RETAILERS ADVISED TO INTEGRATE PROCESSES
Byline: Valerie Seckler
NEW YORK — Retailers who fail to eliminate redundancies and integrate business processes into a unified system are likely to be left behind in the race for market share.
The way to do it, according to the experts, is by harnessing their technology.
“Retailers are seeking new ways to squeeze more profits out of their operations, which demands big changes in their business processes, infrastructure and technology, as well as their integration,” advised Herb Kleinberger, chairman of Management Horizons, the consulting unit of Price Waterhouse.
Based on a strategic profit model of a “fictitious typical retailer” developed by Management Horizons, Kleinberger estimated “conservatively” that by integrating related processes, merchants can boost annual sales 1 percent and lift gross profit 1 percent, as well. He projected inventory could be slashed 10 percent and operating costs could be trimmed 1 percent.
Addressing more than 100 retailers, analysts and consultants who gathered for the 1997 Spring Management Horizons Conference at the Grand Hyatt Hotel here earlier this month, Kleinberger described a paradox of today’s retail environment that is pushing merchants to streamline their businesses.
“Retailers are trying to differentiate their merchandise and marketing in a climate that’s overstored,” the consultant noted. “They are looking to raise customer service while aiming to lower their payroll costs. These are daunting challenges.”
Nonetheless, pioneers of leading-edge retail technology, including Wal-Mart Stores Inc., are having success with micromerchandising assortments of basics such as hosiery and T-shirts, as well as health and beauty aids, by becoming closer partners with suppliers and integrating their efforts.
“Wal-Mart and Warner Lambert converged on a forecasting and replenishment effort to remedy the poor job Wal-Mart was doing on Listerine’s inventory position and sell-throughs,” Kleinberger said.
Wal-Mart had allocated shelf space for the product based on historic sales data, using those figures to estimate how much “safety stock” it should have and how much to budget for markdowns, he explained.
At the same time, Warner Lambert had planned its production of Listerine around optimum runs, and made more than it had sold, hoping additional orders would come in.
“In a collaboration over the Internet, the two companies logged and reviewed numbers closer to real-time needs, and were able to substantially raise Listerine sales, as well as to lower its in-store inventories at Wal-Mart,” Kleinberger said.
“A change of this nature is a big one, requiring a lot of technology,” he emphasized. “The key to enabling implementation of such an integrated systems plan is the development of an application workbench — one entry point from which to access several data bases.”
The biggest stumbling blocks to integrating business methods, Kleinberger added, have been lack of commitment by top management and failure to test software in pilot programs instead of companywide.
“Top management must participate, as integrated systems are pervasive in an organization and require a major capital investment,” he said. “You also must have a cross-functional representation of business users participate in the development of the systems.
“This cannot be left solely in the hands of the information systems people,” he added. “Most important of all, get started.”