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IBM Retail - Boost Integration, ROI & Innovation With SOA
IBM Retail - Boost Integration, ROI & Innovation With SOA
Application Innovation
Services
Retail
Rethinking
retailing with SOA
New levels of flexibility, agility
and cost-efficiency
IBM Institute for Business Value
IBM Global Business Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior executives around critical public
and private sector issues. This executive brief is based on an in-depth study by
the Institute’s research team. It is part of an ongoing commitment by IBM Global
Business Services to provide analysis and viewpoints that help companies realize
business value. You may contact the authors or send an e-mail to iibv@us.ibm.com
for more information.
Rethinking retailing with SOA
New levels of flexibility, agility and cost-efficiency
By Vish Ganapathy, Melody Badgett and Jay DiMare
Today’s retail institutions obtain products from multiple sources across the globe.
Getting the right quantity of these items on the right shelves to meet consumer
demand involves a complex set of processes and extensive collaboration among
retailers, suppliers and manufacturers. Yet in an industry that depends on
innovation, many retailers wage constant and costly struggles to keep up with
change. It’s no wonder that a powerful technology model – service-oriented
architecture (SOA) – is capturing the attention of both business and IT executives.
22 IBM
IBMGlobal
GlobalBusiness
BusinessServices
Services
Rethinking retailing with SOA
New levels of flexibility, agility and cost-efficiency
Retail
distributor Pick, pack,
Receive Ship to
store using
merchandise stores
allocations
Retail store
Receive
Sell
and display
merchandise
merchandise
Vendor/ Develop
supplier Notify delivery Ship
manufacturing
supply and and Advance merchandise
deliver schedules Ship Notice to retailer
Partner
external External
Supplier
systems Shipping
Systems
Systems
Retail
Planning
systems Merchandise Warehouse Warehouse Shipping Store
and Forecast
Systems Systems Systems Systems Systems
Systems
Partner
external Supplier Shipping Supplier
systems Systems Systems Systems
Retail
Planning
systems Merchandise Warehouse Warehouse Shipping Store Warehouse
and Forecast
Systems Systems Systems Systems Systems Systems
Systems
Planning
and Forecast Merchandise Warehouse Shipping Store
Systems Systems Systems Systems Systems
Source: IBM Institute for Business Value analysis.
Although the process did not change, the custom applications can be costly to maintain,
systems are better positioned to support the and hard to link to other systems. Furthermore,
process. In this revised approach, the supplier changing business strategies and models
can see in realtime what is happening in the often require new applications or more func-
stores. Stores can communicate sales and tionality – adding one more application that
inventory status to their suppliers. Similarly, also requires custom, point-to-point connec-
store systems and warehouse systems can tions. The complexity grows. Figure 2 shows
communicate with other core retail systems. partners accessing a retailer’s core systems
This enhanced connectivity positions the using the same approach as the retailer uses
retailer and its suppliers to better respond to internally.
changing conditions.
SOA provides a way to build a single, reus-
The challenge is how to accomplish this level able interface for multiple purposes. Partners
of integration. Today, point-to-point, direct connecting to the services do not need to
connections between applications are the acquire additional software. This type of
prevalent approach. Legacy, “off-the-shelf” and connectivity is illustrated in Figure 3.
SOA services
Get inventory level for Planning and Forecasting System may use
Supplier B product
Warehouse and
the same “Get backorder levels” service that
Systems
Shipping Systems a Store System uses. To aid retailers in the
design of SOA services, organizations like the
Supplier N Store Systems Association for Retail Technology Standards
Systems
(ARTS) are creating models specific to retail
Demand forecast services that can expedite the design and implementa-
• Get forecasted demand for product
Promotion information services
tion process. ARTS recently released the SOA
• Get active promotions Blueprint for Retail, a comprehensive, vendor-
• Get promotion details 2
Inventory services neutral approach to applying SOA in retail.
• Get inventory level for product
Designed to transcend • Get backorder levels The value to the business
• Update in-stock inventory levels
Shipping and delivery services An IT environment built around SOA can
systems, channels • Get shipping status
help retailers and their partners avoid issues
and organizational
Source: IBM Institute for Business Value. created by a lack of integration and process
boundaries, SOA can orchestration. Designed to transcend systems,
accelerate the speed channels and organizational boundaries, SOA
and effectiveness of To build this solution, the retailer would imple- can accelerate the speed and effectiveness
ment the SOA services as shown in Figure 3 of information-sharing and process automa-
information-sharing and
– providing controlled access to specific func- tion. The Web-based services that are central
process automation tions within the company’s existing systems. In to SOA can make key performance indicators
some cases, there may be more than one core of the end-to-end supply chain visible to all
system that leverages a particular service; for appropriate parties. Additionally, since SOA
example, planning, replenishment and ware- permits realtime access to information, condi-
house systems may all be supported by the tions, events and metrics can instantly trigger
“Get inventory levels for product” service. In optimal responses – before problems have a
the SOA-enabled scenario, the service would chance to compound. This type of flexibility
mask the complexity of the back-end systems. has the potential to impact several key perfor-
The requester of the information need only mance indicators used by the industry (see
ask to “Get inventory level for product” and not Figure 4).
worry about where the service resides.
Days in inventory The total amount of time between placement of a Promotions and sales services can help reduce this
replenishment order to a supplier and its arrival time by providing more realtime inventory levels, thus
at the store. condensing the reorder cycle.
Supplier cycle time Amount of time between placement of a Logistics-related services can provide visibility to latency
replenishment order and the carrier pickup of the issues in transportation, which can help improve this
same order. metric.
Supplier fill rate The supplier’s ability to fulfill the total amount Earlier visibility to plans, forecasts promotions and
ordered within a given time window. inventory can increase the supplier’s ability to meet
demand, and reduce the PO to ASN variances.
Supplier ASN The supplier’s ability to generate accurate advance
accuracy shipping notices (ASNs).
DC fill rate The distribution center’s (DC’s) ability to fulfill the Reducing the PO to ASN variances can help improve the
total amount allocated to an individual store within distribution center fill rate, since “pre-allocations” will
a given time window. likely be more accurate.
Consider the book promotion scenario This level of integration, coordination and
discussed earlier, and how SOA could benefit collaboration can have dramatic and positive
the retailer. From the start, the open stan- effects across the value chain – from inventory
dards used to build SOA services would allow and logistics, to sales, service and overall busi-
the supplier to see the retailer’s plans and ness performance.
respond with a special replenishment program
for the old book titles. This would help assure Think about how the retailer might have reduced
that the right amount of inventory of the old operational and implementation costs. By
and the new books was in the stores – without better aligning the timing of inventory delivery
requiring major, resource-consuming applica- to in-store sales, the company’s expenditures
tion development on the part of either the for advertising, in-store displays and other
retailer or the supplier. Shipments of merchan- promotional items could have been better
dise to the retailer’s distribution warehouse coordinated and more effective. As the promo-
and stores would be synchronized with sales. tion progressed, realtime feedback on sales
Unanticipated shortfalls, overages or delays would have enabled the supplier to refine its
could be quickly de-tected and corrected replenishment strategies accordingly. Likewise,
before creating their own set of problems. these forecasts would sup-port management
decisions to optimize scheduling of merchan-
Time
Supplier
Take orders Manufacture Transport to Transport Transport to Transport to
goods shipper overseas importer retailer
Retailer
Record ELC Request Determine
(finance) Receive Reconcile Authorize Calculate
for purchase letter of ELC to ALC
invoices invoices payments ALC
order credit variance
Systems
Logistics
Sourcing and Contracts Global Trade
Financials
Key Purchasing Management Management
ELC Estimated landed cost
ALC Actual landed cost
In the case of the lawn mowers, the retailer’s tariff costs. In the finance department, invoices
transportation team relies on special software arrive in numerous formats from vendors,
to optimize carrier bids. But the estimating customs brokers, carriers and other parties.
tools use a different source to look up carrier There is a 90-day backlog in calculating and
rates – and these figures depend on manual comparing actual versus estimated landed
updates that often lag behind the latest costs.
rates. Because of this, the estimates usually
fail to match the actual costs. Similarly, the With so many departments using various
customs compliance group uses a global processes and applications (and producing
trade-management tool to calculate duties data that serves different purposes),
and tariffs. Every day, these numbers change, merchants often make pricing decisions
but no one ever seems to have the time based on inaccurate and inconsistent infor-
to incorporate all of them all into the tool. mation. Profit margins can suffer for months
Consequently, it’s usually impossible for before estimating variances are even noticed.
anyone to accurately estimate the duty and More time may go by before the cause is iden-
tified and corrected.
FIGURE 6.
Global sourcing process support by SOA systems.
Supplier
Take orders Manufacture Transport to Transport Transport to Transport to
goods shipper overseas importer retailer
Retailer
Record ELC Request Determine
(finance) Receive Reconcile Authorize Calculate
for purchase letter of ELC to ALC
invoices invoices payments ALC
order credit variance
Systems
Sourcing and
Financials
Key Purchasing
ELC Estimated landed cost
ALC Actual landed cost
Logistics Logistics
Global Trade Contracts Global Trade
Contracts
Management Management Management
Management
There are multiple ways to build this solu- To create the solution in Figure 7, a retailer
tion; many are in use today. However, most would build a layer of services that connects
are point-to-point, custom solutions that are its Logistics Management Systems and the
costly to maintain and hard to change. For Global Trade Management System. This layer
example, many large retailers have multiple, of services would be used by any application
best-of-breed applications supporting logis- that needs to get to the functionality and data
tics management. With multiple sourcing and controlled by these systems. The SOA services
purchasing systems connected to multiple could allow a more secure and controlled
logistics management systems, the number access to needed information in realtime
of custom integration scenarios increases – helping to enable continuous access to
exponentially, and reduces an organization’s current and accurate data.
ability to accommodate change. SOA presents
an appealing alternative that uses a single The same SOA services could be used
interface to access key functionality. In our by other applications, and even exposed
example, SOA services can be used to access externally to the retailer’s business partners.
FIGURE 7.
SOA services supporting transportation and tariff information.
Retailer systems
Get tariffs for country Sourcing and Get transport rates
SOA services
SOA services
SOA services
SOA services
Inventory Availability These two SOA services implementations
System
could share the same supporting infrastructure
Update in-stock
Store POS
inventory levels – setting the base for additional SOA imple-
Systems Store Systems mentations in the future.
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