System integration, automation save retailers millions

South African retailers are on the brink of following their international counterparts in opting for fully integrated and automated enterprise resource planning (ERP) software in order to boost efficiencies that could save them millions every year.

So says Brandon Shaban, retail and consumer industries solution manager for ERP market leader, SAP Africa.

"Until now, the trend for retailers has been the use of best-of-breed retail systems or pieces of non-industry-specific ERP systems, such as human resources or financials. But, within the last year, we have seen many of the larger retailers realise just how significantly a fully integrated system designed specifically for the industry will add value to their business.

"That's because such a system eliminates retailers' biggest headaches: not knowing, in real-time and very precisely, how much stock they need in any given store for any given sales period or what kind of stock is most appropriate for which kind of store, given consumer demographics and buying trends.

"Not knowing forces them to carry at least 20% in unnecessary costs. That's R400 million they could be adding to the industry's annual turnover of R200 billion. No small potatoes."

Massmart chairman, Mark Lambert, supports the point, saying: "Makro's confidence in its ability to achieve a 4% profit before tax return on sales over the next two to three years has resulted directly from the important information it gets from the new SAP for Retail solution."

At the annual conference of the Consumer Goods Council of South Africa (CGCSA) during October 2004, Dietrich Goltz, region engagement manager at SAP AG in Germany, paid tribute to South African retailers for having built one of the country's fastest growing industries.

"The good news is that getting rid of that risk doesn't mean 'ripping and replacing' your existing systems.

"A new standards-based, open source system like SAP for Retail - or, in fact, any of the mySAP ERP modules - is designed to interface easily with other systems. So, you can prove the benefits of one module before committing to a wholesale refresh of your system. In fact, this kind of change process tends to be long-term and should be handled in planned, controlled phases.

"That sounds scary in terms of commitment to long-term expenditure. But each phase brings with it quick, substantial, clearly visible returns. So you can actually make the change process pay for itself."

By contrast, the downside of staying with proprietary or legacy systems is an ever-mounting cost burden. "The original designers of 20-year-old systems have long since disappeared, necessitating training other people to run the system.

"Also, old systems can't easily expand or interface with, for instance, modern tills or Internet technology. So they limit your growth. Research shows that constantly cobbling on newer hardware and software that enables some level of integration averages about 60% of the cost of the entire system. That's not only expensive, it actually constitutes a financial and operational risk because the system is fundamentally unstable.

"The cost of integrating a standards-based, automated, industry-specific system into your operations, however, is only 6%. And, because such a system is inherently more robust, it needs minimal maintenance and management. It is also more reliable in terms of making data available 24x7 and keeping it secure.

"In addition, because it collects and manages data from every area of the business in a uniform way, you get a real-time, comprehensive picture of the business that enables you to see what needs changing before problems develop.

"Our SAP for Retail, for instance, can be integrated and combined with mySAP Business Suite which covers every business activity from supply chain to customer relations. So, operational visibility from stores to head office is just a mouse-click away."

Integrated solutions also enable you to understand and control the costs of your IT system itself. "Old proprietary systems are so eccentric that they constitute a very high variable cost. An integrated system, on the other hand, provides a fixed cost for licences and monthly maintenance for a period of at least five years. So you can budget more accurately, see your ROI very clearly, and proactively manage the ratio of IT costs to income."