INTEGRATED RETAIL SOLUTIONS: INCREASING PROFIT MARGINS THROUGH IMPROVED OPERATIONS

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1 INTEGRATED RETAIL SOLUTIONS: INCREASING PROFIT MARGINS THROUGH IMPROVED OPERATIONS Combining POS and Back-Office Systems to Achieve New Visibility and Control

2 EXECUTIVE SUMMARY Retailers worldwide today compete in a period marked by rising commodity prices and sluggish consumer demand due to higher than average unemployment in many countries. Despite these forces, there are signs of economic recovery. As the recovery accelerates, retailers will be challenged to seize the opportunity to capitalize on increasing consumer spending while profit margins are tighter than ever. To meet these challenges, retailers are moving to integrated technology solutions that enable multichannel commerce from traditional brick and mortar stores and the Internet while, at the same time, optimizing internal operations. These solutions merge conventional Point of Sale (POS) functionality with e-commerce capabilities and back office ERP-style features. Combined, this integrated solution will deliver a holistic view into retail businesses that enables you to optimize operations and increase profit margins. Solutions of this type have historically been beyond the budget of most companies but recent advancements in open source software has made them affordable for small and medium retail organizations. As a result, a growing number of retail companies are using integrated technology to improve the performance of operations across finance, sales, procurement, warehouses and master data management. This paper explains how an integrated open source retail solution can deliver more effective visibility into your business. It reviews the top 10 capabilities you should require in such a solution as well as sample implementation timelines and cost estimates so you can assess how this solution can enable the growth of your business.

3 RETAIL AND POS TODAY Before exploring the relationship between the POS application and how it interacts with more advanced back office Enterprise Resource Planning (ERP) systems, let s first quickly review how POS commonly functions today. Most modern POS systems have replaced manual cash registers, and now leverage touch-screen technology for easier use by clerks and store managers. POS systems perform a variety of transaction types for retailers including sales, exchanges, returns, and promotional discounts. They also help retailers process multiple payment types (cash, credit card, check) in multiple currencies. Advanced java-based software such as Openbravo POS is hardware-independent, to give you the flexibility to choose whatever device, terminal or tablet that meets the needs of your business. POS systems have traditionally been concerned with the following operations: Efficiently processing customers at cash registers Ensuring multiple customer- facing operations (returns, exchanges, gift cards, promotions) are manageable by clerks with minimal training. Accurately manage in-store revenue Including cash intakes and refunds by clerk, credit cards, debit cards, checks, sometimes across multiple currencies. Accurately manage in-store inventory Including both on-floor and restock reserves. This inventory data is used to automate inventory counts and stock replenishments. While very small retailers, such as those with a single store and only a few registers, may be able to manage their business manually with spreadsheets (or even in their heads!), a larger retail organization today will need to have these functions automated via POS in some manner. Now more than ever, retailers and franchises are confronted with a growing volume of customer transaction data that needs to be aggregated and examined to assess business performance. Forward looking organizations are realizing greater profitability by achieving more control and visibility into day-to-day operations such as inventory control, purchasing, receiving and transferring of products and store sales information for reporting purposes. They accomplish this by adding back-office capabilities that would commonly be categorized as Enterprise Resource Planning (ERP). If you re unfamiliar with ERP, take a quick glance at the sidebar ERP: A Brief Introduction for Retailers. ERP: A Brief Introduction for Retailers Enterprise resource planning (ERP) integrates internal and external data across an entire company including sales, inventory, accounting, manufacturing, service, etc. An ERP solution will automatically integrate and present this information in flexible views that meet the needs of every employee from senior executives to store managers to individual retail clerks. The objective of an ERP is to present a unified, streamlined view of company information to appropriate stakeholders so they can make better business decisions that improve organizational success. Openbravo is unique among ERP vendors because of the company s Agile ERP approach. To learn more about Agile ERP from Openbravo, please read our white paper: Increasing Business Performance with Agile ERP.

4 LOOKING BEYOND POS FOR GREATER RETAIL SUCCESS Whether your retail operation is a single store or a complex multi-site, multi-country, multi-channel business, the new capabilities that exist today between integrated POS and ERP have the power to help you dramatically improve the success of your company. While some commercial offerings attempt to do this, they are suitable only for retailers in the Fortune 5000 due to their cost, complexity, and implementation timelines. For background on this, see Table 1: Comparing commercial vs. open source integrated POS+ERP. Table 1: Comparing commercial vs. open source integrated POS+ERP METRIC INDUSTRY AVG*Average OPENBRAVO AGILE ERP P Take Longer Than Expected 57% 25% Implementation Duration 18.4 months 3-4 months Total Implementation Cost $6,200,000 $100,000 Total Implementation Cost (% of revenue) 6.9% ~1% Total Implementation Cost Exceeds Budget 54% 20% A growing trend in retail, particularly with larger organizations, is enabling individual stores to take greater autonomy when making product and promotional decisions related to their city, region, or country. Instilling this independence within your retail organization (safely enabled by the ERP capabilities) allows managers to work more aggressively against their own P&L and business objectives. For retail organizations that operate under a franchise model, this capability is even more desirable because an ERP reduces the time it takes for a new franchise to open for business. Additionally, the ERP is viewed by franchisees as a value-add during the franchise sales process because of the proven stability it brings to each franchise operation. Because Openbravo ERP is 100% web-based, franchisers are able to rapidly bring new franchisees on-board, without the usual back office hardware or on-site implementation and support costs. Expanding retail technology capabilities from POS only to include ERP capabilities allows you have the best of both worlds - store-level empowerment plus consistent company-wide policies and rules. Here are some examples of the benefits this type of integrated solution provides for retail operations: Finance Manage financial performance of stores and franchises on their individual P&L. For franchises, an integrated retail solution allows you to have your own Profit and Loss (P&L) and visibility into individual franchisees. For fully owned chains, an integrated retail solution enables you to analyze stores as individual entities with their own P&L so you can identify strong and poor performing contributors to your business. Sales Exercise as much or as little control as you want on pricing policies with an integrated retail solution. For example, if you want to set price lists that are enforced across your entire chain or a specific region, you can define a master price list that those stores will need to adhere to. If instead you prefer to allow individual stores to have some discretion to adjust prices, you can also enable this with an integrated retail solution. Supply Chain Management View and analyze product performance in terms of sales (or lack of sales) across every store in your entire operation with an integrated retail solution. You can also see product performance at global, country, regional, and city levels so you can plan warehouse replenishment more efficiently. This solution also helps eliminate

5 contract leaks where one store pays more for a specific product because they were not aware of an existing discount negotiated by another part of the retail organization. Master Data Management Build a centralized, standardized repository for all your business data. Because an integrated retail solution includes a centralized, unified system for retail data management, it enables new products to be added to your current inventory mix more efficiently. With direct access to master product entries that are pushed down to the integrated POS system, retailers can add new products faster and more accurately. MANAGING MULTI-COUNTRY RETAIL OPERATIONS Managing an international retail operation is tremendously complex because every country has different regulatory environments and tax protocols that influence how your products should be categorized, priced, and taxed. Because of these differences, it s easy to think building country specific systems that enable country specific autonomy is the right way to deal with these challenges. In the long run, this strategy becomes very problematic because country specific systems create incompatibilities that ultimately will fragment your data and therefore reduce your efficiency. Data fragmentation also creates problems for customer loyalty programs because your shop personnel are unable to offer a consistent customer experience. For example, if you manage a luxury goods retail operation, you want to ensure that if your customer buys an expensive pair of shoes in Milan and elects to return them in Dubai that your store can honor your customer s return request. It s important to realize that as your retail operation expands to other countries, without an integrated retail solution, you will be forced to make painful tradeoffs between autonomy and integration. With an integrated back office solution, you can operate in multiple countries with a unified set of data that provides a consistent view of your customers. It will also deliver multi-currency support, a single view of products, and will allow for country or region specific pricing and promotion policies. A critical solution requirement for any retail organization that has (or plans to have) physical operations in multiple countries is the ability to add support for new tax structures and currencies. Many legacy business systems are limited out of the box, and require expensive customizations to add support for additional currencies and tax regulations. Because Openbravo is a web-based, modular product, with a wealth of pre-existing modules that offer a fast and cost-effective way to expand your retail solution. For more details on the growing number of international localization modules available from Openbravo, please visit: INTEGRATING ONLINE COMMERCE WITH BRICK AND MORTAR STORES The types of products you sell and how you sell them will largely determine when an online sales channel is necessary for the continued growth of your business. Ultimately, every successful retail operation will need to build some type of online presence. The challenge of online commerce from a business management perspective is how to coordinate data from both online and brick-andmortar channels. This is accomplished by utilizing an online commerce platform that integrates with your back-office ERP. For example, Openbravo s ERP has an integration module for Magento the leading open source online commerce application. For more information on this, see the sidebar Openbravo and Magento The Winning Open Source Retail Combination.

6 A growing concern for retailers that have multi-channel sales from both online commerce and physical stores is how to deliver a consistent customer experience. Specifically, how do you enable your employees to deliver your customers professional, personalized interactions off-line and on-line (including support for multiple device types like computers, cell phones and tablets)? All of these factors point to the need for an integrated retail system where information flows both ways between POS terminals and your online commerce site(s) to a single ERP system in the back office. BENEFITS OF OPEN SOURCE SOFTWARE FOR RETAILERS A tremendous amount has been written about the differences between open source and commercial business software. A summary would show that open source continues to gain ground against commercial software, particularly with small and medium sized businesses that need to preserve resources and business agility at the same time. For example, Openbravo Community Edition has been downloaded over 2,000,000 times and Openbravo POS over 250,000 times as of mid Following is a summary of the benefits choosing an open source retail solution will deliver to your business: Cost Effective - Proprietary POS and ERP technology is notoriously expensive. It also tends to have long and costly implementation timetable. Moreover, these commercial offerings also carry maintenance fees that are commonly an annual fee between 18-20% of your license price. By contrast, open source software has no maintenance fees and is free to try. Reduced Risk Because open source software is free to try before you buy, retailers can download and experiment with open source POS, ERP and online commerce applications to test or experiment with. This allows you to ensure the applications you select meet the specific requirements of your business, so you can acquire and deploy them with great confidence. Openbravo and Magento The Winning Open Source Retail Combination To facilitate the creation of an integrated retail solution, Openbravo created an integration module for Magento, a leading online commerce platform. This allows joint users of both products to have a single, consolidated view into the performance of multi-channel sales. Magento is a powerful online commerce platform that merchants can use to build and run online stores. Robust, flexible and highly customizable, Magento solutions offer businesses the ability to meet complex needs and create customized online commerce experiences. Magento Enterprise solutions offer code-level and database access, robust web services APIs, as well as a library of 4,000 extensions retailers can use to extend and customize your online store(s). Security Because open source code is readily available, many security experts believe open source is more secure than commercial code. This is because end users can evaluate and contribute security fixes to the code, and the fact that the code must be resilient in the face of hackers who can download it for free. A large, vibrant open source developer community like Openbravo s enjoys a clear security advantage over comparably smaller proprietary teams who rely on security by obscurity. Flexibility Any open source software user has the ability to examine source code and make any alterations to the code they choose. This enables techsavvy customers to eliminate any problems they may encounter, and add any functionality they require. Standards Based Interoperability with other software systems facilitates your ability to integrate with a range of complementary products to meet business requirements. Open source software uses open standards that provide a clear definition of how information and data are to be exchanged between different systems or components operating together.

7 INTEGRATED RETAIL SOLUTIONS IN THE REAL WORLD If you re a small, medium or large retailer, once you understand the value an ERP can deliver to your business, it s important to educate yourself about the specific benefits and features you ll want from your ERP. Whether you select an open source or commercial ERP, there are some capabilities you ll need to ensure your success. For a list of key requirements, please see Table 2: Top 10 Capabilities Checklist for Integrated Retail Solutions. Table 2: Top 10 Capabilities Checklist for Integrated Retail Solutions POS ERP Customer and Inventory Management Beyond the basics of managing cash intake and common transactions such as refunds by clerk, credit cards, debit cards, checks, and multiple currency support, your POS should also provide visibility and reporting on your inventory status that is actionable by your ERP. Integration with External Devices Ensure your POS system is flexible enough to support various external devices including bar code scanners, scales, customer displays, credit card readers and cash drawers. This provides you with the flexibility to change the retail hardware you use in response to business needs. Payment Gateway Integration To effectively integrate online commerce data with brick and mortar operations, your POS system should offer integration with popular online commerce platforms. ERP Integration To build an integrated retail solution, your POS will need the ability to integrate with an ERP or other back-office applications. Look for POS systems that have pre-built integrations that will reduce your overall costs and time to deploy. Programmable Interfaces Different retail employees will require benefit from user-interfaces that are customized to their specific roles. Ensure your POS has programmable interfaces to facilitate these optimizations. Intuitive Usability For technology to be adopted, it must to be easy to use. Legacy ERP often fails due to poor usability. Familiar application attributes like multi-tab views, spreadsheet-like interfaces and contextual help can greatly facilitate adoption of your ERP. Modularity The ability to add pre-built capabilities onto your core ERP application provides a means to costeffectively add new functionality when you need it. It also ensures a small functional footprint for the core application itself, for faster deployment times. 100% Web-based Return on Investment (ROI) is often difficult to calculate when it comes to evaluating enterprise software. To deliver rapid ROI, your ERP should be 100% web-based to avoid costly and timeconsuming software updates. A web-based solution also dramatically accelerates your speed of deployment. Customizability Generally speaking, businesses should seek to extend, not customize ERP. However, it s important to have the ability to customize your solution if needed. Two factors will contribute to ease of customizability: Modularity, and if your solution is open source - because you can edit open source software with zero license fees. Interoperability To ensure your ERP can work with your existing systems and grow with your business, ensure it can interoperate with other software systems. Generally speaking, open source software uses open standards that greatly facilitate interoperability.

8 COST AND DEPLOYMENT TIME FOR INTEGRATED RETAIL SOLUTIONS As you look for the right integrated retail solution, it s critical that you match your needs and the complexity of the solution you want to your budget and available time for implementation. Legacy ERP has a reputation for cost overruns and difficult implementations. As an example, to help you forecast the cost and deployment time required for Openbravo, please see Table 3: Sample Openbravo Retail Cost and Deployment Scenarios. Table 3: Sample Openbravo Retail Cost and Deployment Scenarios SMALL RETAILER MEDIUM RETAILER LARGE RETAILER # Of Stores # Of Countries with Stores Software Subscription 8,750 / year 90,000 / year 500,000 / year Implementation Cost 20, , ,000 2,000,000 Maintenance Cost Included Included Included Support Cost Included Included Included CONCLUSION Retailers operate in one of the most competitive business environments and today face both challenging times and unprecedented opportunities. Now more than ever, technology can deliver powerful competitive advantages that allow retail operations to become more agile and more efficient. By looking beyond stand-alone POS systems to integrated retail solutions, retailers are becoming smarter and more sophisticated about understanding their business. Doing so allows them to make smarter decisions and gain greater insight into the success (or failure) of individual products, stores and employees in your company. While the prospect of migrating back office systems from spreadsheets or basic accounting packages to ERP style functionality used to be intimidating, the success of open source software to make ERP affordable and accessible to small and medium retailers has changed that reality. Old barriers to using the best technology have been removed, ushering in new opportunities for you to gain new efficiencies that directly impact profit margins. At the same time, integrated retail solutions allow you to improve overall customer satisfaction, setting the stage for more repeat business and increasing same-store revenue. You can realize these benefits by using an integrated solution for supply chain optimization, centralized product pricing and promotions, and ensuring brand consistency across multiple channels and multiple stores even across multiple countries. If you d like to learn more about how an integrated retail solution can impact the performance of your business, Openbravo and our network of certified partners are here to help you. Simply fill out our contact us form at

9 ABOUT OPENBRAVO Downloaded over 2,000,000 times, Openbravo is the world s leading web-based Open Source ERP solution. Downloaded over 250,000 times, Openbravo POS is also the world s most popular Open Source POS. The agile ERP company, Openbravo sells its Professional Edition exclusively through a global network of channel partners whose expertise provides rapid, cost-effective implementation services. Openbravo partners also provide deployment expertise for the rapidly growing selection of over 320 Openbravo modules that add localization and rich functionality to the core product. Openbravo has offices in the U.S., Spain, and India.

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