SAP.info: Mr. Hellgardt, you have been an active member of the working group on retail ever since the German-speaking SAP user group was founded. What developments have you witnessed over the years?
Bernd Hellgardt: The retail industry is dynamic and constantly changing. Take cash systems, for example. They’ve evolved to do a whole lot more than simply “understand” articles and prices – because today’s consumers want to shop with coupons, vouchers, and payback cards as well as with cash and credit cards. A state-of-the-art cash system is therefore highly versatile.
… and can be linked up to a multichannel commerce solution.
Hellgardt: Imagine the situation where a customer has purchased an article online and wants to return it to a brick-and-mortar store. First of all, the management has to decide whether it wants to allow this transaction in the first place and, if it does, whether it has a suitable scenario available to handle it. Naturally, there are systems around that can process this kind of transaction. Nevertheless, there is a certain amount of adjustment effort involved in creating end-to-end business processes. One thing is certain though: the topic of multichannel commerce is here to stay. Internet, smartphone, and cell-phone shopping are adding tremendous impetus to this trend.
“The spotlight is moving more and more toward the consumer”
But multichannel commerce is not the only challenge facing the retail industry right now. The European Union is demanding greater transparency on product quality, particularly from grocery retailers. What exactly is behind these requirements?
Hellgardt: European Union Regulation no. 1169/2011 on the provision of food information, which was issued nearly two years ago, requires grocery retailers to be able to provide information about the origin, content, and quality of the products they sell. The transitional period granted to allow retailers to adapt to these new requirements expires at the end of 2013. What the regulation means for the businesses affected is that they have to meet specific requirements in terms of maintaining their master data: namely, all the relevant data – including their suppliers’ data – must be available in a central location. This is not always easy to achieve, and supplier data often has to be maintained by hand. Generally, though, the Global Data Solution Network (GDSN) provides an effective solution. This is a network of master data pools that are collected at international level and can be made available to stores on site.
So information provision is becoming increasingly important?
Hellgardt: Yes, absolutely. Many years ago, retailers worked on optimizing their quantity flow; then it was the turn of the value flow. Now, the priority is to ensure the flow of information relating to product quality.
Next page: The role of the Customer Activity Repository
This story is part of our special focus on retail. All the articles related to this topic can be found here.
In the end, what we’re talking about here is allowing consumers to feel confident that the products they are buying really are what the packaging says they are.
Hellgardt: That’s right. The spotlight is moving more and more toward the consumer anyway, because retailers know more about their customers now than at any time in the past. They’re looking for a 360-degree analysis: in other words, they want to know about each customer’s buying behavior right down to the last detail, and they want to have this information available at the touch of a button. This kind of visibility is particularly useful for marketing personnel, because they can use it to align their promotion activities more closely to demand. These are requirements that every CRM system needs to meet. A particularly interesting solution is the SAP Customer Activity Repository, which is really coming into its own in the era of multichannel commerce. It offers a harmonized data model for multichannel transactional data that was previously spread over multiple independent applications.
How does that help with analyzing data?
Hellgardt: When used in connection with the right tools, it can be very effective. Which – after talking about multichannel commerce, the food-quality directive, and marketing – brings me to the fourth major trend I want to mention: namely, SAP HANA. SAP HANA accelerates the analysis of immense volumes of data and has been available for the SAP for Retail solutions for just under two months. A forecast run that used to take all night can now be done quickly “on the side”, which means that retailers know which products need to be available and where, much faster than was ever possible before. If, for example, an online retailer has multiple distribution centers and a customer orders several articles online, the system decides in near real-time which center it makes the most sense for the retailer to dispatch the articles from. The retail industry has a huge demand for information and a correspondingly large volume of data to process. SAP HANA will play a very important role here in the future, particularly for brick-and-mortar stores. For example, it can be very useful to know your competitors’ Internet price structure so that you can use it to simulate your own prices in store. A rapid analysis function can be a very valuable asset here.
SAP HANA: faster forecast runs for SAP Retail
Which sectors do you think have a particular need to take action in this area?
Hellgardt: The consumer electronics sector was the first to embrace SAP HANA, with the Media-Saturn Group already making good progress; booksellers followed suit, and then fashion retailers, who were starting to face competition from e-commerce companies such as Zalando. Amazon is now also selling toys online. So toy retailers need to respond. The pressure in retail is so intense that, sooner or later, online selling will enter every corner of the retail industry.
Next page: A license model for retail
But not every retailer will be able to afford SAP HANA, despite the fact that SAP has relaxed its licensing policy (which DSAG celebrated at its annual conference recently). Will small and medium-sized enterprises be able to survive without this key technology?
Hellgardt: On the one hand, you have the retail associations in which SMEs can join together and use joint resources. On the other hand, I hope very much that SAP will develop a license model that fits the needs of the retail industry and of SMEs.
Could you expand on that?
Hellgardt: The possibility in part to suspend or terminate licenses – a measure pushed through by the DSAG – is a step in the right direction and can help with investment in new areas like SAP HANA. SAP nevertheless needs to do even more to address the question of how to set realistic prices for SAP HANA that retailers can afford to pay – because we all know that profit margins in the retail industry are slim. The additional adjustments that SAP made to its license model were chiefly of benefit to those enterprises that were looking to switch from on-premise to on-demand licenses. But that’s hardly relevant for the retail industry, because it tends to be very conservative. Thus, on-demand, or cloud computing, is only relevant in a few specialized areas.
Cloud computing is only relevant in a few specialized areas
Which solutions do you think are the most important ones for the retail sector?
Hellgardt: There are lots of attractive solutions. The SAP for Retail set of solutions is, of course, one of them. German telecommunications company Deutsche Telekom has used the solution to make an app available by which smartphone users can access coupons for bonus buys. SAP Forecasting and Replenishment for Retail and Wholesale Distribution provides vital forecasting functions for finding out how many items of a product are required and how much stock needs to be replenished. And with the help of SAP Promotion Management for Retail, retailers can plan advertising campaigns and assess their potential impact on sales figures and trends. The cross-docking procedure is also an interesting one. It allows suppliers to pre-pack goods so that they can be forwarded straight from distribution centers to stores without being placed in storage in the meantime.
Are you happy with the current software?
Hellgardt: There are always situations in which software reaches its limits. For example, it is currently not possible to process uncalibrated catch weight goods neatly in the system. If a piece of meat does not weight precisely 200 grams, then it is not possible to enter that information cleanly. Another example is reserved inventory management. For example, when a new iPhone is announced, lots of people want to own one, and orders begin to pile up. The ERP system doesn’t know which orders to process first and which priorities to use. These are examples of the scenarios we investigate in detail in the working group and for which we hope SAP will implement an appropriate solution.
Sticking point: when thousands of iPhones are ordered but can’t be delivered
Are there still successful “mom-and-pop stores” around?
Hellgardt: Yes, but I think they’re finding it increasingly hard to survive. One thing is clear though: it’s not necessarily the technocrats who are successful; it’s those who appeal to their customers on an emotional level. Because, although customers are very price-conscious, they also want a retail experience and they want to be confident in their decision to shop with a particular retailer. EDEKA, a German supermarket chain, has recognized this aspect to great effect – with a campaign entitled “We love food”.