• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • SCB YouTube
  • Login
  • Subscribe
  • Logout
  • My Profile
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management (Big Data/IoT/Blockchain)
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Supply Chains in Crisis
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • THINK TANK
  • WEBINARS
    • On-Demand Webinars
    • Upcoming Webinars
    • Webinar Library
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Retail Systems: A Primer

Retail Systems: A Primer

July 11, 2007
From Technology Evaluation/Caroline Lam

Although many people recognize technology terms such as enterprise resource planning (ERP) or supply chain management (SCM), RMM and MMS are acronyms that lack such widespread awareness. Moreover, the terms retail merchandise management system (RMM) and merchandise management system (MMS) likely have little more market recognition than their acronyms. Despite their relative anonymity, these systems, also known as retail ERP systems, are the enterprise back-office software solutions upon which the majority of retailers rely to manage and to support their daily tasks.
The following article provides an overview of both retail and the core and non-core areas of retail ERP systems.

The retail industry evolved from merchants selling goods to local villagers, to the opening of stores by small business owners, to the creation of department stores and big box retailers by major corporations. Although today's brick and mortar retail industry is dominated by these major corporations, the Internet has provided smaller business owners with new opportunities, allowing them to operate as e-tailers.
Today's retail industry is diverse. Retail companies come in many different types and flavors. There are retailers, such as BMW, Louis Vuitton, and McDonald's, that have a global presence. Banks, hotels, and medical professionals fall within the service retailer category. On-line stores, such as eBay or Amazon.com, are e-commerce businesses that represent a relatively new breed of retailers. There are also companies whose activities include more than just retailing. For example, companies like Nike and Guess are both manufacturers and retailers because they produce their own products and sell them directly to consumers. Lastly, wholesalers, such as Costco and Sam's Club, are blurring traditional lines as they sell bulk items not only to small companies business-to-business [B2B], but also to consumers business-to-consumer [B2C]. This list illustrates that the retail industry in fact has verticals within a vertical.

RMM, MMS, retail systems, and retail ERP all designate information systems used by retailers. Essentially, RMM solutions can record product performance to allow buyers to purchase merchandise according to this information and to make accurate merchandise decisions. To achieve this objective, communications to third party systems play an integral role in an RMM system. Successful retail operations generally require communication between the SCM or ERP solutions and the RMM system.
Due to the diversity of the retail market, a one size fit all approach to MMSs does not work. Depending on the retail segment and strategy, different features and functions are needed for every retailer. Banks and hotels may both be considered retailers, but they have different requirements. For instance, an apparel retailer such as Louis Vuitton is product-oriented; a service retailer is usually client-oriented; and an e-tailer is likely transaction- or security-oriented. Therefore, customizing retail systems according to the functionality required by different verticals is a common task for MMS vendors.

Categorizing the requirements of various types of retailers into five main areas will aid in the understanding of the components of a merchandising system. The following categories can be considered as the core or "must have" areas of a retail system.
1. Inventory management
2. Inventory optimization
3. Revenue management
4. Sales management
5. Reports and inquiries

Note that this nomenclature is not an industry standard. Different merchandising software vendors have different naming conventions. However, all the capabilities categorized under these main areas are core components of a retail solution.

Inventory management: No matter which proprietary title (e.g., merchandise management, merchandise inventory and analysis, or merchandise operations) inventory management goes by, this area covers basic functionality that relates to the inventory on hand or in transit. Inventory management tracks the ins and outs of a product down to its color and size level, using capabilities such as purchase order process, receipt process, allocation process, distribution process, transfer process, style consolidation process, physical count process, and inventory freeze process. The schematic below reveals why efficient inventory management is the first rule of thumb for a retailer.

Inventory optimization: Inventory optimization consists of tools used by merchandisers to make important buying and selling decisions regarding inventory. Though vendors employ varied terms, such as strategic merchandise management, merchandise and assortment planning, planning decision support, and replenishment, to describe inventory optimization, all these terms refer to software that helps merchandisers make accurate decisions and that ensures products are placed at the right time, price, and place. The tools inventory optimization uses to do this often include planning, forecasting, replenishment, and stock optimization. These functions help users determine both where items have the best sell through rate and sales trends, so that the system can replenish stores appropriately. However, planning and forecasting capabilities are not necessarily integrated in all the retail systems available on the market. Some vendors instead choose to integrate with best-of-breed solutions specialized in those areas of interest.

Revenue management: Due to increased awareness among customers, product prices must be equitable; they cannot be higher than the competitor's prices, but cannot be lower than the products' cost. Thus, revenue management's main purpose is to ensure that inventory is sold at the right price. It does this by looking at sales history and trends, sometimes with the help of a planning and forecasting tool. Revenue management also aids in creating promotional events, such as "two for one sales", to attract more consumers into the store. In addition, it is responsible for determining markdowns, which allow retailers to liquidate discontinued or out of fashion products in order to lessen losses. Also known as price change management, retail profit optimization, or price management, revenue management's functionality includes markdown creation, markup creation, price change simulations, promotion creation, vendor discounts, and allowances.

Sales management: By definition, a sale is an exchange of goods (tangible or intangible) for money or its equivalent. Sales transactions are thus the primary objective of a retailer, and a sales management system structures these transactions. Sales management therefore handles sales entry, sales audit, consignment sale entry, and stock ledger aspects of the retail system. Retailers use the sales management system to close the month, a process also known as period end or stock ledger closing, by calculating the total profit for the merchandising period.

Point-of-sale (POS) is also classified in the sales management area. Unlike the stock ledger or sales entry functionality, the POS system is part of the front-office system. It is this system that is used at the cash register where the sales transaction is entered. The POS system will transfer sale transactions data to the MMS, where the merchandiser can validate sales before the business day closing period. Retailers with only one or two stores can use a POS system, which is less expensive than an MMS, as their main system for tracking inventory and processing sales.

Not all retail system vendors include a POS in their package. Many MMS vendors will have a partnership with a third party POS system company, allowing them to offer a best-of-breed application. This situation generally occurs when the vendor's target market is a retailer with over one hundred stores, where the business needs are greater. Vendors that aim for smaller retailers' business usually have a POS system integrated into their retail software, though the functions and features are usually not as complete.

For more information on POS, please contact Technology Evaluation Centers Inc. (TEC). The POS evaluation center is currently in diagnostic mode, and a POS request for information (RFI) is available from TEC.

Reports and inquiries: Merchandisers use reports and inquiries daily to extract information that upper management can understand and can use to take appropriate actions, if necessary. This information provides a bird's eye view of sales and quantity on hand at a corporate level. Reports and inquiries enable analysis of the performance of sites, of styles on numerous levels (e.g., color, dimension, size, characteristics, or attributes), of vendors, and of the various levels of the merchandising hierarchy (e.g., company, division, department, class, or sub-class). The report generator may also communicate with a third party business intelligence (BI) system (for more information on BI systems.
As previously mentioned, many MMS vendors must adapt themselves to the different verticals within retail due to the diversity of the retail industry. Much of this customization relates to non-core areas. Some vendors even develop new functions and features to satisfy their clients. The down side of this approach is that these new capabilities are not always used by all companies, and the added features can become confusing for end users.

Another approach is for vendors to acquire, or enter in a partnership with, third party companies, and develop an interface that allows the two solutions to communicate. By creating these interfaces, vendors can offer a best-of-breed solution to large enterprises, and they can also stay competitive for smaller retailers by customizing the MMS to their customers' needs. However, since the software comes from different vendors, the graphical user interface (GUI) and navigation through the system is not consistent. Thus, more user training may be required.
The following is a list of the third party systems or non-core components most commonly associated with merchandise systems.
Financial. Financial software includes general ledger, fixed assets, cost accounting, cash management, budgeting, accounts payable (AP), reporting, and other bookkeeping requirements.
SCM. SCM pertains to the management of supplier, manufacturer, wholesaler, retailer, and customer business processes. SCM addresses demand management, warehouse management, international trade logistics, transportation execution, and many other issues that are necessary for a complete solution. .
ERP. ERP systems support a range of production capabilities, such as production planning, shop floor control, product costing, batch control and reporting, formula and routing, and material management capabilities. They also provide information for discrete and process manufacturing, as well as other enterprise management modules.
Customer relationship management (CRM). CRM modules have the capacity to manage customer interactions, marketing campaigns, sales force automation, help desk support, and other important CRM functions.
Warehouse management system (WMS). A WMS manages the movement and storage of products throughout the warehouse. It should include capabilities such as yard management, inventory management, order picking, receiving, logistics, shipping, and distribution.

The retail industry represents a vertical with many vertical segments. Nonetheless, regardless of the type of retail business, all retailers have some business processes in common. Without exception, inventory management, inventory optimization, revenue management, sales management, and reports and inquiries comprise the core components of an MMS, while financial, SCM, ERP, CRM, and WMS are typically non-core areas. Companies that are purchasing an MMS will require all of the core components. The need for non-core components, on the other hand, should be evaluated on a business by business basis. The end result of this is that most organizations ultimately purchase customized solutions. To avoid costly and unsuccessful software implementation projects, retailers must therefore know their business processes thoroughly and analyze the available functionality in terms of how it will help employee productivity before choosing an MMS. Retailers should also consider the trade-offs between out-of-the-box product functionality and the vendor's service capabilities, based on the combination of core and non-core components required.
http://www.technologyevaluation.com

RELATED CONTENT

RELATED VIDEOS

Sales & Operations Planning Forecasting & Demand Planning Technology High-Tech/Electronics Retail
KEYWORDS Forecasting & Demand Planning High-Tech/Electronics Retail Sales & Operations Planning Technology
From Technology Evaluation/Caroline Lam

More from this author

Subscribe to our Daily Newsletter!

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • A PAINTING IN WHICH A RED HOT AIR BALLOON IS TETHERED TO A GIANT ANCHOR

    Will FTC Succeed in Banning Non-Compete Clauses in Employment Contracts?

    HR & Labor Management
  • WORKERS INTERACT WITH VARIOUS TYPES OF CARGO MOVING EQUIPMENT ON A CROWDED DOCK

    White House Urged to Intervene in West Coast Port Labor Talks

    Global Gateways
  • A MEDLEY OF GRAPHS SHOWING ZIG-ZAG RESULTS AGAINST A MAP OF THE WORLD AND AN IMAGE OF OIL DERRICKSiStock-peshkov-1316669671(1).jpg

    Bringing the Supply Chain Closer: Nearshoring Is Here

    Sourcing/Procurement/SRM
  • A WOMAN STANDS NEXT TO A BIKE, DAPPLED BY THE SHADOWS OF BICYCLE RACKS.

    Walmart is Changing the Way Its Employees Get to Work

    Sustainability & Corporate Social Responsibility
  • TWO FINGERS MANIPULATE WOODEN LETTER BLOCKS TO TURN FROM SHOWING THE WORD RECOVERY TO RESILIENCE

    A Data-Driven Approach to Supply Chain Resilience

    Technology

Digital Edition

Scb q1 2023 cover

2023 Supply Chain Management Resource Guide: Packing for a Difficult Year

VIEW THE LATEST ISSUE

Case Studies

  • New Revenue for Cloud-Based TMS that Embeds Orderful’s Modern EDI Platform

  • Convenience Store Client Maximizes Profit and Improves Customer Service

  • A Digitally Native Footwear Brand Finds Rapid Fulfillment

  • Expanding Apparel Brand Scales Seamlessly with E-Commerce Technology

  • How a Global LSP Scaled its Security Program and Won More Business

Visit Our Sponsors

Orderful Yang Ming Alithya
Barcoding Blue Yonder BNSF Logistics
CoEnterprise Data Capture Deposco
E2open GAINSystems Generix
Geodis GEP GreyOrange
Here Holman Logistics Honeywell Intelligrated
IFM Infor Inmar
Keelvar Kinaxis Korber
Lean Solutions Group 2H Liberty SBF Locus Robotics
Logility LogistiVIEW Lucas Systems
MCA Connect MPO Nvidia
Old Dominion OpenText ORTEC
Overhaul Parsyl PMMI
QIMA Redwood Logistics Ryder E-commerce by Whiplash
Saddle Creek Logistics Schneider Dedicated Setlog Holding AG
Ship4WD Shipwell Shyft
Sourcemap Tecsys TGW Systems
Thomson Reuters Tive Trailer Bridge
Vecna Robotics Verity
Verusen
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • On-Demand Webinars
    • Upcoming Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright ©2023 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing