Analysis of POS System – Which system should a retailer buy?

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When does it make sense for a retailer to switch to a POS system?

Actually, every retailer already has a system to manage transactions. This might be as simple as ledger entries or even counting everything that got sold and still remains on the shelf at the end of the day (though the latter option would be rather tedious). The retailer is ultimately an agent whose business it is to maintain a stock and sell what he has. Hence, each retailer, who wishes to thrive rather than commit hara-kiri, maintains a record of what he has sold and how much of stuff he still has left. He knows then what to display more prominently and how much to order of what from the distributer.

The question then is how sophisticated a POS system does a retailer use and when is the right time to upgrade. The benefits of a POS system can be described thus:

  1. They record sales. This further helps in tracking cash flows (Sales net of refunds) and inventory (Opening stock net of sales should equal to closing stock).
  2. They bring more accuracy to product information and price recorded.
  3. They make checking out faster.
  4. They track inventory.
  5. They help the retailer understand his business performance better.
  6. They help in automatically aligning vendors and generating order.

The ordered rank of these benefits more-or-less reflect increasing level of sophistication in the system.

If the benefit sought is simply to record sales, a simple desktop and a screen suffice. The transactions are punched in using a keyboard, which might be equipped to read credit cards, and perhaps a printer attached to generate the bill. This setup means that the cashier pick the item and check its label, and then record the product description and the  price either from a sticker on the item or, as in the case of produce, look up the current price of that item from some record. A small retailer might not even use a desktop for this and just record the transactions in ledgers, cumbersome as it might be over a spreadsheet tool.

As the volume of business grows, and the number of items kept and sold at the store, the scope for manual error increases. A retailer selling only six varieties of loose tea is less likely to mix his description and prices than another retailer selling, besides these six  varieties, a handful of national brands of tea in all sizes and flavor and coffee in all its loose and packed variants. Abstracting the description and price information to a database and assigning each item in the store a unique identifier, reduces the task of the cashier to just punching in this item number. Throw in a scanner and the only scope for manual” error remains when the item doesn’t scan and the cashier has to manually enter the item number.

The other obvious advantage is that checking out becomes faster. The cashier now has to just hold the scanner like a gun over the item’s temple or jiggle the item in front of the item. No ledgers to fill and no keys to punch – the wait time reduces dramatically.

As the volume of business and items handled further grows, the complexity of business requires summarized reports to support decision-making. Much of the information needed at a store deald with inventory – how much is selling of which item and how much cover do we have of it, what do we have to order for the next cycle, what are the outs, etc. It becomes inevitable then to have a POS system that tracks the inventory at the store besides the transactions at the cashtills. These are usually mobile devices like handheld guns used by shopfloor assistants to locate, scan and update items’ inventories. Since, the inventory is linked to sales (every item sold means one item less on the shelf), the system at the cashtill is integrated with these devices via a central server in the store. If the store is part of a chain, this data warehouse is linked to the head office, updated in regular cycles, so that the merchant team there can have an integrated view of sales performance at item-store level and track inventories, and take corrective actions where required. The ordering team uses the same information to ensure that the store has all the items that it needs to sell.

A more sophisticated system emerges when the sales/inventory information at the store is linked with the vendor’s replenishment systems. Here, the system is in the collaborative framework which was discussed in the earlier article, where the vendor is producing and replenishing to demand and the highest service level standards are maintained with minimum inventory in the vendor-retailer system.

The more sophisticated the POS system, the more the investment in IT, staff and data maintenance costs, among others. Hence, where a retailer ultimately sits would depend on what benefits he seeks from the system and whether his level of business justifies the investment. An astute retailer can recover his costs in a few months in savings (more return on inventory, less shrink) and enhanced volumes (backed by system’s DSS.)

Image courtesy of digitalart at FreeDigitalPhotos.net
Image courtesy of digitalart at FreeDigitalPhotos.net

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