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Information Technology in Retail Industry

Ritesh Kala Avik Das

IT Investment in Retail A Business Case

Understanding the Retailing Business


Areas of Improvement

Gaining the Competitive Edge


IT as a means

Performance Measurement

Where are we?


Flow of Goods

Store Back-end Inventory Management Order Placement Inbound Logistics Inventory Management Replenishment Analysis Store Front-end Point of Sale Merchandising Transaction Processing Supply Chain Management After Sales Service Reverse Logistics

Flow of Information

The Benefit of Integrated Information


Point of Information Generation
Information Generated Decision taken

Store Frontend
Purchase Entry

Store Backend
Stock Levels

Warehouse Supplier

Stock Levels

Order

Merchandising, Customer Servicing, Reverse Logistics

Replenishment from warehouse, merchandising

Re-order Supply to from supplier warehouse

Where do we want to be?

Better, faster, more accurate, more efficient:


Information Collection and Access Supply Chain Management Inventory Management Order Placement Point of Sale and Merchandising Transaction Processing, Billing and Delivery After Sales Service and Reverse Logistics

Can IT add value?


Secondary Activities
General administration Human resource management Research, technology, and systems development

Procurement
Inbound Operations logistics Outbound Marketing logistics and sales Service

Primary Activities
*Competitive Advantage by Michael Porter

How do we get there?

Be open to the IT investment option


Conduct a thorough feasibility study Set a budget for IT spending Determine the IT budget allocations Draw out detailed plan for process re-engineering Plan a post implementation analysis

How do we get there?


Value Description Calculation

A
B C

Annual Sales

Rs. 200 crores

Estimate of the average life span of the 5 years entire retail information system Estimate of the percentage of sales the 1% = 1/100 = average retailer spends on information 0.01 technology Retail System Budget =AxBxC = Rs. 10 Crores
*Based on benchmark survey by PricewaterhouseCoopers LLP and RETAILTECH, April 2000

How do we get there?


Be open to the IT investment option Conduct a thorough feasibility study Set a budget for IT spending Determine the IT budget allocations Draw out detailed plan for process re-engineering Plan a post implementation analysis

How do we get there?


Product/Service Purchases Percent of Budget

Hardware Software Training & Implementation Supplies & Upgrades Total Retail System Budget

50% 20% 20% 10% 100%

How do we get there?


Be open to the IT investment option Conduct a thorough feasibility study Set a budget for IT spending

Determine the IT budget allocations


Draw out detailed plan for process re-engineering Plan a post implementation analysis Did we get there ?

Balanced Scorecard as an evaluation tool


Financial Perspective Occupancy costs per square foot of selling space Overhead Cost per rupee of sales

Learning and innovation


Information

Speed Avg. Customer Complaints per 1000 transactions

Retrieval

Output Variables
Net

annual sales per square footage of store Operating Profit Margins Profits Margins x Inventory Turnover Rate Customer Perspective
Customer

Internal Processes
Average

Survey Index Repeat Purchases

inventory per Quarter Average Ordering Cost per Order Transaction Processing Time

Finally, what can we infer?

Intense competition will drive efficiency-race


IT primary enabler for sustained efficient retailing Feasibility, scope, quantum of investment to depend on scale and complexity of operations

In India, as organized retail blooms, the business case for IT will get stronger

Thank You

References:
IBM RFID Solutions Wal-mart's Supply Chain Management Practices - ICMR Case Collection An application of the balanced scorecard in retailing - The International

Review of Retail, Distribution and Consumer Research, Jan 1999 4167


Competitive Advantage by Michael Porter