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Information Technologies in Retail Supply Chains A
Information Technologies in Retail Supply Chains A
Information Technologies in Retail Supply Chains A
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Article in International Journal of Business Performance and Supply Chain Modelling · January 2013
DOI: 10.1504/IJBPSCM.2013.051648
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1 Introduction
Information technologies (ITs) play a vital role in improving information sharing and
collaboration in a supply chain (SC) (Simchi-Levi et al., 2003). The rapid development of
ITs enables the participants in a SC to receive and disseminate electronic information
instantly, helps to improve information accuracy and reliability, and in turn provides
competitive positioning of the SC participants through shorter lead times, reduced
stockouts, quicker response and lower costs. ITs have increasingly been implemented in
supply chain management (SCM) for strategic planning, virtual enterprises, e-commerce
and knowledge management (Gunasekaran and Ngai, 2004).
In a retail SC, a retailer’s performance is affected by all the participants in the retail
SC (Ellram et al., 1999). All of these, the participants are required to work collaboratively
in order to compete in the global market through multiple competitive objectives such as
price, quality, responsiveness, flexibility and dependability.
One of the most commonly implemented ITs in the retail SC is e-commerce, which
takes a variety of forms such as electronic data interchange (EDI), internet, intranet,
extranet and web-based point of sales (POS). Lancioni et al. (2000) discussed how the
internet helps retailers and other suppliers to manage SC activities. Weber and
Kantamneni (2002) examined the underlying factors influencing why retailers adopt POS
and EDI. Retailers have enjoyed the benefits of these ITs in terms of improved SC
efficiency and customer relationship as a result of a refined operations system. However,
it is clear that the path to adoption has its challenges; for example, high setup cost,
complexity of implementation, and privacy and security issues.
The aforementioned research only deals with one aspect or one particular technology,
and there is very little research on how to implement the ITs collaboratively in a retail SC
to achieve the target of the SCM, i.e., integrating all the activities that add value to
customers, ranging from product design to delivery, while minimising the total cost
(Simchi-Levi et al., 2003). The aim of this research is to synthesise knowledge about the
ITs by reviewing a wide range of articles on the implementation of the ITs, and to
suggest key considerations relating to their adoption in the retail SC. Compared with
other reviews, this work is unique in that it explores IT application from the downstream
to the upstream of the retail SC. The research explores how the IT approaches work
together to enhance information sharing in the SC. The comparison between Tesco and
Asda illustrates the considerations and preferences taken into account when retailers
choose to adopt the ITs in practice.
In Section 3, a synthesis of literature on IT uses in SCM is reviewed to ground the
empirical work done in the past, and demonstrate the contributions of this paper. The
functionalities and features of ITs are summarised in Section 4, while a framework of the
opportunities and challenges of adopting ITs is provided in Section 5. The practical
applications of ITs are compared for Tesco and Asda in Section 6 and, finally, the
conclusions are presented in Section 7.
2 Research methodologies
In order to investigate the use of ITs in SCs, and taking into account the nature of the
subject, two main approaches were taken. Firstly, a comprehensive literature review was
48 Y. Xie and C. Allen
undertaken, examining both the available technologies and their application to the
retail SC, the latter including the associated benefits and challenges and the processes
involved.
The core of the research was undertaken through comparative case studies of two
leading supermarket chains, Tesco and Asda. The information for these case studies was
drawn partly from existing papers and texts, these being assessed for their relevance and
their contribution to the topic under consideration, and partly from structured telephone
interviews with key staff responsible for IT projects, procurement, inventory
management, logistics and marketing, these latter being designed to explore how ITs
facilitate and improve performance of the entire SC, encompassing supplier relationship
management, internal logistics and operations management, and customer relationship
management (CRM).
The structured interviews were tested, modified and used to capture relevant data in
cross-sectional surveys of the two organisations. The results of the interviews were then
cross-referenced against the secondary information in order to provide a coherent
narrative and analysis of the use of ITs in their SCs. Comparisons between their usages
were then drawn up, with particular reference to the three main technologies, these being
EDI, RFID and DM.
Nowadays, ITs serve as a nerve system for SCM, sharing information on various
value-adding activities along the SC and enhancing SC performance by reducing cost,
enhancing collaboration and facilitating organisational transformation (Nath and
Standing, 2010). The literature on IT and its implementations in the SC context can be
classified according to different research aims:
1 the roles of ITs in SCM
2 enhancing SC performance using ITs
3 the development of quantitative models assessing the impacts of information sharing
on SC performance, such as mitigating the bullwhip effect, reducing costs, and
facilitating decision-making with regard to order quantities
4 the implementation of specific ITs in SCs.
The details of the classifications and the representative literature relevant to each
classification are presented in Table 1.
In an effort to add to the literature on the ITs in the SC, this paper reviews how ITs
are implemented to facilitate key activities in the retail SC (as shown in Figure 1),
encompassing partnership with suppliers, logistics and operations management, and
CRM (Gunasekaran and Ngai, 2004). This paper will further educate practitioners on the
challenges and opportunities of the ITs, as well as providing guidance on implementing
the ITs interactively to maximise benefits brought by them. Academically, it provides
both a comprehensive review through synthesis of knowledge of the ITs, and a direction
to academics for further research on the adoption the ITs in the retail SC.
Information technologies in retail supply chains 49
Classification References
The roles of ITs in SCM Lancioni et al. (2000), Gunasekaran and Ngai (2004),
Prasad et al. (2010)
Enhancing SC performance using Cachon and Fisher (1997), Fisher (1997), Ko and
ITs Osei-Bryson (2006), Nath and Standing (2010),
Olorunniwo and Li (2010)
The quantitative models assessing Lee et al. (1997, 2000),
the impacts of information sharing Gavirneni et al. (1999)
on SC performance
The implementations of the specific EDI: Pawar and Driva (2000), Hill and Scudder (2002),
ITs in SCs Sanchez and Pérez (2003)
RFID: Spekman and Sweeney (2006), Reyes and Frazier
(2007), Sellitto et al. (2007), Visich et al. (2007).
Figure 1 The ITs adopted in a retail SC (see online version for colours)
EDI
EDI
EDI
ITs such as EDI, RFID and DM have been widely adopted by the retail SC partners in
order to facilitate key activities, i.e., partnership with suppliers, logistics and operations
management, and CRM; it is important to have a complete understanding of the
functionalities and features of these ITs before adopting them.
50 Y. Xie and C. Allen
4.3 CRM: DM
Data mining (DM) is the process of extracting or mining knowledge from large amounts
of data in such a way as to build predictive models for management decision-making
(Han and Kamber, 2006). In general, companies use computers to capture details of
business transactions and send all relevant information to a data warehouse where it is
examined and analysed to reveal the total business situation (Lee and Siau, 2001).
Information technologies in retail supply chains 51
Mined knowledge from large databases provides information for executives involved
in strategic and tactical decision-making, as well as operational managers responsible for
cost reduction.
In retail stores, loyalty cards provide a deep and broad pool of information which can
be mined effectively. Therefore, DM plays an important role for retailers, especially in
CRM, allowing retailers to gain knowledge and understanding of consumer behaviour
(Byrom, 2001), and to segment their customer base while tailoring products and services
to the needs and purchasing power of individual groups of customers.
Applications of the ITs in retail SCs are increasing, but the adoption of ITs is not only
a matter of fit into the organisational context, but also the fit between characteristics of
the SC and the type of IT. Figure 1 illustrates adoptions of the ITs in the retail SC. POS is
widely adopted by retail stores to sell products to customers, EDI is used between
retailers and their suppliers for data exchange, RFID can be implemented by both
retailers and suppliers for data capture on products, and DM is adopted in the back office
for extracting useful knowledge from large pools of data.
One of the key challenges in implementing EDI is the high initial setup cost, while
another is to get all participants in the retail SC to use EDI and to reach an agreement on
terms associated with EDI use (Jun and Cai, 2003); support from senior management
plays a vital role in successful EDI implementation (Tuunainen, 1998). In order to
successfully introduce EDI, it is necessary that, prior to the implementation phase, the
existing business processes are altered in order to accommodate the features of the EDI
system. In the implementation process, it is a difficult task to fully integrate EDI into a
company’s existing computer system (Murphy and Daley, 1999), while challenge is the
lack of sufficient education and training for managers and users of the EDI (Banerjee and
Golhar, 1993). Implementing EDI may also lead to security and legal issues. Disclosure
of information, modification of messages and repudiation of message origin or receipt
Information technologies in retail supply chains 53
1 reducing the level of risk to business by checking the customer’s credit history
(Kusiak, 2006)
2 reducing stockout or overstock by analysing the movement of warehouse stock in
relation to product type, product location and shelf space (Lee and Siau, 2001)
3 forecasting customer demand and behaviour by analysing customers’ previous
performance (Kusiak, 2006; Katsaras et al., 2001), and justifying resource allocation
by segregating customers on the basis of their contribution to the company (Aeron
et al., 2010)
4 improving CRM by providing a deep understanding of customer behaviour and
needs (Kusiak, 2006)
5 optimising strategies relating to market segmentation, market targeting, market
differentiation and positioning (Forcht and Cochran, 1999; Katsaras et al., 2001).
More strategically, DM tools allow the retail SC participants to collect massive quantities
of data from multiple resources, and extract useful and relevant knowledge from
databases in order to redesign and optimise business processes (Folorunso and Ogunde,
2005). DM techniques predict futures and trends, allowing companies to make proactive
and knowledge-driven decisions.
DM has many challenges to overcome. Scalability is one of the key constraints on
DM adoption, as there are usually very high data volumes and data flow rates to be
analysed. Business transactions are completed online, and the data collected through web
is usually complex, so efficient algorithms need to be designed to handle the multiple
data types and generate output that is comprehensible in order to provide insight into the
business (Shaw et al., 2001; Kohavi et al., 2004). As users of DM may require different
types of information to be extracted from the database for different purposes, the system
should allow the data to be mined at different levels (Chen et al., 1996).
Finally, privacy and data security is argued to be a challenge of DM. Different levels
of data can be viewed at different perspectives from DM, and it is relatively easy to
construct a personal profile using these data (Lee and Siau, 2001)
Two British supermarkets, Tesco and Asda, are selected to compare the use of the ITs in
their SCs. Tesco is the largest retail chain in UK, with a market share of 30.4% in 2009,
while Asda is the second largest (with a market share of 17.5% in 2009). Both retail food,
6clothing and general merchandise and are prime candidates for IT implementation in the
retail industries. Over the last decade, both Tesco and Asda claim that ITs have played a
key role in their success, by enabling fast response, increasing stock availability,
improving collaborative planning, forecasting and replenishment, and finally reducing
cost. However, the two supermarkets adopted different ITs at vastly different rates
dependent to their business strategies; this is partly influenced by the fact that Asda is a
subsidiary of the US retail giant Wal-Mart, which has a different culture from UK retail
sector. A comparison is done for their implementations of ITs, as shown in Table 3, and
the opportunities and challenges of these ITs are summarised.
Information technologies in retail supply chains 55
sectors, and it is late into the game in comparison with Tesco, but it has the advantage
that its parent Wal-Mart has already had successful trials and experiences. Wal-Mart
requested its top suppliers to provide RFID tagged cases and pallets to its distribution
centres (Lee and Ozer, 2007), and benefited through reducing product stockout by 16%
(Hardgrave et al., 2008) and cutting 67% off the replenishment time (Knights, 2006).
Currently Wal-Mart is helping Asda progress towards implementing RFID, enabling the
UK retailer to learn from the experience of Wal-Mart in relation to supplier interaction
and managing stock inventory.
especially after Tesco entered the US market in 2006. Another challenge to Asda is the
complexity of using and analysing RetailLink data. Navigating the system, finding the
correct data, downloading the data, and then creating an actionable report involves a lot
of work for the user, especially if the supplier has other retail customers who make the
same data available. It is difficult to turn the data into actions for users without data
manipulation and analysis skills (Using Retail Link Data, 2010).
Table 3 A comparison of the ITs applied in Tesco and Asda
IT
EDI RFID DM
Retailer
Tesco Web EDI: Tesco link Tray and case level Tesco club card
Opportunities: communicate Opportunities: Opportunities: segment
with all suppliers large or improved inventory market and target
small; better planning for control; balanced individual customer;
new lines and promotions; inventory levels
improved in store among stores;
availability
Challenges: insufficient Challenges: cost of Challenges: large
education and training for RFID amount of data to be
users in small suppliers; implementation; analysed; data
accompanying business protection of customer;
process change; initial setup waste paper and
cost in Tesco; criticism from
environment protector;
Asda Web EDI: AS2 N/A N/A, but analyse the
data from Retail Link
Opportunities: faster and Opportunities: quick
more secure transfer of data; stock replenishment and
reduced data transmission less waste;
costs
Challenges: hardware and Challenges: complexity
software incompatibility in of using RetailLink
suppliers; initial setup cost data; No information
about customers.
7 Managerial relevance
ITs and their applications in SCs are generally regarded as the highest impact
management issues by managers in large retail organisations, and have been well aligned
with research trends. Managers have expressed the need for accurate and timely data to
facilitate informed decision-making; accurate and timely information increases visibility
throughout SCs and improves communication between SC members.
The research reviewed the functionalities and features of EDI, RFID and DM, and
explored their applications from the downstream to the upstream of the retail SC, which
provides a rich picture for managers as to what the ITs can contribute to building an
integrated and transparent SC system. Empirical case studies with Tesco and Asda further
validate the findings, and can be used as guidance and information for implementing
these ITs.
58 Y. Xie and C. Allen
Through exploring the opportunities and challenges associated with the ITs, this
research highlights the potential competitive advantages that retail SCs can gain in
adopting and implementing the ITs, and the challenges in the path of adoption.
The comparison between Tesco and Asda reveals the practical considerations and
preferences these retailers have taken into account, and is highly relevant to practitioners
who are at the stage of adopting ITs.
Given the nature of the operations of large and medium sized supermarket-style
chains, which could also include such retail outlets as DIY centres and large domestic
electrical/computer goods retailers, it is apparent that two key areas where advantage can
be gained are through more sophisticated control of stock, including stock held in the
pipeline from suppliers and distributors, and knowledge of customers and their buying
patterns. The ITs analysed in the research provide both of these to retailers; therefore, the
authors would argue that the research presented would, in itself, be of great benefit to
those retailers when deciding which ITs to implement.
The advent of ITs offers many opportunities to the retail SC, and is acknowledged as
being useful in improving business performance and optimising business processes.
However, the extent and speed of adoptions of these ITs are impacted by many
challenges. Among them, EDI is more widely implemented in the retail SC compared
with RFID and DM, and this is attributed to the high setup cost of RFID and complexity
of DM. Public perceptions and acceptance of ITs also impact on the decisions of
companies; concerns about privacy and security issues associated with ITs need to be
addressed to avoid legislation being imposed on them. The next step is to explore how to
exploit RFID and DM in more creative ways in order to maximise the benefits and
minimise the challenges.
The comparison between Tesco and Asda illustrates the considerations and
preferences when retailers choose to adopt ITs in practice. EDI is implemented in Tesco
and Asda to record sales and communicate with suppliers. However, the implementation
rates on RFID and DM vary with the two supermarkets due to their different business
strategies. Tesco is a company which focuses heavily on customer information and
endeavours to tailor products to individual customer needs, so RFID is heavily adopted to
improve stock availabilities, while DM is implemented to target the correct market
segments. Asda is not a DM company, but focuses more on investment to optimise
inventory management and bring down prices. However, it has not adopted RFID yet due
to the technology’s immaturity and is being helped to progress by its parent company
Wal-Mart.
The discussions presented in this paper provide useful insights into the nature of the
ITs and their uses in the retail SCs of Tesco and Asda. There is scope for further
empirical studies to be conducted with Tesco and Asda, to identify cross boundary
implementation of the ITs between different SC entities. This empirical work will
highlight the necessity of integrating ITs across a retail SC, emphasise the importance of
collaboration and trust between SC entities, and thus facilitate the development of
knowledge in a manner by which Tesco and Asda, along with other retailers, can be
better advised how to implement them in their SCs. The ITs reviewed in this research will
also be investigated in retail SCs other than grocery chains, and a comparison will be
Information technologies in retail supply chains 59
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