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) and human resources. 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:
-
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.
Moreover, margins in the
retail business generally are very low and that removes any scope for waste or
inefficiencies in the business processes. Efficiency is critical to survive in
the retail industry. A proactive approach on the part of the retail organization
requires an enterprise wide monitoring and control of the various business
processes that may ultimately lead to the desired efficiencies and long-term customer
satisfaction and profitability.
-
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.
A combination of
flexibility, process efficiency, reliable information and responsiveness is
critical to a retail business and ERP packages have been introduced to tackle
the elimination of IT complexity albeit with some implementation challenges to the
line of business and IT management staff.
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. However, a
lot of retailers are still using fragmented legacy software applications to
manage their core business functions which results in somewhat lower levels of effectiveness and efficiency. Moreover, a majority of
Chief Information Officers (CIO) in the retail sector believes that it is
cumbersome to rip and replace their existing information systems handling the
routine management of the retail operations.
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:
-
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.
-
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.
-
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.
-
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.
-
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:
-
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.
-
Segment specific
expandability option
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.
-
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:
-
Configuration and
scalability
A good retail ERP system allows a high degree of customization and is
easily scalable to attune itself to the size of the organization and its
level and scope of operations. Such configuration and scalability prove to
be a boon in managing the retail operations across an enterprise. This
allows a retail ERP system to grow with the organization.
-
Phased implementation
support
Modern retail ERP systems provide support for phased implementation. This
feature allows the software package to be implemented in a step-by-step
incremental manner rather than in one go. This makes the transition to an
ERP package a lot easier. This feature allows the users to acclimatize
themselves to an ERP package that may initially seem complicated to use.
-
Support for advanced
functionality
Modern retail ERP systems provide support for advanced
functionalities that is helpful in the decision making process such as
formulating pricing strategies, merchandise planning, inventory optimization
and store execution. The advanced functionalities help the users formulate
business strategies to introduce efficiencies in the critical business
processes. The top management uses this feature to set the benchmarks and
achieve the desired results.
-
Workflow automation and
enterprise process management
Modern day retail ERP packages offer workflow automation and enterprise
process management to make the workflow smooth and seamless across the
entire enterprise. This allows the management to monitor and keep track of
the workflow while also undertaking the enterprise process management
leading to the identification and removal of any inconsistencies in the
business process.
-
Technology and
application integration
A good retail ERP system allows technology and application integration to
allow a platform independent, seamless transfer of processes across
different modules running on different technologies in an enterprise wide
environment that may include interaction with legacy systems and external
entities such as the suppliers and the customers. Such integration provides
the critical enterprise-wide view to the management.
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. Complex usage
- ERP systems can be complicated to use. In order to utilize an ERP package to
its full potential, the users are required to undergo considerable training
which obviously costs time and money.
9. 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.
10. Weakest link problem
- An ERP system can suffer from the "weakest link" problem where inefficiency in
one department or partner may affect the other parties. An ERP package spans an
entire organization while aiming to streamline the business process as a whole and
introducing efficiencies that ultimately lead to an increase in the bottom line
or profits of the retail organizations. The integration of different components
produces more problems due to the weakest link effect.
11. High switching costs
- Once a system is established, switching costs are quite high for any one of
the partners involved. This leads to reduction in flexibility and strategic
control at the corporate level. The high switching costs can be attributed to
the fact that installation of an ERP package involves considerable investment of
both time as well as the money.
12. Reduced departmental Insulation
- The blurring of company boundaries can cause problems in accountability, lines
of responsibility, and lead to reduction in the employee morale. Since an ERP
package spans an entire organization, its implementation integrates the
different departments in such a way that no department works in isolation from
the rest of the organization.
13. Requires total transparency
- Resistance in sharing sensitive internal information between departments can
reduce the effectiveness of the ERP package. An ERP package is designed in such
a way that seamless information interchange between the different departments is
an essential prerequisite to achieve its full benefits.
14.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.
15.Overkill -
An ERP system may be over-engineered relative to the actual needs of the
customer. Such a situation may be called overkill since an organization may not
require the functions or capabilities extended by an ERP system.
SWOT
Analysis of Retail ERP Systems
Main Components of Retail ERP System
The main components of a
retail ERP system include the following:
-
Merchandise management
It constitutes the primary component of a retail ERP system that supports
the merchandise management operations undertaken by the retailers. This
component includes activities such as the setting up, maintenance and
management of the retail outlet, keeping track of the prices of the items,
inventory, and the different vendors etc. This component of the Enterprise
Resource Planning (ERP) system also offers some key reporting functions as
well as the allied business intelligence modules.
The merchandise management
component also offers an integrated interface to the other retail applications
thereby acting as a bridge between the different retail applications supported
by the retail ERP suite aimed at facilitating more efficient retail operations. Merchandise
may be defined as any product, service, idea or entity of value that can be
offered to someone in the market for a price and that offers to satisfy a
genuine need or want of the consumer. A typical retail chain offers hundreds of
thousands of different products to the customers. All such products may be
termed as merchandise since they are of an economic value to the customer who
pays for such products to satisfy his/her needs or wants.
The merchandise management
component takes care of all the activities related to the management of the
merchandise offered for sale at the retail store. In a nutshell, the Merchandise
management component of an Enterprise Resource Planning (ERP) package covers all
the activities centered on the merchandise offered at the retail store.
-
Retail planning
This element of the ERP system allows the retailers to undertake the
planning activities at a large as well as a small scale as per the need of
the situation. It focuses on the different strategies to be
employed in order to help the retail store in increasing the sales of the
merchandise. The retail-planning component focuses on achieving the
economies of scale and attaining the desired efficiencies by increasing the
merchandise sales at the retail chain.
This component helps the
retailers in planning the various sales and promotional events aimed at boosting
or increasing the sales of the merchandise offered at the store. This way,
retail planning forms an important and critical component of the retail ERP
systems as it performs the critical function of offering the planning activities
that may be undertaken at the micro as well as macro level to give a push to the
merchandise sales at the retail store.
The retail-planning component
is extensively used by the middle and the upper management in formulating
favorable promotional strategies to stimulate the sales and ensure increase in
inventory turns at the retail store. Hence, retail planning may be called as
a critical component of the retail ERP systems.
-
Supply chain planning
and execution
It provides support to the internal as well as the external supply chain
process. It covers both the planning and the execution part of the supply
chain management in retail. Supply chain forms the backbone of the retail
operations. The supply chain represents the flow of information, finances,
and materials as they move in a process from the supplier to the
wholesaler to the retailer and finally to the end-user
or the consumer of merchandise.
Supply chain planning and
execution is an integral part of the retail ERP system. Retailers aim to take
advantage of the operational synergies. To meet the requirements of such retail
chains, the supply chain planning and execution component of the retail ERP
systems allows the retailers to keep track of the entire supply chain beginning
at the manufacturer and ending at the consumer.
It allows a retailer to keep
track of all the activities and processes comprising the supply chain of the
merchandise offered at the retail store. This helps retailers run their
businesses in an effective and efficient manner by closely monitoring their
supply chains and ensuring its management in a smooth and efficient manner to
ensure profitability in the business.

-
Store operations
This element of the ERP system takes care of all the operations related to
the store management function. The store operations are central to a retail
chain since the retailers keep the majority of their inventory at the
stores. Moreover, the store operations are unique to the retail ERP systems
as the other ERP packages do not offer such a comprehensive component like
the store operations as offered by a retail ERP system.
The store operations component
includes the store specific inventory management, sales audit, returns
management, perishables management and the labor management. The store
operations component can also include the customer management and the associated
promotion execution systems.
-
Corporate
administration
This component aims to serve the information needs of the administration
and usually includes the process management and compliance reports required
by the top management for the decision-making purposes. This feature also
includes other corporate financial reports such as the accounts receivables,
accounts payable, general ledger and the asset management reports.
The corporate administration
component may also include the corporate-level Human Resource Management (HRM)
systems. Thus we can see that the corporate administration component plays a
critical role in providing the necessary information to the top management to
get a general idea of the health of the retail business by way of the various
financial reports generated by this component provided in the retail ERP
systems.
The corporate administration
component can be termed as the eyes and ears of the top management in the retail
business. This component makes available the necessary data required to provide
an insight into the financial health of a retail business. Moreover, this
component of the retail ERP system is used for generating specific compliance
reports submitted to the industry watchdog or other monitoring agency that may
require reporting of such data on a periodic basis. These reports not only help
the management in meeting the mandatory disclosure norms but also help in the
formulation of effective management strategies to achieve the desired results in
terms of sales or profits that are calculated using the same financial
indicators.
Major
Retail ERP Vendors and their Products
The global Enterprise Resource
Planning (ERP) market is dominated by relatively few niche players who command
the lions share of the market. The retail ERP systems segment shows the same
trends in terms of the relative market share of the major global vendors.
The top four retail ERP
solution providers include the following vendors with their respective software
packages:
-
SAP (Systems,
Applications and Products in Data Processing)
SAP is a major global player in the Enterprise Resource Planning (ERP)
domain based in Germany and commands around 30% of the global market share f
the Enterprise Resource Planning (ERP) solutions. Its product SAP for Retail
is aimed at the retail market and provides retail ERP solutions to the
retail sector. The major advantages and disadvantages of SAP for Retail
include:
Advantages:
·
Comprehensive features The retail version of SAP offers comprehensive
user-friendly features.
·
Universal
standard Being a market leader in the ERP domain, SAP products define the
market standards in this segment.
·
Scalability SAP for Retail is highly scalable to adjust to the size and scope
of the software user.
·
Customization SAP for Retail can be customized to a high degree by the
retailer.
Disadvantages:
·
Cost
The SAP for Retail software package is very expensive.
·
Training
required In order to use the ERP package, the end-users are expected to
undergo a basic minimum level of training for using the product effectively.
-
Oracle
Oracle is a global IT company based in the US that provides various
software solutions including the database management systems (DBMS),
Enterprise Resource Planning (ERP) software, Customer Relationship
Management (CRM) software, and the Supply Chain Management (SCM) software.
Oracle provides retail ERP called the Oracle Retail Merchandising System (ORMS)
for the retail sector. The major advantages and disadvantages of ORMS
include:
Advantages:
·
Superior
networking features ORMS offers superior networking features for real-time
applications.
·
Cost
effective In comparison to the SAP ERP solutions, ORMS provides a great
alternative that is cost effective for the user.
Disadvantages:
·
Lack of
compatible systems The product suffers from incompatibility issues with
similar products in the Market.
·
Resource
requirement The product is demanding in terms of the hardware resources
requirements.
-
The Sage Group
The Sage group is a UK based IT firm that provides software solutions in
payroll, accounting, CRM, business management and ERP domain. The Sage group
offers the Sage Pro ERP for the retail sector. The major advantages and
disadvantages of Sage Pro ERP include:
Advantages:
·
Easy to
use The Sage Pro ERP offers a Graphical User Interface (GUI) and is
surprisingly easy even for the new users.
·
Resource
requirements The product requires minimum hardware resources.
Disadvantages:
·
Integration issues The product suffers from integration problems with other
systems.
·
Scalability issues The performance suffers when the product is scaled up.
-
Microsoft Dynamics
Microsoft Dynamics is a Microsoft group company that provides the
Enterprise Resource Planning (ERP) solutions for business organizations.
Microsoft Dynamics offers its flagship product The Microsoft Dynamics NAV
ERP solution that is used by the retail organizations to manage their
operations in an effective and efficient manner. The major advantages and
disadvantages of Microsoft Dynamics NAV ERP include:
Advantages:
·
Attractive interface The Microsoft Dynamics NAV provides a very attractive
user interface.
·
Easy to
use In comparison to similar products, the Microsoft Dynamics NAV is very
simple easy to use.
Disadvantages:
·
Security
issues The product suffers from certain security issues in an enterprise wide
implementation.
·
Scalability issues The product suffers from certain scalability issues.
(Source: Gartner)

(Source: AMR research)
Business Implications
The Business implications of a
retail ERP system are immense indeed. In the contemporary business environment
where liberalization, privatization and globalization are the order of the day,
most of the retail businesses around the world operate under the fiercely
competitive market conditions. Such competition has led to the paper-thin margins
in this sector. In order to remain competitive, the retail organizations
surviving on thin margins cannot afford the luxuries of systemic inefficiencies
or delayed decision-making. Both the activities, be it increasing efficiencies
in the business process or the ability to take prudent decisions quickly
requires an inside out awareness of the business process. A retailer ought to
know the complete picture that can indicate the true state of a retail
business.
A retail organization may
comprise of a small chain of retail stores confined to a small town or city or
may include a mammoth organization having its presence around the world in the
form of thousands of stores scattered across the different parts of the world.
Wal-Mart is one example of a retail business with its operations spanning
across different continents around the world. Management of such a distributed
network of retail chains is a Herculean task indeed. The retail Enterprise
Resource Planning (ERP) packages help the retailers in better management of
their enterprise wide operations spanning the entire globe.
The retail ERP systems provide
one-stop solution for most retail information processing challenges by providing a comprehensive
solution to managing a complex retail business. An Enterprise Resource Planning
(ERP) system helps the retailers manage their businesses in an effective and
efficient manner by providing integrated and consistent information flow. It makes the task of keeping track of all the transactions so
much easier. A retail ERP system allows automatic recording of the transactions
in real-time environment. They have become indispensable tools to survive
and increase profitability in the retail sector for large retail organizations. The major competitive benefits
of using the ERP system in the modern day retail include:
-
Graphical User
Interface (GUI) support
The retail ERP systems extend a Graphical User Interface (GUI) to the
users that make it very easy to interact with the software suite. The GUI is
critical to make the retail ERP systems popular with the non-technical
users.
-
Allows optimum
utilization of the resources
A retail ERP systems allows an organization to utilize its resources in an
optimum manner. This optimization subsequently translates into reduced costs
and correspondingly high profits.
-
Reduction in the
overhead and Inventory
A retail ERP system allows the organization to considerably reduce the
overhead and excess inventory thereby reducing the unnecessary costs to the
company.
-
Timely responsiveness
Retail ERP systems allow the organizations to respond to any challenges or
constraints in the real time and thereby extend timely response to any
customer demands.
-
Enterprise wide
solution
The retail ERP systems offer an enterprise wide integration of the various
Information Systems (IS) that allows the users to have an enterprise wide
view of the problems and implement the appropriate solutions.
-
Integrated work
environment
A retail ERP system offers an integrated work environment throughout the
organization that can be easily monitored and managed.
-
Easy scalability and
adaptability
A retail ERP system offers easy scalability options as per the size and
scope of an organization while it also allows integration with the different
technologies as well as the legacy systems running at the business
associates or partners end.
-
Knowledge transfer
between industries
A retail ERP system facilitates transfer of knowledge between related
industries and this process stimulates innovation and subsequent growth.
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.