RMM, MMS, retail systems, and retail ERP all designate information systems used by retailers. Essentially, RMM solutions can record product performance to allow buyers to purchase merchandise according to this information and to make accurate merchandise decisions. To achieve this objective, communications to third party systems play an integral role in an RMM system. Successful retail operations generally require communication between the SCM or ERP solutions and the RMM system.
Due to the diversity of the retail market, a one size fit all approach to MMSs does not work. Depending on the retail segment and strategy, different features and functions are needed for every retailer. Banks and hotels may both be considered retailers, but they have different requirements. For instance, an apparel retailer such as Louis Vuitton is product-oriented; a service retailer is usually client-oriented; and an e-tailer is likely transaction- or security-oriented. Therefore, customizing retail systems according to the functionality required by different verticals is a common task for MMS vendors.
Core Area Definition
Categorizing the requirements of various types of retailers into five main areas will aid in the understanding of the components of a merchandising system. The following categories can be considered as the core or "must have" areas of a retail system.
1. Inventory management
2. Inventory optimization
3. Revenue management
4. Sales management
5. Reports and inquiries
Note that this nomenclature is not an industry standard. Different merchandising software vendors have different naming conventions. However, all the capabilities categorized under these main areas are core components of a retail solution.
1. Inventory management. No matter which proprietary title (e.g., merchandise management, merchandise inventory and analysis, or merchandise operations) inventory management goes by, this area covers basic functionality that relates to the inventory on hand or in transit. Inventory management tracks the ins and outs of a product down to its color and size level, using capabilities such as purchase order process, receipt process, allocation process, distribution process, transfer process, style consolidation process, physical count process, and inventory freeze process. The schematic below reveals why efficient inventory management is the first rule of thumb for a retailer.
# Inventory optimization. Inventory optimization consists of tools used by merchandisers to make important buying and selling decisions regarding inventory. Though vendors employ varied terms, such as strategic merchandise management, merchandise and assortment planning, planning decision support, and replenishment, to describe inventory optimization, all these terms refer to software that helps merchandisers make accurate decisions and that ensures products are placed at the right time, price, and place. The tools inventory optimization uses to do this often include planning, forecasting, replenishment, and stock optimization. These functions help users determine both where items have the best sell through rate and sales treends, so that the system can replenish stores appropriately. However, planning and forecasting capabilities are not necessarily integrated in all the retail systems available on the market. Some vendors instead choose to integrate with best-of-breed solutions specialized in those areas of interest.
# Revenue management. Due to increased awareness among customers, product prices must be equitable; they cannot be higher than the competitor's prices, but cannot be lower than the products' cost. Thus, revenue management's main purpose is to ensure that inventory is sold at the right price. It does this by looking at sales history and trends, sometimes with the help of a planning and forecasting tool. Revenue management also aids in creating promotional events, such as "two for one sales", to attract more consumers into the store. In addition, it is responsible for determining markdowns, which allow retailers to liquidate discontinued or out of fashion products in order to lessen losses. Also known as price change management, retail profit optimization, or price management, revenue management's functionality includes markdown creation, markup creation, price change simulations, promotion creation, vendor discounts, and allowances.
# Sales management. By definition, a sale is an exchange of goods (tangible or intangible) for money or its equivalent. Sales transactions are thus the primary objective of a retailer, and a sales management system structures these transactions. Sales management therefore handles sales entry, sales audit, consignment sale entry, and stock ledger aspects of the retail system. Retailers use the sales management system to close the month, a process also known as period end or stock ledger closing, by calculating the total profit for the merchandising period.
Point-of-sale (POS) is also classified in the sales management area. Unlike the stock ledger or sales entry functionality, the POS system is part of the front-office system. It is this system that is used at the cash register where the sales transaction is entered. The POS system will transfer sale transactions data to the MMS, where the merchandiser can validate sales before the business day closing period. Retailers with only one or two stores can use a POS system, which is less expensive than an MMS, as their main system for tracking inventory and processing sales.
Not all retail system vendors include a POS in their package. Many MMS vendors will have a partnership with a third party POS system company, allowing them to offer a best-of-breed application. This situation generally occurs when the vendor's target market is a retailer with over one hundred stores, where the business needs are greater. Vendors that aim for smaller retailers' business usually have a POS system integrated into their retail software, though the functions and features are usually not as complete.
Due to the diversity of the retail market, a one size fit all approach to MMSs does not work. Depending on the retail segment and strategy, different features and functions are needed for every retailer. Banks and hotels may both be considered retailers, but they have different requirements. For instance, an apparel retailer such as Louis Vuitton is product-oriented; a service retailer is usually client-oriented; and an e-tailer is likely transaction- or security-oriented. Therefore, customizing retail systems according to the functionality required by different verticals is a common task for MMS vendors.
Core Area Definition
Categorizing the requirements of various types of retailers into five main areas will aid in the understanding of the components of a merchandising system. The following categories can be considered as the core or "must have" areas of a retail system.
1. Inventory management
2. Inventory optimization
3. Revenue management
4. Sales management
5. Reports and inquiries
Note that this nomenclature is not an industry standard. Different merchandising software vendors have different naming conventions. However, all the capabilities categorized under these main areas are core components of a retail solution.
1. Inventory management. No matter which proprietary title (e.g., merchandise management, merchandise inventory and analysis, or merchandise operations) inventory management goes by, this area covers basic functionality that relates to the inventory on hand or in transit. Inventory management tracks the ins and outs of a product down to its color and size level, using capabilities such as purchase order process, receipt process, allocation process, distribution process, transfer process, style consolidation process, physical count process, and inventory freeze process. The schematic below reveals why efficient inventory management is the first rule of thumb for a retailer.
# Inventory optimization. Inventory optimization consists of tools used by merchandisers to make important buying and selling decisions regarding inventory. Though vendors employ varied terms, such as strategic merchandise management, merchandise and assortment planning, planning decision support, and replenishment, to describe inventory optimization, all these terms refer to software that helps merchandisers make accurate decisions and that ensures products are placed at the right time, price, and place. The tools inventory optimization uses to do this often include planning, forecasting, replenishment, and stock optimization. These functions help users determine both where items have the best sell through rate and sales treends, so that the system can replenish stores appropriately. However, planning and forecasting capabilities are not necessarily integrated in all the retail systems available on the market. Some vendors instead choose to integrate with best-of-breed solutions specialized in those areas of interest.
# Revenue management. Due to increased awareness among customers, product prices must be equitable; they cannot be higher than the competitor's prices, but cannot be lower than the products' cost. Thus, revenue management's main purpose is to ensure that inventory is sold at the right price. It does this by looking at sales history and trends, sometimes with the help of a planning and forecasting tool. Revenue management also aids in creating promotional events, such as "two for one sales", to attract more consumers into the store. In addition, it is responsible for determining markdowns, which allow retailers to liquidate discontinued or out of fashion products in order to lessen losses. Also known as price change management, retail profit optimization, or price management, revenue management's functionality includes markdown creation, markup creation, price change simulations, promotion creation, vendor discounts, and allowances.
# Sales management. By definition, a sale is an exchange of goods (tangible or intangible) for money or its equivalent. Sales transactions are thus the primary objective of a retailer, and a sales management system structures these transactions. Sales management therefore handles sales entry, sales audit, consignment sale entry, and stock ledger aspects of the retail system. Retailers use the sales management system to close the month, a process also known as period end or stock ledger closing, by calculating the total profit for the merchandising period.
Point-of-sale (POS) is also classified in the sales management area. Unlike the stock ledger or sales entry functionality, the POS system is part of the front-office system. It is this system that is used at the cash register where the sales transaction is entered. The POS system will transfer sale transactions data to the MMS, where the merchandiser can validate sales before the business day closing period. Retailers with only one or two stores can use a POS system, which is less expensive than an MMS, as their main system for tracking inventory and processing sales.
Not all retail system vendors include a POS in their package. Many MMS vendors will have a partnership with a third party POS system company, allowing them to offer a best-of-breed application. This situation generally occurs when the vendor's target market is a retailer with over one hundred stores, where the business needs are greater. Vendors that aim for smaller retailers' business usually have a POS system integrated into their retail software, though the functions and features are usually not as complete.
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