UNIT 2 TECHNOLOGY AND ITS IMPACT ON RETAIL BUSINESS
* TOPICS IN THIS CHAPTER :-
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2.1 Introduction
2.2 Information Systems
2.2.1 Retail Management Information System
2.2.2 Features of Retail MIS
2.3 Database Management Systems, Network and Telecommunications
2.3.1 Database Management Systems (DBMS)
2.3.2 Networks and Telecommunications
2.4 Significance of Information Systems in Retail
2.4.1 Benefits of IT in Retail
2.5 Impact of IT on Retail Business
2.6 Summary of this Chapter
2.7 Very Very Important Questions
2.1 INTRODUCTION:-
- Talking about impact of technology on business is not a new thing.
- It’s been ages since the technology has entered at the doorstep of business and served in all its’ spheres.
- Retail business is no exception to it. In Unit 1 we have already glanced the various technologies that are used in retail businesses.
- This unit aims at discussing about the impact of those technologies on retail businesses.
- As we know IT is playing a very important role in every sphere of our life whether it is science, education, business, entertainment or engineering.
- Hence it becomes important to understand what is IT all about? Information Technology as the word itself says, is a technology to treat information.
- It is primarily using computers and software to manage information for diverse functions and usages.
- In many business organisation, this is referred to as Management Information System, popularly known as ‘MIS’ or information services.
- These systems help in smooth running of business operations and in various management decision making processes.
- Success and growth of any business totally depends on its information system which coordinates all the functions of a business.
- Information system is not just computer and technology, it is much wider concept.
- In this unit you will learn the basic concept of information systems and its various components, use of technologies and its benefits in information systems and significance of information technology in retail.
2.2 INFORMATION SYSTEMS:-
- The moment we come across the word, Information systems, two things immediately comes along viz., computers and people who operate it.
- But information system is a wider term.
- Now let us discuss about information system. Basically, information system is a combination of information technology and human activities that renders help in smooth operations, efficient management and decision making.
- To put it simple, it is an interface between people (human resources of the organisation), process (storing, retrieving, transforming), information (data) and technology for specific purpose (figure 2.1).
- Thus Information system can be described as a system which facilitates in collecting, consolidating and calculating the data (information) to present it in a specific format either with the help of computers or manually.
- Now business organisations have become more and more dependent on information system to deal with the challenges and complexities of the frequently changing market conditions.
- Up-to-date, complete and accurate information has become a need of a modern business to survive in this highly competitive world.
- Humans alone cannot look after all the business activities in an efficient and effective way.
- Therefore, business requires information system.
- Rapid developments in the field of information technologies give a way to its applications in business information system as it is not possible to provide the updated and accurate information without use of technology.
- According to Laudon (2002) an information system can be defined technically as a set of interrelated components that collect (retrieve), process, store, and distribute information to support decision making, coordination, and control in an organisation.
- In other word we can say that information system is an interconnected set of information resources which normally includes hardware, software, information, data, applications, communications, and people.
2.2.1 Retail Management Information System
- Retail management information systems, like any other management information systems, aims at facilitating all the human as well as non human resources for smooth running of a retail store.- Retail management information systems include the use of hardware, software, various networking and communication technologies and procedures to manage activities such as planning, inventory control, and finance, information to customers, logistics and point of sale transactions.
- Retail management information system connects the distributed stores which is a huge support.
- It allows instant exchange of information which helps store managers to stay in contact with others as shown in figure 2.2..
2.2.2 Features of Retail MIS:-
- Features of retail MIS are as follows:a) Links the stores of retail business
b) Enables immediate exchange of information (data) to all the store managers
c) Supports effective product management
d) Controls profit of the organisation
e) A flexible information system helps managers even in pricing their products and services for variable time period.
f) Helps in basic retail functions such as procurement, storage and delivery.
g) Helps managers in managing inventory, suppliers and product sales.
h) Provides a control to retailer over purchase orders and inventory records.
i) Enables analysing cash, cheque and credit card transactions to reconcile information.
j) Allows to track purchase orders and update inventory records dynamically.
k) Helps in improve efficiency by examining overage and shortages to disclose trends that can be corrected.
l) Provides detailed analysis of customers’ data which helps in computing customers life time value, designing various customer loyalty programmes to retain the valuable customers. It is important to note here that all the customers of a business are not equally valuable. Their buying pattern and choices vary. Retail MIS plays a very important role in identifying the customers who are highly valuable for their businesses.
- These are some important features of Retail MIS.
- It facilitates retail businesses on a much larger scales and specialised manner.
- In this unit we are only discussing the general uses of IT in retail.
- Retail MIS includes a mobile user interface to meet the needs of sales and inventory managers.
- To put it simple, the basic function of retail MIS is integrating payments, inventory and transactions which improves operations and reduces costs.
- It enables a retailer to respond to customers more quickly by tracking inventory effectively.
- Once the quick response is done it brings manifold benefits such as, improvement in customer services, expansion of customer base and increased profits.
- Besides, it enables the easy identification of waste reduction, recycling of materials and opting for a more effective attractive, convenient and environment friendly packaging.
- These, all together, increase profitability of business.
- There are various types of retail management information systems.
- Retail MIS can be customized for each industry, such as fashion industry, department stores, supermarkets, furniture stores , Pharmaceutical stores.
- Some systems support multiple languages, currencies, tax systems and cost structures.
- In addition, some retail management information systems can support different business models such as franchise, consignment, direct sales or online.
2.3 DATABASE MANAGEMENT SYSTEMS, NETWORKS AND TELECOMMUNICATIONS:-
- Retail information systems comprise various components i.e. hardware, software, databases, networks, automatic identification, data-capture systems (AIDC), and electronic fund transfers (EFT).
- Components like software, hardware, AIDC and electronic payment systems have been already discussed in unit 1 of this course.
- Two main components; databases and networks & telecommunications will be discussed in detail in this section.
2.3.1 Database Management System (DBMS):-
- No information system is complete without database management system.
- Database management systems consist of data, its management tools and systems.
- As we know, data is raw facts.
- When it is specific to some organisation, it becomes raw facts representing events of the organisation.
- Whereas, data base, as its name suggest, refers to a location where information are kept.
- It is a collection of related information available for various users for different purposes.
- Further, some tools or technologies are used to manage this data for the specific organisational purpose.
- Combining these two makes database management.
- Thus, database management system (DBMS) is the software that allows a computer to perform database functions of storing, retrieving, adding, deleting and modifying data as and when needed.
- DBMS is a collection of computer programmes that enables users to store, modify, and retrieve or extract information from a database.
- Computerised library systems, automated teller machines (ATM), transport reservation systems, banking systems, and computerised inventory systems are the example of database applications.
- In retail or any other business transaction systems, data is collected when the transactions are processed but used and analysed later for decision making.
- This information cannot be analysed later on if there is no system of database management.
- Here DBMS plays a very crucial role in any kind of business by providing the necessary information pertaining to customer data, sales figure, collections and inventory etc.
- DBMS ha become the backbone of every organisation in modern era. Following are the main uses of DBMS in different sectors:
1) In banking sector DBMS is used for customer information, accounts, loans and banking transactions.
2) In transport like railways, airlines for reservations and schedule information.
3) Educational institutes use it for student information, course registrations and grades etc.
4) Telecommunications industry uses DBMS for keeping records of calls made, generating monthly bills, maintaining balances on prepaid calling cards and storing information about the communication networks.
5) In financial sector it is used for storing information about holdings, sales and purchase of financial instruments like shares, stock and bonds etc.
6) In HR it is used for information about employees, salaries, payroll taxes and benefits; and
7) In retail its uses are for customer information, sales data, purchase information, inventory records etc.
2.3.2 Networks and Telecommunications:-
- For retail business, it is very important to have the basic idea about networking and telecommunication.
- Network simply mean the interconnection of people but here networks means computer network, where a group of computers are inter-connected to share information with each other.
- When two or more computers are interconnected to share files and documents and send messages is known as networking.
- Leonard Kleinrock, was one of the first to develop network systems using data packets in the 1960s.
- His Host computer became the first node of the Internet in September 1969.
- Figures 2.3, 2.4 and 2.5 show network system, computer networking and LAN networks.
- His Host computer became the first node of the Internet in September 1969.
- Computer networking links together computers, information and resources through various hardware.
- Take a look at the history and types of computer networking and the components involved.
- Modern advancements have increased these distances considerably, allowing Ethernet networks to span tens of kilometers.
- Local computers no longer have to do all the heavy lifting when it comes to running applications.
- The network of computers that make up the cloud handles them instead.
- Look at figure 2.6 which shows cloud computing systems.
- Telecommunication is the exchange of information over significant distances with the help of electronic means.
- In general term telecommunications is the combinations of technologies which help in sending the information over distances where one person can send any information through electronic mean to other who is designated at other place.
- Mobile phones, landline phones, radio, television, satellite phones, and internet are the common examples of telecommunication.
- A collection of terminals, links and nodes which connect to enable telecommunication between two or more users of the network terminals is known as telecommunications network.
- Networks may use any type of technology like circuit switching or message switching.
- Networks terminal must have a unique address so messages or connections can be routed to the correct recipients.
- This collection of addresses in the network is called the address space.
- A computer’s wireless adapter (usually built-in) translates data into a radio signal and transmits it using an antenna.
- A wireless router receives the signal and decodes it.
- The router sends the information to the Internet using a physical, wired Ethernet connection.
2.4 SIGNIFICANCE OF INFORMATION SYSTEM IN RETAIL:-
- In any modern business there are three very important dimensions of information systems; organisation, management and technology.
- Any information system is built by using information technology.
- We have already discussed that IT consists of input, output, processing systems and devices.
- These tools are used by the businesses to deal with the challenges posed by the internal and external environment.
- Here environment refers to business’s suppliers, customers, competitors, and stakeholders etc.
- To manage the dimensions of information systems it is very important to use technology in the business organisation.
- In the present era, the style of doing business has been changed as it was a decade back.
- E-commerce has opened new avenues in business.
- No business can ignore the impact of information technology.
- IT influences every aspect of life and now is going to have a big impact on businesses and progress of any business will depend on what their information system will be able to do.
2.4.1 Benefits of IT in Retail:-
- Retailing in simple terms is a process of buying and selling which results in making some margin.
- A service provider (Retailer) buys in Bulk, breaks it down to the unit of consumption for the end customer and in return for stocking the merchandise to be available at the right time, right place in right quantity the service provider expects a small margin on the selling price of the product.
- In this small equation lie the complexities for a retailer.
- Success of any retail depends on product, operational excellence and customer intimacy.
- Following are the complexities of retail business and how technology can help in solving these complexities:
1) Product:
- Retailer has to manage the complexity on the number of products kept for selling in the store.
- The number of for a department store ranges anywhere between 35000 distinct products multiplied further by its size variants which is called a SKU (Stock keeping Unit).
- A hypermarket will keep anywhere between 110000 to 250000 different SKUs.
- Retailer has to constantly manage procurement of this large number of SKU’s from vendor base anywhere between 1500 to 2500 different vendors spread across the country and at times from different geographies internationally.
- To understand the largeness of this issue just thinks how would one remember which SKU is purchased from whom at what price and how much to order to get the best price from a given vendor? This is further aggravated by the complexity of certain products being seasonal versus non seasonal and fashion driven product range which change with every change in fashion for a given time period in the yearly calendar.
- Retailer will have to ensure that woollens products are not procured in the hot summer season.
- Fashion driven products are more of Push Category whereas FMCG kinds of products are more of Pull category except in a situation of a new product introduction.
- Retailer needs to have the knowledge of Fashion forecast for a given time period and coupled with the historical sales data of similar product; retailer can base his buying decisions more accurately instead of using a gut feel and betting on the investment.
- Pull products are very much driven by the demand in the sales channel which brings the challenge of replenishment in a timely manner to make sure sales of the Pull products happen.
- For Pull Products, the demand variability across the country is so huge that it is said “For every 100Km the type of rice consumed changes”.
- We have already discussed about POS in the first unit.
- As for Merchandise Management System (MMS) is concerned, Merchandise Management system (MMS) is a comprehensive, fully integrated solution for business headquarters or back office requirements.
- It helps a retailer to manage the retail cycle from planning, buying, receiving through transferring, distributing, selling of goods to performance analysis and then back to planning for other cycle.
- You will learn about MMS in detail in the following units of this course.
- Investment in Information technology can solve this problem by collecting the large volumes of Point of Sale (POS) data, processing it and giving a summary of the products selling well versus the ones not selling well.
- This same POS data when passed on to the Merchandise Management System (MMS) (host system for a retailer) allows the Retailer to simplify the order processing part as the MMS keeps track of the vendors supplying the relevant goods.
2) Supply Chain Challenge:
- Right product at the right place at the right time is the theme that constantly drives the supply chain engine for a retailer.
- Imagine fulfilling this rule with 2500 vendors spread across geographies having their own respective lead times for a product range of 35000 SKUs.
- Procuring merchandise (products) from the different vendors across different geographies and getting it delivered to the right store is in itself a major challenge for the retailer.
- For example: South India typically consumes more of Sarees than the Salwar Kameez material that gets consumed in North India.
- Now the procurement person in the retail organisation, has to make sure that the right product is delivered to the right place, else there will be a chance of Lost Sales (Sales that does not happen because of the stock not being available on the shelf when the customer visits the store).
Solution Set:
- Merchandise Management System, Demand Forecasting and Fulfilment system (Pull product category) and Merchandise Planning system (Fashion driven Push Category).
3) Process Complexity:
- Multiple people (Manufacturer, Distributors, retailers, end consumers) involved in the supply chain make the Buying & selling process very complex.
- This also complicates the supply chain as the inventory holding at different points in the network adds up to the capital cost.
- Leaner the inventory in the entire supply chain, lesser is the inventory holding cost which means each of the parties involved make better margin.
-This is a direct function of the ability of the party involved in predicting the demand for its product in the market place.
Solution Set:
- Merchandise Management system that keeps track of the vendor supplying a particular type of products or a range of products.
4) Multi Location:
- Organized retail is about scale and one of the biggest differentiator from the corner Kirana Store.
- Multi-location presence adds up to the Supply Chain Management (SCM) complexity. Solution Set: Merchandise Management system that keeps track of the vendor supplying a particular type of products or a range of products.
5) High Attrition Rate:
- In a growing phase of the Retail Industry, loss of man power to the new retailer on the block is a common phenomenon.
- With loss of the merchandising team, retailer also looses the knowledge built from the experience of selling in a given market (location).
- Such knowledge loss can be prevented by having robust technology platform that can store the sales data and its analysis for the next merchandiser who joins the company.
Solution Set:
- Merchandise Management system layered with a good robust Business intelligence tool.
- Typically good amounts of reporting will be available in the native software functions of the MMS, but a good BI tool makes it simple to slice and dice the information cubes across
1) Product Hierarchy
2) Location Hierarchy
3) Time Hierarchy
- Having understood the solution set it is now important to connect the amount of investment in direct proportion to the complexities of the business.
- Smaller the size of the retail business, lesser the complexity lesser would be the investment required.
- Thereby providing a decent Return on investment when the investment is matching to the size and the complexities of the business.
- Certain solution sets can be considered as Hygiene factor for running an organised retail business.
- For example: Point of sale solution is a hygiene investment even if the retail business has less than 5 stores.
- Whereas solution sets like merchandise planning will be required when the business is spread across different geographies and one has to plan the merchandise (Push category) that will be procured and showcase to the end customer through retail outlets.
- This brings us to the different maturity phases of Retail.
First Phase:
- Simple buys and moves the products from the supplier to the end consumer.
Second Phase:
- Buying and delivering the right product, to the right place at the right time in a consistent manner.
- Consistent performance in this phase of maturity is very important.
- Let’s understand the consistent performance part with an example: Mr. A wants to buy a white shirt size 39.
- He is already a customer with Ms. EFG retail limited situated in the MNO Mall, Bangalore.
- He has been buying all his apparel requirements for his family from Ms. EFG retail limited for last 4 years.
- However today he is clear he needs a good formal white shirt for size 39 for the Annual Board meeting in his company.
- When he visits Ms. EFG Retail Limited, he finds they are out of stock for the given shirt.
- His mission to get a white shirt is not achieved so he pops into another Retailer OPQ Retail Limited in the same mall with a hope to find the white shirt.
- While walking through the next retail store he finds they keep a better collection of White shirts which has better fabric texture.
- He also finds that the merchandise for his kid in this other Retail OPQ store is of much better quality for a given price.
- From that day he decides to shop at OPQ first.
- This mean EFG retailer lost the life time value of this customer for one simple mistake of not having a white shirt on a given day.
- Now imagine this rule to be kept for 1000s of customers that walk in into the store.
Third Phase:
- Buying and delivering the right product, to the right place at the right time in a consistent manner but also providing the right customer experience.
- Right customer experience is the key; a lot of focus on the right customer experience is seen in the retail outlets of matured retail market like US / UK.
- Although quite a few Retailers want to be competitive by merging the second phase and Third phase.
- Right customer experience includes the ambience, service levels and involves lot of technology pieces wherein customer enjoys trying out the new process of billing with a moving cashier or uses the Virtual Reality technology to try out the apparel without having to actually wear them.
- Such experiences when delivered with success results in customer coming to the store again with a hope to try again some new experience.
- As the retailer moves from one phase to the other it requires the backing of a robust technology to support and manage the complexities that come in.
- For example: A warehouse supplying to couple of stores will do the picking on each piece basis, but if its the mother warehouse for other smaller warehouses then the merchandise picking will be in pallets.
- A simple MMS will support each piece based picking and shipping but a good warehouse management solution will be required to support pallet or carton based picking and shipping.
- A simple 25000 sq.feet warehouse space will be good enough to manage stocking and replenishment for smaller number of stores.
- But if the stores are big or large in numbers then a warehouse of 1, 00,000 sq.feet is also not enough.
- Now imagine you had to pick merchandise from different part of such a large warehouse.
- Unless you have a very good high end warehouse management solution it will be difficult to put away (stock the merchandise on the respective shelves) or pick the merchandise for dispatch without having to walk huge distances.
- A high end WMS software package will remember where the merchandise is kept on which shelf and help the picker to plan this trip into the warehouse with proper order of picking for replenishment.
- In summary Scope of Information Technology is including the following but not limited to:
● Product : Right product at Right Price
● Operational Excellence : Right place at Right time
● Customer intimacy : Right product - Right time - Right place: Knowing your customer is very important to be a successful retailer. All these 3 points are important for a retailer to succeed removing even one from the equation will jeopardise the chances of success for a retailer.
- In fact for any business enterprise to be successful it is important to meet the goals of the aforesaid 3 tenets.
2.5 IMPACT OF IT ON RETAIL BUSINESS:-
- Information technology has totally revolutionised the retail sector.
- IT is playing a predominant role in the success of any retail store.
- Every retailer is trying to utilize the best means provided by IT to run the retail store and to serve the customers effectively.
- Now customers want complete ease and comfort during the whole purchase process and to serve customers at their will is not be possible without using information technology.
- POS, e-payment, internet and social networking sites are the best examples of IT which are providing retailers an easy way to serve the customers according to their choice.
- With the help of IT, now retailers can integrate their retail payments, inventory and other transactions which improve the retail operations and reduce cost by preventing duplicate entries.
- IT components enabled retailers to track inventory effectively and now they can quickly respond to customers requests.
- By being able to respond expediently, retailers can also improve services, expand their customer base and increase profits.
- With the helps of DBMS, retailers can access data easily which allow them to identify opportunities to improve waste reduction, recycling materials and are choosing environmental friendly packaging and marketing means.
- With the continuous technological advancement and its use in retail providing customers various means of purchasing and ease their purchasing process.
- Components of IT have revolutionised the retail and have great impact on overall retailing.
- Following are the major contributions of IT in retail are:
1) Radio Frequency Identification (RFID) benefited the retail operations in four major categories; improved management, velocity of retail cycle, integrated business model and efficiency of store operation. RFID, enabled retailers to reduce labour costs, simplified business processes, improved inventory control, increased sales, and reduced shrinkage. All this not only helps retailer but also to customers in low cost goods and quick services. Many retailers and suppliers have already initiated various projects to utilize the technology like RFID.
2) Technology is providing various information’s to retailers regarding customers’ choice and taste etc which causes the increased sales and reductions in expenses. Technology enabling retailers to query about the missing persons who has spent a fixed amount and shopped more than five time and who has not been in the store in the past one year. By tracing their related data, a letter is automatically sent to every customer who meets these criteria with a gift certificate to encourage them to shop again in the store.
3) Impact of point-of-sale is very high on retail business; it makes faster check out of customers by scanning large numbers of items. At peak hours this reduces the chances of a customer seeing a long line and not making a purchase. Now customers can make their purchased with in no time. POS accurately capture the exact item detail being sold in combination, which provides the up-to-date position of the merchandise. This also helps in solving the problem of lost sate due to out of stock merchandise. Now retailers are trying to stock the merchandise as per the customer choice which they get from the various means and DBMS which leads to an increase in sale and profitability.
4) Internet and social networking sites are providing a mean of marketing to retailers by which retailers are now targeting their customers even in their office time and in their homes also. This is also helping customers to get the desired information at any time anywhere. These social media of networking revolutionised the retail marketing.
5) Electronic payment system changed the mindset of customers. Now customers are making their purchases through their debit and credit cards without carrying cash with them. This is also increasing the sales figure of retailer and customer base of that retailer who user e-payment technology in his retail store.
6) Technologies like POS and MMS are improving the overall operational efficiency of the retail store. These technologies are helping in automatic store credits to returned items which reduce cash refunds and tracks returned items.
7) Retailers who are using various multi medial technologies, cutting their training costs of sales. Now sales associates can receive product knowledge training right on the cash counter which increases their knowledge and ability to sell more products and better satisfy their customers.
8) As per survey conducted by Microsoft Business Solution, the effects of POS Implementation and Retail Technology on Sales and Profitability for small and mid sized retailers:
i) Forty percent of the retailers surveyed stated that their point-of-sale system helped increase sales.
ii) The average sales increase reported from a point-of-sale system is 16% with the following groups having a greater increase.
iii) Retailers who have 1 cash register/POS device (21% sales increase).
iv) Those that have had their software in place for 5 or more years (19%) sales increase.
v) Single-store retailers (19% sales increase).
vi) More than half (53%) stated that their point-of-sale system helped decrease expenses.
2.6 SUMMARY OF THIS CHAPTER
- Success and future growth of any business totally depends on its information system which coordinates all the functions of a business.
- Information system is not just computer and technology, it is a much wider concept.
- It is the convergence of various systems i.e. hardware, software, networks, and images etc.
- These systems help in smooth running of business operations and in various management decision making processes.
- An information system is a system that enables business organisation people to collect, consolidate, and process organisation data and finally present the output or information in a meaningful format, either with the help of computers or manually.
- Retail management information systems include the use of hardware, software, various networking and communication technologies and procedures to manage activities such as planning, inventory control, and finance, information to customers, logistics and point of sale transactions.
- DBMS and networks & telecommunications are the very important components of information systems without which no information systems can perform effectively.
- In any modern business there are three very important dimensions of information systems; organisation, management and technology.
- Any information system is built by using information technology.
- To manage the dimensions of information systems it is very important to use technology in the business organisation.
- Information technology provides various solution sets to solve the complexities of retail like product, supply chain, multi-locations, and customers’ services etc.
- Information technology has totally revolutionised the retail sector.
- IT is playing a predominant role in the success of any retail store.
- POS, e-payment, internet and social networking sites are the best examples of IT which are providing retailers an easy way to serve the customers according to their choice.
- With the help of IT, now retailers can integrate their retail payments, inventory and other transactions which improve the retail operations and reduce cost by preventing duplicate entries.
2.7 VERY VERY IMPORTANT QUESTIONS:-
1. Explain the concept of information systems.
2. Discuss the significance of information systems in retail.
3. Describe the DBMS, networks and telecommunications.
4. State the various uses of IT in retail businesses.
5. Analyse the impact of IT in retail businesses.
6. “Information system is a combination of computer, technology and other components”. Justify this statement.
7. What is retail management information system?
8. Define database management system (DBMS). Discuss its uses in various sectors.
9. “Networks and telecommunications are the important components of information systems”. Comment on this statement.
10. Why is information system important in retail business? Discuss the benefits of information system in retail.
11. Discuss how IT has revolutionised the retail sector?
