Technology and

nt Customer Value

BLOCK 3

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Visual Merchandising
and Store Management

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 Retail IT Landscape
UNIT 10 RETAIL IT LANDSCAPE
Structure
10.0 Objectives
10.1 Introduction
10.2 Fundamentals of Computer
10.2.1 Meaning
10.2.2 Characteristics
10.2.3 Components
10.2.4 Hardware and Software
10.2.5 Business Uses of Computer

10.3 Introduction to Information Technology

10.4 Applications of Information Technology
10.5 IT in Retail Business
10.6 Future of IT in Retail
10.7 Let Us Sum Up
10.8 Key Words
10.9 Terminal Questions

10.0 OBJECTIVES
After reading this unit, you will be able to:
Ɣ explain the meaning, components, and uses of computer;
Ɣ describe the features and functions of computer;
Ɣ explain the concept of information technology;
Ɣ identify the various elements of IT;
Ɣ discuss the uses of IT in retail business; and
Ɣ assess the future of IT in retail.

10.1 INTRODUCTION
With globalisation of commerce, ever changing customer demands seeking
for increasing value from products and services, businesses (including the
inherent processes) have become complex to meet the supply and demand
chain. Internet and Latest gadgets (Smart phones, mobile computing)
combined have forced the service providers (includes retailers) to invest in
technology that enabled them to meet the dynamic demand of globalisation.
Earlier, markets used to have a geographic jurisdiction, which does not exist
today, as the whole world is become the potential market for every service /
product provider.
The retail industry in India which comprises organised and unorganised
sectors is one of the fastest growing industries in India. On the global
191
Visual Merchandising platform also it has a profound place as Indian retail industry is the fifth
and IT Application in
Retailing largest in the world. Still only 5 % of the retail industry is organised. This is
an era of turning organised all around and retail sector is no exception to this.
Like any other business houses, big retail businesses can-not be run
successfully and managed effectively without making use of appropriate
information technology. Huge competition in retail sector has made it
compulsory to provide the customers with the best and quickest of services
which could bring customer delight. This cannot be possible in the absence of
Information technology. This unit deals with acquainting you to the various
IT tools that are used in retail business. This requires a proper understanding
of computers at the outset. Hence, in this unit you will learn about the
fundamentals of computer, its various components and uses of computer in
business. You will also learn the concept of information technology (IT),
various elements of IT, its uses in retail and future of IT in retail business.

10.2 FUNDAMENTALS OF COMPUTER

Computer, without which no one can imagine about the information
technology, has become necessity today. Most of our day-to-day activities are
being influenced by the use of computers. It has become necessary for each
and every one of us to have some knowledge of computers. Computers,
which we see and use, are not the same since its creation, it has seen a long
way journey, and the first computer was designed and developed by Charles
Babbage, a mathematician in 1835. Charles Babbage is also known as father
of computer.
10.2.1 Meaning
The word ‘computer’ means to ‘compute’ or to ‘calculate’. Computer is an
electronic device which processes the information on the basis of instructions
provided to it by the users. It cannot provide any information to the users
automatically, it processes the information based on the instructions
provided, to generate the desired output. It, therefore, requires two types of
input- raw data, and set of instructions to process or act upon the data. Data
can be of any type- text, numeric, alpha-numeric, image, picture, sound etc.
the instructions that act upon this data are also called the programme or
software in computer terminology. It consists of various parts like monitor,
C.P.U., keyboard, mouse and printer etc. Figure 1.1 shows the parts of
computer.

Figure 10.1: Parts of computer

6RXUFH: Google images
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10.2.2 Characteristics Retail IT Landscape

Following are the main characteristics of the computers that have made it
powerful and universally useful.
1) High Speed
Speed of computer made it necessity of every one. Computers work at a
very high speed. The speed at which it performs the tasks is beyond
human imagination and capabilities. It can do a calculation within no
time for which a human being can take his lifetime. A powerful
computer is capable of performing million of simple instructions per
second. Speed of computer is determined in micro second.
2) Accuracy
Computer is not only fast, but also very accurate. Errors that may occur
are due to human mistakes or errors (inaccurate data, poor instructional
design etc.). It can add or multiply thousands of numbers with great
accuracy. The degree of accuracy of computer is very high and every
calculation and comparison is performed with the same accuracy.
3) Diligence
Unlike human beings, computers are highly consistent. They do not
suffer from human traits of boredom and tiredness resulting in lack of
concentration. Computers perform voluminous and repetitive jobs
without any tiredness and mistakes.
4) Versatile
Computer is a versatile machine and is capable of performing any task as
long as it can be broken down into a series of logical steps. But its
capability is limited only by human intelligence and instructions. The
presence of computer can be seen in every sphere- railway/ air
reservation, banks, hotels, weather forecasting, educational institutes,
businesses and many more.
5) Permanent storage capacity
Computer has in-built memory. Modern computer can store volumes of
data. Unlike human memory where information is relegated to the back
of the mind and forgotten after some time but Information once stored in
computer can never be forgotten and can be retrieved any time.
6) No IQ (Intelligence Quotient)
Computer is just an electronic machine. It works according to the
instructions given to it. If users give wrong instructions it will give
wrong results. No computer can take any decision on its own as a human
can.
7) No feeling
Computer is not a human being. Therefore it does not have any feelings,
taste or emotion. It can work for long period without any tiredness.
193
Visual Merchandising 10.2.3 Components
and IT Application in
Retailing
Any computer system mainly comprises of input unit, central processing unit
(CPU) and the output unit. The CPU is the heart and mind of the computer
system and is made of three components namely, the arithmetic logic unit
(ALU), memory unit, and the control unit. Look at figure 1.2 which shows
basic computer structure and its components.

Memory Arithmetic Output

Input Unit Unit Logic Unit Unit

Control
Unit
Central Processing Unit (CPU)

Figure 10.2: Basic computer structure and its components

Let us discuss in brief the functions of each unit.

Input Unit: Computer processes the data as per the instructions given by
users. Data and instructions given by the users are generally in human
readable language but computer processes the data in computer readable
language called machine language. Input unit receives the instructions and
data in a form that can be understood by the computer. Data and instructions
are given to computer with the help of input devices like keyboard, mouse,
floppy disk, and pen drive etc.
Central Processing Unit (CPU): Central processing unit comprises of three
components: a) memory unit, b) arithmetic logic unit and c) control unit. It is
the main component of computer system where all the data are stored, all
calculations are performed and is also responsible for controlling the
functions of computer system.
a) Memory unit
In memory unit all the data and instructions entered by the users and
processed results of input operations are stored. Memory unit receives all
the instructions from the users and send it to arithmetic logic unit to
process and further receives the processed results from ALU and send it
to output unit. Computer memory can be of two types, main memory and
secondary memory. All the data and operational results of the data are
stored in the primary storage area. This is also known as memory of the
computer. There are two types of memory in computer system; ROM
and RAM. Read Only Memory (ROM) is the permanent memory of the
computer and data is retrieved in sequential manner whereas Random-
access Memory (RAM) is the temporary memory of the system and it
accesses and retrieves the data randomly from the storage area of the
computer system.
Secondary memory is also known as auxiliary or backup memory and it
194 is used as supplement to main memory. It can store data and instructions
 permanently. Disks, CDs and magnetic tapes fall under this category of Retail IT Landscape

memory.
b) Arithmetic Logic Unit (ALU)
Arithmetic Logic Unit (ALU) receives the data and instructions from the
memory unit of the computer system and performs all the calculations
and comparisons like addition, subtraction, multiplication and division. It
can also perform the logical operations like greater than, less than and
equal to etc. and send the processed results back to memory unit.
c) Control Unit
Control unit performs the functions of a manager. It controls and
coordinates between various components of a computer system. It
executes the instructions of a programme, one by one, in the desired
sequence. It interprets each instruction and then prompts its execution by
one of the units like input, output, storage, ALU.
Output Unit: Data which is processed by ALU and stored in the
memory unit of the computer system (which is in computer language) is
sent to the output unit. Output unit converts this data into a form that can
be understood by the user. The output is usually produced in one to the
two ways- on the display device, or on paper (hard copy).

10.2.4 Hardware and Software

A computer system is built of mainly two components to perform user tasks:
1) Hardware
2) Software
Hardware: All the components whether electronic, mechanical and magnetic
which we can see and touch that make the computer system are together
termed as hardware. It is a tangible part of the computer system. These
include components that are responsible for user input, display and
mathematical processing. Hardware consists of the following components.
‡ CPU
‡ Monitor
‡ Keyboard
‡ Mouse
‡ Printer
‡ Speakers
‡ Hard disk
‡ Floppy Disk etc.
Software: Without any set of instructions as what to do and how to do,
computer hardware cannot perform any calculation and comparison. The set
of instructions with the help of which computer processes the user data is
195
Visual Merchandising known as software. Software is a set of instructions to acquires input and
and IT Application in
Retailing manipulate them to produce the desired results as per users’ requirements.
Software can be generally classified into two categories: a) system software
and b) application software.
1) System software: System software consists of programmes that control
the operations of the computer system itself. It consists of programmes
that control the operations of a computer equipment including functions
like managing memory, loading, storing etc. MS DOS (Microsoft’s Disk
Operating System) is an example of system software.
2) Application Software: A programme which is created to perform the
certain tasks for the users is known as application software. MS Excel,
MS Word, accounting, budgeting and payroll packages are the examples
of application software. These kinds of software perform the special task
as per the user requirement.

10.2.5 Business Uses of Computer

Today computer is being used by the human beings in almost every sphere of
the life. It can be used for personal purpose, in the field of education, science,
entertainment and also for business purpose. Here we will discuss some
important uses of computer in the field of business and these are:
1) Business can control and manage their all manufacturing and sales
process.
2) It helps in keeping the records of employees, debtors, creditors and
customers etc. of business.
3) Business can maintain and present their accounts quickly and correctly.
4) For running business successfully, communication is the essential
element of organisation and computer helps in smooth communication
with various parties of business like employees, debtors, creditors, and
customers etc through e-mails.
5) Business can market their products with the help of internet in any area
of the globe very easily where the physical presence of the salespersons
is very difficult.
6) Computer helps in designing attractive pictures and advertisements.
7) It helps in forecasting the production and sales of the business.
8) Computer is also used to sale and purchase. Orders are booked through
computer and payments are also received through e-payments, which is
solving the time hindrances of both seller and purchaser.

Check Your Progress A

1) Write down five important characteristics of a computer.
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196
 Retail IT Landscape
2) What is CPU?
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3) State any five business uses of computer.
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10.3 INTRODUCTION TO INFORMATION

TECHNOLOGY
Usually Information technology (IT) and computers are used as synonyms. It
is important to note that IT is not just computer system; it is much more than
a computer. Information technology (IT) is the convergence of various
hardware, software, telecommunication, networks, multimedia, images,
internet, applications and people. Information technology has enormous
influence on all sphere of our life. Our day to day activities whether personal
or professional are being mechanised or rather automated. Main benefit of
information technology is that, it empowers people to do what they want to
do. Information technology is the use of computer and technology to control
and manage the information.
Technology is any such tool that reduces the human efforts and makes it easy
to perform any task which requires more physical and mental efforts.
Technology is the making, usage and knowledge of tools, techniques,
systems or methods of organisation in order to solve a problem or serve some
purpose. Technology is touching every walk of life providing better health,
better services, and better security and provides for trust in various business
transactions. Most of the businesses are able to realise the cash for the sales
instantly by recent electronic fund transfer using internet as the medium.

Figure 10.3: Satellite Power

6RXUFH: colourbox.com
197
Visual Merchandising
and IT Application in 10.4 APPLICATIONS OF INFORMATION
Retailing
TECHNOLOGY
Explaining the application of information technology is a tedious task as in
the present era as it is pervasive and influences a human life fully. Computer
and other technological devices are becoming the necessity of human beings.
People are becoming dependent on IT-enabled devices for carrying out every
tasks right from remembering a phone number and contact addresses to flying
a fighter plane.
IT is playing a vital role in almost every daily activities of a human being.
Until some time back it was used by the urban population only, now it is
crossing all the boundaries and creeping to the remotest of remote areas as
well. There is hardly anyone who has not been affected and influenced by
information technology. In our routine life, we are using technology in one
form or the other. Here are some major applications of IT in our life.
Science and Engineering: Scientific development in our life cannot be
imagined without the use of IT. Using supercomputers, meteorologists
predict future weather. Computer- aided design (CAD) and computer-aided
manufacturing (CAM) programmes have helped in producing improved
products in many fields. With the help of IT engineers can draw the designs
of complex structure which results solid construction and quality
manufacturing. Computer programmes make it possible for engineers to
analyze designs of complex structures such as power plants and space
stations.
Business and Commerce: IT is largely used by business houses for keeping
and managing business and financial records. Almost every large business
houses keep the records of their employees in large databases that are
managed by computer programmes. IT is used in business functions like
billing customers, receiving payments, controlling inventory etc. E-banking
and m-commerce enabled everybody to carry out the financial
transactions without any delay. Many businesses have replaced their
traditional cash registered with point-of-sale (POS) terminals. This terminal
not only prints sales receipt but also send information to a computer when the
item is sold.
Education: Information technology has changed the meaning of literacy.
Today most of the educational programmes are giving a due space to
computer education and computer education has become an essential course
at the various level of study across the world. Now students are more relying
on digital sources of information like internet rather than physical libraries
for their needs. Most of the institutions are using ICT (Information
communication technology) to impart the education to their students at
various destinations. For example IGNOU is providing educational support to
their students through various means like teleconferencing, interactive radio
counselling and through web cast also.
Governance: Information technology is given the most novel concept i.e. e-
198 governance, it is changing the lives of million across the globe.
Computerisation of government activities makes government official more Retail IT Landscape

responsive and makes it easier to general public to access the required

information. It bridges the gap between the government and people.
Medical: IT is playing a very important role in the field of medical. It is
technological advancement with the help of which we can easily know about
the human body and deceases their in. For example with the help of x-ray, a
doctor can easily understand the decease of human body and easily diagnose
that decease. In addition to this MRI (magnetic resonance imaging) produces
images that show changes in body chemistry and blood flow.
Entertainment: Information technology has changed the total lifestyle of
most of the people. IT has created various options for entertainment like
streaming audio and video music, video games, web cast of maximum
programmes, mobile radio, internet on pocket, animated movies and 3D
presentation of various video pictures etc.

10.5 IT IN RETAIL BUSINESS

We often say that customer is the king and technology has and will continue
to evolve in making the customer the most powerful individual in the world
of commerce and for the service providers like retailers it will help in
maintaining a healthy profit. In modern retailing the information technology
has become the backbone of the retail industry. It was easy to manage the
traditional and unorganised retail stores due to its size, scope and business
nature. But the modern retail formats are difficult to manage due to its large
size and competitive market environment without an efficient and reliable IT
system. Now retail business can not be smoothly and successfully run
without the proper usage of IT because present day customer is not just
satisfied with product and its price but he also seeks complete ease,
convenience and comfort at and outside retail store to make purchases. By
keeping in mind this point of customers’, retailers are trying to approach
customers through various technologies like POS, RFID, e-payments, online
services of purchases etc.
In the current context Technology (including the non-physical software) is a
set of tools that aggregates data, processes data to provide programmed
output allowing the individuals to take business decisions in order to meet a
specific market demand / customer expectations. For example: A retailer
could collect all the sales bill data and understand the buying pattern of
specific geographical location and ensure that the merchandise in the store
meets customer demand thereby reducing Lost Sale. Technology that meets
the needs of aggregating the data, processing the data based on a software
programme, provides an easy output (report) for taking decisions will fall
under the purview of Information Technology. A simple traffic signal at the
crossroad junction is also a piece of technology. Traffic colour (Red, Amber,
and Green) is the piece of data that gets shown to the driver who takes
decision to stop, move ahead or take a turn. Information technology does the
same for Retailer’s business users; it provides the guidance to take decisions
such as investing in a particular product category, opening a store, running
different store promotions for driving sales of slow moving merchandise. 199
Visual Merchandising Whereas in the case of a manufacturer, Information technology provides the
and IT Application in
Retailing required data as an input to decide on what to produce and what not to
produce, optimise the production lines based on the customer demand for a
particular product line.
Today a customer can walk into a store, use his mobile device to scan the
product code and find out the nearest outlet offering the best price for the
product. People are exchanging more personal information on various portals
and getting feedback instantaneously on their buying / consumption decision.
With the help of technology quite a few retailers have moved further up in
the value chain from just providing retail service of products to consumption
space. For example: Retailer today not only sells the furniture set but along
with it the insurance cover for the goods against theft / fire / damage. Not to
forget the easy loan that is being disbursed if a customer wishes to purchase
high ticket value items. Retailer is able to take a spot decision based on the
customer’s credit rating that is now available on CIBIL - Credit Information
Bureau India Limited. Following are the main technologies (some of them
have been already discussed in BRL-013, unit-9) which are used by the
retailers in and outside the retail outlet.
1) Point of Sale (POS): Point of sale or point of purchase is a location
where a transaction is occurred. POS is a technology used in retail to
ease the sale and purchase at retail stores. POS consists of hardware and
software
Point of sale hardware: Technology in the form of hardware is the most
important and commonly used component in almost every organised
retail store to successfully run the retail business. It involves every thing
which is tangible like machines, conveyor belts, pole display, scanner
and weighing scales etc. It reduces the time spent in serving the
customers. It includes; computer, customer display, weighing machine,
electronic cash register etc. as shown in figure 4.1.

Figure 10.4: Point of sale hardware

200
 Point of sale software: Point of sale software performs the basic Retail IT Landscape

functions of billing at the checkout counter and, at the same time it

collects sales and customer data. POS software can also allow for
functions such as pre-planned promotional sales, manufacturer coupon
validation, foreign currency handling and multiple payment types. POS
software generally performs the functions like printing of sales invoices
and receipts, calculate discounts and taxes etc.
2) Bar coding system: Bar coding system is used to check and control the
inventory at retail store. Everything you buy from the retailers has a code
called UPC (Universal Product Code) printed on it. UPC symbol has two
parts; machine readable bar code and human-readable 12 digit UPC
number (as shown in figure 10.5). UPC contains all the information
regarding that product like manufacturer, price, make etc. These bar
codes help manufacturers and retailers to keep track of inventory.

Figure 10.5: Universal Product Code (UPC)

You can see the manufacturer identification number in any standard 12-digit
UPC code. The UPC symbol has two parts:
i) The machine-readable bar code
ii) The human-readable 12-digit UPC number
The manufacturer identification number is the first six digits of the UPC
number — 639382 in the image above. The next five digits — 00039 — are
the item number. A person employed by the manufacturer, called the UPC
coordinator, is responsible for assigning item numbers to products, making
sure the same code is not used on more than one product, retiring codes as
products are removed from the product line, etc. In general, every item the
manufacturer sells, as well as every size package and every repackaging of
the item, needs a different item code.
The last digit of the UPC code is called a check digit. This digit lets the
scanner determine if it scanned the number correctly or not. Each time the
scanner scans an item, it performs a calculation. If the check digit it
calculates is different from the check digit it reads, the scanner knows that
something went wrong and the item needs to be rescanned. Figure 10.6
shows a bar code scanner.
Advantages of Bar Code System:
1. With a barcode data collection solution, capturing data is faster and more
accurate
201
Visual Merchandising 2. costs are lower and errors are minimized
and IT Application in
Retailing 3. Managing inventory is much easier as compared to a manual system
Disadvantages of Bar Code System:
Created in the early 1970s to speed up the check out process, bar codes have
a few disadvantages:
a) In order to keep up with inventories, companies must scan each bar code
on every box of a particular product.
b) Going through the checkout line involves the same process of scanning
each bar code on each item.
c) Bar code is a read-only technology, meaning that it cannot send out any
information.

Figure 10.6: Bar Code Scanner

6RXUFH: blog.godex.ntl.com

3. RFID: Radio Frequency Identification (RIFD) tags are the improvement

over bar codes because the tags have read and write capabilities. Data
stored on RFID tags can be changed, updated and locked. RFID uses a
semiconductor (microchip) in a tag or label to store data. RFID tags are
able to cope with harsh and dirty environments and multiple RFID tags
can be read simultaneously.
RFID allows retailers to know the exact location of any item. There is
real time tracking of any single item, in stores or in checkout. In bar
coding manual pointing is required for reading a code, while in RFID the
process is done automatically without human intervention by correctly
implementing readers at specific locations.
A core capability of RFID, which barcodes do not offer, is the ability to
link date received of an item to date-sold. By implementing RFID
readers at the receiving docks and at the point-of-sale, retailers can know
when specific items arrived at the store, and when they are sold. For
perishable products such as food, this allows the reduction of losses due
to spoilage. By positioning RFID scanners within the store, retailers can
better understand which products are selling from which locations. Look
202 at figure 10.7 which shows wireless tags used for RFID purpose.
 Retail IT Landscape

Figure 10.7: Wireless tags used for RFID pupose

6RXUFH: sufferstock.com

4. Digital Signage: A digital signage is used to delivered visual content

through centrally managed and controlled network and displayed on a
television monitor or screen. Contents in digital signage can be
entertaining video or simple displays of the price of the merchandise,
advertisements, directions to reach certain locations or any new scheme
etc.
5. Kiosk: Kiosk is a small electronic physical structure includes a computer
and display screen that displays information for people walking by. It
provide the information to user about merchandise, its price, about its
usage etc. people who wish to know about the merchandise visit to kiosk
and get the desired information.
6. Internet and social networking: Now a day’s retailers are largely using
internet and social networking sites to promote their merchandise. You
can often see many advertisements while using internet about the
product, its price and offer etc. retailers are also using social networking
site to market their product. It is technology which made retailers to
approach customers at their bed also.
7. Electronic payment system: Retail sector is moving from unorganised
to organised sector and using every mean of technology to serve their
customer without any inconvenience. Electronic payment system is the
core component to information technology to serve customer without any
time or cash hurdles. Now customers can purchase any product from
their houses, offices etc by making a simple online payment of the
product and get the product at their desired place. Most of the retailers
also establish an electronic payment system at their retail store to pay the
bills of the purchased through debit, credit cards etc. Figure 10.8 shows
electronic payment systems.

203
Visual Merchandising
and IT Application in
Retailing

Figure 10.8: Electronic payment systems

6RXUFHeps-na.com

Self Assessment Activity

Choose any retail store that is using information technologies. Explain the
technologies which are used in that store.
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10.6 FUTURE OF IT IN RETAIL

Competition in retail sector is very high and every retailer tries to serve their
customers in and outside the store with variety of services which not only
includes easing their (customers’) purchase function but also provide
convenience to them to make their purchases.
Information technology also provides the platform to integrate various part of
the business such as Production, Finance, Sales and Marketing. It also
provides the platform to remove cultural difference (multi-location
organisation) and achieve the common goal of meeting the end customer
demand.
In a supply chain scenario, while information technology supports the
movement of goods in the network to meet the customer demand at the right
time, it also facilitates movement of the finance involved in various
transactions across the supply chain network from the manufacturing unit to
the retail store. Supply chains fulfilling the demand across different
geographies have been made cost effective with use of information
technology resulting in better profits. These profits help the producers to
offer better price points to the end customer resulting in more consumption of
their products.

204 Some critics also believe that with more usage of information technology or
highly evolved technology tools, it has taken away the privacy of the Retail IT Landscape

customer. But with a balanced exchange of information, service providers

can improve the cost to serve a particular product or service to the same end
customer who shares their consumption information.
As we have already discussed that India’s retail sector has still to go a long
way, Use of information technology in retail sector is at introductory stage.
Keeping this in mind it would not be a false assumption that future of IT in
retail in India is very bright. It holds even true as the people in India are quite
techno savvy and they feel very nippy in utilising it for their benefits.
The other advantageous edge that our country has is demographic profile. It
has the youngest population in the world. Quite a sizeable work force in India
has the knowledge of computers and Information Technology. Hence it can
be very safely said that use of IT invariably in all sectors is massive.

Check Your Progress B

1) Define information technology (IT).
...................................................................................................................
...................................................................................................................
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2) What is point of sale (POS)?
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3) List the advantages of bar coding system.
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4) What is radio frequency identification (RFID)?
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10.7 LET US SUM UP

In retail sector where the competition is very high, it becomes necessary to
satisfy the customers with quick and best possible services to survive and
grow. Increasing cut- throat competition, made it necessary for every class of 205
Visual Merchandising business to use information technology so that they can serve their customers
and IT Application in
Retailing in the most effective way and to compete with the global competitors.
Information technology is the convergence of computer and various
technologies like software, internet, telecommunications, multimedia, images
etc. Computer is an electronic device which works according to the
instructions provided to it. It has various qualities like high speed, accuracy,
storage capacity. Main components of computer are input unit, CPU, and
output unit. It uses in various fields like science, business, education,
entertainment etc. Information technology (IT) is not just computer system; it
is much more than computer.
Technology is any such tools that reduce the human efforts and make it easy
to perform any task which requires more physical and mental efforts.
Technology is the making, usage and knowledge of tools, techniques,
systems or methods of organisation in order to solve a problem or serve some
purpose. In modern retailing the information technology has become the
backbone of the retail industry. It was easy to manage the traditional and
unorganised retail stores due to its size, scope and business nature. But the
modern retail formats are difficult to manage due to its large size and
competitive market environment without an efficient and reliable IT system.
Retailers are using various technologies like POS, bar code system, RFID,
digital signage, kiosk, internet ad e- payments etc.

10.8 KEY WORDS

Information Technology (IT): Convergence of various hardware, software,
telecommunication, networks, multimedia, internet etc. that reduces the
human efforts.
Central Processing Unit (CPU): Combination of memory unit,ALU and
control unit.
Point of Sale (POS): It is the location where the retail transaction has been
done.

10.9 TERMINAL QUESTIONS

1) What is a computer? Explain its main characteristics.
2) Discuss the main uses of computer in the field of business.
3) “Technology is much more than just computers”. Justify this statement.
4) What is information technology? What are its applications?
5) Discuss the various technologies used in retail.

REFERENCES/FURTHER READINGS
Girdhar Joshi, “Information technology for retail” Oxford University Press,
2009.

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 Technology and Its
UNIT 11 TECHNOLOGY AND ITS IMPACT Impact on Retail
Business
ON RETAIL BUSINESS
Structure
11.0 Objectives
11.1 Introduction
11.2 Information Systems
11.2.1 Retail Management Information System
11.2.2 Features of Retail MIS

11.3 Database Management Systems, Network and Telecommunications

11.3.1 Database Management Systems (DBMS)
11.3.2 Networks and Telecommunications

11.4 Significance of Information Systems in Retail

11.4.1 Benefits of IT in Retail

11.5 Impact of IT on Retail Business

11.6 Let Us Sum Up
11.7 Key Words
11.8 Terminal Questions

11.0 OBJECTIVES
After reading this unit, you will be able to:
Ɣ explain the concept of information systems;
Ɣ discuss the significance of information systems in retail;
Ɣ describe the DBMS, networks and telecommunications;
Ɣ state the various uses of IT in retail businesses; and
Ɣ analyse the impact of IT in retail businesses.

11.1 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 207
Visual Merchandising information. It is primarily using computers and software to manage
and IT Application in
Retailing 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.

11.2 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
11.1).
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.

Figure 11.1: Information system: An interaction between computers, people, data,

technology and communication

As shown in the above figure, it is clear that Information system is a

combination of hardware, software, and infrastructure, professional and well
208
trained employees to facilitate planning, controlling, coordination and Technology and Its
Impact on Retail
decision making in any organisation. Now business organisations have Business
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.

11.2.1 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 11.2.

Store 1 Store 4 Store 6

Store 2 MIS in Store 7

Retail

Store 3 Store 5 Store 8

Figure 11.2: Retail MIS: Connecting different stores of a retail house

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Visual Merchandising 11.2.2 Features of Retail MIS
and IT Application in
Retailing
Features of retail MIS are as follows:
1) Links the stores of retail business
2) Enables immediate exchange of information (data) to all the store
managers
3) Supports effective product management
4) Controls profit of the organisation
5) A flexible information system helps managers even in pricing their
products and services for variable time period.
6) Helps in basic retail functions such as procurement, storage and delivery.
7) Helps managers in managing inventory, suppliers and product sales.
8) Provides a control to retailer over purchase orders and inventory records.
9) Enables analysing cash, cheque and credit card transactions to reconcile
information.
10) Allows to track purchase orders and update inventory records
dynamically. 21
11) Helps in improve efficiency by examining overage and shortages to
disclose trends that can be corrected.
12) 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
210
structures. In addition, some retail management information systems can Technology and Its
Impact on Retail
support different business models such as franchise, consignment, direct sales Business
or online.

11.3 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.

11.3.1 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 211
Visual Merchandising made, generating monthly bills, maintaining balances on prepaid calling
and IT Application in
Retailing 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.

11.3.2 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 11.3, and 11.5 show network system, computer networking and
LAN networks.

Figure 11.3: Network system

6RXUFHhttp://computer.howstuffworks.com/computer-networking-pictures16.htm 23

Leonard Kleinrock, pictured here, 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. 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.
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 Technology and Its
Impact on Retail
Business

Figure 11.4: Computer networking

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LAN networks can connect hundreds of computers, usually in close

proximity to each other. Modern advancements have increased these
distances considerably, allowing Ethernet networks to span tens of
kilometers.

Figure 11.5: LAN networks

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Visual Merchandising
and IT Application in
Retailing

Figure 11.6: Cloud computing systems

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Cloud computing systems are also using computer networks in a new way.
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 11.6 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.

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 Technology and Its
Impact on Retail
Business

Figure 11.7: Wireless networks

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Starting in the 1990s, wireless networks made it easy to connect to the

internet just about anywhere. 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.

Check Your Progress A

1) What is information system?
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2) Define database management systems (DBMS).
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3) List the uses of DBMS.
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Visual Merchandising
and IT Application in 11.4 SIGNIFICANCE OF INFORMATION
Retailing
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.

11.4.1 Benefits of IT in Retail

Retailing in simple terms is a process of buying and selling which results in
making some margin. Aservice 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
216
 base his buying decisions more accurately instead of using a gut feel and Technology and Its
Impact on Retail
betting on the investment. Pull products are very much driven by the Business
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”.
Solution Set: Merchandise Management System and Point of Sale data.
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.
217
Visual Merchandising Solution Set: Merchandise Management system that keeps track of the
and IT Application in
Retailing 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
Ɣ Product Hierarchy
Ɣ Location Hierarchy
Ɣ 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
218
retail limited for last 4 years. However today he is clear he needs a good Technology and Its
Impact on Retail
formal white shirt for size 39 for the Annual Board meeting in his Business
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:
219
Visual Merchandising Ɣ Product : Right product at Right Price
and IT Application in
Retailing Ɣ Operational Excellence : Right place at Right time
Ɣ 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.

11.5 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
220
 tracing their related data, a letter is automatically sent to every customer Technology and Its
Impact on Retail
who meets these criteria with a gift certificate to encourage them to shop Business
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:
‡ Forty percent of the retailers surveyed stated that their point-of-sale
system helped increase sales.
‡ The average sales increase reported from a point-of-sale system is
16% with the following groups having a greater increase.
‡ Retailers who have 1 cash register/POS device (21% sales increase).
‡ Those that have had their software in place for 5 or more years
(19%) sales increase.
‡ Single-store retailers (19% sales increase).
‡ More than half (53%) stated that their point-of-sale system helped
decrease expenses. 221
Visual Merchandising
and IT Application in
Check Your Progress B
Retailing
1) What is SKU?
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2) State the benefits of IT in retail.
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3) Explain in brief the significance of IT in retail.
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11.6 LET US SUM UP

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
222
technology. Any information system is built by using information Technology and Its
Impact on Retail
technology. To manage the dimensions of information systems it is very Business
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.

11.7 KEY WORDS

Information System : A system that enables business organisation people to
collect, consolidates, and process organisation data and finally presents the
output.
DBMS : 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.
Telecommunications : Exchange of information over significant distances
with the help of electronic means.
S.K.U : Store Keeping Unit (SKU), a unique identifier for each distinct
product and service that can be purchased in business.
Lost Sale: Sale, that does not happen because of the stock not being available
on the shelf when the customer visits the store.
MMS : Merchandise Management system (MMS) is a comprehensive, fully
integrated solution for business headquarters or back office requirements.

11.8 TERMINAL QUESTIONS

1) “Information system is a combination of computer, technology and other
components”. Justify this statement.
2) What is retail management information system?
3) Define database management system (DBMS). Discuss its uses in
various sectors.
4) “Networks and telecommunications are the important components of
information systems”. Comment on this statement.
5) Why is information system important in retail business? Discuss the
benefits of information system in retail.
6) Discuss how IT has revolutionised the retail sector?

223
Visual Merchandising
and IT Application in REFERENCES/ FURTHER READINGS
Retailing

Girdhar Joshi, “Information technology for retail”, Oxford University Press,

2009.
James E. Dion, “The effects of POS implementation and Retail technology on
sales and profitability for small and mid sized retailers”, Microsoft Business
Solution, April, 2003.
http://computer.howstuffworks.com/computer-networking-pictures16.htm

224
 Merchandise
UNIT 12 MERCHANDISE MANAGEMENT Management System
(MMS)-I
SYSTEM (MMS)-I
Structure
12.0 Objectives
12.1 Introduction
12.2 Merchandise Management System (MMS)
12.2.1 Meaning of Merchandise Management System (MMS)
12.2.2 Benefits of MMS
12.2.3 Functions of MMS

12.3 Management Challenges for Running MMS in Retail

12.4 Future Roadmap for MMS
12.5 Let Us Sum Up
12.6 Key Words
12.7 Terminal Questions

12.0 OBJECTIVES
After reading this unit, you will be able to:
Ɣ explain the concept of merchandise management system;
Ɣ discuss the benefits of MMS in retail;
Ɣ describe the various functions of MMS in retail business;
Ɣ discuss the challenges faced by retail management for running MMS;
and
Ɣ foresee the future road map for MMS.

12.1 INTRODUCTION
When we talk about a retail business, the first function comes to our mind is
selling the merchandise. One of the most important and critical aspect in
retailing is to formulate strategies for merchandise mix and decisions related
to quantity to be purchased. Undoubtedly, the key activity of any retail
business is product and merchandising management. Hence the first
important thing to understand is merchandising. Merchandising can be
simply stated as the function of planning, buying, controlling and selling of
merchandise. We have discussed about merchandising and merchandise
management in detail in the other courses. There are certain technologies
which are used for effective merchandise management. This unit primarily
deals with those technologies.

225
Visual Merchandising In unit 2, you have studied about the information system and various
and IT Application in
Retailing technologies used by retail businesses. These technologies are DBMS,
networks and telecommunications and other software and hardware like POS,
RFID, e-payment, internet retailing etc. In this unit you will learn about
Merchandise Management System (MMS) which is an emerging technology
in the field of retail business. This technology helps a retailer during the
operations of purchase, sale and distribution and also provides the feedback
to the retailer in back office. As discussed in unit-2, 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 also learn about the various
functions of MMS, challenge for running MMS and future roadmap for
MMS.

12.2 MERCHANDISE MANAGEMENT SYSTEM

(MMS)
Retail merchandising is the process of developing, securing, pricing,
supporting and communicating retailers’ merchandise offering. Before
discussing merchandise management system technology, let us quickly see
what is merchandise management in retail?

Merchandise management in retail is a process which helps retailers to ensure

to offer the correct quantity of the right merchandise in the right place at the
right price which in-turn fetches the right profit means. This enables the
companies to meet their financial goals. Look at figure 3.1 which shows
components of merchandise management.

Figure 12.1: Components of Merchandise Management

226
Earlier when retailers managed only one or two stores and very few types of Merchandise
Management System
merchandise, the functions of retailers like buying and merchandising, (MMS)-I
accounting and costing, etc were easier. In most of the cases, retailers
personally did it. But when retailers begin adding merchandise categories and
retail stores, the work load on the retailers increased extensively. Retailers
have very little time and information about the stock position and they
allocate retail merchandise among stores on the basis of approximation which
leads to wrong stock in the stores and chances of lost sales. To overcome
these limitations Merchandise Management System (MMS) concept has
come.

12.2.1 Meaning of Merchandise Management System (MMS)

Merchandise Management System is the information system that supports
and controls the goods-oriented planning / execution of tasks (ordering,
receiving, transferring, collecting sales data from POS), the logistical and the
billing related tasks of a retailing company using value and quantity related
transaction data for the merchandise. In other words, MMS is a technology
enabled information system to keep the record of the retail inventory
(merchandise) in a retail store. In a retail store, numbers of merchandise are
stored, MMS shows the exact quantity of merchandise a retail store has in
stock at a particular time. Figure 12.2 shows merchandise management
system.

Figure 12.2: Existing merchandise management system

6RXUFHtst.biometrics.com

Merchandise Management System (MMS) is a system that keeps record of

the performance of the merchandise, records good sellers and also identifies
the poor sellers and enabling retailers to make timely decisions regarding
merchandise. With the help of merchandise management system retailers can
efficiently analyse, order, and distribute merchandise across the retail stores.
Having the right inventory at the right place at the right time, retailers can
effectively promote their merchandise which automatically increase the sales
and reduce the chances of customers’ dissatisfaction and lost sale. MMS
enables retailers to deliver the real time merchandise to the customers. 227
Visual Merchandising Merchandise management system includes almost all the functions of a retail
and IT Application in
Retailing store, these are:

a) Merchandise planning

b) Merchandise buying
c) Sale process
d) Merchandise price management
e) Inter-retail store transfer of merchandise
There are various software available for MMS in the market such as JDA’s
MMS etc.

12.2.2 Benefits of MMS

MMS provides many benefits to the retailers:

1) It helps in increasing the sales; because up-to-date inventory position is

available with retailers.
2) It minimises the chances of out-of-stocks, lost sales, overstocks, and
markdowns.
3) It helps in better replenishment.
4) It helps in forecasting and monitoring of merchandise performance.
5) It helps in enhancing the promotion effectiveness by ensuring inventory
availability.
6) It improves the retail buying by providing actual position of the
inventory which automatically improved the inventory level and retail
margin.
7) With the help of MMS, retailers can access the real time inventory
position of the other retail stores and also check and control the stock
position of other stores.
8) It helps retailers to improve relationship with retail suppliers, vendors
and partners by providing self-service capabilities and real time
visibility.
9) Retailers can control and slash inventory costs by tightening control over
stock position which ultimately increases the revenue of the retail store.

12.2.3 Functions of MMS

Retailing Company has 4 principal Tasks involving merchandise:

a) Procurement

b) Storage

c) Distribution

228 d) Sales

And all of the above 4 tasks are directly or indirectly supported by the MMS Merchandise
Management System
in conjunction with Point of Sale, Financial / Accounting package, Customer (MMS)-I
Loyalty programme.

For a retailer to run his business without MMS would means, flying a plane
without any instrumentation panel. MMS provides the required guidance
through its reporting capabilities inbuilt into the software. For addition KPIs,
retailer typically invests in more robust Business intelligence tool. Following
are the various functions/features of Merchandise Management System
(MMS) in retailing:

a) Product Definition

b) Location Hierarchy
c) Merchandise Calendar (Time zones)
d) Placing the order on the vendor who supplies the relevant Merchandise
e) Tracking order fulfilment
f) Receiving the merchandise in the Distribution Centre (DC)
g) Storing the Merchandise in the DC in such a manner that it is efficient to
replenish the merchandise ordered by the stores
h) Transfer of merchandise between various store / DC locations
i) Return to Vendor defective stocks / Excess stock in the inventory.
j) Analyse Sales and inventory statements for Stores as well as DC.

You will learn about the major functions/applications of MMS in detail in

next unit.

Check Your Progress A

1) What is Merchandise Management System?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
2) What are the components of MMS?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
229
Visual Merchandising
and IT Application in
3) State any five functions of MMS.
Retailing
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................

12.3 MANAGEMENT CHALLENGES FOR

RUNNING MMS IN RETAIL
After understanding the concept and scope of MMS, it is very important to
understand the practical issues in maintaining and running MMS software
and its database which affects business decisions. In this section you will
understand the practical issues which will give you an idea to prevent them
while operating retail business.

As we have already discussed that retailing Company has 4 principal Tasks

involving merchandise a) procurement b) storage c) distribution and d) sales.

And all of the above four tasks are directly or indirectly supported by the
MMS in conjunction with Point of Sale, Financial / Accounting package,
Customer Loyalty programme.

Quality of system process defines the ability to manage the operations

efficiently in Retail while the quality of data governs/ impacts the quality of
decision making in retail.

Data Accuracy has been a perennial issue for most the enterprises depending
heavily on Software solution to drive their respective businesses.

For example : While creating Department master for Shirt which will be
further used in the Item Master, One user could enter it as Shirt whereas
another user could enter it as Shirts. To understand this problem let us take an
example (please refer to the example) illustrated here below

XYZ Retail limited deals with apparels and it has kept two prominent brands
Arrow and Zodiac. While defining the item master for Arrow in MMS, one of
the data entry people uses the department master attribute “Shirt” and while
defining the item master for Zodiac another data entry person uses the
department master attribute “Shirts”. Sales happen over a period of 3 months
for both the brands. Merchandiser now wants to understand how is the Shirt
Department performing so s/he selects “Shirt” as the department attribute
while running the report on the system. From technical perspective, any
system will be generate the report Arrow alone because for the brand Zodiac
the department master shirt is defined with an extra “s”. Merchandiser gets to
see only the sales of Arrow shirt which means merchandiser could potentially
give lesser importance to the Zodiac shirt while re-ordering.

230
Such nuances can be prevented by having enough checks while the attribute Merchandise
Management System
masters are defined or the item master is defined in the MMS system. (MMS)-I

Data accuracy while creating Item master is of utmost importance to generate

accurate reports by various attributes that define a product. Retail is about
detail and accurate details help in taking right decisions.

Other challenges get created while performing various transactions such as

Good transfer from one location to another location.

If the software operator at the Warehouse does not scan the items out
properly it will lead to inventory mismatches which results in wrong
merchandising decisions.

Merchandise Management system has to simplify the ordering, storing and

transferring the goods to the stores. Capturing fine details on the MMS is
always avoided by the data entry users, they tend to bypass of circumvent the
operational rules leading to inaccurate transaction data. Therefore it is
important for the retail business to set accountability for every piece of data
that will be captured in the software by its various users.

12.4 FUTURE ROADMAP FOR MMS

Although Merchandise Management System (MMS) is a new concept in
retail but it is not possible to run retail store especially an organised retail
store without MMS. In coming days, it is going to become backbone of any
retail store. Technological advancements have made it a major source of
information for a retailer but there are some areas where retailer should
update his MMS system with growing technology. Following two points will
help you to understand the future roadmap for MMS:

1) Sales Promotion

As retailers scramble to get the market share, they demonstrate

desperation to get sales with unique promotions which quite a few MMS
system struggle to support from a software perspective. With increased
number of retailers catering to same catchment area or the same market
area with same product they tend to come with offers / promotions that
have a rare combination and most of the MMS and POS struggle to
support it. Some of the examples are here below.

All promotions typically get defined on the MMS system and then
pushed as a data file to the Point of Sale (POS) software.
Ɣ Buy x qty of z item get y % off.
Ɣ Buy x qty of z item get y value off.
Ɣ Buy x qty of z item get y qty of z item free.
Ɣ Buy x qty of z item get d item free.
Ɣ Buy x qty of m attribute item get y% off on min value item.
Ɣ Buy x qty of m attribute item get y value on min value item.
231
Visual Merchandising Ɣ Buy x qty of z item get a gift voucher of y value.
and IT Application in
Retailing Ɣ Buy b value of goods get y% off.
Ɣ Buy b value of goods get y value off.
Ɣ Buy b value of goods get z item free.
Ɣ Buy b value of goods get d item free.
Ɣ Buy b value of goods get a gift voucher of y value.
Ɣ Buy b value of x brands and get a holiday package to Shimla free.
Ɣ Buy b Value of m brands within x period and win a chance to go to
Singapore.
To further complicate this, one of these promotions will be applicable
only on very few items within a brand or department like Shirt /
Trousers.

Quite a few MMS packages currently available in the market struggle to

capture these promotions which creates a kind of hindrance to the retailer
running his business on particular MMS software. Now if his
competition (another) has software that is much more capable then the
chances of the retailer loosing business to another retailer are quite high.

In the near future software product companies are focusing on bridging

the gap between the requirements of this module by retailers.

With the focus on capturing market share, quite a few retail businesses
have once again started to look at additional sales channel such as
Ecommerce / Catalogue sales.

2) Integrated MMS

Most of the Merchandise Management System available currently in the

market fails to provide 100% support to Ecommerce Initiative. Brick and
mortar retail business is quite different from Ecommerce. Customers
doing shopping on Ecommerce site expect the site to laid out in such a
manner that is shows only the kind of merchandise category that s/he
would like to browse and purchase. This expectation is at individual
level whereas in Brick and Mortar store, it’s at a much higher level
(Customer segment level). Secondly operations on Ecommerce are quite
different from Brick and Mortar store. For example: If the stocks run out
in Brick and mortar store then its not there on the shelf where as on the
Ecommerce site, MMS needs to support the Ecommerce site as a back
end that will prevent display of merchandise which is stocked out (sold
out).

Secondly the expectation on Ecommerce today is integrate with horizontal

marketing solutions such as Social networking sites. As customers are
becoming more open in sharing their retail experience or what clothes they
have purchased for some occasion, such system requirements are on a rise.

With the convergence of the computer and the mobile phone, a lot is now
232 expected from MMS to provide the back end support for merchandising on
different tech gadgets such Tablet PCs, IPAD, Touch driven phones. Merchandise
Management System
Technology is evolving faster to cater to such needs. (MMS)-I

Catalogue sales is moving towards merging with the TV, as lot of marketing
folks have realised the potential of selling something through TV, where at
the press of a button on their remote customer can order a merchandise
promoted on the TV. MMS has to evolve to cater to such new interfaces or
touch points with the customer.

Apart from evolving to cater to such touch points, Retailers will evolve to
include more services around the merchandise; sales of such services will
have to be handled by the MMS in the coming near future. For example:
While selling a 55 inch LED TV, retailers wants to bundle insurance service
for Theft, Damage etc. or While selling an expensive watch Retailer wants to
give a loan from ABC Bank Ltd. Such disbursement of loan, EMI etc might
be required to be captured from the POS in Retails store or simply help the
customer to buy movie tickets at the POS counter.

12.5 LET US SUM UP

Merchandise management involves management of two basic things viz.,
merchandise mix and merchandise budget. MMS is used to do these
functions effectively.

Merchandise Management System (MMS) is an emerging technology in the

field of retail business. MMS is a technology enabled information system to
keep the record of the retail inventory (merchandise) in a retail store. In retail
store, numbers of merchandise are stored, MMS shows the exact quantity of
merchandise a retail store has in stock at a particular time. This technology
helps a retailer during the operations of purchase, sale and distribution and
also provides the feedback to the retailer at back office. For a retailer to run
his business without MMS would means, flying a plane without any
instrumentation panel. MMS provides the required guidance through its
reporting capabilities inbuilt into the software. MMS performs the various
functions in retailing like product identification, create vendor master,
identify various products (location- wise), generate purchase orders, and keep
records of inventory. Although Merchandise Management System (MMS) is
a new concept in retail but it is not possible to run retail store especially an
organised retail store without MMS. In coming days, MMS is going to
become backbone of any retail store. There is also a need to update MMS in
light of emerging technology and market requirements like integration of
MMS with internet retailing and mobile retailing etc.

12.6 KEY WORDS

Merchandise Management System (MMS): MMS is the information
system that supports and controls the goods-oriented planning/ execution of
tasks (ordering, receiving, transferring, and collecting sales data from POS),
the logistical and the billing related tasks of a retailing company using value
and quantity related transaction data for the merchandise. 233
Visual Merchandising Merchandise mix: Merchandise mix is the breadth and depth of the products
and IT Application in
Retailing carried by retailers

Markdown: To decrease the value of merchandise.

12.7 TERMINAL QUESTIONS

1) Explain various functions of Merchandise management system
2) Describe the benefits of MMS to retail businesses.
3) Seeing the growth of retail industry, it can be safely said that future of
MMS is bright in India. Comment upon this statement.
4) Discuss the challenges for running MMS in retail business.

REFERENCES/ FURTHER READINGS

Girdhar Joshi, “Information technology for retail”, Oxford University Press,
2009.

http://retail-guru.com/use-merchandise-management-to-streamline-retail-
sourcing- buying-and-merchandising/

234
 Merchandise
UNIT 13 MERCHANDISE MANAGEMENT Management System
(MMS)-II
SYSTEM (MMS)-II
Structure
13.0 Objectives
13.1 Introduction
13.2 MMS Applications in Retail
13.2.1 Product Definition
13.2.2 Location Hierarchy
13.2.3 Vendor Master
13.2.4 Purchase Order Function
13.2.5 Warehousing Management System (Function)
13.2.6 Goods Dispatch- Picking Function

13.3 Let Us Sum up

13.4 Key Words
13.5 Terminal Questions

13.0 OBJECTIVES
After reading this unit, you will be able to:
Ɣ describe the applications of MMS in retail business;
Ɣ discuss how is vendor master created and how does it work in MMS ;
Ɣ explain the various types of purchase orders;
Ɣ discuss the warehouse management system function of MMS; and
Ɣ explain the data polling function of MMS.

13.1 INTRODUCTION
In the last unit, you have studied the concept of merchandise management
system (MMS), various benefits of MMS in retail and about the future
roadmap of the MMS. As we have already discussed, in present competitive
environment of retail business, it is very difficult to perform the retail
functions like planning, buying, selling, pricing and inter- store transfer etc.
To perform these functions very smoothly, MMS provides various tools in
itself to retailers. In this unit you will study the various applications of MMS
in retails business; how vendor information is recorded in vendor master, and
how does MMS performs the purchase order processing function. You will
also learn about the warehouse management system and data polling
applications of MMS in retail.

235
Visual Merchandising
and IT Application in 13.2 MMS APPLICATIONS IN RETAIL
Retailing

In last unit you have already studied that retailing company has 4 principal
Tasks involving merchandise:
a) Procurement
b) Storage
c) Distribution
d) Sales
And all of the above 4 tasks are directly or indirectly supported by the MMS
in conjunction with Point of Sale, Financial / Accounting package, Customer
Loyalty programme. Retailers can manage their overall retail functions with
the help of unique applications of MMS. These are:
a) Product Definition
b) Location Hierarchy
c) Merchandise Calendar (Time zones)
d) Placing the order on the vendor who supplies the relevant Merchandise
e) Tracking order fulfilment
f) Receiving the merchandise in the Distribution Centre (DC)
g) Storing the Merchandise in the DC in such a manner that it is efficient to
replenish the merchandise ordered by the stores
h) Transfer of merchandise between various store / DC locations
i) Return to Vendor defective stocks / Excess stock in the inventory.
j) Analyse Sales and inventory statements for Stores as well as DC. Let us
discuss the applications of MMS in retail functions.

13.2.1 Product Definition

Retail is about Detail. This statement applies to the business of Retail quite
significantly. Product details have to be captured in great detail without
which it will be difficult to analyse the sales for all the different variants of a
given product. For example: A buyer in the merchandising team would like to
analyse what type of shirts are selling and there are various attributes of the
product shirt that needs to be captured to enable this.
For example the analysis for apparel Retailer will be around attributes like
x Full Sleeves / Half sleeves
x Button down or Normal Collar
x Formal Wear or Casual Wear
x Print stripes or Print checkered.

236
For example in supermarket kind of business the sales and inventory analysis Merchandise
Management System
will be around (MMS)-II

Ɣ Plain Rice or Basmati Rice

Ɣ Mixed Fruit or Plain Strawberry Jam
Ɣ Cola or Orange flavoured beverages
As long such attributes are captured in the Product Definition modules MMS
can provide sales analysis cut across the various attributes.
Please refer to figure 4.1 here below for understanding a sample product
definition in an apparel store.
There are two parts to product definition:
Ɣ Business Management part

Ɣ Product attributes.

Business Management part: In order to have better control over the entire
range of merchandise that the Retailer would deal with, they group into
categories and sub- categories. If the business size of the retailer is going to
big enough then they appoint one person to manage the entire category’s
transaction including sales, buying, inventory management etc. Such people
are called Category Heads owning the complete profit and loss for their
respective categories. They are responsible to generate appropriate margins to
cover the operating cost of theirs respective categories. As shown here below,
business management part of the merchandise is done through definition of
Merchandise Hierarchy. Figure 13.1 shows merchandise hierarchy.

Figure 13.1: Merchandise hierarchy

Merchandise Hierarchy can have more levels than shown in the picture
above. MMS software available in the market today let you define a number
of Merchandise Hierarchies; however the best practice is to restrict
merchandise Hierarchy to 5 levels for better manageability.
The category head for Menswear will be interested to have a deeper
understanding of what kind of shirts are selling. Such objective is fulfilled by
defining further attributes like:
Ɣ Full Sleeves / Half Sleeves

Ɣ Button down / Normal collar

Ɣ Print Design (Stripes, Pin Stripes, Checks, Plain)

237
Visual Merchandising Ɣ Collection (summer, Autumn Winter...)
and IT Application in
Retailing
The full blown product definition would capture the details shown in figure
13.2.

Figure 13.2: Attributes of merchandise hierarchy

As shown in the picture herein above right up to the colours each product is
called as an option and on further classifying it with sizes it becomes the
stock keeping Unit.
There are various approaches adopted by Retailers to define Merchandise
hierarchy. It could be based on the Customer Decision Making Tree (CDT) or
the importance of category and sub-category in the entire product mix of the
retailers offering.
An example of Customer Decision Making Tree: If a customer had to buy
something for his / her kid, then the first thing on entering the store, they
specify is the age of the child and then product type such as Toy / Dress /
Toiletries etc. So in line with such merchandise hierarchy the category head
will stock and display the merchandise in the store.
Apart from the data set mentioned above there are other attributes also
captured which defines how the MMS / POS software will react for a given
product / SKU (stock keeping Unit). These additional attributes are
mentioned here below in summary form.
Define Control points: Quite a few different types of SKU get billed at the
point of sale and it is next to impossible for the cashier to remember rules for
each product in the billing or sales return transaction.
1) Control Privilege Customer / Employee Discount: This is done to control
customer
/ Employee discount on products having low margin For example: Watches
will not have discount to be offered to customer unless its part of a
promotion because the margins are very small.
2) Active / In active (Closing SKU helps in reducing the load on Price Look
Up Unit): Products that are discontinued are removed from the price list
that goes to the point of sale because smaller the list faster will be the
point of sale software ability to carry out the billing.
3) Location Listing (ensures product goes to right place)
238
4) Season Control (ensures in-season stock getting delivered to the floor) Merchandise
Management System
(MMS)-II
5) Auto-re-ordering / PO required (Y/N)
6) Defined Min - Max - Re-order Level
7) Define base stock for each store shelf this helps in managing Auto-
replenishment for the shelves in the store.
8) Sales return of certain merchandise to be allowed (Y/N): For example
you would not allow a customer to return undergarment for the sake of
maintaining hygiene.
9) Delivery days: This helps in controlling the inbound goods to the
Distribution centre by allocating delivery days by SKU or by vendor of
the SKU.
10) SKU code / EAN Code / UPC code / vendor part number code to be used
for transaction processing especially billing). Currently in FMCG kind of
product range supermarkets have stopped applying their own Barcodes
and use the EAN code printed as part of the Packaging material.
If the retailer intends to use Advanced Warehouse Management function then
its imperative to capture the volumetric space required per SKU at a SKU
level. This will help the “Putaway” (Storing) function when the goods are
received at the Distribution Centre.
At the end of the product definition process system allocates a serial number
which is the product code as per the Retailers MMS system. This is like roll
number we get in school and college. Around the Roll Number are all the
details stored in schools / College’s record. Similarly all transaction details in
MMS (including but not limited to Purchase order, Goods receipt, Price
revision etc).

13.2.2 Location Hierarchy

The next dimension for merchandise sales and inventory analysis is the time
hierarchy. Now the challenge from the systems point of view is that most of
the peak sales period does not fall in the same day of the week of the year.
For example Diwali comes sometimes in October, sometime in November.
Therefore the best practice is to define a merchandise calendar as shown in
figure 13.3.

Figure 13.3: Merchandise calendar

239
Visual Merchandising This calendar for April will start on the date that happens to be the first
and IT Application in
Retailing Monday of the month and not the first day of April. The week is defined as
Monday to Sunday. The reason behind this is that Promotions typically get
defined on Saturday, implemented on Sunday to see the impact of the
promotions. The grouping of this timeline is shown in the bottom two rows of
the table shown herein above.
Most of the international software solutions like JDA, Oracle Retek provide
for such definition based on the international best practice. Local
merchandise management solutions do not provide for the time hierarchy as
shown above. With the above feature it is easy to compare the week sales
where Diwali happens in two different calendar period.
The last hierarchy is the organisation hierarchy. This is purely to analyse a
chain or group of stores (clusters). This segmentation is done based on the
type of the store, its locality classification (demographics based on the
classification of the society where the store is located).
Store groupings can be created based on the sales, type of merchandise mix
(inventory group), and type of pricing applicable which is depending on the
store location in rich class area or middle class area.
Such methods of clustering is important when the retailer has 50+ stores
spread across a larger geography and in Indian context only a few retailers
today need this kind of function. Please refer to sample store grouping.
Sample store grouping is done in figure 13.4.

Figure 13.4: Organisational hierarchy (Store grouping)

Classic example to explain this is the store group for Future Group.
Pantaloons, Big Bazaar, Food Bazaar and KB’s Fair Price shops are referred
as chain of stores further classified by region, district, and city.
Now Big Bazaar will belong to a particular inventory group while Food
bazaar will belong to the other inventory group. This is done because Food
Bazaar does not carry any apparel or general merchandise whereas Big
bazaar carries all types of merchandise category.
For the replenishment engine in the MMS to work successfully and
efficiently, it becomes necessary to set a relationship between a product and
240
the inventory group. The next process is defining the Vendors for the SKU’s Merchandise
Management System
that retailer plans to sell through his retail outlet. (MMS)-II

13.2.3 Vendor Master

Vendor master is a simple screen that captures the Vendors details such as:
1) Vendors legal name
2) Vendors office address
3) Vendors shipping address
4) Vendors carrier / Logistics service provider.
5) Vendor sales tax / Legal registration numbers for products that are
produced and sold under special license from the government
6) Active / Suspended: Once the retailer flags the vendor as suspended then
the software does not allow any one to place an order on the vendor
unless the flag is switched off.
In addition to the above this software screen allows to attach the products
defined in the previous function so that buyer knows who is the vendor for a
particular SKU. This sounds like simple function but a very important
function especially when the retailer and the Vendor decide to collaborate
using technology solution. While attaching a SKU (number) to a particular
vendor software allows to capture the vendors product code number. Lets
look at the example here below.
Retailer sells Arrow shirt under its own product code generated by its own
MMS, Retailers product code 00011002340. Now the vendor whose roll
number is V00001 has allocated a product code based on his own internal
production system which is AS2034. This sub screen allows to attach SKU
code 00011002340 to the vendor code V00001 and map it to Vendor’s
product code As2034. Therefore when a purchase order is entered in the
retailers MMS, the buyer will select SKU code 00011002340 as they
understand their own number whereas the purchase order when emailed or
printed it will refer to AS2034 because that what the employees of the vendor
understand when they have to ship the goods
Delivery Schedule
Vendor master also captures the delivery schedules for a particular vendor
which helps balance the work load factor at the Distribution Centre. Else the
inbound of merchandise at the DC will be choked if all vendor delivery had
to land up on the same day.

13.2.4 Purchase Order (P.O.) Function

In simple terms this is order placed by retailer specifying the product code,
quantity, cost price (based on the Margins agreed with the vendor), total
value of the purchase order.
This is an important function for the retailer because in the absence of this
function retailer will not be able to track how much it has ordered, how much 241
Visual Merchandising is yet to receive. Matured retailers track Fill rate (Quantity Delivered versus
and IT Application in
Retailing Ordered). This key performance indicator is used by the retailer to
communicate to the vendor on the areas of improvement. Purchase order is
considered to be a legal document (commitments) between the Retailer and
the Vendor and includes set of terms for supplying the goods at agreed costs /
margins.
Most of the software solution provides for the best practice of 2 step purchase
order release process to the vendor. Merchandiser prepares the purchase order
based on the analysis of the sales, current quantity lead time while the Buyer
will approve the purchase order on the system. Unless the purchase order is
approved, warehouse people will not be able to receive goods against that
particular purchase order as the operational rule is to receive goods only
against a valid purchase order.
There are different types of Purchase orders:
‡ Manual Purchase order
‡ Semi-Automatic Purchase order
‡ Automatic Purchase order
Manual Purchase order: The retailer’s Merchandiser does the number
crunching of Sales, current inventory and with additional input of Market
Scenario decides on the additional quantity that has to be purchased from a
particular vendor. MMS helps in considerable manner to aggregate the sales,
inventory numbers for a given SKU or group of SKUs (category) making the
buyer’s life easy in taking buying decisions. In the absence of MMS,
Merchandiser would have to take huge amount of time to calculate various
numbers. The amount of time taken would be driven by the number of stores,
warehouses, and the number of SKUs in the category. Merchandiser
determines the purchase order quantity by going through past sales, current
warehouse inventory, minimum order quantity and lead time. They also need
to take into consideration future fashion trends and demand for that particular
SKU. In large Retail organisation’s there will be 2 different individuals to
perform the buyer and merchandisers role. To understand market scenario
considered by the buyer please refer to the example here below. Most of the
MMS solutions do not capture market Scenario before suggesting the order
quantity. However the high end Business Intelligence (BI) solutions allow
capturing of Market scenarios for better decision making by the
merchandiser.
The world cup cricket has just started and India is playing very well.
Consumers are buying Sahara Cricket T-shirt in support of the Indian cricket
players when they visit the stadium to witness a cricket match.
Now as per the MMS, sales data for past few weeks, for Sahara Cricket
Tshirt, would be showing good numbers suggesting to buy more of Sahara
Tshirt. However the Merchandiser knows India was out of the tournament
because they lost the critical match last night. Now this is an input critical for
the Merchandiser’s decision making whether to buy more or not.

242
Semi-Auto Purchase order: Certain MMS solutions provide for this Merchandise
Management System
function in addition to Manual Purchase order. In this function, based on the (MMS)-II
parameters configured at the implementation stage of the ERP solution,
software solution automatically calculates the order quantity by considering
the sales data for past x days(configured at implementation stage), current
inventory, Lead time for the vendor to deliver the merchandise, Season
Control. This works well for FMCG category where most of the products are
order based on demand. Software prepares the purchase order but does not
release it to the vendor unless its approved by the Buyer.
To conclude on this topic, Semi Auto Purchase order mechanism
recommends the stock to be ordered and waits for the Buyer to approve the
Purchase order before its released to the vendor.
Automatic Purchase order: In this mode of function, the software raises the
purchase order and also releases it to the vendor wherein the approval is not
required for the purchase order. The need for such function arises from the
fact that the retailer has to deal with lot of SKUs which adds up to the
merchandisers work load. So if the core SKU’s can be ordered through
Automatic purchase order function then the merchandiser can give his due
attention to SKU’s which require human intervention or the ordering process
needs to consider some market inputs before the order is released.
Recommendation: It is recommended that such automatic approval of
purchase order is not switched ‘ON’ unless the business has achieved a state
of maturity wherein
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Generally such data accuracy is available with retailers who are very well
organized / mature on their processes and people work with systems in
greater discipline.
For example : A simple size 42 plain white/ sky blue colour shirt without any
styling or design element is considered to be core because it does not have
any fashion element in it. Most of the working executives would buy this
shirt for office wear anytime of the year.
Fully Automatic Purchase order works well for SKUs like Coke, it just sells
so the risk of being stocked with obsolete inventory does not exist. The risk
of obsolesce does not get eliminated entirely because there could be news
article that raises question about consumption of carbonated cola drink being
harmful for health. So it also depends how much risk appetite a retailer has.
In addition to capturing the SKU, Quantity, Purchase Cost certain softwares,
as a best practice allow capturing of additional data points as
1) Delivery Schedule (one lump sum delivery or staggered delivery) :
Staggered delivery schedule helps the retailer to not be overloaded with
stocks which consume space in the warehouse. At times Delivery
scheduling is defined in the vendor Master which is at a vendor level,
however within a purchase order its at a SKU level.
243
Visual Merchandising 2) Direct to Store delivery instruction : This is to instruct the vendor to
and IT Application in
Retailing deliver floor ready stocks.
3) Special term if they are different from the master contract terms as this
particular purchase order could under special arrangement with the
vendor.
4) PO Expiry Date: This is very important so that the vendor delivers on or
before that due date, because of the merchandise is delivered after the
specific expiry date then the merchandise is not sale able. For example :
Fancy umbrella’s have to be on the Retailers store shelf little before the
rains starts. This also helps the retailer to automatically cancel purchase
orders that have expired and does not have to keep reviewing purchase
orders that have not been fulfilled yet.
5) Other cost factor such as Insurance, Freight. All such costs impact the
landed cost of the SKU. Very few software capture the base cost and
landed cost. It’s easy for the retailer to know his true margins if the
software permits capturing of the landed cost.
Process flow chart for Purchase ordering process is shown in figure 13.5 .

Figure 13.5: Purchase order process

244
Purchase Order Cancellation: Based on the master agreement between Merchandise
Management System
Retailer and the vendor, Retailers can also cancel the purchase order fully or (MMS)-II
partially depending on the need of the merchandise for the retailer. Quite a
few software vendors provide for this feature.
Merchandise Allocation: Some of the advanced MMS software provide for
allocation of the merchandise across different stores right at the purchase
order stage. This helps the vendor to pack merchandise in packages that can
be cross docked at the Distribution centres to be shipped to the respective
stores thereby saving on valuable distribution centre’s time. Allocation of
merchandise is more often driven by the past sales data of that particular
SKU in a given store.

Check your Progress A

1) Write any five applications of MMS in retail.
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2) What is vendor master in retail?
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3) What are the various types of purchase order?
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13.2.5 Warehousing Management System (Function)

Often MMS allows for bare minimum Warehousing or DC function. This
bare minimum function is restricted to Good receiving, storing, Distribution
(Goods Transfer to / Fro stores / other Distribution centers’).
Advanced Warehouse Management Function permits “optimization” of
storing (Putaway) and distribution (Picking) to various stores based on the
store demand for a set or products. This “optimization” reduces the lead time 245
Visual Merchandising for the merchandise replenishment to the stores which ensure Merchandise
and IT Application in
Retailing reaching the right place right time with high cost efficiency.
Some retailers use the basic warehousing function of Warehousing whereas
large retailers having 100+ stores cannot do without advanced warehousing
function because volume of stock that turns in the business is so huge that the
warehouse space becomes large and the picking of stocks time. The labourer
has to travel more 100 meters at times to pick a particular SKU quantity.
Some retailers (mostly large ones) opt for best of breed approach where by
they integrate their MMS software to work with the best warehousing
solution that fits their functional requirement and IT budget.
Over last two decades, Advanced warehousing softwares have focused on
optimizing the work force productivity, asset utilisation (fork lifts etc)
thereby reducing the cost to serve replenishment of merchandise to the store.
Goods Receipt: Distribution centre or warehouses are allowed to receive
merchandise against a valid authorised purchased order alone. Software does
not allow receiving of SKU which is not listed in the purchase order. With
acceptable defined tolerance (+/- 5% to 10% of quantity) SKU can be
received by the warehousing personnel.
Some advanced WMS software allow defining of Quality parameters which
allows the warehouse personnel to carry out Quality Check on different
parameters that might be applicable for different SKU’s.
Software keeps track of the outcome of QC for various vendors and uses the
same while evaluating the vendor performance at the end of a set period.
Retailers can therefore choose between 2 vendors who provide quality
merchandise at a good cost and within the stipulated lead time and always
achieving a higher fill rate (Quantity delivered against order quantity)
Storing of merchandise: Retailers generally order the entire stock for a
given season and the same cannot be kept on the shelf in its entirety therefore
retailer has to stock some merchandise in its distribution centre for some
time. Then based on the store orders for replenishment it sends the goods to
the shop floor (store).
In the interim period the software needs to provide function which allows the
goods to be stored in the warehouse space in an efficient manner.
Advanced Warehousing solutions provide for defining / reserving the
volumetric space for a given set of SKUs. Therefore when the merchandise
comes in from the vendor, system automatically recommends the space
available for storing such merchandise. This saves the labours time to find
empty space in the warehouse and also lets the labour know where the stock
is kept when the time for replenishment comes. However pre-requisite for
such function to be in play is that the Product definition should capture the
volume metric space required at a SKU level.
Once the goods are received on the software then the next task is to store the
goods in the right location. This process of storing the goods into the racks
within the DC is called as Put away process. The opposite of this function is
246
called “Picking” which is carried out when the goods have to be dispatched to Merchandise
Management System
the stores or return to the vendor. (MMS)-II

Quite a few Retailers use hand held terminals (hand held computer device)
which allows them to reduce the paper work at the goods receiving or
replenishment stage. Instead of printing the putaway list (specifies the SKU
wise Storing location) it downloads such data on to a handheld device so that
everytime the SKU is scanned during the putaway process it suggests the
location where the merchandise is to be stored. This reduces a lot of paper
work and helps improving the accuracy rate of the putaway process.
Advanced warehouse solution provide the required algorithms to decide
where the storage location should be placed within the warehouse. Products
requiring high frequency of replenishment (high Velocity) are placed near the
dispatch area within the warehouse. Such algorithms can be applied to a
paritcular SKU or a group of SKU.

13.2.6 Goods Dispatch- Picking Function

Based on the store order’s merchandiser approves dispatch of additional
stock to the stores who are doing good sales numbers for given set of SKUs.
Request for additional merchandise is generated on the MMS system by the
Authorised people from the store. Or it is automatically generated by the
MMS system based on the sales happening at the store. Such replenisment
orders generated at the MMS are further approved by the Merchandiser to
ensure such merchandise is really required at the store. Once the store order
is approved, it gets converted into pick list in the WMS software. This pick
list can be paper based or downloaded as a data to hand held terminal. Pick
list provides the SKU name, SKU number and storage location number. Such
items when picked are dropped into the designated boxes marked for a
particular store. All these processes are mapped in the WMS software for
better tracking and accuracy ratio.
Once the boxes are ready for dispatch they are kept in the dispatch lane
meant to be loaded in ear marked Truck or Carrier going to a particular store.
Large retailers have Transport Management solutions (TMS) interfaced with
WMS solution to optimise the truck load with the goods to be distributed and
decided on the drops enroute (incase the truck is carrying multiple load for
multiple stores). The required documentation for the merchandise movement
is generated by the TMS solution which is then handed over to the driver of
the Truck / Carrier.
In the absence of TMS, retailers configure the WMS to generate the goods
transfer documentation. TMS is required only by those retailers who logistics
cost is significant and have a complex network of stores across a large
geography.
In addition to optimising the picking and putaway process, advanced
warehouse management solutions also provide feature function that tracks
and improves productivity of the work force. Based on the work load planned
for the day, warehouse manager is able to allocate the tasks to its labour at
the beginning of the day. Manager can track the performance during the day
and take corrective measures before the day end ensuring all resources are 247
Visual Merchandising optimised to meet the delivery deadline. If the warehouse misses its deadline
and IT Application in
Retailing then the store could land up running out of stock and miss an opportunity for
sale.
Excess Good Receipt: In the event excess goods are received by the retailer
then it has to go through the process of raising a fresh purchase order and
receiving the goods in the DC.
Or
Returning the goods without taking it into the inventory at the warehouse /
Store. Most of the software provide for such good return function without
impacting the inventory.
Given the volume of SKU’s being received, its difficult for the operations
team to check each and every delivery the moment its received at the
doorstep of the warehouse/ store, Retailers typically send the excess goods
back within 2 - 3 days from the date of receiving it.
Impact of goods receipt function in the software
1) With additional stocks coming in the software updates the current stock
quantity
2) After updating the current stock quantity, software updates the weighted
average cost per SKU based on the landed cost of the newly received
stocks.
3) Stock availability is published to all the stores so that they can start
ordering the goods for the shelves that are going empty.
4) If the accounting package is integrated with the Merchandise
Management System, then the same is accounted for in the Retailers
books of account.
Goods Transfer: Merchandise Management system always needs to have a
function whereby it allows the merchandiser to transfer Merchandise from
the Warehouse / Distribution centre to the respective stores. Quite a few
MMS software simplify this manual process of allocating the merchandise to
automated methods known as Allocation of the DC inventory to be
transferred to the stores based on Sales of past few days / Weeks.
Typically stores are set up in a parent child relationship with a given
warehouse. There is strict rule that it cannot receive merchandise from
another warehouse, however software’s provide this flexibility with
necessary approvals from Senior Users of the system.
In some MMS software this function is also called “Store Transfer”, “Inter-
Branch Transfers” or Inter-branch Transfer Note”
“Inter-branch Transfer - In”- (IBTI) and “Inter-branch Transfer -Out”-
(IBTO) are two different software function. While one is to ship the goods
out and the other is receive the goods in.
Manual Allocation/Goods Transfer

248 a. Merchandiser does the store sales analysis to find out which store is
 doing well on a particular merchandise based on the sales Analysis Merchandise
Management System
provided by the MMS software. (MMS)-II

b. Based on the Analysis, Merchandiser uses the <Store Transfer function>
to feed the SKU number to be transfered to a specific store from a
specific warehouse.
c. This <Store Transfer Document> becomes the ordering document for the
Warehouse operations team.
d. They pick the merchandise against the Stocks ordered to be transfered
and pack them in appropriate cartons to be shipped to the respective store
location using their own or 3rd Party logistics vendor.
e. The operations team at the DC creates a transaction “Inter-branch
Transfer - Out” to ship the goods out of its inventory. With the
Authorisation of this document, goods get shipped out and reduced from
the inventory. Such goods shipped out are shown as Goods in Transit till
such time they are received at its destination location.
f. Once the goods are shipped, the respective destination store is able to see
the goods in transit from various locations to itself.
g. On receipt of the goods at the store, they are expected to receive the
goods on the system using the “Inter-branch Transfer-In”. On
Authorisation of this transaction by the store, goods and its respective
price points reflect in the store systems. This also updates the inventory
in the store location within the MMS system.
h. Store cannot receive any good that has been wrongly received at its end.
Such records are manually maintained by the store manager to ensure
Goods are sent back to the Origin or the destination that it is meant to be
received at.
Auto Allocation / Goods transfer
1) This function is mostly found in high end softwares wherein the software
has the capability to analyse last few days sales and calculate the stocks
that will be required to meet the future sales.
2) This reduces the work load on the merchandise to do sales analysis etc
before deciding on the stocks to be transfered to the stores.
3) Software runs the Auto-Allocation process in the night time, which then
gets converted to Inter Branch Transfer Out document before the Back
office opens for its operations.
4) Merchandiser reviews the Automatically prepared Inter branch Transfer
out by the software, applies his/ her knowledge of the market intelligence
to decide if the system decided merchandise allocation is appropriate.
S/he makes necessary changes to the SKU’s, Quantity listed in the ITBO
and approves it. Once approved this ITBO gets published to the DC
operations team who then follow the process mentioned in the Manual
allocation process herein above.

249
Visual Merchandising 5) Such Auto-Allocation functions add a huge amount of efficiency for the
and IT Application in
Retailing merchandisers which others would be a painful exercise to co-relate the
last few days sales and then calculate the merchandise to be shipped
from a given location to a given store location.
Transactions such as ITBO and ITBI are very important to maintain the
sanity of the inventory and also keep track of the inventory at any given
operative location within the retailers operation. Logistics team is able to
keep track of the volume of goods moved within the retail operation. Any
mismatch between the ITBO and ITBI is taken up the Retail security team to
track and find out the merchandise missing.
Good Return / Vendor Return: This function is purely to keep track of the
merchandise that is being sent back to the Vendor based on the original
agreed terms on the % of the merchandise that can be returned to the Vendor.
This function in various software is also known as “Vendor Returns”. Please
note this is not “Sales Return” by the end customer. “Sales Return” function
happens in the Retail store and is done by the Point of Sale software.
Good Return Transaction
Reasons for Goods Return:
‡ Based on the understanding with the vendor, Merchandiser does the
required sales analysis to figure out the merchandise that’s not been
moving and decides to either run a promotion (Discount) or return the
goods to the vendor.
‡ Goods received in damaged condition or its discovered merchandise
provided by the vendor has quality issues.
‡ Vendor Recall: Goods have to returned back because of some statutory
notification by the local Authority. Typically quality issue is the reason
for such recalls or its a risk to the consumer if s/he consumes the product.
‡ Excess stock is available in the business in comparison to the sales being
generated.
Process
‡ Merchandiser makes a list of goods that have to go back to the vendor.
‡ Selects the Goods Return feature of the software
‡ Selects the Vendor to whom the goods have to be returned. Enters the
reason for merchandise return as the Business Heads would like to
analyse the reasons for Vendor returns if it cross the general norms of the
industry. Its important to note the quantity of Merchandise that goes back
to the vendor because the business had spent lot of efforts in the first
place to bring the goods in. Trend Analysis could help in reducing the
goods ordered in the first place, or remove the vendor who has very high
returns on account of quality.
‡ Then enter data of the SKU / Quantity to be returned. Once the
transaction is authorised on the software, it gets publised at the
250
 warehouse / DC / Store location for sending the merchandise back to the Merchandise
Management System
vendor. Best practice suggests all goods are routed through the parent (MMS)-II
DC / Warehouse to keep track of the goods movement and keep the
reverse logistics simple.
Impact of this transaction
1) Vendor’s Financial account gets debited to the extent of the goods cost
(Weighted Average Cost).
2) Inventory gets reduced from the location where the goods are shipped
out.
With this we finish understanding various transactions that get conducted in
the WMS module of MMS.
Transactions discussed hereafter are generic in nature and can be conducted
for any location within the Retail Business.
Stock Adjustments: Given the volume of transactions and the complexity
that arises on account of the number of SKU’s its inevitable that there will be
theft, loss of good, wrong accounting, damage of goods during the goods
movement. Such loss of goods for the aforesaid reasons is treated as
Shrinkage. Shrinkage is calculated as Total value of goods that are lost
divided by the sales value generated by the Retail business.
Such shrinkage ranges from 0.8 to 2.5%. Quite a few retailers in the country
over last decade have used the Good feature functions of MMS to bring
control in transactions and reduce the Shrinkage % over the years.
Stock adjustment function offers the relief to the retailer to adjust the stocks
in such a manner that the physical stocks tally with the system stock because
almost all decision making is based on the system sales and stock figures.
Therefore if there is a mismatch between the system stock and the physical
stock, then potential chances of taking a wrong decision goes very high.
To understand the importance of having Stock Adjustment lets look at the
example cited here below
Example:
Assuming Retailer buys 100 pcs of Arrow Shirts and puts it on the shelf for
selling. During the process of goods movement from the Vendor to the DC /
Warehouse to the store, there was a theft of 10 pcs by the Logistic vendor
(this is just an example and not necessary a reality). Now the sales of the
Arrow shirt pick up quite well and the retail store manages to sell 60 pcs in
just one week’s time. Therefore in real the stock available for next week sale
is only 30 pieces whereas the system shows 40 pcs.
Now the merchandiser will trust the system figure and order only 20 pcs to
cover the weeks sale quantity, but in reality if the next weeks sale is also of
the same velocity then the retailer will have a short of 10 pcs. The impact of
such incident is not only loss of potential sale of 10 pcs but creating a image
of stock out in the minds of the customer. This example is only within a week
period, therefore if one extrapolates this to a monthly or quarterly figure there
251
Visual Merchandising is a chance of having bigger differences based on the controls adopted by the
and IT Application in
Retailing retailer.
Therefore almost all the retailers in the industry have adopted the policy of
“Perpetual Stock Take”. As the name suggests Retailers conduct stock take
every day / Week to ensure physical stock is aligned with the system stock.
By taking stock count on perpetual basis, Retailers are able to reduce the
stock differences to a large extent.
Process for perpetual stock take
‡ Retailer’s Audit team decides on random basis the stock to be reconciled.
They choose a particular brand
‡ They take a snap shot of the data set for a given date and time (typically
this is done at the end of the day or before the store operation starts).
‡ Physical stock quantity is counted for the brand selected for stock count.
This physical stock count is uploaded into the MMS software. Most of
the retailers use hand held computers to note the stock count against each
SKU.
‡ Once the physical count data is upload, software is able to generate the
statement of difference between the physical and system stock.
‡ The respective operations team is given a day’s time to find out the stock
that is different so that the Retailer does not have to write off a large
amount of stock value.
‡ Once the operations team confirms the stock difference, it is submit to
the Business Head for write off. Such write-offs reduce the profitability
of the retailer hence Retailers exercise lot of caution in reducing the
system stock to match the physical stock.
Contrary to the general belief that shrinkage is directly related to the thefts,
but it is more often found as inefficiency while scanning the goods in/ out. ,
Classic example that most of you will notice in high pressure Point of sale
transactions in a super market is here below for your easy reference.
x Customer puts all the merchandise on the scanning table for Point of
sale. Customer has purchased 3 bottle of Pepsi and 3 bottles of Mirinda.
x Cashier to save time scan 1 bottle of Pepsi and updates the quantity to be
6 on the Point of sale.
x Now when such transaction gets uploaded into the MMS it shows sale of
6 Pepsi, whereas in reality 3 bottles of Mirinda have gone out of the
inventory. Assuming the inventory at the start of the store operation was
10 bottles each the data in the system at the end of the day will be as
follows:
SKU System Quantity Physical Quantity
Pepsi 4 7
Mirinda 10 7
x This mismatch will not allow the merchandiser to take right decision
while ordering both the cold drinks. Also sales analysis will be wrong.
Data Polling: This Function is available in MMS as well as POS. Data Polling
252 deals with transfer of key data points between MMS and POS. Typically POS
is never online with MMS. But in the near future with more stable network Merchandise
Management System
connectivity, POS will talk to MMS on an online basis. Retailers Merchandiser (MMS)-II
sits in the head office. S/he carry out transactions relating to goods ordering
and goods movement related transaction on MMS in the Head office and this
data, at the end of day (night time) polled to the POS Server. Typical flow from
MMS to POS is as shown in figures 13.6 and 13.6.

Figure 13.6: Data polling (Head office to retail stores)

At the end of the day POS software communicates the Sales related data,
Cash collection data, new customers acquired for the loyalty programme etc.
Typical flow of data from POS to MMS is shown here below. Retailers either
use Outlook messages or use File Transfer Protocol to exchange data.
Data Polling

Figure 13.7: Data polling (Retail stores to head office)

253
Visual Merchandising Typical Data exchange consists of following data files.
and IT Application in
Retailing
Ɣ From Head office to Store

a) Item Price List (PLU)

b) Privilege Customer List

c) Customer Benefits

d) d Item Promotion details

Ɣ From Store to head office

a) Sales Data
b) Tender Collection data
c) Store Requisition
d) Goods received directly at the store.
Good old days data used to be polled from the store to the MMS once at the
End of the day. With evolution of technology and better connectivity, this
data is now polled on Trickle poll basis which means data from POS is
transferred to MMS multiple times during the day. This provides better input
to the Retailers Logistics team to decided on the goods that need to be
replenished by next Business day morning time. Better the replenishment
better is the potential sales as the availability of goods sold out is taken care
off.

Check Your Progress B

1) What is warehouse management system?
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2) What is goods transfer?
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3) Define stock adjustment.
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13.3 LET US SUM UP Management System
(MMS)-II
To perform various complicated functions of retail business, merchandise
management system provides various applications to retailers. Functions like
merchandise planning, buying, and inter-store transfer can better perform and
manage with MMS applications. MMS provides the required guidance
through its reporting capabilities inbuilt into the software. MMS provides the
applications like recording the information of a vendor by creating vendor
master, identifying the various products (location-wise), generating purchase
orders, and keep records of inventory. MMS also performs the functions of
warehousing management, goods dispatch-picking function and data polling
etc.

13.4 KEY WORDS

Putaway: Storing the goods at distribution centre.
Vendor Master: Complete detail about the vendor in MMS such as legal
name of vendor, office address and shipping address etc.
Warehousing Management System: Is a key part of the supply chain and
aims to control the movement and storage of materials within a warehouse
and also process the transactions like shipping, receiving, put away and
picking.
Data Polling: Data Polling deals with transfer of key data points between
MMS and POS.
SKU: Store keeping unit (SKU), a unique identifier for each distinct product
and service that can be purchased in business.

13.5 TERMINAL QUESTIONS

1. How does merchandise management system perform the function of
product identification?
2. Explain the different types of purchase orders. Also define the functions
of MMS related to purchase order.
3. Discuss about warehousing management system function of MMS in
retail.
4. State the various transactions to be performed under the goods dispatch-
picking function through MMS.
5. What is data polling? How does this function perform in MMS?

REFERENCES/ FURTHER READINGS

Girdhar Joshi, “Information technology for retail”, Oxford University Press,
2009.
http://retail-guru.com/use-merchandise-management-to-streamline-retail-
sourcing- buying-and-merchandising/

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and IT Application in
Retailing

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