The front end may be the most crucial interaction area between the supermarket and the shopper, so it's no wonder information systems executives are focusing much of their technological "wish lists" here.
lenishment, and a host of other applications, all while maintaining rapid through-put rates and accepting an expanding variety of payment options.
Technology executives credit the introduction of PC-based systems, along with the adoption of more open systems, with bringing the front end as far as it has come already. Now they're looking for the next steps to expanded functionality in this critical area.
SN: What do you see as the most significant milestones in the development of front-end, point-of-sale technology?
HOMA: Historically, it's been an issue of productivity, and most of the productivity gains the industry has been looking for at the POS have been achieved now. The new developments are enhancements that allow the retailer to gather more information about the customer, especially for those retailers with customer-loyalty programs. I don't think POS systems are there yet, however. There are efforts being made to bring them to that level. POS vendors are working feverishly to add that functionality.
NICHOLSON: One thing that stands out is the full integration -- in a database or data warehouse environment -- of all the aspects of the store. In the past, we've had [front-end] systems that pretty much stood alone. Today the front-end system is becoming the in-store processor, if you will -- a centralized system that handles the back door, the front end, etc., with one integrated database for frequent-shopper programs. That integration of all the aspects of the store operation into one database is pretty important.
SMITH: The use of PCs at the front end is the biggest, most important development. Our assessment is that the traditional, also known as the proprietary, POS systems have lagged compared to other technological developments. With the switch to new, open kinds of systems, we are now using PC technology and that is allowing this area to keep pace with other technological developments.
In fact, I don't think we'll see anything but open systems at the front end by the year 2000, in terms of new sales.
DRURY: The biggest thing, as far as I can see, is simply productivity. For example, the scan accuracy and scan rates of newer scanners is the most noticeable because the consumer is directly impacted by that. What we've seen in the latest generation of scanners is about 20% improvement in the through-put rate.
Everything else -- the databases and that sort of thing -- are all nice to have, but when you're standing there in line with your Frosted Flakes in one hand and a sweating bottle of milk in another, you just want to get through the line. And integration of the payment systems with the in-lane systems, so that customers move through the process in a hurry, is a key item.
SN: What are the newer technologies allowing supermarkets to do that they couldn't do previously?
SMITH: Use of these open systems with PCs will help the retailers accumulate data for strategic purposes. They make it easier to tie in loyalty marketing, in particular, to front-end data.
NICHOLSON: Equally important in electronic database marketing is the ability to dispense rewards to specific, selected customers. That capability has not traditionally been in front-end systems. But the new generation of systems that is coming on is allowing specific rewards. Mrs. Smith can receive a specific discount that, literally, nobody else can receive because of the parameters of her shopping pattern.
HOMA: I think every retailer views gathering customer-loyalty data in real time as a goal, but the specific needs are unique to each one. There are judgments that need to be made on every scan, and that's a much different approach to POS than what we've had before. For example, every scanned item could be checked against each customer's profile to determine if the price of this item changes based on this person's past purchases. Such a capability would be very customized to each retailer, and therefore very expensive.
DRURY: Newer technologies, such as relational databases, make it possible to do things that were more difficult to do when the systems were proprietary. I think we're just beginning to see the opportunities there.
SN: Looking ahead, what other roles do you see for the front-end system, and what technological challenges will these expanded functions bring?
HOMA: POS information is going to be used to drive demand-side replenishment. Retailers are eventually going to have knowledge about what inventory is on the shelf, what they sold on this day last week and last year, and what to sell today. That will drive forecasting systems, and that will in turn drive replenishment.
Scan accuracy will be very important because retailers will use this information to drive their own replenishment, so a mistake made here will have serious ramifications.
NICHOLSON: Way down the road there's the potential for items to come with an electronically readable code on them, which might allow a basket of groceries to be "scanned" all at once -- not Universal Product Code scanned, but scanned by the system sensing what's in the basket. But that technology, while being shown occasionally now, is in its infancy. It would require the same kind of industry effort that the initiation of scanning required, where all manufacturers were required to print bar codes on their product, and you may recall how long that took. It wouldn't be feasible until a significant percentage of manufacturers were including that electronic identification on their label.
HOMA: I think we'll see more gains in transferring the work to the customer. I think that will be a very hot item in five years. If you look beyond five years' time, radio frequency tags will eliminate the POS. In seven to 10 years, you could tag every item in the store and the consumer could put products in their basket and walk by some RF reader. The tags are here, it's just a matter of getting the cost down.
SMITH: I certainly see self-checkout as another opportunity for the future. I think the early pilot tests are encouraging. While we don't have any of those systems, I think they hold a lot of promise and opportunity for cost reduction in terms of labor at the front end. That would be the reason for doing it.
To accomplish all these things, we need to see a standardization and a streamlining of the information exchange part of our system within the stores. Whether it's Standard Interchange Language, software-driven or hardware-driven, we need standardization so we can very easily and quickly move information from one application to another.
We've got to have smooth, seamless, standard, rapid ways to move data back and forth because when you have that, whether it's the accounting system or the scale management system, you can get to early adoption of the programs that drive the benefits. If you are forever dealing with the integration problems, it takes you an extended period of time to get to the benefits.