It had been a very busy week at Bill Murtons hardwarestore. A storm had blown through early in the week, and sales of tools and repair parts had been brisk. Thismorning was relatively quiet, however, so Murton wasusing it as an opportunity to look over his shelves to get anidea of inventory levels. Some items had sold much lessthan he would have expected; others had sold out completely.

I sure wish I could predict what will be sold each week,he mused. It seems like I always have too much of somethings and not enough of others. I wonder if the POSsystem that our cooperative is considering would help medeal with this uncertainty.

Bills Hardware is a member of a hardware store coop-erative, a group of more than 300 independently ownedhardware stores that banded together for greater buyingpower and better merchandise distribution. Many of theitems carried by a typical hardware store are similar. Bybuying these items as a group and storing them at a fewcentrally located distribution centers, individual stores canachieve economies of scale, allowing them to compete bet-ter with large nationwide chains. The cooperative is mem-ber owned. An annual membership fee and a servicecharge are applied to the cost of the items that a store pur-chases through the cooperative. Any revenues generatedbeyond the cooperatives operating costs are returned tomembers as a dividend.

Typically, a member store reviews inventory oncea week and places orders that will bring stock back up toa target level. That level is the quantity of an item that,based on the time of year, the storeowner wants to have onthe shelf. Owners place orders by using a PC-based soft-ware program and a modem over a dial-up telephone con-nection to the cooperatives computer. The cooperativeleases a fleet of trucks to deliver goods weekly to memberstores from one of three distribution centers. Each geo-graphic area receives shipments on a designated day.Surges in demand, if detected, can be met by midcycleorders shipped via UPS.

Target inventory levels are based on forecasts madefrom historical information kept in the stores inventorydatabase. These forecasts are adjusted by the owners pastexperience and information gleaned from trade journalsand listening to customers. Additionally, the cooperativemakes aggregate sales data from member stores available,along with projected demand trends. The challenge for thestoreowner is to project weekly requirements accuratelyand detect unusual demand for items that exceed inven-tory in time to avoid stockouts.

THE POS SYSTEM

The cooperatives directors have formulated a plan toobtain and install point-of-sale (POS) technology in mem-bers stores. The motivation is to take advantage of tech-nology that can allow the distribution center to know, inreal time, what items are being sold in various stores.Armed with this information, the cooperative can improveits product forecasting, make better purchasing decisions,and reduce the chance that an item will be out of stock atdistribution centers. Although the original plan was tomake installation of the system mandatory, the coopera-tives directors decided that such a requirement could placean excessive burden on some of the smaller or less profit-able stores. Consequently, installation will be optional.

The POS system is to comprise a scanning deviceattached to a cash register that operates with a microproces-sor. This cash register will be networked to a PC so thatan items current price can be obtained for checkout anda perpetual inventory maintained. Each night, the distribu-tion center will telephone the stores computer, which willanswer and download the days sales. At the end of the busi-ness day, the storeowner can also review the days sales anddetermine current inventory levels. The system will bedesigned to detect any items likely to sell out. The ownercan tag any item, permitting an order to be placed that night(when the distribution center calls) for midcycle delivery.

The cost of the POS system will be borne by individualstores but, because of combined purchasing power, systemscan be obtained for 40 percent less than list price. Thecooperatives directors propose that each distribution centercontract with an installer to do on-site equipment installa-tion at individual stores. However, individual storeownerswould be allowed to have local technicians do the installa-tion. The cost of system installation at the distribution center will be borne by a one-time assessment of all memberstores, whether or not they install and use the system.

A two-day training session will be conducted at distri-bution centers whenever five or more storeowners haveinstalled the system and are ready to learn how to use it.Optionally, store owners can travel to the POS vendorshome office in Atlanta at their own expense for a two-daytraining session, which is to be offered once a month.

A vote has been scheduled prior to the cooperativesannual members meeting. Members are asked to voteyes or no on the proposal, and a majority of thosevoting will determine the outcome.

As Bill Murton completes his shelf scan and returns tohis office, he thinks to himself: Since the new POS system

CASE BILL'S HARDWARE

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will automatically track inventory, I wonder if I will still beable to get a gut feel for what is selling and what is not.There is nothing like examining the shelves like I just didand talking to customers to understand what I should bestocking. And, I wonder how much it will cost to run thesystem once it is installed?

Questions

1. How will a POS system enhance the operations of BillsHardware? The operations of the cooperative?

2. What strategic advantages will the system confer onBills Hardware? What strategic advantages will accrueto the cooperative?

3. What criteria should be considered when assessing thebenefits of the POS technology? What costs should beincluded?

4. How should Bill Murton vote?

Source: This case was prepared by Larry Meile, Boston College, as a basisfor classroom discussion.

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