transfer of processes across different modules running on different technologies in an enterprise wide environment that may include interaction with legacy systems and external entities such as the suppliers and the customers. Such integration provide the critical enterprise-wide view to the management.
Disadvantages of Retail ERP suite
The success of a retail ERP suite depends on the IT skills and the experience of the workforce, including training on the utilization of the information system in an effective and efficient manner.
Many companies cut costs by reducing the training budgets for the retail ERP suite. Privately owned small enterprises are often short of funds and this leads to a situation that personnel ofien operate their ERP system with inadequate education in utilizing the ERP package to its full potential. The common disadvantages of using a retail ERP package are a result of the lack of training of the employees to utilize the information system to the full extent. Other major disadvantages of using
an ERP package includes:
1. High installation costs – ERP systems are quite expensive to install and maintain.
2. Situation misfit — An ERP package may prove to be a misfit in a particular situation. companies end-up re-engineering their business process a to fit the “industry standard” prescribed by the ERP system and this frequently leads to a loss of competitive advantage. Ideally, an ERP package should suit the requirements of a company and not the other way around.
3. Limited scope for customization – The ERP software packages allow only a limited scope for customization. Some customization in the ERP package may involve making changes to the ERP software structure that are not allowed under the license agreement. This can make the situation of the ERP package user very difficult indeed.
4. Complex usage – ERP systems can be complicated to use. In order to utilize an ERP package to its full potential, the users are required to undergo considerable training which obviously costs time and money.
5. High switching costs – Once a system is established, switching costs are quite high for any one of the partners involved. This leads to reduction in flexibility and strategic control at the corporate level. The high switching costs can be attributed to the fact that installation of an ERP package involves considerable investment of both time as well as the money.
6. Need for total transparency – Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the ERP package. An ERP package is designed in such a way that seamless information interchange between the different departments is an essential prerequisite to achieve its full benefits.
7. Compatibility issues – There are frequent compatibility problems with the various legacy systems of the business partners. A company may have installed the latest ERP package but it has to be compatible with the legacy systems used by its associates or business partners.
8. Overkill – An ERP system may be over-engineered relative to the actual needs of the customer. Such a situation may be called overkill since an organization may not require the functions or capabilities extended by an ERP system.
SWOT Analysis of Retail ERP
Strengths
a. Provides an enterprise wide view of the workflow
b. Allows integration with systems of associates and business partners
c. Helps In routine decision making
d. Allows streamlining of business processes
Weakness
a. Expensive to procure
b. Requires significant employee training
c. Compatibility Issues with other/legacy systems
Opportunities
a. Buoyant retail sector in the emerging global markets
b. The retail sector is overlooked by the major ERP solution providers
c. Huh efficiencies becoming critical in the retail sector due to the cut-throat competition and paper-thin margins
Threats
a. Increasing complexity of such systems
b. Divided opinion over the Return-On-Investment [ROI] from such tools
Main Components of Retail ERP System
The main components of a retail ERP system include the following:
1. Merchandise management — it constitutes the primary component of a retail ERP system that supports the merchandise management operations undertaken by the retailers. This component includes activities such as the setting up, maintenance and management of the retail outlet, keeping track of the prices of the items, inventory, and the different vendors etc. This component of the Enterprise Resource Planning [ERP) system also offers some key reporting functions as well as the allied business intelligence modules.
The merchandise management component also offers an integrated interface to tie other retail applications thereby acting as a bridge between the different retail applications supported by the retail ERP suite aimed at facilitating more efficient retail operations. A typical retail chain offers hundreds of thousands of different products to the customers.
The merchandise management component takes care of all the activities related to the management of the merchandise offered for sale at the retail store. in a nutshell, the Merchandise management component of an Enterprise Resource Planning [ERPJ package covers all the activities centered on the merchandise offered at the retail store.
2. Retail planning — This element of the ERP system allows the retailers to undertake the planning activities at a large as well as a small scale as per the need of the situation. It focuses on the different strategies to be employed in order to help the retail store in increasing the sales of the merchandise. The retail-planning component focuses on achieving the economies of scale and attaining the desired efficiencies by increasing the merchandise sales at the retail drain.
This component helps the retailers in planning the various sales and promotional events aimed at boosting or increasing the sales of the merchandise offered at the store. This way, retail planning forms an important and critical component of the retail ERP systems as it performs the critical function of offering the planning activities that may be undertaken at the micro as well as macro level to give a push to the merchandise sales at the retail store.
The retail-planning component is extensively used by the middle and the upper management in formulating favorable promotional strategies to stimulate the sales and ensure increase in inventory turns at the retail store. Hence, retail planning may be called as a critical component of the retail ERP systems.
3. Supply chain planning and execution — it provides support to the internal as well as the external supply chain process. it covers both the planning and the execution part of the supply chain management in retail. Supply chain forms the backbone of the retail operations. The supply chain represents the flow of information, finances, and materials as they move in a process from the supplier to the wholesaler to the retailer and finally to the end-user or the consumer of merchandise.
Supply chain planning and execution is an integral part of the retail ERP system. Retailers aim to take advantage of the operational synergies. To meet the requirements of such retail chains, the supply chain planning and execution component of the retail ERP systems allows the retailers to keep track of the entire supply chain beginning at the manufacturer and ending at the consumer.
It allows a retailer to keep track of all the activities and processes comprising the supply chain of the merchandise offered at the retail store. This helps retailers run their businesses in an effective and efficient manner by closely monitoring their supply drains and ensuring its management In a smooth and efficient manner to ensure profitability in the business.
4. Store operations — This element of the ERP system takes care of all the operations related to the store management function. The store operations are central to a retail chain since the retailers keep the majority of their inventory at the stars. Moreover, the store operations are unique to the retail ERP systems as the other ER P packages do not offer such a comprehensive component like the store operaflons as offered by a retail ERP system.
The store operations component includes the store specific inventory management sales audit, returns management, perishable management and the labor management The store operations component can also include the customer management and the associated promotion execution systems.
5. Corporate administration – This component aims to serve the information needs of the administration and usually includes the process management and compliance reports required by the top management for the decision-making purpose. This feature also includes other corporate financial reports such as the accounts receivables, amounts payable, general ledger and the asset management reports.
The corporate administration component may also include the corporate-level Human Resource Management [HRM) systems. Thus we can see that the corporate administration component plays a critical role in providing the necessary information to the top management to get a general idea of the health of the retail business by way of the various financial reports generated by this component provided in the retail ERP systems.
The corporate administration component can be termed as the eyes and ears of the top management in the retail business. This component makes available the necessary data required to provide an insight into the financial health of a retail business. Moreover, this component of the retail ERP system is used for generating specific compliance reports submitted to the industry watchdog or other monitoring agency that may require reporting of such data on a periodic basis. These reports not only help the management in meeting the mandatory disclosure norms but also help in the formulation of effective management.
Major Retail ERP Vendors and their Products
The global Enterprise Resource Planning [ERP) market is dominated by relatively few niche players who command the lion’s share of the market The retail E RP systems segment shows the same trends In terms of the relative market share of the major global vendors.
No.
|
Retail ERP Vendor |
Product |
1
|
Aidata |
Aidata G.O.L.D. |
2
|
GERS |
GERS Merchandising |
3
|
Island Pacific |
Island Pacific Merchandising System (IPMS) |
4
|
JDA Software |
Portfolio Merchandise Management (PMM) |
5
|
Jesta I.S. |
Vision Merchandise Suite |
6
|
Microsoft Dynamics |
Microsoft Dynamics NAV “Navision” |
7
|
NSB Group |
Connected Retailer Merchandising |
8
|
Oracle |
Oracle Retail Merchandising System (ORMS) |
9
|
Retalixe |
Retalixe HQ |
10
|
The Sage Group |
Sage Pro ERP |
11
|
SAP |
SAP for Retail |
12
|
Tomax |
Tomax Merchandise Management |
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Business Implications
The Business implications of a retail ERP system are immense indeed. in the contemporary business environment where liberalization, privatization and globalization are the order of the day, most of the retail businesses around the world operate under the fiercely competitive market conditions.
Such competition has led to the paper-thin margins in this sector. In order to remain competitive, the retail organizations surviving on thin margins cannot afford the luxuries of systemic inefficiencies or delayed decision-making. Both the activities, be it increasing efficiencies in the business process or the ability to take prudent decisions quickly requires an inside out awareness of the business process. A retailer ought to know the ‘complete picture? that can indicate the true state of a retail business.
A retail organization may comprise of a small chain of retail stores confined to a small town or city or may include a mammoth organization having its presence around the world in the form of thousands of stores scattered across tie different parts of the world. Walmart is one example of a retail business with its operations spanning across different continents around the world. Management of such a distributed network of retail chains is a Herculean task indeed. The retail Enterprise Resource Planning (ERP) packages help the retailers in better management of their enterprise wide operations spanning the entire globe.
The retail ERP systems provide one-stop solution for most retail information processing challenges by providing a comprehensive solution to managing a complex retail business. An Enterprise Resource Planning [ERP) system helps the retailers manage their businesses in an effective and efficient manner by providing integrated and consistent information flow. It makes the task of keeping track of all the transactions so much easier. A retail ERP system allows automatic recording of the transactions in real-time environment. They have become indispensable tools to survive and increase profitability in the retail sector for large retail organizations.