Introduction
Retailing can be defined in two ways, either as a set of functions that adds value to products/services that are sold to end users (functional understanding of retailing) or as a specific institution within a marketing channel that executes retail functions (institutional understanding). The functional view explains retailing as an exchange activity in order to connect a point of production with a point of consumption. These exchange processes refer to (see Kotzab & Bjerre, 2005):
• Marketing processes, including all activities that provide a customized set of products/ services as demanded by customers/consumers (which is basically known as offering a customer-oriented assortment in terms of quality and quantity)
• Logistics processes, including all activities that help to transfer this specific set of products/services to the markets (such as transportation, breaking bulk and inventory management)
• Assisting processes, which refer to all activities that facilitate a purchase (such as credit function, promotion or advice function).
The orchestration of these functions leads to various types of retail formats such as store-based retailers (e.g., hypermarkets or category killers), non-store-based retailers (e.g., mail-order retailing or electronic commerce) and hybrid retailers (e.g., home delivery services) (Coughlan et al., 2006).
Retailing plays a vital role in today's economy, but many retailing companies face economic pressure as they operate predominantly in mature and stagnant markets (e.g. Seth & Randall, 2001). In order to face these specific challenges, retailing companies adapt strategies that allow them to gain economies of scale by offering highly customized solutions to their customers (see Table 1).
These strategies are built upon the latest developments in information technology (IT) and are therefore called IT-assisted retail management strategies. The following chapter presents an overview to contemporary IT-based retail business models and frameworks that show how IT has created a new mandate for retail management. IT is defined here as the hardware and software that collects, transmits, processes and circulates pictorial, vocal, textual and numerical data/information (e.g., Hansen & Neumann, 2005; Chaffey, 2004).
The following IT is of special interest in relation to IT-assisted retail management:
• Mobile data capturing terminals, light pens, bar code readers, EAN.UCC 128, labels, disks, chip cards, RFID, EPC, sensors to collect information
• Data base systems, tapes, CDs, DVDs, optical disks, Document Retrieval Systems to store information
• PCs, Information Retrieval, Decision support systems, Expert systems: MIS, EIS, MSS, ESS to process information
• Services (e.g., fax, email, EDI, web-EDI, FTP, WAIS, WWW, SMTP, TCP/IP, XML, VAN, GPS), networks (videoconferencing, teleconferencing, voicemail, ISDN, LAN, WAN, fiber optic, intra-, inter- and extranet) and devices (e.g., phones, TV, radio, fax machine, PC, PDA) to transmit information
The increasing use of these technological possibilities has led to major changes in the strategic management of distribution channels as the layers are compressed and the distances between the first and last echelon of the channel are reduced (e.g., Porter, 2001 or Coughlan et al., 2006). Leading retailers are aware of these possibilities and have implemented customized POS-data based marketing strategies (IT-based retail marketing) and demand-synchronized replenishment systems (IT-based retail logistics).
Table 1. Cornerstones of contemporary IT-based retail management
| IT-based retail marketing strategies | IT-based retail logistics systems |
| • Re-engineered IT-driven retail formats, allowing for a cus tomized shopping experience • Development of new retail channels, (e.g., Internet-based retail formats to address new customer segments) • Category management, in order to offer client-oriented sets of products, resulting from a joint-planning process with manufacturers based on real-time accessed client data | • The implementation of just-in-time-oriented replenishment systems by connecting the electronic point-of-sale- (EPOS) systems with the manufacturers' ERP-systems • The execution of IT-driven distribution center operations with no- inventory-holding transit terminal structures • The realization of Vendor-Managed-Inventory-Programs on a continuous replenishment basis to reduce inventory levels and to improve order cycles |
Background
IT-Based Retail Marketing processes
Business practice shows a huge variety of IT-based retailing marketing strategies including the use of smart cards, theft prevention, self-check-out systems, web-kiosks and/or merchandise planning systems. The common goal of all these strategies is to obtain better information on consumer behavior in order to improve customer service. In that sense IT-based retail marketing affects all retail areas from the sales floor to the back offices (Kotzab et al., 2003a; Kotzab & Bjerre, 2005).
IT influences the layout and the atmosphere of a retail store by optimizing the link between sales productivity and consumer excitement (Nymphenburg, 2001) as the following examples show:
• Metro operates the future store concept that promotes technologically-driven innovations in IT-assisted retail marketing as offered by the combined use of RFID, electronic shelf labels, self check out systems, personal shopping agents, instore media such as info terminals, loyalty cards, personal shopping assistant for shoppers, personal digital assistant for employees and intelligent scales (e.g., Metro, 2003, Kotzab & Bjerre, 2005).
• Rewe Austria operates an outlet in Purkersdorf (nearby Vienna), where shoppers self register their purchases via self scanning devices (see Kotzab et al., 2003a). Rewe also uses the "communicating" shopping cart WATSON, which uses a technology based on radio frequency. Whenever passing a "labeled" shelf, the cart announces a message to the shopper (Atlas New Media, 2001).
• Since 2004, Spar-Austria has run a modern supermarket in Mattighofen (near the city of Salzburg) with self-check-out, cash-back terminals, instore-videos and intelligent scales (Spar, 2004).
• Zielpunkt/Plus of the German Tengelmann-Group installed self-check-out systems and cash-back terminals in one Viennese store (Weber, 2004).
• Carter & Lomas (2003) present the Sainsbury store in Hazelgrove (UK) and the Darty store in France, that both represent the state-of-the art of technology driven store layout.
• Weber (2006) reports on the experiences of Belgium
Delhaize group which has used Wincor-Nixdorf handheld self-scanning devices since 1997 in their stores which allow customers to scan their items while they are shopping. According to Delhaize, 26 % of all sales are registered with those systems. Mobile self-scanning has allowed Delhaize to install quick shopping lanes within the stores in order to increase throughput times of customers.
• The French retailer Auchan is testing in France so-called scan & bag technology, which is an automated cash-desk system. Auchan operates 166 self-service cash-desks in different stores in Italy (Weber, 2006).
IT has also changed the organizational set up from hierarchical to hybrid/borderless arrangements such as category management (CM) (Gruen, 2002). CM is a joint retailer and manufacturer effort that involves managing product categories as business units and customizing them on a store-by-store basis to satisfy end-user needs (Dussart, 1998). The purpose is to identify those combinations of products that make up consumers' expectations. CM replaces traditional product focused strategies (e.g. brand management) and allows retailers and suppliers to faster react to shifts in the market place (Schroder, 2003). The increasing use of data warehousing and data mining approaches helps to use the scanner data more efficiently in order to establish customer-oriented assortments (Chen et al., 2000). Recently, Kahler & Lingenfelder (2006) were able to identify a strong relationship between the category value for money and store loyalty as CM incorporates the consumers' views and perceptions.
Finally RFID-technology is not only going to retail marketing but also logistics dramatically (Finkenzeller, 2003). Metro's future store concept shows that self scanning processes can be replaced by RFID which reduces waiting times for customers. Du Mont & Hoda (2006) present the case of the Japanese Mitsukoshi who uses RFID technology for an intelligent fitting room in order to enhance customer service. Especially industrial initiatives such as the EPC-Global, a joint venture between EAN International and the UCC, have developed so-called electronic product codes (EPCs), which will increase the diffusion of RFID-technol-ogy in the retail industry (see Jordan & Adcock, 2006). EPC is an RFID-based advanced UPC-bar code with the benefit of being able to identify articles at the item level uniquely (Verisign, 2004). The power of such a code can be illustrated by the following quote: "Using this EPC, members of the supply chain can thus identify and locate information about the manufacturer, product class, and instance of a particular product. Depending on the type of tag, EPC can be used to uniquely identify up to 268 million unique manufacturers, each with 16 million types of products. Each unique product can include up to 68 billion individual items, meaning the format can be used to identify hundreds of trillions of unique items" (Verisign, 2004, p.2).
IT-Based Retail Logistics processes
Logistics in a retailing context refers to multi-echelon logistics systems with many nodes from the original supplier to the final store destination (Kotzab & Bjerre, 2005). The use of specific IT in retail logistics, such as EDI (e.g., EANCOM), barcodes (e.g., EAN/UCC), scanner technology, RFID-technology (e.g., EPC) and XML has converted traditional retail logistics systems into just-in-time-oriented lean retail supply chain management systems. A chain-wide use of technology allows harmonization and synchronization of logistics operations between retailers and their suppliers and has given retailers additional profitability as such systems operate on a pull instead of a push base. Consequently, the total bullwhip effect in such channels is reduced (Lee & Whang, 2002).
The major IT-assisted retail logistics processes are cross docking and continuous replenishment (Kotzab & Bjerre, 2005) on a retail level and collaborative planning forecasting and replenishment (CPFR) on a retail-supplier level (Skjoett-Larsen et al., 2003).
Cross docking is the meta-term for all IT-related flow-through activities within a distribution center that provide tailor-made deliveries on a just-in-time basis. Different vendors deliver full truckloads of their goods to a retailer's transit terminal (a re-engineered distribution center; also called a transshipment point). There, the goods are then consolidated and/or broken to vendor-integrated POS-required smaller delivery units (see Figure 1).
The basic idea of Cross docking is to avoid inventory at the distribution center level, which leads to a replacement of stock holding activities through sorting, transportation and handling activities, which are controlled by increased use of IT (e.g., EAN/UCC 128 in combination with EANCOM messages). The relevant literature offers various types of cross docking operations depending on whether vendors deliver pre-labeled units to the distribution center, full pallets or cases or customized mixed or non-mixed pallets (e.g. Napolitano, 2000).
While cross docking refers to IT-assisted logistics at a distribution center level, vendor managed inventory (VMI) or continuous replenishment (CRP) refer to all cooperative forms of inter-firm automated replenishment programs where the common goal is the automatic reinforcement of the supply of goods and the transfer of the burden of responsibility of storage from a retailer to a vendor.
Within any VMI/CRP setting, retailers re-transfer the inventory competence back to their vendors by agreeing on certain average inventory levels at distribution center level, service levels and/or other arrangements like the reduction or avoidance of out-of-stock-situations (Raman et al., 2001). Within VMI/CRP the former one-to-one relationship (where a seller and a buyer individually represented the goals of their companies') is replaced by inter-departmental, inter-organizational teams, which are responsible for the ordering process (Kotzab & Bjerre, 2005).
A further development in IT-based retail logistics can be seen in the use of CPFR that is defined by the Voluntary
Figure 1. Basic cross docking operation
Figure 2. Basic continuous replenishment process in an ECR-environment
Table 2. CPFR-implementation guideline
| Step | Activity | Description |
| 1 | Develop front-end agreement | A front-end agreement is developed; criteria for success are established; identification of the CPFR project owners in the companies; financial reward and contribution system is agreed upon. |
| 2 | Create joint business plan | A joint Business Plan for the areas of collaboration is created Plans regarding advertising campaigns etc. |
| 3-5 | Sales forecast collaboration | The parties get together with each of their customer demand prognoses to establish a common prognosis. In case of deviation from forecast the partners meet to discuss deviations and to update the common forecast. |
| 6-8 | Order forecast collaboration | The partners share replenishment plans and discuss deviations and constraints. |
| 9 | Order generation | The reordering process/goods flow is initiated. Result data is discussed (POS, orders, shipments). Forecast deviation and stock level problems are identified and solved. |
Interindustry Commerce Standards (VICS) as "a collection of new business practices that leverage the Internet and electronic data interchange in order to radically reduce inventories and expenses while improving customer service" (VICS, 1998a). This definition suggests that the Internet and electronic data interchange (EDI) are substantial prerequisites of CPFR.
VICS also crafted guidelines in the form of a nine-step model detailing how to implement CPFR (www.cpfr.org; VICS, 1998b; see Table 2).
These steps can be seen as a "cyclic and iterative approach to derive consensus based supply chain forecasts" (Fliedner, 2003, p. 15). The CPFR process builds to a large extent on the exchange of information among collaboration partners. This exchange of information can be carried out through the use of various technologies such as electronic data interchange (EDI), private networks or the Internet (XML). For the processing of information a large number of software programs have been developed to support the CPFR processes (e.g., Syncra, Logility, Manugistics; i2 Technologies, E-Millennium, E3, J.D. Edwards, Numetrix og Excentric, SAP, Oracle, Baan or Peoplesoft) (see Kotzab et al., 2003b).
future trends
The Internet is going to revolutionize retailing. The challenge for e-tailing is logistics as the most prominent of Tesco.com shows. Consumer Direct Services (Corbae & Balchandani, 2001) will be more and more demanded, which will increase the number of single-purchase deliveries to the end-users' homes. The total home delivery market in the grocery industry is expected to be over 100 billion Euro, including over 900 million deliveries per year to over 35 million households.
IT-assisted home delivery concepts try to optimize the last mile to the consumer, which is the most expensive part of the total supply chain. There are plenty of home delivery systems, which either deliver the products directly to the home or where customers collect their purchased goods at certain pick-up-points (e.g., Pflaum et al., 2000, Punikavi et al., 2001). Tesco.com, however, goes a different way by serving consumer needs directly from their stores instead of installing special home-delivery distribution centres.
conclusion
The chapter described the consequences of the use of IT in the field of retailing. It was shown how IT can be used in retail marketing to re-engineer retail formats in order to allow for a customized shopping experience. IT-assisted retail logistics refers to just-in-time-oriented demand synchronized delivery systems. The increased use of such systems will lead in the future to more hybrid retail management strategies, where the organizational borders between retailers, suppliers and even consumers will disappear.
key terms
Barcodes: Simple form of optical character recognition, where information is encoded in printed bars of relative thickness and spacing. RFID combines this technology with radio frequency.
Continuous replenishment systems: Automated order retrieval systems which reduce out-of-stock situations at the point of sales by linking Electronic Point of Sales Systems with supplier factories.
Cross docking: Just-in-time flow through operations in a distribution center which transform incoming deliveries as fast as possible to customer specific outgoing deliveries.
Electronic Data Interchange (EDI): Meta-term for a multitude of different electronic message standards that allow a computerized and highly structured low error communication between computers. A "merge" between EDI and Internet technology can be recently observed by the upcoming of web-based EDI solutions, where on EDI-partner does not have to install EDI but use common web browsers to communicate via EDI.
Electronic Product Code (EPC): RFID-based product identification standard that developed from bar codes. EPC is managed by EPC Global Inc., which is a subsidiary of EAN.UCC. EPC numbers are able to accommodate all EAN.UCC keys.
Electronic Shelf Labels: Price tags that provide accurate pricing due to electronic linkage between the shelves and the checkout system. The technology is based on radio-frequency, infra-red and/or WLAN linking a master check-out with the shelves.
Intelligent Scale: A scale that is equipped with a special camera and identification software. Based on an object's structure, size, color and thermal image, the scale automatically recognizes the item, weighs it and prints out a price tag.
RFID (Radio Frequency Identification): Form of automated radio frequency based identification of objects. RFID systems consist of an antenna, a transceiver for reading radio frequency and to transfer information, a processing device and a transponder.
Scan & Bag: Special application of a self-check-out-system.
Scanner: Electronic devices that convert barcode information into digitized electronic images.
Self Check Out Systems: Self check out systems can occur at the end but also during shopping processes whenever cash-desk operations are 'outsourced' to consumers. In that case, consumers self register their items with specific scanning devices.
Virtual Shopping Assistant: Small mobile computer with a touch screen and bar-code scanner that can be installed to a shopping trolley and can serve as a personal shopping advisor (e.g., offering the customized shopping list).