PRESENT AND POTENTIAL USAGES OF SCANNER-DERIVED INFORMATION FOR MANAGERIAL DECISION-MAKING IN FOOD RETAILING
by Jeffrey Miller Thomas
Thesis submitted to the Faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of
MASTER OF SCIENCE in Agricultural Economics
APPROVED:
Oran Capps, Jr., Chainnan
Don L. Long David E. K~nyon
September, 1986 Blacksburg, Virginia PRESENT AND POTENTIAL USAGES OF SCANNER-DERIVED INFORMATION FOR MANAGERIAL DECISION-MAKING IN FOOD RETAILING
by Jeffrey Miller Thomas Oral Capps, Jr., Chairman Agricultural Economics
(ABSTRACT)
This study addresses the lag in effective usage of scanner-derived information in managerial decision-making. The purpose of this research is to clarify the informational needs of the various levels of manage- ment in a retail grocery firm and to develop an informational management system to deliver such information. The four specific objectives of this project are: (1) to identify the decision-making roles of the various levels of management in a firm, (2) to identify the present usage of scanner-derived information in decision-making, (3) to identify specific scanner-derived information which could facilitate the decision- making process, and (4) to develop a firm-wide information management system which would provide each management level with the information it needs and would coordinate total firm operations, but would not burden a particular level with large volumes of unnecessary data. The information used for meeting the objectives of this research was largely collected through open-ended discussions with various levels of management within seventeen cooperating retail grocery firms. The discussions placed emphasis on the current usages of scanner-derived data and on how to facilitate the use of scanner-derived data in managerial decision-making. This research substantiated the hypothesis that little use had been made of scanner-derived data for managerial decision-making in retail grocery finns. Also, barriers to the effective use of scanner-derived data were documented. The specific infonnational needs of the various levels of management, as discovered through the discussions with managers of the cooperating firms, were used as the basis for the information management system. ACKNOWLEDGMENTS
First and foremost, thanks must go to the chairman of my graduate committee, Dr. Oral Capps, Jr. His supervision and constant encourage- ment contributed greatly to the completion of this research. His tireless efforts in my behalf, in both my academic and personal life, have contributed greatly to the success of my college career. For these efforts, I will always be indebted. Special thanks are also in order for Dr. Don Long for his service on my committee, for his insights into the operations of the grocery industry, and for his expressions of kindness that have been greatly appreciated. I am also very grateful to Dr. David Kenyon for his service on my committee and for his advice and guidance in areas of my personal life. I wish to formally thank the United States Department of Agricul- ture for funding the research project from which this thesis was written. I would also like to thank John DeMoss and the Virginia Food Dealers Association, as well as Al Evans and the Mid-Atlantic Food Dealers Association, for their help in contacting the firms that parti- cipated in this study. I also would like to thank the following firms for participating in this research: Austin's Warehouse of Groceries; Jeffersonville, Indiana Bon Foods; Dumfries, Virginia Farm Fresh; Norfolk, Virginia Food City; Abingdon, Virginia George's Thriftway; Sykesville, Maryland
iv Giant Foods; Carlisle, Pennsylvania Giant Open Air; Norfolk, Virginia IGA Foodliner; Stuarts Draft, Virginia Ken Lewis - Liquor Discount; Louisville, Kentucky Kroger, Inc.; Roanoke, Virginia Malone and Hyde; Nicholasville, Kentucky Richfood, Inc.; Richmond, Virginia Santoni's Markets; Baltimore, Maryland Ukrops; Richmond, Virginia Value Foods; Baltimore, Maryland Wades; Christiansburg, Virginia Wetterau Food Services; Bloomington, Indiana To my friends at Tech I am indebted for their patience and enthusiasm, as well as for their efforts to make life more enjoyable. To William Park, John Roswell, Chris Grover, and Preston Tucker, I owe special thanks. Finally, a very special thanks goes to my family for providing me the opportunity to continue my formal education. Their support and confidence sustained me through many difficult times.
V TABLE OF CONTENTS
1 INTRODUCTION 1.1 Background...... 1 1.2 Problem Statement...... 2 1.3 Objectives ••••••••••••••••••••••••••••••••••••••••• 3 1.4 Benefits to Food Retailers ••••••••••••••••••••••••• 4
1. 5 Hypotheses • . • • • • • . • . • • • • . • . . • • . • • • . • • • • . . • • • . • . • . • • 6 1.6 Literature Review...... 7 1. 7 Scope ...... 29 1.8 Thesis Organization •••••••••••••••••••••••••••••••• 29
2 METHODOLOGY 2.1 Introduction ...... 31 2. 2 Methodo 1ogy ...... 31
3 OUTLINE OF MANAGEMENT RESPONSIBILITIES 3.1 Introduction ••••••••••••••••••••••••••••.•••••••••• 38 3.2 Specific Responsibilities of the Levels of Management...... 43 3.2-A Chief Executive Officer Responsibilities...... 44 3.2-8 Merchandiser Responsibilities...... 46
vi TABLE OF CONTENTS (Continued)
3.2-C Store Manager Responsibilities...... 51 3.2-0 Department Manager Responsibilities .••••.••.••••. 52 3.2-E Electronic Management Information Director (EMID) and Scanning Coordinator Responsibilities .•••..•. 54 3.3 Sunmary ...... 56
4 FINDINGS OF THE INTERVIEW SESSIONS WITH SELECTED FIRMS 4.1 Introduction ••.•••••••..••.•.••.••..••.••.••...... 57 4.2 Responses of the Chief Executive Officers ...... 58 4.3 Responses of the Merchandisers .....••....•..•••...• 63 4.4 Responses of Store Managers ••.••••••••••••.•••••••• 68 4.5 Responses of Department Managers .••••...••.•••..••. 72 4.6 Responses of the EMIDs and The Scanning Coordinators ••••.••..••.••••••...•••••.•••••••.••.. 75 4.7 Responses of Wholesalers •••••••••••••.••.•••••••••. 79 4.8 Sununary ...... • • ...... • ...... • • ...... 81
vii TABLE OF CONTENTS (Continued)
5 RECOMMENDATION FOR THE DESIGN OF AN INFORMATION MANAGEMENT SYSTEM 5.1 Potential Usage of Scanner-Derived Data in Managerial Decision-Making...... 83 5.2 The Information Management System...... 84 5.2-A Information for the CEO...... 87 5.2-B Information for the Merchandiser...... 96 5.2-C Information for the Store Manager •••.•.••.••••.•• 115 5.2-D Information for the Department Manager ••..•..•••• 126 5.2-E Information for the EMID ..•.••..••••..••..••••..• 128
5. 3 Sulllllary • . . . • • . • • . . • . . • • • • • . • . . • • • • • • • • . • • . • • • • . • • • . 133
6 CONCLUSIONS AND IMPLICATIONS 6.1 Introduction ••••..••••.•••••••••••••.•.•.•.•.•.•••. 134 6.2 Concluding Statements ...•....•.•..••....••....•...• 134 6.3 Potential Implications to Food Retailers •.•.....•.. 136 6.4 Implications for Further Research •.•....•.•.•....•• 137
viii TABLE OF CONTENTS (Continued)
REFERENCES ...... 142
APPENDIX A ...... 144
VITA 150
ix LIST OF TABLES
Table Title Page 1.1 Growth of Scanner Installations •••••••.•••••••••••• 9 1.2 Impact of New Diet Soft Drink...... 14 1.3 Store Topline Summary...... 20 1.4 Primary Summary Report...... 21 1.5 Trend Report...... 23 3.1 Matrix of General Management Responsibilities 41 5.1 Matrix of Potential Scanner Data Contribution to Managerial Decision-Making...... 85 5.2 Personnel Evaluation Reports for the CEO ••••••.•••• 89 5.3 Capital Management/Profitability Report for the CEO. 92 5.4 CEO Report for Evaluation of Advertising ••••••••••• 95 5.5 Department Evaluation Report for the Merchandiser •• 99 5.6 Capital Management Reports for the Merchandiser •••• 102 5.7 Merchandiser Reports for Evaluation of Goals and Strategies ••••••••••••••••••••• ~...... 112 5.8 Personnel Evaluation Reports for the Store Manager. 117 5.9 Inventory management Reports for the Store Manager. 123 5.10 Evaluation Report for the Department Manager ••••••• 127 5.11 Reports for the EMID •....•.....•.•.••...... •.•.•... 130 5.12 Percent Scanned Report for the Scanning Coordinator ...... 132
X LIST OF FIGURES
Figure Title Page 3.1 Organizational Hierarchy of a Retail Grocery Firm • • 39
xi CHAPTER 1 INTRODUCTION
Section 1.1: Background The early days of food merchandising were dominated by small, full-service markets that predominantly handled dry goods and occasionally some meats and produce. However, with the move to self-service groceries, followed by the growth of the supermarket in the
193O 1 s, consumers were able to choose from a full line of products including grocery items, produce, meats, dairy products, and frozen foods {Leed). Since the inception of these merchandising techniques, retail food stores have experienced rapid growth by carrying an ever increasing number of products and by adding new services such as the bakery, the deli, small cafeterias, and even floral shops. It should be evident that this rapid growth, leading to the myriad of products and services currently offered by retail grocers, has tremendously complicated management efforts and has also increased the amount of capital necessary to operate. The result is increased risk and a need for more informed management. Proper management requires accurate and timely information. However, the size of current operations has complicated the acquisition of the necessary data. Because of these facts, the development of the Universal Product Bar Codes {UPCs) and the scanning checkout system may be the most important innovations in the retail food industry since the movement to self-service stores. The scanner checkout systems offer
1 2 tremendous possibilities for securing the information needed in managerial decision-making. Vast amounts of information can be gathered, stored, and then made available almost instantaneously. Never have managers had available such a potent managerial tool. The usefulness of these systems has resulted in a continual shift on the part of retail food stores from conventional checkout systems to electronic or scanning checkout systems. This shift is documented in Section 1.6 of this chapter. Over the last several years, attention has been focused on exploring ways to utilize scanner data for both operational and merchandising decisions. Industry realization of scanning benefits to date have been limited primarily to operational areas via improved checker productivity and faster checkout, greater price accuracy, more efficient labor scheduling, and elimination of individual item price-marking. Although savings generated through improvements in these areas have generally been substantial, many industry observers believe that even greater savings will accrue to the retailer that fully utilizes scanner data for more informed decision-making (General Foods Corporation).
Section 1.2: Problem Statement Good management is based on good information. Because of the highly competitive nature of the food industry and of the very narrow margins within which it operates, food retailers long have recognized that accurate, timely operating information concerning productivity, 3 costs, sales, trends, impacts of both foreseeable and unforeseeable events, and the results of managerial decisions is essential for profitable operation. With the introduction of electronic or scanning checkout systems, tremendous possibilities exist for the generation of data and the use of such data at all levels of managerial decision-making (departmental level, store level, supervisory level, and senior management level). The hardware and software needed to generate data valuable for managerial decision-making is available and retail food distribution organizations have the capability to generate such data. To date, however, it appears that relatively few resources have been devoted to generating and/or organizing scanner data to be used as tools for major managerial decision-making. Along this line, little thought has been given to data collection and presentation in terms of which managerial staff members need the information, what needs the various staff members have, and in what form the staff members could best use the information. Different levels of management are likely to have different needs for information relative to type, complexity, and time span.
Section 1.3: Objectives The purpose of this research is to clarify the informational needs, specific to scanner data, of the various levels of management in a retail grocery and to develop an information management system to deliver the necessary data. In this light, this project has four specific objectives: 4
(1) To identify the decision-making roles of the various levels of management in a firm; (2) To identify the present usage of scanner-derived information to assist in making decisions (type of data, form in which received, and timing of data reception relative to usage); (3) To identify additional information which could improve decision-making (type of data, desired form of presentation, and desired timing); and (4) To develop a firm-wide information system which would provide each management level with the information that it needs and wants, and would coordinate total firm operations, but would not burden a particular level with large volumes of unnecessary data.
Section 1.4: Benefits to Food Retailers Since the introduction of scanning systems, there has been a general conception that the wealth of information made available by the systems could vastly improve the decision-making capability of managers. Now, it is generally agreed that the benefits obtained through the improved decision-making capabilities of managers could far outweigh the gains obtained via the system in the form of reductions in labor costs and reductions in shrink through greater price accuracy. As stated in Section 1.3 of this paper, one of the objectives of this research is to develop an information management system for scanner data that will help 5 finns obtain some of these potential benefits. Among the specific benefits to a firm which could result from this project are: (1) Improved shelf space allocation: Sales volume per item can be compared with the amount of shelf space allocation. (2) Improved labor scheduling: Accurate sales data and customer counts by register, store, time of day, and day of week over a period of time would help in labor scheduling. (3) Improved loss (shrinkage) control: Computer can be programmed to provide periodic reports on shrinkage rates by item or section. (4) Improved consigned goods identification: A clear identifi- cation of all consigned merchandise sold at the store will improve management control. (5) Improved new item evaluation: Obtain quick accurate assess- ment of new item performance. (6) Improved out-of-stock position: Improved product inventory control procedures should help reduce out-of-stocks. (7) Improved advertising and promotion results: It will be possible to evaluate the impact of price specials and special displays immediately and more accurately. (8) Improved pricing decisions: Impacts of price changes readily available. (9) Improved product mix selection: Product movement data will help determine the optimum assortment of merchandise needed. (10) Improved profitability. 6
Possibly the most important benefit well could be the development of an information system designed to meet the needs of the total firm and also of sub-segments within the firm.
Section 1.5: Hypotheses Like any tool, scanner-derived information also must be managed if its full potential is to be realized. To date, it appears that changes in scanning technology have been so rapid and varied that techniques for effectively incorporating the technology into managerial decision-making systems are lacking. This study addresses this lag in effective usage of scanner-derived information in managerial decision-making. In this light, the following four hypotheses are put forward: (1) The implementation of applications of scanner data is difficult to achieve. (2) There has been little use of scanner data by firms to capture the benefits available through applications designed to improve the decision-making process. (3) The industry lacks an information management system that would provide each management level with the information that it needs and wants, and that would coordinate total firm operations, but would not burden a particular level with large volumes of unnecessary data. (4) The design of an information management system, as mentioned in hypothesis 3, is feasible. 7
Substantiation or rejection of the first three hypotheses will be based on a literature search and interviews conducted with cooperating retail firms. Substantiation or rejection of hypothesis 4 will be based on the degree of success in developing an information management system based on information from the interviews with cooperating firms, knowledge gained through the search of literature, and personal experience.
Section 1.6: Literature Review In the February 1986 issue, the grocery industry trade magazine Supennarket Business predicted that 1986 would be the year of the point of sale connection. That is, technological improvements would allow the scanning computer to be directly linked to the retail automation computer and that the resulting improvements in information management, both in store and at headquarters, would serve as a catalyst in resolving problems that have plagued the retail grocery industry (Shulman). While such a prediction was quite optimistic, it was not one that is completely unattainable. Scanning, and the information it yields, already has led to broad changes in the retail food industry such as item non-pricing and evaluation of checker productivity. Scanning has experienced considerable growth since its inception in July 1972 by the Kroger Company in Cincinnati, Ohio. Originally, growth was slowed by reluctance of managers to adopt scanning. Among the reasons for this reluctance was the expressed resistance by consumers and some consumer groups to item non-pricing. However, by 1985 more 8 than 11,000 stores had adopted scanning and more than one-third of all supermarket purchases were checked by scanners (Johnson). Table 1.1, reproduced from the September 1985 issue of Progressive Grocer, gives A. C. Nielsen estimates of past and projected future growth of scanning. It should be noted that the survey probably was taken in early 1985 and the figures for 1984 were preliminary estimates (see Table 1.1). The figures in Table 1.1 indicate the probable continued growth of scanning installations through 1988. If these predictions are accurate, and they seem consistent with current trends, by the end of 1986 there should be nearly 13,000 stores with scanning capabilities which will handle approximately half of all supermarket sales. It should be noted that the growth of scanner installations is increasing at a decreasing rate and that scanning sales as a percent of total sales is monotonically increasing. The increasing number of scanning systems in the grocery industry is indicative of the acceptance of this technology by the industry. Benefits derived from adoption generally have been separated into two categories; "hard" or tangible benefits, and "soft" or intangible benefits. Hard benefits refer to the savings accrued from scanning systems via the improved speed and accuracy in operations. Examples of "hard" benefits include (Capps): 1. Increased checkstand productivity. 2. Reduced shrinkage through improvements in price accuracy, reductions in sweetheart purchases, and improvements in produce margins via more accurate weighing. Table 1.1
Growth of Scanner Installations
Total Number Percent Change Average Number Scanning Sales Of Stores Versus Of New Scanning As A Percent Year With Scanning A Year Ago Stores Per Month Of Total Sales
1979 1387 159-%- 71 6% 1980 2931 111% 129 14% 1981 4568 56% 137 21% 1982 6486 42% 159 28% 1983 8150 26% 139 35% 1.0 1984 9930 22% 148 40% Future Projected Growth 1985 11550 16% 135 45% 1986 12990 12% 120 50% . 1987 14250 10% 105 54% I 1988 15390 8% 95 57% '------!Source: A.C. Nielsen Estimates !From: Progressive Groce~, September 1985 '------10
3. More efficient bookkeeping. 4. Reductions in labor costs through reductions in price marketing and price changes. In general, these hard benefits have provided the justification for investment in scanning systems. While it is generally believed these benefits have provided a good return on investment, most food retailers and industry analysts feel that the soft or intangible benefits offer an even greater return. Soft benefits include savings and/or increases in sales due to improved managerial and merchandising decisions made possible by the wealth of information provided by scanners. Examples of soft benefits include (Ricker, p. 27; National Grocers Association, pp. 9-10). 1. Improvements in shelf space allocation: Comparisons of sales, gross profit, direct product profit (OPP), etc. can be compared to facing or the amount of shelf space allocated and the location on the shelf. 2. Improved inventory shrink control: Shrinkage rates by item or category can be provided. Allows better monitoring of items on deal or allowance and in general allows for more price accuracy. If direct store delivery (DSD) is implemented, the combination of back door and front end information results in an extremely good inventory control system. 3. Improvements in labor scheduling: Accurate sales data indicate sales in certain departments and total sales as well as customer counts at a specific time of day or day of week. 11
The result is improvements in departmental and front-end scheduling. 4. Improvements in DSD goods identification: A clear identification of all DSD merchandise sold at the store improves management control. 5. Improvements in new item evaluation: Obtain quick accurate assessment of new item performance. 6. Improvements in out-of-stock position: Improved product inventory control procedures should help reduce out-of-stocks. 7. Improvements in advertising and promotion results: Evaluate the impact of price specials and special displays immediately and more accurately. 8. Improvements in pricing decisions: Impacts of price changes are readily available. 9. Improvements in product mix selection: Product movement data, dollar sales, and margins help determine the optimum assortment of merchandise needed.
10. Improvements in profitability analysis: A department 1 s
contribution to the store 1 s overhead or a store's contribution to a division's overhead can be readily calculated. 11. Improvements in customer relations: Description receipt tape, increases in checkout accuracy, and increases in speed of checkout. 12. Improvements in store security: Ability to monitor checkers either on store terminals while processing transactions, or by 12
use of statistical analysis of refunds granted, coupons accepted, overrings, etc. Item purchases can be compared to item sales to determine whether there is a noteworthy quantity of any item purchased but not sold. If there are large discrepancies, perhaps items brought into the store as inventory are not being sold but are disappearing through some form of theft or pilferage. 13. Design of fresh meat, poultry, seafood, and produce systems: Use of variable weight UPC symbols provides detailed data which allows control over sales, spoilage, and margins. 14. Other uses: Monitor bad check information, automatic reordering, perpetual inventory, calculation of store gross profits by department and commodity class. Once item purchase (through direct store delivery) and sales data are available, perpetual inventories of items carried at the store level can be maintained. Automatic reorders are based on preparing orders from item sales movement. In general, these applications are placed into one of the following three categories based on the nature of the application (Progressive Grocer Executive Report, May 1985): 1. Tracking: These reports monitor the activities of the business and serve as a means for the manager to spot potential problems and opportunities. 13
2. Analysis: These reports involve the reorganization of data and its combination with other information to answer questions. 3. Experimentation: Searches for the cause and effect relationships between merchandising actions and the change in sales or profit. It is different from analysis since it involves the screening out of unwanted factors via preplanned controls. The following example involving the tracking of the performance of a new diet soda demonstrated the differences among the three categories. This example was taken from the Progressive Grocer Executive Report, May 1985. In this case, a firm was attempting to determine the effects of the introduction of a new two-liter diet soda on the entire category of two-liter diet sodas. To achieve this goal, the firm simply tracked the performance of the two liter diet soda category before and after the introduction of the new diet drink. Table 1.2 summarizes the results. The unit movement index in Table 1.2 gives the number of units of diet drinks sold over the entire category before and after the introduction of the new product. The row (with new drink) gives the total movement of the entire category including the new item. The row (without new drink) gives the movement of the category, before and after introduction, excluding sales of the new product. As shown, the introduction of the new two liter diet soda increased unit sales for the category from 100 to 149 units. The table also shows that almost all of the increase was from new product movement and only six units of the 14
Table 1.2 I Impact of New Diet Soft Drink I 1------1I Unit movement index I I Before Introduction After Introduction! IDiet soda 2 liter I I (with new drink) 100 149 I 1------1!Diet soda 2 liter I I (without new drink) 100 94 I 1------1!Reproduced from: Progressive Grocer Executive Report I I ______May 1985, p. 57. I 15 increase came at the expense of existing diet drinks. The cannibalization of the six units of the existing diet drinks is shown by the reduction in unit sales from 100 to 94 units. Such monitoring of item movement is an example of a tracking application since it simply indicates the results of the merchandising action. An analysis application differs from a tracking application in that it attempts to answer specific merchandising questions rather than simply showing the results of certain actions. For example, various display fonns may have been used in different stores to determine the most beneficial method of introducing the new product. The soda may have been priced at various margins to detennine which method moved more units of the new product or to see which method increased profitability. An analysis application would not necessarily reflect a cause and effect relationship since other factors besides the display type would not be accounted for. An experimentation application, then, would involve the removal of other influential factors so that the results of the various displays and price levels on sales and profits could be analyzed. It might be necessary for the experiment to be conducted in a number of similar stores in areas with similar socio-economic groups. Also, factors such as weather and competitors actions must be accounted for. A search of literature revealed many potential areas of financial gains from these soft benefit applications. However, the literature also showed that actual applications of scanning data have been limited. The use of scanning data as a management and merchandising tool did not 16 begin until the late 1970's or early 1980's (Chain Store Age Super- markets, June 1982). Even now only a few pioneering firms such as Dick's Supermarkets, Randall's, Ralph's, Luck Stores, Marsh's, the Coopersburg, Pennsylvania IGA, Gromer's Supermarket, and a few others have begun to realize some of the intangible benefits of scanning. The following is a list of some applications, especially soft benefit applications, in use in various supermarkets around the country: 1. Giant Food, Inc., Landover, Maryland: used scanner information to track sales of different cuts of meat to determine methoQs which increased sales and profits and reduced waste (Philadelphia Inquirer, June 25, 1978). 2. Ralph's Grocery Co., Los Angeles, California: used scanners to determine the optimum price level for profit maximization of test items (Philadelphia Inquirer, June 25, 1968). 3. Wegman's Food Markets, Rochester, New York: scan and print scannable coupons which reduces the cost of handling coupons and helps prevent the misuse of coupons (Kaplan). 4. Gromer's Supermarket, Elgin, Illinois: developed CASS (Computer Assisted Supermarket System). The program allows for more precise shelf space allocation, and gives reports such as return on inventory investment. CASS will also give the aisle and shelf location of every item plus a numerical code of 1, 2, or 3 which indicates whether the customer must reach up, straight ahead, or down to choose a product. Gromer's was also the first store to scan DSD products at the 17
back door and was one of the first stores to install a Toledo Meat Management system (O'Neil). 5. Lucky Stores, Dublin, California and Ralph's Supermarkets: are using the space allocation software Spaceman II. This software produces color schematics and planograms for straight, staggered, or sloped shelves and for pegboards and freezer coffins. The program indicates sales, gross profit, return on inventory investment, and direct product profit (Supermarkets Launch Test of Spaceman II, Chain Store Age Executive, June 1985). 6. Shaw's Supermarket, Massachusetts: has created its own scanner driven shelf replenishment system. Shaw's also has a shelf management system. The system sets an order point based on the inventory required to meet consumer demands and the amount of the product sold from order point to delivery. When the actual inventory gets to the order point, an order is automatically placed by the computer (Dumas). A March 1985 publication by the Food Marketing Institute (FMI) entitled Retailer Applications of Scanning Data provides additional insight into current applications of scanner data in retail groceries. The report, prepared for FMI by Willard Bishop Consulting Economists, Ltd., consisted of twelve separate scanner applications. The documentation of these applications was the result of interviews with approximately sixty progressive companies to determine the type of applications in which they were involved. In this survey, the current 18 applications of scanner data were found to address problems in one of five general categories. Of the twelve applications listed, three dealt with shelf management, two dealt with managing promotional inventories, three dealt with profit improvement, two dealt with evaluating merchandising alternatives, and two dealt with ways in which scan data are being used to set buying guidelines. It is evident from the preceding examples that supermarkets are capable of using scanner information as a managerial and merchandising tool. If, however, a supermarket desires outside help to achieve some of the benefits available through scanner data, there are several market research firms with expertise in this area. TRIM Inc. and Behaviorscan are two notable examples. For example, the Los Angeles based TRIM Inc. was hired by a midwest retailer to determine the comparative advertising effectiveness of four competing newspapers (Chain Store Age Supermarket, June 1983). The previous examples of practical usages of scanner data by various supermarkets and market research companies represent isolated cases of attempts to capture the benefits of scanning. The most comprehensive and up-to-date published report relative to applications of scanner data found in the literature was the Scanlab project. The Scanlab project was initiated in 1981 as a joint effort between the General Foods Corporation and Dick's Supermarkets of Platteville, Wisconsin. The purpose of the project was to aid the retailer in achieving a more effective use of scanner data. 19
The Scanlab system was designed to deliver information in the form of three reports: the Store Topline Report, the Primary Summary Report, and the Trend Report. These reports can be used in a large number of applications including analysis of product assortment, new item tracking, item movement, retail sales dollars, gross profit, return on inventory investment, and shelf allocation using Scanlab alone or in conjunction with a packaged shelf management system (Chain Store Age Executive, May 1985). These reports were designed to be a comprehensive and functional managerial and merchandising tool. The reports can handle multiple departments, categories, and sub-categories and can be generated on command or on a regular basis. The Store Topline Report (see Table 1.3) was designed to give management a tool to monitor department performance. The report gives performance by category or commodity class within a department. Also reported were the number of items tracked within each commodity class, the movement in absolute terms and as a percentage of department totals, sales volume in dollars and as a percentage of department totals, and gross profit in dollars and as a percentage of the department totals. In addition, the report also gave an estimated shelf inventory allocation, a figure on gross profit per cubic foot based on the estimated allocation, and the return on inventory invested (General Foods Corporation). The Primary Sunmary Report (see Table 1.4) was designed to be a tool for analysis of the performance of all items in each category. The report gives a description of the item and indicates factors that could 20
Table 1.3
STORE TOPLINE SUMMA.RY
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f"lt"'...:EN DIN'ERS iz, 3111 l,Sl• ,, 74 n: ,., ""'· 75 s., r.i.az s., ~.z, ...... - n7 "'°1%NKI::::~ln' ta z• o • .s 4t.OS ., s.n ... 0.111 :1, !..OS S7 n11 nt=II lll!EAO l)O_gc ao l~: ,.o U!.S7 :. , 54 .. M ... o c. 7' .:.,o:7 ?.3, :.: ' n, F1ICZEN C.V.ES n z.l o.• 43 .. 'K ., lt. ,o .11 O. Z6 s:, C."""" -- no· f"lt"'...l%N PIES UC CR'.:S:"S 70 S7 ~-- n.,a l.O li'.?a l.3 o ...... s,, :..JS 47 n1 FRCZEk s>EtT ROLL:: l!IAHI l CllP'nUQIT l "'2 &Y l::DER.A.L fDCCS C>'tPOllA. n°"• ALL ,C:GKTS R£SUIYEII. Sou:::ce: ScanLab: Scan Da~a Fa::: Me:::chandisinc Decisic~s, Gene:::al Foo~s Corpo:::a~ion, 1984, p.4. 21 Table l. 4 PRIMA.KY SUMMARY REPORT Tl1 SCANLJ.6 l'lll11UY SV1".lRY REPORT ST'OAE!SI: DICK •s SUPE R.11.lllKET OEPARTWfHT: 01 !:ROC:ERY OlTclS): l:/1,1a1 - Ol/2:,/&4 o,, aoscceEL Cett10DITY CUSS: osa Ite;TAHT POT.I.TOES f!~.&.L W!H.IS I: 30 - 35 I A\IEIUG( HUI( / 1-- InM % o, CL C:.:: ---I RET.lIL c:i.:::ss l:R= E::T •nAil CSl::""....!i ~MEL' ITEl'1 TllT.lL l>IIT :..r.LtS PRor:T PAF'T • SHElf AOI: 1tc:1 U-i:T ULES ••orn lUVEM . C:OOE ITE11 DESClll PTIC>< l'I( S:z! t1:7YEl1T POJVEl1T C\J rT IHVEN DOLLARS IN!JEX ,o,,£11T cu rT ZSZ0410 IIC 11.lSKED l'OT.lTO !IUDS lZ 5 oz l5 3 l. loO .•D 1.03 13 !,.54 .... ~.'" . 7 .e Le .l ZSZ0:70 IIC 11'-SKED POTATO IUDS 12 U..75 45 , . 7l :.n l.&4 17 7.ll ., !.7 4. 3 4. S ! . " .l ZSZOJOD IIC 11.lSKED POT.I.TO !IUDS 1: :a oz ,. H• 3t.S5 1::. ,1 3.,, Z4 17."7 ZZD 7 .3 l :- . l Z!.'" l'-." ZSl&? Source: scanLab: Scan Da":a 'Fe::- Yie::::-cha:-ic.isincr D,::::..s:..::r:s, Gene::::-al FoocsCo::-pora~ic::1 1 1934., P. 5 · 22 influence the sale or gross profit such as allowances, direct store delivery items, and the occurrence of merchandising activities. Also, the report gives several measures of weekly performance such as unit movement, retail sales dollars, gross profit dollars, gross profit per cubic foot, estimated shelf inventory, and the return on inventory invested. This report could be used for shelf allocation, new item tracking, and seasonal and holiday product analysis (General Foods Corporation). The Trend Report (see Table 1.5) was designed to test new merchandising concepts or strategies. The report is able to evaluate item movement for a period of thirteen weeks. Therefore, the effects of a merchandising change on profits or sales can be tracked to determine the profitability of the change. The report is provided on command, but can be set up for generation on a regular basis. In addition, the report gives retail price, retail sales dollars, gross profit dollars, gross profit dollars per cubic foot, estimated shelf inventory, return on inventory investment, unit movement, and purchase incidence on a weekly basis for a period up to thirteen weeks. Also, the reports can be customized to include only those measures desired (General Foods Corporation). The ScanLab study and the applications by the handful of pioneering firms are representative of the benefits from scanner data that are currently being realized. These cases do not, however, indicate the current degree of usage of scanner data in achieving potential benefits in the industry as a whole. This topic was addressed in an October 1985 23 Table 1.5 TREND RE.PORT Tl1 SCANLAa TIIEND REPOO!T STI>RE IS I: DICX'S suPE~ET CXPK)DIT'Y CUSS: 015 PE»I.Jf MITTER OUESISI: ll/Zl./83-ol./:V"" OS L.»C.LSTER fl:;cJ.l WEEK IS I: Z•-35 l«-2' 1«-Z7 "°'-za i«-z, l«-30 *-Sl *-lZ l«-33 l«-34 ""'-35 ?nN CtlllEr 13.,.uo uPC CDDEt 03 700000410 InN OESCIIIPTI0N1 .JX,' CIIUCIIY PE»I.Jf IIUTTil SIZf.: la DZ • C0Ll.t'N r LAC:S A A A i.aT ICY!11EMT' 3 , 5 u 47 4 PURCHASE INCIDEICE ' " RETAIL PRICE l.53 l.Sl l.Sl l.51 l.53 l.3a l.Sl l.S3 l.S3 l.S3 RETAIL SALES DOLLARS 4.5, ,.ia 13. 77 7.'5 i,.a, ..... , s.o, ,.1z , . la 4 .s, I.ROSS PROrIT DOLLARS .3, .7Z t.07 1.15 :.,, l.41- .24 .... ,;z .3• GROSS PROFIT DOLLARS/CU. FT. .7Z 1.24 3.18 z. :.: 3. ,1 .u- .Sl .aa l.24 . ;z EST. SIIELF INYElfTORY 14 1' la lS Zl 47 13 15 1' 14 ROII DOLUJtS .,s 1 ••• 4.60 l,07 S.70 l.ll- .,a l.18 1.,, .,s ITEl1 Ctlll E : u,:i.aao uPC CODE, D37D00004ll ?nl1 DES...'"IUPTION: .Jir CIIUCKY PUN.IT IIUTTil s:.zt: za DZ • C0Ll.t'N rLAc:s l.tCT ICY!l1EMT' 3 4 5 3 z 7 s s 4 PURCHASE INCIDflCE ' RET.UL PRICE Z.34 Z.14 Z.3 :TEN CC'DE: ]3"3640 UPC C0DE: 0370000041Z ITEN DES::IUPT'l:ON: .JIF CJIEAJ'ff PEAHIT MITTER '-0 DZ • C0Ll.t'N FUQ =· ,. i.aT 110\/ENEMT' s ll lZ , 7 3 8 8 7 PVRCH.&SI: nc=DflCE RET I.IL PRIC~ s.z, s.z, 3.z, !.Z~ s.z, s.z, 3 .:, 1.z, : . :, 3.:, RETUL SJ.Le:; DOI.URS U. ITr.1 CODE: 13637"0 UPC CODE: 03700000413 IT'EII OEs::RIPnON: .Jif CIIUCIIY PEAHIT IIUTTil s:ZE: 4-0 oz • COLl.t'N FU.C:S I.M:'T P10VEt1EHT .. 3 z 4 s PURCHASE I>CIDEICE RET.&.It. PUCf 3.z, . :!,.%, 3. z, s.z, 3.z, s.z, 3. z, 3 .z, ! . 2, ?..:, RIT .:.:l s.&US DOLLARS ,.a7 u..1, ,.u %!.CS 3.z, '.SIi 13.H l.:, ,.u h,45 GROSS PROl"IT DOLLARS . "° l.ZD .,o i:.lD .30 .•0 1.:0 .30 . ,o l.50 GR= PROFTT OOLU.JIS/'CU •. fT. l.ll ~.l'- l.ll z.00 .... .az l.l4 l.ll 1.,a ES':'. SIIELF INYENTDRY 1D !l 10 l3 8 ·""e 10 ll ROII DOLu.RS l.57 l.'tO 1.57 z.ai, ••s l.1' 1.,0-- .•s l.57 :.3; Sou.:-ce: ScanLab: Scan Dat2. Fa:- Me:-chandisincr Decisio::1s, General Foods Corpora-:.ion, 198¼, p. 6. 24 report of a survey conducted by Willard Bishop Consulting Economists, Ltd. The survey was composed of a cross-section of twenty companies including chains, independents, and wholesalers. The purpose of the survey was to determine the current use of scanning data, determine the directions of further development of applications, and to define the barriers to the implementation of these applications. Based on in-depth personal interviews with all levels of management in the grocery industry; including the management of wholesalers, independents, and chains, it appears that the survey conducted by Willard Bishop Consulting Economists, Ltd., as reported in Competitive Edge may overestimate the current use of scanner data by combining current usages with expected future usages. The findings from this research will be reported in a later chapter. Also, the direct store delivery movement report referred to in Competitive Edge is not a report generated by front end scanners. The results of the survey indicate that most companies are currently using scanner data to achieve some form of product movement report. Seventy-five percent of the companies surveyed used one or more of five types of product movement report, with no single type of report clearly preferred. The three most popular reports, each being used in about twenty-five percent of the companies surveyed, were: (1) a direct store delivery report showing movement and price of direct store delivery items; (2) an advertised item report showing movement and price history for items advertised or displayed; and (3) a zero movement report which lists the items with no activity. The other two reports, 25 used respectively by ten and fifteen percent of companies surveyed, were a retail price exception report which listed the items scanning at a price different from established headquarters prices and a profit report which matched item movement with gross profit (Competitive Edge). The survey also indicated several applications currently being developed in a number of the surveyed companies. Shelf allocation applications were clearly the most popular area of development with thirty percent of the surveyed companies working in this area (Competitive Edge). Space is obviously a valuable convnodity since it generates both sales and profits. Therefore, the emphasis being placed on space allocation is not surprising. The emphasis on shelf allocation is readily visible in the number of computerized shelf management systems on the market such as COSMOS (Computer Optimization and Simulation Modeling for Operating Supermarkets), HOPE (Higher Operating Profits through Efficiency), SLIM (Store Labor and Inventory Management), Accuspan, and Spaceman II. Basically, all these systems determine space allocation and product assortment based on historical item movement. Other applications under development which involve the use of scanning data, as indicated by the survey, include a direct product profit report (15% of companies surveyed), automatic reorder systems (10% of companies surveyed), coupon scanning (10% of companies surveyed), and merchandise exception (10% of companies surveyed). The survey also indicated that ninety percent of the executives interviewed desired continued development of scanner applications in their companies (Competitive Edge). 26 Obviously, there is considerable untapped potential for profit in the grocery industry in the form of the intangible benefits of scanning. These benefits have been identified, and to a degree have been realized in the industry by a limited number of pioneering companies. The limited involvement in the search to realize the benefits of scanning by the industry as a whole is surprising in view of the considerable success of the companies experimenting with applications to date and is an issue that will be addressed in this study. Many of the reasons for not using scanner data, such as the limitations of scanning systems and exorbitant problems with UPC codes, are becoming invalid. Technology has progressed to the point where it is no longer a limiting factor. The use of scanner data as a viable tool for making business decisions is moving from the experimental stage and entering the applications stage. The problem has become one of determining what management would like to do with scanner data and finding if it can be done with a reasonable return on investment (Partch). The financial limitations placed on companies by the previously high initial investment necessary for installation have been reduced via the decreasing costs of scanner systems. For example, one study, based on a $75,000 investment for a five unit installation, showed that a weekly sales figure of $57,000 would be sufficient to recover the cost of installation in less than four years (Fletcher, Trieb, and Edwards). This figure was based only on returns from hard benefits and therefore any realization of soft benefits would reduce the period for recovery. 27 Despite the apparent benefits, it was estimated that less than ten percent of firms with scanning systems are making use of the data for decision-making purposes (Capps). It can be deduced, then, that there are barriers in the industry hindering the progress of the realization of the many benefits. In the previously mentioned survey by Willard Bishop Consulting Economists, Ltd., seventy percent of the surveyed companies cited limited staff and financial resources as the major barrier to progress in the use of scanner data. Other barriers cited were the reluctance of managers and merchandisers to include the new information in their established decision-making process (35% of companies) and restrictions in internal company coordination (15% of companies) (Competitive Edge). It was generally agreed that these three areas posed the major barriers to the development of scanner applications. Opinions differed, however, between firms and industry analysts as to the largest barrier. Firms tended to cite limited staff and financial resources as the major barriers. However, an industry analyst at the Food Marketing Institute indicated that the reluctance of management to adopt the scanner applications, not financial limitations, was the major barrier to industry realization of the potential benefits (Chain Store Age Executive, May 1985). The survey of literature, and the results of the study to be discussed, demonstrates that a large proportion of the real potential benefits from scanning have yet to be realized. Utilizing scanner data has been compared to trying to take a drink of water from a hydrant; the sheer volume of data supplied is overwhelming. Part of the problem may 28 be that industry leaders are not sure what information they desire from the wealth of information made available and hence are unable to focus on key indicators. Therefore, to keep from drowning in the data, it becomes necessary to develop an information management system that will provide managers with the information they need when they need it. Management in the retail food industry long has been considered an art that has been dominated by managers who make "seat of the pants" or "gut feeling" decisions. Because of these tendencies, structured and formal decision making processes such as those represented by the application of scanner data have been shunned. Now, however, it is becoming necessary for food retailers to search for methods to improve their competitive position. Thus, retailers should begin to take serious actions towards achieving the intangible benefits of scanning, not only because of the potential to attain a competitive edge, but also because the failure to do so could realistically result in the inability to remain competitive. To summarize, many potential tangible and intangible benefits of scanning have been recognized and documented. To date, however, scanning has been used largely as a productivity tool, as seen by its use to reduce labor hours for pricing as well as for making price changes. The industry is just beginning to get beyond the experimental stage of attempting to develop uses of scanner data as a management information tool. As hypothesized, the literature does not indicate any concentrated effort to determine the responsibilities of the various levels of management or any effort to design scanning reports tailored 29 to the specific needs of different managers. The prime objectives of this research, then, are to outline the responsibilities of the various levels of management in the retail grocery industry, from the chief executive officer to the departmental managers, and to develop an information management system that will deliver concise and timely information to management to allow them more informed decision-making. Section 1.7: Scope The information used in this research was collected through in-depth interviews with managers of cooperating firms of the Virginia Food Dealers Association (VFDA) and Mid-Atlantic Food Dealers Association (MAFDA) as well as selected firms in Indiana and Kentucky. Interviews with various levels of management of each cooperating firm provided information on the present data-generating capabilities of the firms as well as information on the present usages of scanner derived data for managerial and merchandising decision-making. Section 1.8: Thesis Organization In Chapter 1, the hypotheses, objectives, and problem statement of this research project were presented. Background information on scanning in the grocery industry, potential benefits to food retailers from this study, and the findings of an in-depth search of literature for the current usages of scanner data were also presented in Chapter 1. The remaining chapters focus on the interviews with the cooperating firms and the development of an information management system for 30 scanner data. Chapter 2 covers the methodology of the collection of information for the project. Chapter 3 describes management responsibilities based on the interview sessions, the literature search, and other sources. Chapter 4 gives the results of the interview sessions, listing the commonalities and differences by management level for the various firms. Chapter 5 presents reconunendations for the design of an information management system for retail groceries. Finally, Chapter 6 surmnarizes the conclusions and implications of the project. CHAPTER 2 METHODOLOGY Section 2.1: Introduction This chapter describes the methodology used in this research and explains the rationale behind the methods used. An explanation of the constraints on the research is Qiven as well as a discussion of advantages and limitations of the methods used. Section 2.2: Methodology The information used for meeting the objectives listed in section 1.3 was largely collected through discussions with various levels of management within cooperating firms in the grocery industry. However, a search of literature and discussions with industry consultants also provided vital information. The discussions with management referred to in the previous paragraph were considerably different from the telephone interviews with the CEOs of various firms conducted by Willard Bishop Consulting Economists, Ltd. discussed in Section 1.6. Though both surveys were interested in the current usages of scanner data, the objectives of the surveys differed. The objective for the survey conducted by Willard Bishop Consulting Economists, Ltd. was to determine the status quo of scanner data usage in the industry. The objectives of this research included this goal in addition to the development of an information management system for scanner data. Thus, the personal interviews 31 32 conducted for this project included managers at various levels in each firm and placed more emphasis on how better use of scanner data could improve the performance of these managers. For this project, the managers were, when possible, interviewed singly rather than in groups to allow for individual responses and to reveal possible differences of opinion or different conceptualizations of questions between the various levels of management within a firm. The discussions with managers of the various firms were designed so that information was secured pertaining to: (1) the general characteristics of the store, (2) the parameters of authority for decision-making, (3) present data-gathering capabilities, (4) present scanner-generated data usages for managerial decision-making by the various levels of management, (5) Types of scanner-generated data needs of each level of management, and (6) possible methods of securing these needs. The questions presented to the managers were intentionally open-ended. The purpose of open-ended questions was to provoke thought on a particular subject without soliciting a particular response. However, if the interviewee could not respond to the question, or seemed confused as to the gist of the question, it was rephrased for clarification and generally included examples of appropriate responses from previous interviews. When the interviewee responded to a question, the open-ended format permitted further inquiries to clarify the response. In addition to determining the usages of scanner data, technical information was collected including the type of scanner systems used, the type of computer progranming language used, and what 33 types of computer applications currently were being achieved. Each firm also was asked to list and evaluate any software they used, to list any reports they generated (or received from a host), and to provide other assorted information. An outline of the questions and technical information covered in the discussions is included in Appendix A. The Technical Information section of Appendix A was developed by the National Grocers Association. It should be noted that additional questions were asked at some interviews, depending on the particular situation, but the questions in Appendix A were common to all interview sessions. The discussions with various levels of management were conducted with cooperating members of the Virginia Food Dealers Association (VFDA), the Mid-Atlantic Food Dealers Association (MAFDA), and with selected firms in Indiana and Kentucky. The list of firms interviewed was not a random sample. Potential firms were considered from lists provided by MAFDA and VFDA which included names of all firms in their respective memberships which currently used scanner systems. A sample of nineteen firms was chosen from these lists to include wholesalers as well as various retail firms (independents and chains). Finally, the firms were contacted to determine their willingness to cooperate in the discussions. Participation was excellent among independents and smaller chains. However, the larger chains showed much less desire to participate. Several chains declined to participate, leaving Kroger as the only large chain in the sample. Discussions were ultimately conducted with a total of seventeen firms located in Virginia, Maryland, 34 Pennsylvania, Indiana, and Kentucky. The sample of stores chosen for discussions was geographically limited because of cost considerations and time constraints. The following is a list of the seventeen cooperating firms: 1. Austin's Warehouse of Groceries; Jeffersonville, Indiana: A four store retail operation. Store sizes range from 25,000 to 33,700 square feet. 2. Bon Foods; Dumfries, Virginia: A five store operation with two stores scanning and plans to implement scanning in a third. Host services are provided by Richfood, the firm's supplier. The store visited was approximately 25,000 square feet and was currently using a DTS-545 scanning system. 3. Farm Fresh; Norfolk, Virginia: A forty store, multiple zone, operation with all stores scanning. All stores are currently free standing (no host). Several stores are being equipped with DSD systems. The scanning system currently being used is the NCR-1255 series. 4. Food City; Abingdon, Virginia: A thirty store, one warehouse, operation with twenty stores scanning. Three scanning systems are currently being used: (1) DTS, (2) SWEDA, and (3) Datachecker. Also, DSD systems are being installed in several locations. 5. George's Thriftway; Sykesville, Maryland: A one store operation with an area of 25,000 square feet. Their supplier 35 offers host services but George's has its own in-house service. The scanning systems currently being used is the NCR 8258-1255 series. 6. Giant Foods; Carlisle, Pennsylvania: A thirty-nine store operation with twenty-six stores operating National Semiconductor scanning systems. The company provides its own host system. The store visited was 34,000 square feet with 17,000 square feet in selling space. 7. Giant Open Air; Norfolk, Virginia: A twenty-three store operation with six stores scanning. The firm also has fifty Tiny Giant convenience stores. In addition, the firm has sixteen DSD sites, Richfood is currently providing scanning host services. The scanning system in operation is a DTS unit. 8. IGA Foodliner; Stuarts Draft, Virginia: A one store operation with 12,000 square feet. The scanning system being used is the DTS-500D series. 9. Ken Lewis - Liquor Discount, Louisville, Kentucky: A one store (5000 item) operation with plans to add an additional store. The firm has scanner and DSD capabilities. The CEO plans to tie all systems to a central computer. 10. Kroger; Roanoke, Virginia: A 108 store division with sixty-one stores scanning and plans to install scanning systems in twenty additional sites. The scanning vendors are NCR and IBM. The division also has DSD sites operational. 36 11. Malone and Hyde; Nicholasville, Kentucky: A cooperative wholesaler supplying independent stores. The company provides host services to members. 12. Richfood, Inc.; Richmond Virginia: A cooperative wholesaler providing host services to fifty member stores. The basic services include price changes and product movement reports. 13. Santoni's Markets; Baltimore, Maryland: this operation includes six supermarkets (two with scanning systems) and two convenience stores. The supermarket visited had an area of 17,000 square feet. The scanning system currently being used is the NCR-1255 series. 14. Ukrops; Richmond, Virginia: A seventeen store operation with fifteen stores scanning. The firm's host services are provided by Richfood, Inc., their supplier. The store visited had an area of 33,000 square feet with 30,000 square feet selling space. The firm is currently using the IBM-3663 and IBM-3683 scanning systems. 15. Value Foods; Baltimore, Maryland: The operation included ten stores and a warehouse. The firm had no host computer at the time of the interview but had plans to obtain one. The store visited had an area of 31,000 square feet with 28,000 square feet in selling space. The TEC-TS80 scanning system is currently being used. 16. Wades; Christiansburg, Virginia: A six store independent operation with four stores scanning. The firm is supplied by 37 Richfood but does not use the host services. The scanning systems in operation include the NCR-2126 and DTS-540 systems. 17. Wetterau Food Services; Bloomington, Indiana: A wholesaler providing scanning host services. There was no statistical rationale behind the number of firms included in the sample. The rationale for selecting the firms was to include an appropriate mix to make the sample a representative cross section of the grocery industry. The preceding list of cooperating firms includes wholesalers, chains, and independents. Also, the chains and independents interviewed cover a range of sizes and operating philosophies. The sizes of the respective organizations ranged from a single store independent to a multidivisional chain. Operation philosophies of the companies, pertaining to the decision making freedom of the various levels of management, ranged from almost complete control by headquarters to nearly complete autonomy for lower and middle management. Thus, the discussions with managers provided insights into the decision-making process, as well as the usages and desired usages of scanner systems, over the range of retail grocery operations. CHAPTER 3 OUTLINE OF MANAGEMENT RESPONSIBILITIES Section 3.1: Introduction An understanding of the responsibilities of each level of management is needed to develop an efficient information management system for scanner-derived data that would coordinate total firm efforts. Since the search of literature revealed little information on such responsibilities, the first step toward developing the firm-wide information management system was to study and define the responsibilities for each level of management. The findings of these efforts are presented in this chapter as a comprehensive outline of management responsibilities. A major obstacle in the formulation of the outline of responsibilities was the different organizational structures of firms. These differences in organization resulted in variations in the responsibilities of similar levels of management from firm to firm. Because of this problem, a simple, generic, organizational hierarchy of a retail grocery firm (as shown in Figure 3.1) was used as the basis for the outline. Figure 3.1 identifies the management levels of a firm as discussed in this research. The CEO level includes all upper management such as the president and vice-president(s). The merchandiser level includes the buyers and other positions responsible for merchandising activities such as space allocation and advertisement. The store manager level 38 39 Figure 3.1 Organizational Hierarchy Of A Retail Grocery Firm CEO Merchandiser EMID Departmental Manager Scanning Coordinator includes the buyers and other positions responsible for merchandising activities such as space allocation and advertisement. The store manager level includes the store manager and assistant store managers. The departmental manager level includes only the managers of the departments within a store~ The electronic management information director (EMIO) and the scanning coordinator include those positions in charge of the finns computerized systems. The EMID and scanning coordinator basically provide support to the other levels of management and therefore are classified as staff personnel in the organizational chart shown in Figure 3.1. The EMID holds a staff position at headquarters while the scanning coordinator is store level personnel and may be considered to have departmental manager or assistant store manager status. The specific responsibilities of all these positions will be discussed later in this chapter. The reason for using this generic organizational hierarchy was to separately describe the major 40 responsibilities of these six levels of management such that the responsibilities of a manager in a specific firm can be drawn from these general cases. Although their responsibilities differ, the various levels of management are all working toward a common goal for the firm. Thus, decisions made by upper management tend to permeate the hierarchy affecting decisions at all the other levels. The decisions of the various levels of management tend to go through a funneling affect with the CEO making general decisions and the decisions made by the subsequent levels of management becoming more specific. For example, the CEO might decide to operate on a low margin/high volume basis. Because of this decision by the CEO, the merchandiser would have to develop a pricing strategy to achieve an overall desired gross margin and would also be responsible for advertising strategies to achieve high customer counts at a low cost. Operating on a low margin/high volume basis would affect the number of labor hours needed to operate a store. Thus, the store manager would have to develop the store operating budget to insure that each department would be provided with sufficient labor. Finally, the department managers would have to schedule the labor in their departments to adequately serve the customer and to stay within their operating budget. The matrix of management responsibilities in Table 3.1 demonstrates this "funneling•• affect in the decision making process with a progression from general decisions made by the CEO to more specific decisions by store and departmental managers. The matrix includes rows 41 Table 3.1 Matrix of General Management Responsibilities Key: CEO - cheif executive officer KER= merchandiser STM • store manager DPM • department manager E?-:0 = EY.ID sec= scanning coordinator LR• Level of resposibility LI• Level of involvement Level of responsibility or involvement: H • high M = medium L = low I Management Level 1------I CEO I H!:R I STM I DPM I EMD I sec Responsibility I LR LI I LR LI I LR LI I LR LI I LR LI I LR LI ------,...--,--,---I ____ I____ I____ I____ I____ I___ _ Facilities I =----=-~=.;;;;..;;...;;.;___Re al Estate I ------H H L M L L L L L L L L I Buildings I (l)merger I H H L H L L L L L L L L (2) New I Construction! H H L M L L L L L L L L (a) size I H H H H L L L L L L L L (b) design I H M H H L L L L L L (3)Sale of I exsisting sit~sl H H L L L L L L L L L Equipment I (l)purchase I decision I H L H H L L L L L L L L (2)merchandisingl I I I decision! H L I H H I L L I L L I L L L L I ------1------1------1------1------1------Personnel I ______------1 I Hiring Decisions! H M L M I H H L L L L L L I I I I Wage/Salary IHH LL IMM LL LL LL I Incentives/ I I I Bonuses IHH LL IHH LL LL LL I Insurance & I I I Retirement I H H L L I L L L L L L L L I -continued- 42 Table 3.1 (cont.) Manaaement Level s,....,... CEO MER I STM I DPM EMD '--'-- Responsibility DR DI DR DI DR DI DR DI DR DI DR DI ------1------1------1------1------1------1------1I I I I I I I Personnel cont. I I Job descriptions! H H I H H M H L H L L L L I Supervision of I I Subordinates H M I H H H H H H H L L L I Labor scheduling L L I L L H H H H L L L L I Training H L I H H H H L H H H L H I Employee I I I I evaluation H H H H H H H H H M L L ------1------1------1------1------1------1I I I I I I Caoital I Allocation I I I (l)real estate H H L L I L L L L L L I L L I (2)buildings H H L L I L L L L L L I L L I (3)operating I I I budgets H H L L I H H L L L L I L L I (4)eguipment H L L H H M L M L H L L I I .,. I (5)personnel H H L L I M H L L L L I .u L I I I I Inventory I I I (l)product mix H L H H I M M M M L L I L L I (2)display M L H M I H M H H L L I L L I (3)processing & I I I packaging 1 H L H M 1 M L L H L .u I L L I (4)orde::-ing L L H H H H H H L L L L I I I .,. I ( 5) sh::-:..:::.k I L L H H I H H H H L L I L .u I (6)pric~ I I I I integrity H L H L P. H H H H H F. .. ------1------1I I I I I I I Goals & Strateaies I Merchandising .,. I I (l)pricing I H H H H :.. M L L L .u I '-.J L I (2)advertising I H L H .. L L L L L L I L L I Develop Image I H L L P. L H L H L L I L L I Customer service! H L L H L H L H L L I L E I Sales objectives! .. L M H L E L H L L I L L I Profitability I I I ( l) margins I H L M H L H T.u H L L I L H I ( 2) costs I H H H H H H H H M M I L .u I ( 3) net profits I H H H H H H H H L M I L H I Support to other! I I Managers I H L H H M L M L H H I H H I I I I 43 of general responsibilities divided into the four categories; Facilities (land), Personnel (labor), Capital, and Goals and Strategies; and columns of the various levels of management. Each management level has two classifications: (1) Level of responsibility (LR) and (2) Level of Involvement (LI). The responsibility category measures the authority the manager has in the decision-making process concerning a specific responsibility. The involvement category indicates the amount of direct involvement by that manager in that management decision. For each general responsibility, the manager's level of responsibility or involvement is indicated as high (H), medium (M), or low (L). These graduations indicate relative level of responsibility or involvement. The responsibilities of the various levels of management are more specifically in the remainder of this chapter. Section 3.2: Specific Responsibilities of the Levels of Management The previous portion of this chapter defined the management levels to be discussed in this research and the rationale behind the selection of these levels. Also, the levels of responsibility and involvement were outlined for the various levels of management. However, the outline presented was very general in scope. Hence, the remainder of this chapter will specifically focus more on the basic responsibilities of the chief executive officer, the merchandiser, the store manager, the departmental manager, the electronic information management director (EMID), and the scanning coordinator. 44 Section 3.2-A: Chief Executive Officer Responsibilities 1) Profitability goals (for store, zone and firm) a) desired gross margin b) gross profitability c) operating costs d) fixed costs e) net profit f) return on investment 2) Capital allocation a) real estate b) buildings c) equipment d) personnel e) zone and store operating budgets 3) Development of image a) margin/volume considerations b) advertising techniques c) level of customer service/cost considerations 4) Strategies a) pricing (1) zone pr1c1ng (2) store pricing (a) blend method (b) perimeter pricing b) sales objectives c) advertising (1) chain (2) zone (3) store The chief executive officer is responsible for setting the goals and objectives of the company. This responsibility basically involves the development of firm profitability goals, the management of capital allocation, the development of a firm image, and the design of firm operating strategies. Naturally, the last three categories are designed as a means to achieve the most important goal, profitability. Profitability goals, particularly return on investment, are the 45 major endeavors of a business. Since profit is equal to reve~ue less costs, the CEO is interested in indicators of both parts of this deterministic equation. These items are generally analyzed by looking at gross profitability which is a function of gross margin times the number of inventory turns. This figure is adjusted for operating and fixed costs to achieve net profitability. Net profit is divided by total assets to give the return on investment (ROI) the firm is earning. If net profitability and ROI do not meet the firm's goals, the CEO must develop some strategy to bring them in line. Another major responsibility of the CEO is the management of the firm's capital. The CEO is responsible for capital allocation to secure real estate and equipment for the firm's operation as well as decisions on the employment of personnel (especially upper and middle management) and for determining their salaries. The CEO must also set zone and store operating budgets. These costs must be managed in such a way to allow the projection of the firm's image without compromising the firm's profitability goal. The development of a firm image likely stems from the recognition of a niche in the market that will allow profitable operation. A store's image also may evolve over time due to changes in the market. The responsibility of the CEO is to determine what image the company needs to project to secure its profitable niche. To project the desired image, the CEO must develop standards for employee appearance, the level of customer service (in line with acceptable costs), product quality and product mix, display methods, and advertising techniques. 46 Finally, it is the CEO's responsibility to set certain operational strategies for the firm such as pricing methods, sales objectives, and advertising objectives. Pricing decisions are generally made on recommendations from staff members as to appropriate price levels for particular zones as well as techniques for pricing in stores (i.e. blend method or perimeter pricing). The decisions made on sales objectives and advertising strategies are largely tied to the store's image and pricing strategy. Image and pricing strategy dictate the sales volume required by the operation and indicate an acceptable level of costs for a desired level of customer service. In sunvnary, the responsibilities of the CEO are to set profitability goals and objectives for the firm. To meet these goals and objectives, the CEO must decide on the image the firm wishes to project and the operating strategies the firm will use, which are somewhat dictated by the desired image. Thus, the CEO must allocate the limited resources of the firm so that the firm is able to operate normally in the pursuit of its goals. Section 3.2-B: Merchandiser Responsibilities 1) Store layout a) location of departments b) arrangement of selling fixtures c) display (1) location of commodity groups (2) location of individual items (3) space allocation (4) methods of display (5) effects on traffic 47 2) Product mix a) commodity groups ( 1) brands (2) sizes (3) quality b) selection of new items c) cancellation of items 3) Pricing decisions a) margins (1) commodity groups (2) individual items (3) allowances for shrink b) markdowns 4) Advertising and promotions a) theme b) media (type) c) point of sale d) premiums and promotional techniques e) special items f) timing and priority of sales 5) Processing and packaging a) contribution to costs b) meat department (1) trimming (2) package appearance c) produce department (1) trimming (2) display (a) bulk or packaged (b) package size and appearance 6) Inventory and costs of goods (at warehouse) a) ordering methods b)- out-of-stocks c) turnover d) cost concerns 7) Profitability a) price b) cost concerns Once the CEO has determined general goals and objectives for the firm, it is the responsibility of the merchandiser to develop specific plans to achieve these goals. The merchandiser is generally concerned 48 with store layout, product mix, pricing decisions, advertising and promotion, methods of processing and packaging perishable products, inventory control (warehouse), and profitability. Store layout is a major responsibility of the merchandiser since it can directly affect the sales volume of a store. Store layout decisions include the location of departments within the store as well as the location of commodity groups and individual items within the department. Space allocation for departments and for items within departments are of prime importance. Other decisions for the merchandiser include the arrangement of selling fixtures and special displays. The purpose of specific store layouts is to control traffic flow past high margin products, to bring attention to items that may otherwise be overlooked, and to facilitate impulse purchasing. The product mix is important for store image and customer satisfaction. For an effective product mix, the merchandiser must choose products by department or commodity class in a variety of brands, sizes, and qualities in order to meet the customers desires and project the firm's image. For example, a store with a low-cost image and customers with low levels of disposable income may emphasize lower quality products and economy size packaged products. Also, the merchandiser must be continually concerned with the cancellation of products that are poor performers and with the addition of new products. A good product mix and an effective store layout are necessary in order to take full advantage of the stores limited selling space. The merchandiser's pricing decisions are generally made on the 49 basis of a desired gross margin for the total store. Gross margins for departments, commodity classes, and individual items are set according to expected item movement and with allowances for expected shrink such that the desired gross margin for the store is achieved. The merchandiser's other pricing concerns include determining appropriate prices for advertised products. Proper pricing of advertised products is necessary so that the sale of specialized items does not significantly detract from the sale of other items or reduce the store's overall gross margin. The merchandiser has other considerations for advertising and promotions in addition to the pricing of advertised items. Considerations must be given to the theme of the advertisement or promotion as well as the timing and priority of the event. Advertisements and promotions are often planned to coincide with holidays or other special events and are generally given emphasis according to their potential to increase customer counts or total sales for the firm. For each advertisement or promotion, the merchandiser must choose the promotional technique (i.e. coupons or 2 for 1 sales), the type of media to use to best reach consumers, the items to promote (and their prices), and the appropriate point of sale technique to use. The purpose of advertisement and promotion is to promote the store's image and to increase customer counts and sales volume without sacrificing profits. The decisions on methods of processing and packaging perishable items such as meat and produce are responsibilities of the merchandiser. 50 Processing and packaging of such items can considerably contribute to costs. Thus, the merchandiser must determine what method of trimming and packaging meats (i.e. amount of fat trim) and produce (i.e. bulk or packaged) will be most profitable and in line with the firm's image. Another major responsibility of the merchandiser is the amount of inventory kept on hand at the warehouse. The merchandiser attempts to purchase products in a manner to reduce the unit costs and in such a manner to insure the reduction of out-of-stocks. However, excess stock ties up capital resulting in unnecessary costs to the firm. The goal of the merchandiser in inventory control is to buy in a manner to reduce costs and prevent out-of-stocks while simultaneously preventing the build-up of excess stock. This assessment will result in an increase in the number of inventory turnovers and an increase in profitability. The merchandiser also has profitability responsibilities. The merchandiser attempts to increase sales through store layout and advertising and is responsible for setting the desired gross margin for items. This combination largely determines the revenue portion of the equation profit equals revenue less costs. The cost responsibilities of the merchandiser are found in inventory control, in the decision for processing and packaging of perishable items, and in advertising and promotional decisions. 51 Section 3.2-C: Store Manager Responsibilities 1) Personnel management a) labor scheduling b) employee evaluation (1) shrink (2) stocking and displays (3) housekeeping (4) general employee appearance (5) customer service (a) cashiers (i) customers per hour (ii) mistakes (iii) dollars per hour (b) employees at other service stations 2) General operations a) housekeeping b) stocking c) customer service d) inventory control (1) ordering criteria (2) out-of-stocks (3) inventory level (4) turnover (5) vendor supervision 3) Merchandising a) carrying out recommendations of merchandiser b) advertising locally using guidelines c) in store promotion d) limited pricing decisions (i.e. markdowns) 4) Profitability The general responsibilities of the store manager include the maintenance of store standards set by the CEO as well as the implementation of specific directions of the merchandiser. Specifically, the store manager is responsible for store personnel management, general operations, merchandising, and profitability. The responsibilities of the store manager in personnel management include labor scheduling as well as the evaluation of laborers. 52 Criteria for labor evaluation may include the evaluation of shrink which indicates possible over-ordering by departmental managers or improper handling of perishable goods. The store manager would also note shelf and display appearance, store cleanliness (housekeeping), and the general appearance and attitudes of employees in their evaluation. Evaluation of cashiers would include scrutiny of appearance and manner as well as productivity measured by the number of customers handled per hour, the number of items scanned per minute, dollars checked per hour, the number of mistakes made, and the cashier's scanning percent. The store manager is also responsible for overseeing general store operations and carrying out in-store merchandising. Overseeing general store operations includes the management of housekeeping, stocking, customer service, and inventory. Inventory control includes establishing ordering criteria, the maintenance of inventory level to simultaneously decrease out-of-stocks and increase inventory turns by avoiding excess stock, and the supervision of vendors. The merchandising responsibilities of the store manager include carrying out the instructions of the merchandiser concerning shelf set, displays, and promotions. The store manager generally has some flexibility in merchandising decisions concerning local advertising (with guidelines), price markdowns to help move particular items, in-store promotions, and selection of items (from a merchandiser approved list of items). The store manager also has major responsibility for store profitability even though he has little control over price, merchandising techniques, or product mix. However, the manager's 53 performance does affect profitability in several ways. Correctly implementing the merchandiser's recommendations, assuming they use good judgement, should improve sales and total revenue. Also, the store manager can control operating costs of the store through efficient labor scheduling and inventory control. Since the store manager has the ability to control costs and to promote sales in the store, the profitability responsibilities of the store manager are justified. Section 3.2-D: Departmental Manager Responsibilities 1) Labor scheduling and training 2) Inventory a) ordering b) stocking and display c) shrink (i) deterioration (ii) pilferage 3) Merchandising a) location and display of items b) specials or suggestions for specials c) point of purchase promotion 4) Customer relations and service 5) Housekeeping 6) Profitability In effect, the departmental manager's responsibilities are similar to those of the store manager. The departmental manager is responsible for the general operations of his department. These responsibilities include labor scheduling for the department and training of departmental employees in the operations of the department such as stocking and display of items as well as departmental procedures for customer 54 service. Other responsibilities include supervising the stocking and display of merchandise in the department, control of shrink through proper ordering (especially in perishables) and prevention of pilferage, and general merchandising. Although merchandising is largely controlled by the firm's merchandiser and the store manager, the departmental manager has several important responsibilities in this area. These responsibilities include the location and appearance of the merchandise (particularly in the produce and meat departments), suggestions to the store manager for specials or promotions, and promotion within the department with the use of signs or special displays. The departmental manager is responsible for housekeeping within his department and for proper customer service according to store guidelines. The department manager also has profitability responsibilities since his performance in ordering can affect sales by preventing out-of-stocks. Also, in departments with perishable products, careful inventory control can prevent product loss and thus increase profits. Section 3.2-E: Electronic Management Information Director (EMID) And Scanning Coordinator Responsibilities 1) EMID (headquarters staff) a) Upkeep of master price file (1) all items approved by headquarters (2) correct UPCs (3) correct prices b) Supervise store level scanning coordinators c) collect scanning sales data d) provide reports to headquarters staff and store managers. 55 2) Store level scanning coordinator a) price integrity (1) shelf tag price (2) price marked items {if applicable) (3) correct computer file prices b) price changes c) report UPC and file problems to headquarters The responsibilities of the electronic management information director and scanning coordinator are divided into two categories, those of the EMID at headquarters and those of the scanning coordinator at the store level. In general, the EMID is responsible for scanning and computer operations for the entire firm while the store level subordinate is responsible for item price accuracy and the general upkeep of the price file of the store. The EMID is responsible for the upkeep of the master price file so that the file contains only authorized products, all products have the correct corresponding Universal Product Code, and so that all product prices are accurate. Also, the EMID serves as a supervisor to the store level scanning coordinator and helps to resolve problems with the individual store's price file and general problems with UPC's. Finally, the EMID is responsible for the collection of scanner sales data and for its consolidation into useful reports for dissemination to appropriate headquarters staff and store managers. The major responsibility of the store level scanning coordinator is the overall maintenance of the stores price file to ensure price integrity. This maintenance includes verifying that the stores shelf tag prices, individually priced items, and the computerized price file 56 all show the correct price for every item. The result is a higher level of price accuracy which results in customer confidence and a potentially higher profitability for the store. Naturally it follows that the scanning coordinator is responsible for changing shelf price tags and the reporting of price and UPC problems to his supervisor (the EMID). Section 3.3: Summary The degree to which a manager's responsibilities coincide with those outlined depends on how the particular firm is structured. Obviously, as typically is the case with smaller firms, a single manager can wear several different hats and, hence, combine the responsibilities outlined in this chapter. The outline of management responsibilities in this chapter, along with the results of the surveys of firms which are compiled in Chapter 4, serve as the basis for the recommendations for an information management system outlined in Chapter 5. CHAPTER 4 FINDINGS OF THE INTERVIEW SESSIONS WITH SELECTED FIRMS Section 4.1: Introduction The purpose of this chapter is to present the findings of the interview sessions with the firms listed in Chapter 2. The findings of the individual interviews were compiled by management level into one of the following categories according to the position of the manager providing the specific information: (1) CEO, (2) Merchandiser, (3) Store Manager, {4) Department Manager, or (5) Electronic Management Information Director (EMID) and Scanning Coordinator. The interviews with wholesalers were not representative of any of these levels of retail management. Therefore, a sixth category representing the compiled views of the wholesalers interviewed was included. In those cases where a single manager represented more than one management level, each response was evaluated to determine which level was being represented by the particular statement. For example, if a single manager represented the CEO, the merchandiser, and the store manager, each of his individual responses was evaluated to determine which level of authority he was representing by a particular response. Thus, the responses of the manager could be separated into their appropriate categories. The reason for separating the responses into the six categories was to present a clearer picture of the current usages of scanner data by the various levels of management. Also, this division allowed a better 57 58 understanding of the specific needs and desires of the levels of management concerning scanner-derived information. These needs and desires will serve as the basis for the information management system presented in Chapter 5. Section 4.2: Responses of Chief Executive Officers This section presents the findings of the compiled responses of chief executive officers (CEOs). The information presented basically represents the similarities in attitude toward scanning found in the majority of the interview sessions. However, some dissenting opinions and individual responses are given where deemed informative. The following statements made during the interview sessions indicate general attitudes of the CEOs toward scanning systems and the use of scanner data: - 11 ! don't get any reports, I'm a gut feeling manager. 11 - 11 The reports can be used for planning, but they are too slow for immediate decisions." -"Scanning is a tool to better evaluate a department's contribution to a store's performance. 11 -"Cooperation and communications in our stores have increased because of scanning. 11 -"A good scanning coordinator is the key to success." -"We're in business for customer satisfaction. This is where scanning helps us the most." -"We don't want to depend on warehouse movement data. We want to know what goes out the front end, not what we bought." 59 Almost all CEOs interviewed (12 of 14) said they either received or used very little information from scanning, the exception being CEO's who also acted as merchandiser and/or store manager. Of the information occasionally looked at or used, sales recaps by store and item movement by store were mentioned most frequently. Although some CEOs indicated that they did not need any information available from scanning, the majority felt that it could be useful to them if certain problems were overcome. According to the CEOs, there are a number of problems that need to be solved for the scanner data to be more useful. Of these problems, the one most often mentioned seemed to be data overload. That is, the data received by the CEOs were too voluminous and needed to be condensed and consolidated into a more useful form. CEOs of firms using an outside host service indicated that they were not pleased with their host's services for similar reasons. They indicated that the information received from their hosts was not in an easily usable form. They also noted problems with the timeliness of reports from the host and the inability to retrieve data from several time periods. These CEOs also indicated that they felt the host should do research on product placement and shelf allocation. Other problems noted by the CEOs included difficulties in developing a technical communications system for their data. This problem seemed partially due to some limitations of scanner technology but probably was largely due to a lack of funding for proper equipment, software, and personnel. This lack of funding could stem from a 60 resistance on the part of CEOs to increase their capital investment in scanning services until the magnitude of soft benefits is better documented. CEOs also indicated that vendors changing UPCs and limited computer capacity and computer time were problems that needed to be solved. In discussing possible improvements in the scanning information they received, the CEOs indicated several types of data they would like to receive. These responses included information some CEOs already received. The desired information included: (1) gross margins and sales by department (monthly), (2) item tracking for shrinkage reports, (3) evaluation of special (movement), (4) store inventory turns, and (5) the percent of items scanned per store by department (for evaluation of store discipline). The CEOs also noted several goals for scanning in their firms. The most popular goals predominantly dealt with space management in the form of product location, space allocation, and shelf sets. Other goals included improved labor scheduling (front end and other), shrink management, recording of seasonal and holiday movement, improved inventory control, and possible automatic reordering after the front end is connected with direct store delivery systems. In discussing the benefits of scanning currently being realized, it was obvious that improvements in price accuracy, store discipline, and labor efficiency were considered the primary benefits. The CEOs cited these as the major reasons for the improvements in their bottom line since the installation of scanner systems. Though no CEO provided an exact figure on the improvement in the bottom line achieved by their 61 firm, a 1% improvement was the figure most frequently mentioned, with a range from 1% to 10%. Labor savings through reductions in item priced marking and increased checker efficiency has traditionally been billed as the major benefit of scanning. Therefore, it was surprising to find that CEOs were vague as to the amount of labor savings resulting from the installation of scanning systems, if indeed labor savings existed at all. Most CEOs indicated that some labor savings had resulted, but the savings were reduced because of the necessity of hiring a scanning coordinator. Others indicated labor savings of up to 30%, even though they still price marked individual items. Apparently, labor savings generally did occur with the implementation of scanning, but were not as substantial as originally anticipated because of the additional labor required to verify prices and upkeep the price file. Estimated figures for labor savings ranged from about 40 hours per week in a store with a weekly volume of $120,000, to 140 hours per week for a store of approximately of $350,000 to $450,000 in weekly sales. In most cases labor hours for price verification and file upkeep probably had not been subtracted from these figures. Other direct benefits mentioned included reductions in sweethearting by checkers and improved dealings with vendors with the help of movement data. It should be noticed that practically all the benefits mentioned by the CEOs were hard benefits. When questioned as to the extent of training in their firm on the uses of scanner data, the CEOs indicated that there had been little training provided beyond the operational training provided by scanning 62 vendors. There was almost no formal training on the uses of scanner data. Two firms did have some form of committee to discuss the uses of scanner data. The committee in one firm researched scanning goals for the company. The committee in the other firm was comprised of store managers. The store managers met regularly to discuss how they were individually using scanner data to perform their duties. A majority of CEOs indicated that additional training was very much needed. A discussion of potential sources of additional training brought a variety of opinions on who could, or should, provide the service. Several CEOs felt that additional training should be provided by the various grocery associations, wholesalers, or perhaps by private consulting firms. Some felt that the training was going to have to come from inside the firm. Still others indicated that scanning vendors such as NCR, IBM, or SWEDA should provide additional training. Several CEOs indicated major dissatisfaction with the services available from their scanning vendor. They felt that the company from which they purchased the system should at least show them how to use the data. The discontent with scanning vendor services can be illustrated by the following statement from a CEO: "Vendors don't know what we need. We need more help from them •.• or someone. 11 An area of disagreement among the CEOs was what capacity the EMID and the scanning coordinator should fill within the firm. Opinions were divided as to on whether the EMID should fill a staff or a line position, or perhaps a combination of the two. The opinions concerning 63 the managerial ranking for the scanning coordinator were about equally divided between departmental manager status and assistant store manager status. Also, reactions varied as to whether the scanning coordinator should be a direct store employee or whether he should primarily report to the EMID at headquarters. There were concerns that possible animosity between store employees and the scanning coordinator could develop if the coordinator reported to the EMID at headquarters. There was a general agreement, however, that both the EMID and the scanning coordinator should have practical operational experience. Despite the problems involved in operating scanning systems, all CEOs were pleased with them. They stated that scanning generally improved their operations by forcing them to be more disciplined. They also stated that scanners had more than paid for themselves. These favorable impressions persisted even though very little of the potential benefits of scanning have been realized beyond the hard benefits, and even the hard benefits realized by the firms had not been fully documented and may not have been fully realized. Section 4.3: Responses of the Merchandisers This section presents the compiled findings of the interviews with the merchandisers of the various firms. As in section 4.2, the information presented here basically represents similarities in the responses of the merchandisers from the discussion sessions. Again, dissenting opinions and individual responses are provided where deemed 64 informative. The following statements made by merchandisers are provided to help show their general attitudes toward the use of scanner data: -"My job is to decide what items to sell and what prices to sell them at. I fly by the seat of my pants and twenty years of experience. I don't need scanner data." - 11 ! don't know what scanning has to offer." -"Using scanning information will work if you determine what the hell you want from it. 11 -"No one in our organization has a good understanding of how scanner data can be used." -"As far as useful scanning reports go, I'm getting next to nothing." -"We need full time people working on scanning applications." -"We want to get control of the shelves away from the vendors and we feel scanning can help us here. 11 -"Scanning is a good tool for price accuracy and for attributing sales to the correct department." As suggested by these quotes, the compiled findings of the discussions with the merchandisers of the various firms revealed that a large majority of them either received no scanning reports or made very little use of the reports they did receive. Those merchandisers receiving.reports said they rarely used scanner data to help make buying decisions, though isolated examples of such uses were provided. The merchandisers indicated that warehouse movement reports were usually used for such decisions. The basic reports being received by merchandisers were various types of movement reports. Typically, they received weekly movement 65 reports with the number of items or tonnage sold. Some also indicated that they received weekly reports on vendor margins, spot movement reports on request, or quarterly movement reports. Several of the merchandisers did give examples of using this information for shelf sets. However, these were isolated examples of item tracking since none of the merchandisers indicated that they made regular use of scanner data for such purposes. The merchandiser indicated several other specific uses they had made of scanner data, none of which was practiced on a regular basis. The most frequently mentioned use of scanner data, other than for shelf sets, was to use it in dealings with vendors. Four merchandisers indicated that they had used movement data for this purpose. It should be noted that these four merchandisers represent a significant proportion of the merchandisers actually receiving, or attempting to use, scanning reports, The usefulness of scanner data for this purpose was indicated by the following statement made by a merchandiser: "Before scanning we had to take a vendor's word on how a product was moving. Now when they come to us, we can show them what is actually selling." Other limited usages of scanner data (specifically movement data) include shelf allocation, evaluation of display performance, evaluation of advertised items, new product evaluation, one example of movement information being used to measure shrink, and the recording of seasonal and holiday item movement to aid in ordering the following year. Again, none of the firms interviewed conducted these applications on a regular basis. 66 The merchandisers indicated they would like to receive more and better information pertaining to item velocity, new item movement, slow moving items, the top 500 movers in a store, shelf allocation and space management, advertising effectiveness, and a contribution to departmental profit by item. They also indicated they would like to have automatic reordering, display evaluation, information on direct product cost. and direct product profit, and information on the bottom line profits of a department. Obviously, many of these desires will require information beyond what scanning is able to supply. There was a consensus among the merchandisers that their largest problem with using scanner data was that they were inundated by it. The amount of data, and the form in which it was received, made effective use of the information difficult. Several suggestions to help alleviate this problem included converting the movement information for the merchandiser's use into case movement rather than individual item movement. Also, the merchandisers indicated that their ordering responsibilities would be aided by aggregating individual store movement into total firm movement. They also suggested that the various reports be better categorized to suit their needs {i.e. item movement by vendor or manufacturer). The merchandisers also indicated that problems with vendors and manufacturers changing UPCs without informing the retailer would have to be corrected for effective use of scanner data. Other comments by merchandisers reiterated some made by the CEOs. The merchandisers verified that they had received little training on the 67 uses of scanner data. Most indicated that they were self taught and that additional training would be useful. The merchandisers also indicated that, to date, the largest benefits from scanning had come from increased price accuracy and improved discipline. Labor savings were also usually mentioned. A produce buyer indicated that the biggest advantage of scanning to the merchandiser was that it gave him credit for all the sales in his department. This benefit was also mentioned by the CEOs, but for different reasons. While the merchandiser was concerned for getting credit for the sales in his department, the CEO was concerned with the accurate assessment of sales to the proper department so that a clearer picture of departmental profitability would be available for planning purposes. Although few merchandisers had made use of scanner data, the findings of the discussions with them seemed to indicate that most recognized the potential benefits and would make better use of the information if it were presented to them in a useful form. Also, additional efforts in training merchandisers on the uses of scanner data should result in more use of the data. There apparently was some resistance among merchandisers and CEOs to adopting the use of scanner data. This phenomenon, however, is generally the case with any new technology. In general, merchandisers seemed to be in favor of the use of scanning checkout systems, even though they had made little use of the data, because they felt that scanning had benefitted their respective firms. 68 Section 4.4: Responses of Store Managers This section basically presents the colllTionalities found in the discussions with the store managers of the various firms, with minority opinions and individual responses included where informative. The purpose of this section is to shed light on the current and desired usages of scanners and scanner data by store managers. The following statements by store managers are given to help indicate their attitude towards scanning and the use of scanner data: - 11 Scanning doesn't increase production, but it does help you find mistakes quicker. 11 - 11 After managing a store with scanning, I wouldn't want to manage another store without it. 11 - 11 Scanning movement reports help keep salesmen honest. 11 - 11 Price integrity with scanning is very important. Without it you lose customer confidence. 11 - 11 Store managers should probably move up from the scanning coordinator position. 11 - 11 Scanning helps us maintain margins and price accuracy. 11 As suggested by these quotes, the store managers used scanner information more than upper management levels. Even so, the store managers did not make regular use of scanning information to aid in many decisions where it could be useful. Some store managers indicated they received few reports from scanning (or no reports) or that they basically were receiving only production by register. However, the proportion of store managers indicating that they received no reports was smaller than the number of CEOs or merchandisers making similar indications. 69 Store managers generally had a more positive attitude toward scanning than CEOs or merchandisers. One reason for this probably was that scanning has been more useful to the store manager in his everyday activities. Scanning has provided a tool for greater price accuracy and discipline to the store. As indicated by the preceding quotes, scanning has allowed stores to better maintain their margins and to find mistakes more quickly. More store managers {approximately 10 out of 14) indicated they were using scanner data for labor scheduling {generally front end scheduling) and to monitor checker productivity. They also used the information to check sales and gross margins by department. Fewer store managers, though still a majority, indicated that they had made limited use of scanner data for shelf allocation, shelf sets, item tracking, and/or using movement information to deal with vendors. Other occasional uses of scanner data included keeping seasonal and holiday movement files to aid in ordering the following year, checking movement to decide on store operating hours, display evaluation, and shrink monitoring (usually in produce). In addition to the uses of scanner data, store managers indicated that scanning systems have helped to reduce shrink at the front end (i.e. less sweethearting and more accurate prices), to reduce the number of bad checks accepted, to better allocate sales to the appropriate department, to reduce labor costs, and to improve the general attitude of employees. Of all these benefits, store managers cited improvements 70 in price accuracy and increased discipline as the largest advantages to date. A general figure of 97% price accuracy for the entire store seemed to be an acceptable standard by most stores. Labor savings and reductions in front end shrink (other than through improved price accuracy) were frequently cited as major benefits. Again, the amount of labor savings varied from 40 to 140 hours per week. Some store managers indicated that there was no real labor savings at the front end, and very little labor savings overall. Finally, using scanner information for shelf sets and space allocation was seen as a real benefit to only one store manager, indicating how infrequently scanner information had been used for these purposes. As with the CE0s and merchandisers, store managers predominantly cite hard benefits as the only substantial benefits of scanning to date, and some firms have not completely realized these benefits. Store managers indicated that they would like scanner-derived information that could be used for space and inventory management and for improved dealings with vendors. For example, store managers indicated they would like automatic reordering, more and better movement information, zero movement information, evaluation of specials, a vendor movement report, and coupon scanning. Store managers also indicated theyf would like a report to evaluate store employees (similar to the productivity measures used to evaluate checkers). The percent of items scanned by department was indicated as a useful figure for evaluating the operating discipline within departments. However, this figure could be distorted by improper procedures by the cashiers. 71 The largest problem in trying to use scanner information, according to store managers, is the form of the reports they receive. The form of the reports is especially troublesome to managers in their attempts at space and inventory management. Other problems indicated were the capacity of the stores price file, breakdowns of the system, UPC changes by vendors, difficulty in scanning some items, limited cooperation from upper management, and a lack of training on the use of scanning data. Most store managers indicated that their only training with scanning had come from the scanning vendor concerning operational methods. All store managers indicated they were largely self-taught as far as applications of scanner data were concerned. Also, store managers indicated that customer acceptance of scanning had become much less of a problem. The position of scanning coordinator was found to be very important in the opinion of store managers. Several store managers felt that the scanning coordinator was probably the most important store employee. Store managers tended to feel that the scanning coordinator should be a direct store employee rather than reporting to the EMID at headquarters. Also, it was generally agreed that the scanning coordinator should have operational experience. As mentioned, store managers generally seemed more receptive of this new technology than CEOs or merchandisers. The store managers generally agreed that implementing scanning systems had been cost effective. They also felt that it could be even more cost effective if. scanning reports were compiled into a more useable form and if they were given some training on the uses of scanner data. 72 Section 4.5: Responses of Department Managers This section reports the results of the discussions with departmental managers of the various finns. In general, the statements of the department managers on the uses of scanner data reiterate those of the store managers. The following statements made by department managers give an indication of their general attitudes toward scanning: -"Scanning gives me time to do things I didn't use to have time to do. Labor savings aren't that great since we use the time to do other jobs." -"Scanning gives me better communication with the front end coordinator and the store manager." -"Scanning has helped me in two ways. I get the proper price at the front end and I get credit for all produce sales." -"Price accuracy is necessary or you lose customer confidence." -"Movement infonnation helps me keep salesmen honest." The department managers who received reports (about half) indicated that they basically received daily or weekly movement data, margin information, and department sales as a percentage of store sales. The only other report received was a price change report. If the department managers wanted additional information, they had to request it specifically. In several cases, the department manager pulled his own reports from an in-store computer, and these were the only reports he received. In general, most department managers indicated that they were receiving very little information. As far as uses of scanner information are concerned, there was no 73 indication of any application by department managers on a regular basis. There were, however, a number of applications conducted on an occasional basis. These applications included ordering for specials, space allocation, shelf sets, item elimination, and shrink measurement (two cases in produce departments and one in a meat department). It should be noted that the majority of these applications occurred in smaller firms. In larger firms most of these applications were under the authority of the merchandiser. The department managers indicated a number of areas where they felt the proper scanner information could help them. These areas included ordering or inventory management (goal: automatic reordering), more and better information on product movement (including zero movement), evaluation of specials, shrink information, vendor movement, and information for labor scheduling. Obviously, some of this desired information could be pulled from a regular movement report. However, most reports were voluminous and, hence, extracting such information would require a considerable portion of the department manager's time. Therefore, it was not surprising that the departmental managers indicated that the form in which they received their information was one of the largest problems with trying to use scanner data. Delays in receiving reports from headquarters or from a host system was also a problem cited by department managers. A lack of training on how to use the information they received seemed to be a major problem. Nearly all the departmental managers said that they had received no formal training on the uses of scanner data. They indicated 74 that they were basically self taught when it came to scanner applications, but that they had been able to get some help from other department managers, the scanning coordinator, or the store manager. The only other noteworthy problem with using scanner data that was indicated by department managers was with vendors and manufacturers changing UPCs without notifying the store. In discussing the benefits of scanning to date, the departmental managers placed more emphasis on labor savings than did store managers or upper management. This probably was attributable to the fact that they are less cognizant of the additional labor required for price verification and file upkeep. However, the departmental managers indicated that price accuracy and increased discipline had been major benefits to date. The department managers also emphasized the allocation of sales to the proper department as a benefit (especially the produce and meat managers). In general, department managers were pleased with the scanning systems. They indicated that scanning helped them to maintain their margins and had improved their price accuracy. They also indicated that scanning had saved them time, even though some stores still price marked some items. Also, the reduction of shrink at the front end had improved their departmental performance. Basically, scanning had forced them to tighten up their operation and they were therefore operating more profitably. These feelings were evident even though the majority of the benefits to date had been hard benefits. The department managers generally felt that they could further improve performance if they could 75 receive timely information in a useable form and if they could be instructed on how to use this information. Section 4.6: Responses of the EMIDs and the Scanning Coordinators This section presents the results of the discussions with the electronic management information directors (EMIDs) and the scanning coordinators of the various firms. Since the jobs of the EMID and scanning coordinator was to maintain the store's or firm's price file and to provide information to the various levels of management, this section had a different emphasis than the previous sections of this chapter. Emphasis was placed on the responsibilities of the EMIDs and the scanning coordinators, the information they provided to the other levels of management, and their general feelings on scanning's present situation. The following statements by EMIDs and/or scanning coordinators illustrated their general attitudes towards the use of scanning systems and scanner data: -"Reports have been based on what other people thought managers should have, not what the managers felt they should have. 11 - 11 The needs of each manager need to be identified and the reports based on these needs. 11 - 11 So far, scanning has been a glorified toy. 11 - 11 0ur people in the stores aren't using reports. We haven't told them how to use them. Actually, we don't even know. 11 - 11 The problem with hosting is the machine and operator time required. 11 76 -"Nobody knows for sure what they are going to do; they're looking for the ideal system." -"Managers want specific information immediately." The discussions with the EMIDs and scanning coordinators verified the degree of usage of scanners claimed by the other levels of management. They noted very little use by the CEOs; slightly more by the merchandisers with limited shelf sets, space allocation, and use for vendor dealings; and generally more use at the store level with managers using the information for labor scheduling, employee evaluation, and limited use of the information for space management. However, as suggested by the previous statements, there was generally more emphasis in the discussions with the EMIDs and scanning coordinators on the inadequacy of the form of the data supplied by the scanning systems and the host services. Practically all the EMIDs recognized data overload and the form of the reports as major barriers to the use of scanning information. In the survey sample, only one firm interviewed was attempting to compile the information into short reports usable by the various levels of management. Other problems mentioned in these discussions included the limited capacity of computers, problems in developing a (technical) communications system, and problems with corporate acceptance of the uses of scanner data. These discussions indicated that a resistance on the part of CEOs to either use the scanner information themselves or to promote its use with other levels of management was a major barrier to its effective use. The EMIDs felt that headquarters needed to control 77 and promote the use of scanner data. The EMIDs indicated that the CEOs could promote the use of scanning data in several ways. These ways largely dealt with instituting some form of training for managers on the use of scanner information and with taking efforts to improve the form of the reports managers were receiving. The EMIDs and scanning coordinators verified that there had been very little training, made possible to any of the levels of management, other than training on the basic operations of the scanning system. The EMIDs and scanning coordinators described a number of reports that they either pulled themselves or received from their hosts to deliver to the various levels of management. The reports most often delivered were a sales recap by store broken down by department, sales and customer count by cashier, price (change) maintenance reports, and some form of movement report. The movement reports varied from firm to firm. Some firms pulled a movement report on the entire file weekly, others pulled it quarterly, and still others pulled only specific item movements on request. It should be noted that a few of the firms interviewed either pulled no reports or only did so rarely. Other reports used less frequently and by fewer firms included zero movement reports, a report on the percent of items scanned for each store by department, a report on coupons scanned, movement of advertised items, and tonnage reports on produce and meat products. Not all reports were delivered to all levels of management. The EMIDs and scanning coordinators indicated that the CEOs basically 78 received total sales recaps for stores by department, weekly scanning rates by department, and occasionally some advertised item movement. The merchandiser generally received this information as well as more detailed movement information. Finally, the store level generally received sales recaps, price change reports, shelf tags for price changes, scan rates by department, information on checker productivity, and some information on product movement. EMIDs and scanning coordinators agreed with the other levels of management as to the most significant benefits to date resulting from the implementation of scanning systems. Again, improved price accuracy and increases store discipline were cited as the greatest benefits, with better evaluation of departmental performance, labor savings, and more control over gross margins also cited. All the EMIDs and scanning coordinators interviewed emphasized price accuracy and up-keep of the price file as their major responsibility. All firms used some form of price verification. This verification generally included a check of the master file at headquarters with the store price file as well as a check of the store price file with the shelf tag prices. Prices were changed once to twice a week to take care of general price changes due to items either going on sale or coming off promotion. There was generally a continual check to ensure that shelf price tags coincided with the stores price file. The price checks were conducted in a method that ensured that the entire store was covered every four to six weeks. Also, the majority of the firms conducted surprise audits on the stores price accuracy to ensure 79 diligence in efforts toward price accuracy. The EMIDs indicated that they felt their position, as well as the position of scanning coordinator, should be filled by someone with operational experience. This experience would enable them to have a better understanding of their jobs as well as a better understanding of the needs of the managers they are assisting. Also, operational experience would better enable the EMID to conduct research with the scanner data, which they indicated should be done by headquarters personnel and probably conducted under their control. The EMIDs agreed that scanning systems have paid for themselves from the savings they have brought about in the form of increased price accuracy, reductions in front end shrink, and labor savings. However, they also recognized that for additional benefits to be realized, beyond the predominantly hard benefits currently being realized, improvements need to be made in the form of reports being sent to managers and the various levels of management need to be trained to use the scanner data. The EMIDs recognized that for this situation to occur it will be necessary for upper management to promote the use of scanner data. Section 4.7: Responses of Wholesalers This section presents the findings of the discussions with the three firms interviewed that provide wholesaler and scanning host services. Since none of these firms used scanner data to facilitate their buying activities, the emphasis in this section will be focused on 80 the scanning services they offer and their general opinions concerning the uses of scanner data by retail firms. The wholesalers indicated that their scanning services basically included supplying retailers with, price changes, sales recaps, and various information on product movement. The product movement information included weekly and quarterly recaps of units (or weights) sold along with the corresponding UPC, an item description, and the items current retail price. The process for data handling by the wholesaler was fairly simple. They receive the information from the store and proceed to massage and abridge the data. The abridged file is then sent back to the store or chain headquarters where microcomputers are used to pull off reports. The wholesalers indicated that they were aware of some limited use of data for shelf and space movement, labor scheduling, evaluation of special item movement, and for dealings with vendors. They were not aware of any research on item movement and price relationships. The need for simplified reports was recognized by the wholesalers as was the need for a training program for retail firms on the uses of scanner data. There was, however, no indication from the wholesalers of intentions to provide such services. The following corrments and recommendations were made by the wholesalers concerning scanning operations by retail firms: -"In the future only small operations will pay for host services. Larger stores wi 11 have their own host system." (no indication of firm sizes were given) -"Scanner data become more valuable as you get closer to the store level." 81 -"For effective inventory control there is a need for a total system, DSD and front end scanning." -"Retailers seem to be using scanning only for price verification. There is very little analysis occurring." -"The scanning coordinator (in-store) is essential and many independents don't have them .•. They should have an operational background." -"Store personnel will do little if any research." -"Software has been developed by people not familiar with the grocery industry." As indicated by their quotes, the wholesalers seemed to emphasize the same general areas as the retail firms, namely data overload and the lack of training concerning the uses of scanner data. Although they recognize these problems, they do not see it as their responsibility to circumvent them. However, they do agree that there are substantial benefits available to those firms that can resolve the problems and realize the soft benefits of scanning. Even with this knowledge, however, they showed no indication of compiling the scanner data from the firms they host to use for their own purposes. Section 4.8: Su11111ary The discussions with the various levels of management of the cooperating firms has provided information on the current usages of scanner data at each level. Also, problems with current scanner systems and reports, such as data overload and insufficient training on the uses of scanner data, were identified and potential solutions presented. All 82 levels of management generally agreed that the benefits from the implementation of scanning systems have been limited primarily to the hard benefit category, specifically improved price accuracy, increased discipline, and labor savings. The basic findings of these discussions indicate that managers need to be trained on the uses of scanner data and that additional work is needed to develop an information management system for scanner data that will deliver timely and concise information. Chapter 5 of this project deals with the development of such a system. CHAPTER 5 RECOMMENDATIONS FOR THE DESIGN OF AN INFORMATION MANAGEMENT SYSTEM Section 5.1: Potential Ukage of Scanner-Derived Data In Managerial Decision-Ma ing - -- - This chapter presents the recommendations for the firm-wide information management system for scanner-derived data. The objective of the information management system is to provide each management level with the information it needs and wants without burdening a particular level with large volumes of unnecessary data. The design of the information management system was based on the outline of management responsibilities developed in Chapter 3 together with the findings of the discussions with the various levels of management as presented in Chapter 4. The discussions with the various managers revealed specific information that the managers needed, or desired, to more effectively fulfill their responsibilities. In developing the information management system, the indications of specific information were matched with the outline of responsibilities in Chapter 3 so that the various levels of management received appropriate data. Since the information management system presented in this chapter was designed to deliver scanner-derived information, the first step in developing the system was to determine the potential usefulness to 83 84 managers of scanner-derived data in fulfilling their various responsi- bilities. This potential usefulness to managers of scanner-derived data is documented in Table 5.1. Using the same matrix of responsibilities as Table 3.1, Table 5.1 indicates the potential usefulness of scanner- derived data to the various managers for each responsibility as high (H), medium (M), low (L), or not applicable(*). The graduations, high, medium and low, indicate a relative level of potential usefulness of scanner data. Not applicable indicates that the manager has no respon- sibility in this area, as indicated in Table 3.1 by low levels of both responsibility and involvement. Thus, Table 5.1 indicates a combination of the level of responsibility or involvement of a manager concerning certain duties, together with the potential usefulness of scanner- derived data in aiding a manager in the decision-making process. The information management system presented in the remainder of this chapter focuses on the responsibilities labeled high or medium for a particular manager since these are the areas where informational needs can be at least partially fulfilled by scanner-derived data. Section 5.2: The Information Management System This section presents the recolTITiendations for the firm-wide infor- mation management system. As discussed, the informational needs of the various levels of management discovered through the discussions with managers, the responsibilities of the various levels of management, and the potential usefulness of scanner-derived data in meeting the informational needs of managers for specific responsibilities were all 85 Table 5.1 Matrix cf Potential Scanner Data Contribution Tc Managerial Decision-Making CEO - chief executive officer Mer• merchandiser STM - store manager DPM • department manager EMO - EMID sec• scanning coordinator Level cf potential scanner data contribution to managerial decision-making: High (H), Medium (M), Low (L), and Not Applicable(*). Management Level CEO MER STM DPM EMD sec Facilities Real Estate L * * ·• Buildings * * (l)merger L L * * * * (2) New construction L L * * * * (a)size M M * * (b)design L M * * (J)sale cf * * * * exsisting sites L Equipment * * * * * (l)purchase decision L M * * * * (2)merchandising I I I decision M I M * * I * I * ------Personnel -----1------1-----1----- Hiring Desisicns L L I * * * * Wage/Salary L * I L * * * Incentives/ I Bonuses M * I M * * * Insurance & I Retirement L * I * * * * Job Descriptions L L I L L * ·* Supervision of I Subordinates M M I H M H * Labor Scheduling I L * I H * * Training I L M I M M M M Employee I I Evaluation I M M I M L L -continued- * 86 Table 5.1 (cont.) I Management. Level I 1------1 I I I I CEO MER STM I DPM EMD sec I CaEital I I I Allocation I I (l)real estate L * * I * * * I (2)buildings L * * * * * I (3)operating I budgets M * M * * * (4)equipment L L L L L * (S)personnel L * M * * * Inventory (l)product mix M H L L * * (2)display M H M M (3)processing & * * packaging * H L M * * (4)ordering * H H H * * (S)shrink * H H H * * (6)price I integrity I M M M M M M ------1------1 Goals! Strategies I Merchandising I I (l)pricing I H H L * * * I (2)advertising I H H * * * * I Develop I:mage I L L L L * * I Customer Service I L L L L * * I Sales Objectives I H H H H * * I Profitability I I (l)margins I H H H H * * I (2)costs I M M M M L * I (3)net profits I H =-• H M L L I Support to I I other managers! L L L L H H I I I 87 integrated to form this system. The following subsections document suggestions for use of scanner-derived information according to the six levels of management discussed in this project: (1) the chief executive officer, (2) the merchandiser, (3) the store manager, (4) the depart- mental manager, (5) the EMID, and (6) the scanning coordinator. Section 5.2-A: Information for the CEO As discussed in Chapter 3, the CEO is responsible for setting the goals and objectives of the firm. He is also responsible for evaluating the strategies used to meet these goals as well as the evaluation of the employees in the firm responsible for carrying out the strategies. It should be remembered that the responsibilities of the CEO are very general in scope and hence, the scanner-derived information received should be general in nature. Therefore, the monthly reports shown in the following tables are recommended. Table 5.1 indicates that scanner- derived data have limited potential for contributing to CEO decision- making in the facilities category of responsibilities. Because of the limited potential for contribution and since decisions concerning these responsibilities only arise periodically, a report showing sales by department for stores with particular demographic features or item movement for the evaluation of display equipment should be made avail- able on request rather than on a regular basis. Importantly, all of the reports for the CEO are monthly reports. The monthly time frame should provide the CEO with a general sunmary of firm operations without burdening him with unwanted item specific data. 88 If an occasion arises when a CEO desires more specific data, a special report can be requested. The reports were separated into tables according to the category of responsibility for which they were most likely to be used (Personnel, Goals and Strategies, or Capital). However, some of these reports are useful for evaluation in more than one category. Hence, all reports should be delivered simultaneously to allow cross references and to avoid unnecessary duplication of infor- mation. It should be noted that these reports would be most useful to a manager in charge of an operating unit such as a divisional CEO or a zone manager. The monthly reports listed in Table 5.2 are intended for the evaluation of personnel such as the merchandisers and zone or store managers. However, the Sales/Profitability Report would also be useful to the CEO in evaluating the achievement of firm goals and strategies. The Scanning Report provides the CEO with a feel for the operating discipline within the firm, zone, or store. Figures for the percent of items scanned and the price file accuracy are supplied for the firm, zone, or store, and for departments within these operating units. Separation of information into these categories facilitates the location of problems. Percentages for the number of items scanned and for the accuracy of the price file are given for the period just completed (PC) and for the previous period analyzed (PP) to indicate any progress or set back in these areas. Also, the organization of the reports allows comparisons to be made from store to store and zone to zone. Table 5.2 Personnel Evaluation Reports for the CEO Scanning Report (Monthly) Tota 1 Grocery Produce Meat De 1i 7. Scan 7. /Ice. 7. Senn 7. /Ice. 7. Scan 7. /Ice. i. Scan i. /Ice. % Scan % /Ice. PC-PP PC-Pl' PC-PP PC-PP PC-PP PC-PP PC-PP PC-PP PC-PP PC-PP Finn Zone 1 Store 1 Store 2 Zone 2 Store 1 Store 2 co Snles/Profitabllity Trend Report (Monthly) Total Grocery Produce tleat S11ll'~ GP Sales GP Sales GP Sales GP PC-1'1'-PY PC-PP-PY PC-P!'-PY PC-PP-PY PC-PP-PY PC-PP-PY PC-PP-PY PC-PP-PY firm Zone l Store 1 Store 2 Zone 2 Store l Store 2 * PC O period just completed PP• previous period PY• same period the previous year iHfThls format should include other ureas of interest such as frozen foods, the bakery, or the deli. 90 The goal of the Sales/Profitability Report is the overall evalu- ation of firm personnel and the evaluation of firm progress toward goals and strategies. Figures are provided for total sales and sales by department for each store and zone as well as for the entire firm. These sales figures are provided for the period just completed (PC), the previous period (PP), and for the same period in the previous year (PY). These three categories allow the CEO to compare the sales figures of a store or zone to its past performance or to the performance of another store or zone. These reports should be saved to form a historical file for charting sales over time. For additional information for personnel evaluation, the CEO should check the Capital Management/Profitability Report in Table 5.3 and the Advertising Report exhibited in Table 5.4. The profitability figures indicate the overall performance of personnel. The figures are again enumerated for each department within a store or a zone to allow for comparisons and to facilitate the location of problem areas. Additional information beyond that provided by scanning systems is necessary to determine the gross margins in the Capital Management/Profitability Report. The Advertising Report is useful for evaluating the performance of the merchandiser in charge of advertising. Again, not all the information needed for this report is provided by scanner data. The Capital Management/Profitability Report also provides information for the evaluation of the performance of the merchandiser responsible for inventory management in the various departments. 91 Table 5.~ indicates that the potential usefulness of scanner- derived data for capital management by the CEO is limited. However, the development of operating budgets and the evaluation of product mix are shown as areas for potential usefulness of scanner-derived data. In this case, product mix refers to the performance of specific categories such as the gourmet or seafood sections. This information is valuable in determining the relative importance of these categories to firm operations. The Capital Management/Profitability Report in Table 5.3 is designed to give the CEO a general indication of the performance and profitability of individual stores, zones, and for the entire firm. This report is also designed to aid the CEO in developing operating budgets and evaluating the general product mix and pricing strategy of a store or zone. For each operating unit, this report supplies figures as to sales, gross margin, gross profit dollars, estimated inventory turns, weekly average customer count, and average dollar sales per customer. In addition, for each operating unit figures as to sales, gross margin, gross profit dollars, and estimated inventory turns are provided as a total and also by individual departments within the operating unit. As mentioned, the Capital Management/Profitability Report is designed to aid the CEO in developing operating budgets and in evalu- ating the general product mix and pricing strategy for a store or zone. Sales by department and the figures showing weekly average customer counts and the average dollar sales per customer provide the CEO with an indication of the amount of labor and supplies that will be needed to Table 5.3 Capital Management/Profitability Report for the CEO Capital Management/Profitability Report (Monthly) Sales Meat Prod Groc Gross Margin(%) Gross Profit $ Total % Total % Total % Total Total Meat Prod Groc Total Meat Prod Groc Firm Zone Store l Store 2 Zone 2 Store l Store 2 Est. Inventory Turns Weekly Avg. Avg. $ Sales Total Meat Prod Groc Customer Count Per Customer N Firm Zone Store l Store 2 Zone 2 Store l Store 2 *This format should include other areas of interest such as frozen foods, the bakery, or the deli. 93 operate a store or zone. Operational costs vary from department to department and hence, an indication of sales by department is useful in determining operating budgets. This report also allows the CEO to monitor the performance of various categories such as gourmet foods and fresh seafood. The sale and profitability figures by department allow the CEO to evaluate the performance of each department and determine if the overall product mix is effective. The information is provided by store, zone, and for the entire firm to allow comparisons among operating units. This report should be saved to provide the CEO with a historical file of the performance of a particular category. Monitoring the performance of categories would result in a better knowledge of customer desires and hence, may lead to the expansion or deletion of a product category. Table 5.1 shows that scanner-derived data have considerable poten- tial usefulness to the CEO in the area of evaluating firm goals and strategies. Scanner-derived information may be most useful in this area for evaluating sales objectives and profitability goals. Scanner- derived data showing sales by department can aid the CEO in developing store or zone pricing strategies. Knowing precise movement data by department will allow pricing strategies for the departments to be set at competitive levels while maintaining an overall gross margin. The Capital Management/Profitability Report provides the CEO with infor- mation for evaluating sales objectives and profitability goals and also provides a view of sales and gross margins from which store or zone pricing strategies could be formulated. 94 The Advertising Report in Table 5.4 provides the CEO with an overview of advertised product performance. For each operating unit within the firm, total and departmental figures are provided as to the number of items specialized in the previous month, total dollar sales of specialized items, sales of specialized items as a percent of total departmental sales, total gross margin, the gross margin on specialized items, the number of coupons redeemed, customer count, average dollar sales per customer, the percent of customers purchasing specials, and the percent of customers purchasing only specials. The goal of adver- tising is to increase sales and customer counts while maintaining overall gross margins. This information will enable the CEO to monitor the advertising effectiveness of a store or zone and will help pinpoint any problems that may arise. The Sales/Profitability Trend Report, the Capital Management/Pro- fitability Report, and the Advertising Report combine to aid the CEO in pinpointing problems with profitability. For example, assume that total gross margin for a zone fell from one period to the next. This decrease would show up under gross margin(%) for the zone in the Capital Manage- ment/Profitability Report and under total gross margin in the Advertising Report. Evaluation of the figures for the stores in the zone would indicate if the problem was a result of suboptimal strategies for the zone, which would be indicated by similar problems in a majority of the stores, or if the problem was the result of suboptimal perfor- mance on the part of a particular store or department. Table 5.4 CEO Report for Evaluation of Advertising Advertising Report (Monthly) % Special I Specials $ Sales Specials Sales to Total Total GM GM on Specials Total Groc Meat Prod Total Groc Meat Proc Groc Meat Prod Total Groc Meat Prod Total Groc Meat Prod Firm Zone 1 Store 1 Store 2 Zone 2 Store 1 Store 2 I..O u, Avg. $ Sales %Customers % Customers H Coupons Redeemed Customer Per Customer Purchasing Specials Purchasing Only Specials Total Groc Meat Prod Count Total Groc Meat Prod Total Groc Meat Prod Total Groc Meat Prod Firm Zone Store 1 Store 2 Zone 2 Store 1 Store 2 *This format should include olher areas of interest such as frozen foods, the bakery, or the deli. 96 A lower gross margin could result from problems in any of several areas. Customers may be buying more from sections with lower margins, such as the grocery department, and less of higher margin items such as meats, produce, or gourmet foods. If this were the case, the Capital Management/Profitability Report in Table 5.3 would show changes in department sales as a percent of total sales. Lower gross margins for departments in the capital Management/Profitability Report in Table 5.3 could indicate problems with pricing or shrink. If both of these areas seem in line, there may be a problem with sales of specialized items and increased sales of specialized items as a percent of total sales. An increase in sales of specialized items could result from an increase in the number of items specialized or from customers economizing by buying a larger proportion of specialized items. The decrease in gross margin could also be the result of a lower average gross margin on sales of specialized items indicating that prices on these items may be too low. The likely cause of a lower gross margin for the zone would be a combination of several of the problems previously discussed. In this case, the reports given would help the CEO discover the problems and act to correct them. A historical file of these monthly reports is sug- gested to enable the CEO to chart monthly fluctuations of the perfor- mance of the firm. Section 5.2-B: Information for the Merchandiser As discussed in Chapter 3, once the CEO has determined general goals and objectives for the firm, it is the responsibility of the 97 merchandiser to develop specific plans to achieve these goals. Also, the merchandiser is responsible for evaluating the success of the plans in achieving such goals for evaluating the personnel responsible for carrying out the plans. Table 5.1 indicates that scanner-derived data have substantial potential to contribute to the decision-making respon- sibilities of the merchandiser. Although scanner-derived data have little potential to aid the merchandiser in the management of facilities and personnel, there exists considerable potential for the data to aid the merchandiser in the areas of inventory management and the evaluation of goals and strategies. The reports in the following tables outline the scanner-derived data that would be useful to the merchandiser in these areas. It should be noted that not all the information in these reports can be drawn directly from scanner-derived data (i.e. gross margins). However the information that is not a direct product of scanner-derived data is generally obtained from some combination of scanner-derived data and data from other sources. Since scanner-derived data has little potential value in aiding the merchandiser with decisions concerning the management of the facilities of the firm, a structured report based on scanner-derived information is not provided for this area. However, information that may prove useful to the merchandiser in this area may include store departmental sales as a percent of total sales from a store in a particular area. This information could be used as a guide for the layout of a new store in an area of similar demographics. Also, information concerning item move- ment in departments using various types of equipment for display could 98 be used as a criteria for the purchase of additional equipment. This information would only be needed periodically and hence, should only be provided on request. The information needed in such cases would be very specific. Therefore no structured report is developed in this area. In the area of personnel management, the merchandiser has three responsibilities which can be aided by the use of scanner-derived data. These areas are the supervision, evaluation, and training of the per- sonnel responsible for carrying out merchandising activities as described by the merchandiser. The Department Evaluation Report in Table 5.5 is developed to aid the merchandiser in these areas. The Department Evaluation Report in Table 5.5 provides the mer- chandiser with basic data to evaluate the performance of personnel with merchandising duties in individual stores. Also, this report supplies profitability data for the overall evaluation of goals and strategies. Since a merchandiser is often responsible for the performance of one department, the report developed presents data for only one department. If a single merchandiser is responsible for more than one department, separate reports for the different departments should be provided. The report supplies information for all stores under the merchandiser's supervision to facilitate comparisons of performance among stores. For each operating unit, the information on the Department Evaluation Report includes total store sales, total department sales, department sales as a percent of total sales, department gross margins, gross profit dollars earned by the department, department gross profit dollars as a percent of total gross profit dollars, the percent price Table 5.5 Department Evaluation Report for the Merchandiser Department Evaluation Report (Monthly) Dcgartment: Estimated Total Dept. Dept. Sales Dept. GP$ Inventory % Price % Sales Sales % Total GM §!:__1 % Total Turns Integrity Scan I.O I.O Firm Zone 1 Store 1 Store 2 Zone 2 Store 1 Store 2 100 integrity, and the percent of items scanned by the department. Total sales, total department sales, and department sales as a percent of total sales are provided to help determine if the department is achieving a reasonable sales volume for a department in a store of its size. The figures for departmental gross margin, the price accuracy for the department shown by the price integrity percent, and the percent of items scanned are provided as an indication of the operational effec- tiveness and discipline in the department. These figures could be adversely affected by improper ordering or other improper operations in the department. A low gross margin or a low level of gross profit dollars could be caused by shrinkage due to improper ordering or improper handling of products. A low percent of items scanned could result from the sale of items not in the store or firm approved price file. A low percent of price accuracy could indicate improper upkeep of the store or firm price file. Together with information from a physical inventory to help measure shrink, the Department Evaluation Report should provide the merchandiser with a reasonable tool for evaluating personnel performance and for evaluating the sales and profitability goals of the department. In the area of capital management, the merchandiser has little responsibility for the allocation of financial capital. However, the merchandiser has considerable responsibilities in inventory management. Merchandiser responsibilities in this area include the management of product mix, the display of merchandise, processing and packaging techniques, ordering, and of shrink control. The reports presented in 101 Table 5.6 supply the merchandiser with scanner-derived information that will be useful in these areas of inventory management. Inventory management is complicated by the constantly changing inventory mix in stores resulting from the addition of new products and product lines. Changes in customer purchasing practices further com- plicate efforts in this area. The Category Evaluation Report in Table 5.6 provides the merchandiser with a tool to manage inventory by pro- viding a means of evaluating a stores product mix, shelf set and space allocation, and methods of packaging and displaying merchandise. A store's product mix, shelf set and space allocation, and display methods should be continuously monitored because of the addition of new products and the changes in consumer purchasing patterns. lt is impossible, however, for a merchandiser to continually monitor the inventory in an entire store. Hence, the Category Evaluation Report is designed to help the merchandiser spot areas in a store that may need to be evaluated for potential changes in product mix or shelf set. The report divides the store merchandise into categories for evaluation. Categories are chosen from this report for reset purposes. For each category chosen, the Reset Report in Table 5.6 is produced to provide specific information needed to reset the category. The Category Evaluation Report should be provided to the merchandiser on a monthly basis. From this monthly report, several categories should be chosen for reset under the discretion of the merchandiser. The Category Evaluation Report provides information by category as to the performance of the merchandise of the store. For each category, Table 5.6 Capital Management Reports for the Merchandiser Category Evaluation Report (Monthly) Store: Dept: , $ Sales Item , Units 7. $ % 7. Special Specials% Category Description Items Moved Dept Sales Dept GM ill Dept Items of Tota 1 aaa bl>b CCC *This report is based on the Scanlab Store Topline Summary Report as printed in Scanlab: Scan Data for Merchandis- ing Decisions, General Foods Corporation, 1984, p.4...... 0 N Reset Report (On Reguest} Store: Dept: Ca t e.9Q!:i'.: Item Units/ Unit % $ 7. 7. Description Size Case Price Movement Cat. Sales Cat. GM ill Cat. * This report is based on the Scanlab Primary Sun~ary Report as printed in Scanlab: Scan Data for Merchandising Decisions, General Foods Corporation, 1984, p. 5. **The Reset Report shows weekly average figures for the previous period. Table 5.6 {continued) Warehouse Ordering Report (Weekly) Deeartment: Item Total Firm Warehouse Estimated Category UPC Description Size Movement ~Jk. Avg. Movement Wk. Avg._ l-/arehouse Inv. * All indicated movement is case movement. ...... 0 w Specialized Item Report (Monthly: Place on File) Deeartment: Week: Week: Week: Gross Gross Gross UPC Item Price Margin Movement Price Margin Movement Price Margin Movement Vendor Report (Monthly) Vendor: UPC Item Size Price Unil t•1ovement Gross Margin Gross Prof it $ Table 5.6 (continued) Holiday File De2_artment: UPC Description Size Price/Unit Item Movement Gross Margin * The Holiday File should be collected for items indicated by the merchandiser and for weekly periods prior to and after a holiday. The reports should be filed for later use. Slow Movement Report (Monthly) Store Firm or Zone: 0 Del?_artrnent: Period: Category UPC Item Description Size Price Movement * Shows items in each category within a department that move less than 6 units a month. New Item Movement (Monthly) Store Zone or Total Firm: Oe2_artment: Movement ( items or tonnage) Category UPC Item Description \~K WK WK WK 1-/K 105 information is provided as to the number of items in the category, the units moved, unit movement as a percent of department movement, dollar sales, category sales as a percent of department sales, gross margin, gross profit dollars earned by the category, category gross profit dollars as a percent of department of gross profit dollars, the number of specialized items in the category, and the dollar sales of specialized items as a percent of category sales. This report should be saved to provide a historical file to allow the merchandiser to monitor a categories performance over time. Categories with low gross profit dollars or with declining sales or gross profit dollars should be considered for reset. Problems with sales or gross profit dollars in a category could be due to reasons other than problems with product mix or shelf set. Therefore, additional information such as the number of units moved, the number of specialized items in the category, and the sales of specialized items as a percent of total category sales are provided. For example, a particular category may be used for a special promotion and hence have an unusual number of specialized items. Such a promotion would reduce the gross margin of the category and could reduce the gross profits as well. However, the dollar sales and units moved for the category should increase as should the figure representing the number of specialized items in the category. Also, the dollar sales of specialized items as a percent of total category sales may increase. These figures would indicate to the manager that the category had not been performing under normal conditions and hence, a decision to reset the category should not be made based on the figures presented in 106 the report. It should be noted that the Category Evaluation Report is based on the Scanlab Store Topline Sumnary Report as printed in Scanlab: Scan Data for Merchandising Decisions, published by General Foods Corporation. When a category is chosen to be reset and to be evaluated according to product mix, the Reset Report from Table 5.6 should be implemented. This report gives a description of each item in the category and lists the items size, the number of units per case of the product, and the items price. The report also provides weekly average figures (based on the previous period) as to unit movement, unit movement as a percent of category movement, dollar sales, dollar sales as a percent of category sales, gross margin, gross profit dollars, and gross profit dollars per item as a percent of category gross profit dollars. The size of the product is provided to identify the product and to help the merchandiser determine if customers prefer small or economy size items in the cate- gory. The number of units per case is provided so that the merchandiser will know how much space to allocate to the product to enable a full case of the product to be fit on the shelf to simplify stocking efforts. This criterion may be overlooked for slow-moving items. The other information provided gives the merchandiser an indication of the best movers and the most profitable items within the category. These items should be given more shelf space while slow moving, less profitable items should be allocated less space. Also, the movement and profit- ability information should be used to determine which items to delete to provide room for new items. This report is based on the Scanlab Primary 107 Sunmary Report as found in Scanlab: Scan Data For Merchandising Decisions, published by General Foods Corporation. For experimentation purposes in the evaluation of the performance of special displays or methods of processing and packaging, a slightly modified form of the Category Evaluation Report in Table 5.6 should be used. To use this report for experimentation, the displays or products to be evaluated should be given a category number. The same information would then be provided for the evaluation of displays and packaging as was provided for the category evaluation of product mix and shelf set. The only difference between the reports is that the sales and profit data for the evaluation of displays and packaging methods would be provided for weekly rather than monthly periods. Although the perfor- mance of displays and methods of packaging should be monitored regularly, this report would be most useful if provided only on request rather than on a regular basis. A modified form of the Category Evaluation Report may be used to evaluate the performance of areas such as end displays, special pro- motion displays, or new methods of packaging produce or meats. For example, the merchandiser may want to determine whether or not to use wings of complimentary items on an end display featuring a specialized item. Several end displays featuring specialized items in one or several stores would be arranged in a variety of manners. Some end displays would consist of only the specialized item, while others would be arranged in a variety of manners. Some end displays would consist of only the specialized item, while other would consist of wings of compli- 108 mentary or noncomplimentary products. The performance of these displays would be tracked over several weeks and evaluated to determine the best method of display. By assigning category codes to displays or par- ticular items of interest, the modified version of the Category Evaluation Report enables the merchandiser to more easily conduct experiments in specific areas. The Slow Movement Report and the New Item Report in Table 5.6 should also prove useful to the merchandiser in managing space allo- cation and product mix. These reports should be compiled and delivered to the merchandiser on a monthly basis. The Slow Movement Report lists items by category that have experienced movement of less than six items over a four week period. Items indicated as having slow movement should be considered for cancellation. The New Item Movement Report shows the weekly movement of new items over a series of consecutive weeks. This report should be used regularly to determine if a store or firm should continue to carry a new item. In addition to inventory management at the store level, the merchan- diser is also responsible for ordering merchandise for the warehouse. The reports in Table 5.6 that aid the merchandiser in this area include the Warehouse Ordering Report, the Specialized Item Report, the Vendor Report, and the Holiday File. Each of these reports is compiled by department for delivery to the appropriate manager. The Warehouse Ordering Report is designed to be delivered weekly and contains the UPC, item description, and item size for each item in every category in the department. Movement information for the entire 109 firm is compiled and presented to the merchandiser as total cases of product moved. The information provided for the merchandiser includes total firm movement in cases for the previous week, average weekly movement (cases) over the past eight weeks, warehouse movement for the previous week, average weekly warehouse movement over the past eight weeks, and estimated warehouse inventory. The weekly movement figures, compared to the warehouse movement, should help the merchandiser esti- mate the total amount of inventory in the stores. Comparison of the sales figures to the average weekly sales figures, and of warehouse movement to the average weekly warehouse movement, indicate whether sales of the item are above, below, or on average. These figures could indicate seasonal adjustments or other phenomenon. As asterisk should be placed beside any item being promoted to indicate that this figure should not be used in ordering for normal circumstances. Finally, the estimated warehouse inventory figure provides the merchandiser with an indication of the amount of a product to order so that the inventory at the warehouse will be sufficient to meet the expected demand by the stores for the following week. To assist the merchandiser in ordering from particular vendors, the Vendor Report is developed. This report, shown in Table 5.6, groups items by vendor for the various departments and supplies information on the movement of a particular product for the previous month (total firm movement in cases) as well as information on the gross profit dollars achieved by the product. Ordering for specials and for holidays is an especially difficult 110 duty of the merchandiser. To aid the merchandiser in this area, the Specialized Item Report and the Holiday File in Table 5.6 are developed. The Specialized Item Report is separated by department and gives the price, gross margin, and case movement (or tonnage movement where appropriate) for the last four times the item was featured. The actual sales of a product at a particular price should help the merchandiser to prevent over ordering or under ordering of featured items by enabling him to infer product movement at a particular price from examples of movement at other featured prices. In the absence of cross-price elasticities of demand, the relationship between the specialized price and the quantity sold will have to be estimated. The Holiday File in Table 5.6 is designed to deliver information to merchandisers concerning the movement of selected items over a period of weeks before and after holidays. The merchandiser should indicate the items to be tracked, such as cranberry sauce and dressing at Thanksgiving, and the periods over which to track them. The report will include an item description and UPC, the size of the item, the price per unit of the item, the item movement measured in total cases sold, the item gross margin, and the gross profit dollars earned by the item. These reports would be filed and used by the merchandiser as an aid in ordering for the holiday the following year. Other factors, such as changes in the firm's overall sales volume from one year to the next, may need to be considered to make adjustments in ordering. The merchandiser is responsible for developing specific plans to achieve the general goals of the firm. Thus, the merchandiser needs 111 information for the evaluation of the performance of these plans in achieving goals. As indicated in Table 5.1, scanner-derived information has considerable potential in aiding the merchandiser with decisions concerning the goals and strategies of the firm. Specific areas where scanner-derived data could prove beneficial to merchandisers include profitability analysis, evaluation of achievement of sales goals, and the evaluation of merchandising strategies such as pricing and adver- tising. The merchandiser is generally concerned with the same profitability figures as the CEO, sales, gross margins, and gross profit dollars. These figures are included in the Department Evaluation Report in Table 5.5. As already discussed, this report serves to aid the merchandiser in personnel evaluation as well as with the evaluation of profitability and other goals and strategies. The Department Evaluation Report supplies profitability figures for the entire firm as well as for zones and individual stores. Figures are supplied for total and departmental sales, departmental sales as a percent of total sales, departmental gross margins, departmental gross profit dollars, departmental gross profit dollars as a percent of total gross profit dollars, estimated inventory turns, the percent price accuracy, and the percent of items scanned for the department. The Advertising Report in Table 5.7 provides the merchandiser with an overview of advertising efforts. The effects of advertising within a single department are evaluated for individual stores, zones, and for the entire firm. The information supplied by the report includes the Table 5.7 Merchandiser Reports for Evaluation of Goals and Stratagies Advertising Report (Monthly) Dep_artment: % Customers % Customers # Items $ Sales % Special Dept. Avg. GM # Coupons Purchasing Purchasing Specialized Specials Sales to Tolill GM Specials Redeemed Specials Only Specials Firm Zone Store 1 Store 2 ...... Zone 2 N Store 1 Store 2 Pricing Report (On Reguest) Store: Dept.: Cate.9..Q!..Y.: Item Movement GP i. % Change Category GP$ UPC Description Size % CategorJ'. Price GM To Cat. For 1 Change in Price 113 number of specialized items in the department, the dollar sales of specialized items, the dollar sales of specialized items as a percent of total sales, the gross margin for the department, the gross margin on specialized items, the number of coupons redeemed for the department, the percent of customers purchasing specialized items, and the percent of customers buying only specialized items from the department. The gross margin figures are included to determine if the sale of specials is materially reducing the gross margin of a department. A reduction in gross margin for a particular department could be caused by several factors. Increased sales of specialized items would lower gross margins. Hence, the figures for dollar sales of specialized items and for sales of specialized items as a percent of total depart- ment sales are included in the report. The increased dollar sales of specialized items could be due to an increase in the number of items featured in the department. A reduction in gross margin could also be caused by a reduction in the average gross margin of specialized items. This reduction could be an indication that the prices of specialized items are being set too low. The goal of offering specialized items is to increase customer counts and total sales in the department while maintaining a desired margin. While the departmental sales figures and departmental gross margin figures give an indication of the success of advertised specials, the figures supplied as to the percent of customers purchasing advertised items and the percent of customers purchasing only advertised items provide additional information on advertising effectiveness. An effective promotion should result in a high number of 114 customers purchasing the advertised items, indicating that the specialized items are attractive to customers. A problem exists, however, if a large proportion of customers are buying only advertised specials. This would result in lower departmental gross margins. In general, the departmental gross margin and the departmental sales figures in this report serve as indicators of possible problems with the firms advertising efforts. The other figures in the report are supplied to help pinpoint the problems. The merchandiser is responsible for item pricing in his department to achieve an overall gross margin, or an overall level of gross profit dollars. Since continual monitoring of item prices in an entire depart- ment is difficult, the Category Evaluation Report in Table 5.6 should be used to determine categories with potential pricing problems. A pricing problem could be indicated by low gross profit dollars or gross margins in a department that are either too high or too low. A problem could also be indicated by a noticeable percent change in the level of gross profit dollars achieved by a category over time. In any case, once the potential problem is found the Pricing Report in Table 5.7 should be produced for the category to aid the merchandiser in correcting the problem. The Pricing Report gives the UPC, item description, and size for each item in the category. Also included in the report are figures as to the item movement as a percent of category movement, price, gross margin, gross profit dollars earned by the product, and the gross profit dollars earned as a percent of category gross profit dollars. The item 115 movement as a percent of total category movement and the item gross margin and gross profit dollar figures should be considered in deter- mining if an item price should be changed to achieve an overall gross margin or level of gross profit dollars for the category. In deter- mining whether or not to change an item price, it should be noted that customers are more likely to be sensitive to price changes of fast- moving items. Finally, to assist the merchandiser in determining a new price for an item, a figure is provided for each item as to the percent change in the categories gross profit dollars attributable to a one cent change in the item price. This figure is provided under the assumption that a small change in the item price will not affect the movement of the item, leaving the item movement as a percent of total category movement unchanged. The merchandiser has many responsibilities concerning various operations within a firm. Obviously accurate and concise information is necessary for the merchandiser to effectively perform his duties. The reports in this section are designed to provide the merchandiser with scanner-derived data that would facilitate the fulfillment of these responsibilities. Section 5.2-C: Information for the Store Manager The outline of responsibilities in Chapter 3 listed personnel management, management of store operations, store merchandising, and store profitability as specific responsibilities of the store manager. As shown by the matrix of potential scanner data contribution to 116 managerial decision-making in Table 5.1, the decision-making responsi- bilities of the store manager in each of these areas can be facilitated by the use of scanner-derived data. This section presents reports designed to provide store managers with scanner-derived data useful in these areas. Personnel management is a major responsibility of the store manager. Table 5.8 contains three reports of scanner-derived data to assist the store manager in this area. The Personnel/Profitability Evaluation Report is designed to give the store manager a weekly indi- cator of the performance of store personnel. Weekly information for each department is supplied as to sales, departmental sales as a percent of total sales, departmental gross margin, department gross profit dollars, estimated inventory turns, the percent of items scanned for the department, and the percent price accuracy for each department. This weekly report can be filed for later use in tracking a departments progress over time. Since the performance of departmental personnel directly affects sales, gross margin, and the gross profit dollars of a department, these figures can be used as general indicators of problems with the performance of personnel in the department. The departmental figures for the percent of items scanned and the percent price accuracy gives the store manager a general indication of the operating discipline in each department. Problems indicated by a low scanning percent are not solely attributable to improper performance of departmental personnel. A low scanning percent could also be caused by improper performance on the part of the scanning coordinator or cashiers. To Table 5.8 Personnel Evaluation Reports for the Store Manager Personnel/Profitability Evaluation Report (~/eekly) Estimated $ Sales 7. Gross Gross Inventory % Items i. Price Department Sales of Total Margin Profit $ Turns Scanned Accuracy Grocery Produce Meat Fish De 1i Bakery FF Dairy Tota 1 ...... Cashier Evaluation Report (Weekly) ...... Customers $ Sales Items Scan Time ,Atrly Cashier per Hour per Hour per Minute _%_ Credits in Subtotal lfoqe Labor Scheduling Report (Weekly) Time Total Sales Customer Count Produce$ Sales Deli $ Sales 7:00 a.m. - 7:30 7:30 a.m. - 8:00 8:00 a.m. - 8:30 8:30 a.m. - 9:00 * The Labor Scheduling is delivered weekly but contains sales figures and customer counts averaged over the previous four weeks. The report gives figures for 30 minute intervals for each day. 118 evaluate the performance of the scanning coordinator, the store manager should use the percent price accuracy figures indicating the accuracy of shelf prices and of the stores computerized price file. This information could only be made available through manual audits of the price file and the shelf price tags. For evaluation of cashiers, the store manager should use the Cashier Evaluation Report in Table 5.8. This report provides the store manager with a means to evaluate a cashiers efficiency and discipline. The weekly report supplies information concerning the number of customers handled per hour by each cashier, the average dollar sales per hour checked by the cashier, the items checked per minute, the cashiers scanning percent, the number of credits made by the cashier, the time spent in a subtotal state, and the hourly wage of the cashier. The figures showing the dollar sales of the cashier per hour and the items checked per minute are indicators of cashier efficiency. The scanning percent indicates cashier discipline concerning proper checkout pro- cedure. The number of credits made by the cashier can be checked to see if a cashier is making more than an average number of credits, which would indicate some form of sweethearting. The figure for the time spent in a subtotal state indicates if the cashier is spending an appropriate amount of time in handling a transaction after the items have been checked. Finally, the hourly wage rate of each cashier is included to be used in conjunction with the Labor Scheduling Report to help make labor scheduling decisions. The Labor Scheduling Report in Table 5.8 gives the store manager an 119 indication of the amount of labor needed at the front-end and in other service departments to handle customer demand. This weekly report shows figures for sales and customer counts in thirty minute intervals for each day of the week. The figures provided should be averaged over several weeks to account for trends and to discount any periods of unusual demand. Total sales and customer counts are provided for labor scheduling at the front end. This report can be used with the Cashier Evaluation Report to schedule the most efficient cashiers at the times of peak demand. Sales and customer counts are also provided for other service areas in the store for more efficient labor scheduling in these departments. In the area of capital management, the store manager has responsi- bilities concerning the store operating budget, employee wages and bonuses, and inventory control. The only scanner-derived data useful to the store manager in developing an operating budget is the monthly figures showing sales, gross margin, and gross profit dollars for each department. Since each department has different operating costs, these figures would enable the store manager to allocate funds to each depart- ment to ensure that the operational needs of the department can be met within the financial constraints of the store's operating budget set at headquarters. The Personnel/Profitability Evaluation Report and the Cashier Evaluation Report can be used by the manager for making wage and bonus decisions and for developing the store operating budget. Inventory management is an important part of a store manager's responsibilities in the capital management area. The store manager is 120 responsible for the ordering of merchandise as well as for the proper display and accurate pricing of the merchandise. The sales and profit- ability figures listed in the Personnel/Profitability Evaluation Report can be used by the store manager to evaluate displays and to determine if appropriate ordering and pricing practices (to reduce shrink and maximize sales) are being used. If a problem in any of these areas is suggested, the store manager can obtain more information by requesting a Category Evaluation Report as shown in Table 5.6. This report will enable the store manager to better evaluate display performance or the performance of a particular category or department. The store manager's concerns with price integrity will require a price audit for the store scanning data cannot directly determine price accuracy. A report that will provide some assistance with monitoring price accuracy is a form of the Category Price Range Check of Master Price File report in Table 5.11. The store manager's version of this report should monitor the store price file rather than the firm's master price file. While this report does not show the results of a price check of every item in the store, it does report items that have prices falling outside a specified price range for their category. This report will help catch errors in the price file, but will not show pricing errors on the shelf. This report should be passed to the scanning coordinator so that action can be taken to correct the errors. Ordering merchandise for shelf replenishment is perhaps the store manager's largest responsibility concerning inventory management. Obviously, automatic reordering is the ultimate desire in inventory 121 management for many store managers. However, automatic reordering is not feasible without combining a direct store delivery system (accounting for all incoming merchandise) with front-end scanners that are accurately scanning all items in the store. Scanner-derived data can, however, be useful to the store manager in making ordering decisions. A system such as the one presented in Chapter One of the March 1985 Food Marketing Institute publication, Retailer Applications of Scanning Data, is suggested. The system in Retailer Applications of Scanning Data used to aid the store manager in making ordering decisions was designed to have colored shelf tags placed for items indicating their average weekly movement. To do this, the average movement over a four week period was determined for every item in the store. Most items had weekly movements ranging from one to five units. No tag was placed for items falling in this range in order to save time. Tags were placed, however, for items with weekly movements in other ranges. For example, a red tag was placed next to items with no movement over the last four weeks, an orange tag was placed by items with weekly movement of six to eleven units, and a green tag was placed by items moving twelve or more units a week. If an item that was previously marked with a red tag showed no movement over the next four week period, it was considered for deletion. A black tag was placed by items to be deleted as an indication not to order more of the product. A record of the tags placed for the various items is made and checked to insure that tags had not been moved or improperly placed. 122 An improvement in this system could result if the color code (or some numerical code) could be recorded on the shelf price tags. This code arrangement would allow the scanning coordinator to check for the correct code by simply checking to make sure the appropriate item price tag is in place. With this system, a change in the ordering code would be signaled by a weekly report such as the Change in Average Movement Report in Table 5.9. This report gives only those items in each depart- ment whose average weekly movement has changed ranges. The report lists all such items and gives the new average weekly movement and the new color code for the product. The scanning coordinator would then place a tag by these items and request that a new price tag be made for the item. This system would give the store manager a better idea of the amount of each item necessary to meet demand for the week, and hence should assist in the ordering process. Ordering for specials and for holidays is a special problem for the store manager. Thus, the Specials Report and the Holiday File shown in Table 5.9 were developed. The Specials Report is generated for each department and contains information on the last two to four times a product was featured. The report gives the item description, size, and units per case for items placed on special in each department. For each item, the price and total movement is provided for each of the last two to four times the item was featured. The week in which the item was featured is also indicated. The price and movement data for specialized items should help the store manager determine how much of the product to order the next time the item is featured. Page 123 is missing from all copies of this piece Table 5.9 Inventory Management Report for lhe Store Manager Change in Avg. Movement Mew Weekly lfow Dept. Item Avg. Movement Code Special Report {Monlhly: Save in File} DeQ_artment: I tern Un its/ I-leek of: Week of: UPC Description Size Case Price Movement Price Movement ..... N +'" Holiday File {By Request} DeQ_artment: Week of: Units? UPC Oescription Size Case Price Item Movement * The llolid,,y File should tie kept by dep~rtment ,ind should include items requested by the store manager or me1·ch,rncliser. The report is generated for a number of weeks prior to and after a holiday. The reports are kept on file to aid with the nexl year's oi-de1·i11g. 125 A Holiday File report was developed to assist the store manager in ordering merchandise at holidays. The report gives information for items specified by the store manager or merchandiser. Movement of these items is tracked for several weeks prior to and after the holiday. For each of these weeks a report is generated that gives the UPC, an item description, the item size, the units per case, the price per unit, and the item movement for each item indicated by the store manager or merchandiser. These reports should be filed and used to assist the store manager in ordering for the holiday the next year. The store manager is responsible for evaluating the stores progress in achieving the goals and implementing the strategies outlined by upper management. Scanner-derived data can assist the store manager by providing the figures showing the store's sales volume and profitability. The Personnel/Profitability Evaluation Report in Table 5.8 is designed for this purpose. The report is a weekly record of dollar sales, dollar sales as a percent of total sales, gross margin, gross profit dollars, estimated inventory turns, the percent of items scanned, and the percent price accuracy for each department in the store as well as for the store as a whole. These figures serve as an indicator of the performance of the individual departments and of the store as a whole. These reports should be kept on file to enable the store manager to trace the performance of the store or of a particular department across time. 126 Section 5.2-D: Information for the Department Manager The departmental manager 1 s responsibilities are, with a few exceptions, similar to those of the store manager. The department manager is responsible for the general operation of his department. Since the responsibilities of department managers are so similar to those of the store manager, it stands to reason that the same scanner-derived data reports would be useful to both levels of management. The reports in Table 5.8 for the store manager could also be used by the department manager to evaluate the personnel in his department and to assist in labor scheduling. However, the Personnel/Profitability Evaluation Report in Table 5.8 was slightly modified to better suit the needs of the department manager. The modified version of the store manager's Personnel/Profitability Evaluation Report, shown in Table 5.10 provides sales figures, profitability figures, the percent of items scanned, the percent price accuracy, and estimated inventory turns for categories within a department. This division of the department into categories will allow the department manager to more effectively monitor the performance of the department as well as the performance of departmental personnel. A copy of the Labor Scheduling Report in Table 5.8 would be useful to managers of departments that require customer service personnel to be on duty. The sales and customer counts presented for half hour intervals would be useful to the managers of these departments for labor scheduling. The Cashier Evaluation Report in Table 5.8 would only be useful to the department manager responsible Table 5. 10 Evaluation Report for Lhe Department Manager Personnel/Profil •. ,illty Evaluation Report (Weekly) Store: Dept: $ Sales% GP $ % % Items % Price Estimated Category Sales of Dept. GM §f__1 of Dept. Scanned Accuracy Inventory Turns aaa bbb CCC ...... N ""-J 128 for scheduling labor at the front end (probably the head cashier). In the area of inventory management, the department managers would use the same reports as the store managers, but would only be presented with print-outs for their respective departments. The Specials Report and the Holiday File, as discussed in Section 5.2-C, would be similarly used by the department manager for assistance in ordering. Also, the department managers ordering _efforts would be benefitted from the discussed ordering system as presented in the FMI publication Retailer Applications of Scanning Data. Finally, for further evaluation of displays or categories within a department, a department manager can request a Category Evaluation Report (Table 5.6) for use as discussed in Section 5.2-C. Section 5.2-E: Information for the EMID As discussed in Chapter 3, the electronic management information director is responsible for a firm's computerized systems. The EMID's responsibilities concerning scanning systems include the maintenance of the firm's master price file, regulating the firm's price accuracy audits, establishing guidelines for scanning operations, and for compiling reports from scanner-derived data for delivery to the other levels of management. The EMID has little use for actual scanner-derived data other than to aid in monitoring the firm's operating discipline concerning scanning systems and in checking the master price file. The Scanning Report in Table 5.2, which should be received weekly by the EMID, gives the 129 percent scanned by department and the total percent scanned in the period just completed (PC) and in the previous period (PP) for individual stores, zones, and for the entire firm. The report also gives similar information as to the percent price accuracy within operation units. The information allows the EMID to monitor the operating discipline in the firm. A low scanning percent could be due to a problem in a number of areas. For example, improper cashier operating discipline, problems with the scanning ability of variable weight UPC labels, or the presence of items in stock that are not included in the master price file could al~ lower the scanning percent of various operations. Although it is necessary to manually check the firm's master price file, the Category Price Range Check of Master Price File report in Table 5.11 can assist the EMID in the upkeep of the price file. This weekly report divides the master price file into categories. For each category, a price range is set to include all item prices in that category. The report is designed to list all items in a category that are outside the category's price range. Although this report cannot verify individual item prices, it is a way to quickly check the price file for errors. Items with inaccurate prices that fall inside the categories price range will have to be found and corrected by manually auditing the price file. Table 5. 11 Reports for the EMID Scanning Report (Weekly) * This Report is the same as the Scanning Report for the CEO in Table 5.2. Category Price R~nge Check of Master Price File (Weekly) neeartment: ..... Category Price Range Items Outside Price Range Price w 0 * This is an exception report that checks for prices outside a given range for a category. Manual checks of the price file are also necessary. 131 Section 5.2-F: Information for the Scanning Coordinator The responsibilities of the scanning coordinator are the store level equivalent of the EMID responsibilities at headquarters. The scanning coordinator is responsible for maintenance of the store's price file and for the accuracy of the item shelf price tags. As with the EMID, actual scanner-derived data are of little use to the scanning coordinator. However, some scanner-derived information to monitor the store's operating discipline would be useful to the scanning coordinator. To monitor the store's discipline concerning the operation of the scanning system, the scanning coordinator should receive, with some changes, the same weekly reports as the EMID. The scanning coordinator should receive weekly, rather than monthly, the Scanning Report from Table 5.2. The percent of items scanned and the percent price accuracy for the period just completed (PC) and the previous period (PP) is presented in the report for each store, zone, and for the entire firm. For each of these operating units total percent of items scanned is given as well as the percent of items scanned for each department. This information allows the scanning coordinator to evaluate the discipline in the store and also enables the comparison of progress in the store with the progress in other stores. As mentioned in the previous section, a low scanning percent could be the result of several problems. If a problem with scanning percent in a department arises, the scanning coordinator can request a Percent Scanned Report as shown in Table 5.12. This table simply shows the scanning percent for each category in a Table 5. 12 Percent Scanned Report for the Scanning Coordinator Store: Date: De2_artment: ...... w Cate92..!::i Scan% N aaa bbb CCC 133 department to help pinpoint the problem. The scanning coordinator should also receive a weekly report similar to the Category Price Range Check of Master Price File report in Table 5.11. The report for the scanning coordinator should be set up similarly, but should only include items and categories from the stores price file. This report is designed so that the price of each item in a category is checked against an assigned price range for that category. Items with prices outside the category price range are listed in the report and should be checked by the scanning coordinator. While this report obviously cannot take the place of manual price audits of the store price file and shelf price tags, it should help the scanning coordinator catch some pricing errors. Section 5.3: Su11T11ary Although there is a general acceptance of the sophisticated and technical scanning systems on the part of retail grocery firms, few food retailers have exploited the potential intangible benefits available from these systems. The purpose of this chapter was to present an information management system for scanner-derived data that would organize the information available through scanning systems for dissemination to the appropriate levels of management to facilitate the realization of these potential intangible benefits. CHAPTER 6 CONCLUSIONS AND IMPLICATIONS Section 6.1: Introduction The previous chapters have presented the conceptual framework, methods, and empirical results from research which has examined the lag in effective use of scanner-derived data for managerial decision-making in retail grocery firms and has attempted to facilitate the use of such data along these lines. This chapter presents conclusions to the findings of this research, the implications of these findings to the retail food industry, and finally, the implications of this research for further study in the area of potential usages of scanner-derived data in managerial decision-making. Section 6.2: Concluding Statements The findings of this research substantiated the hypothesis that there has been little use of scanner-derived data by firms to capture the benefits available through the use of these data to aid in managerial decision-making. The findings show that most food retailers only occasionally, if ever, use scanner data for decision-making purposes. Instead, and rightly so, they have been involved with the operational aspects of scanning systems. Firms have tended to focus on the tangible benefits realized through the implementation of scanning systems. The findings of this research show that attempts to utilize scanner-derived data for decision-making purposes have been thwarted by 134 135 the inadequate form of the scanner information delivered to managers and by the lack of training within firms on the usage of the data. The information collected in this research through a review of literature and through discussions with managers of retail grocery firms was used to develop the information management system presented in Chapter 5. As discussed in Section 2.2, the rationale behind the selection of firms for discussions was to achieve a representative cross section of firms in the grocery industry with scanning capacities. The firms were selected to include a range of sizes and operating philosophies. It should also be noted that the firms considered for selection were among the most progressive firms in the region. Since these progressive firms have achieved only limited use of scanner-derived data for managerial decision-making, it can be deduced that the average firm with scanning capabilities also has made little use of the data for decision-making purposes. The information management system was designed to provide each management level with the information it needs without burdening a particular level with large volumes of unnecessary data. In general, the reports were designed to facilitate management by exception. The monthly or weekly reports to managers were designed to point out potential problem areas. When these problem areas were identified, more specific reports could be requested to aid a manager in correcting the problem. The potential implications to a retail grocery firm from the implementation of this information management system are discussed in the next section. 136 Section 6.3: Potential Implications to Food Retailers A list of potential intangible benefits to a firm which could result from the implementation of an information management system was presented in Section 1.4. As mentioned in the concluding statements, to date, the realization of the potential benefits from the implementation of scanner systems largely has been limited to the tangible benefits. The sedrch of literature and the discussions with managers indicated that firms that have implemented scanning systems have improved profits even though the benefits realized have been limited to tangible benefits. Since profit is equal to total revenue {price multiplied by quantity sold) less total costs, the bottom line improvements could have resulted from increased revenue or decreased variable costs. The degree to which increased revenue or decreased variable costs is responsible for the increased profits realized by the firms to date is unclear. The search of literature indicated that reduced cost through labor savings was the primary reason for increased profit. Discussions with managers, however, emphasized increased revenue through improvements in price accuracy and decreased front end shrink as the major reason for increased profits. Also, the managers indicated that reductions in labor costs had not been as substantial as expected because of the additional labor required for the maintenance of shelf price tags and computerized price files. Regardless of the major reasons for the increased profits, the improvements through increased revenue, decreased variable costs, or some combination of the two, has more than 137 compensated for the increased fixed costs to a firm from the purchase of the scanning system. The implementation of an information management system outlined in Chapter 5 should result in additional increased profits. The intangible benefits that can be realized from such a system take the form of both increased revenue and decreased costs. Increases in revenue should accrue from improvements in inventory management, shelf and space allocation, and from improvements in pricing and advertising. Decreased variable costs should result from improved labor scheduling and improved loss (shrinkage) control. The realization of these intangible benefits could result in some additional labor costs since·additional staff members may be needed for the compilation of reports. These costs, however, should be minimal when compared to the original costs of implementing scanning systems. Thus, the realization of the intangible benefits could result in greater profits than those realized to date through tangible benefits. Section 6.4: Implications for Further Research Work on this project brought to light several other areas concerning scanning systems and the applications of scanner-derived data that deserve additional research. These areas include: (1) the documentation of costs and benefits resulting from the implementation of the information management system, (2) the development of a training program for managers on the use of the reports in the information management system, (3) the potential benefits of connecting front end 138 scanning systems with direct store delivery systems to achieve a comprehensive inventory management system, (4) the general use of scanner-derived data for consumer demand analysis, (5) the specific use of scanner-derived data for the estimation of short-run own-price and cross-price elasticities for various commodities, and (6) the use of scanner-derived data to achieve the optimum use of a firms limited resources through direct product profit (DPP) analysis or linear programming. There has been much speculation on the potential benefits available from the use of scanner-derived data for managerial decision-making. This research established that data overload and the inadequate form of reports received by managers have been major barriers to the effective use of scanner-derived data in managerial decision-making. The information management system presented in Chapter 5 was designed to alleviate these problems and to facilitate the use of scanner-derived data by managers. Any estimation of the potential benefits which could accrue from the implementation of this system would be speculation. Therefore, the logical next step in the development of the information management system would be its implementation into a retail environment. Once operational, the costs and benefits resulting from the implementation and operation of the system could be analyzed. Such an analysis would be useful to managers considering the implementation of a system to capture the soft benefits of scanning. This research also established that a lack of training on how to use scanner-derived data for decision-making purposes was a major barrier to the effective use of the data. Therefore, the development of 139 a training program for managers on how to use the information management system is necessary. The training program should utilize specific examples and case studies. These examples and case studies can be drawn from the study of costs and benefits resulting from the implementation of the system. Many managers indicated that automatic reordering and a comprehen- sive inventory control system were long term goals for their finns. For these goals to be realized, the front-end scanning systems must be connected with direct store delivery systems at the back door. Such a system would allow managers to track merchandise movement from the back door to the front-end. This would aid the manager in detennining shrink and would help set up parameters for automatic reordering. Once the DSD system and front-end scanning system have been connected, an information management system should be developed to deliver appropriate information to the various levels of management. Also, a training program for managers on the use of the information should be developed. Scanner-derived data has tremendous potential for use in the analysis of consumer demand for specific products or commodity classes. Scanner-derived data has obvious advantages over the aggregate annual, quarterly, or monthly time-series data of prices and consumer purchases that researchers have previously been dependent upon. The times-series data are to general for product specific decision-making and may not reflect current market conditions. For more detailed data for specific products, researchers previously used consumer panels and consumer surveys. However, these methods of data collection were expensive. 140 Scanner-derived data, on the other hand, provide researchers with a readily available, relatively inexpensive method of collecting product specific information of actual customer purchases at specific prices. Thus, scanner-derived data may prove to be the most detailed and definite source of retail food industry statistics available to researchers. This detailed and timely source of information should lead to more reliable demand analysis for disaggregate food and nonfood commodities (Capps). The use of item specific movement data permits the estimation of short-run own-price and cross-price elasticities of demand for various corrmodities. The potential estimation of demand elasticities for individual items has ramifications in pricing and ordering decisions. The estimation of own-price and cross-price elasticities associated with various commodities would enable a manager to determine how a change in price of a particular item affects the movement of that item and the movement of other items. Thus, the knowledge of the respective elasticity measures could lead to more effective marketing strategies by aiding managers in predicting the effects of price changes and price sensitivity for specific products (Capps). The allocation of a firm's limited resources is a continual problem. For example, the allocation of limited shelf space to maximize profit is a never ending process. Scanner-derived data can provide item specific information that could be used in direct product profit analysis or in linear programming models to determine the optimal allocation of shelf space. Optimization of other areas of interest such 141 as product mix and strategies such as advertising and pricing could also be achieved through linear programming models. REFERENCES "A Framework for Scanning Applications," Progressive Grocer Executive Report, 3 (May 1985):56-59, 62-63. Capps, Oral Jr., "The Revolutionary and Evolutionary Product Code: The Intangible Benefits," Journal of Food Distribution Research, (February 1986):21-28. Competitive Edge, by Willard Bishop Consulting Economists, Ltd., 6 (November 1985):1-4. Dumas, Lynne S., "Scan Data Becomes Cornerstone," Non Foods Merchan- dising, (March 1985):20-22. Fletcher, Stanley M., S. E. Trieb, and Dick Edwards, "Economic Evalu- ation of Scanning," Journal of Food Distribution Research, 15 (February 1984):64-69. Food Marketing Institute, Retailer A lications of Scanner Data, Pre- pared by Willard Bishop onsu ting conomists, Lt., March 1985). General Foods Corporation, ScanLab: A Study of the Use of Scanning Data in Merchandising Decisions, (1982). Johnson, Mary, "UPC Update: Shaping Up the Symbol, 11 Progressive Grocer, 64 (March 1985): 93-96. Kaplan, Rachel and Elliot Zwi ebach, 11 Two Chains Testing Coupon Scan- ning, 11 Supermarket News, 35 (June 24, 1985):1. Knox, Andrea, "More Than One Way to Scan the Cos ts, 11 Phil ade l phi a Inquirer, (June 25, 1978):1-A. Leed, Theodore W. and Gene A. German, Food Merchandising, Chain Store Publishing Corporation, c. 1973:1-7. National Grocers Association, The Benefits of Scanning: A Study of Scanning in the Retail Grocery Industry, (1984). 11 1985 Neilsen Review of Retail Grocery Store Trends," Progressive Grocer, 64 (September 1985):216. O'Neill, Robert E., "More Sales, More Profits, Less Space," Progressive Grocer, 64 (October 1985):61-64, 68. Partch, Ken, and Doug Harris, "Instore Automation: How can We Pull it All Together," Supermarket Business, 39 {April 1984):21. 142 143 Ricker, Harold S., "Status of Checkout Technology," Journal of Food Distribution Research, 4 (September 1973):21-28. "Scanning the Data Revolution," Chain Store Age Supermarkets, (June 1982):45-46,59. Shulman, Richard, "The Year of the POS Connection," Supermarket Business, 41 (February 1986):13-14. "Supermarkets Launch Test of Spaceman Two," Chain Store Age Executive, 61 (June 1985):34-39. "Testing Merchandising Concepts," Chain Store Age Executive, 61 (May 1985):5-6,8 and 11. "Using Scanners to Maximize Return on Advertising Dollars Invested," Chain Store Age Supermarkets, (June 1983):14-15. APPENDIX A 144 145 Set of Questions to be Used in the Personal Interview Sessions 1. General Information Store Location Characteristics (Organization, Type, Square Footage, Sales Volume/ Week, Number of Items in Store) Managerial Levels 2. Parameters of Authority for Decision-Making (i) Labor Scheduling (ii) Pricing Decisions (iii) Decide Specials and/or Merchandising Schemes (iv) Ordering Decisions (v) Markdown Decisions (vi) other 3. What computerized reports do you presently get in these areas? 4. Give specific examples of how you use each. 5. Why don't you make more use of these reports? 6. For the operating responsibilities you outlined above, what kind of fast, accurate information would you like to help you better manage your store? 7. Technical Information (i) How much influence in the operation? (ii) How are reports developed? (iii) Standard software (iv) Form (v) Do you write own software? (vi) Why don't you think your reports are more widely read or used? (vii) Additional things that may be used 8. Scanner information used for personal evaluation? 146 TECHNICAL INFORMATION I. GENERAL SYSTEMS INFORMATION A. Description of Computer Equipment: Manufacturer ------Model Installation Date ------Core Storage (e.g., 24K, 36K) ------Disc Capability(# of megabytes) ------8. What computer programming language do you use? COBOL --- RPG --- BASIC ---- Other ---- C. Are you using the telecommunication capability of the computer? Yes No ---- D. Current Computer Applications: Please check each of the applications currently operating on your computer. ---- Accounts Payable ---- Labor Scheduling ---- General Ledger Personnel Administration ---- Payroll ---- Director Store Delivery Operating Scan Support ---- Statements ------Other ------Labor Analysis Sales and Gross ---- Profit Analysis 147 II. APPLICATION SOFTWARE A. Application Package(s): Memory Package Name(s) Vendor Person Operating Requirements B. Assessment of Purchased Application Packages: Package Easy Easy to Well Some Many Name(s) to Use Learn Documented Problems Problems Comments 1. 2. 3. 4. 5. 6. C. Self Developed Package{s): Name/Type Computer Operating Source Memory of Package Vendor/Model System Language Required 1. 2. 3. 4. 5. 6. Yes No 7. Are you willing to Trade? Sell? Give? 148 III. SCANNING/MICRO APPLICATION SOFTWARE QUESTIONNAIRE A. What type of scanning equipment do you currently operate in your store(s)? Yes No Model Number 1. NCR 2. IBM 3. Datachecker 4. DTS 5. Sweda 6. TEC 8. Who performs your host support? Yes No 1. Wholesaler 2. Yourself 3. No·Host Support C. If yourself, what equipment do you use? Vendor Model Number Software Package Name 1. 2. 3. 4. 5. D. Does your host support DSD items? ___ Yes --- No E. Does your host support custom pr;ce f;les? ___ Yes ___ No F. What reports are you using from either hosts? Reports Name(s): 1. 2. 3. 4. 5. 6. 149 G. Do you use reports to assist your decision making and in what areas? Yes No Where? 1. Merchandising 2. New Item Orders 3. Theft Prevention 4. Vendor Profitability 5. Scheduling 6. Price Discrepancy 7. Shelf Price Audits 8. Checker Productivity 9. Other (list) H. Are you using any data for your scanning system directly in an application program? If so, what types of data? Data Tape(s) i.e.: Item Sales, please list. 1.· 2. 3. I. Do you plan to attach your small business computer directly into your scanning system(s)? Yes --- No --- J. Are your currently selling your movement information to SAM!, A.C. Nielsen, etc.? Yes --- No ---- The vita has been removed from the scanned document