applications of new technology uses of scanner … · computers in the store, computerized labor...

APPLICATIONS OF NEW TECHNOLOGY

Moderaton Harold Ricker, USDA AMSWashington, D.C.

Uses of Scanner Information for Food Industry Executives

by

Oral Capps, Jr.Associate Professor

Department of Agricultural EconomicsTexas A&M University

Introduction

Because of scanning technology, a greatdeal of data is available to food retailers, andtranslating these data into information for man-agement decisions is a major concern. Tre-mendous possibilities exist for the generation ofdata and the use of such data at all levels ofrnanagerialdecision-making(departrnentallevel,store level, supervisory level, and senior man-agement level). According to an executive taskfol ce set up by the Food Marketing Institute,the supermarket industry is in a position “tosurge forward in the application of informationtechnology” (Supermarket News, January 1987).Although the hardware and software are cur-rently available, to date it appears that relativelyfew resources have been devoted to generatingand/or organizing scanner data to be used inmanagerial decisions (Capps, Thomas, Long).

It has been estimated that less than 10percent of firms with scanning systems aremaking use of the data for decision-makingpurposes (Capps). Indeed, there are barriers inthe industry hindering the progress of the reali-zation of the many benefits: (1) limited staffand financial resources; (2) the reluctance ofmanagers and merchandisers to include the newinformation in their established decision-mak-ing process; and (3) restrictions in internal com-pany coordination (Competitive Edge, November1985).

Data and information are not synonymous.Information corresponds to data which have

February 89/page 22

been “retrieved, processed, or otherwise usedfor inference purposes or as a basis for fore-casting or decision-making” (Ross). Data trans-form to information only when collected, ana-lyzed, and presented in a form resulting in thecommunication of intelligence (Symonds).Simply put, data are just facts. Information issomething upon which action is taken. Alongthis line, little thought has been given to datacollection and presentation in terms of whichstaff members need the information, what needsthe various staff members have, and in whatform the staff members could best use the in-formation. Different levels of management arelikely to have different needs for informationrelative to type, complexity, and time span.

The search for meaningful informationwas the focus of a Supermarket News sym-posium of food retailing leaders from across theUnited States (Supermarket News, December1986). In a questionnaire developed by JamesStevenson, Director of the Food Industry Man-agement Program at the University of SouthernCalifornia, and sent to retailers and manufac-turers, the information explosion rated veryhigh in importance. As to rank order, in-storescanning was number one, followed by personalcomputers in the store, computerized laborscheduling, shelf space management systems,direct product profitability, UCS/computer-to-computer, electronic mail, and warehouse auto-mation.

The purpose of this paper is to discussuses of scanner information for food industry

Journal of Food Distribution Research

executives. The focus of the discussion centerson the development of a firm-wide informationsystem which provides each management levelwith relevant information and coordinates totalfirm operations, but does not burden a par-ticular level with large volumes of unnecessarydata.

The aim of the management informationsystem is to identify key performance areas andindicators for various managerial positions.Key performance areas refer to those “activitiesor functions vital to accomplishing firm objec-tives” (Vastine and Watkins), Such areas includeinventory, profit, gross margins, expenses, andsales. Key performance indicators refer toquantitative measures used by management,either implicitly or explicitly, to make decisionsrequired by the various levels of management(Vastine and Watkins). Key performance in-dicators include inventory turns, shrinkage as apercentage of sales, gross margin dollars, cus-tomer counts, and sales per customer.Importantly, key performance areas and indica-tors change with position in the managementhierarchy. The identification of key perfor-mance areas and indicators allows for a manage-ment-by-objectives orientation.

Using scanner data has been compared totrying to take a drink of water from a hydrantthe sheer volume of data supplied is over-whelming. Part of the problem may be thatindustry leaders are not sure what informationthey desire from the wealth of informationmade available and thus are unable to focus onkey indicators. Therefore, to keep from drown-ing in the data, it becomes necessary to developan information management system that willprovide managers with the information theyneed when they need it.

Current Applications

The increasing number of scanning sys-tems in the grocery industry is indicative of theacceptance of this technology by the industry.Benefits derived from adoption generally havebeen separated into two categories “hard” ortangible benefits, and “soft” or intangible bene-fits. Hard benefits refer to the savings accruedfrom scanning systems via the improved speedand accuracy in operations. Examples of “hard”benefits include (Capps]

(1) Increased check-stand productivity

(2) Reduced shrinkage through improvementsin price accuracy, reductions in theft, and

improvements in produce margins viamore accurate weighing;

(3) More efficient bookkeeping; and

(4) Reductions in labor costs through reduc-tions in price marking and price changes,

In general, these hard benefits have pro-vided the justification for investment inscanning systems. While it is generally believedthese benefits have provided a good return oninvestment, most food retailers and industryanalysts feel that the soft or intangible benefitsoffer an even greater return. Soft benefitsinclude savings and/or increases in sales due toimproved managerial and merchandising deci-sions made possible by the wealth of infortna-tion provided by scanners. Examples of softbenefits include improvements in ~shelf spaceallocation, inventory shrink control, labor sche-duling, direct-store-delivery (DSD) goods iden-tification, new item evaluation, out-of-stockposition, advertising and promotion results,pricing decisions, product mix selection, profit-ability analysis, and store security (Ricker, p.27; National Grocers Association, pp. 9-10).

In general, these applications are placedinto one of the following three categories basedon the nature of the application (ProgressiveGrocer Executive Report)

(1) Tracking These reports monitor theactivities of the business and serve as ameans for the manager to spot potentialproblems and opportunities;

(2) Analysis These reports involve the reor-ganization and integration of data andother information to answer questions;and

(3) Experimentation Searches for cause andeffect relationships between merchandis-ing actions and the change in sales orprofit. It is different from analysis sinceit involves screening out factors throughpreplanned controls.

The use of scanning data as a manage-ment and merchandising tool did not begin untilthe late 1970s or early 1980s (Chain Store AgeSupermarkets, June 1982). Perhaps the earliestapplication of scanner data of this type is theScanLab project. The ScanLab project wasinitiated in 1981 as a joint effort between theGeneral Foods Corporation and Dick’s Super-markets of Platteville, Wisconsin. The ScanLabsystem is designed to deliver information in the

Journal of Food Distribution Research February 89/page 23

form of three report~ the Store ToplineReport, the Primary Summary Report, and theTrend Report. These reports can be used in amge number of applications including analysis1 product assortment, new item tracking, item

movement, retail sales dollars, gross profit,return on inventory investment, and shelfallocation (Chain Store Age Executive, May1985).

A March 1985 publication by the FoodMarketing Institute (FMI) entitled RetailerApplications of Scanning Data provides addi-tional insight into current applications ofscanner data in retail grocery stores. The docu-mentation of these applications was the result ofinterviews with approximately sixty progressivecompanies to determine the type of applicationsin which they were involved. In this survey,the current applications of scanner data werefound to address problems in one of fivegeneral categories (1) shelf management,(2) managing promotional inventories, (3) profitimprovement, (4) evaluating merchandisingalternatives, and (5) setting buying guidelines.Importantly, 90 percent of the executives inter-viewed desired continued development of scan-ner applications in their companies (CompetitiveEdge, November 1985).

The ScanLab study and the applicationsby the handful of pioneering firms are repre-sentative of the benefits from scanner data thatare currently being realized. These cases donot, however, indicate the current degree of useof scanner data in achieving potential benefitsin the industry as a whole. There is con-siderable untapped potential for profit in thegrocery industry in the form of the intangiblebenefits of scanning. These benefits have beenidentified, and to a degree have been realized inthe industry by a limited number of pioneeringcompanies. The limited involvement in thesearch to realize the benefits of scanning by theindustry as a whole is surprising in view of theconsiderable success of the companies ex-perimenting with applications to date.

Management Information System (MIS) Model

Firms have tended to focus on the tan-gible benefits realized through the im-plementation of a scanning system. Attemptsto use scanner data for decision making havebeen thwarted by inappropriate forms of scan-ner information delivered to managers and bythe lack of training on the use of the data. Thissection concerns the development of a genericfirm-wide management information systems(MIS) model based on scanner data. This model

may serve as a guide with which retail firmscould develop in-house information systems.

A MIS is defined as an organized methodof providing each manager with the informations/he needs for a decision, at the proper time,and in a form which aids understanding andstimulates action. The justification fordeveloping a MIS is to identify sources, flows,and forms of information so that managementpersonnel can improve decision making.

The answers to several questions maysubstantially affect the design of the MIS model:

(1) How, when, and by whom are firmobjectives set?

(2) In what form is information communi-cated?

(3) What information flows exist in the firm?

(4) What are the key performance areas andindicators for each managerial position inthe firm?

(5) What problems in communication exist?

Importantly, the MM model rests on anumber of explicit assumptiorw

(1)

(2)

(3)

(4)

(5)

(6)

(7)

Decision making requires relevant, reli-able, timely, and concise information;

Most managers have more informationthan they know how to use;

Information required at various levelswithin the organization can be determinedfrom management personnel;

MIS reports are one of several sources thata manager uses to make decisions;

A MM has three major functions datacollection, data processing, and informa-tion delivery;

Developing a MIS is primarily a matterof consolidation and presentation of avail-able data in usable formats for the variouslevels of managemen~

Retail food firms have enough commoncharacteristics that a MIS model definingkey performance areas and indicators canbe used; and

February 89/page 24 Journal of Food Distribution Research

(8) There exists an identifiable set of keyperformance areaa and key performanceindicators which can be classified into anoperational MIS,

The majority of research on managementinformation systems has been theoretically ori-ented. Consequently, it is extremely difficult todefine what constitutes a reliable MIS in prac-tice. Even more formidable is the task of iden-tifying causal factors of a reliable MIS. How-ever, several critical elements are noteworthy(1) formally involve management; (2) formalizeresponsibilities (objectives); (3) prioritize inf or-mation (identify key performance indicators);(4) formalize user involvement; (5) evaluatetimeliness and accuracy of the information;(6) evaluate cost effectiveness; (7] evaluate theflexibility of the system to handle growth; and(8) conduct post-implementation evaluations.

There exists a variety of structural modelsof management information systems (1) func-tionally oriented models; (2) pyramid-shapedmodels; (3) top-down models; and (4) bottom-UP models (Moede). Information flows forfunctional areas of the organization characterizethe functionally oriented approach. With regardto pyramid-shaped models, horizontal dimen-sions of the pyramid stress functional areas ofthe organization, while vertical dimensions ofthe pyramid emphasize various manageriallevels. Advocates of the top-down approachsuggest concentrating on resources that wouldbe of immediate benefit to top management.Proponents of the bottom-up approach suggestimproving existing information flows starting atthe bottom of the organization and subsequentlyextending the system capability gradually up-ward into higher levels of the management hier-archy, The MIS model in this paper is a hybridof the pyramid-shaped and bottom-upapproaches. Additionally, the critical elementof this model is the existence of a central databank from which key reports are generated tovarious levels of management.

Importantly, most MIS models are basedon the organizational structure of the firm. It isa two-way process in that the implementation ofan information system not only affects theorganization but also the organization affectsthe type of information system. To illustrate, afirm using decentralized management practiceswould need a different information system thanone using highly centralized management prac-tices.

To design an effective management infor-mation system, it is essential that managerial

responsibilities be defined and stratified.Importantly, management must define whatinformation is needed at present as well ~ inthe future. Once done, analysis of the potentialfor scanner data in decision making as well asthe design of the form, content, and timelinessfor delivery of these data for each level of man-agement of a retail food distribution firm maybe determined.

The various levels of management include(1) the chief executive officer (CEO); (2) themerchandise (3) the store manageq (4) thedepartment manager; (5) the chief informationofficer (CIO) (in charge of information manage-ment); and (6) the scanning coordinator. Thedecisions of the various levels of managementtend to go through a funneiing process with theCEO responsible for general decisions and thesubsequent levels of management responsible forspecific decisions. The CIO holds a staff posi-tion at headquarters. The scanning coordinatoris part of store-level personnel. Both providesupport to the other levels of management.

In general, the informational system isdesigned to facilitate exception reporting, thatis, to point out potential problem areas.Documents from the MIS are descriptive of thekey performance indicators most oftenexpressed at each level of management and inno way exhaust the total range of possibilities.The existence of certain key items that com-mand a high degree of priority in informationused to make management decisions is not new(Ross; Fleckinger; Dearden; Massy, Mintzberg).According to Symonds, “in any business situa-tion, certain key elements or basic controlpoints tend to dominate or essentially controlthe outcome of operations.”

For each level of management, a descrip-tion follows of particular reports from the MIS.For additional details, see the report by Capps,Thomas, and Long entitled, Scanner Data inManagerial Decision-Making: A Case Study forSupermarkets.

CEO

The responsibilities of the CEO are verygeneral in scope and hence, informationreceived should be general in nature. To assistthe CEO, several scanner reports, separatedaccording to category of responsibility (per-sonnel; goals and strategies; or capital), are de-signed to be delivered on a monthly basis. Themonthly time frame should provide the CEOwith a general summary of firm operationswithout the burden of unwanted item specific


data. If an occasion arises when a CEO desiresmore specific data, special reports can berequested.

From Table 1, the Scanning Report andthe Sales/Profitability Trend Report permit theevaluation of personnel such as merchandisers,zone managers or store managers. The ScanningReport provides the CEO with a measure of theoperating discipline within the firm, zone, orstore. Figures for the percent of items scannedand the price file accuracy are supplied for thefirm, zone, or store, and for departments withinthese operating units. Separation of informationinto these categories facilitates the location ofproblems. Percentages for the number of itemsscanned and for the accuracy of the price fileare given for the period just completed (PC)and for the previous period analyzed (PP).Also, the organization of the reports allowscomparisons to be made from store to store andzone to zone.

The Sales/Profitability Report gives salesand profitability figures by department forindividual stores and zones in the firm. Figuresare provided for total sales and sales by depart-ment for each store and zone as well as for theentire firm. These sales figures are providedfor the period just completed (PC), the previousperiod (PP), and for the same period in theprevious year (PY). These three categoriesallow the CEO to compare the sales figures of astore or zone, These reports should be saved toform an historical file for charting sales overtime.

For profitability analysis and capital man-agement, the CEO can use the Sales/Prof itabil -ity Trend Report as well as the Capital Manage-ment/Profitability Report (Table 2). Thesereports provide the CEO with a variety of salesand profitability figures as well as informationon inventory turns, customer counts, and theaverage dollar sales per customer. In particular,the Capital Management/Profitability Report isdesigned primarily (1) to give the CEO ageneral indication of the performance and pro-fitability of individual stores, zones, and of theentire firm; and (2) to aid the CEO in develop-ing operating budgets and evaluating the generalproduct mix and pricing strategy for a store orzone.

Merchandiser

For the merchandiser, the DepartmentEvacuation Report in Tabie 3 provides the mer-chandiser with basic data to evaluate the per-formance of personnei with merchandising

duties in individual stores and zones. Thereport provides information on sales and pro-fitability as weii as the percent of items scannedand the degree of price accuracy for depart-ments within stores and zones. Totai sales, totaldepartment sales, and department sales as apercentage of total saies help determine if thedepartment is achieving a “reasonable” saiesvolume. The figures for departmental grossmargin, price accuracy and the percent of itemsscanned are indicative of operational effective-ness and discipline.

The Category Evaluation Report (Table4) is the primary report to evaluate shelf sets,space aiiocation, and product mix. This reportdivides all the merchandise in a store into cate-gories and suppiies information on the perfor-mance of a category. For each category, infor-mation is provided orx (1) the number of itemsin the category (2) the units moved; (3) unitmovement as a percentage of department move-ment (4) doliar saies; (5) category sales as apercentage of department sales; (6) gross mar-gin; (7) gross profit dollars earned by the cate-gory; (8) category gross profit dollars as a per-centage of department gross profit dollars;(9) the number of specialized items in the cate-gor~ and (10) the doliar sales of specializeditems as a percentage of category saies. Fromthis report, categories are chosen, on the basisof performance, for reset or for considerationof price changes. The Category EvaluationReport also could be used to evaluate specialdisplays or methods of packaging. Toaccomplish this task, the dispiay or packagetype is set up as a category and tracked overweekiy, instead of monthly, periods.

When a particular category is chosen, theReset Report or the Pricing Report (Tabie 5)are generated. These reports contain morespecific information to be used to reset sheivesor to change item prices. For example, theReset Report gives a description of each itemin the category and lists the size, the number ofunits per case of the product, and the price.The report also provides weekiy average figures(based on the previous period) as to (1) unitmovemen~ (2) unit movement as a percentageof category movemen~ (3) doiiar sales; (4) dollarsales as a percentage of category sales; (5) grossmargin, (6) gross profit dollars; and (7) grossprofit doilars per item as a percentage of cate-gory gross profit dollars. Other reports used toevaluate product mix and to manage spaceallocation, once the category is selected, inciudethe Siow Movement Report and the New ItemMovement Report (Tabie 5). The Slow Move-ment Report iists items by category that have

February 89/page 26 Journai of Food Distribution Research

Table 1

Personnel Evaluation Reports for the CEO

1canning Report (kfonlhlyl

Total Grocery Produce Meat Deli

% Scan % ACO % Sean % ACC % Sean ‘% A.. % Scan % Ac. % Scan % ACC

PC-PP PC-PP PC-PP PC-PP PC-PP PC-PP PC-PP PC-PP PC-PP PC-PP

‘irm

!one 1

Store 1

Store 2

;one 2

Store 1

Store 2

Key Performance Indicators: (1) Percent of Items Scanned: (2) Price File Accuracy.

Salea/Profilabilily Trend ReLIort (Monthly)

Total Grocery Produce Meat

Sales GP Sales GP Salea GP Sales GP

PC-PP-PY PC-PP-PY PC-PP-PY PC-PP-PY PC-PP-PY PC-PP-PY PC-PP-PY PC-PP-PY

Firm

Zone 1

Store 1

Store 2

Zone 2

Store 1

Store 2

Key Performanea Indicators: (1) Dollar sales; (2) Groaa Profit Dollars

PC = Period Just Completad

PP = Previous Period

PY . Same Period (he Pravlous Year

GP = Gross Profit Dollers

Thie format should inculde other ● reas of Iatcrest such as frozen food-, the bakery, or th*

deli.

Journal of Food Distribution Research February89/page 27

Table 2

Capital Management/Profitability Report for the CEO

)apital Manag@mont /Pro filabillty Renort (Monthly)

KP1-1 KPI-2 KP1-3

sales

Meat Prod Groe Groaa Margin (%) Gross Profit $

Total % Total % Total .% Total Total Meat Prod Groc Total Meat PrO~ Groe

~irm

?one 1

Store 1

Store 2

?one 2

store 1Store 2

?irm

cone 1

Store 1

Slot-e 2

Zone 2

Store 1

Store 2

0 This format should iaelude other ● reas of interest suoh ● a frozen foods, the bakery,

or Iha deli.

KPI-4 KP1-S KP1-6

Inventory Turns Weekly Avg. Avg. $.SalesTotal Meat Prod Groc Customer Count Per Customer

Kev Performance Indicators (KPI):

(1) Dollar Sales(2) Gross Margins (Percentages)(3) Gross Profit Dollars

(4) Inventory Turns

(5) Customer Counts

(6) Sales Per Customer

February89/page 28 Journal of Food Distribution Research

Table 3

Department Evaluation Report for the Merchandiser

Department Evaluation Re~ort (Monthly~

Department :

KPI-1 KPI-2 KPI-3 KPI-4 KPI-5 KPI-6 KP1-7 KPI-8

Total Dept . Dept . Sales Dept. Inventory % Price %

Sales Sales % of Total Q!!Ux.l!lUi_— Turns ACC ~

Firm

Zone 1

~Store 1

Store 2

Zone 2

Store 1

Store 2

Kev Performance Indicators (KPI~:

(1) Total Dollar Sales

(2) Department Dollar Sales(3) Department Sales as a Percentage of Total Sales

(4) Department Gross Margin (Percent)

(5) Gross Profit Dollars

(6) Inventory Turns

(7) Price File Accuracy

(8) Percent of Items Scanned


Table 4

Category Evaluation Report for the Merchandiser

category Evaluation Report (Monthly)

Store: Dept :

KPI-1 KP1-2 KP1-3 KPI-4 KP1-5 KPI-6 KPI-7 KPI-8 KPI-9

Item # Units % s % % Special Specialm S

CalegOrL Description [ t ems Moved Sales&FQ— Q2Qwu!&kx —1 t ems—— of Total

aaa

bbb

ccc

● This report is based on the ScanLab Store Topline Summary Report as printed in ScanLab: Scan

tor Merohandisinfi Decisions, General Foods Corporation, 1984. p. 4.

Key Performance Indicators [KPI~:

(1) Number of Units Moved

(2) Unit Movement as a Percentage of Department Movement(3) Dollar Sales

(4) Category Sales as a Percentage of Department Sales

(5) Gross Margin (Percentage)

(6) Gross Profit Dollars Earned by the Category

(7) Category Gross Profit Dollars as a Percentage of Department Gross Profit Dollars

(8) Number of Specialized Items in the Category

(9) Dollar Sales of Specialized Items as a Percentage of Category Sales


Table 5

Sub-Category Reports for the Merchandiser to Evaluate Product Mix:Reset, Pricing, Slow Movement, and New Item Movement Reports ~

tenet Report (On Requeat~

store: Dept: Category:

KP[-I KP1-2 KPI-3 KPI-4 KPI-5 KP[-6 KPI-7

Item Units Per Unit % $ % %

Description Case Price Movement CATM Sales QQ.SQ!_WQH— CATGP—— — . .

“his report is based on the ScanLab Primary Report as printed in ScanLab: Scan Data for

[erchandiuing Decieion, General Foods Corporation, 1984, p. S.

‘he Reset Report shows weekly average figuras for tha previous period,

Key Performance Indicators (KPI): (1) Unit Movement; (2) UnitMovement as a Percentage of Category Movement; (3) Dollar Sales;

(4) Dollar Sales as a Percentage of Category Sales; (5) GrossMargin (Percentage); (6) Gross Profit Dollars; and (7) Gross

Profit Dollars as a Percentage of Category Gross Profit Dollars.

Pricinc! ReDort (On Request)

Store: DeD t: Cateuory:

KPI-I KPI-2 KPI-3 KPI-4 KP[-5

Item Movement GP %

g Description % Cateuory Pr ice Q?!_L!Q ~ ~

Key Performance Indicators (KPI): (1) Movement as a Percentage of Category

Movement; (2) Price; (3) Gross Margin (Percentage): (4) Gross Profit Dollars;

and (5) Gross Profit Dollars as a Percentage of Category Gross Profit Dollars.


Table 5 (Cent’d.)

jlow Movement ReDort (Monthlv)

;tore Firm or Zone: Period:

KPI-1 KPI-2

:ateKory ~ Item Description Price Movement

Shows items in each category within a department that move less than 6

lnits a month.

Key Performance Indicators (KPI): (1) Price; (2) Movement

New Item Movement Report (Monthly~

Store Zone or Total Firm: Period:

KP 1

Movement (items or tonnage)

Catefzory ~ Item Description _Wk 1 ~_ Wk 3 ~ ~


experienced movement of less than six itemsover a four-week period. The New Item Move-ment Report shows the weekly movement ofnew items over a series of consecutive weeks.These reports help to weed out slow movingitems and to evaluate new items to determine ifthey should be continued.

Store Manager

Personnel management is a major respon-sibility of the store manager. Table 6 containsthree reports produced from scanner data toassist the store manager in this area. TheDepartment Evaluation Report and the CashierEvaluation Report provide the store managerwith information to evaluate personnel in thevarious departments of the store. The Depart-ment Evaluation Report gives weekly sales andprofitability figures by department as well asfigures indicating the operating discipline of thedepartment (percent of items scanned anddegree of price accuracy). The Cashier Evalua-tion Report provides weekly productivityfigures (customers per hour, dollar sales perhour, and items checked per minute) as wellasfiguresto determine operatingdiscipline(scanpercent) to be used in evaluating cashiers. TheDepartment Evaluation Report and the CashierEvaluation Report can be used for making wageand bonus decisions and for developing thestore operating budget. The Labor SchedulingReport gives total sales, customer counts, andsales by department to aid in labor schedulingat the frent-end and in various service depart-ments such as the bakery or deli.

Inventory management is also an impor-tant part of the responsibilities of the storemanager. Shelf replenishment is perhaps theprimary responsibility concerning ,inventorymanagement. To assist the store manager, theMovement Report (Table 7) is designed. Thisreport enumerates characteristics of the distri -bution of movement of a particular product--average movement (mean), dispersion of move-ment (variance), minimum movement, and max-imum movement. The Movement Report shouldbe calculated on a regular basis. Further, thisreport should list only those items whose aver-age movement fluctuates sharply, say in excessof two or three standard deviations from themean.

Ordering for specials and holidays arespecial problems for the store manager. Thus,the Specials Report and the Holiday File ex-hibited in Table 7 are developed. The SpecialsReport provides price and movement informa-tion on items that previously had been special-

ized. This information could be used as an aidin ordering items the next time they are fea-tured. The Holiday File would be used to tracksales of specific items for several weeks prior toand after holidays. This information would besaved and used by the store manager as a guideto ordering for the holiday in future years.

Department Manager

Since the responsibilities of departmentmanagers are so similar to those of the storemanager, similar reports would be useful toboth levels of management. In fact, the CashierEvaluation Report, the Labor SchedulingReport, and the Movement Report as well as theSpecials Report and the Holiday file developedfor the store manager should also be received byvarious department managers. However, theDepartment Evaluation Report developed ini-tially for the store manager may be modifiedfor department managers. The modified versionis exhibited in Table 8. While the report for thestore manager supplies information for depart-ments, the report for department managers sup-plies information for categories within depart-ments. Finally, for evaluation of displays orcategories within a department, a CategoryEvaluation Report (Table 4) from the merchan-diser could be requested.


Table 6

Personnel Evaluation Reports for the Store Manager

Department Evaluation Report (Weeklv~

KPI-1 KPI-2 KPI-3 KPI-4 KPI-5 KPI-6 KPI-7

s Sales % Gross Gross Inventory % Items % Price

Sales of Total Maruin % Profit $ Turns Scanned Accuracy

Grocery

Produce

Meat

Fish

Deli

Bakery

FF

Dairy

Total

Cashier Evaluation Report (Weekly)

KPI-1 KPI-2 KPI-3 KPI-4 KPI-5 KPI-6

Customer $ Sales Items Scan Time HourlyCashier per Hour per Hour per Minute s in Subtotal Y!&S2

Labor Scheduling Report (Weekly)-

KPI-1 KPI-2 KPI-3 KP1-4

Time~ Total Sales Customer Count Produce S Sales Deli $ Sales

7:OOa.m. -7:3O

7:30a.m. -8:OO

8:OOa.m.-8:3O

8:30a.m. -9:OO

etc.

The Labor Scheduling is delivered weekly but contains sales fitures and

customer counts averaged over the pervious four weeks. The report givesfigures for 30 minute intervals for each day.


Table 7

Inventory Management Report for the Store Manager

Movement (Monthlyl

KPI-1 KPI-2 KPI-3 KPI-4

Average Var iante Minimum Max imum

w ~ Movement of Movement Movement Movement

I Special Reuort (Monthly : Save in File~

I Department:

Units KPI-1 KPI-2 KPI-1 KPI-2

Per Week of: Week of:

~ Decryption ~ Price Movement Price Movement

HoI iday File (Bv Reauest)

Department:

Weeks of:

Units KPI-1 KPI-2

Per

~ DecriDtion Case Price Item Movement

The Holiday File should be kept by department and should include items

requested by the store manager of ❑erchandiser. The report is generated

for a number of weeks prior to and after a holiday. The reports are

keep on file to aid with the next year’s ordering.


Table 8

EvaluationReport for the Department Manager

~egory Evaluation Reoort (Weekly~

Store:_.. ___ Dept :

KPI-1 KPI-2 KPI-3 KPI-4 KPI-5 KPI-6 KPI-7 KPI-8

s Sales % GP $ % Iterns % Price InventoryCategor~ Sales of Dept. GM % GP !3 of Dept. Scanned Accuracy Turns

aaa

bbb

ccc

Key Performance Indicators (KPI):

(1)

(2)(3)

(4)

(5)

(6)

(7)

(8)

Dollar Sales

Sales as a Percentage of Department

Gross Margins (Percentages)

Gross Profit Dollar

Gross Profit Dollars as a Percentage of DepartmentPercentage of Items Scanned

Price Accuracy (Percentage)

Inventory Turns

Table 9

Report forthe CIO

Cateuory Price Ranue Check of Master Price File (Weekly~

Department:KP1-I KPI-2 KPI-3

Cateuory Price Rantre Items Outside Price RanKe Price

An exception report that checks for prices outside a given range for acategory, Manual checks of the price file may also be necessary.

February89/page 36 Journalof Food DistributionResearch

Table 10

Percent Scanned Report for the Scanning Coordinator

Store: Date:

Depar tment :KP I

Category: Scan %

aaa

bbb

ccc

CIO

The CIO has little use for actual scannerdata other than to aid in monitoring the operat-ing discipline of the firm concerning scanningsystems and in checking the master price file.The Scanning Report exhibited in Table 1received by the CEO should also be received bythe CIO. This report enumerates scan per-centages and degree of price accuracy bydepartment. Consequently, this report providesthe CIO with a means to monitor the operatingdiscipline in the firm.

The only other report for the CIO is theCategory Price Range Check of Master PriceFile (Table 9). This weekly report divides themaster price file into categories. For each cate-gory, a price range is set to include all itemprices in that category. The report is designedto list all items in a category that are outside aspecified price range. Although this reportcannot verify individual item prices, it is a wayto quickly check the price file for errors. Itemswith inaccurate prices that fall inside the pricerange will have to be found and corrected bymanually auditing the price file.

Scanning Coordinator

As with the CIO, actual scanner data areof little use to the scanning coordinator. How-ever, scanner-derived information to monitoroperating discipline would be useful to thescanning coordinator.

To monitor store discipline concerningthe operation of the scanning system, thescanning coordinator should receive, with somechanges, the same reports as the CIO. Thescanning coordinator should receive weekly,

rather than monthly, the Scanning Reportexhibited in Table 1. If a problem with thescan percent in a department arises, thescanning coordinator can request a PercentScanned Report shown in Table 10. This tablesimply shows the scan percent for each categoryin a department to help pinpoint problems.

The scanning coordinator also shouldreceive a weekly report similar to the CategoryPrice Range Check of Master Price File Reportin Table 9. The report for the scanning coor-dinator should be set up similarly, but shouldonly include items and categories from the pricefile of his/her particular store, which may dif-fer from the master price file of the firm. Itemprices should be checked against a price rangefor a category to help find pricing errors. Whilethis report cannot take the place of manualprice audits of the store price file and shelfprice tags, it should help the scanning coor-dinator catch some pricing errors.

Operational Considerations

To establish an effective MIS, the retailfirm must initially have a vision of where it isgoing in terms of marketing, operations, anddistribution. Integrating an information-systemplan into a total business plan can be difficult inthe supermarket industry due to varying plan-ning requirements of different parts of the bus-iness. Merchandising and operations, the life-blood of the retail business, have relativelyshort planning horizons. Human resource, storedevelopment, and finance functions of the retailfirm have longer-term planning requirementsthan operations and merchandising.

The differences in planning horizons mustbe recognized by management before beginning


the process of developing a MIS. The MISmodel in this study centers attention primarilyon the key performance areas of operations andmerchandising. To implement this MIS, it isnecessary to identify key performanceindicators (e.g. movement, dollar sales, grossmargins, gross profit dollars). In essence, then,management must prioritize information-systemtarget areas. To accomplish this task, severalfactors (not necessarily inclusive) warrant con-sideration: (1) resources available; (2) look atwhat the competition is doing; (3) cost/benefitevaluations, and (4) risk assessment. Secondly,this mformation-system will need to be man-aged, presumably, by the chief informationofficer and scanning coordinator(s). Third,training personnel in the use of the informationsystem is essential. Finally, management mustrealize that the development and implementat-ion of the MIS is not a one-time event but anongoing process.

Management of scanner data has tradi-tionallybeen considereda mainframe applica-tionregulatedby highlyspecializedtechnicians.However, supermarket firms may use personalcomputers to manage scanner data (6), par-ticularly to evaluate product performance (grossprofit dollars, retail dollars, unit movement) andsales trends as well as to track certain items. Nodirect link between personal computers and themainframe is necessary. Although not the mostefficient approach, data can be entered from apoint-of-sale printout into any popular micro-computer spreadsheet program (e.g., LOTUS,SUPERCALC). Consequently, managing scan-ner data and hence information flows may beless difficult than before because of personalcomputers.

In agreement with Lodish and Reibstein,marketing decision support software must beable to leverage all the latest data, models, andstatistical analysis procedures. The softwaremust have the capacity for database manage-ment, analysis, graphics, flexible report genera-tion, and modeling--all in a user-friendlyenvironment. The database should be organizedin ways that can be easily altered when situa-tions or services change. For example, withoutdoing mawive reprogramming, a firm must beable to incorporate new products or changes insales districts into the database. In addition,information about shelf space, and end-of -aisledisplays, use of advertising, and use of couponsalso should be retained so that impacts on sales,item movement, and net contribution can bemade.

The software should have the capacity toallow many users to access the same integrateddatabase. The system needs a wide variety ofoutput capabilities, ranging from simple tablesto presentation--quality graphics and reports.To be able to divide and aggregate the datasimultaneously into such categories as product,region, salesperson, and time period is of para-mount importance.

Either the chief information officer andscanning coordinators (internal support) or part-time or full-time consultants (external support)must understand enough about data analysis,statistical anal ysis, and modeling to make surethat the appropriate checks have been made andthe appropriate questions have been asked whenrecommendations based on computer analysesare made. These people should report directlyto top and middle management as part of staffgroups.

Costs and benefits are the key componentsin the decision to continue, alter, or discontinuethe MIS, Consequently, audits of benefits (hardand soft) received from the MIS are necessary.With regard to costs, according to an FMI infor-mation system stud y from 1985 (SupermarketNews, January 1987), supermarket firms spendan average of 0.26 percent of dollar sales oninformation systems. The top 20 percent allo-cate 0.48 percent, however. This set of figuresdoes not include automation equipment andmaintenance costs. By comparison, wholesalefirms spend 0.43 percent of sales on informationsystems; the top 20 percent allocate 0.68 per-cent. To quote Ross, “the value of any infor-mation system must ultimately be measured bythe quality of management decisions, Anythingless is inconclusive, anything more is unneces-sary.”

Possibilities for the Future

Several possibilities are evident for thefuture. These areas include (1) the docu-mentation of costs and benefits resulting fromthe implementation of the MIS; (2) the devel-opment of a training program for managers onthe use of the reports in the MIS; (3) the po-tential benefits of connecting front-end (point-of-sale) scanning systems with direct store deli-very systems to achieve a comprehensive inven-tory management system; (4) the general use ofscanner data for consumer demand analysis;(5) the specific use of scanner data for theestimation of short-run own-price and cross-price elasticities for various commodities and(6) the use of scanner data to achieve the


optimum use of limited resources of a firmthrough analysis of linear programming models.

The logical next step in the developmentof a MIS would be implementation into a retailenvironment. Initially, however, it is of meritto conduct research in regard to the documenta-tion of costs and benefits from the implementa-tion of a MIS. Such a feasibility analysis wouldbe useful to managers considering a shift to aninformation system for management.

Another area of potential fruitful researchmight deal with the development of an effec-tive, efficient training program. The trainingprogram should use specific examples and casestudies. Additionally, this program might con-centrate on optimizing use of scanner-derivedinformation by managers.

Further, additional work on the design ofmanagement decision-making information dis-tribution systems is desirable. One particularaspect might involve the most efficient way toincorporate the scanner management informa-tion system into the total information distribu-tion system of the firm. A specific study mightconcern the integration of a scanner point-of-sale information system with a direct store deli-very (DSD) system to form a single informationsystem. Such a system would allow managers totrack merchandise movement from the backdoor to the front end. This system would aidthe manager in determining shrink and wouldhelp set up parameters for automatic reordering.

Scanner data have tremendous potentialfor use in the analysis of consumer demand forspecific products or commodity classes. Scannerdata possess obvious advantages over aggregateannual, quarterly, or monthly time-series dataof prices and consumer purchases, traditionalsources of data for empirical analyses. Thetime-series data are too general for productspecific decision making and may ‘not reflectcurrent market conditions. For more detaileddata for specific products, researchers typicallyrely on consumer panels and consumer surveys.However, such traditional cross-sectional dataare expensive in terms of collection, and gener-ally the collection of such data occur only peri-odically. Scanner data, on the other hand, pro-vide researchers with a readily available, rela-tively inexpensive source of product-specificinformation of actual customer purchases atgiven prices. Thus, scanner data may prove tobe the most detailed and definitive source ofretail food industry statistics available to re-searchers. This detailed and timely source ofinformation should lead to more reliable de-

mand analysis for disaggregate food and non-food commodities.

The use of item-specific movement datapermits the estimation of short-run own-priceand cross-price elasticities of demand for vari-ous commodities. The estimation of demandelasticities for individual items has ramificationsin pricing and ordering decisions, The know-ledge of the respective elasticity measures couldlead to more effective marketing strategies byaiding managers in predicting the effects ofprice changes for specific products. Addition-ally, scanning of uniform product codes pro-vides feedback on optimal pricing of groceryitems and other products.

The allocation of limited resources of afirm is a continual problem. For example, theallocation of limited shelf space to maximizeprofit is a constant concern of food retailers.Scanner data can provide item-specific infor-mation that could be used in analyses of linearprogramming models to determine the optimalallocation of shelf space. Optimization of prod-uct mix as well as advertising and pricing stra-tegies could also be achieved through linearprogramming models.

Concluding Remarks

Scanners have been a profitable invest-ment for supermarkets. However, there stillexists great potential for additional bottom linedollars. These potentials lie largely in “soft”benefit areas, additional and more accurateinformation on which to base management deci-sions. This paper makes a case for firm man-agement to develop and implement an informa-tional system to better capture these benefits(dollars). Although the different aspects of theMIS are generic and probably not directlyapplicable to any specific firm, they do providea structural framework which can be altered(deletions, additions, or other changes) to fitmanagement informational needs of a particularfirm.

Management in the retail food industrylong has been considered an art that has beendominated by managers who make “seat of thepants” or “gut feeling” decisions. Because ofthese tendencies, structured and formal deci-sion-making processes such as those representedby the application of scanner data have beenshunned for the most part. Now, however, it isbecoming necessary for food retailers to searchfor methods to improve their competitive posi-tion, Thus, retailers should begin to take seri-ous actions towards achieving the intangible


benefits of scanning, not only because of thepotential to attain a competitive edge, but alsobecause the failure to do so could realisticallyresult in the inability to remain competitive.Because scanning is a condition of doing busi-ness, management of information will likely bea decisive factor in determining which firms arebest prepared to meet intense competition.

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