Retailing is the process of selling goods and services to the final user for personal and non-business use. The most important example of retail businesses are departmental stores, discount stores, convenience stores and it even includes computer kiosks and catalog marketing. Retailers normally buy in bulk quantities from wholesalers and then sell it in smaller quantities to consumers for personal and non-business use. Retailing industry is very important from economic point of view and a country having a strong retailing industry may also has a sustainable competitive advantage in the international markets. It is important to note that retailers are an important part of supply chain of a product/service and are at the end of the supply chain. This is an era of evolution and innovation. Retailing is not much simple now as it was in the past. Today, Retailing has gained an evolution and there are examples of Retail giants and chains bearing the most advanced technology instead of old conventional small shops with traditional style of buying and selling. (London Economics, 1997)
It is important to note that there are main two kinds of business transactions: Business to Business (B2B) and Business to Consumer (B2C). Only B2C transactions come under retailing. Moreover, if a company is selling directly to its customers rather than involving an intermediary then it is again doing retailing. (Mazur, No Date)
Information technology has played a dramatic role in developing the retail industry and supply chains of retail stores in all the developed countries. Competitions and fragmentation in the market increases as the market grows towards maturity. Due to competitive turbulence, it becomes imperative for an organization to come up with a strategy and innovation to survive in the market and to gain a sustainable competitive advantage. Information technology has played a very important role in addressing this competition in the retailing industry of the world by innovation, ease and cost reduction to provide an edge over competition with effective and efficient supply chain management systems. (London Economics, 1997)
Wal-Mart's success story is the most prominent example in which it has fully utilized the potential of information technology in its supply chain management. Supply Chain Management is the most strategic core competency to gain a sustainable competitive advantage in the retail industry. Wal-Mart has realized and fully capitalized this opportunity to introduce a low cost and great quality customer services structure to the retailing world. Their information technology systems like Electronic Data interchange (EDI), Radio Frequency identification (RFID) and knowledge banks are great examples of how the true potential of information technology could be utilized in the retailing industry. Due to the efficient integration of technology with the retailing activities, Wal-Mart is now the market leader in the retail industry of US. This sustainable competitive advantage of Wal-Mart is still not imitable by the competitors in retail industry even after wide-spread advancement of technology. (Adam Heying, 2009)
In this paper, the role of technologies and their potential to ensure the effective and efficient supply chain management systems in the retail industry is analyzed. The paper is divided in four main parts. The first part addresses the range of technologies being used in modern retail industry. The second part analyzes the operations management implications of implementing the technologies in terms of better managed inventories, supplier integration, queuing theory and capacity planning. The third part describes the broader business challenges to successfully implementing technologies to improve retail supply chains. The final part analyzes what challenges do rapidly evolving shopper and consumer expectations place on retail operations that is followed by a conclusion.
Range of Technologies in the modern retail industry
Today, information technology has brought a revolution in the business world. All the developed countries have fully adopted technology in all of their sectors and this is the main secret for their success in the current dynamic world. All the fast developing countries are bringing an innovation in their business world with technology and advancement.
Important technological developments in retailing industry are related to the Internet and Electronic Market Channels, recording sales and monitoring inventory (Bar Code Scanners), EDI (Electronic Data Interchange), computer-based sales support and technical problem-solving systems, and Teleshopping, Computershopping, and Homeshopping.
Most of these technological developments involve computerization on a manufacturer, wholesaler, retailer or consumer level. Although the Internet was conceived primarily as an information exchange mechanism, it can and already has been used as a kind of "Electronic Marketing Channel" in the retail industry on which consumers and organizations can "go shopping". Presently, Electronic Shopping on the Internet accounts for just a tiny fraction of total retail sales ($1-2 billion out of $ 2.1 trillion).
Nevertheless, in the future for both consumer and business markets, the Internet might play a much larger role. Virtual Stores and Virtual Malls are already quite prevalent on the Internet. Different technologies which are used in the modern retail industry are:
Electronic Scanners
Electronic Scanners are laser devices that read prices and other information from product labels and record them much more quickly and accurately than humans can manually. Electronic Scanners coupled with the 'Universal Product Code' (UPC), now appearing on virtually all packaged goods, the speed and efficiency of electronic scanners in processing consumer transactions are formidable. Electronic Scanners are now getting well beyond simple reading of product labels. They can be used to replenish inventory electronically without having to rely on manually produced purchase orders. Using the checkout sales data from scanners, the computer can tally items sold and then automatically subtract those items from inventory records. To be more efficient with their information systems, many retailers now rely on the 'Universal Product Code (UPC)' and 'Electronic Data Interchange (EDI)'.
Universal Product Code
With the Universal Product Code (UPC), products or tags attached to them are marked with a series of thick and thin vertical lines, representing each item's identification code. The preferred UPS includes both numbers and lines. The lines are read by scanners at checkout counters. Cashiers do not enter transactions manually-although they can if needed.
By using UPC-based technology, retailers can record data instantly on an item's model number, size, color, and other factors when it is sold, we well as send the data to a computer that monitors unit sales, inventory levels, and so forth. The goals are to produce better merchandising data, improve inventory management, speed transaction time, raise productivity, reduce errors, and coordinate information. Since its inception, UPC technology has improved substantially. Today, it is the accepted standard in retailing.
EDI
With Electronic Data Interchange (EDI), retailers and suppliers regularly exchange information through their computers with regard to inventory levels, delivery times, unit sales, and so on of particular items. As a result both parties enhance their decision-making capabilities, better control inventory, and are more responsive to demand. UPC scanning is often the basis for product-related EDI data. Today, more retailers are expanding their EDI efforts to incorporate internet communications with suppliers.
RFID
One important emerging technology that may greatly advance the merchandise tracking and handling process for retailers involves RFID (Radio Frequency Identification) systems. RFID is a method of remotely storing and retrieving data using devices called RFID tags or transponders. An RFID tag is a small object, such as an adhesive sticker, that can be attached to or incorporated into a product or its shipping package. RFID tags contain tiny antennas to enable them to receive and respond to radio frequency queries from an RFID receiver. At present, RFID utilization is quite limited, so it is too early to predict among its acceptance. The cost per supplier is also quite high (several million dollars). RFID is way beyond the barcodes found on products from candy to computers. Barcodes basically count products for retailers. RFID, with its most sophisticated tags and readers, can tell retailers and suppliers what is in a case, what is on a pallet, and where products are at any point along the supply chain.
Computerized inventory management systems
Closely related to Electronic Scanning is the use of Computerized Inventory Management. Computerized Inventory Systems based on data received from point-of-sale terminals have created a revolution in Inventory Management and Control at the retail and wholesale levels. An advanced inventory system is being used by McKesson Drug Company, a giant drug wholesaler. In its New Jersey Warehouse, McKesson employees called "robo-warehousemen" roam the aisles using the portable computers to manage the inventory as it moves in or out of the warehouse. Electronic Scanning and Computerized Inventory Management, enhanced by portable computers and cellular phone technology, have created a new world in retailing and wholesaling not only by drastically reducing the amount of labour and paperwork involved in inventory management, but also by making available to managers a vast array of timely and valuable information for making better merchandising decisions.
Teleshopping
Teleshopping refers to the purchase of products and services by consumers using remote electronic devices in conjunction with a television set. The Teleshopping device enables consumers to shop simply by tuning in to a cable TV station that offers teleshopping service. The whole range of products and services is available, they are displayed attractively. Actual ordering then takes place directly through an interactive cable linked with the shopping station. The customer needs only press a button on the teleshopping device and enter a credit card number to order an item.
Computer Shopping
Computershopping is done on computers. It operates along the same principle as Teleshopping; however ability to see the product demonstrated is not yet widely available in this case. On the other hand, the personal computer can be networked via internet to a broader array of sellers than is typically feasible for teleshopping systems, so it can provide shoppers with greater range and flexibility.
Home Shopping
Home Shopping emerged during 1980s led by Home Shopping Network and QVC. Home Shopping consists essentially of cable TV shows that offer products for sale in lieu of other types of entertainment. The consumer, seeing something he or she likes, calls an 800 telephone number and orders it. In Home Shopping, there is no interactive capability provided, and the customer is limited to the particular array of products (featured one at a time) that the program happens to be offering.
Operations Management Implications of implementing technology
The operations management implications for implementing technology in terms of better managed inventories, supplier integration, queuing theory and capacity planning would be analyzed by using the Michael Porter's Value Chain Model which is stated below:
The Primary Activities include the sequence of bringing materials into the business (inbound logistics), converting them into final products (operations), shipping out final products (outbound logistics), marketing them (marketing and sales) and servicing them (service). The Support Activities include procurement, technology development, human resource management, and firm infrastructure (covers the cost of general management, planning, finance, accounting, legal and government affairs). There are three kinds of movement in Supply Chain.
The physical movement of material, generally in the direction of the end of the chain.
The flow of cash backward through the chain.
Exchange of information, which moves in both directions along the chain.
Supply Chains are sometimes referred to as Value Chains, a term that reflects the concept that value is added as goods and services progress through the chain.
Different issues related to supply chain management in retail industry are
The Need to Improve Operations
Increasing Levels of Outsourcing
Increasing Transportation Costs
Competitive Pressures
Increasing Globalization
Increasing Importance of E-Business
The Complexity of Supply Chains
The Need to Manage Inventories
Inbound logistics
EDI provides a direct link between a manufacturer's database and that its vendors. It provides effective and efficient supplier integration, inventory planning and queuing system for inbound logistics. Quick response (QR) programs have grown rapidly. Quick Response is based on bar-code scanning and EDI. Its intent is to create a just-in-time replenishment system between vendors and retailers. It is important to note that efficient and effective inbound logistics creates value for the customers in the end and increases the margins for the company.
Operations
RFID is a technology that uses radio waves to identify objects, such as goods in supply chains. This is dome through the use of an RFID tag that is attached to an object. The tag has an integrated circuit and an antenna that project information or other data to network-connected RFID readers using radio waves. RFID tags can be attached to pallets, cases, or Individual items. They provide unique identification, enabling businesses to identify, track, monitor, or locate practically any object in the supply chain that is within range of a tag reader. RFID eliminates the need for manual counting and bar-code scanning of goods at receiving docks, in warehouses, and on retail shelves. This eliminates errors and greatly speeds up the process. It provides better inventory management, supplier integration, better queuing and capacity planning.
Just in time (JIT II), developed 1987 by the Bose Corp (audio equipment manufacturer & retail stores), is a good example of disintermediation and is now being adopted by a growing number of companies. The objective of JIT II is for the vendor and customer to work much closer together, thereby eliminating many of the intermediate steps that now exist. To accomplish this, a vendor employee is provided with physical office space within the purchasing function of the customer. This approach eliminates the need for a buyer for the customer and a salesperson for the vendor. This vendor representative has full access to the customer's database and therefore can translate the customer's purchase orders directly into orders for his or her company. This individual also participates in the customer's new product design process, offering suggestions for improving product performance and reducing costs. Software like JIT II provides effective and efficient inventory management, supplier integration, queuing and capacity planning.
Outbound Logistics
Efficient Customer response (ECR) is a variation of QR and EDI adopted by the supermarket industry as a business strategy where distributors, suppliers, and grocers work closely together to bring products to consumers. They can use bar-code scanning and EDI. Savings come from reduced supply-chain costs and reduced inventory.
Marketing and Sales
Teleshopping, Computer shopping and home shopping offers direct access to customers and effective outbound logistics for better capacity planning, inventory management, queuing and supplier integration. Customers can access and buy different retail products at their homes through television and computers. More importantly, it is an interesting fact that most of the companies which sell through Teleshopping, Computer shopping and home shopping do not maintain larger inventories or capacities but the products/services are acquired from different suppliers and provided to the customers on demand in a built to order format. In this way, the above technologies provide better capacity planning, inventory management, supplier integration and queuing of product/services in the retail operations.
Service
State-of-the-art supply chain management (software) has had a significant impact on the overall management of the supply chain. These software packages, in combination with network linkages provided by the Internet, allow each of the organizations within a supply chain to share information on a real-time basis. Some of the major SCM software packages include the following.
i2
Manugistics
SAP
Peoplesoft
Viewlocity
The basic objective of the SCM software is to provide customer relationship management for effective and efficient customer services to gain a sustainable competitive advantage in the marketplace. In return, the SCM software provides effective and efficient inventory management, capacity planning, queuing and supplier integration indirectly.
Interpretations
Different implications of operations management for implementation of technology were discussed by using the Porter's Value Chain Model. It was analyzed that the technological developments in the retail industry have positive effects on the effective and efficient operations management. It is important to note that information and technology have now become competitive advantages of organizations. The efficient use of the technology enables the organization to generate more value for its customers in inbound logistics, operations, outbound logistics, marketing/sales and service. The margins and profitability of the organizations is increased in return due to increase in customer value. In short, technology provides efficient and effective operations management which in return enables the organization to gain a sustainable competitive advantage in the marketplace as revealed in the above implications of operations management for the implementation of technology according to the Porter's value chain model.
Broader Business Challenges in implementing technology
In the past, most organizations did little to manage their supply chains. Instead, they tended to concentrate on their own operations and on their immediate suppliers. Moreover, the planning, marketing, production, and inventory management functions in organizations in supply chains have often operated independently of each other. As a result, supply chains experienced a range of problems that were seemingly beyond the control of individual organizations. The problems included large oscillations of inventories, inventory stockouts, late deliveries, and quality problems.
Current trends in Supply Chain Management for implementation of technology include the following.
Reduced Number of Suppliers
Increase in Competition
Shorter Product Life Cycles
Increase in Consignment Inventories
Increase in Vendor-Managed Inventories (VMI)
Shared or Reduced Risk
The major business challenges that are crucial for implementation of technology are:
Costs
Costs are the most crucial challenge in implementation of technology because technological developments incur high costs to the organizations. It is important to note that installation costs for technology are high but in the future the cost advantages of implementation of technology outweigh the installation capital investments. For example, Wal-Mart is enjoyed an effective cost advantage relative to competitors by implementing high end technology for operations and supply chain management.
Compliance
One of the most important business challenges is the compliance of technology for operations and supply chain management. For example, the implementation of technology incurs high costs and a company implements technology with high capital investments. But another competitor may forego the implementation of technology and could be price competitive for a short period of time causing revenue and market losses the company that has implemented technology.
Compatibility
It is also important to note that if the certain technology implementation is compatible with the operations or not. For example, it is not possible for a small retailer to adopt JIT II system or go for RFID because of simple business operations and low capital investments.
Reliability
Technology has certain reliability concerns as well. For example, people are afraid of online shopping due to online frauds and internet breakdowns.
Privacy
There are some serious privacy challenges associated with the implementation of technology. Supplier integration and sharing of information may reveal trade secrets to a supplier and it could become a competitor in future.
Challenges placed by evolving shoppers and customers
Different challenges which are placed by evolving shoppers and customers are:
Lack of contact with actual products and delayed possession
Fulfillment Logistics not at Internet speed or efficiency
Clutter, Confusion, and Cumbersomeness of Internet
Nonpurchase motives for shopping not addressed
Security concerns of customers
Lack of contact with actual products and delayed possession
In case of Electronic Channels, consumers have no direct contact with product, they cannot see, touch, feel, smell, or try on the actual products sold on the Internet. Furthermore, the instant gratification of buying the product and then possessing it immediately is not available through electronic marketing channels.
Fulfilment and Logistics Lag
Internet processes and transports electrons, not physical products, hence order fulfilment and logistics must still be performed. Warehouses, inventory, order processing, packing, and shipping do not disappear simply because consumers use the Internet to buy a product. Moreover, the processing and shipping of many small orders, often one unit at a time, is expensive from both an order-processing and a transportation standpoint, especially in case of low unit value items.
Clutter and Confusion
Literally hundreds of thousands of sellers at all levels of the channel from manufacturers to retailers, have established websites, making clutter a real problem in cyberspace. Consumers face a bewildering array of choices while Internet sellers face the difficult task of not getting lost in the shuffle. The problem of Web Clutter became so acute that even some of the best known Internet firms paid huge sales commissions and advertising fees to gain placement on high traffic websites or search engines, and home pages of online service providers.
Ignores personal and social shopping motives
In his article published over three decades ago, titled "Why Do People Shop", Mr. Tauber provided some very insightful observations. He found that people do not shop simply to make purchases; rather, the desire to make a purchase is just one part of a complex set of personal and social motives for shopping. Personal motives for shopping include the need to play the role of shopper, diversion from the routine of daily life, self-gratification, learning about new trends, physical activity, and sensory stimulation. Social motives for shopping include gaining social experience outside the home, communication with others having similar interests, peer group attraction, status and authority, and for some shoppers, the pleasure of bargaining. Evidence from later studies as well as a vast amount of accumulated experience over the decades has validated Tauber's findings. Online shopping fails to satisfy most of the consumer's motives for shopping.
Security Concerns
Concerns about the security of shopping on the internet take two basic forms. The first involves buying products from unknown firms that exist only in cyberspace, however this concern has been largely remedied as consumers have become familiar with more online firms and feel more capable of sorting out those that they are comfortable with. Other consumers may overcome this concern by dealing only with well-known firms on the Internet.
The second and more serious security concern is consumer discomfort with sending credit card numbers over the internet. Although in reality such security fears may be unfounded, they are nevertheless real to some consumers. In that sense, such fears still present a barrier to the growth of online shopping.
Conclusion
In this paper, different technologies and their implications were discussed in supply chain management and operations management. It can be concluded that technology provides effective operations and supply chain management solutions when it is utilized efficiently. The business challenges and customer challenges are crucial to analyze before implementation of technology.
