If you receive errors when attempting to view this white paper, please install the latest version of
Adobe Reader.
"SAP for
Retail gives retailers of all sizes the power they need to make the right decisions quickly and profitably – the power it takes to create shopping experiences that motivate their customers to return again and again."
Source : SAP
Retail Today: Understand. Anticipate. Inspire.
Retail is also known as :
Retailing,
Online Retailing,
Retail Merchandise Planning,
Retail Merchandising,
Merchandise Planning Process,
Merchandise,
Apparel Planning,
Product Retailer,
Merchandise Retail,
Retail Management,
POS Software SYstem,
Retail Systems,
Retail Technology Solutions,
Merchandise Systems,
Merchandising Management,
Merchandising Planning.
No part of this publication may be reproduced or transmitted in
any form or for any purpose without the express permission of
SAP AG. The information contained herein may be changed
without prior notice.
Some software products marketed by SAP AG and its distributors
contain proprietary software components of other software
vendors.
Microsoft, Windows, Excel, Outlook, and PowerPoint are
registered trademarks of Microsoft Corporation.
IBM, DB2, DB2 Universal Database, OS/2, Parallel Sysplex,
MVS/ESA, AIX, S/390, AS/400, OS/390, OS/400, iSeries, pSeries,
xSeries, zSeries, System i, System i5, System p, System p5, System x,
System z, System z9, z/OS, AFP, Intelligent Miner, WebSphere,
Netfinity, Tivoli, Informix, i5/OS, POWER, POWER5, POWER5+,
OpenPower and PowerPC are trademarks or registered
trademarks of IBM Corporation.
Adobe, the Adobe logo, Acrobat, PostScript, and Reader are
either trademarks or registered trademarks of Adobe Systems
Incorporated in the United States and/or other countries.
Oracle is a registered trademark of Oracle Corporation.
UNIX, X/Open, OSF/1, and Motif are registered trademarks
of the Open Group.
Citrix, ICA, Program Neighborhood, MetaFrame, WinFrame,
VideoFrame, and MultiWin are trademarks or registered
trademarks of Citrix Systems, Inc.
HTML, XML, XHTML and W3C are trademarks or registered
trademarks of W3C®, World Wide Web Consortium,
Massachusetts Institute of Technology.
Java is a registered trademark of Sun Microsystems, Inc.
JavaScript is a registered trademark of Sun Microsystems, Inc.,
used under license for technology invented and implemented
by Netscape.<:p>
MaxDB is a trademark of MySQL AB, Sweden.
SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver,
and other SAP products and services mentioned herein as well as
their respective logos are trademarks or registered trademarks of
SAP AG in Germany and in several other countries all over the
world. All other product and service names mentioned are the
trademarks of their respective companies. Data contained in this
document serves informational purposes only. National product
specifications may vary.
These materials are subject to change without notice. These
materials are provided by SAP AG and its affiliated companies
("SAP Group") for informational purposes only, without
representation or warranty of any kind, and SAP Group shall
not be liable for errors or omissions with respect to the materials.
The only warranties for SAP Group products and services are
those that are set forth in the express warranty statements
accompanying such products and services, if any. Nothing herein
should be construed as constituting an additional warranty.
EXECUTIVE SUMMARY
More than ever, retailers face a daunting challenge: how to sell
locally while competing globally. Today's retailers must cater
to the specific, fast-changing tastes of local customers while
fighting competition from every corner of the globe.
Challenges are both vast and complex. Competitors may come
from other industries, distant geographic locations, or new and
different channels. Customer behaviors and market dynamics
can change quickly, but lengthy and inflexible supply chains
tend to hinder a fast and cost-effective response to such changes.
Retailers must find ways to differentiate their products and
services from those of competitors of all types, in all geographies,
and through today's ever-proliferating buying channels.
The successful retailer today must provide a differentiated shopping experience that will motivate shoppers to come back again
and again. At the same time, the retailer must achieve growth
and profitability. To answer both challenges, retailers must
understand the diverse attributes of their customer base, anticipate customer needs, and control the flow of products through
an increasingly complex and global supply chain to meet those
needs. In supplying the products their customers want, retailers
will inspire customer loyalty, thereby ensuring their own success.
To become a best-run retailer and achieve business success, the
retailer must adopt the following characteristics and expertise:
- Demand and merchandising intelligence combines an
intimate knowledge of customer demand with state-of-the-art
predictive analytics to ensure that the right product is on
the right shelf at the right time ' and at the right price to
maximize margin and stock turn.
- Mastery of strategic global supply chain management
means a retailer can connect with trading partners around the
world to meet demand through cost-effective, flexible deliveries
and maintain stock levels while reducing total inventory.
- The ability to provide a differentiated shopping experience
is demonstrated by retailers who understand how important
it is for customers to be able to purchase goods and services
across all channels, when and where they want, and that this
positive shopping experience will establish a strong basis for
customer loyalty.
- Skillful real-time enterprise management is performed by
retail executives to leverage a "single view of the truth," a key
benefit of the integration of business processes throughout the
value chain that allows them to proactively manage the entire
retail enterprise.
To exploit these characteristics and expertise to full advantage,
the retailer requires a scalable, future-proof technology platform
that is based on industry standards. Only a platform that can
evolve with the business will allow the retailer to leverage past
investments and optimize future IT expenditures. More important, it gives the retailer the ability to anticipate and adapt to
change ' whether it occurs in the marketplace, in technology,
or in the political arena ' and a solid foundation to convert IT
into a strategic tool to secure competitive advantage.
This white paper details how retailers can gain insight into their
customers' shopping habits, build a strategic global supply chain
that anticipates demand, and provide a distinctive, significant
shopping experience that inspires customers to greater loyalty.
It also describes how the SAP for Retail solution portfolio can
help retailers of all sizes maximize their strategic advantage and
minimize operating overhead to become a best-run retailer.
TODAY'S RETAILER:
SEARCHING FOR PROMISE IN A WORLD OF CHALLENGE
The opportunity for retailers has never been so bright for the
savvy ' nor so dim for the unprepared.
The Chinese economy is burgeoning. The collective buying power
of the Chinese consumer in conventional markets ' such as
leading product brands for footwear, jewelry, and automobiles '
dwarfs that of most other countries. And with Internet access
steadily gaining ground in China, the potential gain for Internet
retailers who appeal to the Chinese Internet surfer cannot be
ignored.
In the United States, new markets are bringing new opportunities
as well. Baby boomers are turning 60 and are proving to be a
strong force in the consumer, investment, and healthcare
markets, while the U.S. Hispanic population is emerging as a
significant consumer base.
Yet reaching these and other markets worldwide has never
been so easy for retailers and manufacturers: all they need is a
Web site.
Many retailers are branching out and extending their brands into
new markets and business areas. Companies such as IKEA, The
Home Depot, Tesco, and Wal-Mart are moving into everything
from utilities, banking, and insurance to travel and Internet
services. By establishing trust and goodwill with customers ' and
building a strong brand image ' such companies are in a position
to take advantage of unfolding market opportunities. And the
expansion continues into new business areas. Wal-Mart has
quickly become the largest grocer in the world, and Target has
expanded its product assortment to include fashion.
Indeed, the future is bright for retailers who can move quickly,
not just adapting to but also anticipating imminent market
changes. At the same time, the future threatens those retailers
who are slow to react or unable to recognize any of the following
challenging truths:
- Customer expectations are higher. Customers have
more shopping choices today, and they're increasingly savvy.
Customers expect higher quality, faster delivery, better service,
and lower prices. Retailers must find ways to grow while
inspiring the loyalty of a sophisticated customer base.
- Customer demand cycles are quicker. New products are
brought to market continuously. This makes product and
merchandising choices more difficult for retailers and carries
the risk of confusing assortments if not managed properly.
Shorter product life cycles also require tighter controls on
inventory and markdown processes.
- Supply chains are longer and more complex. This fact
makes it critical to predict demand correctly and root out
inefficiencies from supplier-related business processes.
- Competitors are coming from unexpected places. Retailers
are regularly looking to diversify their business and to expand
upmarket and downmarket. They are leveraging brand equity
into new markets and business models more frequently.
- Manufacturers and retailers are becoming vertically
integrated. Manufacturers are starting to sell directly to the
consumer, and more retailers are moving into direct sourcing
and private label.
The best-run retailers, however, can transform these challenges
into opportunities as they expand business and develop new
revenue streams.
CHARACTERISTICS OF A BEST-RUN RETAILER
To be a best-run retailer, you must find ways to enhance or expand
the business processes that support you in one or more of your
key activities ' intelligent demand planning and merchandising,
strategic global supply chain management, and providing distinctive
shopping experiences for your customers. To do this, you must
be capable of superior real-time enterprise management and have a
scalable, future-proof technology platform you can rely on.
Knowing what your customers bought isn't enough. You need
to know what they're going to buy. Today's competitive retailers
parlay knowledge of past shopping habits into a deep under-
standing of demand, and then use that understanding to drive
merchandising decisions throughout the enterprise.
Demand Intelligence: Anticipating Consumer Choices
Predicting customer behavior has been a passionate goal of retailers
for years. It is no wonder. Knowing what customers will do is
the key to managing the entire retail process ' from supplier to
consumer ' and allows you to base your business on demand
rather than on supply.
Today, retailers invest heavily in the demand side of the business
through promotions, advertising, inventory, and the tools to
automate the execution of those activities. However, many
decisions are based on intuition, supported by only limited data.
Moreover, decisions are weighted in favor of supply consider-
ations simply because vendor deals are negotiated at irresistibly
low prices. As vendor deals reverberate through the supply
chain, stores are often left to struggle with excess inventory that
cannot be reconciled. This can force the retailer to mark down
items to resolve the issue, which erodes profitability.
By contrast, customer-demand solutions contribute to increased
sales and profits by enabling retailers to better understand,
predict, and respond to demand, rather than be driven by deals
offered by vendors. With this approach, retailers can identify
what products and services customers value most and predict
how customers will react to changes in price. Using point-of-sale
data along with causal forecasting algorithms to model customer
behavior and predict demand, retailers can develop price, pro-
motion, and markdown strategies to achieve their goals for sales,
profit, and price image. Demand intelligence can be leveraged
to obtain more effective store assortments, optimize inventory
levels, and reduce out-of-stock and overstock conditions that
plague retailers.
Merchandising Intelligence
Merchandising activities are supported by business processes
related to core retail operations, including purchasing, pricing,
promotions, inventory management, and supply chain
management.
Excellence in merchandising is a result of the retailer's ability to
perform well in different areas: integrating merchandising activities
with planning and supply chain management functions, and
generating a single version of all data. Only when these conditions are fulfilled can the retailer make intelligent and informed
business decisions.
Integration with planning software is critical to improving a
retailer's predictive knowledge in a number of ways. An example
is providing the merchant with real-time visibility into the budget
available for placing additional purchase orders. By getting im-
mediate information on new receipts, a buyer is able to make
better-informed decisions, such as whether and how to meet
a sudden spike in demand. In conventional, nonintegrated
systems, it typically takes a day to get this kind of information,
and by then the opportunity might be lost. With integrated
planning and merchandising processes, information arrives in
real time, allowing the merchant to take advantage of an oppor-
tunity before it vanishes.
Listening to and understanding consumers at the local level is
a balancing act for retailers who buy products centrally and
distribute regionally. Having said that, the successful retailer
manages product assortments and pricing at the store level. The
challenge is in managing and stocking locally required products '
products that will appeal to consumers in the "neighborhood."
Being able to identify and capitalize on different demographics
and needs at the neighborhood level can add significantly to the
retailer's overall profitability.
Managing a highly complex endeavor ' such as a promotion ' is
a good test for measuring the efficacy of merchandising business
processes. Promotions are complex. They require synchronization
with many other retail activities, including forecasting, planning,
and signage. They involve careful coordination with purchasing,
distribution, advertising, and price change operations. Promo-
tional campaigns are monitored and measured for their effective-
ness and, what's more, promotions may occur in rapid succession
to take advantage of new products, new store openings, or other
events.
Only when business processes are tightly integrated can the best-
run retailer monitor and manage the entire promotion process,
from making the initial buy to maintaining the delicate balance
between the lowest possible inventory levels and out-of-stock
situations. An integrated merchandising solution will track
the movement of goods across the supply chain, through the
warehouse, and into the stores ' all in real time.
Command of a Strategic Global Supply Chain
Once you have a clear idea of what products need to go to which
stores and at what prices, getting them there is the next step. The
supply chain of today's retailers is increasingly global ' in many
cases, such as for private label retailers, it is assuming the roles of
manufacturing and sourcing goods as well. Getting goods across
town or across an ocean requires a supply chain that can unerring-
ly anticipate demand and meet it on time and at minimum cost.
The simple forecasting and replenishment tools that retailers
have used traditionally can no longer effectively manage your
single greatest controllable asset: merchandise inventory. You
need powerful, predictive technology based on the latest findings
in forecasting science. You must have high levels of automation
to be able to react quickly to new market conditions. You must
be sure that stock and ordering levels are optimal at all times,
yet are still adequate to cover specific customer events and an
increasing number of promotional activities ' for individual
locations or entire channels. Sophisticated supply chain systems
anticipate and respond to all of these demand factors, allowing
you to proactively fulfill the retail maxim of the right product at
the right place at the right price.
Understanding customer demand is important, but products still
have to be delivered efficiently to stores, warehouses, and customers.
A balance must be struck between cost and delivery time, while
the objective to maintain ever-smaller inventories increases the
complexity of supply chain networks. An increasingly global sup-
ply chain implies more local supply sources. Local fresh produce
is delivered directly to a supermarket to ensure superior quality
and freshness. Clothing is imported from increasingly distant
locations and sent to regional or local warehouses and stores for
immediate response to customer demand. To participate fluidly
and responsively in this global context and to be able to follow
business strategies, retailers must have a complete and accurate
picture of where their inventory is deployed at any given time
and which suppliers can fulfill fluctuating demand. Only with
comprehensive, timely information can cost-effective decisions
be made about how to satisfy demanding customers.
The twin effects of the Internet and dramatically lower overseas
manufacturing costs have radically altered the way retailers com-
pete. A simple click allows Web shoppers to compare prices and
order goods from anywhere in the world. Shortened product life
cycles and low manufacturing costs make it nearly impossible for
a retailer to offer "exclusive" products. A strategic, efficient, and
truly global supply chain is absolutely necessary ' but it's not
enough. As more retailers become adept at controlling their own
global supply chains, retailers are looking to make the experience
of shopping itself the point of competitive differentiation ' whether
that experience takes place in a store, online, or in the home.
Capacity to Provide a Differentiated
Shopping Experience
Today's consumers have easier access to more information than
ever before. They have more online shopping options and are
more comfortable making purchases online. Before they make
a purchase, they have researched products and alternatives, read
the reviews, and know what pricing options are available. In addi-
tion, today's consumers will visit a store because they shopped in a
sister store two weeks earlier in another location and liked the level
of customer service and the product assortment. Retailers must
show them a consistent level of service and selection in all stores.
Due to higher expectations and more choices, customers are
more difficult to find and keep than ever. To succeed with the
consumer of today, retailers cannot simply respond to their
needs ' they must anticipate them. Retailers have to optimize
the shopping experience for all customers across all channels
and touch points, impressing on their customers that the
positive shopping experience is no accident, but a consistent
characteristic of doing business with that retailer. What's more,
this differentiated shopping experience must be maintained as
the retailer offers new products and expands into new markets.
To develop customer allegiance, retailers require support from
some of the most important retail business processes, including
the following:
- Point of sale, customer relationship management, and multi-
channel processes to optimize consumer experiences across
multiple touch points
- Supply chain analysis and optimization to respond to consumers'
increasingly demanding requirements
- Workforce management to maintain high sales and service
performance levels across all sales channels
Maximizing customer allegiance means that retailers must
know who their customers are and what their customers expect.
It means being able to micro-assort stores by personalizing the
product mix and pricing for each store to reflect the needs of
local consumers. It requires easy access to consumer information
as well as purchase and contract history through customer
relationship management processes. It requires the ability to
aggregate detailed transaction-level data with visibility into
customer loyalty cards and online statistical tools.
Real-Time Enterprise Visibility and
Future-Proof Platform
A best-run retailer must have real-time enterprise manage-
ment to gain a single view of all relevant facts about the business.
As a basis for visibility into operations spanning the entire enter-
prise, the best-run retailer must have a scalable future-proof
technology platform.
Real-time enterprise management gives the retailer the ability
to monitor the full range of retail business processes as they
occur. An example of this is tracking a purchase order across a
global supply chain ' from the factory to the port of lading, to
the vessel, to the port of unlading, to the consolidator, to the
warehouse, to the store, and, ultimately, to the customer. Each
point along the retail supply chain must work perfectly in order
for the product to be on the shelf when the customer is ready
to buy. Each point and each process must be visible in real time.
As every retailer knows, that is not a simple task since many
smaller processes and decisions take place within the larger
event. During the importing process, for example, the retailer
needs to know as soon as possible if a shipment is being held up
clearing customs. Merchandise sitting on a dock or in a customs
warehouse can be very expensive for retailers. This type of
unproductive inventory may be perishable or, as with fashion,
subject to seasonal changes, and may not have a long selling
season at full price. In these situations, access to real-time
information allows the retailer to respond immediately by ad-
dressing any customs violations or paperwork errors and moving
the merchandise to the stores
For real-time enterprise visibility to succeed, the information
garnered from every point across the enterprise must be timely
and accurate. When it is, the retailer gains a substantial advan-
tage in sensing and responding to the conditions throughout the
business. The retailer can see important events as they happen
and can respond appropriately. Events could be anything from
competitive threats or new market opportunities to rapid, un-
foreseen changes in buying patterns.
Receiving accurate information promptly requires that business
processes be fully integrated across the enterprise ecosystem. It
also requires that enterprise information be based on a single
version of the truth. Interfaces must be automated, not manual,
and data must be exchanged in real time, or nearly real time, and
not in nightly or weekly updates. The business intelligence that
results can be used to analyze and report on performance. In
addition to a business intelligence infrastructure, portals, dash-
boards, and other user interfaces can provide personalized,
appropriate information to the retailer's trading partners and
other business associates, from sales personnel to executives.
A scalable future-proof technology platform is important as a
safeguard against dead-end processes or information systems that
cannot be modified to support the evolving needs of the business
without considerable new investment.
The platform required today should support integration of new
technologies and applications as well as integration with existing
systems to leverage past investments. New applications may in-
clude the things that we know about today, such as Web services
and radio frequency identification, as well as technologies or
applications that will be developed in the future. Historically,
retailers could expect a 5-to-10-year life cycle for their business
software and IT infrastructure. Today, however, changes and
improvements are coming much faster and are far more demanding
of the underlying platform's potential to accommodate change.
A future-proof platform is critical for retailers involved in merg-
ers or acquisitions, as well as for retailers wanting to grow ' in
store volume, store numbers, product brands, or business models.
A technologically advanced platform is also critical for retailers
who have found ways to expand their businesses and their brands
beyond the traditional bounds of brick-and-mortar retail into
new business models. These retailers realize that they have built
considerable brand equity and established high levels of trust and
goodwill with their customers, because they were able to leverage
their product strengths and brand identities to forge into new
business ventures not typically associated with their brand. For
example, some retailers have begun to open banks, while others
have branched out into selling gasoline, insurance, Internet
services, and even automobiles. The platform these retailers rely
on must expand to keep pace.
Growth can also result from corporate strategy. Moving into a
consumer market in China or India, for instance, can prove very
challenging as the retailer faces the context of a new language,
new customs, different labor laws, different taxes, and unfamiliar
regulations. If a merger, an acquisition, or a divestiture is called
for, regulatory demands may dictate that the information soft-
ware of two companies be reconciled within a short time frame.
Best-run retailers require a future-proof platform to turn such
challenges to immediate advantage, whenever and wherever
such challenges arise.
THE SAP PERSPECTIVE
SAP enjoys a significant advantage as the world's largest provider
of retail business software. Put simply, SAP® software provides
coverage of business processes that is both wide and deep. Fur-
ther, SAP is committed to ongoing research and development,
making an investment in retail-specific solutions that helps
retailers turn IT into a competitive advantage every day.
The SAP for Retail solution portfolio contains powerful solutions
that deliver true end-to-end support for the retailer's business
processes. These solutions are grouped into the following five areas:
- Planning solutions support activities ranging from corporate
performance management to merchandise planning ' with
a top-down, bottom-up, or middle-out approach ' to recon-
ciliations of plans, assortment planning, allocations, item
management, and optimization of pricing, promotion, and
markdown.
- Buying solutions cover activities involving supplier relation-
ship management, operational buying, strategic sourcing, and
global import management.
- Supply chain solutions support demand planning, replenish-
ment and inventory optimization, multichannel order fulfill-
ment, inventory management, warehouse and distribution
center management, and transportation management.
- Store and multichannel solutions cover activities in
demand forecasting and replenishment, warehouse manage-
ment, transportation planning, supply chain visibility and
tracking, global import management, and chainwide inventory
management.
- Corporate operations solutions include support for finan-
cials, corporate governance, and real estate management.
SAP for Retail is built upon the underlying technology of the
SAP NetWeaver® platform. SAP NetWeaver provides low total cost
of ownership and includes the SAP NetWeaver Master Data Man-
agement component along with a wide range of other functionality
to maximize integration of people, processes, and data across the
extended enterprise. Through the SAP NetWeaver platform, SAP
helps companies develop an enterprise service-oriented architecture
(enterprise SOA). Enterprise SOA supports the design, develop-
ment, identification, and utilization of Web services. In addition,
SAP for Retail solutions can be used with preconfigured best-
practice templates to help retailers deploy key applications quickly.
Together, SAP for Retail, SAP NetWeaver, and enterprise SOA give
retailers the means to change, grow, and thrive in an increasingly
capricious world.
LEVERAGING OPPORTUNITY:
UNDERSTAND. ANTICIPATE. INSPIRE.
The goal of all retailers today is to inspire their customers, their
employees, and their shareholders. Based on the solid credibility
that results, retailers can develop their brand identity, increase
market share and investment, differentiate their products and
services, and ensure sustainable growth.
By integrating key business processes into their application
infrastructure, retailers will be well prepared to take advantage
of opportunities as they arise ' opportunities available only to
businesses that have the insight to act quickly and decisively.
CONTENTS
- Executive Summary
- Today's Retailer: Searching for Promise in a World of Challenge
- Characteristics of a Best-Run Retailer
- Demand Intelligence: Anticipating Consumer Choices
- Merchandising Intelligence
- Command of a Strategic Global Supply Chain
- Capacity to Provide a Differentiated Shopping Experience
- Real-Time Enterprise Visibility and Future-Proof Platform
- The SAP Perspective
- Leveraging Opportunity: Understand. Anticipate. Inspire.
www.sap.com/contactsap
© Copyright 2007 SAP AG. All rights reserved.