Streamlined ERP systems that are more modular and nimble are helping grocers keep close tabs on their operations.
By Deena M. Amato-McCoy
When grocery technology executives hear the phrase “enterprise resource planning software,” many still remember those clunky hubs linking enterprise systems to a centralized database. Today, grocers are opting for more robust configurations that connect multiple data sources with integrated, modular mission-critical applications. The result is a more nimble infrastructure that provides the necessary data support for complex business decisions.
In simplest terms, ERP is often described as an integrated platform that controls and manages all operations within the retail enterprise. Historically, this was a single architecture, often purchased from a sole technology vendor that supplied most mission critical technologies.
“The first issue is the notion of a single database being the one resource to fuel enterprise-wide applications is a rather antiquated one,” says Richard Michalec, global vice president in retail, for Redwood Shores, Calif.-based Oracle.
As the cost of storage space and the storage appliances themselves continued to drop in price over the years, many chains continued to establish additional databases and data marts for other company applications—a factor that challenged the initial configuration of ERP.
The evolution was unavoidable, “especially as chains grew and added customer touch points and channels,” says Wayne Usie, senior vice president of retail, JDA Software, based in Scottsdale, Ariz. “Once chains get into multi-channel planning, they need a way to use multi-dimensional data, not just transactional data.
“At the end of the day, retailers need an infrastructure in place to run their business; it could be homegrown, or it could be a commercial backbone,” Usie adds. “The challenge that companies face however, is that there is no huge return on investment for replacing internal plumbing.”
In tune with shoppers
The recession changed the ERP game in other ways as well. For example, chains still continue to grapple with the new consumer mindset. Grocers must stay in tune to keeping costs in line so they can optimize store-level pricing.
These shoppers are also looking for merchandise quality and value, which has spurred interest across private label lines and categories. This puts pressure on supermarkets to do a better job at product lifecycle management and industry compliance regarding formulation and nutritional content.
When analyzing these trends, retailers found themselves re-evaluating existing supporting systems, their role within ERP frameworks, and thus, ongoing ERP plans. “The industry is interested in ERP environments with less moving parts,” says Oracle’s Michalec. “They need to simplify packages and applications, and deploy the mission critical ones that have the strongest impact on the enterprise and how they connect with the shopper.”
Experts say this has sparked a more modular approach to ERP, also referred to as the retail footprint. Clearly, experts says ERP still needs to remain a holistic, integrated architecture, but deciphering which packages to focus on is now paramount. When considering all of the operations that impact the organization, many technology partners urge grocers to group functionality into one of three buckets.
The first group encompasses systems that interact with the shopper, including point-of-sale, marketing, loyalty programs and customer relationship management, even specific business channels, such as e-commerce and call centers. The next group of solutions manage inventory, such as fresh offerings, national brands and private label merchandise. This division is also focused on how inventory moves from supplier to the distribution center and into stores.
The final category is focused on enterprise management, including financials, human resources applications, store lifecycle management, store reformats and compliance issues.
“Chains may have their upfront budgets, but with a phased approach, grocers can plan a group of projects to complete at a time, then evaluate the payback,” says Randy Evins, industry principal, food and drug for Newtown Square, Pa.-based SAP America.
As the economy slowly recovers and budgets loosen up, experts say chains will have a bit more wiggle room for ERP upgrades. But new functionality will not be meaningful without data integrity. “Achieving data integrity is a pre-requisite, and the key to any successful ERP project,” Usie says. “It is this clean information that will help with all business decisions, and correct information improves decision making and helps produce an ROI.”
Interestingly, many chains would swear they have the cleanest data in town. “However, it is not uncommon for some chains to install the infrastructure and then realize they really don’t have data integrity,” says Gene Likins, SAP’s vice president of global value.
Most industry experts agree that the first areas to tackle should be the “core” business applications: financials, human resources and inventory management, including product master data. Once this foundation is in place, it is easier for chains to phase in “peripheral” solutions, such as price optimization and promotion management. By coupling these solutions on one sole pipeline keeps the solutions integrated.
However, they say the “secret sauce” of the modular approach is middleware. It is this layer that will share information between mission critical software applications and master data management sources and multiple relational databases. “Middleware taps into the master data management solution which then pulls data needed by each software module regardless of where it resides,” says Oracle’s Michalec. “This provides a single view of financial metrics, the associate, or the assets of stores.”
Industry observers point to Cheshunt, England-based Tesco’s experience as an example of successful modular ERP deployment. The chain began its journey a decade ago when it created an infrastructure to improve existing systems and processes to make non-food categories as successful as food. The company added Oracle Retail, and within four months had fully deployed the Oracle Retail Merchandising and Trade Management modules.
The company’s next step was to launch the Tesco Operating Model, a set of common, integrated applications built on Oracle and best business processes that can be implemented anywhere in the world, fast. It was this strategy that supported a consistent shopping experience as Tesco pursued international expansion.
Today Tesco’s ERP manages all inventory across grocery, hardlines and clothing throughout its operations across the U.K., Europe, South East Asia, India and the U.S. It also uses the retail footprint to address financial management, human resources, even home delivery of goods.
Brookshire Grocery Co., based in Tyler, Texas, underwent a similar business transformation in 2004, one that involved reworking organizational structures and the addition of new departments. The goal was to streamline the responsibilities of IT, improve companywide decision-making, and enhance the IT applications applied to mission critical practices.
“Our IT department was undertaking 80% maintenance projects and 20% new development when delivering new functionality,” says John D’Anna, vice president, Brookshire’s IT planning and strategy. “By restructuring the organization and adding a business system management group comprised of IT as well as representatives across different lines of business, our company was able to understand business needs, have lines of business take ownership for IT projects, and most importantly, streamline the delivery of IT projects.”
Within this strategy was the deployment of SAP’s retail footprint, called the SAP Business Suite of applications. Within this framework, Brookshire added the vendor’s financial and reporting functionality, followed by payroll and human resources, and finally the SAP POS Data Management application. All modules are accessible through an enterprise portal.
Three years later, the chain has expanded the breadth of the architecture and it now runs buying, pricing, category management, forecasting and replenishment operations through the portal as well.
“Everything is integrated, and with a connection to enterprise data, we have massive vision into inventory moving through the supply chain,” D’Anna says. “The integration provides a global vision of our company. It keeps our forecasts accurate, and analysis ensures product forecasting and price optimization are all in line with historical data we have stored.”
While a majority of supermarket chains continue to “own” and manage the framework in-house, new options are causing some to reconsider. The move toward on-demand services seems to be pushing this trend.
ERP for rent
Pushing more of a “rental” model, vendors are noticing an uptick in interest. Interestingly, retailers that are opting for software-as-a-service solutions (SaaS), are leaning toward more headquarters-based applications.
For example, 10% of retailers already use SaaS for key headquarters applications, and another 14% of chains plan to follow suit within two years, according to the Store Systems Study. These solutions are also most commonly found within ERP and supply chain functions, as well as for human resources, financial and help desk solutions, according to the study.
As some chains consider the value proposition of SaaS and virtualization, they may choose to keep mission critical systems in-house, but access more peripheral applications, such as CRM and optimization engines on-demand.
Regardless of what system the retailer chooses, “whether retail customers seek out the potential of SaaS or pulling functionality out of house and out in a cloud computing scenario, the vendor community needs to stay in tune with what they are looking for and respond accordingly,” says SAP’s Evins.