maximizing store profitability with sap for retail

8/8/2019 Maximizing Store Profitability With SAP for Retail

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SAP Solution BriefSAP for Retail

In the current retail market climate where most retailers face pressure tomaintain competitive prices and maxi-mize profitability managing costs andprices is quickly becoming a key com-petitive tool. But making decisions that

actually improve profit margins isnt al-ways easy. Many retailers lack insightinto true store profitability, because datais trapped within a black box of costs al-located back to stores. Without the rightanalytical and reporting tools, its hardto know, for example, the true cost toserve each customer or handle returns.And as a result, its difficult to identifythe best opportunities to improve store-level performance.

For example, many retailers struggle toallocate store labor typically their larg-est controllable expense to maximizestore profitability. How can you knowwhether your hourly productivity perstore associate by department is toohigh or too low? (If its too high, custom-er service suffers; if its too low, profit-ability erodes.) As you enter a period ofhigh demand, such as the holiday sea-son, how can you ensure that you havejust the right staffing levels at eachstore? If you have budget for holiday

staff, how do you know which storesneed it the most to drive more salesand ensure high service levels? Withoutthe right analytical tools and insight, youhave to make these types of decisionsbased on history, gut instinct, and poli-tics which usually results in subparoutcomes. The SAP for Retail set ofsolutions can help you make informed,strategic decisions that drive storeprofitability.

Proactively Find Ways to ImproveStore Performance

The SAP for Retail solutions providea powerful, new, and proactive way toimprove store performance. The soft-

ware supports real-time dashboards formonitoring performance, as well asactivity-based-costing (ABC) analysisthats user-friendly and optimized forretailers. Setup and use of the dash-boards is intuitive. When key metrics in-dicate a potential performance problem,you can gather detailed information oncost and net profit and view it from aprocess- and activity-based perspectiveat the store level. Armed with powerfulreporting and what-if analytics, you can

then identify opportunities to increaseprofitability, determine root causes,model and test scenarios, and make cal-culated decisions about how to addressperformance problems.

Any store activity or procedure, such asstore stocking, can be isolated by activi-ty so that costs can be itemized forABC. As a result, you can clearly seewhere hidden costs and inefficienciesare and use them as levers toeffect change. As shown in the figure,

small improvements at the processlevel can lead to significant improve-ments in profitability.

Finally, you can operationalize your deci-sions by updating forecasts, budgets,and operating plans within the SAPBusiness Planning and Consolidationapplication or your existing planningsoftware. The result is a completelife-cycle approach to driving the profit-ability of your retail stores.

With the SAP for Retail

solutions, you gain visibilityand control over the primarylevers of profitability thekey to driving store perfor-mance. Now you can identi-fy problems, isolate rootcauses, test what-if scena-rios, make decisions

with confidence, and opera-tionalize plans down to thestore level.

MAXIMIZING STORE PROFITABILITYWITH SAP FOR RETAILLEVERS THAT IMPROVESTORE PERFORMANCE


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This new process view of costs givesyou an entirely new perspective fromwhich to make decisions. You can, forinstance, determine a products fullyloaded cost and its resulting level ofprofitability as it passes through your

supply chains from supplier throughto consumer via stores or direct deliv-ery. You can also determine the rootcauses of unexpected behavior instores, such as why some stores havehigher return rates for certain products(and if hidden costs are associated withthose returns). Armed with this insight,you can identify the best opportunitiesto fix problems and take costs out ofprocesses and activities. You can alsoanswer fundamental questions such as:

Which products generate the great-est or the least net margin? What is the cost to serve and net

margin contribution by product? Which activities can you focus on to

reduce cost? How far can you reduce price and still

make a net profit?Drive the PerformanceManagement Life Cycle

With SAP for Retail, you have whatyou need to drive performance man-agement, right down to the store level.

The solution supports the performancemanagement life cycle, offering thesustainable decision support needed tokeep costs down and net profit up.

Identify OpportunitiesWith SAP for Retail, you can analyzeoperational and financial data to trackkey metrics and identify opportunitiesto improve profitability. Role-baseddashboards help you monitor perfor-mance in real time and compare it

with historical data insight needed toidentify performance problems from an

organizational perspective. Alerts withconfigured parameters enable you tomanage by exception.

But identifying performance issues isonly the first step in optimizing perfor-

mance. The real challenge is to deter-mine what to fix at the store level andto provide timely information to storepersonnel. SAP for Retail enables youto perform ABC analysis to understanda products net profit and carry outaccurate profitability and cost manage-ment. Moving beyond broad cost analy-sis from the general ledger, you cantake a process- and activity-based per-spective. The software first capturesexpenses, such as labor, assets, equip-

ment, and IT. It then assigns the costratios to internal support functions, op-erations, and customer-facing activitiesand to specific customers, products,and other segments. This data is usedto calculate net profitability by matchingrevenue and cost at the level of a cus-tomer, product, or other businesssegment.

Identify opportunities toincrease profitability,determine root causes,model and test scenari-os, and make calculated

decisions about how toaddress performanceproblems.

A 1% improvement in . . .

Price 11.1%

Variable cost 7.8%

Volume 3.3%

Fixed cost 2.3%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

. . . creates this improvement in operating profit

Figure: Process Improvements and Profitability


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Determine Root Causes andTest What-If Scenarios

SAP for Retail helps you identify notonly whats hurting profitability at theprocess level but also the best actions

you can take to improve it. You canbuild models and run what-if scenariosto assess the impact of various deci-sions before you actually implementthem. Because youve already brokendown the cost drivers and determinedroot causes using ABC analysis, yousimply change the variables youveidentified as profitability levers. You canthen see the resulting cost and profit-ability implications in real time. Forexample, you can simulate changes

to resources, costs, and cost assign-ments and assignment methods andthen instantly calculate the impact onprofitability and net margin. All thathappens instantly using proprietary in-memory online analytical processing(OLAP) technology. Real-time updatesto the results eliminate the need to re-execute or rerun reports after eachchange.Armed with these analytical tools, youcan answer key strategic and tactical

questions such as: Which option will boost profitability

more: adding labor hours or morepromotional events?

Whats the best time of day toreceive shipments if you need tominimize costs?

Which stores need budget for holidaystaffing to maintain the right balancebetween customer service andprofitability?

Operationalize PlansOnce youve identified a performanceissue and validated the best actionplan, the next step is to operationalizeyour plan. When you deploy the busi-ness planning functionality within SAP

for Retail, store operations teams canupdate store plans and tie their updatesautomatically back into the overall com-pany forecast. The software provides afamiliar Microsoft Excel interface andan automated business process flowthat guides teams step-by-step. As the

teams update store forecasts, the bud-gets, operating plans, and documents

are routed to managers for review andapproval.

Because all relevant data is stored in asingle database, you always have areal-time overview of profitability bothcorporately and at the store level.Approved plans are instantly reflectedacross corporate plans, forecasts, bud-gets, and dashboards, complete withnew targets for key profitability drivers.You can also update the forecast pack-

age for the board of directors forecastpackage, which comes with thesoftware.

Key Benefits

With SAP for Retail, you gain greatervisibility and control over the key leversof profitability. You can make calculateddecisions that: Improve net margins Maximize the impact of value-added

activities and minimize the impact ofnon-value-added activities

Increase store efficiency and lowercosts by fine-tuning store operations

Optimize pricing and discounting Boost sales by improving assortment

mixes, balancing inventories of pri-vate labels and national brands, andremoving loss-generating products

Reduce the cost to serve Control labor costs and allocate

budget to maximize store profitabilityand maintain the desired customerservice levels

Reduce the risk of operationalchanges by modeling outcomes,visualizing the impact of pro formaprofit and loss, and setting newcompany-wide targets for a unified

approach

For More InformationOnly SAP provides the tools to deliverthe cost and profitability monitoring,analysis, and reporting needed toachieve superior store performance.For more information about how youcan benefit from the profitability man-agement functionality of SAP for Retail,please visitwww.sap.com/retail.

When you deploy the busi-ness planning functionality

within SAP for Retail, storeoperations teams can up-date store plans and tietheir updates automaticallyback into the overallcompany forecast.


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SummaryThe SAP for Retail set of solutions provides a powerful new way to drive store perfor-mance. Using activity-based-costing (ABC) analysis to view operations from a process per-spective, you can identify the levers that drive profitability and test scenarios to determinethe best course of action. You can also operationalize plans to keep costs down and netprofit up.

Business Challenges Lack of insight into true store profitability Difficulty identifying the best opportunities and actions to improve store performance Difficulty updating budgets, forecasts, and plans and executing them at the store level

Supported Business Processes and Software FunctionsPerformance monitoring Use dashboards to monitor performance and key perfor-

mance indicators in real timeProfit and cost analysis Leverage ABC analysis to uncover costs at process and

activity levels and determine true net profitWhat-if analysis Test different scenarios and determine the best course of actionExecution of plans Update forecasts, budgets, and plans at the store level; roll up plans

to update corporate dashboards and targets; and monitor execution and impact onprofitability

Business BenefitsMaximized profitability through proactive management of costs, pricing, and net

profitabilityLower costs through ABC analysis that supports process- and activity-based viewsProactive management of labor costs that balances store profitability and customer

service targetsIncreased store efficiency through fine-tuning of store operations

For More InformationCall your SAP representative, or visit us online atwww.sap.com/retail .

maximizing store profitability with sap for retail

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