Retail Management Information Systems and Retail Audit

Presented By: ADITYA PAUL SHARMA (02-MBA-11) NAVJOT SLATHIA (25-MBA-11) NITIN GUPTA (26-MBA-11) SUSHANT MAKHNOTRA (36-MBA-11)

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Introduction
In Retail, business managers are required to take decisions every day on the basis of the previous days learning. Information Systems are enablers that provide the data necessary for taking decisions in the retail business.

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Retailing : The Role of Information

Information is referred to as processed data which is essential for decision making in any kind of organization and in any sector of the industry. In organized retailing , information plays a very important role in taking strategic, tactical and operational decisions. For taking such decisions the retailer requires not just information, but timely information. Timely information on fast moving items helps retailers determine the number of items they need to store to avoid stock outs. In the same way the information of the non moving items helps retailers avoid an inventory pile-up. Daily information reports developed on the basis of data provided by the Point-of-Sales(POS) terminals enables retailers to take proactive decisions and stay competitive in marketplace.
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Information Flow
Retailers are aware of the vital role of information in their businesses and to capture the information needed he should understand the information flow in their stores. Information was traditionally considered to flow from customers to retail stores to distribution centers to vendors. Now a days information is not viewed as a one-way flow moving in a sequential manner. Each purchase at the sales counter stimulates a cycle of information interchange throughout the supply chain. Advances in technology have made it possible to link a computer terminal at the cash counter with the vendors terminal and retailers warehouse terminals.

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Information Sources
Internal and external sources constitute the two major sources of information for retailers. Information from both these sources have to be collated properly to develop a comprehensive information system for policy decision making.

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Internal Information
Internal information refers to information generated from sources internal to organization like
purchasing invoices, warehouse records, payment statements, employee records and financial accounts. The information thus generated forms the major chunk of the databases of retailers. Most of the tactical and operational decisions made by retailers are based on this information. The online sharing of the information with vendors is achieved through EDI(electronic data interchange). EDI makes it possible to electronically share data with vendors by establishing a computer connectivity between vendors systems and retailers system.

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 Information now passes to vendors directly from retail stores. Information about transportation routings and changes in purchase order can also be transferred through EDI. Since EDI makes sales data available to vendors online, retailers are in a position to order in small quantities. Improved inventory turnover means reduced inventory carrying cost and storing costs. The enforcement of EAN.UCC(European Article Numbering, Uniform Code Council) has made things easy for the retailer as it eliminates the cost and efforts of relabeling.

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External Information
External Information is procured from sources outside the retail organization, like firms or agencies that undertake research on subjects that would be of interest to corporate and sell their results commercially. Published Statistics-Retailers use statistical reports generated by public and private agencies. Standardized retailing information services- studies and research activities that monitor the consumer behavior and market trends are undertaken by many research agencies. Research reports- business magazines, trade journals and newspapers usually publish such reports. Internet accessing websites which provide information and articles on retail like : retailyatra.com, retailwire.com etc.

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Retail Information Systems

Retail Information System(RIS) is a tool that enables retailers to collect, aggregate and analyze data from retailing activities. A retail information system can provide retailers the kind of knowledge they need to succeed in the marketplace and gain a differential advantage. A RIS anticipates the informational needs of the retailer; collects , organizes and stores relevant data on a continuous basis; and direct the flow of information to the suitable decision makers. It is of great advantage when profit margins are decreasing and a sustainable competitive advantage is difficult to achieve.

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Data Features of RIS

The following are the data features of the RIS
1. Data collection by RIS can be continuous or periodic, depending on the kind of data being collected. Data is continuously collected for activities that require close monitoring and thorough scrutiny(such as financial performance).Periodic collection of data is done for non-recurring problems. Data is collected in a systematic and orderly fashion. Only relevant data is collected. Analysis and reporting of data form a vital part of RIS. Data will be of no use until and unless it can be analyzed and reported in an understandable format.

2. 3.

Past, present and future data is provided by RIS . The system acquires present data from POS terminals and past data from records stored in the database of the previous system. In addition, future data(the projections of the government and economists) is fed into the system so that it can be accessed by the retailers.
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Subsystems in RIS
An RIS helps the strategist at various stages of the retail planning process. For instance, it helps planners by providing relevant information for formulating a retail marketing strategy and developing solutions for problems that may crop up when implementing this strategy. Depending upon the information needs that RIS caters to , it can be classified into two subsystems: I. Problem identification subsystem II. Problem solving subsystem

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Operations Management Problem

These are the every day problems encountered by the retailer. These problems occur in the activities of buying and handling merchandise, pricing, advertising and promotion ,customer services and selling.

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Administrative Management Problems

Administrative management problems are problems related to the resources of retail firms, chiefly financial,locational and human resources.

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Advantages of Retail Databases of RIS

Build and manage dialogues Value of customer Integrate marketing campaigns Improve marketing productivity Improve inventory management

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Information Systems in Retail Logistics

With the intensifying competition among retail enterprises, retailer are trying to improve the efficiency of their logistics functions. For this they require flexible, adaptable and integrated information systems that support their business process. Information is essential to run retail channels smoothly and retail businesses profitably. Complex logistics challenges can be handled successfully by implementing the right kind of software store in retail operations. The logistics information module of the Retail Information System covers a wide range of areas like warehouse management, materials handling, transaction processing and product slotting.

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Logistics
Logistics is that part of the supply chain process that plans , implements and controls the efficient, effective flow and storage of goods, services and related information from point of consumption in order to meet the consumers requirement.

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The Distribution Center

The typical activities carried out by a distribution center are managing inbound transportation, receiving and checking products, storing and cross-docking merchandise, ticketing and marking products, filling orders and managing outbound transportation. Managing inbound transportation Receiving and Checking Storing and Cross-docking Ticketing and marking Filling Orders Managing outbound transportation Modern retailers are minimizing the handling and storage of inventory by going in for cross docking.

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Outsourcing
Outsourcing is the function of getting a function( that has been done inhouse earlier) done by some other firm outside the retailers purview. Retailers outsource the logistics function to third party logistics companies when they find that doing so would either improve their performance or reduce expenses. Outsourcing results in better use of manpower in the core functions and the streamlining of retail operations. Sometimes, some of the functions like checking, packing and attaching price tags are passed on to the vendors.

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 Floor-ready merchandise Floor ready merchandise refers to merchandise shipped by vendors to retailers with the necessary tags, prices, security devices etc. already attached so that the merchandise can be cross-docked rapidly through the retailers distribution centers and sent directly to stores. Source Tagging Source tagging has many benefits for retailers. Though it was initially done by vendors, it has evolved as a specialized function that is outsourced to other parties. Third party logistics companies Third party logistics companies are firms that take outsourcing contracts from retailers or manufacturers to manage the flow of merchandise from manufacturers to retailers. The functions that come under such contracts typically include management of inbound transportation, warehousing and packaging.

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Store Vs Distribution Center Delivery

The retailers must do a cost-benefit analysis when deciding between an instore delivery system and a distribution center delivery system. The advantages of using a distribution center could be : Sales forecasts would be more accurate if they are developed for all store instead of individual stores. Maintaining a central distribution center would reduce the total inventory held in the stores, and thus the investment in the form of inventory. There would be less chance of stock-outs in any particular store as replenishments can be ordered from the distribution center. Distribution centers are developed for storing merchandise.

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 In-store delivery has its own set of benefits : It may be more affordable for a small retailer with few stores. Merchandise can be delivered more quickly if delivered to stores instead of through an intermediary. If the retailer has many stores in the same area, the merchandise can be consolidated and delivered, thus bringing down costs. If the vendor can deliver floor- ready merchandise, then the total merchandise cost for the retailer would be less than the cost of merchandise routed through a distribution center.

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Pull Vs Push Logistics Strategies

The push strategy requires the distribution of merchandise by the vendor according to historical demand, inventory position and the stores needs. In pull strategy, orders for merchandise are generated by the stores or , in sophisticated cases, by POS terminals that are connected to the vendors computers.

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Strategic Advantages of Information Systems in Logistics

Retailers cannot their net profit in a sustained manner only through an increase in sales. They should also manage their logistics effectively. The strategic advantages of adopting a logistics information system are : The total assets can be reduced by the efficient use of information systems in logistics. The retail information system streamlines all the processes so well that, at the distribution center, the merchandise can be received , checked labeled, stored and shipped with minimum handling. The retailer would need to carry little back-up inventory because his inventory, management system would be directly connected to the vendors system. This reduces the inventory investment and, in turn the inventory carrying cost.

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 Improved Product Availability The knowledge that a product is always available in a store would encourage customers to return to store. Improved Assortment To keep pace with changing customer tastes, retailers are maintaining more SKUs .This change in practice naturally led to an increase in inventory levels. If this large inventory is not efficiently managed and distributed , the cost of maintaining so many SKUs would outweigh the benefits of holding them. Improved Return on Investment- Return on Investment (ROI) is a measure of the performance of a retail firm. One of the ROI measures commonly used is return on assets, which is result of net profit divided by total assets : Return on Assets = Net Profit/ Total Assets

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Quick Response Delivery System

A Quick Response Delivery System is a combination of a logistics system and an information system. It is designed to reduce inventory investment, bring down logistics expenses, and increase customer service levels by reducing the lead time for receiving merchandise from vendors. Benefits of Quick Response System
Reduces lead-time(Lead time is the time difference between the identification of the need for replenishment is actually done.) Increased product availability and lowered inventory investment. Reduced logistics expenses.

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Data Mining
Data Mining is used by customer- focused companies like retail firms to mine useful information from the huge volumes of data generated over time and stored in databases. Data Mining helps retailers extract useful information that will help them compete more effectively and respond more quickly to consumers changing lifestyles and demands. This information helps them classify customers changing lifestyle and demands. This information helps retailers in classifying customers according to demographics, preferences, purchase habits and apparel sizes. They can then design personalized promotions to attract target groups. With the help of data mining technology, retailers can reach customers in a personalized manner through customized marketing.
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Data Warehousing
A data warehouse is a repository of integrated information, available for queries and analysis. Data and information are extracted from heterogeneous sources as they are generated. This makes it much easier and more efficient to run queries over data that originally came from different sources. Data warehousing technology equips retailers with a data repository that can be used to suit their needs. Since the use of data warehousing leads to better decision making, it helps retailers improve their profits. For a data warehouse to be successful, its initial investment should be justified economically, its implementation should be driven by business needs, and management should be committed to exploit its benefits.

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Data Warehousing and Business Intelligence

Business intelligence refers to the advance analysis of data, collected from various sources to develop intelligent, fact based business decisions and strategies. This helps the retail firm achieve a business advantage. This combination of business intelligence systems and data warehouses has proved to be the most significant breakthrough in retail information technology since the introduction of POS scanning. Such an integration will ensure that the right kind of information reaches the right people in a timely manner, enabling them to take the right decisions.

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Retail Audit
Retail audit, which is a vital evaluation tool, systematically examines and evaluates a companys total retailing efforts or a specific aspect of it. Purpose
To study what a retailer is presently doing To appraise various performance indicator of a retailer To investigate a retailers objectives and strategies; then examine how it has implemented those and whether its organization structure is adequate to implement those.

What does retail audit include

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Store layout and visibility management In-store management Customer relations and interface Visual merchandising Ambience and hygiene management Manpower planning and responsibility allocation Sales and cash management
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Undertaking An Audit
(1) DETERMINATION OF WHO DOES THE AUDIT (2) WHEN AUDIT IS CONDUCTED (3) AREAS TO BE AUDITED

END OF CALENDAR YEAR

HOW LONG SHOULD AUDIT TAKE?

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MANAGEMENTS RESPONSE TO THE AUDIT

COMPANY SPECIALISTS

WHEN UNDERTAKING PHYSICAL INVENTORY

END OF FISCAL YEAR

OUTSIDE AUDITORS

DEPARTMENT MANAGERS

HORIZANTAL

VERTICAL

(4)

DEVELOPMENT OF AUDIT FORMS

(5)

CONDUCTING THE AUDIT

SHOULD EMPLOYEES BE NOTIFIED IN ADVANCE?

IS AUDIT TO BE DISGUISED OR NONDISGUISED?

SHOULD AUDIT OCCUR WHILE RETAILER IS OPEN OR CLOSED?

HOW IS THE FINAL REPORT TO BE PREPARED?

(6)

REPORTING THE RESULTS OF AUDIT TO MANAGEMENT

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Determining Who Does The Audit

COMPANY AUDIT SPECIALIST

Advantages
An internal employee whose prime responsibility is the retail audit. Auditing expertise Thoroughness Knowledge about the firm Ongoing nature (no time lags).

Disadvantages
Costs (especially for retailers that do not need full-time auditors) Auditors limited independence.

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 DEPARTMENT MANAGER: Advantages

No added personnel expenses He is knowledgeable about the firm and its operations.

Disadvantages
Managers time away from the primary job Potential lack of objectivity Time pressure Complexity of companywide audits.

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 OUTSIDE AUDITORS Advantages

Auditors broad experience, objectivity, and thoroughness.

Disadvantages
High costs per day or hour Time lag is long as he needs time for being familiar with the firm Failure of some firms to use outside specialists continuously Reluctance of some employees to cooperate.

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Determining When And How Often The Audit Is Conducted

Logical times for auditing are end of the calendar year, or end of the retailers annual reporting year (fiscal year), or when a complete physical inventory is conducted. However, audit must be conducted at least once a year, although some retailers desire more frequent analysis. Same period should be fixed to make meaningful comparisons of projections with actuals and then make proper adjustments.

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Determining Areas To Be Audited

Retail audit typically includes more than financial analysis; it reviews various aspects of a firms strategy and operations to identify strengths and weaknesses. Horizontal retail audit analyzes a firms overall performance, from the organizational mission to goals to customer satisfaction to the retail strategy mix and its implementation in an integrated and consistent way. It is also known as a retail strategy audit. Vertical retail audit analyzes in depth a firms performance in one area of the strategy mix or operations, such as, credit function, customer service, merchandise assortment or interior displays. A vertical audit is focused and specialized. The two methods should be used in conjunction with one another because a horizontal audit often reveals areas that merit further investigation by a vertical audit.
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Developing Audit Forms

Should be systematic, so that they list the area(s) to be studied and guide data collection. It usually resembles a questionnaire and is completed by the auditor. Without audit forms, analysis is more haphazard and subjective.

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Sample Form For Management Audit

PLANNING 1. 2. 3. 4. HAVE YOU THOUGHT ABOUT THE LONG-TERM DIRECTION OF YOUR BUSINESS? HAVE YOU DEVELOPED A REALISTIC SET OF PLANS FOR THE YEARS OPERATIONS? DO YOU PLANS PROVIDE METHODS TO DEAL WITH COMPETITION? IS THERE A SYSTEM FOR AUDITING YOUR OBJECTIVES? ---------------------

CUSTOMER ANALYSIS (WHO ARE YOUR TARGET CUSTOMERS AND WHAT ARE THEY SEEKING FROM YOU?)
1. 2. 3. 4. HAVE YOU PROFILED YOUR CUSTOMERS BY AGE, INCOME, EDUCATION, OCCUPATION, ETC.? ARE YOU AWARE OF THE REASONS WHY CUSTOMERS SHOP WITH YOU? DO YOU ASK YOUR CUSTOMERS FOR SUGGESTIONS ON WAYS TO IMPROVE YOUR OPERATION? DO YOU KNOW WHAT GOODS AND SERVICES YOUR CUSTOMERS MOST PREFER? ----------------

ORGANIZATION AND HUMAN RESOURCES

1.
2. 3. 4.

ARE JOB DESCRIPTIONS AND AUTHORITY FOR RESPONSIBILITIES CLEARLY STARTED?

HAVE YOU AN EFFECTIVE SYSTEM FOR COMMUNICATION WITH EMPLOYEES? DO YOU HAVE A FORMAL PROGRAM FOR MOTIVATING EMPLOYEES? HAVE YOU TAKEN STEPS TO MINIMIZE SHOPLIFTING AND INTERNAL THEFT?

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OPERATIONS AND SPECIAL SERVICES 1. 2. 3. 4. DO YOU MONITOR EVERY FACET OF YOUR OPERATIONS IN TERMS OF SPECIFIC GOALS? DO YOU PROVIDE TIME-SAVING SERVICES FOR GREATER CUSTOMER CONVENIENCE? DO YOU HAVE A POLICY FOR HANDLING MERCHANDISE RETURNED BY CUSTOMERS? DO YOU GET FEEDBACK THROUGH CUSTOMER SURVEYS? -------------------------

FINANCIAL ANALYSIS AND CONTROL 1. 2. 3. 4. DO YOUR FINANCIAL RECORDS GIVE YOU THE INFORMATION TO MAKE SOUND DECISIONS? CAN SALES BE BROKEN DOWN BY DEPARTMENT? DO YOU UNDERSTAND THE PROS AND CONS OF THE RETAIL METHOD OF ACCOUNTING? HAVE YOU TAKEN STEPS TO MINIMIZE SHOPLIFTING AND INTERNAL THEFT? -------------------------

BUYING 1. 2. 3. 4. DO YOU HAVE A MERCHANDISE BUDGET (PLANNED PURCHASES) FOR EACH SEASON THAT IS BROKEN DOWN BY DEPARTMENT AND MERCHANDISE CLASSIFICATION? DOES IT TAKE INTO CONSIDERATION PLANNED SALES, PLANNED GROSS MARGIN, PLANNED INVENTORY TURNOVER AND PLANNED MARKDOWNS? DO YOU PLAN EXCLUSIVE OR PRIVATE BRAND PROGRAMS? DO YOU TAKE ADVANTAGE OF CASH DISCOUNTS AND ALLOWANCES OFFERED BY YOUR VENDOR/SUPPLIER? PRICING 1. HAVE YOU DETERMINED WHETHER TO PRICE BELOW, AT OR ABOVE THE MARKET? -----------------------------

2.
3. 4.

DO YOU SET SPECIFIC MARKUPS FOR EACH PRODUCT CATEGORY?

DO YOU KNOW WHICH PRODUCTS ARE SLOW-MOVERS AND WHICH ARE FAST? HAVE YOU DEVELOPED A MARKDOWN POLICY?

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ATMOSPHERICS

1.
2. 3. 4.

ARE THE UNIQUE APPEALS OF YOUR BUSINESS REFLECTED IN YOUR IMAGE?

HAVE YOU FIGURED OUT THE BEST LOCATIONS FOR DISPLAY? DO YOU KNOW WHICH ITEMS ARE BOUGHT ON IMPULSE? DO YOU USE SIGNS TO AID YOUR CUSTOMERS IN SHOPPING?

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PROMOTION 1. 2. 3. 4. ARE YOU FAMILIAR WITH THE STRENGTHS AND WEAKNESSES OF VARIOUS PROMOTIONAL METHODS? DO YOU PARTICIPATE IN COOPERATIVE ADVERTISING? DO YOU ASK CUSTOMERS TO REFER YOUR BUSINESS TO FRIENDS AND RELATIVES? DO YOU MAKE USE OF COMMUNITY PROJECTS OR PUBLICITY? -------------------------

ANSWER WILL BE EITHER YES OR NO.

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A Sample Retailing Effectiveness Check List

A LONG-TERM ORGANIZATIONAL MISSION IS CLEARLY ARTICULATED. THE CURRENT STATUS OF THE FIRM IS TAKEN INTO CONSIDERATION WHEN SETTING FUTURE PLANS. SUSTAINABLE COMPETITIVE ADVANTAGES ARE ACTIVELY PURSUED. COMPANY WEAKNESS HAVE BEEN IDENTIFIED AND MINIMIZED. THE MANAGEMENT STYLE IS COMPATIBLE WITH T HE FIRMS WAY OF DOING BUSINESS THERE IS LOGICAL SHORT-RUN AND LONG-RUN APPROACH TO THE FIRMS CHOSEN LINE OF BUSINESS. THERE ARE SPECIFIC, REALISTIC AND MEASURABLE SHORT-TERM AND LONG-TERM GOALS. THESE GOALS GUIDE STRATEGY DEVELOPMENT AND RESOURCE ALLOCATION. ----------------------------------------------

THE CHARACTERISTICS AND NEEDS OF THE TARGET MARKET ARE KNOWN

THE STRATEGY IS TAILORED TO THE CHOSEN TARGET MARKET. CUSTOMERS ARE EXTREMELY LOYAL. THERE ARE SYSTEMATIC PLANS PREPARED FOR EACH ELEMENT OF THE STRATEGY MIX. ALL IMPORTANT UNCONTROLLABLE FACTORS ARE MONITORED. THE OVERALL STRATEGY IS INTEGRATED. SHORT-TERM, MODERATE-TERM AND LONG-TERM PLANS ARE COMPATIBLE. THE FIRM KNOWS HOW EACH MERCHANDISE LINE, FOR-SALE SERVICE AND BUSINESS FORMAT STANDS IN THE MARKETPLACE.

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 TACTICS ARE CARRIED OUT IN A MANNER CONSISTENT WITH THE STRATEGIC PLAN.

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THE STRATEGIC PLAN AND ITS ELEMENTS ARE ADEQUATELY COMMUNICATED.

UNBIASED FEEDBACK IS REGULARLY SOUGHT FOR EACH ASPECT OF THE STRATEGIC PLAN. INFORMATION ABOUT NEW OPPORTUNITIES AND THREATS IS SOUGHT OUT. AFTER ENACTING A STRATEGIC PLAN, COMPANY STRENGTHS AND WEAKNESSES, AS WELL AS SUCCESSES AND FAILURES ARE STUDIED ON AN ONGOING BASIS.

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RESULTS ARE STUDIED IN A MANNER THAT REDUCES THE FIRMS CHANCES OF OVERREACTING TO A SITUATION STRATEGIC MODIFICATIONS ARE MADE WHEN NEEDED AND BEFORE CRISES OCCUR. THE FIRM AVOIDS STRATEGY FLIP-FLOPS (THAT CONFUSE CUSTOMERS, EMPLOYEES, SUPPLIERS AND OTHERS). THE COMPANY HAS WELL-EXECUTED WEB SITE OR PLANS TO HAVE ONE SHORTLY.

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RATE EFFECTIVENESS ON A SCALE OF 1 TO 5, WITH 1 BEING EXCELLENT AND 5 BEING POOR.

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Conducting The Audit

Management specifies how long the audit will take. Prior notification to the employees to compile some data in advance to save time With a disguised audit, employees are unaware about audit taking place. With a nondisguised audit, employees know an audit is being conducted. This is desirable if employees are asked specific operational questions and help in gathering data. Some audits should be done while the retailer is open, such as
Assessing parking adequacy In-store customer traffic patterns Use of vertical transportation Customer relations

Others should be done when the firm is closed, such as:Analysis of the condition of fixtures Inventory levels Turnover Financial statements Employee records.
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Reporting Audit Findings And Recommendations To Management

An audit report must be formal and it should be concise and self content. It must present findings and recommendations to management. It is the role of management not the auditor to see what adjustments (if any) to make. Decision makers must read the report thoroughly, consider each point and implement the needed strategic changes.

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Responding To An Audit
After management studies audit findings, appropriate actions are taken. Areas on strength are continued and areas of weakness are revised. These actions must be consistent with the retail strategy and noted in the firms retail information system.

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Possible Difficulties In Conducting A Retail Audit

An audit may be costly It may be quite time-consuming. Performance measures may be inaccurate Employees may feel threatened and not cooperate as much as desired. Collection of incorrect data Management may not be responsive to the findings.

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Essential Requirements Of Good Auditing

Audits must be conducted regularly. In-depth analysis is made Data are analyzed systematically. An open-minded, unbiased perspective is maintained. There is a willingness to rectify weaknesses to exploit strengths Decision makers must be responsive to the recommendations made in the audit report.

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THANK YOU AND HAVE A NICE DAY

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