Retail Information Systems - Essay Example

Operation Management Final Assignment Content Introduction 2. Brief Overview of the various technologies used in the Retail Industry 2 RFID 2.2 EDI 2.3 POS 2.4 DM 3. Analyse different technologies 3.1 RFID 3.2 EDI 3.3 POS 3.4 DM 4. Limitations and weakness 4.1 RFID 4.2 EDI 4.3 POS 4.4 DM 5. Challenges and Conclusion 6. Reference 1. Introduction Owing to widespread innovation in the field of Information Technology and globalization of business, industries across all sectors have gone through tremendous transformation, with regard to the various factors in general, and use of technology in particular. Technology in the retail industry is used widely at various stages (as depicted in Figure 1) for various purposes such as to enhance the effectiveness of supply chain operations, increase productivity and efficiency of the staff as well as ensure greater consumer satisfaction. Figure 1: Stages of Retailing Technologies such as Radio Frequency Identification (RFID), Data Interchange (EDI), Electronic Data Interchange (EDI), Point of Sales (POS), mCRM – (mobile CRM), Inter Organizational Information Systems (IOIS), and various other Data Mining (DM) technologies are used across various departments in the retail industry. The use of the above mentioned technologies in various stages of the supply chain in a retail industry is shown in Figure 2. Figure 2: Use of various technologies for improving supply chain 2. Brief Overview of the various technologies used in the Retail Industry For the purpose of this study, the technologies such as RFID, POS, EDI and DM used for enhancing supply chain are discussed. 2.1 RFID: “RFID is a term that describes any system of identification wherein an electronic device that uses radio frequency or magnetic field variations to communicate is attached to an item" (Glover, Bhatt, 2006). It comprises of two key components namely – a tag and a reader. The tag functions as an identification device and is attached to an item while the reader is a device which is used to identify / detect the RFID tags attached to various items (see Figure 3). The software used is known as an RFID middleware. Recently huge retail giants such as IKEA and Wal-Mart are known to depend on the RFID technology for enhancing their supply chain management process. RFID helps in better management of the retail supply chain through eliminating wastage, reducing labour cost and improving customer service (Jones et al., 2005). The following Figure 3 shows the manner in which RFID technology is used in the retail industry. Figure 3: How an RFID system works in the retail industry 2.2 EDI: Electronic Data Interchange refers to a standardized process where data / business transactions take place in a computer-to-computer system (Walton, Marucheck, 1997). Within the retail industry, a significant portion of business documents including purchase orders, delivery schedules and notes, invoices, payment transfers etc are created and maintained in an electronic format. The EDI system helps in transmitting this paperless data in a hassle free manner and with minimum human intervention, thus eliminating the chances of human errors (Becker et al., 2001). The following Figure 4 shows how EDI works in the retail industry. Figure 4: How EDI works in the retail industry 2.3 POS: Point of sale refers to a system which facilitates the sale of the product / service to the customer by accessing a product in store, and dynamically updating the inventory data simultaneously as and when sales occur. Electronic Point of sale is a system which enables a business is able to supply its products / services at a faster rate. The electronic information is acquired and stored at the point of sale, via a bar coding system on all products. The following Figure 5 shows how POS works in the retail industry. Figure 5: How Point of Sales work Source: http://www.posintl.com/ 2.4 Data Mining: Data mining refers to a system wherein data related to business transactions is stored electronically and accessed and utilized for key decision making strategies. The retail industry makes use of data mining on a fairly regular basis and such a system helps them in targeting customers, defining market segments, and other similar critical business decisions. Data Mining helps in improving the supply chain management in the retailing industry by reducing the level of risk in business, improving the management of inventory, estimating consumer preferences and improving customer relationships (Kusiak, 2006). 3. Analyse different technologies The application and implementation of various technologies within the retail industry is increasing by leaps and bounds. Today, technologies such as RFID, POS, DM and EDI have become an integral and inevitable part of the supply chain management. The same is discussed in detail and with appropriate examples as follows: 3.1 RFID: It is a system primarily used for identifying and tracking objects using a tag and a reader. This system helps in accessing a wide range of information related to the product, while being read by the reader – such as information regarding product identification, location, price details, date of manufacturing, transportation or purchase etc. Although bar code technology is equally popular for similar functions, the RFID technology far outweighs the benefits offered by the bar code technology. According to Singh (2003) the RFID technology helps in accessing and capturing almost forty times more information as compared to the bar code technology. The availability of such detailed product related information at a better and faster rate helps the management in making improved strategic decisions (Sellitto et al. 2007). The RFID technology has the ability to scan data at a much faster rate as compared to the bar code technology and transmit the same to the other computer systems wherever needed, such as at the warehouse of the retailer. This gives it an edge over all other similar technologies. It helps in improving data automation, quality of information and data on hand, and quicker detection of location of a desired product. The RFID technology also helps the retailers in controlling and reducing incidents of theft. Over and above the benefits mentioned above, the RFID technology plays a crucial role in enhancing the supply chain process. It is on account of these reasons that retail giants such as IKEA and Wal-Mart have adopted and incorporated this technology within their businesses. The following Figure 6 is that of metal tags which are used widely in the retail industry for quick identification purposes. Figure 6: RFID metal tags, used in sidebars and platform in IKEA RFID technology helps in enhancing the quality of information available to the users, in real time thus enabling the retailers to have better access to reliable and accurate information about the products as well as their customers (Jones, et al., 2005). The speedier transmission of information enabled by this technology helps in reducing the manual costs involved in inventory control, leading to better management of the warehouse space. Furthermore, RFID helps in better utilization of warehouse space since products can be arranged in accordance with their size, need and availability and can be tracked faster and automatically (Jones et al., 2005). Table 1: Implications / Benefits of technology in the retail industry Type of Technology Operations Management Implications / Benefits RFID Improvement in quality of information, increased accuracy relevancy and completeness of transactions, reduction in human errors, improvement in customer service, reduction in operation costs, optimisation of business assets, reduction in shrinkages, better utilization of warehouse space, increased traceability of products EDI Improved and faster access to information, enhanced communication channels, improvement in accuracy of information, better cash flows, improvement in productivity, better customer service, enhanced competitiveness, reduction in administration and transaction costs POS Reduced wastage of check out time, better management of inventory, improvement in traceability of products, better collaboration with partners DM Development of better and improved decision making, improvement in marketing strategies, enhanced supply chain management, improved management of business processes 3.2 EDI: EDI is one of the most rapidly growing technologies, widely used for transfer of information and standardized business data (Walton and Marucheck, 1997). It is widely used for transmission of crucial business data between the supplier and retailer throughout the retail supply chain. The EDI system helps in accessing and capturing valuable information such as sales figures, and helps the management in taking timely decisions regarding inventory (Bamfield, 1994) thus saving considerable amount of time in the process. The main role of EDI is to place purchase orders electronically; generate bills and invoices; transfer the data related to sales and inventory and forward notices to the suppliers regarding shipping. It replaces the conventional business process with contemporary practices in order to enable better and speedier business transactions with reduced errors and completely eliminating paper based transactions. This further helps in reducing cost of postage, and other similar costs involved in paper based transactions (Ferguson et al., 1990). Various organizations in the past, have benefited significantly over the past couple of decades, by adopting and implementing EDI systems within their businesses, in the form of reduced lead time; reduced wastage and stock out situations; better demand forecasting estimates etc. EDI plays a significant role in the retail supply chain by facilitating automatic transfer of critical business data and improvement in availability of accurate information. It eliminates the chances of human error and thus improves better communication between the supplier and the buyer (Murphy, Daley, 1999). With such significant reduction in paper work due to automation, there is increased availability of time, which in turn can be further utilized for managing stocks, providing accurate and timely information to the customers regarding their order status, and achieve improved customer satisfaction in the process (Angeles et al., 1998). It also helps in improving cash flow management and helps the companies in making better and informed decisions related to investments. 3.3 POS: The POS system helps the retailers in updating the sales information in real time and hence enable better and improved management of inventory. It is used for various purposes such as updating, recording and accessing store level transactions; information regarding credits, refunds, and / or product exchanges; tracking of inventory; accessing detailed information regarding product such as product price, product quantity, etc.,; as well as calculating and estimating sales tax. A comprehensive POS system helps the retailers in accessing valuable and crucial information in a better and faster manner which further helps in managing the logistics system in a more effective way. This further helps in delivering the right product at the right destination and at the right time (Ellram et al., 1999). The POS system helps in integrating various participants of the retail supply chain such as suppliers, warehouse supervisors as well as distributors in forecasting critical information in an accurate manner and achieves significant reduction in lead time simultaneously (Power, 2003). An e-POS system is increasingly assuming greater significance over the conventional POS system since it is completely web based and eliminates the cost of maintaining a software based system. This system uses internet to build a network of all the retail stores and integrate them to allow the firms to access information related to their customers, sales, purchase and sales orders, credits, sales reports and capital available for making critical investment decisions etc. in a faster and better manner. Wal-Mart was one of the first and major retailing chains to adopt the EDI technology within their systems during the early 1990s, which in turn has helped the firm in becoming market leader in retailing. Wal-Mart uses a system called Quick response which is known to be the retailing equivalent of Just-in-time system of inventory control. The employees at Wal-Mart are given access to computer based systems such as Retail Link. This is a system whereby the employees are able to access detailed product related information as well as information relating to their suppliers. The suppliers such as P&G, and Nestle, in turn are also given access to such information which helps the retailers in managing their inventory and logistics in a better manner (Boone, Kurtz, 2010). 3.4 Data Mining: Data Mining refers to a system whereby data is stored and accessed in a manner which affords the users to utilize the data so collected in productive way for critical decision making purposes (Han and Kamber, 2000). Companies nowadays, store all business related data in electronic formats. All such data / information is stored in a data warehouse. Data mining is a process whereby data stored in data warehouses is accessed for strategic and critical decision making purposes such as identifying new business opportunities; identifying new business / market segments; developing and launching new products; estimating new product / market opportunities etc. Data mining plays a major and crucial role in the retail industry and assumes greater significance, since it entails collection and storage of large amount of sensitive information - which includes data on sales, customers, products, history of shopping, consumption patterns of consumers etc. Various retailers today offer online sales through their websites. Retail data mining can help the firms in accessing valuable information regarding - the type of customers who use their products; their buying behaviour / patterns; etc and use the same in targeting them through improved product design. Facilities such as cluster detection and other predictive data mining algorithims help in customer segmentation. Thus various vendors, today, offer such services which can be used by retailers to manage their database and use selected information as and when required. The retail industry is greatly affected by the critical information related to products since the same can be used in promotion of their products / services (Han, Kamber, 2006). Furthermore the retail stores widely uses loyalty card systems whereby the customers are routinely rewarded points on every shopping. The data mining system plays a key role in enhancing and improving customer relationships and affords them the chance to understand their target customers in a better and more informed manner (Byrom, 2001). DM also helps the retailers in eliminating the chances of stock out or over stock. 4. Limitations and weakness The limitations and / or weakness of the technologies mentioned in the paper, are discussed below: 4.1 RFID: There is a wide spread concern among various social groups regarding the increasing use of technology and its implications on the quality of human life. The consumer privacy concerns is one of the key challenges which could prevent the large scale use of RFID enabled products and may discourage them to buy products tagged with RFID tags. Benetton spa, an Italian clothing maker had to face strong public opposition and cancel their plans regarding implementation of RFID technology who threatened to boycott their products in the event of application of such a technology by the firm (Blecker, Huang, 2008). Similar incident occurred in case of Gillett, whereby a prominent shopper’s rights activist group called for a worldwide boycott of Gillett products for its preference of RFID technology (Parker, 2003). The group threatened to boycott their products mainly because they believed that the use of such a technology promotes interference in the consumers’ private life. Although there are alternatives to work around this issue, the claim is not completely baseless. The RFID tags have the capacity to acquire and store personal transactional details of each consumer which in turn may be misused against them, through unauthorized access. Secondly the cost of RFID technology is far more than that of its relatively cheaper alternative i.e. the bar code technology. Although the price of RFID has fallen significantly over the years, the availability of cheaper alternatives makes the use of this technology slightly difficult. Furthermore, over and above the high cost of RFID devices, the cost of softwares and other infrastructure required for the purpose is relatively higher requiring huge investments. This proves as a setback for various prospective firms. The system requires storage of huge amount of data, which causes a lot of load on the computer systems / network of the users. The signals and tags are prone to distortion especially in case of certain products such as fresh foods, or dairy products and excessive exposure to strong radio waves might cause potential harm to the product quality over time (Sellitto et al. 2007). Table 2: Business challenges to successful implementation of technology Type of Technology Business challenge to successful implementation RFID customer privacy, cost concerns, difficulties in managing the huge amount of data, non functioning tags, lack of trained staff EDI lack of adequate co-operation required between partners, lack of appropriate leadership, lack of awareness regarding proper management of data, technical issues, lack of availability of proper hardware / software, security concerns, privacy concerns POS limited availability of key resources, inefficient technology support, resistance among management towards adoption of new technology, lack of trust among various parties involved DM issues regarding scalability of data; ineffective management of complex data; lack of knowledge regarding extraction of data; privacy and data security; issues related to data mining, cleaning and extraction from multiple sources / locations 4.2 EDI: The application of EDI system within a firm is one of the greatest challenges faced by retailers since it requires the various parties involved in the supply chain to agree and arrive at a common consensus regarding terms and conditions. In order to eliminate the setbacks likely to arise on account of contradictory viewpoints, it requires a greater level of understanding at the top level management, regarding the management of electronic data and resolving highly technical issues in an amicable manner. Proper integration and implementation of Edi into a firm’s existing business set up is a daunting task and is extremely difficult to achieve (Murphy and Daley, 1999). Furthermore it requires a highly knowledgeable staff and management as well as end users. It entails various security, legal as well as privacy issues which need to be solved in the most appropriate manner. This could lead to a drastic rise in cost, required to fully implement and set up such a system. Lack of proper knowledge regarding the management of such systems might lead to confusion and mismanagement of data. Since huge amount of data is required to be handled it might lead to mix-up causing confusion and delays in product delivery, thus affecting the functioning of the firm (Bamfield, 1994). 4.3 POS: The implementation of POS system is also quite challenging, mainly because it involves continues improvement once installed. The firms which have less resources at their disposal may find it difficult to invest huge amount of funds in maintaining such expensive systems and thus owing to cost issues, might not adopt such a system. The resources which may require constant upgradation include training of staff, availability of better networking facilities, and establishing and use of improved equipments. Automated systems require an educated and highly qualified staff as well as a technologically inclined top management. If the top management is neither technology savvy nor has the adequate financial resources to maintain and upgrade the system installed, then implementation of such a system might prove to be a deterrent for some firms. Furthermore, the supply chain of a firm involves suppliers as an integral part. The implementation of technology without the consensus of the suppliers would be extremely difficult to achieve. Lack of trust between the retailer and supplier might prove to be a deterrent in implementing such a technology (Czinkota and Kotabe, 1992). 4.4 DM: There are various challenges faced by firms while implementing a proper and fully functional DM system. One of them is scalability. Adoption of DM technology requires management of huge amount of data and a highly critical management team ready to manage and control the same. It requires designing of complex algorithms for generating meaningful data from the data warehouse, and lack of knowledge or business insight on the part of the management team might prove to be a barrier (Kohavi et al., 2004). The entire system with which DM operates requires processing of huge amount of highly complex data to be managed, organized and controlled on a day-to-day basis. Lack of knowledge regarding assessing the same is a key challenge faced while implementing DM. Furthermore, some of the key challenges faced while implementing DM and incorporating the same within a firm’s system, is security and privacy of data shared (Lee and Siau, 2001) 5. Challenges and Conclusion Todays consumers are a highly knowledgeable and well-informed lot. Their decisions are increasingly becoming multi-layered and seeking personalized products. They expect value for money and bespoke services, as well as a personalized shopping experience where they are given a wide variety to choose from at affordable prices. The retail industry must hence focus more on offering bespoke services to their customers and aim to garner maximum customer satisfaction as opposed to focusing on pricing strategies to target and attract customers. As observed from the recent cases of Apple and Amazon, their strategies were mainly centered on consumer satisfaction and designing products according to their tastes and preferences. This strategy has given them an edge over their competitors such as Microsoft and eBay which were more focused on formulating better pricing strategies. The use of technological devises such as mobile apps while shopping is gaining wide spread acceptance. Today information is made readily available to the consumers via various technological devises such as internet, wifi or through mobile phones, but the accessibility and non-availability of the desired products might act as a deterrent in enabling them to make an actual purchase decision. Companies today are required to tap the market potential and continuously track the consumer preferences to be able to sustain their competitive positioning in the market, since information is the key and the customer is still the king. References: Angeles R. and Nath R. (2000), The importance of congruence in implementing electronic data interchange systems, Supply Chain Management: An International Journal, 5 (4), Pp. 198-205. Bamfield, J. A. N. (1994), Implementing EDI: Problems in Managing Retail/Supplier Relationships by Technology, Logistics Information Management, 7(1), Pp. 7-10. Becker, J., Uhr, W., Vering, O., Ehlers, L., (2001). Retail information systems based on SAP products. 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