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Not patch automation but improving the effectiveness and promoting growth of retail chain

Highly effective comprehensive retail solutions have become more available now - Lositskiy  A. V., Head of corporate information systems department, describes the perspectives of IT-technologies development in retail business.

As new capabilities emerge IT-technologies are becoming more and more important for the process of forming the competitive advantage of retail chain. Planning for IT-infrastructure development is a strategic goal for many retail enterprises. Alexander Vladimirovich, what's your opinion, what issues and tasks are of major concern for business information support?

It is not a secret that retail trade is one of the most actively developing sectors of national economy. Besides territorial extension retail chain now tends to create new formats of retail outlets in order to gain more customers. Someday management faces an urgent problem, that the development of information support falls behind the growth rates of the whole retail chain. They face problems of information integrity, consistency and timeliness. Thus, the situation is abnormal as an obsolete IT-infrastructure does not facilitate business development but retards it. Therefore an important requirement for retail chain development is the consistency between functionality and structure of business information solutions, as well as further extension capabilities which should be envisaged in advance.

In what way are retail companies trying to solve IT-infrastructure development issues?

Presently there are several ways of infrastructure development:

  • Extension of system functionality on their own. This approach is typical for self-made systems, which are supported by their own IT service. Usually, lack of resources and consequently delays in development plans for retail system are significant disadvantage.
  • Acquiring additional highly tailored systems could be considered as another approach. In this case integration of information systems into already existing IT-infrastructure is an urgent issue. If self-made systems exist then own IT service is mainly responsible for integration. Nevertheless, such approach makes it possible for enterprises to get highly tailored solutions for selected directions of their activities.
  • Cardinal approach has recently occurred when retail systems which develop intensively abandon usage of their own developed products and choose the solutions of independent developers. Usually, highly developing mid- and large-scale retail systems come to such decision.

Why do companies now tend to use outside developed systems?

Certainly, this tendency is defined by objective advantages of such approach:

  • You bye not just program software, but ready-made business solution. Nevertheless, one should not lessen the importance of information technologies. I would like to mention as well that vendors, which run their business on the market for a long time, can offer solutions having rich industry-specific experience.
  • Reduction of risks at the expense of high level of information security and stability of corporate solutions. Constant vendors support, ability of quick extension of functional capabilities and correspondent resources available. We had such situations when potential clients have communicated with us having faced technical constraints in the process of increasing the number of retail outlets or even introducing new outlet formats and these constraints could not be removed in current information system. That is you should have an opportunity to plan development of the whole systems and business and should not regularly make patches to plug up holes which suddenly emerge.
  • If you have chosen the right solution you have not spend you money on IT-infrastructure development but have invested it into business. You will not only increase effectiveness but also increase your company's investment appeal.

As far as investment appeal is concerned you are talking about ERP-solutions or specialized trade systems?

First I would like to mention that we are talking about complex specialized retail business solutions proposed by vendors of ERP-solutions. From time to time we face incompetent opinions, usually from developers of highly tailored trade systems, that ERP-systems are not envisaged for retail trade. They provide the following groundless arguments:

  • The client purchases construction system, which will have to be adjusted painfully and for a long time so that to meet retail needs
  • ERP-system can not manage discount policy, tradestocks, pricing, types of goods etc.
  • Retail solution does not need to have functions of remuneration calculation, budgeting, accounting, strategic planning etc.

In fact the Client purchases already pre-adjusted and industry tailored complex solutions for retail trade. Such solutions certainly include all management processes for discount policy, tradestocks, pricing and moreover they are incorporated into overall company's business environment, as it is clear that it's not possible to manage them effectively without considering strategic planning and budgeting. Thus, you have complex solution for the whole enterprise, the whole retail chain, not particular retail outlets and therefore you avoid the problem of additional informatization of processes, which is not industry tailored but is important from the strategic point for your business in general. In this case you avoid expenses and risks related to the necessity of integration of dissimilar systems and your organization gets full information support of its activities ranging from strategic issues to maintaining data for each particular buyer. Such transparency underpinned by such solutions does influence positively on company's investment appeal.

But although these solutions are attractive their cost remains high enough. Therefore question arises are they affordable for relatively small retail chains?

It is clear that IT projects funding is an urgent issue for retail business as capital assets are invested into sales increase. Partially this problem can be solved by credit  presently there are specialized bank programmes used for crediting automation projects. However, searching for optimum ratio between functionality and costs remains urgent. There are several aspects here:

  • At present suppliers of such solutions provide flexible licensing policy. For instance, our partner SAP AG from the one hand has discounts for sales volumes and from the other hand provides a possibility of purchasing minimum number of licenses as well as partial payment for functionality  you don't pay for what you don't need for the present moment.
  • Don't forget that you pay not only for functionality but for broad business possibilities, which are provided by solutions of such level. The number of retailer leaders have launched projects on implementing industry-specific solutions, although their business was much more smaller than they have now. For example, Kopeika sales turnover was about $ 90 mln when they began implementing the solution.
  • Finally is it usage of combined solutions which allow significant cost reduction. Large corporate systems provided by market leaders (SAP for Retail, Axapta Retail, Oracle Retail  Retek, which has been recently purchased etc) from the one hand are attractive provinding broad possibilities and from the other hand are very expensive and seem to be not reasonable if implemented at all affiliates of the extending retail chain. From the point of automation costs the combined option is the most beneficial one, when powerful information system is implemented at the central office and possibly at distribution centers. At the same time retail outlets use more simple relatively cheap systems.

But in this case usage of different systems implies again the necessity of integration?

When solutions provided by one vendor are implemented for central office and retail outlets then integration issues are simplified significantly. Presently SAP company represents such type of vendor which can cover all levels and has a set of the following solutions:

  • SAP Business Suite for large business;
  • SAP All-in-One for medium business;
  • SAP Business One for small business;
  • Exchange Infrastructure (XI) for integration of systems.

We have developed SAP powered complex solution for retail trade  eds:Retail, which includes several levels:

  • Central office and distribution centres use powerful industry-specific solution SAP for Retail (on the base of SAP Business Suite) or preconfigured industry-specific retail solution on the base of SAP All-in-One;
  • For outlets and affiliates, with account for industry specifics, SAP Business One system has been extended and adjusted, which solves tasks typical for outlets and at the same time has low cost in comparison with large systems.

Thus one can low the solution cost?

Not only the cost but also implementation dates (schedules, terms) and here there are big opportunities both for meeting current needs and further business development. For instance, distribution of solution in across outlets takes about a week and large part of this time is envisaged for user training. Functional capabilities allow working with outlets of any formats, including supermarkets  presently all hypermarkets of the company Seventh continent are being automated with the help of our SAP Business One powered solution.

Are there any techniques, which define sequence of implementation of such complex industry-specific solutions in retail chains?

Or the sequence of processes being automated is defined by retailer's priority tasks? As a said before we offer our clients different stage-by-stage implementation schemes, providing the client with an opportunity of option which is optimal for him at this moment. The solution is implemented with through one of the methods:

  • From top to the bottom, when first central office is automated and then outlets;
  • From the bottom to the top, when first one or several outlets are automated and then the central office.

The first approach is usually used for retail chains, which have decided to restructure their IT-infrastructure radically in the shortest possible time and ready to allocate appropriate resources for it. The second approach gives the client an opportunity to look at solution being implemented at the low level reducing the initial costs and risks. For instance, Seventh continent retail chain has checked the solution at the level of outlets. After solution has been tested for the first outlet it has been distributed across other outlets for automation purposes.

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