Enterprise Resource Planning

Retail Sector

Vyshnavi P Nair
OLS - 53

Enterprise Resource Planning

Enterprise Resource Planning systems or the ERP systems refer to the software packages that integrate all the data and the related processes of an organization into a unified Information System (IS). An ERP system uses a central database that holds all the data relating to the various system modules. In order to achieve a seamless integration, an ERP system uses multiple hardware and software components. ERP packages are heavily used by larger retail chains. Designed to facilitate the administration and optimization of internal business processes across an enterprise, ERP packages have become the competitive tool for most large retail organizations. An ERP software uses a single database that allows the different departments to communicate with each other through information sharing. ERP systems comprise function-specific components that are designed to interact with the other modules such as the Order Entry, Accounts Payable, Accounts Receivable, Purchasing, Distribution etc.

Components of an ERP system

ERP systems comprise of different modules such as order entry, purchase, sales, finances, inventory management, DRP (Distribution Resource Planning), human resources and budgeting software. The components are designed to work effortlessly with the rest of the system and provide a consistent user interface throughout the system.

ERP software packages have an enterprise wide reach that offers cross-functional capabilities to the organization. The different functional departments involved in the operations or inventory processes are integrated into a single system. An ERP package takes care of the various business processes such as order entry, logistics and warehousing. It also caters to the different business functions such as accounting, marketing, strategic management and the human resource management.

Contemporary Challenges to the Retail industry

In the current business environment, the retail industry faces two major challenges that threaten its profitability and the long-term survival prospects. The twin challenges are: 1. Market competition : To beat the competition, retailers have to understand consumer demand at the point of interaction and respond to the various inputs in real time across the enterprise. This calls for a proactive approach on the part of the retail organization to sense the specific requirements of the consumer before other competitors and respond to them in real-time ensuring customer satisfaction in the process. 2. Regulatory pressures: In order to meet the regulatory standards, the retailers require an enterprise wide process visibility, data access and near-instant performance reporting. However, the need for flexibility, process efficiency, reliable information, and responsiveness is very hard to achieve given the existing portfolio of legacy, home grown and packaged software applications used by a majority of the retail organizations. Therefore, a retail business would benefit immensely from an integrated IS infrastructure which continuously monitors and dispatches the necessary information of the flow of goods all the way from supplier to the cash register and then back to accounting as well as other functions of the retail organization.

Problems with Enterprise Applications in the Retail sector

Integration of the various business functions is an essential prerequisite for synchronization among the different business activities involved in a retail business. A number of large retail chains around the world has already invested in packaged software suites to integrate their core business activities. Most of the existing retail applications used by the businesses lack an all encompassing approach and require some degree of customization before they can be fully integrated with a business process. Major problem areas in the existing enterprise applications in Retail include: 1. Outdated architecture: Most of the legacy enterprise applications in retail have an outdated architecture that is inflexible and rigid. This inflexibility and rigidity pose a challenge to the

business efficiency. The lack of flexibility prevents the legacy software to be used with the contemporary products available in the market that may add muscle to the retail operations. Todays business environment demands real time adaptability from the software systems. 2. Limited scope: Most of the legacy systems were designed to take care of specific problems tasks and as a result, lacked an enterprise wide approach to the problem solving process. This makes such systems unsuitable for use in the contemporary business environment that is highly competitive in nature. Modern businesses require an enterprise wide approach to retail management process and legacy systems fall short of such a requirement. 3. High maintenance costs: Legacy information systems are costly to maintain. The cost component is high because such systems are no longer used in the industry and require specialized personnel for maintenance purposes. Moreover, the maintenance cost of legacy systems keeps on increasing with the passage of time. The older an information system is, the higher are its associated maintenance costs to be borne by the retail business 4. Integration and scalability problems: Legacy software does not allow addition and integration of new applications. This prevents such systems from scaling up or integrating with similar systems used by the associates or business partners. Such integration and scalability problems tend to multiply as the size and scope of retail operations increases. 5. Increased risk to the business: A combination of old and new information systems makes the whole system susceptible to failure or crash. The heterogeneity in the system is the primary cause of risk. The solution lies in a close knit, homogeneous information system that can integrate seamlessly with other such systems in real time while imparting the much-needed stability to the whole system.

Advantages of Using a Retail ERP Suite

Primary advantages:
1. Retail specific components: Unlike a general ERP package, retail ERP suite offers retail centric components that are customized to meet the specific requirements of a retail organization in an effective and efficient manner. This makes a retail ERP suite much more suitable to meet the specific requirements of a retail organization. 2. Segment specific expandability options: Within the retail sector, there is a wide variety of different segments that vary in their nature and scope of operations. A retail ERP package has provisions to meet the varying needs of the different segments within the retail sector. 3. Support for the store system: Retail ERP suite offers support for the store systems that form the pivot of a retail business. The critical functions include keeping track of the inventory, ordering

and replenishment, loss prevention and task management. This makes retail ERP system suited to the specific needs of a retail organization.

Secondary advantages:
1. 2. 3. 4. 5. Configuration and scalability Phased implementation support Support for advanced functionality Workflow automation and enterprise process management Technology and application integration

Disadvantages of using a retail ERP suite

The success of a retail ERP suite depends on the IT skills and the experience of the workforce, including training on the utilization of the information system in an effective and efficient manner. Many companies cut costs by reducing the training budgets for the retail ERP suite. Privately owned small enterprises are often short of funds and this leads to a situation that personnel often operate their ERP system with inadequate education in utilizing the ERP package to its full potential. The common disadvantages of using a retail ERP package are a result of the lack of training of the employees to utilize the information system to the full extent. Other major disadvantages of using an ERP package include: 1. Lack of price differentiation: ERP vendors usually charge annual license fee that has to be paid periodically and is independent of the size or profitability of the company using the ERP. This lack of price differentiation proves to be a barrier for the Small and Medium Enterprises (SME) wishing to use the retail ERP systems 2. High installation costs - ERP systems are quite expensive to install and maintain. 3. Non-customized technical support - The callers often end up getting replies from the technical support personnel that are inappropriate to their corporate structure. This non-customized approach proves to be a barrier to address the unique problems in retail ERP implementation faced by a company. 4. Security concerns - Using an ERP package gives rise to a number of security issues. For example, telling a non-programmer how to change a database on the fly, at a company that requires an audit trail of changes so as to meet some regulatory standards might be tricky. Enforcing the various security protocols while using an ERP package proves to be difficult since an ERP package shares a lot of data among its various components. 5. Low flexibility - One of the main causes for the failure of ERP systems is that they are often seen as too rigid and difficult to adapt to the specific workflow and business process needs of the client companies. The workflow and business process needs differ from one organization to the other. This calls for minute customization by the user organization that may not be allowed by the ERP package.

6. Situation misfit An ERP package may prove to be a misfit in a particular situation. Many companies end-up re-engineering their business processes to fit the "industry standard" prescribed by the ERP system and this frequently leads to a loss of competitive advantage. Ideally, an ERP package should suit the requirements of a company and not the other way around. 7. Limited scope for customization - The ERP software packages allow only a limited scope for customization. Some customization in the ERP package may involve making changes to the ERP software structure that are not allowed under the license agreement. This can make the situation of the ERP package user very difficult indeed. 8. High restrictions - Some ERP systems are too restrictive and do not allow much flexibility in terms of the implementation and usage of the software package. These restrictions prove to be a bottleneck in efficient use of this resource in streamlining the business process. 9. Compatibility issues - There are frequent compatibility problems with the various legacy systems of the business partners. A company may have installed the latest ERP package but it has to be compatible with the legacy systems used by its associates or business partners.

The need for ERP

Reason 1 : Market Competition

Reason 2 : Regulatory pressures

CASE ON ERP IMPLEMENTATION IN

The basic need was to have a robust transaction management system and an enterprise wide platform to run the operations. Pantaloon was regularly opening stores in the metros and there was an urgent need for a reliable enterprise wide application to help run its business effectively The company was looking for a solution that would bring all of its businesses and processes together After a comprehensive evaluation of different options and software companies, the management at Pantaloon decided to go in for SAP.

About the Company

Pantaloon Retail is the flagship enterprise of the Future Group, with a presence across multiple lines of business. The company owns and manages multiple retail formats that cater to a wide cross-section of Indian society. Headquartered in Mumbai (Bombay), the company operates through four million square feet of retail space, has over 140 stores across 32 cities in India and employs over 14,000 people. The company registered a turnover of Rs 2,019 crore for FY 2005-06. Pantaloon Retail forayed into retail in 1997 with the launching of its fashion retail chain, Pantaloons in Kolkata. In 2001, it launched Big Bazaar, a hypermarket chain. This was followed by Food Bazaar, a food and grocery chain. Next up was Central, a first of its kind located in the heart of major Indian cities. Some of its other formats include, Collection i (home improvement products), E-Zone (consumer electronics), Depot (books, music, gifts and stationary), aLL (a Little Larger, fashion apparel for plus-size individuals), Shoe Factory (footwear) and Blue Sky (fashion accessories). It has recently launched its ebusiness venture, futurebazaar.com. The group's subsidiary companies include, Home Solutions Retail India Ltd, Pantaloon Industries Ltd, Galaxy Entertainment and Indus League Clothing. The group also has joint venture companies with a number of partners including French retailer Etam group, Lee Cooper, Manipal Healthcare, Talwalkar's, Gini & Jony and Liberty Shoes. Planet Retail, a group company owns the franchisee of international brands like Marks & Spencer, Debenhams, Next and Guess in India.

Solution : SAP retail solution Implemented by : SAP team with the help of Novasoft, Singapore Number of users : Around 1,200 Time taken : About six months Cost of implementation : About $10 million Implemented in three phases Phase one: Second phase: Third phase: Blueprinting Development of SAP platform Deployment

The implementation
Chinar Deshpande

The implementation was outsourced to a third party. The implementation was done by the SAP team with help of Novasoft which is based out of Singapore, says Biyani. Some people from Pantaloon also assisted in the project. About 24 qualified people worked on this SAP implementation. SAP was chosen as the outsourcing party on a turnkey basis. This project was headed by Pantaloons Chief Information Technology Officer, Chinar Deshpande. Three Phases SAP implementation is not a single phase process. The project was divided into three phases.

The first phase involved blueprinting existing processes and mapping them to the desired state. In this phase, the entire project team worked on current processes within the structure of the organisation, analysed and drafted them. This blueprint was later used in the formation of new states of the solution. Since the SAP would combine all the processes, each and every one of these had to be evaluated.

In the second phase, the SAP platform was developed with the help of Novasofts template which was predefined by SAP after evaluation of Pantaloons needs and expertise in retail solutions.

The third phase in this project was for stores to switch over to the new system and for current data to be ported. Before the SAP implementation, all the data was unorganised. This data had to be migrated to the new SAP application.

The project was flagged off on 15th June 2005 and took about six months to finish. It went live at the head office on 1st January 2006. The stores went live on SAP from 1st January 2006 to 30th June 2006.

Benefits and Challenges The key challenges in this project were not in the implementation. Rather, the difficulties were faced during the data migration and in managing the interim period when the project was underway for about six months. Migrating unorganized data to an organized format is a challenging task. Pantaloon has not been able to see immediate benefits from this implementation. This application certainly has long term benefits which will be seen when the performance of various aspects will be analyzed. It is too early to calculate RoI.

 We have already started working on MAP (Merchandise Assortment Planning), AutoReplenishment and Purchase Orders. We hope to use these systems to optimize our inventory and cut it by about two to four weeks (depending on the line of business), says Biyani.

Maintenance & Hardware: This application is currently being used by around 1,200 employees across the organisation. For maintaining this implementation and its related applications, Pantaloon has an in-house team and it has outsourced ABAP resources. They are also in the process of setting up a SAP Competency Centre. The system runs on a HP Superdome server on HP UNIX 11i and the database is from Oracle. The cost of this project was about $10 million. Future projects After the successful implementation of SAP for its retail chain, Pantaloon plans to go ahead with IT projects such as implementation of WMS with RFID, Customer Intelligence and CRM. Inventory and Promotions Optimization will be pursued later this year. Conclusion A retail ERP system makes management of a retail business a lot easier by utilizing the computing power offered by the modern day Information Systems (IS) in an integrated and consistent manner. The ERP Information Systems facilitates faster and better management decisions by providing crucial information in a timely manner. Because of its integrated structure, it also eliminates errors caused by multiple input of the same data required in disparate legacy systems.

When implemented properly, Retail ERP Systems have been found to deliver high ROI despite their high initial and maintenance costs.