Importance of the right POS hardware and software

I have already covered before the importance of the right POS hardware and also the software. Yesterday I visited one of India's largest supermarket after a long time. The checkout process was very frustrating and knowing the details of the retailers systems I know that these systems were designed and implemented by consultants who had no prior experience or understanding of how critical is for them to do the right choice. It took me over 30 minutes just to check out out of a moderate line not even a big queue. The actual transaction took a frustrating  15 minutes with a average basket of about 60 SKU's. The poor cashier was struggling to operate the software and the hardware had literally fallen apart as the retail chain does not believing in using a hardened POS machine but uses standard desktops as POS machines. One of the customers had a big fight when he realized that his debit card could not be used in the integrated EDC machine as it did not have the option of typing in his PIN and he had to go to another counter just to get the payment done. The same customer came back when my bill was being processed and then the billing software went into hang !! frustrating both of us!!!! I dont think I am going to visit the particular store again and the same was voiced by the other customer. The only silver lining in this was that the pricing was pretty good and my better half was happy she got a decent deal :) 


Last week I also lost another argument with a CFO of a leading hypermarket in India on my recommendation to go with a robust POS hardware instead of a lower end POS machine, looking at their future plans and volume of bills at their 80,000+ sq feet hypermarket. The only reason being a cost difference of just 10% over a IBM retail hardened POS machine compared to a local model. The importance of customer experience, ability to get better ROI was ignored by the CFO over a immediate small saving which the local vendor was giving. I probably lost the argument because I had no support from the operations team who according to me have no experience in the longer term operations gain from using a robust POS. Lets hope they realize it for their next store... 

Private Label initiatives in Indian retail.

During the recent months, Indian retailers have increasingly been concentrating on the private label sales in the stores. A visit to any Indian retail hypermarket would reveal a sudden increase in private label brands promoted by the retailers. Major CPG brands like Knorr, Kissan, Maggi etc.. are being replaced by secondary regional brands or by the retailers private label brands. This is the result of the margin maximization drive by the Indian retailers.

But are the retailers really upto the mark in quality compared with the established brands? My personal observation is not yet. I sampled some private label products across retailers and think that the non processed food products seem ok as private label but the processed food still have a long way to go in terms of quality. I had very bad experience in using ready to make soup of a major private label brand of a retailer. The soup taste was absolutely yukkk and the quality of the same was horrendous. I don’t think I am going to touch any other product of the same private label !!

I think the retailers don’t seem to have realize the importance of quality, consistency and product lifecycle efforts which are needed in a consumer product manufacturing. Repacking rice, daal or any non processed food is ok but making jams, soups, tooth paste, butter etc needs quality infrastructure investment and don’t know if the Indian retailers are investing in the same.

Regarding systems, most of the retailers are configured for basic repacking but private label manufacturing is a different cup of tea… lets see how the Indian retailers cope with this.

New store IT infrastructure technologies

Some experiments in Store IT infrastructure

As part of my assignment with a leading hypermarket chain in India, we are exploring ways of using some innovative technologies in the stores to help the business in differentiating the store experience.

One of the areas which we are working on is the ability to connect the various devices in the store – POS, Scales, Kiosks using a network at the least possible cost to reduce the store CAPEX. As part of this initiative I am evaluating couple of technologies – wireless and one new innovative way of networking – running data over power cables. Running data over power cable  is not exactly new but I am using a patented technology by a Bangalore based startup – Unifiedgateways. Unifiedgateways has made this technology truly affordable and very easy to use. Imagine running all your data needs over your electrical cabling all over the store!

We have implemented this technology to network – POS machines, Scales and even streaming video in one of my client stores. In fact in the new store of that particular client this would be the predominant way of networking all the devices all over the store. This has helped us in reaching all parts of the store at the least possible cost. Imagine moving the scales to any part of the store and still being connected to the network or running streaming video on a kiosk anywhere in the store without having a network CAT 5/6 wire for the same. Connecting your security camera’s to the power line and getting connected… This is very useful especially in a store that is large. In this case my client’s has the hypermarket which is a 85,000 sq ft store. 

For the wireless I am working with the leader in wireless networking ARUBA networks. We have one concept 60,000 sq ft store already wireless in India. ARUBA has a robust proven PCI DSS compliant wireless network infrastructure. POS machines and scales are being evaluated on the wireless technology. Having the wireless network in place gives tremendous flexibility to relocate POS machines, Scales, Security, Kiosks in any part of the store. The same infrastructure can also be used for RFID enabled asset tracking.

Currently both these technologies are being evaluated in a concept store. The data over power cable is already stated to be rolled out as a secondary network option in the new 85,000 sq ft hypermarket coming up soon. Based on the production feedback the client would decide to incorporate this permanently in the new stores to come. 

Game Changing Technology

http://www.pranavmistry.com/projects/sixthsense/

I had a chance to come across Pranav Mistry who is a PhD student at MIT labs and his amazing game changing interface work. Pranav specializes in interface creation and if you see the video of his ideas you would find some awesome interfaces.

Using generic gestures to interact with the digital world is surely going to game changing. I see a lot of potential in the retail space if he manages to actually implement it. Also see a lot of application in the supply chain areas on how information is accessed and used.

Lets see how it shapes up and can be incorporated in our systems…    

State of retail systems in India

What next ……

The tier 1 Indian retailers now seem to be settling with their transaction systems or are they??. With SAP, Oracle-Retail, Microsoft Dynamics and JDA being the systems of choice for the tier 1 Indian retailers the last couple of years have been a roller coaster ride. Explosive expansion, aggressive store opening then the reality of vagaries of the economy / business and the subsequent rationalization of retail business in India. This has effected the systems they had initially put into place. Structures which were set up 2-3 years ago like organization structures, merchandise hierarchies, business models – own stores / franchisee stores etc are now completely undergone a change. For example a prominent Indian retailer has hived off its supply chain and logistics division which was internal to a external company. Imagine the disruption in their SAP implementation which had some pre-configured business processes. Another retailer is now concentrating from own stores to franchisee store model and putting in more efforts in promoting their private label products.

What this means is .. most of the business would literally need their systems to be re-implemented. Without which the retail organizations would not be able to effectively use the systems. Areas like product masters, business processes configured, store operations have gone a evolution over the last 3 years need reconfiguration as the initial setups were done in a very different environment.

Will the retailers take the initiative to put in efforts to do this ??? Lets see …

Retail Shrinkage in India

Shrinkage in India

Why the shrinkage?

The shrinkage is not just due to the consumers, most of the shrinkage is in the supply chain. Leakages are due to loose system controls at various points in the supply chain - warehouse issues/receipts, store issues/receipts, store back room issue / returns processes. Also loose physical security at the stores and warehouses contribute to the high level of shrinkages. Also unlike the west which has learnt to securely display their high value SKU's, Indian retailers are still learning better ways to securely display high value SKU's. For example Gillette razors typically have maximum shrinkage possibility need to be secured in a locked display unit and similar. Security devices and video surveillance training needs to be beefed up at retailers as just having video cameras in the stores does not guarantee catching the perpetrator. Further analytical shrinkage analysis using POS data is not yet prevalent practice in India. Thus shoplifters or just unscrupulous employees contribute to the high shrinkage rates. Once retailers start improving their physical security, increased training and analytical fraud detection capabilities, then this rate should come down.

Its not that the retailers are lax about processes, believe me .. I have spent lot of time with many Indian retailers and also retailers from the west. Retailers in India simply don't have the bandwidth, process experience or there is simply lack of trained personnel in the retail industry in India who know retail in the true sense. Most of the management is from CPG/Distribution background where the scale of operations is not like retail.

Most of the retailers are simply still struggling to evolve the right viable business format for the stores in terms of size, assortment width, location, supply chain etc.. All of them are still also struggling to get their basics in place in terms of all processes - in store, merchandising, supply chain, financials, HR etc. This is like being in a startup where there is chaos around but there seems to be a lull in this madness.

The recent recession has given the retailers a chance to look back and take a pause - concentrate on process maturity. This is reflected in the recently published gross margin figures of major Indian retailers which has shown some improvement. This means now the retailers have decided to concentrate on process maturity and this would lead to shrink getting a bit under control by next year.

For example I know of one major Indian retailer who has appointed CA/auditors for each store whose job is to certify each operational individual document like a GRN, Store transfer, Stock adjustment without which the transaction is not accounted for and any discrepancy is debited to the store personnel in charge. This system was recently introduced. I also know of a commercial VP of a reputed retailer in India who was so flustered on his inability to put in controls in place due to simply untrained operations personnel, that he took upon himself to write SOP's for basic processes like receiving and stock transfers and personally monitors exception transaction level reports every day to bring down shrink !

Operational excellence is going to be a key in Indian retailers surviving going forward. Most of the biggies are now realizing what they have got into when they started retail :) Its not a easy business and it needs tremendous process operations excellence to be profitable in this tough business.

Lets hope they survive.....

I love strolling the malls around the places which I visit

Retail is not CPG and innovative models ...

In India since there was a dearth of real retail talent in the initial time organized retail took its roots most of the talent which was recruited by the retailers were from the FMCG/CPG background as it was closest to what retail was perceived to be. These managers set up FMCG/CPG distribution type of processes in Indian retail. This also reflected in their selection of systems as initially it was SAP dominated. Since most of the parent organizations of these retail chains were in the CPG/FMCG industries they inherited their preference of SAP. SAP is the de facto leader in the CPG/FMCG segment but worldwide for pure leader SAP still has some way to go. They are furiously working in the lab to bolt on the retail processes but they are handicapped by what is considered their strength in other industries - a tight integrated ERP.

 

Regarding to the processes, my personal experience has been very frustrating in now explaining to Indian retailers that the CPG /FMCG process and systems are not the real McCoy of retail. In retail you are directly selling to the customer while in FMCG/CPG the customer is not directly interacting with the processes. This is the fundamental difference in retail and FMCG/CPG processes. Thus channel push sales, distribution of bulk supply chain systems cannot be replicated from CPG/FMCG to retail. Retail has its own nuances which only a person who has worked in retail can understand while a manager who comes in from experienced CPG/FMCG background cannot comprehend the retail nuances.

 

This is true for IT systems as much for business process managers who come from CPG/FMCG background.

 

The other developments in India which I forecast in the coming years are the emergence of different models of retail which are already relevant in the west. The franchisee model which had witnessed a decline in India is bound to come back as retailers face cash crunch in investing in new  stores on their own steam. I believe the current retail biggies like Reliance had started to roll out the franchisee models but they slowed down as they faced increased complexity in management.

 

The other models like co-operative buying model, franchisee model bring their own challenges for retail IT solutions. Since the franchisee cannot invest large amounts in enterprise systems but at the same time the centralized procurement aggregation needs to have a robust Tier system in place I see a whitespace here in this segment for IT vendors to come out with innovative solutions. SaaS is the ideal business model to address this issue. Recently I interacted with a leading retailer in India who was pushing aggressively in the franchisee model. They are facing a tough situation where their current Tier 1 enterprise application cannot be adopted by their franchisees who are mom and pop stores to a collection of master franchises. They need to innovate to find a solution to this issue as their model involves sales thru their own to their franchisees and also involves aggregation of demand of FMCG products and then placing orders to a few large FMCG players to supply directly to their franchisees. No standard retail system satisfies this need.

I also see emergence of some unique business models and the most recent one I saw in India and which I really admire is of a chain of pharmacy shops. The unique business model is in the fact that these pharmacy shops are approx 300 sq feet and there are 650 store in addition to the stores they are adding poly clinics and wellness clinics where the customer can be member and these members can go across any of their stores with a common membership card and avail different promotions and discounts. These guys opened 50 stores per month for one entire year in India. This year they have stopped expansion and focus on process maturity and operational efficiency before going back to their expansion spree. I am truly impressed by these guys.

These guys have developed their own system completely based on open source platform which is one smarter thing. Since they have a unique business model, this is what their business enabler is. It also keeps their IT costs real low. They will have challenges to scale up their home grown IT platform but they are aware of this and will take plans to do necessary updates to the platform. 

I hope more such models emerge in coming years in India.

Say yes to Buffalo and no to Bangalore!

Obama’s new mantra – “Say yes to Buffalo and no to Bangalore!”. Are the Indian IT outsourcing majors understanding this change … I do not think so. The days of easy 40% margins are gone along with the days of high growth. The Indian IT majors need to understand that adding fresh labor by recruiting graduates with no business understanding is not going to guarantee them clients. Its high time that the Indian IT companies need to wake up and start creating real value for clients with IP creation and domain specialization. Today the client need is going to be how can a IT partner make us more efficient or add more value to my business rather than just provide me with a army of coders.

This is a complete paradigm shift and I don’t think its happening in the Indian IT majors. The IT majors may say that they are going up the value chain by investing in IP creation or having domain based solutions but  I see this more of a half baked half hearted attempt.

I recently had a interaction with one of India’s largest IT major which had plans to create IP led retail solutions for the small and medium (SMB) market segment in APAC. This segment is stated to be having the highest growth rate as per analysts in the coming years.

The IT major had plans to create pre built solutions for this segment which is the right way of going forward but just after December 2008 it shelved the plans as due to the slow down all the investments were shut. This is what I mean when I say a half baked, half hatred attempt. The IT major started on the right note but ended up not believing in its own approach. The recession needs to be taken up as a opportunity and the IT major has the necessary resources to invest in this time. But alas it has fallen in the cost cutting trap.

Addressing the SMB segment has its own challenges. The traditional time and material (T&M) or traditional fixed bid (FB) ways of developing solutions will never work as the costing will just not work out in the SMB segment. Addressing this segment requires upfront investment in creating IP and then patience as ROI cannot be in 2-3 quarters which the IT majors are today expecting. It needs a longer term investment and focus but only those majors who start today will survive over the longer run. The double digit growth rates of IT from business from the west is over and so are the 40+% margin projects. Thus the need for the hour is to invest from the spoils from the good times in IP led domain solutions.

Hope the Indian IT industry wakes up and amend their ways.

IT issues in F&B retail in India

Some of the points which I discussed in a recent feedback on Indian retail....

For a F&B retailer, what are the typical pain areas of operations -- for instance, SKU management, inventory tracking, billing, analysing shopper data or others?

Typical technology pain areas include – localization requirements like multiple MRP’s, SKU rationalization – EAN/UPC codes, batch controls, forecasting of different types of categories since we are a hypermarket chain with a wide assortment. Vendor collaboration is a big pain area as most of our vendors fall in the medium to small range with low process maturity. We need to educate our vendors and bring their process maturity to an acceptable standard which would make our operations more efficient. Other major pain is the unreliable telecommunication infrastructure where we struggle to get consistent service levels from our telecom vendors. Lack of trained manpower in operations who are exposed to best of breed retail processes. This hampers us from utilizing the enterprise application to its fullest potential.

Are technology firms well versed with the specific needs of a retail operation? Is there sufficient understanding of the business of retail? Are there any specific concerns that you would want a tech company to address (areas they currently do not address)?

Indian service providers generally are tuned to develop software as per given specifications by their overseas clients, they are not used to design or develop innovative solutions as per business requirements. They do not have sufficient domain knowledge consultants or do not understand the importance of domain knowledge in requirement analysis leading to mismatch of expectations in the execution of the projects. To address the local market this needs to change and tech companies in India need to give sufficient importance to consultants who understand the domain and the technology and act as the interface between the business and technology teams. Indian tech companies need to understand that technology is just a tool and it’s the ultimate business objective which needs to be fulfilled with acceptable price points. Retail business is tough with minimal margins so the technology companies needs to employ innovative methods to keep the investments low and in return giving measurable business benefits. Only companies which would provide value would survive in the Indian market. 

Which are the areas of operation that are completely or partially technology-enabled? E.g Point-of-Sale (POS), ERP, Workforce Management, Retail Media Networks, SKU-level RFID tagging, GDS, CRM etc etc

Our operations are completely technology enabled in the following areas:

• In store operations – (POS, Direct Store Deliveries (DSD), Price and promotion management,  payroll, Loyalty (Group Loyalty and CRM).
• Supply Chain and Merchandise Management, Warehouse Management, Vendor Management
• Core ERP implemented for Financial Management (AP,AR,GL), Fixed Asset Management etc.
• Human Resource Management System (HRMS)

All systems are integrated.

Currently we do not have any plans for RFID especially at SKU level, as we do not think this currently makes business sense to go in for this investment. Our focus is on operational efficiency and we would thus stress more the analytics, as now we have a base application in place giving us the fodder to now focus on using the data converting into meaningful information.

Retail IT products in India

More and more western Retail IT product vendors are eyeing the Indian market for their IT products  but what they do not understand is that they would never get the premium license payments which they are used to in the west. Since retail IT products are typically niche products they command a premium pricing in the west. This pricing is typically in the range of 1.5-2 million USD per mid size implementation for a tier 1 retail ERP. 

 In the US where a mid sized retailer is typically 50-150 store retailers this amount is accepted (this is also changing) but in India or even the APAC this is completely out of the line. No retailer in India/APAC is going to shell out 1.5/2 mill USD for an IT implementation. So the vendors who believe in the “premium” pricing strategy are going to just bleed in India.

 Recently I had the opportunity to work with a leading ERP vendor. This ERP is now rated 3-4^th after the SAP’s and Oracle’s of the world. Their strategy was to appoint “re-sellers” in India for the sales of the retail/CPG ERP product and they expected the re-seller to find leads, train consultants, create marketing awareness and even take product liability !! Their investment – just a small office with 2-3 persons in India for support.  The re-seller was also expected to pay for the training of the personnel. The ERP vendor promised no support but expected “sales targets” to be met from the reseller. The price of the ERP – 1 mill+ USD ! Such short sighted strategies for selling IT products in India are 100% bound to fail.

 

So what is the solution?

A partner focused strategy is the only way to go. This is the strategy which has led to SAP and Oracle ERP products being the de facto standards in India. A partner eco-system which is well supported by the principal brings down the TCO for the ERP implementation. An India specific licensing policy with minimal upfront payment would bring down the initial investment needed to procure the ERP. Since India is still relatively immature in organized retail processes, base or stripped down versions of the ERP products with an option to enable the more advanced functionality at a later stage would work with similar options in licensing. The ERP vendor needs to invest in nurturing the partner and look for long term partnership with the local vendor. Flexible licensing payments, investments in having a established office in India to prove to the prospective customer in India that they are serious of the Indian market.

 The most important aspect of selling a retail ERP product in India is the localization. India has one of the most complex tax structures with multiple tax rates, VAT, multiple MRP requirements etc. A product vendor who is serious about the Indian market has to invest in adding the localization or at least collaborating with a local vendor to enable their product for the Indian market.  Absence of such localization means the product would never sell. No Indian local company is going to touch the product if it does not handle statutory localization.

 Last but not least the vendor needs to have patience and have a long term plan to stay in India to succeed.  Only then will the vendor succeed in the Indian market. The IT tech spend in India is bound to go skyward but its not a easy pie, you need to work hard for earning it.

 

Amazing device ... things to come tomorrow

Imagine walking up to a book in a book shop, picking up a book which you think is interesting and then a image is projected on the book page from a device which you are wearing giving the books Amazon rating, its synopsis, details on the author etc … or imagine a scenario when you are in a electronics shop where you pick up a camera and the same device projects the pricing comparison with  5 other retail chains on your hand !

Or imagine walking in a city and having a GPS map with restaurant recommendations projected on your hand…  

 Yes .. this is all possible and not just in the distant future but in the near future …

 Check out this latest device by MIT’s research group…

 http://www.ted.com/talks/pattie_maes_demos_the_sixth_sense.html

 I believe this is a game changing device as the most important part of the device is the price! The research group believes that this device can be part of your cell phone soon with minimum cost implications… 

Importance of choosing the right POS hardware

As you tend cutting costs, its important to also see that there are places which you should not compromise. In retail its the POS hardware which cannot be compromised. Buying a low cost PC based system as it has a lower upfront cost looks tempting, but remember it’s the POS which differentiates your store service, it’s the POS which makes or breaks your brand.

 Going for a PC based POS terminal means that the POS machine especially in a supermarket / hypermarket environment is not going to last more than 2-3 years (lucky if it lasts more than 2 years). Then your PC vendor cannot support the hardware beyond 2 years as every month there is a new version of the hardware which is released in this segment. The savings which you envisage when you buy a cheap PC based POS is nullified if you count that the POS has to be replaced every 3 years compared to a retail hardened POS terminal. Same goes for the peripherals. With the power prices going thru the roof you also need to ensure that the power consumption of your POS machine is minimal. Imagine if you have 100 stores and over 500 POS machines (assuming at least 5 per store), the cost saving if the POS terminal consumed 50% less power than a PC based machine.    

 A retail hardened POS also means better customer service as the probability of a till going down in peak billing time is reduced. Customers are frustrated when they see large checkout queues and POS machines not working in a retail store.

 Point is … don’t compromise buying inferior POS machines! 

Simple things matter...

Information technology is a tool and its upto a skilled business user to find out ways to effectively use it.  As with all retailers we have classified our SKU's into different assortment categories, one of the categories is "cores" which mean that these SKU's are the fast selling SKU's in our store and are marked as "category killers". We need to have 100% shelf replenishment for these SKU's and any short supply by the vendor means that we are loosing sales.

 Again vendor monitoring and fill rate monitoring in the west is a basic implementation where retailers like Wallmart, Albertsons etc would penalize suppliers if their order fill rates are below a acceptable %.  This concept again is relatively new in India as the vendors are just learning how to work with organized retailers. 

 This is proved by one of our senior category managers who has found a simple yet effective way to improve "fill rates" of the deliveries he gets from his prime vendors.  He got our team to add a “fill rate” analysis in the Goods Receipt Note which our system generates whenever we get materials from our vendor. This additional page has a summary which gets printed whenever the vendor supplies goods that do not confirm to the original purchase order quantity. The idea is to highlight to the vendor that because of his “short supply” we have lost precious sales as the SKU’s are our cores and its imperative that these SKU’s supplies are as per our order quantity. The summary also has a “lost sale” figure  to highlight to the vendor that his inefficiency has cost us sales.

This has immediately given the category head a way to make our vendors more sensitive to their commitments.  

Thus small things matter … J

More areas to cut...

In addition to the business areas to concentrate on cutting costs, the I.T infrastructure is also being optimized. We run enterprise applications using a distributed architecture. This was primarily designed due to India's unreliable infrastructure for connectivity. The result of this architecture was that we had too many servers. Having too many servers means spending precious money on maintaining servers, space, licensing, administration time etc. Currently we are working on ways to reduce our servers to shave off our maintenance costs. This means compromising on some facilities which our users currently enjoy. For example since our servers are de-centralized the location can function by itself in case the connectivity goes down between our main head office and the location but if I centralize the location server and if the connectivity goes down, the location cannot access our application disrupting our business. Even after having primary data links and secondary data links our connectivity is still unreliable. Most of the unreliability comes from the lack of consist ant power supply at our warehouse locations which are typically away from towns in the rural areas. 

A lot of effort is spent on trying to reduce our connectivity costs and maintain reliablity. Lets see how to do it ....

Surviving the down

Spent the evening at our flagship store yesterday (Saturday).  I do this frequently as it helps me to be in touch with our customers. Yesterday was a slow day, the lines at the tills were missing which is normally the case on weekends. The store manager attributed it to the mid week in the month which is normally a slow week. We had a good first week with a good weekend number. I guess we are lucky to have our core categories as food and grocery where the sales have not yet dropped drastically. People still have to eat, I guess ;) . Sales at lifestyle stores in India are reported to be down by 20-30%.

So the theme for the coming week in my cost optimization plan is ... designing and implementing a efficient flowthru inventory distribution at our stores. Currently we indent stock from the stores to the distribution center and then replenish using weekly delivery windows. The idea now is to eliminate the flab from the DC on stock. I have been part of similar projects in the past with international retailers but this would be my first Indian experience. We have a excellent business team which makes my life simpler. Since the process maturity in retail is still in the infant stage, there are very few business leaders in the merchandising area who are aware of the best pratices in such processes. By enabling Flow-thru also known as cross docking we plan to shave off a substiantial part of the inventory pile in our DC. 

Lest see how this goes ... .  will post the updates ..

Cost cutting .... the mantra everywhere ...

2009... tough year for us all. Global meltdown, dwindling sales, nose diving profits ... need to survive.  Focus on cost cutting ... cost optimization, elimination of excess .. the works. 

How can information systems help .. in such scenario? 

My personal thoughts ... it can help a retailer differentiate themselves from competition without any doubt in my mind. 

Here in our organization this is precisely what we are working on.

Trying to optimize supply chain, reducing excess inventories out of the system , improving customer experience at the POS, enabling tighter execution of operations all with the help of information technology. This would surely help us survive the tough times. More tomorrow on how we are doing this ... Any thoughts from anyone appreciated on how others do this.