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The application of electronic data processing to department store retailing Belak, Robert Gregory 1964

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THE APPLICATION OF ELECTRONIC DATA PROCESSING TO DEPARTMENT STORE RETAILING by Robert Gregory Belak B. Sc. i n Eng., U n i v e r s i t y of Saskatchewan, 1961 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the Department of Commerce We accept t h i s t h e s i s as conforming to the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA August, 196*+ i i I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the r e q u i r e m e n t s f o r an advanced degree a t the U n i v e r s i t y of B r i t i s h Columbia, I agree t h a t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and study* I f u r t h e r agree t h a t p e r -m i s s i o n f o r e x t e n s i v e c o p y i n g of t h i s t h e s i s , f o r s c h o l a r l y purposes may be granted by the Head of my Department or by h i s r e p r e s e n t a t i v e s - I t i s understood t h a t , c o p y i n g or p u b l i -c a t i o n of t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n * Department of Qj f a The U n i v e r s i t y of B r i t i s h Columbia, Vancouver 8, Canada Date V2-. i q c ' V . i i i ABSTRACT The primary purpose of t h i s t h e s i s i s to i n v e s t i -gate the problems i n v o l v e d i n adapting e l e c t r o n i c data p r o c e s s i n g equipment to a i d the f a s h i o n merchandising departments of r e t a i l department s t o r e s . In order t h a t t h i s a p p l i c a t i o n i s placed i n i t s proper p e r s p e c t i v e , i t i s a l s o necessary to delve into'some of the more funda-mental concepts u n d e r l y i n g the management pl a n n i n g and c o n t r o l f u n c t i o n , to emphasize the r e l a t i o n s h i p of manage-ment s c i e n c e methods and e l e c t r o n i c data p r o c e s s i n g equipment to business problems i n g e n e r a l , and to survey the o p e r a t i n g c h a r a c t e r i s t i c s of r e t a i l s t o r e s and the problems they f a c e when i n t r o d u c i n g e l e c t r o n i c data p r o c e s s i n g equipment. Preceding the d i s c u s s i o n of the f a s h i o n merchandising a p p l i c a t i o n i s a chapter on the o r g a n i z a t i o n of r e t a i l department s t o r e s that promotes a b e t t e r understanding of the i n s t i t u t i o n a l framework w i t h i n which one i s working. Both primary and secondary r e s e a r c h were under-taken to o b t a i n the r e q u i r e d i n f o r m a t i o n . The r a t h e r sparse l i t e r a t u r e p u b l i s h e d on t h i s t o p i c i n the r e t a i l i n g f i e l d was supplemented by i n t e r v i e w s w i t h numerous r e t a i l e x e c u t i v e s of the f o u r major department stor e chains i n the Greater Vancouver area. Relevant l i t e r a t u r e from other f i e l d s of business was a l s o i v b r o u g h t i n t o t h e d i s c u s s i o n . T h i s t h e s i s s u p p o r t s t h e w i d e r u s e o f e l e c t r o n i c d a t a p r o c e s s i n g e q u i p m e n t t o s o l v e t h e i n c r e a s e d d a t a h a n d l i n g p r o b l e m s t h a t h a v e b e e n e x p e r i e n c e d b y r e t a i l d e p a r t m e n t s t o r e s . I n a d d i t i o n i t i s f e l t t h a t t h i s e q u i p m e n t c a n p l a y a n i m p o r t a n t r o l e i n p r o v i d i n g m e r c h a n d i s i n g p e r s o n n e l w i t h i n f o r m a t i o n t h a t c o u l d l e a d t o i m p r o v e d p e r f o r m a n c e o f t h e i r f u n c t i o n s . H o w e v e r , a g r e a t e r i m p r o v e m e n t i n p e r f o r m a n c e i n f a s h i o n m e r c h a n -d i s i n g , a n d i n f a c t a l l r e t a i l i n g a r e a s , w i l l b e r e a l i z e d w h e n t h e r e i s a m o r e p r e c i s e d e f i n i t i o n o f t h e i n f o r m a t i o n r e q u i r e d a n d w h e n d a t a h a n d l i n g s y s t e m s a r e d e s i g n e d a c c o r d i n g l y . ACKNOWLEDGEMENTS The author gratefully acknowledges the assistance of a l l those of the local business community who gave so graciously and unstintingly of their time i n the compilation of the primary research. A special thanks i s extended to Mr. Doug Marshall of International Business Machines who checked the f i r s t draft for technical details. Lastly, a debt i s owed to the author's thesis board members, Chairman Dr. S. Oberg, Mr. C. Gourlay, and Mr. G. Gorelik. V TABLE OF CONTENTS CHAPTER PAGE I . INTRODUCTION 1 The Problem 3 Statement of the problem 3 -Importance of the study 3 Thesis O r g a n i z a t i o n h Source Data and Me t h o d o l o g i c a l C o n s i d e r a t i o n s 8 I I . THE COMPUTER AND THE MANAGEMENT REVOLUTION 10 The Modern Business S e t t i n g 10 Management i n t r a n s i t i o n 10 Theo r i e s of management 1 2 D e c i s i o n Making and the Firm 19 The nature of the d e c i s i o n process . . 19 P o l i c y f o r m u l a t i o n and r a t i o n a l behavior 2 7 Company p o l i c y i n p r a c t i c e 3 2 T h e o r e t i c a l D e c i s i o n Making Tools . . . 3*+ The r o l e of management scie n c e . . . . 3*+ Some t h e o r e t i c a l problem s o l v i n g t o o l s 3 9 An overview of new management methods 5 0 I I I . DEPARTMENT STORE ORGANIZATION 5 5 The Value and L i m i t a t i o n s of O r g a n i z a t i o n Charts 5 5 v i The F u n c t i o n a l C l a s s i f i c a t i o n of Store A c t i v i t y 5 7 The F o u r - F u n c t i o n a l Mazur P l a n 5 8 I n t r o d u c t i o n 5 8 Merchandise d i v i s i o n . 6 2 C o n t r o l d i v i s i o n 6 5 P u b l i c i t y d i v i s i o n 6 7 Store-management d i v i s i o n 6 8 Advantages and Disadvantages of the Mazur P l a n 6 9 The O r g a n i z a t i o n of Department Stores i n Vancouver 7 1 I n t r o d u c t i o n 7 1 The emergence of the personnel d i v i s i o n 71 Branch s t o r e s i n o r g a n i z a t i o n s t r u c t u r e 7 3 P u b l i c i t y d i v i s i o n 7 5 Merchandising d i v i s i o n 7 6 IV. ELECTRONIC DATA PROCESSING AND ITS RELATION-SHIP TO RETAILING PROBLEMS 79 I n t r o d u c t i o n to E l e c t r o n i c Data P r o c e s s i n g 79 E l e c t r o n i c data p r o c e s s i n g as means to support the p l a n n i n g and c o n t r o l f u n c t i o n of management 79 Concepts i n v o l v e d i n e l e c t r o n i c data p r o c e s s i n g systems 8 2 v i i R e t a i l i n g as a F i e l d of A p p l i c a t i o n f o r E l e c t r o n i c Data P r o c e s s i n g 9 2 C h a r a c t e r i s t i c s of r e t a i l data p r o c e s s i n g and the r o l e of e l e c t r o n i c data p r o c e s s i n g . . . 9 2 O b j e c t i v e s of management i n a c q u i r i n g e l e c t r o n i c data p r o c e s s i n g equipment . . 9 7 A p p l i c a t i o n of e l e c t r o n i c data p r o c e s s i n g i n r e t a i l i n g 1 0 6 Some Major Problems i n R e t a i l Data P r o c e s s i n g 1 0 9 The l a g of r e t a i l i n g i n the i n t r o d u c t i o n of e l e c t r o n i c data p r o c e s s i n g 1 0 9 . R e t a i l data p r o c e s s i n g problems I l l V. THE APPLICATION OF ELECTRONIC DATA PROCESSING TO RETAIL FASHION MERCHANDISING 1 2 0 R e t a i l Merchandising 1 2 0 Merchandising p o l i c i e s 1 2 0 Merchandise c l a s s i f i c a t i o n 1 2 2 B a s i c buying and s e l l i n g problems . . . . 125 Merchandise pla n n i n g and c o n t r o l 1 2 7 The d e t a i l e d merchandise budget 1 3 2 F a s h i o n Merchandising 1*+1 C h a r a c t e r i s t i c s of f a s h i o n merchandising . 1*+1 Components of a s u i t a b l e f a s h i o n merchandise c o n t r o l system l*+3 v i i i U n i t c o n t r o l systems of l o c a l r e t a i l s t o r e s lh9 An examination of the l a g i n a p p l i c a t i o n of e l e c t r o n i c data p r o c e s s i n g to merchandising 1 5 2 P r e p a r a t i o n and Content of Unit C o n t r o l Reports f o r F a s h i o n Merchandising by E l e c t r o n i c Data P r o c e s s i n g Methods . . . . 1 5 5 P r o c e d u r a l problems 1 5 5 E s t a b l i s h i n g e x c e p t i o n c r i t e r i a 1 5 9 U n i t c o n t r o l r e p o r t s f o r f a s h i o n merchandising l 6 l Orga n i z i n g f o r merchandising-data proces-si n g l i a i s o n 1 6 5 VI. CONCLUSIONS 169 CHAPTER I INTRODUCTION The two decades f o l l o w i n g the end of the Second World War have witnessed the b i r t h and a c c e l e r a t e d development of equipment and concepts t h a t v i t a l l y a f f e c t management. The e l e c t r o n i c d i g i t a l computer and i t s a s s o c i a t e d p e r i -p h e r a l equipment, which i n t h i s t h e s i s are c o l l e c t i v e l y c a l l e d e l e c t r o n i c data p r o c e s s i n g (EDP) equipment, c o n s t i -t u t e the heart of modern data p r o c e s s i n g systems. From i t s beginnings as a t o o l used by atomic s c i e n t i s t s , the a p p l i c a t i o n s of EDP equipment have expanded t o encompass many academic d i s c i p l i n e s and to help s o l v e many p r a c t i c a l problems, business problems i n c l u d e d . T h i s equipment c o n t a i n s v a s t p o t e n t i a l f o r improving management d e c i s i o n s and extending management c o n t r o l . R e t a i l i n g , and i n p a r t i c u l a r department s t o r e r e t a i l i n g , i s a dynamic b u s i n e s s — e v e r growing, ever changing. The development of r e t a i l i n g as a whole and of i n d i v i d u a l u n i t s and s t o r e s w i t h i n the broader marketing scene has been, and w i l l continue t o be, i n f l u e n c e d by such b a s i c trends as the growth and d i s t r i b u t i o n of p o p u l a t i o n , n a t i o n a l income, and p e r s o n a l income, the degree of in d u s -t r i a l d i s p e r s i o n , the i n c r e a s i n g c o s t s of labo u r , and the r e l a t i v e development of i n s t i t u t i o n a l u n i t s ( i . e . department 2 s t o r e s , branch s t o r e s , d i s c o u n t houses, m a i l order houses). However, r e t a i l i n g i s not o n l y a dynamic b u s i n e s s . I t i s a l s o one t h a t i s f a c e d w i t h great d i v e r s i t y i n accomplishing the job of d i s t r i b u t i n g merchandise and t y p i c a l l y has been noted f o r I t s d e c e n t r a l i z a t i o n i n which l a r g e numbers of e x e c u t i v e s determine p o l i c y w i t h i n t h e i r r e s p e c t i v e spheres. Through i t s r e l u c t a n c e to s t a n d a r d i z e , r e t a i l i n g has not b e n e f i t t e d from the development of EDP equipment to the same extent as have such i n d u s t r i e s as manufacturing, u t i l i t i e s , and i n s u r a n c e . With the e x c e p t i o n of the cash r e g i s t e r , u n t i l q u i t e r e c e n t l y , there had been l i t t l e , i f any, equipment which had been s p e c i f i c a l l y designed f o r r e t a i l i n g . The approach i n r e t a i l i n g has been to adopt business machines developed and b u i l t t o meet the requirements i n other kinds of businesses. R e t a i l i n g i s o n l y now beginning to f e e l the impact of machines which were designed to c u r t a i l or e l i m i n a t e paper-work steps t h a t make r e t a i l a ccounting c o s t l y and i n e f f i c i e n t . Using these machines designed more w i t h r e t a i l i n g needs i n mind, r e t a i l i n g i s attempting to f i n d methods best s u i t e d t o i t s circumstances t h a t w i l l a i d i n i n t e g r a t i n g , c o o r d i n a t i n g , and reducing the paper work i n c i d e n t a l to the job of d i s t r i -b u t i n g merchandise t o the consuming p u b l i c . R e t a i l i n g data handling problems have, i n the l a s t decade, undergone a tremendous expansion. Concurrent w i t h t h i s trend has been i n c r e a s e d c o m p e t i t i o n , f a l l i n g net 3 p r o f i t r a t i o s , and a g r a d u a l outmoding of accounting systems-not adapted to the more dynamic c o n d i t i o n s . The net e f f e c t i s a growing concern over the paper b o t t l e n e c k c r e a t e d i n o p e r a t i o n s and the r e c o g n i t i o n of the need to pr o v i d e r e t a i l i n g management w i t h b e t t e r i n f o r m a t i o n t o a i d them i n performing t h e i r d u t i e s . H e r e i n l i e s the problem of t h i s t h e s i s . I. THE PROBLEM Statement of the Problem I t was the purpose of t h i s t h e s i s t o set a p o t e n t i a l merchandising a p p l i c a t i o n of EDP equipment i n t o the broader context o f EDP equipment as a t o o l of management i n g e n e r a l . As r e f l e c t e d i n the t h e s i s development, the problem i s narrowed down from a broad view of business o r g a n i z a t i o n and the problems i n v o l v e d i n making business d e c i s i o n s to the d i s c u s s i o n of the types of i n f o r m a t i o n t h a t might be h e l p f u l f o r making d e c i s i o n s i n a p a r t i c u l a r merchandise area ( i . e . f a s h i o n merchandise) of a p a r t i c u l a r type of marketing i n s t i t u t i o n ( i . e . department s t o r e s ) which oper-ates w i t h i n one segment of the broader i n s t i t u t i o n a l frame-work of bu s i n e s s . Importance of the Study EDP equipment i s a c o l l e c t i o n of p h y s i c a l apparatus whose r e l a t i o n s h i p t o management p r a c t i c e and whose power If i n a p p l i c a t i o n depends on the t h e o r e t i c a l and p r a c t i c a l knowledge a s s o c i a t e d w i t h i t s use. Once the equipment has been a c q u i r e d the problem becomes one of e f f e c t i v e l y r e l a t i n g management needs to these man-machine systems. T h i s , i n t u r n , r e q u i r e s t h a t one have a f i r m grasp of the problems i n v o l v e d . R e t a i l i n g has lagged, r e l a t i v e to other i n d u s t r i e s , i n the a p p l i c a t i o n of EDP equipment. Because of t h i s l a g , the l i t e r a t u r e a v a i l a b l e today on r e t a i l i n g a p p l i c a t i o n s i s q u i t e sparse. To the author's knowledge l i t t l e has been w r i t t e n which might be termed a comprehensive approach to the problem. The attempt i n t h i s t h e s i s , i s to come to g r i p s w i t h the problems i n a p p l y i n g EDP to r e t a i l i n g while at the same time drawing on p e r t i n e n t experience gained o u t s i d e the f i e l d of r e t a i l i n g i t s e l f . The e f f o r t s have been r e s t r i c t e d l a r g e l y to department s t o r e s because problems of equipment c o s t and l a c k of i n f o r m a t i o n l i m i t the a p p l i c a t i o n and study o u t s i d e t h i s area. I I . THESIS ORGANIZATION Chapter I I through Chapter V c o n s t i t u t e the main t e x t of t h i s t h e s i s . The content of Chapter I I r e p r e s e n t s c o n s i d e r a t i o n s which are very b a s i c to a broad under-standing of the r o l e of the computer i n r e l a t i o n t o the g e n e r a l f i e l d of business management and i n t r o d u c e s concepts which are germane to the development of the e n t i r e 5 t h e s i s . The three t h e o r i e s of management which are b r i e f l y reviewed i n the chapter were thought to be u s e f u l i n o r i e n -t i n g one's t h i n k i n g r e g a r d i n g the d e c i s i o n s and adminis-t r a t i v e problems faced by management i n l a r g e o r g a n i z a t i o n s . A l l three p o i n t s of view c o n t r i b u t e to a wider understanding and are e x p l i c i t l y and i m p l i c i t l y r e f e r r e d to l a t e r i n Chapter I I and the remainder of the t h e s i s . The s e c t i o n i n v e s t i g a t i n g d e c i s i o n making i n the f i r m draws h e a v i l y on l i t e r a t u r e which was w r i t t e n by people more f a m i l i a r w i t h problems i n business areas other than r e t a i l i n g . However, the c o n c l u s i o n s reached are by no means i r r e l e v a n t t o the g e n e r a l development of the t h e s i s . By studying some i n d u s t r i a l h i s t o r y t h a t i s i n t r o d u c e d , f o r example, one gains an awareness of the r e l a t i o n s h i p between the span, the degree of i n h e r e n t s t r u c t u r e , and the v a r i -a b i l i t y of d e c i s i o n making at d i f f e r e n t l e v e l s i n o r g a n i z -a t i o n s t r u c t u r e . These r e l a t i o n s h i p s are as a p p l i c a b l e to department s t o r e s as they are to the l a r g e i n d u s t r i a l concern. The i n c o m p a t i b i l i t y of c l a s s i c a l micro-economic theory i s expanded on because, as p o i n t e d out, the l i m i -t a t i o n on the i n f o r m a t i o n a v a i l a b l e to the d e c i s i o n maker d e t r a c t s from the degree of s t r u c t u r e of a d e c i s i o n and t h e r e f o r e hinders him i n using the theory as a guide to p r a c t i c a l p o l i c y f o r m u l a t i o n . The nature of computer o p e r a t i o n d i c t a t e s t h a t a c o n s i d e r a b l e degree of s t r u c t u r e and s t a b i l i t y of problem s t r u c t u r e e x i s t to make the 6 expenditure of time and e f f o r t i n detailed programming worth, while. The discussion of the general c h a r a c t e r i s t i c s of organizational decisions, such as the decreasing degree of structure possessed by economic problems as one proceeds upward i n organization, provides a clue as to the most prob-able areas of ap p l i c a t i o n for the computer and s c i e n t i f i c methods. F i n a l l y , the chapter investigates the rel a t i o n s h i p to business of the branch of management theory known as manage-ment science. The previously mentioned inadequacy of c l a s s i c a l micro-economic theory as a r a t i o n a l guide to policy decisions and economic decisions i n general, has resulted i n the development of management science tools for decision making purposes. This body of knowledge i s highly relevant because i t i s these concepts which now, and i n the future, provide the means to supplement and enhance the use of computers i n business. Due to the great complexity of ca l c u l a t i o n involved i n using these mathematical methods, a computer i s usually necessary i n order that the techniques be of p r a c t i c a l use to management. Knowledge of these s c i e n t i f i c techniques i s useful to provide a background i n the study of EDP methods despite the fact that the p a r t i c -ular a p p l i c a t i o n investigated i n this thesis, namely, fashion merchandise control, did not lend i t s e l f to the use of these methods. 7 Chapter I I I undertakes a comparison of t r a d i t i o n a l methods of o r g a n i z i n g department s t o r e s , as embodied by the Mazur P l a n , and the v a r i a t i o n s from t h i s p l a n found i n s t o r e s of the g r e a t e r Vancouver area. T h i s comparison serves two main purposes. The d i s c u s s i o n p r o v i d e s one w i t h an understanding of the i n t e r r e l a t i o n s h i p that e x i s t s between the v a r i o u s a c t i v i t i e s c a r r i e d on i n a department s t o r e . These a c t i v i t i e s must be organized and c o o r d i n a t e d to f u r t h e r the aims of the s t o r e as a whole. Secondly, the d i s c u s s i o n helps one to superimpose the o r g a n i z a t i o n framework of the department s t o r e on the concepts i n t r o d u c e d i n Chapter I I . The d e s c r i p t i o n s a r e , of n e c e s s i t y , g e n e r a l because o b v i -o u s l y the d e t a i l e d s p e c i f i c a t i o n of a u t h o r i t y and r e s p o n s i -b i l i t i e s w i t h i n o r g a n i z a t i o n s depends on the a b i l i t i e s of the people i n the o r g a n i z a t i o n and on the s i t u a t i o n d e t a i l s . The understanding of department s t o r e o r g a n i z a t i o n i s a p r e r e q u i s i t e to an understanding of the a p p l i c a t i o n of e l e c t r o n i c data p r o c e s s i n g i n r e t a i l i n g d i s c u s s e d i n Chapter IV and Chapter V. In Chapter IV, before i n v e s t i g a t i n g r e t a i l i n g as a problem area i n EDP a p p l i c a t i o n , the d e s c r i p t i o n of the f u n c t i o n a l components of an EDP system i s undertaken. Although t h i s s e c t i o n could c o n c e i v a b l y have been i n c l u d e d i n Chapter I I , the c l o s e c o n n e c t i o n between those f u n c t i o n a l components and d e t a i l s of the d e s i g n of r e t a i l systems i s such that the d i s c u s s i o n lends i t s e l f b e t t e r to Chapter IV. 8 The i n v e s t i g a t i o n of the c h a r a c t e r i s t i c s of r e t a i l data p r o c e s s i n g , the o b j e c t i v e s of management i n a c q u i r i n g EDP systems, and the present r e t a i l i n g a p p l i c a t i o n s of EDP serve t o b r i n g the reader abreast w i t h r e t a i l d a t a - p r o c e s -s i n g developments. The l a s t s e c t i o n of Chapter IV h i g h -l i g h t s the r e l a t i v e l a g of r e t a i l i n g i n adopting EDP methods and suggests some reason f o r the present s t a t e of a f f a i r s . Chapter V, the f i n a l chapter of the t e x t proper, i n v e s t i g a t e s the r e l a t i v e l a g w i t h i n r e t a i l i n g i n s t i t u t i o n s i n the a p p l i c a t i o n of EDP to merchandising f u n c t i o n s . F a s h i o n merchandising, p r i m a r i l y because of i t s r e l a t i v e l y l a r g e d o l l a r volume and h i g h r i s k of l o s t p r o f i t , i s f u r t h e r s i n g l e d out as a p o t e n t i a l l y f r u i t f u l area of a p p l i c a t i o n . The s a l i e n t c h a r a c t e r i s t i c s of f a s h i o n merchandising, the weaknesses of present u n i t c o n t r o l systems, and the reasons f o r the l a c k of EDP a p p l i c a t i o n s i n merchandise c o n t r o l are b r i e f l y reviewed. F i n a l l y , i n t h i s chapter, r e c o g n i z i n g that the s c i e n t i f i c management models e a r l i e r mentioned were not at present a p p l i c a b l e t o f a s h i o n merchandising, suggestions are made r e g a r d i n g the type of i n f o r m a t i o n that might be made a v a i l a b l e to v a r i o u s merchandising personnel to u s e f u l l y a i d them i n making t h e i r d e c i s i o n s . I I I . SOURCE DATA AND METHODOLOGICAL CONSIDERATIONS The source m a t e r i a l used i n the p r e p a r a t i o n of t h i s 9 t h e s i s was d e r i v e d from both primary and secondary r e s e a r c h . The secondary r e s e a r c h m a t e r i a l c o n s i s t e d of the few, reasonably up-to-date t e x t books i n the f i e l d supported by p e r i o d i c a l l i t e r a t u r e which c a r r i e d a r t i c l e s r e l a t i n g to the t o p i c . The t e x t books were used to g a i n some understanding of the b a s i c p r i n c i p l e s of r e t a i l merchandising while the p e r i o d i c a l s f r e q u e n t l y p r o v i d e d more d e t a i l and expanded on the e v o l v i n g concepts i n r e t a i l i n g . The primary r e s e a r c h c o n s i s t e d , f o r the most p a r t , of c o n v e r s a t i o n s w i t h r e p r e s e n t a t i v e s of f o u r l a r g e d e p a r t -ment-store chains l o c a t e d i n the Vancouver area. In a d d i t i o n , i n t e r v i e w s were held w i t h two r e p r e s e n t a t i v e s of l o c a l o r g a n i z a t i o n s which merchandise l a d i e s f a s h i o n s , and w i t h a l o c a l r e p r e s e n t a t i v e of an EDP equipment manufacturer. T h i s r e s e a r c h was used to l e a r n about the o r g a n i z a t i o n a l s t r u c t u r e of l o c a l s t o r e s , c u r r e n t progress and problems experienced i n a p p l y i n g EDP methods to r e t a i l i n g , and c u r r e n t p r a c t i c e s i n merchandising. The primary r e s e a r c h was a l s o designed t o support or d i s p u t e the broad g e n e r a l i z a t i o n s which were f r e q u e n t l y made i n the r e t a i l i n g books. At the request of the persons i n t e r v i e w e d , paraphrased m a t e r i a l does not i n c l u d e r e f e r e n c e to t h e i r names or to the o r g a n i z a t i o n s w i t h which they are a f f i l i a t e d . CHAPTER II THE COMPUTER AND THE MANAGEMENT REVOLUTION I. THE MODERN BUSINESS SETTING Management i n Tra n s i t i o n The l a s t decade and a half has been marked by a noticeable i n t e n s i f i c a t i o n of intere s t i n the problems fostered by the growing pains of business. Academically, there has been considerable i n t e r e s t shown i n conceptual-i z i n g some of the basic p r i n c i p l e s of business operation. However, a scatter-gun approach to the problems has yielded numerous abstract theories and techniques but as yet has f a i l e d to approach any semblance of an integrated body of theory. As a r e s u l t , scepticism exists i n the mind of the p r a c t i c a l businessman as to the true merits of the new ideas introduced. The modern large-scale business organization raises complex problems for the administrative theorist who attempts to reconcile economic aspects of business with the personal element, r a t i o n a l i t y i n decision making with empirical studies of actual processes and, more generally, t h e o r e t i c a l concepts with practice. The decision-making process i n large-scale organization has, without doubt, become increasingly d i f f i c u l t as more and more persons 11 p a r t i c i p a t e i n i t . Information for decision making i s prepared by employees below the decision-making l e v e l and through t h e i r actions these people can bias the information submitted to the decision maker, thus, unconsciously gaining an extraordinary influence on decision making. At the same time, business historians have traced a trend i n modern organizations which indicates that those who have ultimate authority and make f i n a l and strategic decisions have become increasingly remote from the d a i l y operation of t h e i r enter-p r i s e . In l i g h t of the evidence, c l e a r l y the need exists to re-examine and analyse the basis of organizational, group and i n d i v i d u a l decisions. Notwithstanding the fact that the d i s c i p l i n e of economics has served as a basis for so much business theory, the inadequacy of t h i s theory as a r a t i o n a l guide to policy formulation i s pointed out. Psychological evidence tends to support the need for a n a l y t i c a l models to provide guidance for management decisions. In summary, the purpose of t h i s chapter i s to survey some of the c h a r a c t e r i s t i c s of organization and the new expanding f i e l d of t h e o r e t i c a l knowledge related to i t . Direct or i n d i r e c t reference w i l l be made to what are the prime management functions i n business, that i s , the functions of planning, organization, s t a f f i n g , motivation and control. Above a l l else, the purpose here i s to provide a perspective f o r viewing the electronic d i g i t a l computer against the 12 broad backdrop of some newer concepts evolving i n manage-ment theory. Before narrowing down our considerations to r e t a i l i n g and, i n p a r t i c u l a r , to merchandising applications as w i l l be done l a t e r , i t i s f e l t that emphasis should be given the computer as just one of a number of new tools now available to management, thus promoting a broader under-standing of i t s place i n the growing body of administrative theory. Theories of Management The business organization may be simply thought of as a network of relations between investors, customers, mana-gers, employees and suppliers. These relationships have been variously interpreted from the functional approach ( i . e . marketing, production, finance, e t c . ) , the formal organization approach ( i . e . l i n e and s t a f f , c e n t r a l i z a t i o n and decentralization, e t c . ) , and the l e g a l approach. For the purposes of t h i s section, we s h a l l introduce the question from three points of view. These orientations w i l l be provided by economic-accounting, the behavioral theory, and control or feedback system theory. Managers have frequently been characterized by t h e i r e s s e n t i a l role as decision makers i n organization. In our hypothetical communication system, a manager i s considered an Information converter at some control point i n the organization. The manager selects c e r t a i n classes of 1 3 information sources, combines and processes these inform-ation flows and subsequently produces streams of managerial decisions that control actions within the organization. Though each manager has available a large number of inform-ation sources, poor decisions can be made through using only a small f r a c t i o n of available information and making only incomplete and e r r a t i c use of the information selected. Management success, therefore, depends primarily upon what information i s chosen and upon how the information i s translated into action. This i n i t i a l view of the f i r m as an interlocking network of information channels i s b a s i c a l l y an economics and accounting orientation to the firm. The channels of information emerge at various points where the decision maker uses t h i s information to control physical processes. Culliton,''" by using a hydraulic analogy, diagramatically i l l u s t r a t e s the control and planning functions of manage-ment as they r e l a t e to balance sheet and income-statement c l a s s i f i c a t i o n s . However, the student of administration has a broader in t e r e s t i n the differences that organizational structures introduce to t h i s information system and i n the effects of the human element. These two aspects f a l l within the realm ^ J . B. C u l l i t o n , "Diagram of Management Control," Harvard Business Review, 3 8 : l l f 1 + - 1 5 0 , March, I 9 6 0 . Ik of a d i s c i p l i n e labelled "The Behavioral Theory of the Firm" which builds upon organizational and behavioral concepts. The behavioral s c i e n t i s t who draws on theories from s o c i a l psychology, sociology and anthropology looks at the business f i r m as a s o c i a l or s o c i o l o g i c a l i n s t i t u t i o n . He i s p a r t i c -u l a r l y interested i n the situations that are created from the interactions of people—how people form groups, how attitudes are formed or changed, how a s p i r a t i o n l e v e l s are affected, etc. Quite obviously, the information system cannot be considered apart from these factors since people are an i n t e g r a l part of the information system. Modern organization theory, which i s based on the 2 3 k contributions of men l i k e Barnard, Simon J and March, has concentrated upon decision making as the basic element i n studying any organizations. The information system of the organizational theorist i s broader than that of accounting systems since i t embodies the transmitting of information about the premises of relevant persons and their " f e e l i n g s " or responses" as well as the quantitative data upon which they are to operate. It may also involve bias In the C. I. Barnard, The Function of the Executive (Cambridge:Harvard University Press, 1938). 3H. A. Simon, Administrative Behavior (New York: MacMillan, 1957). ^ J . G. March and H. A. Simon, Organization (New York: Wiley, I960). t r a n s m i s s i o n of i n f o r m a t i o n . In a d d i t i o n , o r g a n i z a t i o n a l theory has s t r e s s e d the importance of the h i e r a r c h y i n an o r g a n i z a t i o n , i n c l u d i n g the r e l a t e d concepts of a u t h o r i t y and r e s p o n s i b i l i t y . In t o t a l , t h e r e f o r e , the " B e h a v i o r a l Theory of the F i r m " i s simply a s e r i e s of s t u d i e s which attempts to extend the c l a s s i c a l economic theory o f the f i r m by i n c l u d i n g o r g a n i z a t i o n a l and b e h a v i o r a l concepts. C o n t r o l system or feedback-system a n a l y s i s r e p r e -sents the f i n a l body of knowledge which i s of i n t e r e s t t o 5 us. T h i s area has been most e x t e n s i v e l y s t u d i e d by e l e c -t r i c a l engineers but c e r t a i n l y the b a s i c concepts of i n f o r m a t i o n feedback c o n t r o l are fundamental to a l l l i f e and human endeavour. The p r i n c i p l e s i n v o l v e d have, i n f a c t , been used d i r e c t l y or i n d i r e c t l y by other d i s c i p l i n e s -a lthough e n g i n e e r s , by v i r t u e of t h e i r a n a l y t i c a l study of the f i e l d , are most c l o s e l y i d e n t i f i e d w i t h i t . Quite simply, an i n f o r m a t i o n feedback system e x i s t s whenever the environment leads t o a d e c i s i o n t h a t r e s u l t s i n a c t i o n which a f f e c t s the environment. To c i t e a p r a c t i c a l example, the manager of a company uses i n f o r m a t i o n about c o n d i t i o n s he hopes t o i n f l u e n c e or c o n t r o l t o make d e c i s i o n s . These d e c i s i o n s he expects w i l l r e s u l t i n a c t i o n which w i l l have an e f f e c t upon f u t u r e v a l u e s of i n f o r m a t i o n he i s us i n g . JC. D. F l a g l e and o t h e r s , Operations Research and  Systems E n g i n e e r i n g ( B a l t i m o r e : Johns Hopkins P r e s s , I960), P. 637. 16 If a marketing manager receives information indicating poor sales, he may decide to increase promotional expenditure i n various ways which he expects w i l l increase sales. Once information i s received regarding the ef f e c t on sales, the promotional-expenditure decision w i l l i n some way be modi-f i e d . The essence of the feedback control system may be i l l u s t r a t e d by the following block diagram. It involves measurement, ( i . e . t h i s i s largely i n the realm of market research studies) comparison, and corrective input. Johnson states: Input i s the activating element; the processor i s the operating system; output represents the accomplish-ment of the system; the measurement channel i s the senior element; the comparator - and - control channel i s the control group element; and the objective, or standard, i s the controlled item. Feedback control operates i n a system expected to make errors, for the error i s depended upon to bring about correction. The objective of such a system i s to make the error as small as possible within p r a c t i c a l l i m i t s . 6 The block diagram highlights the importance of having a complete set of operating plans at a l l levels of the organization. These plans, as i n the previous example, are the objectives or standards that influence the future inputs of the system. Professor Forrester at M.I.T., starting from t h i s feedback concept, has developed a series of models of R. A. Johnson and others, The Theory and Manage-of Systems (New York: McGraw-Hill, 1963), P. 62. 17 INPUT PROCESSOR OUTPUT J CONTROL CHANNEL MEASUREMENT CHANNEL COMPARATOR \*-OBJECTIVE OR STANDARD / FEEDBACK LOOP FIGURE 2.1 1 8 business systems which i n c l u d e f a c t o r i e s , f a c t o r y ware-houses, w h o l e s a l e r s , r e t a i l e r s and consumers. The modern high-speed computer has made system s i m u l a t i o n a p r a c t i c a l t o o l and, by a f f e c t i n g parameters and v a r i a b l e s i n h i s models, he has been able t o observe the e f f e c t s upon h i s 7 system. F o r r e s t e r d e s c r i b e s h i s g e n e r a l approach as f o l l o w s : I n f o r m a t i o n feedback systems, whether they be mechanical, b i o l o g i c a l , or s o c i a l , owe t h e i r behavior t o three c h a r a c t e r i s t i c s - s t r u c t u r e , delay and a m p l i -f i c a t i o n . The s t r u c t u r e of a system t e l l s how the pa r t s are r e l a t e d to one another. Delays always e x i s t i n the a v a i l a b i l i t y of i n f o r m a t i o n , i n making d e c i s i o n s based on i n f o r m a t i o n , and i n t a k i n g a c t i o n based upon the d e c i s i o n . A m p l i f i c a t i o n u s u a l l y e x i s t s throughout such systems, e s p e c i a l l y i n the d e c i s i o n p o l i c i e s of our i n d u s t r i a l and s o c i a l systems.8 Although both t h i s chapter and the " I n d u s t r i a l Dynamics" approach d e a l w i t h i n f o r m a t i o n and i t s e f f e c t s upon the whole business system, F o r r e s t e r i s p r i m a r i l y i n t e r -ested i n i n t e r - f i r m r e l a t i o n s w h ile the major problem under c o n s i d e r a t i o n here i s i n t r a - f i r m r e l a t i o n s h i p s , that i s , w i t h v a r i a b l e s w i t h i n the p a r t i c u l a r f i r m . Of course, the p o i n t of the s t u d i e s such as " I n d u s t r i a l Dynamics" and other syntheses i n terms of a feedback c o n t r o l - s y s t e m theory i s simply that one should have some method of a n a l y t i c a l l y and s y s t e m a t i c a l l y t a k i n g i n t o account the e f f e c t s of e n v i r o n -mental f a c t o r s on the i n d i v i d u a l , group or o r g a n i z a t i o n a l 3, W. F o r r e s t e r , " I n d u s t r i a l Dynamics, "Harvard  Business Review. 3 6 : 7 2 , J u l y , 1 9 5 8 . 8 I b i d . , p. 1 5 . 1 9 units making decisions. In t h i s way, the r e a l i t y we are trying to model or simulate i s more cl o s e l y approximated. The " I n d u s t r i a l Dynamics" studies are concerned with descriptive simulation of the organization system while simulation studies dealing with more s p e c i f i c and less complex aspects of business are aimed at providing normative models. That i s , i n situations where d e f i n i t i o n allows one to analyse the process i n terms of an optimum, a theory i s developed which predicts what the operation variables should be to achieve the predetermined optimum condition. In summary, then, the factors impinging on decision making i n an organization are represented by the various elements of theory. Decision making i s a function of the structure of the information system and the associated economic theory connected with the physical processes controlled; i t i s a function of the organizational structure and the interactions of i n d i v i d u a l s who populate the f i r m as dealt with by the organization and behavioral t h e o r i s t s ; f i n a l l y , i t i s a function of the environmental factors or factors external to the firm. I I . DECISION MAKING AND THE FIRM The Nature of the Decision Process The elements of a decision. The decision process can be v i s u a l i z e d i n i t s simplest terms as originating at some point i n an organization where an i n d i v i d u a l or group of 20 Individuals i s faced with a s i t u a t i o n requiring a decision. Decisions, of course, are characterized by alternatives and, i n recognizing that a given s i t u a t i o n requires a decision, we are i m p l i c i t l y saying that more than one alternative e x i s t s . The next step i s to analyse the data available i n order to formulate various mutually exclusive a l t e r n a t i v e courses of action. F i n a l l y , i n accordance with some speci-f i e d or derived objective, that a l t e r n a t i v e which best accomplishes the objective, i s selected and implemented. Because the words "data" and information" are often used interchangeably, a d i s t i n c t i o n between the two should be drawn. The difference between the words i s high-lighted by Gregory and Van Horn: 'Data' can be defined as any facts that are a matter of d i r e c t observation. As used i n business data proces-sing, 'data' means c o l l e c t i o n s of signs or characters generally arranged i n some orderly way to make up facts and figures. Numbers, words, charts, tables, and reports are examples of data which represent the syntactic l e v e l of an information system - the patterns formation of messages from words into a p a r t i c u l a r language . . . 'Information' i s the significance derived from the data, which are vehicles for conveying ce r t a i n p o t e n t i a l l y meaningful f a c t s . The meaning of 'information' i s at the semantic l e v e l - the r e l a t i o n -ship between a sign and the actual object or condition represented by the sign . . . 'Information' implies understandability, relevance, a b i l i t y to act, novelty, timeliness, and accuracy.9 In a business firm, rarely does one f i n d a pure data 9R. H. Gregory and R. L. Van Horn, Automatic Data-Processing Systems, (Belmont, C a l i f o r n i a : Wadsworth Pub. Co., I960 ) , p. 335. 21 or decision center but rather a combination of the two since one decision center generally transmits i t s decisions to others i n the organization and, even i n transmitting, the center makes decisions, i . e . the determination of what data to transmit, how to summarize data, how to present data. The s p e c i f i c a t i o n of the decision premises are outlined i n a decision r u l e , or, as i t i s more generally referred to, a pol i c y . Policy i s a formal statement giving the r e l a t i o n -ship between the information sources and r e s u l t i n g decision flows, the objective of the decision maker being to optimize the decision with respect to the policy s p e c i f i e d . With reference to the previous block diagram, i t represents a standard and as such i s a basic element of the control function. The range of executive decisions i n r e l a t i o n to  administrative structure. The able executive i s character-ized by his willingness and his a b i l i t y to make decisions. Depending on the p o s i t i o n of the executive i n the organiz-ation, the decisions he w i l l be c a l l e d on to make w i l l vary quite widely with structured and unstructured decisions at opposing poles defining a broad spectrum of decisions. The structured decisions are commonly problems which are repe-t i t i v e and quantifiable and thus more amenable to solution. The more d i f f i c u l t , unstructured type of problem may be exemplified by those requiring setting of goals where no 22 precedents can be r e l i e d on. One i s , therefore, looking at the segregation of decisions according to the extent to which the p o l i c i e s that guide decisions are known and agreed upon. At the lower end of the scale, decisions can be made on a f u l l y automated basis by machines where the guiding policy i s r i g i d l y prescribed. In many large organizations now a vast bureaucracy of middle management i s engaged i n other decisions which cannot be mechanized since decision c r i t e r i a have not been reduced to e x p l i c i t , d e t a i l e d , oper-ating r u les. Although the guiding policy i s incomplete, i t i s well enough understood that a supervisor generally knows what to expect from subordinate decision makers. S t i l l closer to the top of the organizational hierarchy, one finds decisions based on experience, judgment, and i n t u i t i o n i n which, although the guiding p o l i c y does not appear i n writing, there i s a strong assumption as to what constitutes proper action. F i n a l l y , the top echelons of management are faced with making projections into a b a f f l i n g future, beyond the f r o n t i e r of t r a d i t i o n a l management actions. The variables involved may be unknown and so uncertain that a r e l a t i v e l y unstructured frame of reference t y p i c a l of human processes, as well as imagination, creative thinking, and i n t u i t i o n , represent the only methods of so l u t i o n presently f e a s i b l e . The nature of these varying types of decisions should be considered i n r e l a t i o n to the administrative 2 3 structure of the modern firm. Chandler and R e d l i c h 1 0 have made a study of the h i s t o r i c a l evolution of d e c e n t r a l i z -atio n that produced organizational structure similar to that,employed today by such bulwarks of American industry as General Motors and Dupont. Previous to the late 1 9 2 0 ' s , the more progressive organizations were t y p i c a l l y what they a r b i t r a r i l y define as two-level structures. The company was organized i n such a way that the major operating units consisted of functional departments. The cleavage between the upper and lower leve l s was at the p o s i t i o n of functional head. The part of the organization from the functional head down, constituted the lower l e v e l while those positions above the functional head were thought of as the upper l e v e l . A l l major coordination of operations, goal determination and planning was done at the upper l e v e l . However, continuous development of new products necessitated the basing of major-operating units on product l i n e s which themselves were subsequently s p l i t along func-t i o n a l l i n e s . In t h i s new multi-product, multi-functional type of enterprise, the top l e v e l of organization was s p l i t up by delegation of one of i t s a c t i v i t i e s . The coordin-atio n of operations of various functional departments within X UA. D. Chandler and F. Redlich, "Recent Developments i n American Business Administration and t h e i r Conceptu-a l i z a t i o n , " Business History Review, 3 5 : 1 - 2 7 , 1 9 6 1 . 21+ the major l i n e s of products was now handled by a new middle l e v e l of business a d m i n i s t r a t o r s . W i t h i n the bounds and l i m i t s of the p o l i c y e s t a b -l i s h e d by the top team, c h i e f o f f i c e r s of the product u n i t s made major d e c i s i o n s , a l t h o u g h these d e c i s i o n s were q u i t e d i s t i n c t from those emanating from headquarters. D i v i s i o n a l performance was ap p r a i s e d by f i n a n c i a l success ( i . e . r e t u r n on investment) and, to a l e s s e r e x t e n t , by the share of the market. The c o o r d i n a t i o n of f u n c t i o n a l u n i t s w i t h i n the major l i n e s of products demanded such s p e c i a l care that i t became necessary t o give f u l l - t i m e a t t e n t i o n to a d m i n i s t e r i n g the managers of these f u n c t i o n a l u n i t s . T h i s t a s k became the r e s p o n s i b i l i t y of a s t a f f of s p e c i a l i s t s who were now the new middle l e v e l of business a d m i n i s t r a t i o n . There-a f t e r , the top team s p e c i a l i z e d i n g o a l d e t e r m i n a t i o n and p l a n n i n g , thus c o n c e n t r a t i n g on t h e i r r e s p o n s i b i l i t y to the e n t e r p r i s e as a whole. The team's f u n c t i o n s were a p p r a i s a l , c o o r d i n a t i o n and d e t e r m i n a t i o n of p o l i c y both f o r the e n t e r -p r i s e as a whole and f o r i t s m u l t i - f u n c t i o n , product-based o p e r a t i n g u n i t s . In c a r r y i n g out these d u t i e s , the g e n e r a l o f f i c e r s at c e n t r a l headquarters had the a s s i s t a n c e of t h i s s t a f f of s p e c i a l i s t s . T h i s top team then communicated d i r e c t l y and i n t e r -a c t e d only w i t h the men r e s p o n s i b l e f o r o p e r a t i o n s . I t s d e c i s i o n s were concerned w i t h b a l a n c i n g c o n f l i c t i n g i n t e r e s t s between the product heads whose demands were determined by 25 the products and functions for which they were responsible. In making those decisions, the top team had data and opinions presented by the functional s t a f f s p e c i a l i s t s at headquarters who had l i t t l e or no d i v i s i o n a l connections or biases. The c h a r a c t e r i s t i c features of t h i s new structure center on the separation of management operations and policy making as well as the i n s e r t i o n of a middle l e v e l with e s s e n t i a l l y administrative functions. Since the members of the top team were no longer responsible f o r operations and administration, they were psychologically more committed to seeing the concern as a whole and concentrating on goal determination; they had time for planning and, l a s t but not l e a s t , they had excellent information assembled by the central s t a f f . By virtue of the delegated r e s p o n s i b i l i t i e s , the perspectives, decisions and p o l i c i e s corresponding to each of the three l e v e l s i n organization are quite d i f f e r e n t . This relates i n part to the previous discussion to the 11 degree to which decisions are structured i n organization. Considering executive perspectives, the product heads and functional heads below these managers, think l a r g e l y i n terms of a single product and related f u n c t i o n a l d i v i s i o n s . The middle management must take a broader view of the whole l i n e of products offered by a f i r m as well as products Supra, Chap. II, p. 21. 26 o f f e r e d by o t h e r s i n t h e s m a l l i n d u s t r y . The top-manage-ment team c o n s i d e r s t h e market as a whole and, depending on the s i z e o f the company, t h e i r h o r i z o n s may be broadened from the s m a l l r e g i o n a l market t o the n a t i o n a l markets and even perhaps t o t h e markets of t h e w o r l d . A l t h o u g h C h a n d l e r and R e d l i c h have addressed them-s e l v e s i n the main t o i n d u s t r i a l o r g a n i z a t i o n s , t h e i r o b s e r v a t i o n s w i t h r e s p e c t t o t h e v a r i a t i o n i n the t y p e s of d e c i s i o n s made a t d i f f e r e n t o r g a n i z a t i o n a l l e v e l s apply, e q u a l l y w e l l t o r e t a i l o r g a n i z a t i o n s as w e l l . T h i s p o i n t c a n be n o t e d i n the n e x t c h a p t e r when r e t a i l o r g a n i z a t i o n a t t h e l o c a l l e v e l i s r e v i e w e d . The purposes of d e c i s i o n making. D i s r e g a r d i n g f o r a moment p o l i c y d e c i s i o n s w h i c h w i l l be c o n s i d e r e d l a t e r , t h e purposes of d e c i s i o n s may, f o r c o n v e n i e n c e , be b r o a d l y 12 c l a s s i f i e d as s t r a t e g i c or t a c t i c a l . S t r a t e g i c d e c i s i o n s a r e g e n e r a l l y r e f e r r e d t o as t h o s e t h a t a l l o c a t e t h e means of p r o d u c t i o n ( i n c l u d i n g a v a i l a b l e l i q u i d f u n d s and a v a i l -a b l e manpower) a c c o r d i n g t o the g o a l s the e n t e r p r i s e e x p e c t s t o a c h i e v e . The c o u r s e and l i f e o f the b u s i n e s s e n t i t y i n the f a c e o f a l l the u n c e r t a i n t i e s of the economy i s l a r g e l y p l o t t e d by s uch d e c i s i o n s . T a c t i c a l d e c i s i o n s , on the o t h e r hand, a r e d e c i s i o n s a p p l y i n g a l l o c a t e d means and man-power i n the most e f f i c i e n t way p o s s i b l e . Though no p r e c i s e d i v i d i n g l i n e e x i s t s between s t r a t e g i c d e c i s i o n s and t a c t i c a l 1 2A. D. C h a n d l e r and P. R e d l i c h , op. c i t . , p. 2h. 2 7 d e c i s i o n s , o n e c a n s a f e l y s a y t h a t t h e d e c i s i o n s m a d e b y t o p m a n a g e m e n t c o n f o r m m o r e c l o s e l y t o t h e s t r a t e g i c c l a s s i f i c a t i o n w h i l e m i d d l e m a n a g e m e n t a n d o p e r a t i n g m a n a g e -m e n t e n g a g e p r i m a r i l y i n t a c t i c a l d e c i s i o n s . T h e r e l a t i v e a m o u n t o f t i m e s p e n t i n p l a n n i n g a s o p p o s e d t o e x e c u t i o n o f p l a n s t h e r e f o r e d e c l i n e s a s o n e p r o c e e d s d o w n w a r d i n o r g a n i z a t i o n . O n e m u s t r e m e m b e r t h a t t h e a r b i t r a r y s p e c i f i c a t i o n a s a t h r e e - l e v e l o r g a n i z a t i o n i s t o c o n t r a s t i t w i t h t h e h i s t o r i c a l t w o - l e v e l s t r u c t u r e . I n p r a c t i c e , a m u l t i -l e v e l o r g a n i z a t i o n e x i s t s , e x t e n d i n g r i g h t d o w n t o t h e l o w e s t e c h e l o n s . T h e p e r s p e c t i v e h o r i z o n s a n d d e c i s i o n t y p e s n a t u r a l l y c h a n g e f r o m t h e t o p t o t h e b o t t o m o f t h i s m a n a g e -m e n t o r s u p e r v i s o r y s t r u c t u r e . P o l i c y F o r m u l a t i o n a n d R a t i o n a l B e h a v i o r P o l i c y i s t h e c o r n e r s t o n e o f b u s i n e s s i t s e l f s i n c e i t i s t h r o u g h p o l i c y d e c i s i o n s t h a t t h e o r i e n t a t i o n o f o t h e r d e c i s i o n s i n t h e f i r m a r e d e t e r m i n e d . P o l i c y i s a r e f l e c -t i o n o f o r g a n i z a t i o n g o a l s a n d a s s u c h i s f a i r g a m e f o r d e c i s i o n t h e o r i s t s w h o h a v e f o r m a l i z e d a s t u d y o f g o a l -o r i e n t a t e d b e h a v i o r u n d e r t h e t i t l e o f t h e T h e o r y o f V a l u e . 13 A w e l l d o c u m e n t e d p a p e r b y W . E d w a r d s a n d a n o t h e r b y J W . E d w a r d s , " T h e T h e o r y o f D e c i s i o n M a k i n g , " S o m e  T h e o r i e s o f O r g a n i z a t i o n ( H o m e w o o d , I l l i n o i s : I r w i n , I 960 ) , p . 385. 28 N. M. Smith delve into a l l the subtle t h e o r e t i c a l consid-erations involved i n setting goals and the operational problems encountered i n optimizing decisions with respect to these goals. As i n so many situations where concepts are investigated from a p r a c t i c a l operational viewpoint, formi-dable problems present themselves i n an attempt to bridge the empirical-conceptual gap. We s h a l l investigate the problems encountered by theorists who have attempted to devise some r a t i o n a l theory of the f i r m and i n d i v i d u a l , subsequently comparing t h i s with some of the p r a c t i c a l examples of corporate p o l i c y . Micro-economics i n the form of ne o - c l a s s i c a l theory by Alfred Marshal provides the t h e o r e t i c a l basis for describing the resource d i s t r i b u t i o n among firms i n an industry, f o r explaining long and short-run industry develop-ment and explaining the evolution of a price structure i n 15 the industry. Micro-economic theory supposes that the decisions of the fi r m are optimized by a " r a t i o n a l " i n d i -vidual-decision maker frequently referred to as the "economic man." Economic man i s modelled as a r a t i o n a l , omniscent, lightening-quick calculator who i s confronted with a l^N. W. Smith and others," The Value and Science of Decisions," Some Theories of Organization (Homewood, I l l i n o i s : Irwin, I960), p. M-31. H. Leftwich, The Price System and Resource  A l l o c a t i o n (New York : Holt, Rinehart and Winston, 1961), P. 169. 2 9 completely known set of c e r t a i n or p r o b a b l i s t i c outcomes and i s r e s o l u t e l y bent on maximizing a known o b j e c t i v e , i . e . p r o f i t . The economist then d e f i n e s the short and l o n g - r u n e q u i l i b r i u m c o n d i t i o n s f o r the f i r m i n terms of p r i c e and r a t e output which are pursued by the e n t i t y as the embodiment of economic man. Though t h i s may be a good model f o r i d e a l circumstances, i t i s not a good model f o r the i n d i v i d u a l d e c i s i o n maker w i t h l i m i t e d time at h i s d i s p o s a l , l i m i t e d p e r c e p t i o n and computing a b i l i t y , and knowledge of o n l y a few a l t e r n a t i v e s , a l l of which i n v o l v e d i f f e r i n g degrees of r i s k . E i t h e r because of l a c k of i n t e r e s t on the p a r t of economists or from l a c k of s u i t a b l e a n a l y t i c t o o l s , t h e r e are many important questions the economic theory of the f i r m has l e f t unanswered. To achieve s a t i s f a c t o r y answers to q u e s t i o n s as to how r e s o u r c e s are a l l o c a t e d w i t h i n f i r m s , what the e f f e c t s of o r g a n i z a t i o n a l s t r u c t u r e on manage-ment behavior are, and how p r i c e and output d e c i s i o n s are made i n other than p u r e l y c o m p e t i t i v e s i t u a t i o n s , c l e a r l y i t i s necessary to reformulate our ideas of r a t i o n a l behavior to i n c o r p o r a t e a g r e a t e r degree of r e a l i t y . l 6 S t u d i e s i n experimental psychology - have shown t h a t men are not good c a l c u l a t o r s of dynamic behavior i f X ° G . M i l l e r , "The Magic Number Plus or Minus Two," P s y c h o l o g i c a l Review. 6 3 : 8 1 - 9 7 , Mar., 1 9 5 6 . 3 0 complicated systems and the number of v a r i a b l e s they can p r o p e r l y r e l a t e t o one another i s l i m i t e d . Long years of experience could l e a d to f a i r l y good i n t u i t i v e h a n d l i n g of s i t u a t i o n s i n which the v a r i a b l e s i n v o l v e d i n the d e c i s i o n do not f l u c t u a t e a p p r e c i a b l y . N a t u r a l l y , i n d i v i d u a l capa-c i t y a l s o i s a f a c t o r . However, acc o r d i n g to p s y c h o l o g i c a l r e s e a r c h , i n t u i t i v e judgment of a s k i l l e d i n v e s t i g a t o r i s o f t e n q u i t e u n r e l i a b l e i n a n t i c i p a t i n g the dynamic behavior of a simple i n f o r m a t i o n feedback system of f i v e or s i x v a r i a b l e s . Although one t h i n k s he g i v e s c o n s i d e r a t i o n t o a l a r g e r number of v a r i a b l e s , probably the v a r i a b l e s are not p r o p e r l y r e l a t e d t o one another i n groups l a r g e r than f i v e or s i x at a time. In view of these n a t u r a l d i f f i -c u l t i e s of the i n d i v i d u a l as a problem s o l v e r , i t i s a p p r o p r i a t e t o ask, even i f i t were p o s s i b l e t o generate any number of. r e p o r t s and a l t e r n a t i v e s at l i t t l e or no c o s t , how many a l t e r n a t i v e s should be submitted to the e x e c u t i v e , how many d i f f e r e n c e s can the consumer p e r c e i v e between products, along w i t h a myriad of other q u e s t i o n s . On the s t r e n g t h of such evidence one has to concede such s t u d i e s c o n t a i n c o n v i n c i n g arguments to r e f u t e o b j e c t i o n s t h a t a n a l y t i c a l techniques are unnecessary. The s t u d i e s a l s o g i v e support to the modern trend toward e x c e p t i o n r e p o r t i n g as the method of managerial c o n t r o l . . • In c o n c l u s i o n , then, i t i s obvious, c o n s i d e r i n g man's 31 l i m i t e d mental c a p a c i t y and p s y c h o l o g i c a l l i m i t a t i o n s , t h a t economic man i s more a myth than a r e a l i t y . Much c r i t i c i s m has been d i r e c t e d a g a i n s t the c a p i t a l i s t as a r u t h l e s s p r o f i t maximizer, these c r i t i c s perhaps t a k i n g f o r granted the economist's a b s t r a c t i o n of economic behavior r a t h e r than i n v e s t i g a t i n g a c t u a l behavior. In any event, what would an economic man m a x i m i z e — s h o r t - r u n p r o f i t , l ong-run p r o f i t , r e t u r n on investment, net r e t u r n to s h a r e h o l d e r s ? The concept of p r o f i t d e s i r e d i s , t h e r e -f o r e , d i f f i c u l t to d e f i n e and, once d e f i n e d , i t i s gener-a l l y d i f f i c u l t t o measure. As an a l t e r n a t i v e S i m o n ^ suggests that economic man be r e p l a c e d by " s a c r i f i c i n g man" l i v i n g i n a complicated, vague, u n c e r t a i n world, a man who does not attempt to maximize but i s content i f c u r r e n t l e v e l s of a s p i r a t i o n are met. T h i s approach c o n s i d e r s the u n d e r l y i n g f a c t o r s of incomplete i n f o r m a t i o n , c o n f l i c t amongst g o a l s , l i m i t e d p e r c e p t i o n s and d e s i r e s , combined w i t h the a b i l i t y to l e a r n and to modify h i s d e s i r e s . Although s p e c u l a t i o n on such a " s a c r i f i c i n g man" may b r i n g out some i n t e r e s t i n g aspects of human beha v i o r , u n f o r t u -n a t e l y such a s i t u a t i o n i s d i f f i c u l t to d e a l w i t h as i t i s not w e l l d e f i n e d a n a l y t i c a l l y . The b a s i s of the i s s u e i s whether the r a t i o n a l i n t e g r a t i o n of numerous p o l i c i e s , such as those l i s t e d by ^ H . A. Simon, Models of Man (New York, Wiley, 1 9 5 9 ) . 3 2 18 MacPhee i s and/or can be a c c o m p l i s h e d i n accordance w i t h some d e f i n i t i v e and d e f e n s i b l e c r i t e r i a of o p t i m a l company o p e r a t i o n . I n answer t o t h i s , the p r e v i o u s d i s c u s s i o n i n d i c a t e s t h a t , i n v i e w o f a l l the p r a c t i c a l l i m i t a t i o n s i n v o l v e d such an o p t i m i z a t i o n as r e p r e s e n t e d by " s a c r i -f i c i n g man" i s not y e t p o s s i b l e . Company P o l i c y i n P r a c t i c e I n p r a c t i c e , the p r e c e d i n g d i f f i c u l t i e s i n d e f i n i n g c o r p o r a t e o b j e c t i v e s are borne out as r e f l e c t e d i n the m u l t i p l i c i t y of v a g u e l y d e f i n e d g o a l s a p p a r e n t l y f o l l o w e d 19 by v a r i o u s b u s i n e s s e s . S h u b l i k made a survey of t o p -management p o l i c y w h i c h r e v e a l s t h a t f o r the t w e n t y - f i v e c o r p o r a t i o n s i n c l u d e d , t h e p o l i c i e s r e p r e s e n t a b l e n d o f p o l i t i c a l , s o c i a l , economic and e t h i c a l c o n s i d e r a t i o n s w h i c h p r o v i d e an image of b u s i n e s s c o n s i d e r a b l y d i f f e r e n t t h a n t h a t o f economic man. By f r e q u e n c y o f o c c u r r e n c e , t h e s e p o l i c i e s were: E. D. MacPhee, L e c t u r e Notes - P o l i c y and A d m i n i s -t r a t i o n (Vancouver, B.C. : B e s t P r i n t e r Co. L t d . ) . S h u b l i k , "Approaches t o the Study of D e c i s i o n -making R e l e v a n t t o the F i r m , " J o u r n a l of B u s i n e s s , 3*+: 1 0 2 - 1 1 8 , A p r i l , I 9 6 I . personnel 2 1 d u t i e s and r e s p o n s i b i l i t i e s t o s o c i e t y i n g e n e r a l 1 9 consumer 1 9 s t o c k h o l d e r 16 product q u a l i t y 1 1 t e c h n o l o g i c a l progress 9 s u p p l i e r r e l a t i o n s 9 corporate growth managerial e f f i c i e n c y d u t i e s to government d i s t r i b u t o r r e l a t i o n s p r e s t i g e r e l i g i o n as an e x p l i c i t guide PROFIT 3 3 8 7 i f l+ 2 1 1 3 Given a set of such vague g o a l s , how i s top manage-ment to optimize company o p e r a t i o n w i t h i n t a n g i b l e guides? Such s i t u a t i o n s are i n the realm of u n s t r u c t u r e d s t r a t e g i c d e c i s i o n s and the new o r g a n i z a t i o n t h e o r i s t s add l i t t l e t o c l a r i f y the s i t u a t i o n . T h i s i s d e f i n i t e l y a s i t u a t i o n where i n t u i t i v e process and long experience i n business are s t i l l the best bases f o r making d e c i s i o n s . In some l e v e l s of middle management one f i n d s examples of d e c i s i o n s t h a t p r e v i o u s l y were con s i d e r e d to be so s u b t l e t h a t no reason-ab l e approximation could be made to them through f o r m a l d e c i s i o n r u l e s . I n c r e a s i n g l y , however, there i s ample evidence that they should be looked upon more c r i t i c a l l y as d i f f i c u l t d e c i s i o n s which, once analysed and l o g i c a l l y s t r u c t u r e d , can be d e a l t w i t h more e a s i l y . As mentioned p r e v i o u s l y , o f t e n the l i m i t a t i o n s i n v o l v e d i n such d e c i s i o n s stem from the l i m i t e d mental c a p a c i t y of the 3^ i n d i v i d u a l to understand the behavior of complex systems. The new approach to problems i n t h i s area w i l l be the focus of i n t e r e s t f o r the remainder of the chapter. I I I . THEORETICAL DECISION-MAKING TOOLS The Role of Management Science The i n t e r e s t i n the study of o r g a n i z a t i o n s and o r g a n i z a t i o n a l behavior i n the past few decades has become a f o c a l p o i n t f o r i n t e r d i s c i p l i n a r y r e s e a r c h . Emphasis has been placed on the study of o r g a n i z a t i o n as a s c i e n -t i f i c f i e l d and, because t h i s f i e l d i s r e l a t i v e l y new, there i s no w e l l - d e f i n e d community of s c h o l a r s who are l e a d e r s i n the f i e l d of o r g a n i z a t i o n theory. S c h o l a r s and r e s e a r c h e r s working i n such d i v e r s e f i e l d s as mathematics, s o c i o l o g y , s o c i a l psychology, e n g i n e e r i n g and economics have made d i r e c t and i n d i r e c t c o n t r i b u t i o n s t o business theory. I n e v i t a b l y , as the gap between these more s p e c i a l -i z e d t h e o r i e s and more g e n e r a l t r a d i t i o n a l concepts of management widened, there was an obvious need to c o o r d i n a t e and compromise new ideas w i t h the o l d . The t a s k of r e l a t i n g the t o o l s of a n a l y s i s , developed by other d i s c i p l i n e s , t o the a r t of management was taken on by the s o - c a l l e d manage-ment s c i e n t i s t s . Management s c i e n c e views the o r g a n i z a t i o n as an i n t e g r a t e d d e c i s i o n system s i m i l a r t o t h a t presented e a r l i e r i n t h i s chapter. The framework of management 35 s c i e n c e , as f o r any s c i e n c e , i s the s c i e n t i f i c method although c e r t a i n fundamentals i m p l i e d by the s c i e n t i f i c method are of more Importance f o r our purposes than the s p e c i f i c steps i n v o l v e d . The term " s c i e n t i f i c method" suggests a r e l a t i v e l y f o r m a l , s y s t e m a t i c , thorough approach to problem s o l v i n g which, i n t u r n , i m p l i e s l o g i c a l s o l u -t i o n s based on f a c t s , o b j e c t i v i t y and c r e a t i v i t y . The method i s c h a r a c t e r i s t i c of a mind which i s c o n s t a n t l y c h a l l e n g i n g , weighing and e x p l a i n i n g ; i t i s c h a r a c t e r i s t i c of an approach which r e c o g n i z e s t h a t o f t e n d e f i n i t i v e answers to problems are not p o s s i b l e , the s o l u t i o n then being the s e l e c t i o n of the best amongst a spectrum of p o s s i b i l i t i e s . S c i e n t i f i c management, as a s u b d i v i s i o n of manage-ment s c i e n c e , was founded by F r e d e r i c k T a y l o r . T a y l o r wanted to show t h a t the " p r i n c i p l e s " of s c i e n t i f i c manage-ment were a p p l i c a b l e to a l l kinds of human a c t i v i t y . D e s p i t e h i s emphasis on the need to d i s c o v e r g e n e r a l i z e d r u l e s , T a y l o r h i m s e l f s t r e s s e d that each s i t u a t i o n must be analysed s e p a r a t e l y and t h a t f i n d i n g s i n any s p e c i f i c study were only narrowly a p p l i c a b l e . He was convinced that the g r e a t e s t problem i n v o l v e d i n the change to s c i e n t i f i c management was the need f o r a complete r e v a l u a t i o n i n the mental a t t i t u d e s and h a b i t s of a l l those engaged i n manage-ment. The whole f i e l d of i n d u s t r i a l e n g i n e e r i n g stemmed from the e a r l y s c i e n t i f i c management movement. G r a d u a l l y , 36 as problems became more complex, a d d i t i o n a l t o o l s and t e c h -niques developed tending toward a more mathematical approach to problems. These new s p e c i a l i z e d techniques became i d e n t i f i e d w i t h the name "operations r e s e a r c h . " From the standpoint of methodology, there i s nothing t h a t d i f f e r e n t i a t e s o p e r a t i o n s r e s e a r c h from many other types of business or economic a n a l y s i s . The method i n v o l v e d i s s t i l l the s c i e n t i f i c method, i . e . the a n a l y s t must examine a problem, p i c k out the dominant v a r i a b l e s , hypothe-s i z e r e l a t i o n s h i p s between these chosen v a r i a b l e s , and f i n a l l y t e s t h i s model i n the r e a l world. The a c i d t e s t i s the a b i l i t y t o make improved f o r e c a s t s of f u t u r e behavior. In f a c t , whereas o p e r a t i o n s r e s e a r c h i n i t s e a r l y days was d i s t i n g u i s h e d by using an i n t e r d i s c i p l i n a r y team approach, i n many cases the r e s e a r c h time now i n c l u d e s i n d u s t r i a l e n gineers. Although there i s not a c l e a r - c u t l i n e of demarcation between o p e r a t i o n s r e s e a r c h and other a p p l i -c a t i o n s of the s c i e n t i f i c method to management d e c i s i o n making, the use of mathematical models t o re p r e s e n t the system under study i s s t r e s s e d somewhat more i n i t s d e f i n -i t i o n s . Concepts of models and systems are important to the o p e r a t i o n s r e s e a r c h approach. However, the c u r r e n t popu-l a r i t y of the terms"model" and "system" i n business l i t e r a t u r e tends t o obscure the f a c t t h a t many business a d m i n i s t r a t o r s have i n t u i t i v e l y always thought i n terms of 3 7 models. The next chapter on department-store o r g a n i z a t i o n , f o r example, w i l l r e p e a t e d l y use a very common analogue model to help s i m p l i f y the d i s c u s s i o n about o r g a n i z a t i o n . T h i s model i s commonly known as the o r g a n i z a t i o n c h a r t . The b a s i c i d e a of a model t h e r e f o r e i s not new. What i s new i s the i n c r e a s e d s o p h i s t i c a t i o n of the model which i s the r e s u l t of t h e o r e t i c a l s t u d i e s i n t o the nature of models. The o p e r a t i o n s r e s e a r c h approach i s to use the model and systems concept e x p l i c i t l y , e nsuring t h a t an a n a l y s i s i s done on a l l r e l e v a n t v a r i a b l e s and s t r i v i n g to e s t a b l i s h some s o r t of s t r u c t u r a l r e l a t i o n s h i p between v a r i a b l e s . However, the I n d u s t r i a l Dynamics ph i l o s o p h y claims t h a t t h e r e i s a g e n e r a l misunderstanding to the. e f f e c t t h a t a mathematical model cannot be undertaken u n t i l every constant and f u n c t i o n a l r e l a t i o n s h i p i s known t o a hig h degree of 20 accuracy. T h i s o f t e n leads to the omis s i o n of ad m i t t e d l y h i g h l y s i g n i f i c a n t f a c t o r s (most of the " i n t a n g i b l e i n f l u e n c e s on d e c i s i o n s " ) because they are unmeasured or unmeasurable. As mentioned, p s y c h o l o g i c a l evidence supports the. v a l i d i t y of the use of a model as a t o o l f o r extending the e x e c u t i v e ' s judgment i n l a r g e - s c a l e complex system. In a sense, the use of a model f r e e s the i n t u i t i o n and permits i t to concentrate on those problems t o which i t i s p a r t i c u l a r l y s u i t e d . I t permits the ^ U J . W. F o r r e s t e r , " I n d u s t r i a l Dynamics," Harvard  Business Review, 3 6 : 7 6 , July-August, 1 9 5 8 . 3 8 c r e a t i v e manager to t e s t r i g o r o u s l y the i m p l i c a t i o n s of new p l a n s , new schemes and new ideas.21 I n t r o d u c t o r y r e f e r e n c e was made to the system concept; however, i t must be s t r e s s e d t h a t one i s i n v o l v e d w i t h a frame o f mind which can serve to o r i e n t the a p p l i -c a t i o n of s p e c i f i c techniques. Simon, commenting on t h i s w r i t e s : Along w i t h some mathematical t o o l s , . . . oper-a t i o n s r e s e a r c h brought i n t o management-decision making a p o i n t of view c a l l e d the systems approach. The systems approach i s no e a s i e r to d e f i n e than o p e r a t i o n s r e s e a r c h f o r i t i s a set of a t t i t u d e s and a frame of mind r a t h e r than a d e f i n i t e and e x p l i c i t theory. At i t s vaguest, i t means l o o k i n g at the whole problem - a g a i n h a r d l y a n o v e l i d e a , and not always a very h e l p f u l one. Somewhat more c o n c r e t e l y , i t means d e s i g n i n g the components of a system and making i n d i v i d u a l d e c i s i o n s w i t h i n i t i n l i g h t of the i m p l i c a t i o n of these d e c i s i o n s f o r the system as a whole.22 C o n s t r u c t i o n of a model i s a common technique f o r studying the c h a r a c t e r i s t i c s of systems under v a r y i n g c o n d i t i o n s . The model i s an a b s t r a c t i o n of the e s s e n t i a l elements t h a t c h a r a c t e r i z e the system, or the p r e v i o u s l y u n s t r u c t u r e d s i t u a t i o n which one wishes to view as a system. I t i s used to t e s t the impact on the e n t i t y , r e s u l t i n g from changes of one or more model components without having to a c t u a l l y d i s r u p t o p e r a t i o n of the system s t u d i e d . Although ^ X F . A . Lindsey, New Techniques f o r Management-D e c i s i o n Making. (New York : McGraw-Hill, 1 9 5 8 ) ? p. I 1*. 22H . A . Simon, The New Science of Management D e c i s i o n (New York : Harper, I 9 6 0 ) , p. 15. 39 23 other than mathematical models are p o s s i b l e t h i s i s the type of model used i n o p e r a t i o n s r e s e a r c h . Such models have an obvious advantage i n t h a t they a l l o w the i s o l a t i o n of e x p e r i m e n t a t i o n from the a c t u a l p h y s i c a l p r o c e s s . On the other hand, they may be time-consuming and c o s t l y to c o n s t r u c t w h i l e , at the same time s e r v i n g p o s s i b l y only as a very imperfect a b s t r a c t i o n of r e a l i t y . I t should be noted t h a t i n d u s t r i a l problems do not f a l l i n t o neat c a t e g o r i e s , so t h a t o f t e n combinations of s e v e r a l techniques have proved worthwhile i n managerial d e c i s i o n making over a p e r i o d of ye a r s . Other techniques have not been u s e f u l l y a p p l i e d i n r e a l s i t u a t i o n s as y e t . S t i l l o t h e rs f a l l between these extremes, having l i m i t e d a p p l i c a t i o n s i n p r a c t i c a l s i t u a t i o n s . The f o l l o w i n g d i s c u s -s i o n of the techniques w i l l , of n e c e s s i t y , be g e n e r a l , but r e f e r e n c e s are provided as a guide t o more complete source m a t e r i a l . Some T h e o r e t i c a l Problem S o l v i n g T o o l s Mathematical programming models. Econometrics and mathematical programming models ( i . e . l i n e a r programming, q u a d r a t i c programming, dynamic programming) are r e l a t e d i n t h a t some of the f i r s t uses of these techniques were i n the f i e l d of economics. The ec o n o m e t r i c i a n t y p i c a l l y s t u d i e s some economic process w i t h the i n t e n t i o n of determining the 2 3 R . L. A c k o f f , S c i e n t i f i c Method; O p t i m i z i n g A p p l i e d  Research D e c i s i o n s (New York : Wiley, 1962), p. 109. ho v a r i o u s input parameters, t h e i r r e l a t i o n s h i p t o each other and to the output of the process, and the r e s t r i c t i o n s p l a c e d on the input and output f a c t o r s . To the economist t h i s i s a well-known economic a l l o c a t i o n problem. The technique of programming determines how to use these l i m i t e d r e s o u r c e s or c a p a c i t i e s of a business to o b t a i n a p a r t i c u l a r o b j e c t i v e , such as l e a s t c o s t , h i g h e s t margin or l e a s t time, i n such s i t u a t i o n s where the problem i s w e l l d e f i n e d and the r e s o u r c e s have a l t e r n a t i v e uses. I t i s a technique t h a t systematizes f o r c e r t a i n c o n d i t i o n s the process of s e l e c t i n g the most d e s i r -able course of a c t i o n from the number of a v a i l a b l e courses of a c t i o n , thereby g i v i n g management i n f o r m a t i o n f o r making a more e f f e c t i v e d e c i s i o n about r e s o u r c e s under i t s c o n t r o l . 2H -The problem of s e l e c t i n g an optimum d e c i s i o n w i t h r e s p e c t t o some s p e c i f i e d o b j e c t i v e f u n c t i o n t h e r e f o r e , i s one of s e l e c t i n g the r i g h t combination from p o s s i b l y thousands of combinations which c o n c e i v a b l y c o u l d present themselves. Because l i n e a r programming t r e a t s a l l r e l a t i o n s h i p s as l i n e a r , i t has an inherent l i m i t a t i o n , i n g e n e r a l , a n o n - l i n e a r type of r e l a t i o n s h i p i s to be expected. However, because many problems lend themselves to l i n e a r a p p r o x i -mation, the l i n e a r programming technique can be extremely u s e f u l . ^R. A. Ferguson and L. F. Sargent, L i n e a r Program-ming. (New York : McGraw-Hill, 1958), p. 3. kl Quadratic and dynamic programming, algebraic tech-niques s i m i l a r to l i n e a r programming, have been developed to offset some of the disadvantages inherent i n l i n e a r programming. Quadratic programming permits the use of non-l i n e a r relationships and thereby allows one to develop more r e a l i s t i c models. 2^ Dynamic programming deals with situations where, at each period, a decision maker chooses an action which influences a sequence of events stretching off into the i n d e f i n i t e f u t u r e . 2 ^ In subsequent periods one can modify the e f f e c t s of previous decision by current action whereby the rules of decision are generated as a dynamic program. This i s a more r e a l i s t i c approximation of an actual decision process, s i m i l a r to that used f o r o v e r - a l l long-range strategic decisions. Bellman states that some of the problems which may be solvable include: long-range c a p i t a l budgeting, timing of equipment replace-ment, machine-loading i n job shops, transportation sched-uling to meet s h i f t i n g demands and smoothing of production lev e l s to meet available demands.2'7 However, the mathe-matics of the functional equations i s quite d i f f i c u l t and, as yet, r e l a t i v e l y undeveloped, the r e s u l t being that only p a r t i c u l a r types of problems can now be solved. Jk. Vazsonyi, S c i e n t i f i c Programming i n Business and  Industry (New York : Wiley, 1958), p. 198. 2 6 I b i d . , p. 2 1 9 . 2 7 R . Bellman, Dynamic Programming. (Princeton, N.J. : Princeton University Press, 1 9 5 7 ) ? P. 7 . 1+2 Problem s o l v i n g under u n c e r t a i n t y . When d e c i s i o n s are made i n v o l v i n g f u t u r e courses of a c t i o n , i n e v i t a b l y the manager i s f o r c e d to d e a l w i t h problems of u n c e r t a i n t y or p r o b a b i l i t y . S t a t i s t i c s and the theory of p r o b a b i l i t y have long been a p p l i e d to sampling problems i n bu s i n e s s . E x t r a p o l a t i o n s of r e s u l t s obtained through s t a t i s t i c a l sampling, however, are o n l y v a l i d where i t can be reasonably assumed t h a t the pro c e s s sampled i s a s t a b l e one. When such i s not the case, Baye's theorem has been found u s e f u l i n r e v i s i n g p r o b a b i l i t i e s i n the l i g h t of a d d i t i o n a l i n f o r -mation. In s t a t i s t i c s , Baye's theorem determines how to combine an e x i s t i n g p r o b a b i l i t y d i s t r i b u t i o n w i t h f u r t h e r i n f o r m a t i o n i n the form of a c o n d i t i o n a l p r o b a b i l i t y d i s t r i b u t i o n which i s gained by sample evidence. The r e s u l t i n g r e v i s e d or p o s t e r i o r d i s t r i b u t i o n summarizes the improved s t a t e of knowledge of the i n d i v i d u a l . T h i s so-c a l l e d B a y e s i a n approach t o s t a t i s t i c a l d e c i s i o n theory which p a r a l l e l s the t r i a l and e r r o r behavior of the r a t i o n a l i n d i v i d u a l , has been the p a r t i c u l a r i n t e r e s t of Robert S c h l a i f e r who has w r i t t e n s e v e r a l books on business d e c i s i o n theory d e a l i n g f u l l y w i t h the s u b j e c t . Game theory should be mentioned here even though a p p l i c a t i o n s have been few i n number and l i m i t e d i n R. S c h l a i f e r , P r o b a b i l i t y and S t a t i s t i c s f o r  Business D e c i s i o n s (New York : McGraw-Hill, 1959); R. S c h l a i f e r , I n t r o d u c t i o n to S t a t i s t i c s f o r Business  D e c i s i o n s (New York : McGraw-Hill, 1961). >+3 29 s c o p e . ' T h i s t h e o r y o r i g i n a l l y f o r m u l a t e d b y V o n N e u m a n n a n d M o r g e n s t e r n i n v o l v e d a n a l y s i s o f t h e c h o i c e o f s t r a t e -g i e s i n c o m p e t i t i v e s i t u a t i o n s . E v e n t h o u g h g a m e t h e o r y i s s t i l l p r i m a r i l y a f i e l d o f p u r e t h e o r y , t h e t e c h n i q u e c a n p r o v i d e i n s i g h t s f o r m a n a g e r s c o n t e m p l a t i n g c o m p e t i -t i v e s i t u a t i o n s , i n t h a t t h e f o r m a l t h i n k i n g p r o c e s s f o r c e s c o n s i d e r a t i o n o f b o t h t h e i r o w n , a s w e l l a s t h e i r c o m p e t i -t o r s ' s t r a t e g y . A t t e m p t s t o c o n s t r u c t a d e q u a t e t h e o r i e s o f m a n y - p e r s o n g a m e s h i g h l i g h t e d d i f f i c u l t i e s s u c h a s t h e m e a n i n g a n d r o l e o f i n f o r m a t i o n i n s i t u a t i o n s o f c o n f l i c t . T h e s i m p l e t h e o r i e s t h a t w e r e c o n s t r u c t e d b y V o n N e u m a n n a n d M o r g e n s t e r n a t a n y r a t e h a v e p r o v i d e d a l a n g u a g e f o r t h e s t u d y o f d e c i s i o n m a k i n g . Q u e u i n g t h e o r y o r w a i t i n g - l i n e t h e o r y , w a s d e v e l o p e d i n o r d e r t o p r o v i d e a m o d e l t o p r e d i c t t h e b e h a v i o r o f a s y s t e m t h a t i s d e s i g n e d t o p r o v i d e s e r v i c e s f o r r a n d o m l y -a r i s i n g d e m a n d s . ^ ® U n l i k e t h e o r i e s s u c h a s l i n e a r p r o g r a m -m i n g w h i c h a t t e m p t s t o o p t i m i z e r e s o u r c e a l l o c a t i o n , q u e u i n g t h e o r y i s m o s t l y a d e s c r i p t i v e m a t h e m a t i c a l t h e o r y . U s i n g d a t a t h a t i s c h a r a c t e r i s t i c o f t h e s e r v i c e f a c i l i t y s y s t e m ( i . e . a r r i v a l r a t e s , q u e u e d i s c i p l i n e , s e r v i c e r a t e , n u m b e r o f s e r v i c e f a c i l i t i e s ) , t h e t h e o r y ' s p u r p o s e i s t o a i d i n t h e u n d e r s t a n d i n g o f q u e u e s , t h e r e b y a l l o w i n g 2 9 M . S a s i e n i a n d o t h e r s , O p e r a t i o n s R e s e a r c h : M e t h o d s  a n d P r o b l e m s ( N e w Y o r k : W i l e y , 1 9 5 9 ) , p . 1 5 5 ; A . V a z s o n y i , o p . c i t . , p . 2 5 5 . B T J l b i d . , p . 1 2 5 . remedies to be i n t r o d u c e d once the fundamentals are under-stood. Many v a r i a t i o n s are p o s s i b l e simply by changing the a r r i v a l - t i m e d i s t r i b u t i o n , s e r v i c e time, d i s t r i b u t i o n , queue d i s c i p l i n e , and the number of s e r v i c e f a c i l i t i e s . S i m u l a t i o n . Two g e n e r a l types of s i m u l a t i o n s have been developed. In one case, the decision-making process i s programmed i n t o the s i m u l a t i o n i n order t h a t the e n t i r e system may be r u n a u t o m a t i c a l l y without involvement of human-decision makers. A second type r e q u i r e s r e c u r r e n t d e c i s i o n s on the p a r t of o u t s i d e d e c i s i o n makers, the r e s u l t s of those d e c i s i o n s being generated by a simulated system which o r d i n a r i l y i s programmed f o r an e l e c t r o n i c computer. The former i s c a l l e d system s i m u l a t i o n and the l a t t e r has been d e s c r i b e d as c o m p e t i t i v e s i m u l a t i o n or gaming. Business gaming attempts to d u p l i c a t e a s i t u a t i o n i n the r e a l world i n which managers must not o n l y contend w i t h a complex environment but must a l s o make d e c i s i o n s i n c o m p e t i t i o n w i t h other managers seeking the same or s i m i l a r g o a l s . The gaming model i s a s i m u l a t i o n of an e n t i r e i n d u s t r y , c o n s i s t i n g , i n the more advanced games, of a l a r g e number of formulae which determine the r e s u l t s of each move by the v a r i o u s teams of d e c i s i o n makers t a k i n g p a r t i n the game. A number of b a s i c equations must be programmed which d e p i c t the t o t a l i n d u s t r y perform-ance based p a r t l y on e x t e r n a l environmental i n f l u e n c e s and k5 p a r t l y on the combined a c t i o n s of the "companies" i n the i n d u s t r y . The other set of equations programmed i n t o the gaming s i m u l a t i o n r e l a t e s to a performance of a p a r t i c u l a r company i n the i n d u s t r y environment. The r e s u l t s of the game are g i v e n q u a n t i t a t i v e l y i n terms of such f a c t o r s as market share, d o l l a r s a l e s , per cent p r o f i t or r e t u r n on investment. T h i s gaming-type s i m u l a t i o n i s one where the e n t i r e i n d u s t r y i s i n v o l v e d . I t has been used p r i m a r i l y as a t r a i n i n g d e v i c e as i t i s o f t e n claimed to be u s e f u l i n teac h i n g an a p p r e c i a t i o n of the i n t e r r e l a t i o n s h i p between the f u n c t i o n a l areas i n an o r g a n i z a t i o n . Other s i m u l a t i o n s have been developed which d e a l w i t h only one p a r t of the business e n t e r p r i s e , i . e . d i s t r i b u t i o n , f i n a n c e , s a l e s management, e t c . While gaming or co m p e t i t i v e s i m u l a t i o n i s an i n t e r e s t i n g and worthwhile e x e r c i s e , because of the i n t e r a c t i o n s of s t r a t e g y the m u l t i p l e team game i s so complex and the cause and e f f e c t s i t u a t i o n s so obscured that systematic a n a l y s i s of r e s u l t s i s extremely d i f f i c u l t . The other broad f i e l d w i t h i n s i m u l a t i o n , symbolic-system s i m u l a t i o n , appears t o be a powerful t o o l f o r both t r a i n i n g and research.3 1 System s i m u l a t i o n has many advantages. I t enables one to compress or expand r e a l 31w. E. A l b e r t s , System S i m u l a t i o n , (Seventh N a t i o n a l Conference of the American I n s t i t u t e of I n d u s t r i a l Engineers, 1 9 5 6 ) . 1+6 time, t h a t i s , the businessman can simulate a year of o p e r a t i o n i n a matter of minutes by using a computer, or he can slow down the process so he can analyse j u s t what i s going on i n h i s problem areas. Related to t h i s i s the advantage of being able to t e s t i d e a s and changes i n advance. Perhaps more fundamental, i n d e s i g n i n g the model the sheer amount of d i s c i p l i n e r e q u i r e d t o produce flow diagrams and check f o r c o n s i s t e n c y i n models, i s of value i n o b t a i n i n g a b e t t e r understanding and improved c o n t r o l of complex business o p e r a t i o n s . The a p p l i c a t i o n of system s i m u l a t i o n i s not under-taken w i t h the i d e a of o p t i m i z i n g the t o t a l system or even a segment of i t . In any reasonably l a r g e system or sub-system, c o n d i t i o n s such as interdependence, i m m e a s u r a b i l i t y , incompleteness, i n e f f e c t i v e n e s s of p r a c t i c a l working r u l e s , and imperfect c o o r d i n a t i o n make i t impossible t o d e r i v e and set f o r t h an o r g a n i z a t i o n and set of d e c i s i v e r u l e s which w i l l o p timize the o p e r a t i o n of the system. Simu-l a t i o n of a complex business e n t e r p r i s e allows one to analyse the dynamic behavior of a system as i t e x i s t s and a l s o allows f o r t e s t i n g new and d i f f e r e n t o r g a n i z a t i o n a l arrangements and p o l i c i e s . The work done by F o r r e s t e r at M.I.T., c i t e d e a r l i e r i n t h i s c hapter, i s an example of one of the more comprehensive approaches to system simu-l a t i o n . More s p e c i a l i z e d s i m u l a t i o n s t u d i e s are.being c a r r i e d out by such f i r m s as Rand C o r p o r a t i o n , U n i t e d A i r k7 L i n e s , Arthur D. L i t t l e , I.B.M., and General E l e c t r i c , amongst o t h e r s . Another a p p l i c a t i o n of the g e n e r a l approach of system s i m u l a t i o n can be found i n network a n a l y s i s . Network a n a l -y s i s i s a managerial technique used to r e c o g n i z e and i d e n t i f y a l l the i n t e r c o n n e c t i n g l i n k s i n a s i n g l e system or s e r i e s or network of systems. C r i t i c a l - p a t h s c h e d u l i n g i s an example of network a n a l y s i s which has been used i n c o n s t r u c t i o n or e n g i n e e r i n g p r o j e c t s . In f a c t , i t has broad a p p l i c a t i o n and can be used i n almost any s i t u a t i o n i n v o l v i n g s c h e d u l i n g which imposes e x a c t i n g requirements of time and performance. L i n e diagrams p l a y a key r o l e i n showing a l l v i t a l a c t i v i t i e s , thus c l a r i f y i n g the r e l a t i o n -s h i p of every task to every other task. They a l s o show which jobs on a p r o j e c t are c r i t i c a l , the ones which can e f f e c t the completion of the p r o j e c t . Only the j o b s , from s t a r t to f i n i s h of a p r o j e c t , that r e l a t e to one another, each depending upon the completion of the other one before i t , can be c r i t i c a l j o b s . I t i s the sum of the time the c r i t i c a l job w i l l take that w i l l be the t o t a l p r o j e c t time. I t i s the path the l i n e s r e p r e s e n t i n g these jobs take through the p r o j e c t diagram t h a t i s the c r i t i c a l p a t h from s t a r t t o f i n i s h of the p r o j e c t . Thus the name: C r i t i c a l Path Method.32 PERT i s another s i m i l a r technique used i n p l a n n i n g which was f i r s t p u b l i c i z e d when i t succeeded i n s h o r t e n i n g 32i«New T o o l f o r Management," E n g i n e e r i n g News-Record, Jan. 26, 1962, p. 26. h8 c o n s i d e r a b l y the development t i m e of t h e P o l a r i s M i s s i l e Program i n the U n i t e d S t a t e s . 3 3 The computer. A development t h a t must be mentioned i n c o n n e c t i o n w i t h the growth of management s c i e n c e i s the i n t r o d u c t i o n of the e l e c t r o n i c d i g i t a l computer. A l t h o u g h the computer adds n o t h i n g d i r e c t l y t o the body of t h e o r e t i c a l knowledge, i t i s an i n v a l u a b l e t o o l f o r s o l v i n g complex problems as w e l l as p e r f o r m i n g t h e more commonplace d a t a - p r o c e s s i n g problems of b u s i n e s s . The modern e l e c t r o n i c d i g i t a l computer had i t s b e g i n n i n g s i n the c o n c e p t s d e v e l o p e d by t h a t v e r s a t i l e g e n i u s Dr. John Von Neumann. The s t o r e d program, c e n t r a l a r i t h m e t i c , and c o n t r o l - u n i t c o n c e p t s he used i n the d e s i g n of t h a t f i r s t computer, w i t h o u t w h i c h the Second World War atomic bomb Manhattan P r o j e c t i n t h e U n i t e d S t a t e s would never have been completed when i t was, formed the b a s i s f o r t h e s o - c a l l e d f i r s t g e n e r a t i o n computers. Sprague has t r a c e d the e v o l u t i o n of t h e computer t h r o u g h i t s f i r s t g e n e r a t i o n t o p r e s e n t t h i r d - g e n e r a t i o n s t a g e s , m e n t i o n i n g t h e t r a n s i t i o n t e c h n i c a l l y from vacuum tube t o s o l i d - s t a t e e l e c t r o n i c c i r c u i t s ; the development o f d e s i g n c o n c e p t s f r o m the s e r i a l - f a s h i o n o p e r a t i o n of a l l J J R . W. M i l l e r , "How t o P l a n and C o n t r o l w i t h PERT," Harv a r d B u s i n e s s Review, ^0:98, March, 1962. E. Sprague, E l e c t r o n i c B u s i n e s s Systems, (New Y o r k : Ronald P r e s s , 1962), p. 3^. h9 computer a c t i o n s governed by a s i n g l e c o n t r o l u n i t to the ov e r l a p p i n g o p e r a t i o n s made p o s s i b l e by the m u l t i - c o n t r o l u n i t , master-slave r e l a t i o n s h i p s now used i n design; and, f i n a l l y , the a d a p t a t i o n of the computer from a s c i e n t i f i -c a l l y o r i e n t e d machine w i t h slow input-output o p e r a t i o n s to a machine having the e s s e n t i a l p e r i p h e r a l equipment and the hig h speed input-output needed by business today. Our predominant i n t e r e s t i n the computer i n t h i s t h e s i s i s i t s u s e f u l n e s s i n data p r o c e s s i n g of a more 3 accounting o r i e n t e d nature. With r e f e r e n c e to F i g u r e 2.1, the computer serves as a t o o l i n the measurement channel to more q u i c k l y and e f f i c i e n t l y monitor the paper flow generated as a by-product of the p h y s i c a l business oper-a t i o n . The computer, i n doing t h i s d a t a - p r o c e s s i n g task, thereby f a c i l i t a t e s the c o n t r o l process and p r o v i d e s a v a l u a b l e s e r v i c e t o management. However, i t i s important to see the computer i n a broader business s e t t i n g which may very w e l l form the fo u n d a t i o n s f o r the management of tomorrow. R e t a i l i n g , f o r example, i s j u s t beginning to be i n t r o d u c e d t o i n v e n t o r y models based on the well-known economic order quantity-mathematical models developed e a r l y i n t h i s century by i n d u s t r i a l e ngineers. T h i s i n v e n t o r y system i s v a r i o u s l y known i n the trade under such names as SIM ( i . e . simulated i n v e n t o r y management) which was developed by a f i r m of management c o n s u l t a n t s and 35supra, Chapt. I I , p. 17. 50 IMPACT, developed by I.B.M. T h i s i s j u s t one i n d i c a t i o n of f u t u r e developments. An Overview of New Management Methods The hard-headed businessman o f t e n looks at manage-ment sc i e n c e techniques as so much academic t r i v i a , a t y p i c a l example of what i s produced by those l i v i n g i n an academic vacuum, d i v o r c e d from the r e a l i t y of the business world. S u r e l y the main t a s k must be t o s t r i k e some s o r t of balance between theory and r e a l i t y . Business s t u d i e s have long been l a r g e l y d e s c r i p t i v e w i t h l i t t l e attempt to c o n c e p t u a l i z e the u n d e r l y i n g processes or to t r y to blend a b s t r a c t theory and r e a l i t y t o produce some s o r t of normative d e s c r i p t i o n of business behavior. U n t i l the goals of business e n t e r p r i s e are w e l l d e f i n e d w i t h some reasonable means of e s t i m a t i n g the attainment of g o a l s , business must depend on a t r i a l and e r r o r n a v i g a t i o n system. Goals i n themselves are not s t a t i o n a r y but a product of time and the s o c i e t y i n which we l i v e . R e l a t i n g the vaguely d e f i n e d goals to company ope r a t i o n s i n e v i t a b l y i n v o l v e s value judgments on the p a r t of the d e c i s i o n maker. The use of management sc i e n c e techniques i s not i n v a l i d a t e d by these problems because management o f t e n seeks s e l e c t e d o b j e c t i v e s , d e s p i t e the i n a b i l i t y to i n t e g r a t e a l l s u b s i d i a r y p o l i c i e s i n t o a broad o v e r - a l l master p l a n . Mathematical programming, 51 f o r example, might achieve the co s t m i n i m i z a t i o n d e s i r e d but perhaps otherwise not p r a c t i c a l l y a t t a i n a b l e . One might q u e s t i o n whether the d i s c o n t i n u i t y that e x i s t s between the s t r u c t u r e d and un s t r u c t u r e d d e c i s i o n spectrum i n the f i r m i s the r e s u l t of the i m p o s s i b i l i t y of f o r c i n g a b a s i c u n s t r u c t u r e d s i t u a t i o n i n t o a s t r u c -tured mould, or, i f on the other hand, at some l a t e r age of s o p h i s t i c a t i o n , techniques w i l l be a v a i l a b l e to accomplish what we p r e s e n t l y cannot do. However, i t i s an obvious f a l l a c y to b e l i e v e that a l l business phenom-enon w i l l e v e n t u a l l y be e x p l a i n e d by such mechanistic theory. Kaplan, a philosophy p r o f e s s o r at the U n i v e r s i t y of C a l i f o r n i a , has w r i t t e n a b r i e f but q u i t e knowledgable resume of the a p p l i c a t i o n of v a r i o u s branches of mathe-matics to problems of the s o c i a l s c i e n c e s t h a t p i n p o i n t s l i m i t a t i o n s of mathematical and s c i e n t i f i c methods i n e x p l a i n i n g s o c i a l behavior. These new developments of business presented c e r t a i n l y cannot be looked upon i n i s o l a t i o n . Because the theory has drawn on other d i s c i p l i n e s , i t can be seen, that i t i s pa r t of a trend to r e c o g n i z e the i n t e r -r e l a t i o n s h i p s of p a r t s and to view the v a r i o u s academic s t r u c t u r e s as a dynamic whole. In our d r i v e to achieve t h i s i n t e g r a t i o n of v a r i o u s p e r s p e c t i v e s , i t i s w e l l t o con s i d e r a sobering comment by Koontz who, i n d i s c u s s i n g 36A. Kaplan, "Sociology Learns the Language of Mathe-matics ? " Some Th e o r i e s of O r g a n i z a t i o n , (Homewood, I l l i n o i s : Irwin, I960), pp. 29-M-6. 52 v a r i o u s approaches to the study of management, s t a t e s : From the o r d e r l y a n a l y s i s of management at the shop-room l e v e l by F r e d e r i c k T a y l o r and the r e f l e c t i v e d i s t i l l a t i o n of experience from the g e n e r a l management po i n t of view by Henri F a y o l , we now see these and other e a r l y beginnings over-grown and entangled by a jungle of approaches and approachers to management theory. There are the b e h a v i o r a l i s t s , born of the Hawthorne experiments and the awakened i n t e r e s t i n human r e l a -t i o n s d u r i n g the 1930's and 19^0's, who see management as a complex of i n t e r p e r s o n a l r e l a t i o n s h i p s and the b a s i s of management theory the t e n t a t i v e t e n e t s of the new and undeveloped s c i e n c e of psychology. There are a l s o those who see management theory as simply a mani-f e s t a t i o n of the i n s t i t u t i o n a l and c u l t u r a l aspects of s o c i o l o g y . S t i l l o t h e r s , observing t h a t the c e n t r a l core of management i s decision-making, branch i n a l l d i r e c t i o n s from t h i s core to encompass e v e r y t h i n g i n o r g a n i z a t i o n l i f e . Then there are mathematicians who t h i n k of management p r i m a r i l y as an e x e r c i s e i n l o g i c a l r e l a t i o n s h i p s expressed i n symbols and the omnipresent and ever-revered model. But the ent a n g l e -ment of growth reaches i t s u l t i m a t e when the study of management i s regarded as a study o f one of a number of systems and subsystems, w i t h an understandable tendency f o r the r e s e a r c h e r to be d i s s a t i s f i e d u n t i l he has encompassed the e n t i r e p h y s i c a l and c u l t u r a l u n i verse as a management' system.37 C e r t a i n l y the new t h e o r i e s have a l l the c h a r a c t e r -i s t i c s of an advance i n knowledge because, before one can s y n t h e s i z e , d i s c u s s i o n and the c h a l l e n g i n g of o l d idea s are necessary. E v e n t u a l l y , order may come out of chaos. At any r a t e , some expansion of knowledge i s bound to r e s u l t . The analogy between the present stage of knowledge and an i c e b e r g i s a p p r o p r i a t e s i n c e only a s m a l l p o r t i o n of the s o l u t i o n i s as yet v i s i b l e . D'K. Koontz, "The Management Theory J u n g l e , " J o u r n a l  of the Academy of Management. 37:17 1+-175, D e c , 1961. 53 Rapid advances i n technology, communications, and s t u d i e s of the s o c i a l s c i e n c e s i n the l a s t few decades are evidence of the i n c r e a s i n g tempo of bu s i n e s s . Business must regard newer developments i n automation and d e c i s i o n making c r i t i c a l l y and, r a t h e r than f e a r i n g the develop-ments, t r y to understand and use them to t h e i r best advan-tage. T h i s does not mean t h a t the manager has t o become a competent s c i e n t i s t — p h i l o s o p h e r — m a t h e m a t i c i a n — p s y c h o -l o g i s t a l l r o l l e d i n t o one. However, i t i s i n c r e a s i n g l y e v ident t h a t business must f a c e up to the c r i t i c a l problem of developing more q u i c k l y the e x e c u t i v e ' s a b i l i t y to make e f f e c t i v e d e c i s i o n s . I t i s important that the modern manager a s s i m i l a t e the v a r i o u s viewpoints i n t o h i s t o t a l p e r s p e c t i v e . H e r e i n l i e s the best argument i n f a v o r of the system's approach t h a t Koontz so c r i t i c a l l y commented on. In the f i n a l a n a l y s i s , one must keep i n mind that the e x e c u t i v e i s p r i m a r i l y an a d m i n i s t r a t o r r a t h e r than a t e c h n i c i a n . Management s c i e n c e and the p a r t i c u l a r t e c h -niques presented are concerned p r i m a r i l y w i t h the means and methods of d e c i s i o n making, r a t h e r than the formu-l a t i o n of b a s i c premises and c r i t e r i a f o r determining the ends. I t s l i m i t a t i o n s must be r e c o g n i z e d by the d e c i s i o n maker and i t must a l s o be r e c o g n i z e d t h a t o b j e c t i v e s and v a l u e s i n h e r e n t i n d e c i s i o n making are s t i l l l e f t to the i n d i v i d u a l . I t cannot help i n d e f i n i n g what the problem 5>+ i s , cannot set the o b j e c t i v e s of the s o l u t i o n , cannot set the r u l e s by which the r e l a t i o n s h i p s are governed, cannot make d e c i s i o n s concerning the best s o l u t i o n and cannot by i t s e l f make d e c i s i o n s e f f e c t i v e . T h e r e f o r e , although the techniques are of great importance i n a n a l y s i n g the problem and developing a l t e r n a t i v e s , there are v i t a l phases of management-decision making t h a t i t cannot r e p l a c e . Used i n t e l l i g e n t l y by management i t i s extremely u s e f u l , but unle s s used p r o p e r l y , i t co u l d be a potent means of making wrong d e c i s i o n s . I f the new techniques p r o v i d e an avenue toward b e t t e r d e c i s i o n making i n t e c h n i c a l areas, the business a d m i n i s t r a t o r i s l e f t w i t h more time at his. d i s p o s a l t o grapple w i t h the more complex i n t a n g i b l e problems of b u s i n e s s . CHAPTER I I I DEPARTMENT STORE ORGANIZATION I. THE VALUE AND LIMITATIONS OP ORGANIZATION CHARTS An e s s e n t i a l p r e r e q u i s i t e t o the study of merchan-d i s i n g procedure and problems of r e t a i l department s t o r e s i s an understanding of c u r r e n t o r g a n i z a t i o n s t r u c t u r e s . Because the o r g a n i z a t i o n s s t u d i e d i n Vancouver are a l l members of n a t i o n a l department-store c h a i n s , a complete d e s c r i p t i o n of the o r g a n i z a t i o n would i n c l u d e the s t r u c -t u r e of the home o f f i c e , as w e l l as u n i t and branch s t o r e s . However, due to the focus of t h i s t h e s i s on merchandise p l a n n i n g and c o n t r o l , the r e s p o n s i b i l i t y f o r which i s l a r g e l y vested i n l o c a l management hands, i t i s thought t h a t d e t a i l e d d e s c r i p t i o n of o r g a n i z a t i o n other than at the l o c a l r e g i o n a l l e v e l , i s not p a r t i c u l a r l y r e l e v a n t t o the problem being c o n s i d e r e d . On o c c a s i o n , r e f e r e n c e may be made to the e n t i r e o r g a n i z a t i o n s t r u c t u r e when questions of c e n t r a l i z e d p o l i c i e s and c o n t r o l s must be considered i n r e l a t i o n t o l o c a l o p e r a t i n g problems. Because o r g a n i z a t i o n c h a r t s a r e , of n e c e s s i t y , f l e x i b l e and v a r i a b l e from department s t o r e to department s t o r e , d e t a i l i s not co n s i d e r e d t o be of gre a t importance except 56 perhaps i n the d i s c u s s i o n of the merchandising d i v i s i o n . I t would perhaps be u s e f u l to remember t h a t the concept of an o r g a n i z a t i o n c h a r t i s of l i m i t e d use and i t s l i m i t a t i o n s should be kept i n mind throughout t h i s d i s c u s s i o n . The o r g a n i z a t i o n c h a r t i s a model r e p r e -s e n t i n g the f o r m a l r e l a t i o n s h i p s which are b e l i e v e d t o e x i s t or which are planned between the people i n v o l v e d i n the group f o r which the c h a r t i s drawn. The cha r t i s a g r e a t l y s i m p l i f i e d mapping of r e l a t i o n s h i p s because o b v i o u s l y any attempt to show a l l f o r m a l and i n f o r m a l c onnections would r e s u l t i n an end product of l i t t l e use. As w e l l , the c h a r t i s intended to be a r e p r e s e n t a t i o n of an o r g a n i z a t i o n at one p a r t i c u l a r p o i n t i n time, whereas, i n a c t u a l p r a c t i c e , o r g a n i z a t i o n s tend t o evolve a c c o r d i n g to the s t o r e needs, a v a i l a b i l i t y of p e r s o n n e l , e x i s t i n g business c o n d i t i o n s , e t c . The c h a r t , then, may or may not r e p r e s e n t the o r g a n i z a t i o n s t r u c t u r e as i t a c t u a l l y e x i s t s . I t i s , at best, a guide by which one may o r i e n t t h e i r t h i n k i n g r e g a r d i n g the r e l a t i o n s h i p s between a u t h o r i t y and r e s p o n s i b i l i t y v e s t e d i n d i f f e r e n t people i n the o r g a n i z a t i o n . O r g a n i z a t i o n i s the s t r u c t u r e through which manage-ment operates to accomplish the fundamental o b j e c t of r e t a i l i n g , namely buying and s e l l i n g t o perform a p r o f i t -a ble and necessary p u b l i c s e r v i c e . There are many f a c e t s to the performance of t h i s o b j e c t i v e i n the l a r g e 57 department s t o r e and, i n the i n t e r e s t s of o p e r a t i n g e f f i c i e n c y , i t has over the years been found necessary t o prov i d e f o r s p e c i a l i z a t i o n of d u t i e s . T h i s s p e c i a l i z -a t i o n i n v o l v e s o r g a n i z i n g the s t o r e p e r s o n n e l i n t o groups ac c o r d i n g to f u n c t i o n , w i t h these groups being placed under the l e a d e r s h i p of e x e c u t i v e s who are s p e c i a l i s t s i n those f u n c t i o n s . Good s t o r e o r g a n i z a t i o n r e s u l t s i n co-o r d i n a t i o n of these s p e c i a l i z e d groups and o r g a n i z a t i o n c h a r t i s a means of e x p r e s s i n g and s i m p l i f y i n g these f u n c t i o n a l r e l a t i o n s h i p s . I I . THE FUNCTIONAL CLASSIFICATION OF STORE ACTIVITY D e l i n e a t i n g the f u n c t i o n s around which r e t a i l s t o r e s are organized i s to some extent a r b i t r a r y w i t h the r e s u l t i n g c l a s s i f i c a t i o n depending upon one's p o i n t of view. For the purpose of t h i s t h e s i s , one may c l a s s i f y the major f u n c t i o n s of a department s t o r e under the headings of buying, s e l l i n g , g e n e r a l a d m i n i s t r a t i o n , and o p e r a t i n g -occupancy. The buying f u n c t i o n i n c l u d e s a c t i v i t i e s connected w i t h purchase p l a n n i n g , s t o c k c o n t r o l , a c t u a l buying, as w e l l as other minor a c t i v i t i e s which a i d buying perform-ance. Under the s e l l i n g f u n c t i o n are s a l e s p l a n n i n g and promotion; t e l e v i s i o n , r a d i o and newspaper a d v e r t i s i n g , p e r s o n a l s e l l i n g , window and f l o o r d i s p l a y s . The 58 operating-occupancy f u n c t i o n p r o v i d e s f o r maintenance of the p h y s i c a l p l a n t and equipment; r e c e i v i n g , marking and d e l i v e r y of merchandise; adjustment of customer complaints; purchase and c o n t r o l of s t o r e s u p p l i e s ; s t o r e and customer p r o t e c t i o n ; t r a i n i n g of s t o r e o p e r a t i n g p e r s o n n e l . General a d m i n i s t r a t i o n i n c l u d e s the d e t e r m i n a t i o n of ge n e r a l p o l i c i e s and budgets; s t a f f i n g and o r g a n i z a t i o n , d i r e c t i n g , c o n t r o l l i n g , and c o o r d i n a t i n g of a l l stor e a c t i v i t i e s . Some of the f u n c t i o n s w i l l be d e a l t w i t h i n gr e a t e r d e t a i l at a l a t e r p o i n t . One could s a f e l y say th a t these f u n c t i o n s are e s s e n t i a l l y the same i n a l l s t o r e s r e g a r d l e s s of s i z e or type. There i s , however, c o n s i d e r a b l e v a r i a t i o n i n d e t a i l s of o r g a n i z a t i o n s t r u c t u r e due to the v a r y i n g needs fa c e d by d i f f e r e n t department s t o r e s . S t r u c t u r a l l y i n o r g a n i z a t i o n , the above l i s t e d f u n c t i o n s are commonly c a r r i e d out under d i v i s i o n a l c l a s s i f i c a t i o n s of merchan-d i s i n g , p u b l i c i t y , f i n a n c e - c o n t r o l l e r , o p e r a t i n g and pers o n n e l . In some o r g a n i z a t i o n s , a l l f i v e c l a s s i -f i c a t i o n s represent d i f f e r e n t d i v i s i o n s i n o r g a n i z a t i o n and are on o c c a s i o n , even subdivided f u r t h e r . In other o r g a n i z a t i o n s c l a s s i f i c a t i o n s are combined i n t o fewer number of d i v i s i o n s . I I I . THE FOUR-FUNCTIONAL MAZUR PLAN I n t r o d u c t i o n In any d i s c u s s i o n of department s t o r e o r g a n i z a t i o n 59 a h i s t o r i c a l p o i n t of r e f e r e n c e has always been a study done by Paul M. Mazur i n the 1920's, i n c o n j u n c t i o n w i t h a committee on r e t a i l o r g a n i z a t i o n appointed by the N a t i o n a l R e t a i l Dry Goods A s s o c i a t i o n (NRDGA) In 192*+.1 T h i s a s s o c i a t i o n , now known as the N a t i o n a l R e t a i l Merch-ants A s s o c i a t i o n (NRMA), i s a body which has p r o v i d e d impetus f o r i n i t i a t i n g many s t u d i e s t h a t have g r e a t l y c o n t r i b u t e d to r e t a i l , s t o r e o p e r a t i o n . The r e p o r t submitted by Mazur t o the NRDGA, i n c l u d i n g the well-known Mazur P l a n or o r g a n i z a t i o n , has exerted an important I n f l u e n c e upon o r g a n i z a t i o n a l p o l i c i e s and p r a c t i c e s of r e t a i l s t o r e s . The f o u r - f u n c t i o n a l p l a n proposed by Mazur set up d i v i s i o n a l managers i n charge of c o n t r o l , p u b l i c i t y , merchandising and s t o r e management. The s i m p l i f i e d p l a n i s presented i n F i g u r e 3»1? without i n c l u d i n g such common s t a f f f u n c t i o n s as r e s e a r c h , comparison shopping, p l a n -n i n g , e t c . , which are arranged d i f f e r e n t l y by d i f f e r e n t management. In t h i s , as w e l l as succeeding o r g a n i z a t i o n c h a r t s , there i s a s t a n d a r d i z a t i o n of terminology to f a c i l i t a t e the g e n e r a l comparison of d i f f e r e n t s t r u c t u r e s s t u d i e d l o c a l l y . I t should be borne i n mind, however, th a t a d m i n i s t r a t i v e p o s i t i o n s i n d i f f e r e n t department s t o r e s , though s i m i l a r i n t i t l e , are o b v i o u s l y unique i n X P . M. Mazur, P r i n c i p l e s of O r g a n i z a t i o n A p p l i e d  to Modern R e t a i l i n g (New York : Harper, 1927)* 60 (GENERAL MANAGER! CONTROL DIVISION -f RECORDS CREDIT 7©SE CONTROL! if EXPENSE CONTROL IEXECUTIVE COMMITTEE PUBLICITY DIVISION -ADVERTISING -[DISPLAY PUBLIC RELATIONS MERCHANDISE! DIVISION HPIV MDSE MGR!  4DIV MDSE MGRl DIV MDSE MGR -jDEPT MGR" MDEPT MGRl  I . SALESMAN) S T O R E - M G M T D I V I S I O N 1MTCE -jWHSE RECEIVING & MARKING - { P E R S O N N E L ! - J W O R K R O O M S ! LSELLING SERVICES FIGURE 3 . 1 CONTROL DIVISION! { G E N E R A L M A N A G E R ] I E X E C U T I V E C Q M M I T T E E M B R A N C H S T O R E M G R S J MERCHANDISE (DIVISION PERSONNEL! DIVISION HP3V MDSElCRl  H P I V MDSE MGRl  4PIV MDSE MGRl P U B L I C I T Y P I V M G R STORE-MGMT DIVISION FIGURE 3 . 2 61 CONTROL DIVISION IG E N S R A L M A N A G B RI EXECUTIVE CO MAT TEE}--|3RANCH STORE MGRS PUBLICITY DIVISION MERCHANDISE DIVISION PERSONNEL DIVISION D I V MD3E M G R HID I V M D S E M G R ] -IDrv M D S E M G R I F I G U R E 3.3 1_ S T O R E - M G M T D I V I S I O N DIV MDSE MGR jDEPT MGR H D E P T MGR HDEPT MGRI [ G E N E R A L M A N A G E R ] IEXECUTIVE COMMITTEBl" BRANCH STORE MGRS, i D I V M D S E M G R D I V M D S E M G R F I G U R E 3.1+ 3 _ STORE-MGMT DIVISION -{DISPLAY ADVERTISING - { P E R S O N N E L CUSTOMER SERVICES CONTROL CONTROL DIVISION I G E N S R A L M A N A G E R I EXECUTIVE COMMITTEE] I ADVERTISING DIVISION LjDISPLAY DIVISION 'MERCHANDISE DIVISION rr PERSONNEL DIVISION 4DIV MDSE MGRI'--{DIV MDSE MGRI  HP IV MDSE MGRI FIGURE 3.5 S T O R E - M G M T I P I V I S I O N 62 t i i a t r e s p o n s i b i l i t i e s a n d r e l a t i v e a u t h o r i t y a r e n e v e r e x a c t l y t h e s a m e . U l t i m a t e l y , t h e s e w i l l d e p e n d o n t h e q u a l i f i c a t i o n s a n d a b i l i t y o f t h e m a n f i l l i n g t h e p o s i t i o n . T h e g e n e r a l m a n a g e r i s t h e t o p e x e c u t i v e p o s i t i o n i n t h e u n i t d e p a r t m e n t s t o r e o p e r a t i o n a n d h i s r e s p o n s i -b i l i t i e s a r e , v e r y b r o a d l y , t o c o o r d i n a t e , d i r e c t , a n d c o n t r o l t h e v a r i o u s d i v i s i o n s , i n o r d e r t h a t a c o o p e r a t i v e e f f o r t i s m a d e t o a c h i e v e t h e g r o w t h a n d p r o f i t g o a l s s e t f o r t h e s t o r e . M o r e s p e c i f i c a l l y , t h e g e n e r a l m a n a g e r m u s t a u t h o r i z e t h e f i n a l f o r m o f t h e m e r c h a n d i s e a n d e x p e n s e b u d g e t s f o r t h e s t o r e ; s e l e c t o r r e c o m m e n d t o h i s s u p e r i o r s t h e i n d i v i d u a l s w h o a r e d e s e r v i n g o f t h e m a j o r e x e c u t i v e p o s i t i o n s ; r e p r e s e n t t h e s t o r e t o t h e p u b l i c a n d b u s i n e s s g r o u p s ; p r o v i d e f o r t h e e x t e n s i o n a n d r e v i s i o n o f s t o r e o r g a n i z a t i o n i n r e s p o n s e t o c h a n g i n g p n e e d s . O f c o u r s e , a n o v e r r i d i n g r o l e o f t h e g e n e r a l m a n a g e r , s i m i l a r t o a n y m a j o r e x e c u t i v e , i s a p o l i c y -m a k i n g r o l e i n w h i c h h e m u s t d e c i d e o n q u e s t i o n s a f f e c t i n g t h e s t o r e i n g e n e r a l . I n m a n y s t o r e s a n e x e c u t i v e c o m m i t t e e c o n s i s t i n g o f t h e g e n e r a l m a n a g e r a n d t h e d i v i s -i o n a l h e a d s i s t h e g r o u p t h r o u g h w h i c h a m e e t i n g o f t h e m i n d s t o d e c i d e p o l i c y q u e s t i o n s t a k e s p l a c e . M e r c h a n d i s e D i v i s i o n T h e m e r c h a n d i s i n g d i v i s i o n i n t h e M a z u r P l a n , h e a d e d ^ W . R . D a v i d s o n a n d P . L . B r o w n , R e t a i l M a n a g e m e n t ( N e w Y o r k : R o n a l d P r e s s , I 960 ) , p . 169. 6 3 by the g e n e r a l merchandising d i v i s i o n manager, i s respon-s i b l e q u i t e simply f o r d i r e c t i n g the m a j o r i t y of merchan-d i s i n g a c t i v i t i e s . Merchandising i s an a l l - i n c l u s i v e term which r e f e r s to the f u n c t i o n of a d j u s t i n g merchandise stocks o f f e r e d f o r s a l e t o customer demand through the buying, s e l l i n g , p l a n n i n g and c o n t r o l of s t o c k s . Because merchan-d i s i n g i s the essence of department s t o r e o p e r a t i o n , i t i s not s u r p r i s i n g t h a t the merchandise d i v i s i o n manager i s o f t e n c o n s i d e r e d the most important d i v i s i o n a l e x e c u t i v e . The g e n e r a l merchandising manager's r o l e i s l a r g e l y a s u p e r v i s o r y one. The s t o r e merchandise budget i s formu-l a t e d through c o n s u l t a t i o n between the department managers, d i v i s i o n managers, and the g e n e r a l merchandise manager. Once the merchandise budget i s drawn up and approved by top management, the g e n e r a l merchandise manager a s s i s t s and d i r e c t s h i s subordinates to ensure t h a t the planned o b j e c t i v e s are achieved. Due to the l a r g e number of product l i n e s , departments, and p e r s o n n e l which come d i r e c t l y under the g e n e r a l merchandise manager, the merchandise budget i s a d e v i c e of some c o n s i d e r a b l e importance i n the eyes of the merchandise manager. Understandably, c o n s i d e r i n g these circumstances, he r e l i e s h e a v i l y on s t a t i s t i c a l c o n t r o l and e x c e p t i o n r e p o r t i n g t o m a i n t a i n c o n t r o l over merchan-d i s i n g o p e r a t i o n s . Because of the v a r y i n g problems i n h e r e n t i n c a r r y i n g the l a r g e s e l e c t i o n of merchandise o f f e r e d by the l a r g e 61+ r e t a i l s t o r e , the establishment of i n d i v i d u a l l y operated departments has become a v i r t u a l n e c e s s i t y . The grouping of stocks which present r e l a t i v e l y s i m i l a r merchandising problems i n t o a department or departments i s an outstanding c h a r a c t e r i s t i c of the department s t o r e , the one from which i t d e r i v e s i t s name. Each department or group of r e l a t e d departments i s managed by a department manager or buyer who u s u a l l y i s d i r e c t l y r e s p o n s i b l e f o r the success or f a i l u r e of the merchandising o p e r a t i o n s . T h i s success i s q u a n t i t a t i v e l y e valuated by management i n terms of some p r o f i t measure, depending on the extent to which the department manager i s held r e s p o n s i b l e f o r expenses. The r e s p o n s i b i l i t y f o r the buying and s e l l i n g f u n c t i o n of each department i s , t h e r e f o r e , delegated to the department manager. In accounting terminology, each department i s made a p r o f i t c e n t e r and the manager of the department i s , i n a sense, i n business f o r h i m s e l f . The buyer, i n c o n s u l t a t i o n w i t h the g e n e r a l merchan-d i s e manager or d i v i s i o n merchandise manager, works out a merchandising p l a n or campaign f o r h i s department. This i n c l u d e s s e t t i n g s a l e s g o a l s , determining the l e v e l s of stocks he w i l l c a r r y , determining when he w i l l order h i s merchandise, as w e l l as d e c i d i n g on q u a n t i t i e s , s i z e d i s t r i b u t i o n s , c o l o r s , s t y l e s , e t c . The buyer i s faced w i t h d e c i s i o n s which can only be e f f e c t i v e l y answered by someone such as himself who, through c o n t i n u a l contact 6 5 w i t h these problems, has become i n t i m a t e l y f a m i l i a r w i t h the marketing s i t u a t i o n . As p a r t of h i s s e l l i n g r e s p o n s i -b i l i t y , the buyer o f t e n d i r e c t s the t r a i n i n g of s a l e s people assigned t o him, plans s a l e s promotional events and makes suggestions to the p u b l i c i t y d i v i s i o n s , e s p e c i a l l y w i t h regard to merchandise f e a t u r e s which should be promoted. The p o s i t i o n of buyer or department manager i s one which t y p i c a l l y r e q u i r e s a person of i m a g i n a t i o n , d r i v e and a sense of p e r s o n a l r e s p o n s i b i l i t y . 3 Because of the nature of the department s t o r e merchandising s i t u a t i o n , the success or f a i l u r e of s t o r e o p e r a t i o n s depends t o a l a r g e extent on the q u a l i t y of department managers, due to the c o n s i d e r a b l e r e s p o n s i b i l i t y vested i n them by management. In most department s t o r e s of any a p p r e c i a b l e s i z e , and, i n c i d e n t a l l y , t h i s was t r u e f o r a l l those i n c l u d e d i n t h i s study, d i v i s i o n a l merchandise managers pr o v i d e coord-i n a t i n g l i n k s between the g e n e r a l merchandise manager and the department managers. The department s t o r e s s t u d i e d a l l had i n the neighborhood of t h i r t y t o f o r t y department managers i n t h e i r main s t o r e s a d m i n i s t e r i n g approximately one hundred departments. Some department managers are i n charge of s i x or seven departments. Obviously, the g e n e r a l merchandise manager cannot e f f e c t i v e l y a d m i n i s t e r such a 3 j . ¥. Wingate and E. 0. S c h a l l e r , Techniques of  R e t a i l Merchandising (Englewood C l i f f s , N.J. : P r e n t i c e -H a l l , 1956), P. 8. 65 l a r g e number of department heads and hence the need f o r d i v i s i o n a l managers. Each d i v i s i o n manager i s i n charge of the merchan-d i s i n g o p e r a t i o n of what should be, i f p o s s i b l e , a r e l a t e d group of s e l l i n g departments and he s u p e r v i s e s the work of the buyers f o r these departments. In p r a c t i c e , d i v i s i o n managers sometimes have under t h e i r c o n t r o l a hetero-geneous grouping of departments which may not bear any s i g n i f i c a n t r e l a t i o n s h i p to each other. The d i v i s i o n a l manager's p o s i t i o n i s one of r e c o n c i l i n g the plans and o p e r a t i o n s of buyers concentrated at the departmental l e v e l w i t h the g e n e r a l merchandising manager's r e s p o n s i -b i l i t i e s of c o o r d i n a t i n g and d i r e c t i n g the merchandising e f f o r t s of an e n t i r e s t o r e . The d i v i s i o n a l manager i s the i n t e r m e d i a t e l i n k i n the c h a i n of command set up i n the merchandising d i v i s i o n , s h a r i n g the burden of r e s p o n s i b i l i t y f o r any departmental f a i l u r e s . The d i v i s i o n a l manager has an important s u p e r v i s o r y job to perform i n the merchandise p l a n n i n g and c o n t r o l p r o c e s s , one which i s v i t a l l y depen-dent on access to complete and t i m e l y i n f o r m a t i o n . C o n t r o l D i v i s i o n The modern department s t o r e c o n t r o l l e r , b e s i d e s being r e s p o n s i b l e f o r h i s t r a d i t i o n a l bookkeeping and r e p o r t i n g a c t i v i t i e s , i s i n c r e a s i n g l y d e voting h i s time to s u p e r v i s i o n of c r e d i t o p e r a t i o n s and to f i n a n c i a l p lanning and 66 c o n t r o l . The c o n t r o l l e r ' s d u t i e s w i t h regard to the main-tenance of accounting r e c o r d s and r e p o r t s i n v o l v e the a c t u a l p o s t i n g of ledger accounts; a u d i t i n g of accounting procedures and r e c o r d s w i t h i n the f i r m ; r e s p o n s i b i l i t y f o r the r e c e i p t and disbursement o f money f o r merchandise, s e r v i c e and s u p p l i e s ; s u p e r v i s i o n of p h y s i c a l i n v e n t o r y ; p r e p a r a t i o n of s t a t i s t i c a l i n v e n t o r y ; p r e p a r a t i o n and f i l i n g of tax r e t u r n s . The g r e a t l y i n c r e a s e d emphasis on c r e d i t i n r e t a i l i n g i n the l a s t decade and a h a l f has i n c r e a s e d the volume of c r e d i t to the extent that i t r e p r e s e n t s a h i g h l y s i g n i f i -cant p r o p o r t i o n of a department s t o r e ' s c a p i t a l . A c r e d i t manager, d i r e c t l y under the c o n t r o l l e r i s u s u a l l y r e s p o n s i b l e f o r judging a p p l i c a n t s f o r c r e d i t - m a i n t a i n i n g c r e d i t r e c o r d s , p r e p a r i n g and m a i l i n g statements, r e c e i v i n g payments, and c o l l e c t i n g overdue accounts. The budgeting and c o n t r o l of merchandising stocks and o p e r a t i n g expenses probably has become the most important p a r t of the c o n t r o l l e r ' s work. R e l y i n g q u i t e h e a v i l y on h i s t o r i c a l i n f o r m a t i o n regarding mark-downs, markup, stock s a l e s r a t i o s , open-to-buy, e t c . , the c o n t r o l l e r cooperates w i t h the merchandising d i v i s i o n i n the f o r m u l a t i o n of the merchandise p l a n . S i m i l a r i l y , he works' w i t h a l l o p e r a t i n g W. R. Davidson and P. L. Brown, op. c i t . , p. 176. 67 d i v i s i o n s i n drawing up the expense budget, which i s the other s i g n i f i c a n t component of the s t o r e ' s net p r o f i t . The plans f o r six-month p e r i o d s are f i n a l i z e d two or three months i n advance of the s t a r t of the season. Once the merchandising o p e r a t i o n s i n d i c a t e d on the seasonal p l a n begin, the c o n t r o l l e r i s r e s p o n s i b l e f o r d e t e c t i n g d e v i a -t i o n from the p l a n and t a k i n g a p p r o p r i a t e a c t i o n . Such a c t i o n may i n v o l v e the r e v i s i o n of e x i s t i n g plans i n the l i g h t of unexpected circumstances. P u b l i c i t y D i v i s i o n The Mazur p l a n envisages the e x e c u t i v e s i n charge of the p u b l i c i t y d i v i s i o n , f r e q u e n t l y c a l l e d the p u b l i c i t y manager or a d v e r t i s i n g manager, being r e s p o n s i b l e f o r f a v o r a b l y p r e s e n t i n g the s t o r e and i t s merchandise t o the consumer. What i s termed the a d v e r t i s i n g d i v i s i o n i n c l u d e s people r e s p o n s i b l e f o r newspaper, t e l e v i s i o n , r a d i o , c i r c u l a r s , b i l l - b o a r d and s t r e e t c a r a d v e r t i s i n g . Window and i n t e r i o r s t o r e d i s p l a y s , e x c l u s i v e of counter d i s p l a y s , form another component of the t o t a l p r o m o t ional a c t i v i t i e s . I f a s t o r e has a p u b l i c r e l a t i o n s s e c t i o n as i s i n c l u d e d i n t h i s p l a n , i t s d u t i e s u s u a l l y are concerned w i t h s p e c i a l forms of s a l e s promotion such as f a s h i o n shows, major a n n i v e r s a r y events, a u d i t o r i u m shows, v i s i t s by famous p e r s o n a l i t i e s endorsing p r o d u c t s , e t c . The main ta s k s of the p u b l i c i t y manager are to c o o r d i n a t e the work of h i s v a r i o u s a s s i s t a n t s , to assume 68 r e s p o n s i b i l i t y for planning a sales promotion budget, and to control expense within his sphere. As previously mentioned, the general manager i s concerned with general store p o l i c i e s and public r e l a t i o n s ; consequently, his advice i s often sought i n consultation on major advertising plans. Store-Management D i v i s i o n The executive i n charge of the store-management d i v i s i o n who i s variously referred to as the store manager, store superintendent, operating superintendent or service d i r e c t o r , i s responsible for a group of departments which may, f o r purposes of c l a s s i f i c a t i o n , be considered as related to the provision of proper service to the customer. In actual fact these departments often appear to contain a l l a c t i v i t i e s l e f t over from the other d i v i s i o n s . The duties performed by the store-management d i v i s i o n include the care and maintenance of the building and equipment; care and movement of merchandise; purchasing of supplies and equipment; operation of workrooms; protection of the merchandise and store.^ In t h i s plan, the performance of personnel work also i s located i n the store-management d i v i s i o n . ?C. W. Barker and others, P r i n c i p l e s of R e t a i l i n g (New York : McGraw-Hill, 1 9 5 6 ) , p. 175. 69 17. ADVANTAGES AND DISADVANTAGES OF THE MAZUR PLAN The Mazur P l a n was i n i t i a t e d by the NRDGA a f t e r a s h o r t , hard d e p r e s s i o n t h a t h i t the mercantile f i e l d i n the e a r l y 1920's had l e d t h i s o r g a n i z a t i o n to the r e a l i z -a t i o n t hat i n e f f i c i e n c i e s due to poor o r g a n i z a t i o n were f a i r l y widespread. The Mazur f o u r - f u n c t i o n a l p l a n , through the p r o v i s i o n f o r s p e c i a l i z a t i o n i n f o u r impor-t a n t a c t i v i t i e s i n v o l v e d i n s t o r e o p e r a t i o n and the d e f i n i t i o n of a u t h o r i t y and r e s p o n s i b i l i t y f o r accomplish-ment of o b j e c t i v e s , represented an important step toward removing t h i s s t r u c t u r a l i n e f f i c i e n c y . The c r e a t i o n of fo u r major d i v i s i o n a l e x e c u t i v e s who u s u a l l y are not only s p e c i a l i s t s i n t h e i r f i e l d s but a l s o have an exte n s i v e r e t a i l background and understanding of the broader problems i n v o l v e d , has tended to c r e a t e a s t a b l e o r g a n i z a t i o n . This i s t rue because the ex e c u t i v e committee which i s formed by the g e n e r a l manager wi t h the f o u r f u n c t i o n a l heads and o f t e n some major a s s i s t a n t s , i s o f t e n the medium through which a meeting of the minds r e s u l t s on major s t o r e q u e s t i o n s . T h i s helps to m a i n t a i n a u n i t y o f command. In a d d i t i o n , the c l o s e c o n t a c t that u s u a l l y e x i s t s among the few top e x e c u t i v e s tends to c r e a t e a c o n t i n u i t y i n manage-ment, i n th a t any one of the f o u r d i v i s i o n a l e x e c u t i v e s i s capable of assuming the r e s p o n s i b i l i t i e s of g e n e r a l management should the need a r i s e . F i n a l l y , because the 70 success of each d i v i s i o n i s dependent upon the o p e r a t i o n s of the o t h e r s , t h i s p l a n i s s a i d t o set up a form of checks and balances through i n t e r d i v i s i o n a l c o o p e r a t i o n . For example, one department c o u l d not expand i t s s a l e s through e x c e s s i v e promotion because the manager of t e l e v i s i o n a d v e r t i s i n g must adhere to an expense budget which had been p r e v i o u s l y agreed upon f o r the merchandising department i n q u e s t i o n . Probably the s t r o n g e s t c r i t i c i s m of t h i s type of p l a n has been t h a t s e l l i n g a c t i v i t i e s are s p l i t up amongst the merchandising, p u b l i c i t y and s t o r e o p e r a t i o n s d i v i s i o n s and i t thereby i s b e l i e v e d to weaken one of the major f u n c t i o n s of r e t a i l i n g . S u p e r v i s i o n of s a l e s people by the department manager, h i r i n g and some t r a i n i n g of p ersonnel undertaken i n the store-management d i v i s i o n and the s e p a r a t i o n of p u b l i c i t y from the merchandising d i v i s i o n , are a l l c i t e d as evidences of t h i s s p l i t t i n g of r e s p o n s i -b i l i t y . Opinions expressed by s t o r e e x e c u t i v e s i n t e r -viewed, i n d i c a t e d that the concern over s p l i t t i n g - s e l l i n g r e s p o n s i b i l i t y i s an academic one. I t i s a l s o charged t h a t p u b l i c i t y and c o n t r o l i n r e a l i t y are only a c t i v i t i e s intended to a s s i s t the major f u n c t i o n s of buying and s e l l i n g . E l e v a t i o n of p u b l i c i t y and c o n t r o l to the s t a t u s of major f u n c t i o n s i s thought to c r e a t e an o r g a n i z a t i o n i n 0. P. Robinson and o t h e r s , Store O r g a n i z a t i o n and  O p e r a t i o n (Englewood C l i f f s , N.J., P r e n t i c e - H a l l , 1 9 5 7 ) , P. 3 5 . 71 which o v e r l a p p i n g a u t h o r i t y and r e s p o n s i b i l i t y tend to cr e a t e problems which d i v e r t the a t t e n t i o n of management from the r e a l purposes of busin e s s . Having o u t l i n e d a s t r u c t u r e which has provided a b a s i s f o r o r g a n i z a t i o n i n modern r e t a i l i n g , some of the f e a t u r e s of r e t a i l s t o r e o r g a n i z a t i o n i n Vancouver w i l l be d i s c u s s e d to h i g h l i g h t the d e v i a t i o n s from the Mazur P l a n . V. THE ORGANIZATION OF DEPARTMENT STORES IN VANCOUVER I n t r o d u c t i o n In t h i s s e c t i o n no attempt w i l l be made to delve too deeply i n t o the d e t a i l s of o r g a n i z a t i o n past the l e v e l of the f u n c t i o n a l head, except i n the merchandising d i v i s i o n . The o b j e c t of the d i s c u s s i o n of o r g a n i z a t i o n i s to g a i n an understanding of the pl a c e of merchandising i n the o r g a n i z a t i o n which i s r e q u i r e d to l a t e r a p p r e c i a t e the r o l e of e l e c t r o n i c data p r o c e s s i n g i n r e t a i l i n g . The previous d i s c u s s i o n of the Mazur p l a n p r o v i d e s a reasonably compre-hensive view of the v a r y i n g d u t i e s and r e s p o n s i b i l i t i e s assigned to the d i f f e r e n t f u n c t i o n a l d i v i s i o n s i n r e t a i l department s t o r e s . The i n t e n t here i s to concentrate on the v a r i a t i o n s i n o r g a n i z a t i o n . The Emergence of the Personnel D i v i s i o n I t i s now g e n e r a l l y accepted that the needs and 72 problems o f department s t o r e s w i t h r e g a r d t o the s e l e c t i o n , t r a i n i n g and r e m u n e r a t i o n o f p e r s o n n e l a r e such t h a t a s e p a r a t e p e r s o n n e l f u n c t i o n i s r e q u i r e d . Department s t o r e s r e q u i r e a w i d e l y f l u c t u a t i n g p o o l of employees f o r p a r t -t i m e work t o p r o v i d e p r o p e r customer s e r v i c e d u r i n g peak p e r i o d s o f the week, as w e l l as f o r p e r i o d s of e x t r a -o r d i n a r y a c t i v i t y such as s a l e s and s e a s o n a l r i s e s i n b u s i n e s s . The i n c r e a s e d a d m i n i s t r a t i o n r e q u i r e m e n t s connected w i t h t h e temporary employees, as w e l l as the g rowth i n employee s t a f f of department s t o r e s caused by i n c r e a s e d s c a l e of o p e r a t i o n s i n the l a s t two decades, has l e d t o the d e c i s i o n i n many s t o r e s t o e s t a b l i s h a s e p a r a t e p e r s o n n e l f u n c t i o n . Coupled w i t h the i n c r e a s e d p e r s o n n e l problems has been an i n c r e a s e i n the r e s p o n s i b i l i t i e s o f t h e s t o r e manager t o t h e p o i n t where s u p e r v i s i o n o f the p e r s o n n e l f u n c t i o n , i n a d d i t i o n t o h i s o t h e r d u t i e s , would have produced a severe d r a i n on h i s t i m e . Another major r e a s o n f o r the b r e a k i n g out of t h e p e r s o n n e l f u n c t i o n as a s e p a r a t e d i v i s i o n was p i n - p o i n t e d by one c o n t r o l l e r i n t e r v i e w e d when he s t a t e d t h a t somewhere i n the neighborhood of 60 per c e n t to 70 per c e n t of o p e r -a t i n g expense of t h a t s t o r e was made up of employee wages. The a d d i t i o n a l i m p o r t a n c e o f t h i s l a r g e segment of expense was u n d e r s c o r e d by the f a c t t h a t the g e n e r a l manager of t h e s t o r e u s u a l l y t o o k a f i r s t - h a n d i n t e r e s t i n s t u d i e s of wage payment p l a n s and c e r t a i n l y watched t h i s i t e m c l o s e l y 73 i n h i s review of s t o r e budgets. Only one department s t o r e of the f o u r s t u d i e d d i d not have pe r s o n n e l as a separate f u n c t i o n a l d i v i s i o n . T h i s s t o r e , whose s i m p l i f i e d o r g a n i z a t i o n c h a r t i s shown i n F i g u r e 3»^ i n c l u d e d personnel under the store-management d i v i s i o n , as d i d the Mazur p l a n . Branch Sto r e s i n O r g a n i z a t i o n S t r u c t u r e Accompanying the growth of the suburbs i n Vancouver, has been the e s t a b l i s h m e n t of suburban shopping c e n t e r s , w i t h the hub of a c t i v i t i e s i n these c e n t e r s o f t e n being a branch s t o r e of one of the department s t o r e c h a i n s . As i n d i c a t e d i n F i g u r e s 3?2, 3*3 and 3.^ > t hree of the f o u r department chains s t u d i e d i n the Vancouver area e i t h e r have branch s t o r e s or are i n the process of s e t t i n g up 7 branch s t o r e s . The expansion of the chains i n t o branch s t o r e s has brought new o r g a n i z a t i o n a l problems. In the Vancouver area branch s t o r e s are operated as outposts or s a t e l l i t e s of the downtown or parent s t o r e . The branch s t o r e s are s m a l l e r than the parent s t o r e s and cannot be s t a f f e d i n the same manner. As a r e s u l t , many of the s p e c i a l i s t s found i n the l a r g e s t o r e s are missing and the persons i n charge of the branch s t o r e departments have a s t a t u s comparable to a s s i s t a n t department managers i n the main s t o r e . The parent s t o r e s o f t e n use these 7Supra, Chapt. I l l , pp. 60-61. 7h p o s i t i o n s i n the branch s t o r e as a t r a i n i n g ground f o r p o t e n t i a l parent s t o r e department managers. An i n d i v i d u a l department i n a branch s t o r e o f t e n c o n t a i n s l i n e s of merchandise which are the b a s i s f o r s e v e r a l departments i n the parent s t o r e , s i n c e the branch s t o r e merchandise c l a s s i f i c a t i o n s are not as narrowly d e f i n e d . The parent s t o r e s assume the bulk of the r e s p o n s i -b i l i t y f o r accounting, r e c e i v i n g of merchandise, p r i c i n g of merchandise, marking of merchandise, payment of i n v o i c e s , u n i t c o n t r o l , and a d v e r t i s i n g . O r g a n i z a t i o n a l l y , the d i f f i c u l t y w i t h branch s t o r e s i s t h a t there i s not a d i r e c t l i n e of r e s p o n s i b i l i t y extending from the branch s t o r e manager on down through the branch s t o r e o r g a n i z a t i o n . Rather, there i s some fragmen-t a t i o n of r e s p o n s i b i l i t i e s and, i n f a c t , r e s p o n s i b i l i t i e s are not c l e a r l y d e f i n e d i n many cases. The branch manager u s u a l l y r e p o r t s d i r e c t l y to the g e n e r a l manager or manage-ment committee which i n F i g u r e s 3 . 2 , 3 . 3 and 3.>+ i s denoted by using dotted l i n e s . However, h i s r e a l a u t h o r i t y i s l i m i t e d and he i s a c t u a l l y an on-the-spot c o o r d i n a t o r of a c t i v i t i e s which are d i r e c t e d by the f u n c t i o n a l e x e c u t i v e s i n the main s t o r e . Because he r e p o r t s to the management committee composed of f u n c t i o n a l e x e c u t i v e s , the execu-t i v e s i n v o l v e d come t o common agreement i n case of c o n f l i c t . The s p l i t t i n g of r e s p o n s i b i l i t i e s i n the branches admit-t e d l y causes some o r g a n i z a t i o n a l d i f f i c u l t i e s but as yet 75 the parent s t o r e s have not s e t t l e d on plans which e l i m i n a t e t h i s problem w h i l e p r o v i d i n g the branch s t o r e s w i t h the p a r e n t - s t o r e s u p e r v i s i o n they r e q u i r e . A l l merchandising o f branch s t o r e s i s done by e i t h e r the d i v i s i o n a l merchandising managers or the g e n e r a l merchandising manager of the parent s t o r e . The f l o o r employees i n the branches have r e s p o n s i b i l i t i e s p r i m a r i l y f o r s e l l i n g and are c o n t r o l l e d by merchandise e x e c u t i v e s i n the main s t o r e . S e l l i n g g e n e r a l l y improves i n the branches because branch p e r s o n n e l have l i t t l e or no respon-s i b i l i t y or a c t i v i t i e s other than customer s e r v i c e . Uncon-taminated by the refinements of modern r e t a i l i n g , they concentrate on s e l l i n g . P u b l i c i t y D i v i s i o n O r g a n i z a t i o n t h e o r i s t s have objected to s e p a r a t i o n of p u b l i c i t y from the merchandise d i v i s i o n , i n s i s t i n g that t h i s i s simply the non-personal as opposed to the p e r s o n a l s i d e of s e l l i n g and, t h e r e f o r e , should r i g h t f u l l y come o under the c o n t r o l of the g e n e r a l merchandise manager. T h i s i s p r e c i s e l y the sentiment which was expressed by a d i v i s i o n a l merchandise manager i n the o r g a n i z a t i o n shown, i n F i g u r e 3 . 2 when questioned on the placement of p u b l i c i t y i n the merchandising d i v i s i o n . I t was f e l t t h a t a l t h o u g h 0. P. Robinson and o t h e r s , op. c i t . , p. k-5. 76 there was an a d d i t i o n a l work load placed on the head of the merchandising d i v i s i o n by such a s t r u c t u r e , there was a d e f i n i t e g a i n i n that the p u b l i c i t y a c t i v i t i e s were b e t t e r c o o r d i n a t e d w i t h the merchandising a c t i v i t i e s . In sharp c o n t r a s t t o the l a t t e r s t r u c t u r e , i n F i g u r e 3.5, a d v e r t i s i n g and d i s p l a y are shown as separate d i v i s i o n s on a par w i t h merchandising, c o n t r o l , s t o r e -management and p e r s o n n e l . T h i s i s an example of how a p o s i t i o n was planned to accommodate i n d i v i d u a l a b i l i t y r a t h e r than an i n d i v i d u a l s e l e c t e d to f i l l a p o s i t i o n , as o r g a n i z a t i o n theory f a v o u r s . Despite the f a c t t h a t these p o s i t i o n s appear, o r g a n i z a t i o n a l l y speaking, of equal s t a t u s to other d i v i s i o n a l heads, i n r e a l i t y they are considered t o be of l e s s e r importance. The o r g a n i z a t i o n i n F i g u r e 3.1+ a l s o separates a d v e r t i s i n g and d i s p l a y but p l a c e s both of these subordinate to the s t o r e s u p e r i n -tendent who enjoys very broad management r e s p o n s i b i l i t y . Only one department s t o r e , t h a t shown i n F i g u r e 3«3, combines a l l the p u b l i c i t y a c t i v i t i e s under one head, as was recommended by the Mazur p l a n . Merchandising D i v i s i o n I n a l l merchandising d i v i s i o n s shown except one, the c h a i n of r e s p o n s i b i l i t y i n the merchandising d i v i s i o n extends from the g e n e r a l merchandising manager to the d i v i s i o n a l managers, to the department managers, to the assistant-department manager, i f someone has been so 77 designated, and f i n a l l y t o the s a l e s people. As shown i n F i g u r e 3.*+> the p o s i t i o n of g e n e r a l merchandise manager has been e l i m i n a t e d i n one of the o r g a n i z a t i o n s . The c o o r d i n a t i n g r o l e t r a d i t i o n a l l y r e s e r v e d f o r the g e n e r a l merchandise manager i s e l i m i n a t e d i n t h i s o r g a n i z a t i o n through g r e a t e r c o o p e r a t i o n and bearing of r e s p o n s i b i l i t y on the p a r t of both the g e n e r a l manager and the d i v i s i o n a l managers. Three of the o r g a n i z a t i o n s s t u d i e d had t h e i r d i v i s -i o n a l managers i n the parent s t o r e while the remaining s t o r e provided f o r s i x d i v i s i o n a l managers. Again i t was found that i n d i v i d u a l c a p a c i t i e s and s p e c i a l i z e d t a l e n t s were the b a s i s on which departments were combined r a t h e r than s t r i c t adherence to homogenity of product c h a r a c t e r -i s t i c s . In s t o r e s c o n t a i n i n g three d i v i s i o n a l managers, the breakdown was roughly i n t o f a s h i o n s ; housewares and f u r n i s h i n g s ; basement s t o r e and departments not handled by the other managers. The departmental s t o r e shown i n F i g u r e 3 » 5 was d i v i d e d i n t o l a d i e s ' f a s h i o n s , s m a l l wares, foods and c h i l d r e n ' s wear, men's wear, basement s t o r e , and b i g - t i c k e t department ( i . e . a p p l i a n c e s , rugs, f u r n i -t u r e ) . I n d i v i d u a l l y , the department managers are held r e s p o n s i b l e f o r some measure of p r o f i t , but i n no l o c a l s t o r e i s i t the net p r o f i t of the department. The i n a b i l i t y to delegate net p r o f i t r e s p o n s i b i l i t y to anyone 78 below the l e v e l of the g e n e r a l manager i s one of the problems standing i n the way of c l o s e r management c o n t r o l of r e t a i l i n g a c t i v i t y . In p r a c t i c e , department managers are made r e s p o n s i b l e f o r a p r o f i t c o n t r i b u t i o n margin t h a t i s the d i f f e r e n c e between department revenue and what the st o r e management d e f i n e s to be the c o n t r o l l a b l e c o s t s . The c o n t r o l l a b l e c o s t s f o r which the department manager i s r e s p o n s i b l e v a r i e s from s t o r e to s t o r e . The p r o f i t c o n t r i b u t i o n margin may i n c l u d e amongst these expenses only the c o s t of merchandise d e l i v e r e d to the s t o r e , or may a l s o i n c l u d e such c o n t r o l l a b l e expenses as a d v e r t i s i n g , s a l e s employee remuneration, workroom c o s t s , wrapping expense, and t r a v e l l i n g , c o s t s of the manager. Cost accountants have long r e c o g n i z e d t h a t the a r b i t r a r y nature of a l l o c a t i n g such overhead expenses as power, heat, c l e a n i n g , e t c . , prevents management from holding the depart-ment manager r e s p o n s i b l e f o r net p r o f i t . CHAPTER IV ELECTRONIC DATA PROCESSING AND ITS RELATIONSHIP TO RETAILING PROBLEMS I. INTRODUCTION TO ELECTRONIC DATA PROCESSING E l e c t r o n i c Data P r o c e s s i n g as a Means t o Support the  Planning and C o n t r o l F u n c t i o n of Management Today most businesses of a p p r e c i a b l e s i z e , whether i n manufacturing, w h o l e s a l i n g , or r e t a i l i n g , work w i t h l i t e r a l l y m i l l i o n s of f a c t s — f a c t s r e l a t i n g t o customers, items of merchandise, employees, and s u p p l i e r s . Large r e t a i l i n g e s t a b l i s h m e n t s which e x i s t i n an i n t e n s e l y c o m p e t i t i v e f i e l d c h a r a c t e r i z e d by s m a l l o p e r a t i n g margins, must somehow come up w i t h s o l u t i o n s to the problems contained i n these r i d d l e s of f a c t s , to produce a p r o f i t f o r the s h a r e h o l d e r s . B a s i c a l l y , the r e t a i l work load r e v o l v e s around the p r o c e s s i n g of merchandise i n t o and out of the s t o r e . S t o r e s r e c e i v e goods e i t h e r from vendors or as r e t u r n s from customers and they send out goods as a r e s u l t of s a l e s , r e t u r n s to vendors, or t r a n s f e r s to branches. Purchase o r d e r s , r e c e i v i n g r e c o r d s , p r i c e t i c k e t s , customer c r e d i t s must a l l be w r i t t e n to b r i n g goods i n t o the s t o r e . Cash r e g i s t e r s must be rung, s a l e s checks w r i t t e n and 80 c e r t a i n other documents c r e a t e d t o e f f e c t r e t u r n s t o vendors and to r e c o r d t r a n s f e r s . The by-products of these o p e r a t i o n s are the accounts payable r e c o r d s and payment vouchers, customer accounts and b i l l i n g s , stock l e d g e r s , u n i t c o n t r o l s , departmental merchandising and op e r a t i n g s t a t i s t i c s , open-to-buy c o n t r o l s , employee r e c o r d s and so on. R e l a t i n g the r e t a i l work load t o the spectrum of d e c i s i o n s which was d i s c u s s e d i n Chapter I I , at the lower end of the d e c i s i o n spectrum are the simple r o u t i n e d e c i s i o n s such as determining whom to b i l l , how much to b i l l him, and whether or not a dis c o u n t i s a p p l i c a b l e , whom to pay and so on. Toward the middle of the spectrum are the more complex but s t i l l fundamentally mechanical d e c i s i o n s , i n the sense t h a t they a l l o w some p o s s i b i l i t y of breaking the d e c i s i o n down i n t o a number of sm a l l r e l a t e d d e c i s i o n s . These d e c i s i o n s i n c l u d e the d e t e r m i n a t i o n of when to order merchandise, how much t o order, when to have i t shipped out and how to sh i p i t . At the upper end of the spectrum are the extremely complex managerial d e c i s i o n s on such questions as whether t o d i v e r s i f y the merchandise l i n e , where t o l o c a t e new s t o r e s and how much to i n v e s t i n an undertaking. From the i n i t i a l r e c o r d i n g of the f a c t s to the end r e s u l t of the p r o c e s s i n g , the data i s handled and r e -handled many times and at great expense i n the r e t a i l o p e r a t i o n . When each of the d e t a i l s recorded i s expanded 81 i n terms of number of d i g i t s r e q u i r e d to c l a s s i f y each customer, stock-keeping item, employee and to prepare the va r i o u s r e p o r t s , the r e c o r d keeping problem i s compounded many times. I f a l l these r e c o r d keeping a c t i v i t i e s c ould f l o w a u t o m a t i c a l l y from the o r i g i n a l documents which i n i t i a t e the b a s i c f u n c t i o n s of the bu s i n e s s , a great r e d u c t i o n i n the c l e r i c a l s t a f f c o u l d be r e a l i z e d . The r e p o r t s produced i n the course of a l l t h i s accounting a c t i v i t y have a common p u r p o s e — t o f a c i l i t a t e the o p e r a t i o n of business by upgrading the q u a l i t y of exe c u t i v e d e c i s i o n s . The management planning and c o n t r o l f u n c t i o n , i n modern business r e q u i r e s t h a t t i m e l y i n f o r -mation v i t a l t o the conduct of o p e r a t i o n s be a v a i l a b l e t o provide an i n t e l l i g e n t b a s i s f o r making d e c i s i o n s . The continuous improvement i n the e l e c t r o n i c d i g i t a l computer, as w e l l as the e q u a l l y important p e r i p h e r a l equipment, has r e s u l t e d i n t h e i r being a p p l i e d to an i n c r e a s i n g number of business problems s i n c e the e a r l y 1950's. T h i s equipment r e p r e s e n t s t o o l s which have ac q u i r e d an impor-t a n t p l a c e i n management's t e c h n i c a l r e p e t o i r e to compile p e r t i n e n t i n f o r m a t i o n r a p i d l y and a c c u r a t e l y . The purpose of t h i s chapter i s to i n v e s t i g a t e some of the c h a r a c t e r i s t i c s and problems i n h e r e n t i n r e t a i l data p r o c e s s i n g , as w e l l as t o review some of the more common c u r r e n t a p p l i c a t i o n s of e l e c t r o n i c data p r o c e s s i n g (EDP). Before d i s c u s s i n g t h i s , however, i t i s necessary 82 t o b r i e f l y review some of the more prominent c h a r a c t e r -i s t i c s of EDP equipment. A c o n s i d e r a b l e vocabulary has been developed i n c o n j u n c t i o n w i t h t h i s equipment and i t i s assumed t h a t the reader has some p r i o r knowledge of EDP concepts. Concepts Involved i n E l e c t r o n i c Data P r o c e s s i n g Systems  System components. An e l e c t r o n i c data p r o c e s s i n g system c o n s i s t s of f i v e b a s i c elements: i n p u t , storage, c o n t r o l u n i t , a r i t h m e t i c or p r o c e s s i n g u n i t and output. The computer program once entered i n t o storage i n machine language r e p r e s e n t s the l i s t of i n s t r u c t i o n s a c c o r d i n g to which the data w i l l be processed. P h y s i c a l l y , t h i s e n t i r e p r o c e s s i n g o p e r a t i o n i s accomplished by means of a d i g i t a l computer as w e l l as p e r i p h e r a l equipment. Programming. One g e n e r a l l y proceeds through three d i s t i n c t phases t o produce a workable computer program. In the f i r s t phase, the problem that i s to be s o l v e d must be i s o l a t e d and analysed, t h i s a n a l y s i s being v i r t u a l l y independent of the methods used to process the data. Next, the l o g i c a l sequence of steps r e q u i r e d t o solve the problem i s e i t h e r e x p l i c i t l y d e t a i l e d by means of a fl o w c h a r t , or may be a r r i v e d at i m p l i c i t l y by more experienced programmers without committing these thoughts t o the more concrete f l o w chart format. The f i n a l phase i n v o l v e s the coding of the method of s o l u t i o n , e i t h e r d i r e c t l y i n t o the p r e s c r i b e d 83 computer code or Into some automatic programming code which i s subsequently reduced to the s o - c a l l e d machine "language" or code by means of another computer program. Once t h i s has been done, the l i s t of i n s t r u c t i o n s f o r c a r r y i n g out a sequence of d e s i r e d o p e r a t i o n s , c a l l e d the program or r o u t i n e , i s entered i n t o machine storage i n a coded form, t h i s form being a f u n c t i o n of machine d e s i g n . The coded program i s , t h e r e f o r e , c l o s e l y r e l a t e d to the equipment and p r o c e s s i n g f l o w methods used. E l e c t r o n i c data p r o c e s s i n g r e l i e s on the a b i l i t y of the modern e l e c t r o n i c d i g i t a l computer to perform, i n s e q u e n t i a l order, the s e r i e s of o p e r a t i o n s t h a t are l o g i -c a l l y enumerated i n the computer program. The program t e l l s the computer when to operate, how to get data, what data to take i n , what to do w i t h the data taken i n , when to perform s p e c i f i e d o p e r a t i o n s , what to do next, and when to stop. The theory of computer programming which i n concept appears q u i t e simple, i n a c t u a l f a c t i s an area of c o n s i d e r a b l e depth and complexity. T h i s s u b j e c t i s adequately covered by a q u i c k l y growing number of books a v a i l a b l e t o d a y . X Although a company which operated an EDP i n s t a l -l a t i o n w i l l almost c e r t a i n l y have t r a i n e d people t o do the r e q u i r e d programming, i n view of the expense i n v o l v e d i n I D . D. McCracken, D i g i t a l Computer Programming (New York : Wiley, 1959); L. W. Hein, An I n t r o d u c t i o n to E l e c -t r o n i c Data P r o c e s s i n g f o r Business ( P r i n c e t o n ; Van Nostrand, 1961). 8*+ programming and because of the h i g h degree of s i m i l a r i t y o f some a p p l i c a t i o n s such as p a y r o l l and accounts r e c e i v -a b l e , s o - c a l l e d l i b r a r y programs or programs a l r e a d y w r i t t e n f o r such a problem may be obtained f o r a f e e from the manufacturer. An EDP i n s t a l l a t i o n i n time accumulates i t s own l i b r a r y o f programs f o r using i n data p r o c e s s i n g s i t u a t i o n s t h a t r e c u r on a r e g u l a r b a s i s . The programming systems and l i b r a r y programs provided by equipment manu-f a c t u r e r s , the s o - c a l l e d " s o f t ware" as opposed to equip-ment or "hard ware" have become an i n t e g r a l and very important p a r t of the manufacturer's t o t a l EDP package. Input. Business data p r o c e s s i n g systems must handle a l a r g e volume of t r a n s a c t i o n s data r e l a t i n g t o p a y r o l l , s a l e s a u d i t , merchandise c o n t r o l , accounts payable, e t c . , which may o r i g i n a t e i n v a r i o u s forms and i n w i d e l y separ-ated l o c a t i o n s . The i n p u t f u n c t i o n of the e l e c t r o n i c data p r o c e s s i n g system permits coded data, whether i t i s t r a n s a c t i o n s data or i n s t r u c t i o n s , to be read i n t o the system. A wide v a r i e t y of input media may be used to perform t h i s i nput i n c l u d i n g manually operated keyboards, punched c a r d s , p e r f o r a t e d p r i c e t i c k e t s , magnetic tape and punched paper tape. These input media are processed by a number of p e r i p h e r a l e l e c t r o - m e c h a n i c a l equipment e s s e n t i a l to the c r e a t i o n and c o n v e r s i o n of coded data i n p u t . The equipment c r e a t i n g coded data input i n c l u d e d i r e c t i n p u t keyboards, paper tape and car d punches, 8 5 magnetic tape w r i t e r s , merchandise tag r e a d e r s , and o p t i c a l and magnetic c h a r a c t e r r e a d e r s . The c o n v e r s i o n equipment sometimes used i n c l u d e d punched cards to magnetic tape c o n v e r t e r s , paper to magnetic tape c o n v e r t e r s and paper tape to punched card c o n v e r t e r s . At the proper time i n the sequence of o p e r a t i o n s s p e c i f i e d by the program, data i s read i n and the program d i r e c t s and c o n t r o l s the computer o p e r a t i o n , the r e s u l t of the computation being disposed of i n a manner determined by the program. Conversion to magnetic tape i s o f t e n f a v o r e d i n the data f l o w procedure i n an EDP system to compensate f o r the d i s p a r i t y i n r e a d i n g times f o r cards or paper tape, as compared to the computation times r e q u i r e d f o r the c o n v e n t i o n a l business problem. Business data p r o c e s s i n g t y p i c a l l y i n v o l v e s a few r e l a t i v e l y simple computations which can be done i n the order of f o u r or f i v e times f a s t e r than data from paper tapes or cards can be read i n t o the computer. To prevent wasting v a l u a b l e computer time a c o n v e r s i o n to magnetic tape, w i t h i t s s i g n i f i c a n t l y higher re a d i n g r a t e , i s made before i n p u t t i n g the data i n t o the computer proper. T h i s " b u f f e r i n g " o p e r a t i o n tends to a l l e v i a t e a p o t e n t i a l "input l i m i t e d " s i t u a t i o n i n which the computer's a b i l i t y to output i n f o r m a t i o n o u t s t r i p s i t s a b i l i t y to read the data i n t o s t o r a g e . B u f f e r i n g i s a l s o done i n "output l i m i t e d " cases i n which the mismatch occurs between the computation and output a b i l i t y of the system. 86 As a p p l i e d to r e t a i l i n g o p e r a t i o n s , there are gener-p a l l y three methods of p r o c e s s i n g data i n p u t . The most s o p h i s t i c a t e d means, here r e f e r r e d to as o n - l i n e p r o c e s -s i n g , i n the j a r g o n of the computer manufacturing f i e l d , i s termed " r e a l - t i m e systems" by Remington-Rand and " t e l e p r o c e s s i n g " by IBM. In concept, and i g n o r i n g the t e c h n i c a l problems, o n - l i n e data flow i s d e c e p t i v e l y simple. Data i n t h i s system go d i r e c t l y to the p r o c e s s i n g u n i t w i t h no i n t e r m e d i a t e stages of c l a s s i f i c a t i o n or s o r t i n g between the o r g a n i z a t i o n of data and completed p r o c e s s i n g . The accuracy of i n p u t data i s i n c r e a s e d because people do not recopy data from o r i g i n a l documents. For r e t a i l e r s t h i s suggests the use of p o i n t of s a l e s r e c o r d e r s such as s p e c i a l l y designed c a s h r e g i s t e r s or source document i n p u t i n v o l v i n g automatic c h a r a c t e r r e c o g -n i t i o n , which t r a n s m i t the data d i r e c t l y to the c e n t r a l computer. The data would be analysed and, where a p p l i -c a b l e , i n s t r u c t i o n data sent back to c o n t r o l and d i r e c t a c t i v i t y a c c o r d i n g to a p r e - e s t a b l i s h e d program. Auto-matic c h a r a c t e r r e c o g n i t i o n techniques, both magnetic and o p t i c a l , are at present c a p t u r i n g c o n s i d e r a b l e i n t e r e s t i n r e t a i l trade p e r i o d i c a l s as a means by which data f r o m j o u r n a l tapes or s a l e s checks may be used as d i r e c t i n p u t to the system. The A p r i l , 196*+ i s s u e of R e t a i l Merchan-d i s i n g i n f a c t e x p l a i n s how the o p t i c a l scanning method 2R. H. Gregory and R. L. Van Horn, Automatic Data-P r o c e s s i n g Systems (Belmont, C a l i f o r n i a : Wadsworth Pub. Co., I960), p. 2 9 4 . 87 i s being s u c c e s s f u l l y employed i n S t e i n b e r g ' s Montreal department store.3 The random access memory f e a t u r e , which w i l l be mentioned l a t e r , i s r e q u i r e d to operate on the v a r i o u s accounts a f f e c t e d by the input data i n the order i n which the data i s i n t r o d u c e d i n t o the system. U n f o r t u n a t e l y , the n e c e s s i t y t o r e p l a c e the present p o i n t - o f - s a l e devices w i t h new r e c o r d e r s and the cost of random access storage has, i n the o p i n i o n of most r e t a i l e r s , r e q u i r e d an i n v e s t -ment completely out of the p r o p o r t i o n t o the r e s u l t i n g savings and e f f i c i e n c i e s . In summary then, t h i s p r o c e s -s i n g method i s a technique of r e c o r d i n g and completely p r o c e s s i n g a t r a n s a c t i o n at the time i t takes p l a c e r a t h e r than d e l a y i n g p r o c e s s i n g , p o s s i b l y by batch handling as i s done i n the t r a d i t i o n a l accounting f a s h i o n . I n - l i n e p r o c e s s i n g , the second g e n e r a l method of input i s d e f i n e d as the p r o c e s s i n g o f data without s o r t i n g or t r e a t i n g i n any way other than t e m p o r a r i l y s t o r i n g them. T r a n s a c t i o n s are accumulated f o r p r o c e s s i n g l a t e r , but the o r i g i n a l sequence i s unchanged f o r only temporary storage i s i n v o l v e d . An example of t h i s type of p r o c e s s i n g i s use of punched paper tape which i s c r e a t e d as a by-product of cash r e g i s t e r o p e r a t i o n and which, at the end of the day, i s removed from the r e g i s t e r t o be used to up-date the master f i l e s of the account c l a s s i f i c a t i o n a f f e c t e d . R e t a i l i n g Merchandising, 16, No. h : 21, A p r i l , 196M-. 38 The same types of p o i n t s - o f - s a l e r e c o r d e r s as can be used w i t h i n - l i n e p r o c e s s i n g are a l s o a p p l i c a b l e here except t h a t the data does not go d i r e c t l y to the c e n t r a l p r ocessor. I n - l i n e p r o c e s s i n g may be thought of as o n - l i n e p r o c e s s i n g done under r e l a x e d time requirements. Again, cost i s an important f a c t o r and c e r t a i n l y an abrupt change over to tape equipped r e g i s t e r s r e p r e s e n t s a s u b s t a n t i a l Investment. One l o c a l e x e c u t i v e estimated t h a t under present c o n d i t i o n s a change over t o new equip-ment f o r Vancouver o p e r a t i o n s would r e q u i r e an investment i n the order of a quarter of a m i l l i o n d o l l a r s . Compre-hensive o n - l i n e and i n - l i n e systems, f o r v a r i o u s reasons not the l e a s t of which i s c o s t , are s t i l l i n the develop-mental stages. The t h i r d and crudest means of input i n v o l v e s docu-ment t r a n s l a t i o n , accumulation ( i . e . batching) and r e a r r a n g i n g of data, perhaps by s o r t i n g , before they are processed. Data from the source document i s key punched on paper tape and punched c a r d s . U n f o r t u n a t e l y , t h i s i s time consuming, e r r o r g e n e r a t i n g and consequently expen-s i v e . In a d d i t i o n , the n e c e s s i t y of s o r t i n g t r a n s a c t i o n s f o r o f f - l i n e p r o c e s s i n g i n v o l v e s a d d i t i o n a l d e l a y . Yet t h i s method i s p r e s e n t l y the most economical and w i d e l y used i n r e t a i l data p r o c e s s i n g today. In l a t e r a p p l i -c a t i o n s of data p r o c e s s i n g f o r t h i s t h e s i s , p r o c e s s i n g of t h i s p a t t e r n i s assumed. 89 A r i t h m e t i c or p r o c e s s i n g u n i t . The p r o c e s s i n g u n i t performs normal a r i t h m e t i c f u n c t i o n s such as a d d i t i o n , s u b t r a c t i o n , d i v i s i o n (by performing i t e r a t i v e s u b t r a c t i o n ) and m u l t i p l i c a t i o n (by performing i t e r a t i v e a d d i t i o n ) . Techniques of numerical a n a l y s i s a l s o permit other math-e m a t i c a l f u n c t i o n s and c a l c u l a t i o n s to be performed. In a d d i t i o n , the a r i t h m e t i c u n i t i s capable of wide v a r i e t y of l o g i c a l o p e r a t i o n s . These simple o p e r a t i o n s which form the b a s i s f o r a l l computation are c a r r i e d on a c c o r d i n g to the program under the d i r e c t i o n and ti m i n g of the c o n t r o l u n i t . R e t a i l i n g problems g e n e r a l l y r e q u i r e l i t t l e and r e l a t i v e l y simple m a n i p u l a t i o n of a mass of data. Storage. The f u n c t i o n of storage i n an EDP system i s q u i t e simply to preserve data i n a r e c o g n i z a b l e form. In order t o achieve some s o r t of balance between c o n f l i c t i n g f a c t o r s of storage c a p a c i t y , access time, c o s t and e r a s a -b i l i t y , some s o r t of compromise must be made between d i f f e r e n t types of stor a g e . In l a r g e r - s c a l e data p r o c e s -s i n g equipment, three types of storage, o f t e n r e f e r r e d t o as i n t e r n a l storage, secondary storage and e x t e r n a l storage, are commonly used. I n t e r n a l storage or what i s f r e q u e n t l y c a l l e d "memory" holds the computer program and data c u r r e n t l y i n use w i t h i n the computer. T h i s terminology p e r s i s t s d e s p i t e the f a c t that a l l types of storage are, t e c h n i c a l l y , memory d e v i c e s . The i n t e r n a l storage f a c i l i t i e s form an 90 i n t e g r a l p a r t of the data processor and. the storage l o c a -t i o n s are addressable e i t h e r by word or by f i e l d . The data are read d i r e c t l y from i n t e r n a l storage t o the a r i t h -metic and c o n t r o l u n i t f o r p r o c e s s i n g . Secondary storage supplements i n t e r n a l storage and, while not an i n t e g r a l p a r t of the data p r o c e s s o r , i t i s d i r e c t l y connected to the proce s s o r and c o n t r o l l e d by i t . Some secondary s t o r e d i s c a l l e d random access which was mentioned i n c o n n e c t i o n w i t h the d i s c u s s i o n on i n p u t . T e c h n i c a l l y , random access r e f e r s to c o n d i t i o n s i n which the next storage l o c a t i o n from which data are to be obtained does not depend on the l o c a t i o n of p r e v i o u s l y obtained data. T h i s i s random as opposed t o , say, s e r i a l access of magnetic tape where tape speeds and l o c a t i o n of data on the tape determine access times which o b v i o u s l y w i l l be v a r i a b l e . In g e n e r a l usage and i n the i n s t a n c e p r e v i o u s l y c i t e d , random access was l o o s e l y used to mean a r e l a t i v e l y low and approximately equal access times t o a l a r g e volume of data. Secondary storage i s important f o r h o l d i n g l a r g e master f i l e s f o r p r o c e s s i n g t r a n s a c t i o n s t h a t occur i n random sequence such as the proposed on-l i n e system f o r r e t a i l i n g . The contents of secondary storage are t r a n s f e r r e d to i n t e r n a l storage before p r o c e s -s i n g . . E x t e r n a l storage f a c i l i t i e s are d i v o r c e d from the data processor i t s e l f ; they hold l a r g e amounts of data at 9 1 low c o s t i n forms s u i t a b l e f o r p r o c e s s i n g . Such storage media as magnetic tape, punched c a r d s , and paper tape are widely used as e x t e r n a l storage but which a l s o rank as secondary storage when connected to and c o n t r o l l e d by the computer f o r r e a d i n g or w r i t i n g . Output. The output f u n c t i o n produces the r e s u l t s of the data manipulations. P r i n t e d output may be accomplished by the use of e l e c t r i c t y p e w r i t e r s or h i g h speed p r i n t e r s , depending on the requirements of the i n s t a l l a t i o n . Other forms of o u t p u t , u s u a l l y , f o r storage or subsequent p r o c e s -s i n g , i n c l u d e magnetic tapes and punched cards or punched paper tapes. The a b i l i t y to program the computer to scan f i l e s f o r s i g n i f i c a n t i n f o r m a t i o n i n the process of updating f i l e s , permits use t o be made of e x c e p t i o n r e p o r t i n g . Because an EDP system can output great volumes of data i n comparison to manual systems i t soon became obvious that e x c e p t i o n r e p o r t s , such as r e p o r t s t o the c r e d i t manager on over-budget or d e l i n q u e n t accounts and r e p o r t s to the buyer, d i v i s i o n a l manager or g e n e r a l merchandise manager on poor s t o c k or s a l e s s i t u a t i o n s , were the only manageable means of p r o v i d i n g i n f o r m a t i o n . T h i s t h e s i s w i l l be concerned w i t h output problems of t h i s nature r a t h e r than problems of f i l e maintenance. C o n t r o l . Throughout the d i s c u s s i o n of the other f o u r f u n c t i o n s , the c o n t r o l f u n c t i o n has been i m p l i c i t l y 92 r e f e r r e d t o . The c o o r d i n a t i o n and use of any of the other f u n c t i o n s i s determined by t h i s u n i t which does a l l of the d i r e c t i n g and s w i t c h i n g t o i n i t i a t e a program and c a r r y i t through to the completion of o p e r a t i o n s . I I . RETAILING AS A FIELD OF APPLICATION FOR ELECTRONIC DATA PROCESSING C h a r a c t e r i s t i c s of R e t a i l Data P r o c e s s i n g and the Role of  E l e c t r o n i c Data P r o c e s s i n g Data p r o c e s s i n g i n r e t a i l i n g i s d i s t i n g u i s h e d by a very l a r g e volume of low-unit value t r a n s a c t i o n s , which i n the l a s t decade has expanded c o n s i d e r a b l y . Because of t h i s c h a r a c t e r i s t i c , an i n c r e a s e i n the absolute number of e r r o r s when d a t a i s handled manually, i s to be expected. Such a s i t u a t i o n i n business can l e a d to c o n s i d e r a b l e l o s s i n c l e r i c a l time r e q u i r e d to check e r r o r s , embarrassment f o r the company, and l o s s i n customer good w i l l . F o r t u n -a t e l y , the. s o l u t i o n of such problems i s the f o r t / of modern e l e c t r o n i c equipment s i n c e , p r o v i d i n g the i n p u t data i s c o r r e c t , a v a r i e t y of b u i l t - i n c o n t r o l s ensure the c o r r e c t -ness of the output. Mechanized equipment such as p o i n t -o f - s a l e r e c o r d i n g d e v i c e s which capture o r i g i n a l source data before r e h a n d l i n g provide the means of a c h i e v i n g g r e a t e r accuracy at the p o i n t of data o r i g i n . The s e r i e s of i n d i v i d u a l o p e r a t i o n s i n v o l v e d i n c r e a t i n g documents and p o s t i n g r e c o r d s i n v a r i o u s d e p a r t -ments as a r e s u l t of some business event, such as the 93 i n i t i a t i o n of an order by a customer, i s another prom-inent c h a r a c t e r i s t i c of r e t a i l i n g o p e r a t i o n . Department s t o r e s are d i v i d e d i n t o f u n c t i o n a l d i v i s i o n s , as noted i n Chapter I I , w i t h f u n c t i o n a l a c t i v i t i e s i n t e r - r e l a t e d . However, the people i n each f u n c t i o n are p r i m a r i l y concerned w i t h t h e i r own f u n c t i o n r a t h e r than g e t t i n g an o v e r - a l l view of o p e r a t i o n s . Such a s i t u a t i o n c o n t r i -V butes to fragmentary data p r o c e s s i n g . Where t h i s occurs documents and r e p o r t s t h a t may vary only s l i g h t l y i n content and t i m i n g , are o f t e n wanted i n d i f f e r e n t d e p a r t -ments, thus r e q u i r i n g the p r e p a r a t i o n of e n t i r e l y new co p i e s t o make s l i g h t changes. Fragmentary data p r o c e s -s i n g i s expensive because of the i n e f f i c i e n c y t h a t stems from the r e p e t i t i v e o p erations and f i l e d u p l i c a t i o n i n v o l v e d i n s t o r i n g and handling r e c o r d s i n each d e p a r t -ment. The above mentioned s e r i e s of o p e r a t i o n s r e q u i r e d to process business data f r e q u e n t l y i n v o l v e s c o n s i d e r a b l e r e c l a s s i f i c a t i o n of data and the need t o make numerous r e l a t i v e l y simple l o g i c d e c i s i o n s . The obvious way to i n c r e a s e the e f f i c i e n c y of data p r o c e s s i n g i s to mechanize the o p e r a t i o n s d u p l i c a t e d at each stage. The concept o f mechanizing r e p e t i t i v e o p e r a t i o n s i s one element of R. H. Gregory and R. L. Van Horn, op. c i t . , p. 289. 94 " I n t e g r a t e d d a t a p r o c e s s i n g , " t h e o t h e r b e i n g t h e e l i m i n -a t i o n o f d u p l i c a t i o n o r f r a g m e n t a t i o n . The i n t e g r a t e d d a t a p r o c e s s i n g ( I D P ) c o n c e p t e v o l v e d p r i m a r i l y b e c a u s e t h e c o s t a n d e f f o r t r e q u i r e d t o m e c h a n i z e p r o c e d u r e s u s i n g E D P e q u i p m e n t d i c t a t e d t h a t p r o c e s s i n g p r o c e d -u r e s be d e v i s e d w h i c h c a p i t a l i z e d o n s u c h o b v i o u s s t r e n g t h s o f e l e c t r o n i c c o m p u t e r s a s s p e e d , a c c u r a c y , a n d t h e a b i l i t y t o f o l l o w i n t e r n a l l y s t o r e d p r o g r a m s w h i c h i n c o r p o r a t e s e q u e n t i a l c a l c u l a t i o n s a n d l o g i c o p e r a t i o n s . A l t h o u g h i n t e g r a t i o n d o e s n o t s p e c i f i c a l l y r e q u i r e t h a t e l e c t r o n i c e q u i p m e n t be u s e d , common u s a g e o f t h e t e r m " i n t e g r a t e d d a t a p r o c e s s i n g " n o w c a r r i e s w i t h i t t h e i m p l i c i t a c c e p t -a n c e t h a t e l e c t r o n i c e q u i p m e n t w i l l be u s e d . I n a f u l l y i n t e g r a t e d s y s t e m , a c c o u n t i n g o p e r a t i o n s s u c h a s p a y r o l l , s a l e s , a c c o u n t s r e c e i v a b l e , i n v e n t o r y c o n t r o l , e t c . , a r e p e r f o r m e d w i t h o u t i n t e r s p e r s e d m a n u a l o p e r a t i o n s . I n r e t a i l i n g , t h e I D P c o n c e p t w o u l d r e q u i r e p o i n t - o f - s a l e r e c o r d e r s c o u p l e d w i t h a s y s t e m o f o n - l i n e o r i n - l i n e p r o c e s s i n g . H o w e v e r , i n t e g r a t i o n i s a r e l a t i v e t e r m a n d c e r t a i n l y t h e r e a r e d e g r e e s o f i n t e g r a t i o n . The r e a l l y s i g n i f i c a n t p o i n t t o n o t e a b o u t t h e I D P c o n c e p t i s t h a t i t r e p r e s e n t s a b r o a d p o i n t o f v i e w . R a t h e r t h a n e m p h a s i z i n g E D P e q u i p m e n t a s so many w r i t e r s d i d a t a n e a r l y s t a g e o f a p p l i c a t i o n o f e l e c t r o n i c e q u i p -ment t o b u s i n e s s , t h e I D P c o n c e p t r e p r e s e n t s a r e l a t i v e * * L . G . I f f t , " I n t e g r a t i o n o f D a t a P r o c e s s i n g a n d I t s I m p a c t o n A c c o u n t i n g , " NAA B u l l e t i n , 44:17, S e p t e m b e r , 1962. 95 de-emphasis of equipment. The adherents to t h i s concept s t r i v e i n s t e a d to d e v i s e e f f i c i e n t t o t a l accounting systems of which EDP equipment i s only one very c r u c i a l component and, i n f a c t , the component that u s u a l l y p r o v i d e s the impetus f o r such system changes. Viewed i n t h i s context, IDP r e p r e s e n t s r e a l l y an i n e v i t a b l e maturing that occurs c o n c u r r e n t l y w i t h a l e s s e n i n g degree of mystery i n men's minds r e g a r d i n g the p r i n c i p l e s of EDP equipment o p e r a t i o n . The l a r g e volume of data accumulated by business o r g a n i z a t i o n s has q u i t e n a t u r a l l y l e d to l a r g e volumes of output i n f o r m a t i o n . Mechanization of accounting proced-ures has speeded up these o p e r a t i o n s , as w e l l as opening up new p o s s i b i l i t i e s f o r s e c u r i n g business i n f o r m a t i o n which p r e v i o u s l y was too c o s t l y or time consuming to o b t a i n . While h i g h speed data p r o c e s s i n g and data.output have encouraged an i n c r e a s e i n the i n f o r m a t i o n a v a i l a b l e to managers, the a b i l i t y t o program computers to output only e x c e p t i o n r e p o r t s has, on the other hand, made i t p o s s i b l e to e l i m i n a t e a great d e a l of i n f o r m a t i o n output. Another c h a r a c t e r i s t i c of business data p r o c e s s i n g of p a r t i c u l a r importance to r e t a i l e r s i s the frequent change i n the b a s i c data w i t h which the company works. Data such as customer names, addresses, p r i c e s , merchan-d i s e c l a s s i f i c a t i o n s , employee names and wage r a t e s , e t c . , are c o n s t a n t l y being a l t e r e d . The more h i g h l y mechanized a data p r o c e s s i n g system becomes, the harder i t i s to cope 96 w i t h these changes. A t t e n t i o n must t h e r e f o r e be g i v e n to reduce or more e f f i c i e n t l y handle these changes i n b a s i c data so as not to o f f s e t the advantages of f a s t e r equip-ment. Because of the d i v e r s i t y of i t s i n v e n t o r i e s and the l a r g e number of customers and vendors who f i g u r e i n the b a s i c t r a n s a c t i o n s , r e t a i l business i s a l s o c h a r a c t e r i z e d by the need to s t o r e l a r g e r volumes of i n a c t i v e i n f o r -mation r e l a t i n g to business a c t i v i t y than other businesses of comparable s i z e . The data r e t e n t i o n and r e f e r e n c e problem a s s o c i a t e d w i t h t h i s need i n many businesses n e c e s s i t a t e s storage of voluminous f i l e s and r e c o r d s while i n f o r m a t i o n i s o f t e n r e t r i e v e d only at c o n s i d e r a b l e c o s t i n terms of time and money. T h i s i n f o r m a t i o n may be of the t e m p o r a r i l y i n a c t i v e v a r i e t y ( i . e . names and addresses of customers, accounts r e c e i v a b l e l e d g e r s , i n v e n t o r y c o n t r o l r e c o r d s ) or permanently i n a c t i v e i n f o r m a t i o n which c o n s i s t s l a r g e l y of completed business t r a n s a c t i o n s . In e l e c t r o n i c p r o c e s s i n g systems t h i s i n f o r m a t i o n can be st o r e d much more c o n v e n i e n t l y and compactly w i t h access to s e l e c t e d i n f o r m a t i o n more r e a d i l y o b t a i n a b l e than i s p o s s i b l e w i t h manual systems which are s t i l l w i dely used. V. J . Dankis, "Random Access Equipment - I t s E f f e c t Upon Accounting," NAA B u l l e t i n , 4 4 : 3 7 i December, 1 9 6 2 . 9 7 O b j e c t i v e s of Management i n A c q u i r i n g E l e c t r o n i c Data  P r o c e s s i n g Equipment The EDP investment through management eyes. Inherent i n the c h a r a c t e r i s t i c s of r e t a i l data handling problems are q u i t e o b v i o u s l y some of the o b j e c t i v e s t h a t management hopes to achieve through the i n t r o d u c t i o n of EDP equip-ment and the c r i t e r i a by which t h i s investment i s judged. O c c a s i o n a l l y , the a c q u i s i t i o n of EDP equipment may be prompted by the p r e s t i g e f a c t o r . The p r e s i d e n t or perhaps c o n t r o l l e r , has a f t e r a c u r s o r y examination of the s u b j e c t , recommended that a study be done on the matter f o r the purpose of i n s t a l l i n g new equipment. But how would i n t e l -l i g e n t management examine t h i s q u e s t i o n and what would be t h e i r b a s i s f o r making a d e c i s i o n ? U n d e r l y i n g any management e v a l u a t i o n must be a b a l a n c i n g of b e n e f i t s as opposed to c o s t s . Some weighting must be assigned a l l b e n e f i t s and c o s t s d e s p i t e the f a c t t h a t i n t h i s case both are p a r t l y t a n g i b l e and p a r t l y i n t a n g i b l e i n the sense that they may or may not be measur-a b l e . Since i n f o r m a t i o n and r e p o r t s are r a r e l y bought and s o l d , " p r i c e s " are not a v a i l a b l e thus p r e s e n t i n g some unique v a l u a t i o n problems. The b e n e f i t s and c o s t s f a c t o r s , i t must a l s o be remembered, have r e f e r e n c e to both present and f u t u r e c o n d i t i o n s and some d e c i s i o n must n e c e s s a r i l y be made as to the extent that f u t u r e c o n d i t i o n s w i l l c o l o u r one's judgment. P o t e n t i a l s a v i n g s , which may be o n l y w i s h f u l t h i n k i n g , have been much i n evidence i n 98 r e p o r t s on u n s u c c e s s f u l i n s t a l l a t i o n s . One must keep i n mind that from management's p o i n t of view investments i n EDP i n s t a l l a t i o n s are subject to the same r e t u r n on investment formulas as are other 7 p r o j e c t s and before any r e t u r n on investment a n a l y s i s can be done c a r e f u l c o n s i d e r a t i o n must be g i v e n to what o f t e n has been over o p t i m i s t i c saving and c o s t e s t i m a t e s . Management must determine i f the p r o j e c t conforms to company c a p i t a l investment p o l i c i e s , t h a t r i s k i s taken i n t o account along w i t h p o t e n t i a l b e n e f i t s , and t h a t a l l c o s t f a c t o r s are r e a l i s t i c a l l y i n c l u d e d . In recent y e a r s , management has a l s o been more cognizant of the f a c t t h at discounted r a t e of r e t u r n c a l c u l a t i o n s which compensate f o r d e f e r r e d b e n e f i t s and c o s t s , r e c o g n i z e economic r e a l -i t i e s t o a g r e a t e r extent than do outmoded payback and book r a t e of r e t u r n investment c a l c u l a t i o n s . T h e r e f o r e , claims of p o t e n t i a l savings by the discount methods are more l o g i c a l l y i n t e g r a t e d i n t o the c o s t a n a l y s i s . Once co s t estimates are determined as e s s e n t i a l l y c o r r e c t , i f the r e s u l t s are f a v o r a b l e i t i s o f t e n r e l a t i v e l y easy to judge whether or not the company can a f f o r d the investment on t h a t b a s i s alone; however,, the a b i l i t y and w i l l i r g n e s s to c a r r y out the program and change business methods are l e s s e a s i l y determined. "Management Role i n E l e c t r o n i c Data P r o c e s s i n g , " I n d u s t r i a l Conference Board, S t u d i e s i n Business P o l i c y , No. 92, p. 25. 99 As mentioned, much of management's t h i n k i n g on these questions i s a f f e c t e d by i t s b i a s or l a c k of b i a s . Assuming a pragmatic p o i n t of view on the pa r t of manage-ment, some of the t a n g i b l e s or i n t a n g i b l e s they would c o n s i d e r w i l l be enumerated. Tangi b l e management c o n s i d e r a t i o n s . The i n c r e a s e d i n t e r e s t on the p a r t of many r e t a i l e r s i n the use of more advanced data p r o c e s s i n g equipment and techniques has been st i m u l a t e d by s e v e r a l f a c t o r s which have emerged from experience gained i n the data p r o c e s s i n g f i e l d . Although much has been made of the i n c r e a s e s i n p r o d u c t i v i t y i n such f i e l d s as the manufacturing and p r o c e s s i n g i n d u s t r i e s where automated equipment has made p o s s i b l e a s i z e a b l e i n c r e a s e i n output per man hour, the c l e r i c a l labour f i e l d has enjoyed no such b e n e f i t s to o f f s e t the i n c r e a s i n g wage s c a l e . T h i s , coupled w i t h the expansion of paper work due to the growing complexity of business mentioned e a r l i e r has r e s u l t e d i n an i n c r e a s i n g r e c o g n i t i o n that success or f a i l u r e may ve r y w e l l depend on management's a b i l i t y t o c o n t r o l c l e r i c a l labour c o s t s . Recent s t u d i e s c l e a r l y p o i n t t o s i z e a b l e r e d u c t i o n s i n computer c o s t s and experience i n some areas has demon-s t r a t e d a r e d u c t i o n i n per u n i t c o s t of some t h i r t y times • 8 between 1957 and 1962. These f a c t s are causing a 8 " L a t e s t Developments i n the F i e l d of Data Proces-s i n g , " R e t a i l C o n t r o l . 32 :8 , March, 1963. 100 c o n t i n u i n g r e a p p r a i s a l by many o r g a n i z a t i o n s r e g a r d i n g the f e a s i b i l i t y of using a computer. Data p r o c e s s i n g a p p l i -c a t i o n s which were judged to be too c o s t l y f o r computer p r o c e s s i n g a few years ago are being r e - e v a l u a t e d i n the l i g h t of today's lower per u n i t c o s t and q u i t e f r e q u e n t l y they d i s c l o s e EDP can now o f f e r d e f i n i t e advantages. Another f a c t o r t h a t has a bearing on the c o s t and e f f i c i e n c y aspects of EDP o p e r a t i o n i s company experience r e l a t i n g to the s c a l e of the i n s t a l l a t i o n . The l a r g e s c a l e computer f a c i l i t i e s supported by l a r g e businesses have g e n e r a l l y proven t o be capable of handling data at lower per u n i t c o s t than s m a l l i n s t a l l a t i o n s . As a p o i n t of r e f e r e n c e , l a r g e s c a l e f a c i l i t i e s might be c o n s i d -ered as those p o s s e s s i n g the p r o c e s s i n g c a p a b i l i t i e s of the IBM 7000 s e r i e s computer, while s m a l l s c a l e f a c i l i t i e s would be i n the IBM 1400 s e r i e s range. To the knowledge of the author, no l a r g e s c a l e f a c i l i t i e s as d e f i n e d by the above c r i t e r i o n now e x i s t i n the Vancouver area. The e f f e c t i v e n e s s of l a r g e c e n t e r s i s not due s o l e l y t o the more e f f i c i e n t p r o c e s s i n g c a p a c i t i e s of l a r g e compu-t e r s . C o n s i d e r a b l e advantages e x i s t i n the l e v e l of t e c h n i c a l s k i l l s which can be supported by l a r g e c e n t e r s . Small f a c i l i t i e s w i t h s m a l l t e c h n i c a l s t a f f s are l e s s able t o a t t r a c t top c a l i b r e t e c h n i c i a n s so e s s e n t i a l to the e f f e c t i v e o p e r a t i o n of a data p r o c e s s i n g c e n t e r . Even though there are many w e l l - r u n , s m a l l f a c i l i t i e s 101 managed by very capable people, i t has become i n c r e a s -i n g l y e v i d e n t t h a t the f a i l u r e s i n the data p r o c e s s i n g f i e l d , and p a r t i c u l a r l y i n the s m a l l computer f i e l d , are due f a r more to bungling by p o o r l y equipped t e c h n i c a l people, than by d e f i c i e n c i e s i n the equipment i t s e l f . D e a l i n g more w i t h s p e c i f i c s , the most obvious c o s t components i n v o l v e d i n EDP i n s t a l l a t i o n s a r e , of course, those of the computer i t s e l f and p e r i p h e r a l equipment. Although t h i s equipment may be bought o u t r i g h t , the l a r g e i n i t i a l c a p i t a l o u t l a y and the r a p i d r a t e of t e c h -n i c a l obsolescence of equipment due t o the a c c e l e r a t e d development i n t h i s f i e l d have tended to discourage t h i s approach. The more c o n v e n t i o n a l arrangement f o r the company op e r a t i n g i t s own i n s t a l l a t i o n s has been a l e a s i n g arrange-ment w i t h the manufacturer. In view of the preceding questions r a i s e d r egarding the e f f e c t i v e n e s s of s m a l l c e n t e r s , many businesses i n Vancouver u t i l i z e f a c i l i t i e s of an e s t a b l i s h e d s e r v i c e bureau operated by equipment manufacturers t o handle data which lends i t s e l f to o f f -the-premises p r o c e s s i n g . While i t i s p o s s i b l e f o r a s e r v i c e bureau to provide the f a c i l i t i e s of a l a r g e s c a l e computer and competent t e c h n i c a l a s s i s t a n c e otherwise u n a v a i l a b l e to the s m a l l user, the problem of o f f - t h e -premises p r o c e s s i n g of data by an o u t s i d e agency f r e q u e n t l y presents unique systems problems. These problems may n u l l i f y the advantages or v i o l a t e p o l i c i e s r e g a r d i n g the p r o t e c t i o n of p r o p r i e t o r y i n f o r m a t i o n . Another a l t e r n a t i v e which has been used to a l i m i t e d degree i n the United S t a t e s i s the establishment of a p a r t i c i p a t i n g center whereby a group of r e t a i l e r s w i t h common problems have banded together i n community programs. So f a r , these i n s t a l l a t i o n s have g i v e n encouraging signs of success. For owner operated i n s t a l l a t i o n s , another c o s t compo-nent to be considered i s the maintenance c o s t . EDP equip-ment i s d e l i c a t e and complex, r e q u i r i n g a hig h degree of t e c h n i c a l know-how to l o c a t e and remedy equipment malfunc-t i o n s . Equipment manufacturers maintain a competent s t a f f of t e c h n i c a l p e r sonnel and the c o n v e n t i o n a l l e a s i n g agreement p r o v i d e s f o r a s e r v i c i n g arrangement. Programming c o s t s and expenses i n v o l v e d i n the i n i t i a l t r i a l p e r i o d of o p e r a t i o n has, i n the pa s t , been a f r e q u e n t l y n e g l e c t e d f a c t o r . T h i s i s understandable as l a c k of previous experience may very w e l l r e s u l t i n a und e r e s t i m a t i o n of the c o m p l e x i t i e s i n v o l v e d . Because these problems are a d i r e c t f u n c t i o n of the t e c h n i c a l competence of programmers and o p e r a t o r s , t h i s cost can be h i g h l y v a r i a b l e . I t i s i n the nature of a t r a i n i n g c o s t which, because of the shortage of q u a l i f i e d p e r s o n n e l , i s o f t e n unavoidable. Another expense sometimes ne g l e c t e d i s t h a t i n v o l v e d i n o p e r a t i n g the EDP system and the o l d system i n p a r a l l e l f o r a p e r i o d of time. T h i s i s known i n the t e c h n i c a l j a r g o n as the "debugging" p e r i o d d u r i n g which time problems 1 0 3 t h a t m i g h t h a v e b e e n p r e v i o u s l y o v e r l o o k e d a r e e l i m i n a t e d f r o m t h e s y s t e m . E D P s y s t e m s , o n c e o p e r a b l e , f u n c t i o n q u i c k l y a n d e f f i c i e n t l y p r o v i d i n g e v e r y t h i n g r u n s s m o o t h l y . M a l f u n c t i o n s c a n c a u s e c h a o s a t c r i t i c a l p e a k p r o c e s s i n g p e r i o d s a n d r e s u l t i n i n c o n v e n i e n c e t o c u s t o m e r s a n d t h e b u s i n e s s a l i k e . O n e l o c a l d e p a r t m e n t s t o r e c o n t r o l l e r c i t e d t h e e x p e r i e n c e t h e i r o r g a n i z a t i o n h a d w i t h a s u p p l i e r w h o h a d h i t a s n a g w i t h i t s n e w l y i n s t a l l e d c o m p u t e r . T h i s s u p p l i e r , a f t e r h a v i n g c o n s i d e r a b l e d i f f i c u l t y w i t h i t s a c c o u n t s p a y a b l e o p e r a t i o n s , h a d i n d e s p e r a t i o n i n f o r m e d i t s c u s t o m e r s t o p a y t h e i r a c c o u n t s a c c o r d i n g t o w h a t w a s t h o u g h t t o b e o w i n g . N e e d l e s s t o s a y , t h i s s a m e d e p a r t m e n t s t o r e w h i c h w a s i n t h e p r o c e s s o f i r o n i n g o u t t h e k i n k s i n i t s o w n n e w l y i n s t a l l e d e q u i p m e n t h a d m a d e p r o v i s i o n f o r t h e p a r a l l e l o p e r a t i o n s o f i t s s y s t e m s f o r a s u i t a b l e p e r i o d o f t i m e . T h e f e a s i b i l i t y s t u d y w h i c h s h o u l d p r e c e d e a n y i n s t a l l a t i o n r e q u i r e s a n o u t l a y w h i c h v a r i e s i n p r o p o r t i o n t o t h e s c o p e o f t h e s t u d y . T h o s e s t o r e s w h i c h r e q u i r e a n e x t e n s i v e r e v i s i o n o f s y s t e m s n a t u r a l l y w i l l h a v e t o b u d g e t f o r a m u c h h i g h e r o u t l a y t h a n t h e s t o r e w h i c h h a s u n d e r t a k e n a c o n t i n u a l r e v i s i o n o f a c c o u n t i n g s y s t e m s t o m e e t c h a n g i n g c i r c u m s t a n c e s . T h e l a t t e r o r g a n i z a t i o n , i n a d d i t i o n , i s m u c h m o r e l i k e l y t o b e a b l e t o r e l y o n p e r s o n n e l i n t e r n a l t o t h e f i r m w h o a r e q u a l i f i e d t o h a n d l e t h e s y s t e m s s t u d y . 104 F i n a l l y , the pe r s o n n e l o p e r a t i n g c o s t s and the costs of m a t e r i a l s such as p r i n t i n g forms, c a r d s , tape, e t c . , must be i n v e s t i g a t e d t o determine the c o n t i n u i n g expendi-t u r e that the i n s t a l l a t i o n r e q u i r e s . The most notable c o s t savings which c o u l d r e s u l t from an EDP i n s t a l l a t i o n would be through the r e d u c t i o n i n the c l e r i c a l p e r s o n n e l r e q u i r e d and the sav i n g i n h e r e n t i n b e t t e r i n v e n t o r y c o n t r o l . The lower investment i n inve n t o r y coupled w i t h i n c r e a s e d turnover r a t i o s and the decrease i n the amount of markdowns that have t o be taken i s f e l t to be the area of r e t a i l i n g today where the g r e a t e s t s t r i d e s can be made. T h i s p a r t i c u l a r p o i n t w i l l be expanded l a t e r . The i n t r o d u c t i o n of new c a p i t a l i n the form of EDP equipment to the c l e r i c a l procedures of busi n e s s has in c r e a s e d the p r o d u c t i v i t y of op e r a t i n g personnel s e v e r a l times, t h i s i n c r e a s e being a f u n c t i o n of the degree of mechanization and i n t e g r a t i o n . Of p a r t i c u l a r concern t o r e t a i l e r s i s the need to stop or r e v e r s e the trend of expense percentages i n the l a s t decade. A Harvard r e s e a r c h r e p o r t on r e t a i l department s t o r e s i n the U n i t e d S t a t e s has r e v e a l e d t h a t expenses have been t a k i n g an i n c r e a s i n g o b i t e out of the s a l e s d o l l a r . T h i s i s a tr e n d which many yM. P. McNair and E. G. May, "The American Department S t o r e , 1920-1960," Harvard U n i v e r s i t y Bureau of Business  Research B u l l e t i n ; No. 166:51, 1963. 1 0 5 r e t a i l e r s i n C a n a d a a g r e e i s a l s o t r u e i n t h i s c o u n t r y . C u t t i n g d o w n o n c l e r i c a l c o s t s i s a n i m p o r t a n t s t e p t o w a r d r e c t i f y i n g t h i s s i t u a t i o n . I n t a n g i b l e management c o n s i d e r a t i o n s , t h e i n t a n -g i b l e f a c t o r m o s t c o m m o n l y m e n t i o n e d i n c o n n e c t i o n w i t h E D P i n s t a l l a t i o n s i s t h e c h a n g e d m e t h o d s o f management c o n t r o l . E D P p r e s e n t s new o p p o r t u n i t i e s f o r p l a n n i n g t h e f o r m c o n t e n t a n d t i m i n g o f r e p o r t s w h i c h p r e v i o u s l y may n o t h a v e b e e n e c o n o m i c a l l y a v a i l a b l e t o m a n a g e m e n t . I n f a c t , s o m u c h i n f o r m a t i o n i s made a v a i l a b l e , i t i s n e c e s s a r y f o r management t o g u a r d a g a i n s t o v e r i n d u l g e n c e i n r e p o r t g e n e r a t i o n . The b e n e f i t s o f t h e i n c r e a s e d c o n t r o l a r e b y n o means c o m p l e t e l y i n t a n g i b l e a s t h e p o t e n t i a l f o r d e c r e a s e d i n v e n t o r y i n v e s t m e n t r e f e r r e d t o a b o v e p o i n t s o u t . The i n c r e a s e d s p e e d a n d a c c u r a c y s y n o n y m o u s w i t h E D P m e t h o d s i n some r e s p e c t s r e p r e s e n t b o t h t a n g i b l e a n d i n t a n -g i b l e b e n e f i t s . T h e c e n t r a l i z a t i o n o f d a t a p r o c e s s i n g t h a t may be r e q u i r e d t o g e t a s u f f i c i e n t v o l u m e o f t r a n s a c t i o n s a n d t h e i n t e g r a t i o n u s u a l l y n e c e s s a r y f o r s u c c e s s f u l a u t o m a t i n g o f p r o c e d u r e s may a l t e r w o r k f l o w r e l a t i o n s i n d e p a r t m e n t s o r g e o g r a p h i c a l l y s e p a r a t e d u n i t s . The a l t e r a t i o n i n p r a c t i c e s t o meet t h e r e q u i r e m e n t s o f t h e c o m p u t e r s y s t e m c a n meet w i t h c o n s i d e r a b l e p e r s o n n e l r e s i s t a n c e . F i r m management s u p p o r t m u s t t h e r e f o r e a c c o m p a n y t h e s e c h a n g e s . A n o t h e r p o i n t t o c o n s i d e r i s t h a t t h e t e n d e n c y t o w a r d 106 a e n t r a l i z a t i o n may be c o n t r a r y perhaps to a g e n e r a l p o l i c y of d e c e n t r a l i z a t i o n . The speed and accuracy of the new equipment i s f e l t by many users to l e a d to improved customer s e r v i c e , thus promoting customer good w i l l . Although o b v i o u s l y t h i s could be a s i g n i f i c a n t f a c t o r , understandably management i s loathe to attempt to j u s t i f y i t s investment by r e l y i n g too h e a v i l y on such nebulous c o n s i d e r a t i o n s . Cost estimates a r r i v e d at i n these s t u d i e s which attempt a b a l a n c i n g of c o s t s and b e n e f i t s a r e , at best, only rough estimates and e s p e c i a l l y so without c o n s i d e r i n g s p e c i f i c equipment. Once the t a n g i b l e investments versus c o s t savings have been estimated, i n e v i t a b l y the d e c i s i o n t u r n s on some v a l u e judgment by management i n e v a l u a t i n g the net cost versus expected i n t a n g i b l e b e n e f i t s . T h i s i s a d e c i s i o n which can only be made by those who are i n t i m a t e l y f a m i l i a r w i t h the p a r t i c u l a r o p e r a t i o n . L o c a l o p i n i o n as to the f a c t o r s t o be weighed i n making the d e c i s i o n , p l a c e l i t t l e f a i t h i n hazy f u t u r e b e n e f i t s . The e x e c u t i v e s i n t e r v i e w e d have, i n the case of Vancouver i n s t a l l a t i o n s , based t h e i r e x p e c t a t i o n of reapi n g net t a n g i b l e b e n e f i t s w i t h i n a year or two of o p e r a t i o n s . A p p l i c a t i o n of E l e c t r o n i c Data P r o c e s s i n g i n R e t a i l i n g K. R. Lavery, at the 1963 C o n t r o l l e r s ' Congress Convention sponsored by the N a t i o n a l R e t a i l Merchants' A s s o c i a t i o n (NRMA) r e v e a l e d some i n t e r e s t i n g r e s u l t s h i s 107 f i r m had compiled on the use of e l e c t r o n i c computers 10 i n s t a l l e d or on order i n merchandising o r g a n i z a t i o n s . T h i s study i n d i c a t e d t h a t i n i960 there were f o u r computers i n department and s p e c i a l t y s t o r e s i n the United S t a t e s ; by 1962 t h i s t o t a l had i n c r e a s e d to 78. The a p p l i c a t i o n s on these computers which have had t o j u s t i f y the expense of the EDP i n s t a l l a t i o n s are: a p p l i c a t i o n s p a y r o l l and accounting 22 merchandise c o n t r o l (open-to-buy) 19 s a l e s a u d i t and a n a l y s i s 18 accounts payable 17 accounts r e c e i v a b l e lk others 3 The study f u r t h e r notes t h a t , based on r e c e n t department st o r e o p e r a t i n g r e s u l t s , the expenses as a percentage of the s a l e s d o l l a r f o r v a r i o u s expense components a r e : merchandise pla n n i n g and c o n t r o l expense 3% r e c e i v a b l e s ( c r e d i t and b i l l i n g ) expense 2% p a y r o l l and accounting expense .6% s a l e s a u d i t and accounts payable expense .2% Because merchandise planning and c o n t r o l expense accounts f o r 63 per cent of the t o t a l above expenses and only 19 K. R. Lavery, "The Future Role of Computers i n R e t a i l i n g , " R e t a i l C o n t r o l , 32:37, September, 1963. 108 out of 93 a p p l i c a t i o n s or 20 per cent, are concerned w i t h merchandise c o n t r o l , these s t u d i e s h i g h l i g h t an area where, i t i s suggested, c o n s i d e r a b l y more can be done. The r a p i d d e c l i n e i n equipment c o s t s t h a t has been p a r t i c u l a r l y evident i n the 1960's has done much to change the complexion of the scope of the computer a p p l i c a t i o n s . In the 1950's when c o s t s were r e l a t i v e l y high, manufac-t u r e r s were of the o p i n i o n t h a t the best a p p l i c a t i o n s f o r a computer i n a r e t a i l s t o r e were those which r e q u i r e d l o g i c such as s a l e s a u d i t , i n v e n t o r y c l a s s i f i c a t i o n or 11 merchandise i n f o r m a t i o n , and s a l e s a n a l y s i s . A p p l i -c a t i o n s which r e q u i r e d a great d e a l of p r i n t out but a l i m i t e d amount of l o g i c and were t h e r e f o r e thought t o be of marginal a p p l i c a t i o n f o r the computer were accounts r e c e i v a b l e s , accounts payables, and p a y r o l l . These opin i o n s were c o n t r a r y to what was u s u a l l y done at t h i s time by the few i n s t a l l a t i o n s t h a t were oper-a b l e . The a p p l i c a t i o n s were concentrated i n the l a t t e r accounts r e c e i v a b l e s , accounts payables, and p a y r o l l a p p l i c a t i o n s . Now, however, because of decreased c o s t s , these a p p l i c a t i o n s are g e n e r a l l y conceded to be the areas where EDP systems can be p r o f i t a b l y employed. Two of the fou r major department s t o r e s i n Vancouver which have l o c a l i n s t a l l a t i o n s , undertook t h e i r systems l l E l e c t r o n i c Data P r o c e s s i n g f o r R e t a i l e r s (New York : NRMA, R e t a i l Research I n s t i t u t e ) , p p . 9-35. 109 conversions t o handle data p r o c e s s i n g of accounts r e c e i v -a b l e s , p a y r o l l , and accounts payables i n that order durirg the i n i t i a l stages of t h e i r o p e r a t i o n . But s t i l l the anomally e x i s t s — w h y , when merchandising seems t o be such a p o t e n t i a l l y f r u i t f u l area f o r a p p l i -c a t i o n of EDP, has there not been more done? L o c a l l y , a l t h o u g h e x e c u t i v e s expressed i n t e r e s t i n the p o s s i b i l i t i e s f o r t h i s type of a p p l i c a t i o n , l i t t l e had been done or i s planned i n the near f u t u r e f o r the mechanization of t h i s a r e a. The problem w i l l be examined i n the next chapter, p a r t i c u l a r l y w i t h r e s p e c t to f a s h i o n merchandising which appears to present e s p e c i a l l y promising o p p o r t u n i t i e s . In a l l f a i r n e s s t o l o c a l r e t a i l e r s , i t should be mentioned t h a t the l a c k of progress i n t h i s area i s due i n no s m a l l p a r t t o i n h e r e n t i n s t a b i l i t y of the f a s h i o n merchandising f i e l d . The problem i s one f o r which there i s no simple s o l u t i o n . I I I . SOME MAJOR PROBLEMS IN RETAIL DATA PROCESSING The Lag of R e t a i l i n g i n the I n t r o d u c t i o n of E l e c t r o n i c  Data P r o c e s s i n g Current p e r i o d i c a l l i t e r a t u r e of the r e t a i l i n g f i e l d such as R e t a i l C o n t r o l , R e t a i l Merchandising ( f o r m e r l y Canadian V a r i e t y Management) S t o r e s and J o u r n a l of  R e t a i l i n g , c o n t a i n a r t i c l e s i n each i s s u e which e n t h u s i -a s t i c a l l y e x p l a i n , q u e s t i o n and endorse the p r i n c i p l e s of 110 EDP. L i v e l y d i s c u s s i o n s of t h i s s o r t a re u s u a l l y i n d i c a -t i v e of a h e a l t h y advancement i n human knowledge and the development i n q u e s t i o n i s no d i f f e r e n t . Y e t the i n e s c a p -a b l e f a c t r e m a i n s , r e t a i l i n g as compared w i t h o t h e r i n d u s -t r i e s has la g g e d i n the a d o p t i o n of EDP. A g a i n r e f e r r i n g 12 t o Mr. L a v e r y ' s a d d r e s s , he c i t e s the f o l l o w i n g s t a t i s -t i c s r e g a r d i n g the use of computers i n the U n i t e d S t a t e s : t o t a l com- number of computers number o f computers p u t e r s i n i n s t a l l e d or on i n s t a l l e d or on use a t end o r d e r i n a l l r e t a i l o r d e r i n department of m e r c h a n d i s i n g and s p e c i a l t y y e a r o r g a n i z a t i o n s s t o r e s  1960 10 4 1961 8,800 1962 13,500 483 78 1963 20,000 The same p a t t e r n r e f l e c t e d i n the above s t a t i s t i c s i s e q u a l l y t r u e i n the Vancouver a r e a . B u s i n e s s o u t s i d e t h e r e t a i l t r a d e have i n c o r p o r a t e d EDP methods i n t o t h e i r o p e r a t i o n s , b o t h a t a much e a r l i e r date and i n g r e a t e r numbers t h a n was t r u e of the r e t a i l e r s . Companies s u c h as K e l l y - D o u g l a s , B. C. Telephone, M c M i l l a n - B l o e d e l l and P o w e l l R i v e r Company L i m i t e d , B. C. E l e c t r i c , t o name o n l y a few, have been u s i n g EDP equipment f o r some t i m e . •K. R. L a v e r y , op. c i t . I l l Measured by numbers alone, the comparisons are not very f a v o r a b l e f o r the r e t a i l e r s . The i n t e n t i o n here s h a l l be to t r y to determine some of the reasons f o r t h e i r l a t e s t a r t by examining some of the major problems which have impeded the more r a p i d a p p l i c a t i o n of the new techniques. R e t a i l Data P r o c e s s i n g Problems The f e a s i b i l i t y study and system problems. Company experience i n EDP a p p l i c a t i o n s have shown that a necessary p r e r e q u i s i t e to a s u c c e s s f u l i n s t a l l a t i o n i s c a r e f u l and thorough advance planning which has the a c t i v e support and 1 3 p a r t i c i p a t i o n of top management. An e x p l i c i t manage-ment statement of the o b j e c t i v e s and statement of the c r i t e r i a by which the f e a s i b i l i t y of the p r o j e c t i s to be determined r e p r e s e n t s important c o n t r i b u t i o n s of manage-ment i n shaping the scope and depth of the study. In a d d i t i o n , management must arrange f o r the o r g a n i z a t i o n of the study group which should i n c l u d e competent men from the v a r i o u s departments a f f e c t e d , i t must ensure that the group have access to the r e q u i r e d data, i t must provide the funds needed f o r the f e a s i b i l i t y study, and, f i n a l l y , i t must e s t a b l i s h the permanent o r g a n i z a t i o n f o r computer o p e r a t i o n s . This i n c l u d e s the d e f i n i t i o n of i t s r e s p o n s i -b i l i t i e s , a u t h o r i t y , and r e l a t i o n s h i p to other company u n i t s . XJE, C. Vournas, "Avoiding the P i t f a l l s of EDP I n s t a l l a t i o n s , " NAA B u l l e t i n , ¥f : * + 9 , May, 1 9 6 3 . 112 An extremely important phase of the f e a s i b i l i t y study i s the study of c u r r e n t systems and procedures. The d e s i g n of sound i n t e r n a l systems which achieve the i n t e -g r a t i o n necessary to e f f i c i e n t mechanized data p r o c e s s i n g i s based on the a n a l y s i s of present systems and the d i s c o v e r y of those d e f i c i e n c i e s t h a t can lead to r e c u r -r i n g problems unless e l i m i n a t e d . Manufacturers have expressed the o p i n i o n t h a t p r o j e c t s i n r e t a i l i n g were r a r e l y thought through p r o p e r l y , they were p o o r l y c o o r d i n a t e d , and i t was necessary f o r the manufacturers to d e a l w i t h "too many bosses" i n a r e t a i l 14 o r g a n i z a t i o n . They f e l t t h a t i f there was an i n d i v i -d u a l assigned the r e s p o n s i b i l i t y of i n s t a l l i n g the equip-ment f o r h i s o r g a n i z a t i o n , who i n t u r n could c o o r d i n a t e w i t h other d i v i s i o n s of the s t o r e , i n s t a l l a t i o n s would be made more smoothly and more ec o n o m i c a l l y . F u r t h e r , i t was f e l t that accounting systems should be subjected t o r e g u l a r r e a p p r a i s a l and r e v i s i o n as has been the p r a c t i c e i n manu-f a c t u r i n g companies who, as a group, have made the t r a n -s i t i o n to EDP equipment much more e a s i l y than r e t a i l e r s . T h i s p r a c t i c e u n f o r t u n a t e l y has not been s i m i l a r i l y adopted to any g r e a t extent by r e t a i l e r s and a l l too f r e q u e n t l y accounting systems have been allowed to evolve sporad-i c a l l y . Changes of methods i n p r a c t i c e o f t e n are made 'E l e c t r o n i c Data P r o c e s s i n g f o r R e t a i l e r s , op. c i t . 1X3 s o l e l y on the b a s i s of expediency, which has r e s u l t e d i n procedures c o n t a i n i n g a multitude of exc e p t i o n s and s p e c i a l - h a n d l i n g s i t u a t i o n s . A comprehensive o v e r - a l l review of accounting systems might serve to e l i m i n a t e the need f o r as many e x c e p t i o n s i t u a t i o n s . Such reviews have the a d d i t i o n a l merit i n p r o v i d i n g a t r a i n i n g ground f o r development of competent personnel so e s s e n t i a l t o a s u c c e s s f u l i n s t a l l a t i o n . A t y p i c a l p a t t e r n f o r EDP development has been a piecemeal approach of s t a r t i n g w i t h perhaps one a p p l i -c a t i o n such as accounts r e c e i v a b l e and g r a d u a l l y expanding to i n c l u d e other a p p l i c a t i o n s as more p r o f i c i e n c y and confidence are gained. T h i s i s i n d i c a t i v e of an approach which f a i l s to co n s i d e r the data p r o c e s s i n g problem i n i t s broader out-l i n e s and i s f e l t by at l e a s t one l o c a l equipment manu-f a c t u r i n g e x e c u t i v e t o be an inadequate s o l u t i o n to the problem. This piecemeal method i s s i m i l a r t o t h a t f o l l o w e d by l o c a l i n s t a l l a t i o n s as w e l l . However, because of the l i m i t a t i o n s of personnel f a c e d by those attempting to o b t a i n a q u a l i f i e d s t a f f l o c a l l y , a broader approach has been very d i f f i c u l t . S t a n d a r d i z a t i o n of procedures and c l a s s i f i c a t i o n s . Because EDP systems have the c a p a b i l i t y of o p e r a t i n g q u i c k l y and a c c u r a t e l y , l a r g e work loads become keyed to 114 t i g h t time schedules i n order to o b t a i n maximum b e n e f i t from the machines. This s i t u a t i o n puts the onus on manage-ment to d e s i g n t h e i r systems to handle exceptions which can t i e up p r o c e s s i n g at c r u c i a l times. The m u t i l a t i o n of source documents which would r e q u i r e manual r a t h e r than mechanical r e p r o d u c t i o n i s an example of an e x c e p t i o n s i t u a t i o n which should, w i t h f o r e s i g h t , be prevented from slowing down p r o c e s s i n g . An a s s o c i a t e d problem i s the r e g i m e n t a t i o n of proced-ures necessary to the c o r r e c t p r e p a r a t i o n and subsequent handling of data. One department s t o r e c o n t r o l l e r expressed the o p i n i o n that p o i n t - o f - s a l e s r e c o r d e r s might be d i f f i -c u l t t o use i n an EDP system because of mishandling of the equipment by the r e l a t i v e l y u n trained p e r s o n n e l o p e r a t i n g them. A problem such as t h i s can be best s o l v e d by going d i r e c t l y t o the r o o t of the problem, namely, p r o v i d i n g a proper t r a i n i n g program to ensure a s t a n d a r d i z a t i o n of procedures. The complete c l a s s i f i c a t i o n of p e r s o n n e l , customers and merchandise i s another f e a t u r e of the department s t o r e t h a t could y i e l d s i g n i f i c a n t r e t u r n s i f improved upon. There i s a d e f i n i t e trend today toward numbering systems so e s s e n t i a l to the s o r t i n g , c l a s s i f i c a t i o n and processing of data i n business systems. Rather than having an e v e r -growing v a r i e t y of numbers such as a b i r t h c e r t i f i c a t e number, h o s p i t a l insurance number, unemployment insurance 115 motor v e h i c l e o p e r a t o r ' s permit number, e t c . , i t would be much simp l e r i f each person had one number assigned to him which would i d e n t i f y him i n a p o s i t i v e and unique way i n a l l h i s d e a l i n g s . A l o c a l EDP manufacturing e x e c u t i v e suggested t h a t the concept of a s i n g l e i d e n t i f i c a t i o n number being assigned t o an i n d i v i d u a l from the c r a d l e to the grave i s not too u n r e a l i s t i c as the newly implemented s o c i a l s e c u r i t y numbering system i n Canada might very w e l l form the b a s i s f o r such a u n i v e r s a l numbering system. The impact on the r e t a i l e r of t h i s numbering system c o u l d be s i g n i f i c a n t . Business would then be i n a p o s i t i o n to omit addresses on forms f o r wages, tax deductions, pension d e d u c t i o n s , union dues, e t c . , and would merely send a l i s t i n g of the a p p r o p r i a t e deductions t o the a f f e c t e d agencies i n the form of r e e l s of magnetic tape. The e a s i e r i d e n t i f i c a t i o n of people through u n i f o r m i t y i n , f o r example, an i n d i v i d u a l ' s s t o r e c r e d i t account number and bank account number would f a c i l i t a t e i d e n t i f y i n g customer payments on account. F u r t h e r b e n e f i t s that c o u l d c o n c e i v -a b l y come from t h i s numbering system are new methods of marketing a n a l y s i s . At p e r i o d i c i n t e r v a l s r e e l s of magnetic tape c o n t a i n i n g only the customer account number would be sent to the census bureau i n Ottawa which, f o r a modest f e e , would provide an a n a l y s i s of customers by sex, age group, m a r i t a l s t a t u s , age and sex of c h i l d r e n , income and other socio-economic data. The value of such an 116 a n a l y s i s both by i t s e l f and compared w i t h previous s i m i l a r analyses would be s u b s t a n t i a l i n terms of developing c u r r e n t merchandise p o l i c i e s as w e l l as longer range s t r a t e g i e s . S i m i l a r l y , the c l a s s i f i c a t i o n of merchandise and the use of a code system, p r e f e r a b l y a u n i v e r s a l code system used by a l l manufacturers, would s i m p l i f y c o n s i d e r a b l y s a l e s a n a l y s i s and accounting procedures connected w i t h o r d e r i n g , r e c e i v i n g and marking of merchandise. E f f o r t s to i n s t a l l u n i v e r s a l numbering systems t o i d e n t i f y merchan-d i s e and vendors which would be accepted and used throughout the i n d u s t r y are being Implemented on a l i m i t e d s c a l e i n 15 the United S t a t e s . Department s t o r e s s t u d i e d d i d have f a i r l y complete numbering systems i n f a s h i o n departments but as yet no comprehensive merchandise c l a s s i f i c a t i o n system i s used on a store-wide b a s i s . Input problems. I t i s g e n e r a l l y b e l i e v e d that the great breakthrough i n automation f o r the r e t a i l i n d u s t r y w i l l be the a b i l i t y t o capture r e l e v a n t account number and s a l e s check data economically i n machine language at the p o i n t - o f - s a l e . By using the by-products of t h i s t r a n s a c t i o n data, a l l the b e n e f i t s of i n t e g r a t i o n of proced-ures and f u l l c l a s s i f i c a t i o n of people and merchandise can be r e a l i z e d . There p r e s e n t l y e x i s t s an imbalance -'E. Langtry, "Standard Pre-Marking of L i n g e r i e , " R e t a i l C o n t r o l . 3 0:3, March, 1962; "DUNS Vendor Numbers," S t o r e s . 46:23, June, 1964. 117 between i n p u t p r e p a r a t i o n , and i n p u t e d i t i n g on the one hand and a c t u a l d a t a p r o c e s s i n g on the o t h e r . At the p r e s e n t s t a t e of the a r t , the i n p u t p r e p a r a t i o n and e d i t i n g c o s t s c o n s i d e r a b l y more t h a n does the a c t u a l p r o c e s s i n g t h r o u g h the computer. I t i s hoped t h a t t h i s c o s t s i t u -a t i o n can e v e n t u a l l y be remedied w i t h e c o n o m i c a l p o i n t -o f - s a l e r e c o r d e r s . The m a n u f a c t u r e r - r e t a i l e r r e l a t i o n s h i p . A r e t a i l i n g e x e c u t i v e a t a- N a t i o n a l R e t a i l Merchants' A s s o c i a t i o n C onference s e v e r a l y e a r s ago i l l u s t r a t e d the communications problem w h i c h e x i s t e d between equipment m a n u f a c t u r e r s 16 and r e t a i l e r s . He r e c a l l e d an i n c i d e n t w h i c h o c c u r r e d d u r i n g the p r e l i m i n a r y meetings w i t h a group of e n g i n e e r s the m a nufacturer had s e n t t o d i s c u s s some of the systems' s p e c i f i c a t i o n s f o r a proposed EDP i n s t a l l a t i o n . A f t e r l a y i n g out the f l o w of i n f o r m a t i o n t h r o u g h t h e i r proposed system he was t e l l i n g the e n g i n e e r s what he wanted t h e computer t o do. At one p o i n t , one of the e n g i n e e r s , i n t e r r u p t e d t o say, "Pardon me, but what i s an i n v o i c e ? " A few moments l a t e r a second i n t e r r u p t i o n o c c u r r e d and one of the e n g i n e e r s a s k e d , "What does P. and L. s t a n d f o r ? " To t h i s e x e c u t i v e , a man w i t h e x t e n s i v e a c c o u n t i n g background, t h e s e q u e s t i o n s were, of c o u r s e , amusing, but v e r y s t a r t l i n g . The same e x e c u t i v e t o l d the Conference l 6 E l e c t r o n i c Data P r o c e s s i n g f o r R e t a i l e r s , op. c i t . , P. 5-2. 118 t h a t the engineers were e q u a l l y as amused when he asked them what a pulse generator was. The above episode i s not to suggest t h a t t h i s s t a t e of a f f a i r s e x i s t s to the same extent today, but i t simply serves t o i n d i c a t e the c r u x of the problem of communi-c a t i o n s when people of d i s s i m i l a r backgrounds are brought t o g e t h e r . A l o c a l f i r m i n t e r v i e w e d , not one of the f o u r d e p a r t -ment s t o r e s c i t e d e a r l i e r , encountered d i f f i c u l t i e s w i t h punch-card merchandise c o n t r o l system, which could be t r a c e d i n p a r t to a l a c k of manufacturer i n t e r e s t i n the problem. A combination of system i n f l e x i b i l i t y and i n e x p e r i e n c e of the manufacturer i n such systems e v e n t u a l l y r e s u l t e d i n a c a n c e l l a t i o n of t h a t p a r t of t h e i r d a t a -p r o c e s s i n g program. The computer companies, f o r t h e i r p a r t , e x i s t i n an i n t e n s e l y c o m p e t i t i v e growth i n d u s t r y which r e q u i r e s h i g h standards of s e r v i c e i n order to be s u c c e s s f u l . A l l companies market e x c e l l e n t equipment which i s t y p i c a l l y s o l d by a w e l l - d r i l l e d and knowledgeable s a l e s team. One l a r g e computer company, f o r example, send those r e p r e -s e n t a t i v e s who have c o n t a c t w i t h the r e t a i l f i e l d t o an i n t e n s i v e r e t a i l merchandising course at New York U n i v e r -s i t y . However, the manufacturers would probably agree t h a t they s t i l l have much to l e a r n about r e t a i l merchan-d i s i n g and the past few years have shown them t a k i n g an 119 i n c r e a s i n g i n t e r e s t i n r e t a i l i n g . R e t a i l i n g p e r s o n n e l , u n l i k e t h e p r e d o m i n a n t l y t e c h -n i c a l l y o r i e n t e d p e o p l e e m p l o y e d b y c o m p u t e r m a n u f a c t u r e r s a n d l a r g e i n d u s t r i a l c o n c e r n s w h i c h h a v e u s e d EDP e q u i p -m e n t s u c c e s s f u l l y , m a y p o s s e s s s o u n d a c c o u n t i n g b a c k -g r o u n d s w h i l e h a v i n g l i t t l e t r a i n i n g i n t h e t e c h n i c a l a s p e c t s o f d a t a p r o c e s s i n g . T h i s s i t u a t i o n h a s i m p r o v e d c o n s i d e r a b l y a s m a n y b u s i n e s s c o u r s e s t a u g h t a t t h e u n i v e r s i t y l e v e l o r t h e b u s i n e s s c o l l e g e l e v e l , n o w i n c l u d e s o m e m a t e r i a l o n EDP m e t h o d s . T h e g a p o f u n d e r s t a n d i n g w h i c h s e r v e d i n e a r l i e r y e a r s t o h a m p e r t h e i n t r o d u c t i o n o f EDP t o r e t a i l i n g i s n o w b e i n g c l o s e d . T h i s w i l l h a v e a n i n c r e a s i n g l y n o t i c e a b l e e f f e c t i n t e r m s o f EDP a p p l i -c a t i o n s t o r e t a i l i n g i n t h e f u t u r e . CHAPTER V THE APPLICATION OF ELECTRONIC DATA PROCESSING TO RETAIL FASHION MERCHANDISING I. RETAIL MERCHANDISING Merchandising P o l i c i e s R e t a i l i n g , s i m i l a r to most bu s i n e s s e s , needs p o l i -c i e s which can be used as a guide to a c t i o n every time a g i v e n type of s i t u a t i o n i s encountered. One of the most important d u t i e s of the g e n e r a l merchandise manager i s t o e s t a b l i s h and maintain a c o n s i s t e n t merchandising p o l i c y f o r a l l departments i n the s t o r e w i t h r e s p e c t to the buying, s e l l i n g , and handling of merchandise. Merchandising p o l i -c i e s are, t h e r e f o r e , t o be regarded as s t a n d a r d i z e d procedures which are adopted by a s t o r e i n i t s a c t i v i t i e s p e r t a i n i n g t o the merchandising f u n c t i o n . Before c o n s i d e r i n g examples of some t y p i c a l merchan-d i s i n g p o l i c i e s , the nature of the term merchandising, b r i e f l y e x plained i n Chapter I I I , should be expanded on. Merchandising can be i n t e r p r e t e d very narrowly or can be d e f i n e d as a r a t h e r nebulous and a l l - i n c l u s i v e term. Broadly d e f i n e d by the American Marketing A s s o c i a t i o n , merchandising i s "the p l a n n i n g i n v o l v e d i n marketing the r i g h t merchandise, at the r i g h t p l a c e , at the r i g h t time, 121 1 i n the r i g h t q u a n t i t i e s , and at the r i g h t p r i c e . " The f i v e " r i g h t s " of the d e f i n i t i o n are i n r e f e r e n c e to the s a t i s f a c t i o n of consumer p r e f e r e n c e s . Whatever i s r i g h t f o r the consuming p u b l i c , s u b j e c t t o reasonable l i m i -t a t i o n s , i s r i g h t f o r the r e t a i l e r . Somewhat more e x p l i c i t l y and r e c o g n i z i n g t h a t the merchandising d i v i s i o n as i t e x i s t s i n most s t o r e s does not c o n t r o l a l l of the a s s i s t i n g f u n c t i o n s covered by the prev i o u s d e f i n i t i o n , Wingate and B r i s c o s t a t e : Merchandising has to do w i t h a l l the f u n c t i o n s having to do w i t h b r i n g i n g the goods to the po i n t of s a l e , a d j u s t i n g the s t o c k investment a c c o r d i n g to the kinds of goods, s t y l e s , q u a n t i t i e s , and p r i c e s so as to s a t i s f y consumer demand and make a p r o f i t . 2 Most merchandising p o l i c i e s , seldom appear i n p r a c t i c e t o be committed to paper. Instead, through c l o s e contact of merchandising personnel, the p o l i c i e s become a s s i m i l a t e d and perpetuated i n the everyday t h i n k i n g of these people. Rather than t h i n k i n g of merchandising p o l i c i e s as being s p e c i f i e d by management, i t would be more accurate t o c o n s i d e r them a product of an e v o l u t i o n i n t h i n k i n g . Examples of merchandising p o l i c i e s f o l l o w e d i m p l i c -i t l y and e x p l i c i t l y by r e t a i l s t o r e s can be found i n lAmerican Marketing A s s o c i a t i o n , Committee on D e f i n i t i o n s Report, J o u r n a l of Marketing, 13:211, October, 1948. 2 J . W. Wingate and N. A. B r i s c o , Buying For R e t a i l S t o r e s , Rev. ed. (New York : P r e n t i c e - Inc., 1949), P. 137. 1 2 2 3 numerous books on r e t a i l i n g . These p o l i c i e s a p p l y t o such m a t t e r s as the ty p e of patronage d e s i r e d , t h e d i v e r -s i f i c a t i o n and s t y l e c h a r a c t e r i s t i c s of the merchandise, the q u a l i t y and v a l u e o f f e r e d i n the merchandise, the s a l e of i r r e g u l a r and seconds merchandise, t h e l o c a t i o n of r e s p o n s i b i l i t y f o r c o n t r o l l i n g merchandise i n v e s t m e n t , the r e a c t i o n t o c o m p e t i t i v e s i t u a t i o n s , and the tre a t m e n t of slow s e l l i n g merchandise. Merchandise C l a s s i f i c a t i o n As p r e v i o u s l y n o t e d , the predominant c h a r a c t e r -i s t i c of department s t o r e s , i s the e x i s t e n c e o f d e p a r t -ments w h i c h g e n e r a l l y c o n t a i n r e l a t e d t y p e s of merchandise. D e p a r t m e n t a l i z i n g , i f p r o p e r l y done, a s s u r e s b e t t e r management p r o m o t i o n , and c o n t r o l of the v a r i o u s merchan-d i s e l i n e s . S e v e r a l bases a re commonly used f o r d e t e r m i n i n g d e p a r t m e n t a l merchandise g r o u p i n g s and o f t e n the merchan-d i s e items i n a department a re det e r m i n e d t h r o u g h the a p p l i c a t i o n o f more t h a n one b a s i s . The most common b a s i s i s the g e n e r i c g r o u p i n g whereby one good and perhaps some c l o s e l y r e l a t e d i t e m s a r e i n c o r p o r a t e d i n t o the same ^ N a t i o n a l R e t a i l Dry Goods A s s o c i a t i o n , M e r c h a n d i s i n g D i v i s i o n , The B u y e r s ' Manual. Rev. ed. (New Y o r k : NRDGA, 1 9 5 7 ) , P. 3 2 ; W. R. D a v i d s o n and P . L . Brown, R e t a i l i n g  Management, 2 n d Ed. (New Y o r k : Ronald P r e s s , I 9 6 0 ) , P . ' 318. R. D a v i d s o n and P. L . Brown, op. c i t . . p. 1 1 5 . 123 department; A shoe department which a l s o s e l l s p o l i s h and l a c e s would be an example of such a grouping. Other bases f o r departmental groupings are the customer's motive i n p urchasing, the type of storage or d i s p l a y equipment r e q u i r e d , the appeal to s p e c i f i c customer groups as d i f f e r -e n t i a t e d by sex, age, income, and the adherence t o customary trade p r a c t i c e i n d e p a r t m e n t a l i z i n g o p e r a t i o n s . W i t h i n major departmental groupings merchandise c l a s s i f i c a t i o n s are e s t a b l i s h e d . A c l a s s i f i c a t i o n i s de f i n e d as a s u b d i v i s i o n f o r which separate merchandising r e c o r d s are kept but to which expenses are not charged. As i n d e p a r t m e n t a l i z a t i o n , merchandise c l a s s i f i c a t i o n i s an important mea.ns to improved c o n t r o l through the b a l a n -c i n g of stocks to s a l e s f o r d i f f e r e n t c l a s s i f i c a t i o n s , promotion of c l a s s i f i c a t i o n s of goods which are i n p a r t i c -u l a r demand, and c o n t r o l of i n v e n t o r y shortages and mark-5 downs. C l a s s i f i c a t i o n d i v i s i o n s g e n e r a l l y f o l l o w d e s c r i p t i v e or'type d i v i s i o n s . For example, i n f a s h i o n merchandising, which l a t e r w i l l be the o b j e c t of more p a r t i c u l a r i n t e r e s t , a s m a l l s t o r e may have a dress d e p a r t -ment w i t h c l a s s i f i c a t i o n s f o r women's d r e s s e s , misses' d r e s s e s , j u n i o r d r e s s e s , and c l a s s i c s and formals ( i . e . a l l s i z e s ) . In a l a r g e r s t o r e these c l a s s i f i c a t i o n s may become departments w i t h perhaps the women's dress d e p a r t -5 j . w. Wingate and E. 0. S c h o l l e r , Techniques of  R e t a i l Merchandising. 2nd ed. (Englewood C l i f f s , N.J. : Prentice-H a11, 1956), p. 330. 12^ + e l a s s i f i e d i n t o women's b e t t e r dresses and women's inexpensive d r e s s e s . Before d e s c r i b i n g some f u r t h e r groupings w i t h i n c l a s s i f i c a t i o n d i v i s i o n s , i t should be emphasized that merchandise groupings are to a l a r g e extent a r b i t r a r y . A l l department s t o r e s have some s t r u c t u r e of merchandise c l a s s i f i c a t i o n to f a c i l i t a t e s t o r e o p e r a t i o n , but the p a r t i c u l a r merchandise breakdown must u l t i m a t e l y be t a i l o r e d t o st o r e needs. P r i c e l i n i n g i s u s u a l l y used by department s t o r e s f o r p r i c i n g shopping goods—goods which the customer i n s p e c t s f o r assortment of s t y l e s , p a t t e r n s , c o l o u r , f a b r i c and p r i c e before s e l e c t i o n . Most l a d i e s ' f a s h i o n goods are considered shopping goods. P r i c e l i n i n g i n v o l v e s s u b s t i t u t i n g a s i n g l e r e t a i l p r i c e f o r a v a r i e t y of p r i c e s w i t h i n a narrow range and i s based on the b e l i e f t h a t customers are grouped i n t o r a t h e r narrow purchasing power zones. The customer i s b e l i e v e d b e t t e r able t o make a s e l e c t i o n from an assortment of merchandise without being d i s t r a c t e d by i n c o n s e q u e n t i a l d i f f e r e n c e s i n p r i c e . Except i n a few very l a r g e s t o r e s w i t h s e v e r a l departments f o r the same type of merchandise, i t f r e q u e n t l y i s not p o s s i b l e t o provide broad assortments at many d i f f e r e n t p r i c e p o i n t s and s t i l l r e a l i z e a p r o f i t . T h i s i s a d e f i n i t e l i m i t a t i o n t h a t the buyer must f a c e . As a f i n a l note on c l a s s i f i c a t i o n of merchandise, i n 125 the f a s h i o n j a r g o n a " s t y l e " r e f e r s to a garment of a p a r t i c u l a r d e s i g n which i s assigned a " s t y l e number" by a manufacturer or vendor f o r purposes of c a t a l o g i n g h i s merchandise. When r e f e r e n c e i s made to s t y l e s i n t h i s t h e s i s , i t w i l l be i n the above sense. A s t y l e number may a l s o d e s c r i b e a p a r t i c u l a r f a b r i c or c o l o u r , but more f r e q u e n t l y c o l o u r s , f a b r i c s , and s i z e s are d e s c r i b e d by suppor t i n g codes. B a s i c Buying and S e l l i n g Problems The o b j e c t of r e t a i l management i s to achieve an acceptable r e t u r n on t h e i r investment, the investment i n in v e n t o r y being a s i z e a b l e p o r t i o n of the t o t a l i n v e s t -ment. The p o t e n t i a l l o s s of much of the r e t a i l e r s i n v e s t -ment i n i n v e n t o r y due to obsolescence of l a r g e amounts of stocks i s a c o n t i n u i n g problem. Such a s i t u a t i o n can r e s u l t from a l a c k of i n t e r e s t by the buying p u b l i c , the maintenance of an i n v e n t o r y unbalanced i n s i z e s , p r i c e s , e t c . , or having more st o c k than the p u b l i c demands. The r e l a t i v e l y s h o r t average l i f e of a s s e t s i n the form of merchandise r e q u i r e s t h a t the r e t a i l e r concen-t r a t e on merchandise turnover as w e l l as p r o f i t margins i n order t o achieve a s u i t a b l e r e t u r n on investment. Good purchasing d e c i s i o n s by the buyer p r o v i d e s the funda-mental support f o r the r e t u r n on investment g o a l . Through such d e c i s i o n s not only can the buyer e l i m i n a t e i n v e s t i n g i n o b s o l e t e , slow-moving stock, but he c o u l d , on the other 126 hand, Invest t h i s c a p i t a l i n r e a d i l y s a l e a b l e merchandise which can q u i c k l y r e t u r n i t s c a p i t a l investment to be used a g a i n . The r e s p o n s i b i l i t y p l a c e d on the buyer or d e p a r t -ment manager f o r r e a l i z i n g a c o n t r i b u t i o n margin acceptable t o management, d i c t a t e s t h a t the buyer formulate merchan-d i s e buying and s e l l i n g plans and t h a t he f r e q u e n t l y update h i s p l a n s . The buyer's a b i l i t y to p l a n , supported by economical merchandising d e c i s i o n s , determines whether the season's o p e r a t i o n s w i l l be a success or not. The buyer, i n order to operate h i s department prop-e r l y must determine the answers to a number of p e r t i n e n t q u e s t i o n s . Before the s t a r t of a p a r t i c u l a r season he asks: How many u n i t s can the department move t h i s season? How many s t y l e numbers are needed to support s a l e s ? What i n i t i a l order q u a n t i t y per s t y l e i s b e s t ? What i s the proper c o l o u r and s i z e d i s t r i b u t i o n ? Once the season i s under way the buyer may ask: Which s t y l e s should be reordered? Which s t y l e s should have the p r i c e s marked down i n order to s e l l ? When and how much should the s t y l e s be marked down? As the season p r o g r e s s e s , the buyer asks: Are the s a l e s o b j e c t i v e s being achieved? Are the popular s t y l e s , s i z e s , and c o l o u r s being bought? The need to answer these questions on a c o n t i n u i n g b a s i s has l e d a l l p r o g r e s s i v e r e t a i l e r s to adopt p l a n -ning and c o n t r o l procedures f o r the merchandising and expense aspects of o p e r a t i o n . Net p r o f i t does not j u s t happen but, r a t h e r , i t i s the r e s u l t of a c a r e f u l l y prepared p l a n of a c t i o n and continuous c o n t r o l of oper-a t i o n s . Merchandise Planning and C o n t r o l The f o r m a l p l a n n i n g of f u t u r e o p e r a t i o n s i n d e p a r t -ment s t o r e s takes two forms: Merchandise pla n n i n g and expense p l a n n i n g . Merchandise planning procedures c o n s i s t of p l a n n i n g f o r those f a c t o r s which enter i n t o gross margin. More s p e c i f i c a l l y , these components are s a l e s , s t o c k s , purchases, markups, and markdowns. Expense p l a n n i n g , as the name i n d i c a t e s , i s planning which breaks down and p r o j e c t s the various, expenses necessary i n s t o r e o p e r a t i o n . A combination of the two statements y i e l d s the budgeted net p r o f i t f i g u r e . The merchandise pla n n i n g and c o n t r o l procedure w i l l be developed l a t e r , i n more d e t a i l . In t h i s s e c t i o n the i n t e n t i o n i s to provide a background of the r a t i o n a l e u n d e r l y i n g the merchandise plan n i n g and c o n t r o l p r o c e s s . Planning and c o n t r o l i s , of n e c e s s i t y , a c o o r d i n -ated e f f o r t because o b v i o u s l y without e x p l i c i t s p e c i -f i c a t i o n of goals through the f o r m u l a t i o n of p l a n s , no c r i t e r i a e x i s t as a b a s i s f o r c o n t r o l . In a d d i t i o n , the d u a l nature of merchandise, as something having p h y s i c a l c h a r a c t e r i s t i c s , w h ile at the same time being regarded by the s t a t i s t i c a l o f f i c e i n a s t o r e as simply a p r i c e aggregate, i s of v a r y i n g r e l a t i v e importance to 128 merchandise p l a n n e r s . The c o n t r o l l e r who i s r e s p o n s i b l e f o r r e g u l a t i n g f i n a n c i a l i n v e s t m e n t and comparing budgeted o b j e c t i v e s and a c t u a l r e s u l t s of the m e r c h a n d i s i n g d i v i s i o n , i s p r i m a r i l y concerned w i t h the d e s c r i p t i o n of goods i n terms of p r i c e a g g r e g a t e s . On the o t h e r hand, the d e p a r t -ment manager, who o p e r a t e s w i t h i n a f a i r l y w e l l d e f i n e d f i n a n c i a l framework, c o n c e n t r a t e s f o r the most p a r t on the p h y s i c a l c h a r a c t e r i s t i c s of merchandise s o l d , or i n s t o c k . The g e n e r a l m e r c h a n d i s i n g manager and d i v i s i o n a l managers, i n f u l f i l l i n g t h e i r t r a d i t i o n a l r o l e o f c o o r d -i n a t i n g m e r c h a n d i s i n g a c t i v i t i e s p l a n and c o n t r o l o p e r -a t i o n s w i t h a more b a l a n c e d p o i n t of v i e w t a k e n i n r e c o n c i l i n g the f i n a n c i a l and p h y s i c a l a s p e c t s of merchan-d i s i n g . The t y p e s of p l a n n i n g and c o n t r o l c o r r e s p o n d i n g t o the d u a l n a t u r e o f merchandise mentioned above, are " d o l l a r " and " u n i t " p l a n n i n g and c o n t r o l . The f i n a n c i a l p l a n s p r o v i d e t h e n e c e s s a r y "top down" d o l l a r g u i d e l i n e s w h i c h s e r v e as a b a s i s f o r t o t a l o r g a n i z a t i o n p l a n n i n g by upper management. These p l a n s c o u p l e d w i t h such c o n s i d e r -a t i o n s as merchandise p o l i c i e s , economic t r e n d s , expan-s i o n p l a n s , o p e r a t i o n a l changes, new p r o d u c t s and s e r v i c e s , c o m p e t i t i v e c o n d i t i o n s , and so on, p r o v i d e the f o u n d a t i o n f o r g r o s s margin d e p t h p l a n n i n g . C o n s i d e r a t i o n of a l l t h e s e f a c t o r s w i l l ensure t h a t the aggregate d e p t h p l a n i s c o m p a t i b l e w i t h the f i n a n c i a l g o a l s and r e s o u r c e s of the 1 2 9 o r g a n i z a t i o n . The merchandise b u d g e t i n g p r o c e d u r e f o r the y e a r l y p e r i o d c o n s i s t s of two s i x - m o n t h or t w e n t y - s i x week p e r i o d s . The budgets c o r r e s p o n d i n g t o t h e s e two seasons, the s p r i n g and f a l l s e asons, s t a r t i n the f i r s t week of F e b r u a r y and the f i r s t week i n August, r e s p e c t i v e l y . F i n a n c i a l s a l e s and s t o c k t u r n p r o j e c t i o n s are developed s e v e r a l months i n advance of the season opening. T h i s i s done by the c o n t r o l d i v i s i o n f o r the p r e v i o u s l y mentioned purpose of p r o v i d i n g a g e n e r a l framework f o r , f u r t h e r development of the d e t a i l e d m e r c h a n d i s i n g p l a n . I n s e t t i n g t h e s e p r o j e c t i o n s the p a r t i c i p a t i o n of the m e r c h a n d i s i n g d i v i s i o n i s g e n e r a l l y l i m i t e d t o the h i g h e r l e v e l s o f m e r c h a n d i s i n g management ( i . e . from the d i v i s -i o n a l manager and up). The buyer g e n e r a l l y does not p a r t i c i p a t e on a f o r m a l b a s i s . W i t h the h e l p of the merchandise manager and d i v i s i o n a l managers, the "bottom up" m e r c h a n d i s i n g p l a n , g u i d e d by the f i n a n c i a l p l a n , a c c o m p l i s h a merging of u n i t and d o l l a r i n f o r m a t i o n . T h i s p l a n n i n g i s done i n s u f f i c i e n t d e p t h t o f o c u s upon the p r o f i t p o t e n t i a l of p a r t i c u l a r merchandise c l a s s i f i c a t i o n s p e r m i t t i n g r e a l -i s t i c p l a n n i n g of s a l e s volume, s t o c k r e q u i r e m e n t s , and b u y i n g r e q u i r e m e n t s . At the d e p a r t m e n t a l l e v e l , p l a n -n i n g s t a r t s w i t h the development of a f o r e c a s t o f u n i t s a l e s by week, and by p r i c e l i n e f o r the coming season. 130 Based on t h i s f o r e c a s t , a purchasing schedule i s l a i d out and the amount of c a p i t a l , or open-to-buy, needed to support the planned o p e r a t i o n i s determined. The buyer then e s t i -mates the number of s t y l e s t h a t w i l l be r e q u i r e d to support s a l e s , p l a c e s i n i t i a l orders f o r these s t y l e s i n a c c o r d -ance w i t h a s i z e and c o l o u r d i s t r i b u t i o n , and s p e c i f i e s an estimated d e l i v e r y date f o r each order. I f d i s c r e p a n c i e s e x i s t between the "bottom up" p l a n and the "top down", or o v e r - a l l f i n a n c i a l p l a n , an a p p r o p r i a t e r e c o n c i l i a t i o n must be made. Once a meeting of the minds has been achieved, the r e s u l t a n t d o l l a r merchandise p l a n i s used by the s t a t i s t i c a l o f f i c e i n the c o n t r o l d i v i s i o n to check a c t u a l performance. T h i s g e n e r a l budgeting procedure i s s i m i l a r f o r most depar t -ment s t o r e merchandise departments alt h o u g h the termin-ology, i n l i n e w i t h the c o n c e n t r a t i o n of t h i s chapter on f a s h i o n merchandising, i s somewhat more a p p l i c a b l e i n t h a t area. Once s e l l i n g has s t a r t e d , each s t y l e on the:floor i s p e r i o d i c a l l y evaluated and a d e c i s i o n should be made to r e o r d e r , continue operations as planned, or i n c r e a s e the movement of merchandise by i n c r e a s i n g s a l e s e f f o r t or t a k i n g markdowns. This i s the c o n t r o l aspect of merchan-d i s i n g , e x e r c i s e d a f t e r comparing plans w i t h the a c t u a l s a l e s performance. I t i s important to note t h a t the s e l e c t i o n and timing of s t y l e s are areas where the buyer's p r o f e s s i o n a l a b i l i t i e s can s t i l l be the best guide. The 131 p o s s i b i l i t y of automating r e o r d e r d e c i s i o n s i n f a s h i o n s , such as i s now being attempted i n s t a p l e merchandise w i t h the use of economic r e o r d e r models, seems a r a t h e r remote 6 p o s s i b i l i t y . To summarize t h i s d i s c u s s i o n , the completed merchan-d i s e p l a n p r o v i d e s the means by which the r e t a i l e r can check h i s a c t u a l r e s u l t s with the planned f i g u r e s a n a l -ogous to the c o n t r o l procedure r e p r e s e n t e d by the b l o c k diagram i n Chapter I I . Before the s t o r e makes s a l e s i t must purchase merchandise which, i n t u r n , r e q u i r e s an o u t l a y of money. In a d d i t i o n , the purchases must be marked up to cover o p e r a t i n g expenses, the d e s i r e d net p r o f i t , and the probable r e d u c t i o n s ( i . e . markdowns, d i s c o u n t s , s h o r t a g e s ) . The merchandise p l a n c o o r d i n a t e s a l l these a c t i v i t i e s i n d i c a t i n g t o the r e t a i l e r the amount of money needed to f i n a n c e the purchases and g i v i n g him some i d e a of the revenue he can expect from s a l e s . In a department s t o r e handling a number of d i f f e r e n t l i n e s , the p e r i o d s of heavy investment are not the same i n a l l l i n e s or c l a s s e s of goods. The o v e r - a l l merchandise budget shows the c a p i t a l needs f o r i n v e n t o r y i n the s t o r e as a whole, month by month d u r i n g the season. T h i s i n f o r m a t i o n enables the f i n a n c e and c o n t r o l d i v i s i o n to see the c a p i t a l s h i f t s from department to department duri n g the year, while at J . Buchan and E. Koeningsberg, S c i e n t i f i c Inventory  Management (Englewood C l i f f s , N.J. : P r e n t i c e - H a l l , 1963)» p. *•+5. 132 t'he same time a l l o w i n g them to gauge more a c c u r a t e l y the needed working c a p i t a l and so to speed up the r a t e of c a p i t a l t u r n o v e r . The D e t a i l e d Merchandise Budget The emphasis i n t h i s d i s c u s s i o n of d e t a i l e d merchan-d i s e budgeting w i l l be on the systematic c o n s i d e r a t i o n of the components of the p l a n . The merchandise budget pr o v i d e s the guide l i n e s f o r gross margin performance by assembling data on s a l e s s t o c k s , r e t a i l r e d u c t i o n s , mark-7 ups, and purchase i n that order. Depending on whether the p l a n i s i n the f i n a l form or not, the f i g u r e s f o r these components may be s u b j e c t t o a r b i t r a t i o n . However, i n t h i s s e c t i o n our I n t e r e s t i s i n determining the method i n which the data are d e r i v e d . S a l e s p l a n n i n g . The cor n e r s t o n e of the e n t i r e merchandise budget i s the volume of s a l e s t h a t can be expected f o r the p e r i o d under c o n s i d e r a t i o n , because other planned f i g u r e s are dependent on the expected s a l e s or revenue. Es t i m a t e s are made f o r i n d i v i d u a l departments and these f i g u r e s are broken down by months and weeks w i t h i n the budget p e r i o d . In the f a s h i o n departments, s a l e s p r o j e c t i o n s are g e n e r a l l y made f o r each c l a s s i f i c a t i o n -p r i c e l i n e group. For example, the $19.95 p r i c e l i n e i n l a d i e s ' s k i r t s would be p r o j e c t e d as a s i n g l e f i g u r e . ¥. R. Davidson and P. L. Brown, op. c i t . , p. 281. 133 The best b a s i s f o r making these p r o j e c t i o n s , as i s t r u e of any type of f o r e c a s t i n g , i s to combine the a v a i l -able knowledge of h i s t o r y w i t h the knowledge of present and f u t u r e c o n d i t i o n s which a f f e c t the s a l e s f i g u r e s . I n f o r m a t i o n d e r i v e d from r e t a i l i n g p e r i o d i c a l s , popul-a t i o n s t a t i s t i c s , economic surveys, and the l i k e , can be important guides to a more s c i e n t i f i c approach to s a l e s a n a l y s i s . U l t i m a t e l y , the s a l e s f i g u r e r e p r e s e n t s a w e l l educated guess. In department s t o r e s , b a r r i n g unusual circumstances, t r a d i t i o n a l l y the s a l e s f i g u r e of the comparable p e r i o d of the previous year i s the f i g u r e which must be surpassed. A s i t u a t i o n c i t e d by one merchandising man g i v e s some i n d i c a t i o n of the d i f f i c u l t i e s i n v o l v e d i n making s a l e s p r o j e c t i o n s when c o n f l i c t i n g f a c t o r s are at work. Th i s o r g a n i z a t i o n could see the impact i n t h e i r B r i t i s h Columbia s a l e s t r i g g e r e d by a steady growth i n the t e e n -age p o p u l a t i o n s i n c e the war and r i s i n g per c a p i t a incomes. The p o p u l a t i o n f a c t o r tended to i n c r e a s e s a l e s of budget p r i c e d merchandise which was counterbalanced by a "buying up" trend or buying of a b e t t e r q u a l i t y of merchandise p r e c i p i t a t e d by the r i s i n g incomes. The net e f f e c t was r e f l e c t e d i n c l a s s i f i c a t i o n - p r i c e l i n e f i g u r e s by an expanding s a l e s volume which over the years had s t e a d i l y s h i f t e d upward i n p r i c e l i n e . U n f o r t u n a t e l y , although income and p o p u l a t i o n f i g u r e s were used i n f o r e c a s t i n g , the e f f e c t was too e r r a t i c to lend i t s e l f t o good 13^ p r e d i c t i o n . Stock p l a n n i n g . Once the s a l e s volume has been f o r e -c a s t the next step of the merchandise budget i s the p l a n n i n g i n v o l v e d i n m a i n t a i n i n g i n v e n t o r y l e v e l s adequate to meet the planned volume of s a l e s . The d e t e r m i n a t i o n of stock l e v e l s must n e c e s s a r i l y r e p r e s e n t some s o r t of compromise, i n that enough stock must be provided to m a i n t a i n a s s o r t -ments r e q u i r e d t o achieve the expected s a l e s g o a l while at the same time not being so l a r g e as to r e q u i r e the i n v e s t -ment of an u n n e c e s s a r i l y l a r g e amount of c a p i t a l , and thereby p r e v e n t i n g a r e s p e c t a b l e t u r n o v e r . In l o c a l f a s h i o n departments the beginning of the month i n v e n t o r y i n each c l a s s i f i c a t i o n i s g e n e r a l l y set using h i s t o r i c a l s t o c k - s a l e s r a t i o s f o r the comparable month and c l a s s i f i c a t i o n . These r a t i o s are an important p l a n n i n g guide because they r e l a t e stock at a s p e c i f i c time, namely, the beginning of the month, t o s a l e s f o r t h a t month. Obviously, the end of month (EOM) stock f o r one month i s the beginning of month - (BOM) s t o c k f o r the month immediately f o l l o w i n g . The s t o c k f i g u r e s a r r i v e d at using s t o c k - s a l e s r a t i o s are, of course, tempered wi t h judgment. Experience has shown t h a t the expansion of s a l e s i n a c l a s s i f i c a t i o n g e n e r a l l y r e q u i r e s that i t be supported by a l e s s than p r o p o r t i o n a l i n c r e a s e i n the beginning of the month stock. Once the beginning of the month in v e n t o r y has been 135 e s t a b l i s h e d , the r e s p o n s i b i l i t y f a l l s on the department buyer f o r plann i n g an adequate assortment of stock. The buyer must p l a n p r i c e l i n e , s t y l e , c o l o u r , f a b r i c , and s i z e d i s t r i b u t i o n s s u i t e d to the customers he serves. R e t a i l r e d u c t i o n p l a n n i n g . The term " r e t a i l r e d u c t i o n s " when used i n r e f e r e n c e to merchandise budg-e t i n g d e s i g n a t e s such a n t i c i p a t e d r e d u c t i o n s i n revenue as markdowns, s t o c k shortages, and d i s c o u n t s to employees and s p e c i a l c l a s s e s of customers. Markdowns, which are the r e d u c t i o n s i n p r i c e a r e t a i l e r takes i n order to c l e a r slow moving, s o i l e d , or otherwise damaged merchandise, c o n s t i t u t e the g r e a t e s t percentage of t h i s group of reduc-t i o n s . P l anning of r e t a i l r e d u c t i o n s i s important t o the r e t a i l e r f o r s e v e r a l reasons. I f r e t a i l r e d u c t i o n s are not taken i n t o account along w i t h other expenses when c a l c u l a t i n g the markup to be taken on goods, the r e s u l t could be a markup too low w i t h the expected net p r o f i t being l o s t i n r e t a i l r e d u c t i o n s . From a c o n t r o l s tand-p o i n t , the comparison of planned and a c t u a l r e d u c t i o n f i g u r e s p r o v i d e s the b a s i s f o r a more i n t e n s i v e study of the reasons f o r r e d u c t i o n s . T h i s approach o f t e n suggests ways of e l i m i n a t i n g or r e d u c i n g t h e i r frequency. F i n a l l y , by plan n i n g markdowns, the department manager w i l l u s u a l l y take them more promptly, and as a r e s u l t move the merchandise w i t h s m a l l markdowns e a r l y i n the p e r i o d , 136 r a t h e r than t a k i n g l a r g e markdown l o s s e s at the end. The importance of r e d u c t i o n p l a n n i n g can vary q u i t e w idely f o r d i f f e r e n t merchandise l i n e s . In f a s h i o n merchandising, where these r e d u c t i o n s are a r e l a t i v e l y l a r g e and r e g u l a r l y r e c u r r i n g aspect of merchandise s t r a t e g y , such p l a n n i n g i s e s s e n t i a l . Accepted p r a c t i c e has been t o determine the t o t a l d o l l a r r e d u c t i o n a l l o w -ance f o r the budget p e r i o d based on mod i f i e d , h i s t o r i c a l percentage of s a l e f i g u r e s . The t o t a l planned r e d u c t i o n s are then d i s t r i b u t e d by months w i t h p r o g r e s s i v e l y l a r g e r r e d u c t i o n s being taken i n the l a t t e r months of the budget p e r i o d when l a r g e markdowns are o f t e n taken to c l e a r the stock. Markup p l a n n i n g . C a l c u l a t i o n of what i s v a r i o u s l y known as cumulative markup, i n i t i a l markup, or markon i s the o b j e c t of the next step of the merchandise budgeting procedure. The cumulative markup i s the d i f f e r e n c e between the c o s t of the merchandise d e l i v e r e d to the r e t a i l e r and the f u l l r e t a i l value ( i . e . before r e t a i l r e d u c t i o n s ) of the merchandise handled. Cumulative markup, when expressed as a percentage, i s g e n e r a l l y based on the o r i g i n a l r e t a i l v a l u e , u n l i k e the treatment of r e t a i l r e d u c t i o n s , expenses, and net p r o f i t which are expressed as a percentage of a c t u a l s a l e s . Once the planned s a l e s net p r o f i t , r e t a i l r e t a i l r e d u c t i o n s and expenses have been determined the 137 the planned cumulative markup i n per cent i s expressed 8 as: Cumulative ( o r i g i n a l r e t a i l (merchandise cost markup % value ) plus shipping) o r i g i n a l r e t a i l value — expenses - 4 - p r o f i t s -f- r e t a i l reductions sales -f- r e t a i l reductions gross , r e t a i l , a l t e r a t i o n cash .__ margin reductions costs discounts sales -+- r e t a i l reduction The difference between the cost of merchandise and the price at which i t i s actually sold i s ca l l e d the main-tained markup. As a percentage, maintained markup i s based on actual r e t a i l sales. It i s the store which determines the cumulative markup, but, because as a group consumers only buy the merchandise after a suitable amount of r e t a i l reductions has been made available, i t i s often said that the consuming public determines the maintained markup. In the l a s t analysis, the maintained markup rather than the cumulative markup determines whether the organization makes a p r o f i t . Separate markup goals are usually worked out f o r each c l a s s i f i c a t i o n of merchandise, the expectation being that the.y w i l l y i e l d , on the average, a t o t a l margin s u f f i c i e n t to cover t o t a l operating expenses and F . M . J o n e s , P r i n c i p l e s o f R e t a i l i n g (New Y o r k : P i t m a n , 1 9 4 9 ) , P - 303. 1 3 8 p r o v i d e a n a c c e p t a b l e n e t p r o f i t . I n f a s h i o n s , b e c a u s e p r i c e l i n i n g i s u s e d e x t e n s i v e l y , t h e b u y e r i n s p e c t s m e r c h a n -d i s e w i t h t h e i n t e n t i o n o f b u y i n g f o r a c e r t a i n p r i c e l i n e . A t t h i s p o i n t h i s k n o w l e d g e o f f a b r i c , s t y l e , a n d h i s c u s t o m e r s ' t a s t e s i s c r i t i c a l . I f t h e m e r c h a n d i s e i s n o t o f a s u f f i c i e n t q u a l i t y t o s e l l a t t h e p r i c e l i n e n e c e s s a r y t o e a r n t h e d e s i r e d m a r g i n , e n t i r e l o t s o f m e r c h a n d i s e may e v e n t u a l l y h a v e t o b e m a r k e d d o w n . A s t h e s e a s o n p r o g r e s s e s d e p a r t m e n t m a n a g e r s u s u a l l y c h e c k t h e p l a n n e d a n d a c t u a l m a i n t a i n e d m a r k u p s t o d e t e r m i n e w h e t h e r o r n o t t h e m a r k u p o n t h e r e m a i n d e r o f t h e s e a s o n ' s p u r c h a s e s h a s t o b e r e v i s e d . P u r c h a s e p l a n n i n g . W h e r e a s t h e e s t i m a t i o n o f s a l e s , t h e d e t e r m i n a t i o n o f s t o c k l e v e l s , t h e p l a n n i n g o f r e t a i l r e d u c t i o n s j a n d t h e p l a n n i n g o f m a r k u p r e q u i r e s c o n s i d e r -a b l e j u d g m e n t , t h e p u r c h a s i n g p l a n n i n g s t e p f o l l o w s d i r e c t l y f r o m t h e p r e c e d i n g b u d g e t s t a g e s . T h e p u r p o s e o f p u r c h a s e p l a n n i n g i s t o a s s i s t t h e b u y e r i n m a k i n g t h e p u r c h a s e s a t t h e p r o p e r t i m e a n d i n t h e c o r r e c t a m o u n t s s o t h a t t h e s t o c k s o f m e r c h a n d i s e w i l l b e k e p t a t t h e d e s i r e d l e v e l i n r e l a t i o n t o s a l e s . T h e m o n t h l y p l a n n e d p u r c h a s e s a r e c a l c u l a t e d a s f o l l o w s : ^ p l a n n e d p u r c h a s e s ( p l a n n e d ( p l a n n e d ( p l a n n e d ( p l a n n e d ( r e t a i l v a l u e ) ~~ s a l e s ) r e d u c - "~ E O M B O M t i o n s ) s t o c k ) s t o c k ) 9w. R . D a v i d s o n a n d P . L . B r o w n , R e t a i l i n g M a n a g e -m e n t , 2nd e d . ( N e w Y o r k : R o n a l d P r e s s , I960), p . 29>+. 139 The above formula g i v e s the planned purchases,at r e t a i l v a l u e , of the merchandise that can be brought i n t o stock d u r i n g the p e r i o d s p e c i f i e d . The planned purchases at c ost ( i . e . the amount of money the buyer can spend) can be c a l c u l a t e d by red u c i n g the r e t a i l f i g u r e by the cost complement of the planned i n i t i a l markup percentage. The orders f o r t h i s merchandise are placed to a l l o w a s u i t -a b l e lead time, t h i s l e a d time depending on such f a c t o r s as the l o c a t i o n of s u p p l i e r s , the a b i l i t y of vendors to make prompt d e l i v e r y , and the type of t r a n s p o r t a t i o n used. T h e r e f o r e , the orders f o r the beginning of the s p r i n g season i n February may a c t u a l l y be placed i n perhaps December, i n order that they a r r i v e i n time. The c o n t r o l aspect of t h i s purchase p l a n i s exer-c i s e d by r e g u l a r l y updated d o l l a r c o n t r o l or open-to-buy c o n t r o l r e p o r t s . Open-to-buy r e f e r s to the amount of merchandise that the buyer may order f o r d e l i v e r y d u r i n g the balance of any p e r i o d . At the beginning of the p e r i o d the open to buy i s the amount by which the planned purchases exceed the outstanding o r d e r s , i n c l u d i n g merchan-d i s e i n t r a n s i t . With r e f e r e n c e to the above planned purchase formula, o b v i o u s l y the d e v i a t i o n s from planned s a l e s and r e d u c t i o n s w i l l be r e f l e c t e d i n the open-to-buy balance. I f a c t u a l s a l e s are l a g g i n g a p p r e c i a b l y behind planned s a l e s and i f a good p o r t i o n of the current-month purchase orders based on the planned purchase schedule IkC-have been confirmed, the department manager can very e a s i l y f i n d h i m s e l f i n an overbought p o s i t i o n . To a i d the buyer the open-to-buy f i g u r e a t r e t a i l can be reduced to cost as b e f o r e , by m u l t i p l y i n g i t by the complement of the planned markup. The buyer g e n e r a l l y uses a l a r g e p a r t of t h i s a l l o t t e d buying allowance e a r l y i n the month, although some must be saved f o r o r d e r i n g f i l l - i n merchandise to keep stocks complete. The t a s k of c o n f i r m i n g merchandise orders f a l l s on the d i v i s i o n a l merchandise manager's shoulders and i n t h i s way he c o n t r o l s buyer purchases so that the purchase allowance i s not exceeded. Most merchandise men were quick to p o i n t out t h a t the l i m i t s are not r i g i d . I f i t were p o s s i b l e f o r a buyer t o o b t a i n an e x c e p t i o n a l l y good b a r g a i n on an order of merchandise, h i s case c o u l d be routed up through the d i v i s i o n a l manager and g e n e r a l merchandise manager f o r a p p r o v a l by the c o n t r o l l e r . The preceding s e c t i o n , i n t o t a l , c o n s t i t u t e s the elements of the merchandise pla n n i n g procedure. Merchan-d i s e c o n t r o l r e s u l t s from e f f e c t i v e use by the r e t a i l e r of the data a v a i l a b l e through the completed p l a n . Natur-a l l y , the p l a n i s of greatest use when the data i t s e l f i s a r r i v e d at only a f t e r c o n s i d e r a b l e thought and care. As such, i t can be an i n v a l u a b l e t o o l i n merchandise manage-ment. I I . FASHION MERCHANDISING 141 C h a r a c t e r i s t i c s of F a s h i o n Merchandising; The f a s h i o n merchandisers i n t e r v i e w e d f i r m l y b e l i e v e that t h e i r l i n e of work i s the most i n t e r e s t i n g and c h a l -l e n g i n g of any i n the department s t o r e f i e l d I f v a r i e t y and u n c e r t a i n t y are any c r i t e r i a , c e r t a i n l y the enthus-iasm of these people i s w e l l founded. As the name i m p l i e s , the outstanding c h a r a c t e r i s t i c of t h i s type of merchandising i s f a s h i o n . In the terminology of the r e t a i l i n g f i e l d , f a s h i o n merchandising r e f e r s t o l a d i e s ' c l o t h i n g f a s h i o n s although c e r t a i n l y many goods c a r r i e d i n a department s t o r e , from men's c l o t h i n g to vacuum c l e a n e r s , have some element of f a s h i o n . A f a s h i o n i s a s t y l e t h a t i s popular at any g i v e n time. While f a s h i o n s may change, s t y l e s are permanent and continue t o e x i s t long a f t e r they have become unpopular or have gone out of f a s h i o n . The permanent c h a r a c t e r of a s t y l e g i v e s r i s e to what i s known as the f a s h i o n c y c l e . That i s , the g r a d u a l i n c r e a s e i n acceptance of a g i v e n s t y l e u n t i l a peak of p o p u l a r i t y i s reached, and then a d e c l i n e i n p o p u l a r i t y u n t i l s a l e s or use have f a l l e n to a minimum. The move-ment of a s t y l e through i t s f a s h i o n c y c l e i s a problem of no s m a l l concern to r e t a i l e r s and poses some very d i f f i c u l t q u e s t i o n s . The f a s h i o n merchandising f i e l d i s undoubtedly the most v o l a t i l e and u n p r e d i c t a b l e of any i n the department Ih2 s t o r e . Because of the nature of the f a s h i o n c y c l e these stocks are i n the g r e a t e s t danger of r a p i d l y becoming o b s o l e t e . There i s a c e r t a i n short p e r i o d of time i n which the p u b l i c f i n d s the merchandise f r e s h and d e s i r -a b l e , and w i l l buy i t i n c e r t a i n q u a n t i t i e s at normal markup p r i c e s . P r i o r to that p e r i o d the consumers are u n l i k e l y to buy the merchandise at a l l and subsequent to that p e r i o d they may buy i t but w i l l expect to get i t at marked down p r i c e s . C o n s i s t e n t w i t h merchandise p o l i c i e s which i n d i c a t e the income groups that the department i s aiming at and p o l i c i e s r e g a r d i n g the t i m i n g of new s t y l e s , the buyer must estimate the l e n g t h of time from the c r e a -t i o n of a new s t y l e to i t s e v e n t u a l d e c l i n e and must purchase merchandise f o r s a l e to i t s customers during a p a r t i c u l a r segment of the f a s h i o n c y c l e . Fashions are h i g h l y i n f l u e n c e d by f a c t o r s which can be h i g h l y v a r i a b l e and u n p r e d i c t a b l e . A t y p i c a l example from the 1963 and 196*+ s p r i n g seasons i s the adverse e f f e c t the c o o l and damp weather has had on the s a l e of summer ready-to-wear garments i n the Vancouver area. Another f a c t o r i s the i n a b i l i t y to p r e d i c t consumer r e a c -t i o n to new s t y l e s which, i n t u r n , makes any estimate of demand very d i f f i c u l t . To ease the amount of u n c e r t a i n t y surrounding these p r o j e c t i o n s , l o c a l s t o r e s o f t e n t e s t consumer r e a c t i o n i n advance by marketing t e s t samples perhaps a month before the beginning of the s p r i n g and 1 4 3 f a l l seasons. Because of the h i g h degree of r i s k i n h e r e n t i n f a s h i o n merchandising, i n i t i a l markups almost u n i v e r s -a l l y are f i f t y per cent and up, while markdowns on s a l e merchandise can r e s u l t i n r e d u c t i o n s to c o s t or l e s s . Reordering of f a s h i o n merchandise a l s o p r e s e n t s the buyer w i t h unique problems. Bearing i n mind t h a t before c l o t h can be f a s h i o n e d by the manufacturer i n t o f i n i s h e d garments, the c l o t h must be woven and dyes must be a v a i l -able f o r dying i t , the r e s u l t i s t h a t a l a r g e volume of r e o r d e r s can l e a d to a merchandise backup t h a t extends through the vendor to a b o t t l e n e c k at the raw m a t e r i a l s source. In a d d i t i o n , because most manufacturers and vendors are l o c a t e d i n the e a s t e r n r e g i o n s of the country, t r a n s p o r t a t i o n a l s o becomes a f a c t o r f o r West Coast r e t a i l e r s . T h i s t r a n s i t problem, coupled w i t h the previous raw m a t e r i a l s problem, c r e a t e s a s i t u a t i o n f o r West Coast r e t a i l e r s which p l a c e s a premium on a c c u r a t e and f a s t merchandising i n f o r m a t i o n . Quick a c t i o n i n r e o r d e r i n g can secure scarce merchandise which l a t e r may not be a v a i l -able and at the same time l e s s e n s the chance t h a t the f a s h i o n w i l l have passed i t s peak by the time the merchan-d i s e has a r r i v e d . The buyer i n Vancouver today, more than ever b e f o r e , needs an e f f i c i e n t u n i t c o n t r o l system to keep him abreast w i t h the merchandising s i t u a t i o n . Components of a S u i t a b l e F a s h i o n Merchandise C o n t r o l  System Fa s h i o n u n i t c o n t r o l i s p r i m a r i l y a measurement 1M+ f u n c t i o n performed w i t h the e x p e c t a t i o n that the end r e s u l t w i l l be improved merchandising d e c i s i o n s . The purpose of the knowledge gained from the accumulation of s t a t i s t i c a l data concerning merchandise movement i s to p r ovide f o r a more s a t i s f a c t o r y flow of merchandise w i t h i n the framework of e x i s t i n g market c o n d i t i o n s and the e s t a b l i s h e d company p o l i c i e s r e g a r d i n g d o l l a r i n v e n -t o r i e s . As mentioned i n Chapter I I , the EDP system, as a p p l i e d to f a s h i o n u n i t c o n t r o l , serves as a measurement t o o l to monitor, more q u i c k l y and e f f i c i e n t l y , the paper f l o w generated as a by-product of the p h y s i c a l business 10 o p e r a t i o n . The degree and p e r i o d i c i t y of adequate c o n t r o l i s a f u n c t i o n of the nature of the merchandise being c o n t r o l l e d and of the c a p a c i t y of the merchandising s t a f f to u t i l i z e the r e s u l t i n g data. The f u n c t i o n i n g of u n i t c o n t r o l i s a l s o s u b j e c t to the o r g a n i z a t i o n a l l i m i t a t i o n s which e x i s t i n the s t o r e . From the r e t a i l i n g management p o i n t of view, the merchandise c o n t r o l system should help to accomplish the d u a l o b j e c t i v e s of improved i n v e n t o r y turnover and i n c r e a s e d p r o f i t s necessary to meet return-on-investment g o a l s . Fashions i n p a r t i c u l a r are plagued w i t h a s e l l i n g s i t u a t i o n i n which l a r g e markdowns are o f t e n necessary 10 Supra, Chap. I I , p. l+9. Ih5 -to c l e a r stocks while c u t t i n g h e a v i l y i n t o p r o f i t s . In the Vancouver area department s t o r e s r e g u l a r l y exper-ience i n f a s h i o n s average markdown percentages of seven to twelve per cent over the season. I t should be noted t h a t t h i s percentage i s s i g n i f i c a n t compared w i t h the expense f i g u r e s e a r l i e r mentioned i n c o n n e c t i o n with the performance of r e g u l a r accounting tasks such as accounts 11 r e c e i v a b l e s , accounts payable, e t c . For t h i s reason, f a s h i o n merchandising i s b e l i e v e d to be an area of r e t a i l i n g t h a t could reap g r e a t p o t e n t i a l b e n e f i t from the i n s t a l -l a t i o n of EDP methods. Interviews which the w r i t e r had w i t h f a s h i o n merchan-d i s i n g people r e v e a l e d q u i t e c l e a r l y t h a t t h e i r job i s p a r t l y an a r t and p a r t l y a s c i e n c e . Much of the buying and s e l l i n g f u n c t i o n i s based on the value judgments so c h a r a c t e r i s t i c of the use of the human f a c u l t i e s and as a r e s u l t the complete automation of the d e c i s i o n s a s s o c i a t e d w i t h the buying and s e l l i n g f u n c t i o n s of r e t a i l i n g seem r a t h e r improbable. C e r t a i n l y a good p a r t of human r a t i o n -a l i t y can be i n j e c t e d i n t o the mechanized treatment of these problems, through the medium of the computer program. But the q u e s t i o n remains whether the c o s t , time, and i n f l e x i b i l i t y of programs w r i t t e n f o r problems which i n c e r t a i n ways are never q u i t e i d e n t i c a l , do not put such automated methods out of r e a c h at the present tine . I t Supra, Chap. IV, p. 107. 1 4 6 would seem t h a t c o n s i d e r a b l e improvement of computer hard-ware and programming methods would have to be undertaken before such a n a l y s i s were p o s s i b l e . T h e r e f o r e , the c o n c l u s i o n one reaches i s t h a t , at present, the most impor-t a n t r o l e t h at EDP equipment can f u l f i l l i s to provide i n f o r m a t i o n f o r merchandising p e r s o n n e l . T h i s f u n c t i o n i s the primary o b j e c t i v e of a good u n i t merchandise c o n t r o l system. In order to a i d the merchandising people i n performing t h e i r d u t i e s , an EDP u n i t c o n t r o l system should be so designed t h a t the e s s e n t i a l i n f o r m a t i o n i s a v a i l a b l e to the r i g h t people, organized i n a meaningful way, w h i l e at the same time p r o v i d i n g a comprehensive, up-to-date review of the merchandising s i t u a t i o n without imposing too severe a d r a i n on t h e i r v a l u a b l e time. P r e v i o u s l y , some of the questions which r e t a i l i n g p e r s o nnel ask i n the course of conducting t h e i r merchandising d u t i e s were o u t l i n e d and serve as a guide to the type of i n f o r m a t i o n 1 2 that they r e q u i r e . L a t e r r e f e r e n c e i s made to the importance of r e l a t i n g the i n f o r m a t i o n contained i n management r e p o r t s to the a d m i n i s t r a t i v e r e s p o n s i b i l i t i e s of the person r e c e i v i n g the i n f o r m a t i o n . ^ 3 Consequently, Sup_ra,. Chap. V, p. 1 2 6 . 3 - 3Infra, Chap. V, p. 1 5 3 . lk-7 the d i s c u s s i o n of examples of merchandise c o n t r o l r e p o r t s p o i n t s out the personnel t h a t would be i n t e r e s t e d i n these r e p o r t s , b e a r i n g i n mind the r e s p o n s i b i l i t y vested at d i f f e r e n t l e v e l s i n r e t a i l management of department s t o r e s . It i s g e n e r a l l y accepted t h a t e x c e p t i o n r e p o r t i n g i s the best method of a c h i e v i n g widespread c o n t r o l over business o p e r a t i o n s . T h i s i s e s p e c i a l l y t r u e i n r e t a i l i n g f o r two main reasons. In the l o c a l r e t a i l i n g s e t t i n g where a d i v i s i o n a l manager may have twenty or t h i r t y departments under h i s c o n t r o l and where a department manager has vested i n him the r e s p o n s i b i l i t y f o r super-v i s i n g the s a l e , o r d e r i n g , and r e - o r d e r i n g of v a s t q u a n t i t i e s of stock, the shortage of managerial time makes e x c e p t i o n r e p o r t i n g a v i r t u a l n e c e s s i t y f o r e f f i c i e n t o p e r a t i o n . Secondly, the c a p a b i l i t i e s of modern e l e c t r o n i c equipment, when adapted to c o n v e n t i o n a l u n i t c o n t r o l systems, has r e s u l t e d i n the p r o d u c t i o n of vast q u a n t i -t i e s of r e p o r t s and r e c o r d s . I f proper care i s not taken buyers can be s u p p l i e d w i t h a great volume of f a c t s and f i g u r e s which i s beyond t h e i r a b i l i t y to use e f f e c t i v e l y . T h i s l a c k of s e l e c t i v i t y caused a l o c a l l a d i e s ' wear c h a i n to d i s c o n t i n u e the use of i t s punched-card merchandise c o n t r o l system. The r e a l p o t e n t i a l f o r improvement i n I n f r a , Chap. V, p. 161 148 merchandise c o n t r o l systems i s i n the d e s i g n of systems which supply the i n f o r m a t i o n q u i c k l y , provide r e p o r t s w i t h i n f o r m a t i o n which p r e v i o u s l y may not have been p r a c t i -c a l l y a v a i l a b l e , and p r o v i d i n g r e p o r t s reduced t o manage-abl e p r o p o r t i o n s . A problem to be t a c k l e d i n c r e a t i n g such r e p o r t s i n the dynamic f a s h i o n f i e l d i s the development of s u i t a b l e c r i t e r i a by which the r e p o r t s may be generated. Some thoughts on t h i s s u b j e c t w i l l be presented i n a l a t e r s e c t i o n . L a t e r i n t h i s chapter, the r e s u l t s of the preceding d i s c u s s i o n , which has touched on the components of a s u i t -able merchandise c o n t r o l system, are expressed i n the form of merchandise c o n t r o l r e p o r t s . These r e p o r t s , as w e l l as the buyer's p e r s o n a l c o n t a c t w i t h the merchandise and the s a l e s people, a i d the buyer i n m a i n t a i n i n g a balanced stock that i s d e s i r a b l e to the customer. This type of merchandise c o n t r o l , no matter how s o p h i s t i c a t e d , i s never a s u b s t i t u t e f o r the buyer. The c o n t r o l r e p o r t s are only a t o o l f o r the buyer and c o n t r o l e x i s t s only when i n f o r m a t i o n i s i n t e r p r e t e d and t r a n s l a t e d i n t o a c t i o n . I n t e l l i g e n t l y used, the i n f o r m a t i o n provided can be of c o n s i d e r a b l e value i n improving buying p r a c t i c e s . As s t a t e d by Mr. H. A. Leeds: While i t i s axiomatic t h a t r e t a i l i n g i s an i n e x a c t s c i e n c e w i t h i n h e r e n t r i s k c a p a c i t y , the i n t e n t of improved i n f o r m a t i o n a l media i s not to discourage the r i s k element. Rather i t i s to ensure g r e a t e r 149 c a l c u l a t i o n w h ile minimizing s p e c u l a t i o n and, i n the process, to encourage g r e a t e r chance t a k i n g w i t h g r e a t e r c o n v i c t i o n . 1 5 The f i n a l t e s t of the i n f o r m a t i o n d e r i v e d from the c o n t r o l system, the accuracy o f merchandise and expense budgets, the competence of r e t a i l i n g management, and the a b i l i t y of the buyer, i s r e f l e c t e d i n d o l l a r s a l e s . U n i t C o n t r o l Systems of L o c a l R e t a i l Stores The l o c a l r e t a i l e s t ablishments v i s i t e d made exten-s i v e use of Dennison or K i m b a l l p r i c e t i c k e t s of the p i n or s t r i n g type i n t h e i r f a s h i o n departments. These p r i c e t i c k e t s may have coded on them such r e l e v a n t data as the c l a s s i f i c a t i o n ( i . e . l a d i e s ' c o a t s , l a d i e s ' s u i t s , l a d i e s ' b e t t e r d r e s s e s , e t c . ) , the week the garment was placed on the s a l e s f l o o r , the vendor, the s i z e , the s t y l e , the c o l o u r , the f a b r i c , and the p r i c e . G e n e r a l l y , the coded i n f o r m a t i o n was not as e x t e n s i v e as the p o s s i b l e s u b - d i v i s i o n s l i s t e d above. The tags are e i t h e r two or t h r e e - p a r t t a g s . The s t o r e s using two-part t i c k e t s remove one p a r t at the time of s a l e , dropping t h i s i n t o a box f o r l a t e r s o r t i n g and t a b u l a t i o n , while the second tag stays w i t h the garment i n the event that i t i s r e t u r n e d . The procedure w i t h the t h r e e - p a r t tag i s i d e n t i c a l to that of the two-part, w i t h 1%. A. Leeds, "What Does Inventory Management Mean," R e t a i l C o n t r o l , 34s33> October, 1963. the e x c e p t i o n t h a t i f the a r t i c l e i s r e t u r n e d , i t s t i l l has a two-part tag on i t and can be promptly returned to the f l o o r f o r s a l e . Garments w i t h the two-part tags must be r e t u r n e d to the r e c e i v i n g and marking department f o r new tags before being r e t u r n e d to the s a l e s f l o o r . Frequency of r e t u r n s i s t h e r e f o r e a key c o n s i d e r a t i o n i n the use of these t a g s . T h i s type of u n i t c o n t r o l system i s , of course, of the p e r p e t u a l i n v e n t o r y type, as opposed to the p e r i o d i c p h y s i c a l i n v e n t o r y type i n which p e r i o d i c counts of a c t u a l stock are taken. A l l of the accumulated p r i c e t i c k e t s r e c e i v e d from both the departments i n the parent s t o r e , as w e l l as the departments i n the o u t l y i n g branch s t o r e s are s o r t e d and t a b u l a t e d by departmental merchan-d i s e p e r sonnel of the parent s t o r e . The t i c k e t s may have the data p r i n t e d and punched as w e l l f o r mechanical machine p r o c e s s i n g . D e t a i l e d d e s c r i p t i o n s of the theory and use of these t i c k e t s can be found i n r e t a i l i n g 16 p e r i o d i c a l s . In f a s h i o n merchandise departments, once the p r i c e t i c k e t s are s o r t e d to s t y l e number, a l l s t o r e s post s a l e s on a c a r d , r e f e r r e d to as a s t y l e sheet, which i s organized to show s a l e s by the week f o r the main s t o r e X D E . Langtry, "Standard Pre-Marking of L i n g e r i e , " R e t a i l C o n t r o l , 3 0 : 3 - 1 0 , March, 1 9 6 2 ; S. S h a f f e r , " P r i n t Punch U n i t C o n t r o l , " R e t a i l C o n t r o l , 3 0 : 7 1 - 8 2 , October, 1 9 6 1 . 151 and branch s t o r e s d u r i n g the c u r r e n t season. A l s o shown on the s t y l e sheets are the i n i t i a l on-hand q u a n t i t i e s , the l a t e r a r r i v a l s and r e - o r d e r s , the i n i t i a l d i s t r i -b u t i o n of s t y l e s amongst branch s t o r e s , and the subse-quent a r r i v a l s and t r a n s f e r s from other branches. Each t i c k e t r e p r e s e n t i n g a s a l e i s simply posted i n the proper style-store-\^eek c l a s s i f i c a t i o n of the s t y l e sheet. The r e c o r d s f o r a c l o s e l y r e l a t e d group of departments are u s u a l l y c e n t r a l l y l o c a t e d to provide access f o r merchan-d i s i n g p e r s o n n e l ( i . e . d i v i s i o n a l manager, department manager or s a l e s p e o p l e ) . These r e c o r d s may be updated by departmental s a l e s p e o p l e or i n some cases, someone may be i n charge of updating the c o n s o l i d a t e d r e c o r d s of a number of departments d e p o s i t e d at the c e n t r a l l o c a t i o n . The p r a c t i c e i n f a s h i o n departments has been to update these r e c o r d s d a i l y . The major weakness of such a u n i t c o n t r o l system as an a i d to the merchandising man i s t h a t the i n f o r m a t i o n , a l t h o u g h summarized on s t y l e sheets, i s not presented i n a manner most advantageous to merchandising p e r s o n n e l . In a d d i t i o n , the data may not be t a b u l a t e d u n t i l some time the f o l l o w i n g day. ' The buyer and d i v i s i o n a l merchandise manager can waste v a l u a b l e time i n scanning these s t y l e sheets t o spot slow moving merchandise and p o t e n t i a l out-o f - s t o c k and r e - o r d e r s i t u a t i o n s . The sheer mass of data may a l s o r e s u l t i n h i s o v e r l o o k i n g of important d e t a i l . 152 The l a c k of a systematic procedure f o r p r e s e n t i n g r e p o r t s a l s o appears to be a common f a i l i n g of these systems. The procedure of r e p o r t p r e p a r a t i o n which w i l l be l a t e r proposed, p l a c e s heavy emphasis on p r o v i d i n g summarized r e p o r t s based as much as p o s s i b l e on c r i t e r i a a l l o w i n g e x c e p t i o n r e p o r t i n g . The r e p o r t s would be prepared a f t e r the c l o s e of s a l e s f o r the day, t a k i n g advantage of the speed of EDP equipment to have a l l p e r t i n e n t merchandising i n f o r m a t i o n ready f o r review the next morning. In a d d i t i o n , by c a p i t a l i z i n g on the c h a r a c t e r i s t i c s of EDP equipment, r e p o r t s can be prepared which would not be p o s s i b l e using manual p r o c e s s i n g methods. P e r i o d i c a l l y , weekly, monthly, and seasonal r e p o r t s are i n c l u d e d along w i t h the d a i l y r e p o r t s . A r e g u l a r r e p o r -t i n g procedure such as t h i s makes i t p o s s i b l e f o r merchan-d i s i n g p e r s o n n e l to review the r e s u l t s of the preceding day's a c t i v i t y and encourages him to act on t h i s i n f o r m a t i o n . An Examination of the Lag i n A p p l i c a t i o n of E l e c t r o n i c  Data P r o c e s s i n g to Merchandising In view of the l a c k of merchandising a p p l i c a t i o n s of EDP equipment, one i s o b l i g e d to suggest some p o s s i b l e reasons f o r t h i s i n a c t i v i t y . Probably the most important reason i s t h a t before an EDP merchandise c o n t r o l system i s operable, i t s b e n e f i t s are l a r g e l y h y p o t h e t i c a l and d i f f i c u l t to support i n terms of a reasonable estimate of t a n g i b l e c o s t savings. On the other hand, i n s p i t e of the 153 r e l a t i v e l y low percentage of s a l e s expense that such a p p l i c a t i o n s as accounts r e c e i v a b l e and p a y r o l l r e p r e s e n t , as c i t e d e a r l i e r i n the t h e s i s , these a p p l i c a t i o n s are amenable to a n a l y s i s which w i t h i n reasonable doubt shows that the use of EDP methods can r e s u l t i n a c t u a l savings. T h i s a n a l y s i s i s done on s o - c a l l e d "bench mark" problems which are problems t y p i c a l of the data p r o c e s s i n g jobs 17 t h a t are performed i n the b u s i n e s s . The reason f o r the savings i n c o n v e r t i n g the above "bread and b u t t e r " a p p l i c a t i o n s to EDP methods i s p a r t l y because over the years many businesses have a l r e a d y s t a n d a r d i z e d these a p p l i c a t i o n s to speed up the manual p r o c e s s i n g or p r o c e s s i n g w i t h wired program punched-card t a b u l a t o r s . Consequently, these a p p l i c a t i o n s o f t e n are i n v e s t i g a t e d f i r s t s i n c e i t i s f e l t that they could be converted w i t h the l e a s t system d e s i g n necessary. Merchandise c o n t r o l has t y p i c a l l y been a manual d e c e n t r a l i z e d t a b u l a t i n g o p e r a t i o n . Adapting t h i s procedure to EDP methods i s thought to i n v o l v e a c o n s i d e r a b l e amount of r e v i s i o n and r e d e s i g n of e x i s t i n g systems i n order that the r e p o r t s produced are f l e x i b l e and do not i n c l u d e s u p e r f l u o u s data. Management r e p o r t s should be b u i l t around o r g a n i z a t i o n plans so t h a t d e v i a t i o n s from plans can be t r a c e d to the i n d i v i d u a l r e s p o n s i b l e . To p l a n such l ? N a t i o n a l I n d u s t r i a l Conference Board, S t u d i e s i n  Business P o l i c y , No. 98, " A d m i n i s t r a t i o n of E l e c t r o n i c Data P r o c e s s i n g , " p. 35. 19+ -a system, desi g n e r s would r e q u i r e merchandising personnel to d e f i n e more p r e c i s e l y the methods used i n a n a l y s i s of u n i t c o n t r o l r e p o r t s so t h a t the data may be c l a s s i f i e d i n a manner that i s most r e a d i l y understood by the r e c i p -i e n t . T h i s p l a n n i n g would a l s o r e q u i r e b e t t e r d e f i n i t i o n of a u t h o r i t y and r e s p o n s i b i l i t y w i t h i n the merchandising o r g a n i z a t i o n to ensure t h a t only i n f o r m a t i o n p e r t i n e n t to the person r e c e i v i n g the r e p o r t i s shown. B a s i c problems such as these, u n l e s s r e s o l v e d , c o n t r i b u t e to the d i f f i -c u l t y of systems d e s i g n . Concurrent w i t h the r e d e s i g n problem i s the problem of t r a i n i n g and r e - e d u c a t i o n of merchandise p e r s o n n e l t o use the new system p r o p e r l y and to c o n t r i b u t e to i t s continued s u c c e s s f u l o p e r a t i o n . Many merchandising p e r s o n n e l may have s t a r t e d i n t h e i r chosen f i e l d long before the advent of EDP equipment. They may have a background of reasonably good success w i t h c u r r e n t inadequate systems. Though a re-educa-t i o n program could meet w i t h o p p o s i t i o n from those who r e s e n t changes, i t should be mentioned t h a t the l o c a l f a s h i o n merchandisers i n t e r v i e w e d were on the whole, q u i t e r e c e p t i v e to the p o t e n t i a l o f f e r e d by improved merchandise c o n t r o l systems. The c o n c e n t r a t i o n on the more t r a d i t i o n a l accounting a p p l i c a t i o n s may a l s o be a t t r i b u t e d to the f a c t that f e a s i b i l i t y s t u d i e s , systems design, and o p e r a t i o n of the , i n s t a l l a t i o n i t s e l f , are u s u a l l y placed under the 1 5 5 s u p e r v i s i o n of the c o n t r o l l e r . Quite p o s s i b l y , the accounting o r i e n t e d p o i n t of view of the c o n t r o l l e r has bias e d the uses to which the EDP equipment i s put. Once merchandising management has been convinced that EDP methods c o n t r i b u t e to b e t t e r merchandising, the r e s p o n s i b i l i t y r e s t s w i t h them to become more v o c a l i n g a i n i n g time on the equipment f o r merchandising a p p l i -c a t i o n s . However, the impetus f o r t h i s must come from w i t h i n the merchandising d i v i s i o n ; t h i s r e q u i r e s t h a t these people g a i n i n s i g h t i n t o o p e r a t i o n of the equipment and subsequently formulate some d e f i n i t e ideas as t o the best methods of r e p o r t p r e p a r a t i o n so that a str o n g case can be presented to the c o n t r o l l e r . I I I . PREPARATION AND CONTENT OF UNIT CONTROL REPORTS FOR FASHION MERCHANDISING BY ELECTRONIC DATA PROCESSING METHODS Pr o c e d u r a l Problems The merchandise c o n t r o l tape. The most advanced merchandise c o n t r o l systems which are now i n o p e r a t i o n m a i ntain f a s h i o n merchandise by r e c o r d i n g i t on magnetic 18 tape. Each r e c o r d of the merchandise c o n t r o l tape I n t e r n a t i o n a l Business Machines, T e c h n i c a l P u b l i -c a t i o n s Report, "General I n f o r m a t i o n Manual; IBM 1 4 0 1 , Tape System f o r Accounts Receivable and Merchandise Management of Maison Blanche (White P l a i n s , N.Y. : IBM, 1 9 6 2 ) , p. 18. 156 r e f e r s to a p a r t i c u l a r s t y l e . Through the use of coded groups of data, c a l l e d f i e l d s , a p a r t i c u l a r r e c o r d i s f i r s t f u l l y i d e n t i f i e d , then movement and i n v e n t o r y data are g i v e n . The r e c o r d i s i d e n t i f i e d by f i e l d s s p e c i -f y i n g the department, the c l a s s i f i c a t i o n ( c l a s s ) , the s e l l i n g p r i c e , the manufacturer, the s t y l e , and the o r i g i n a l s e l l i n g p r i c e i n that order. The records on the tape are maintained i n numerical sequence of the i d e n t i -f i c a t i o n codes l i s t e d . In a parent-branch s t o r e o r g a n i z a t i o n of depar t -ment s t o r e s such as one f i n d s i n the Vancouver area, movement data i n a s t y l e r e c o r d would c o n s i s t of the t o t a l r e c e i p t s to date, the r e c e i p t s by week which i s used to age the on-hand i n v e n t o r y , the net s a l e s of the cu r r e n t month to date f o r each s t o r e and i n t o t a l , the net s a l e s of the pre v i o u s month f o r each s t o r e and i n t o t a l , the cumulative s a l e s by month end f o r each month sin c e the beginning of the merchandise budget p e r i o d , the net s a l e s t o date by c o l o u r , the net r e c e i p t s t o date by c o l o u r , and the date of the l a s t s a l e . The i n v e n t o r y data c o n s i s t s of the on-hand i n v e n -t o r y of t h a t s t y l e f o r each s t o r e and i n t o t a l . A l l of the i n d i v i d u a l r e c o r d s , each one c a r r y i n g the above data, i n t o t a l c o n s t i t u t e the merchandise c o n t r o l tape. Because each s t y l e i s c a r r i e d on the r e c o r d at a p a r t i c -u l a r s e l l i n g p r i c e , a raarkdown c r e a t e s a new r e c o r d . 1 5 7 Merchandising source data. The source data from s a l e s can be obtained by having the data punched i n t o p o i n t - o f - s a l e r e c o r d e r s , by key-punching s a l e s data entered on merchandise l i s t i n g sheets and s a l e s checks, or by using the Dennison or K i m b a l l p r i n t - p u n c h stubs. In any case, by using a v a r i e t y of c o n v e r s i o n d e v i c e s the s a l e s data can be converted t o a form which i s compatible w i t h the i n p u t requirements, of the EDP system. I t s h a l l be assumed here t h a t the c o n v e n t i o n a l p r i n t -punch p r i c e t i c k e t s are converted to punched cards using 19 t i c k e t - t o - c a r d c o n v e r t e r s that are c u r r e n t l y a v a i l a b l e . T i c k e t s which are m u t i l a t e d or which r e q u i r e s p e c i a l i n f o r m a t i o n to be added ( i . e . marked down p r i c e s ) may be manually key-punched i n t h e i r e n t i r e t y , or i n p a r t . Customer r e t u r n s data are prepared by punching a card f o r each item from e i t h e r a stub of the re t u r n e d p r i c e t i c k e t o r, where no stub i s a v a i l a b l e , from the data w r i t t e n on the c r e d i t or refund check. The data p r o c e s s i n g department should r e c e i v e a copy of r e c e i v i n g r e p o r t s i n order t h a t cards can be punched f o r merchandise r e c e i p t s . The r e c e i v i n g r e p o r t i s prepared a f t e r a r e c o n c i l i a t i o n i s made between the o r i g i n a l purchase order and the vendor's or manufacturer's i n v o i c e . One or more cards may be punched f o r each s t y l e r e c e i v e d . Only 7H. V. Oldenburg, "Is E l e c t r o n i c s P r a c t i c a l f o r R e t a i l e r s ? " R e t a i l C o n t r o l , 2 7 : 1 2 6 , September, 1 9 5 8 . 158 one card i s punched i f there i s no c o l o u r c o n t r o l but i f an item i s a l s o c o n t r o l l e d by c o l o u r as was i n d i c a t e d i n the r e c o r d c l a s s i f i c a t i o n system o u t l i n e d , a card i s punched f o r each s t y l e - c o l o u r c l a s s i f i c a t i o n . The cards f o r r e t u r n s t o vendors 'are punched from the documents which d e b i t the vendor's account. A l l r e c e i p t s are i n i t i a l l y charged t o the main s t o r e . When merchandise i s shipped t o the branches, a d i s t r i b u t i o n sheet i s forwarded to the data p r o c e s s i n g department to serve as the source f o r punching the t r a n s f e r c a r d s . One card i s punched f o r each s t y l e t r a n s f e r r e d to each s t o r e . Inventory adjustment cards are used to a d j u s t the balances as i n d i c a t e d by sheets prepared at in v e n t o r y t a k i n g time and from i n v e n t o r y adjustment memos at other times dur i n g the year. In t h i s way, any e r r o r s or shortages are detected and allowance made f o r them. When garments are marked down, p r i c e change cards are punched from markdown sheets. T h i s permits a new s t y l e r e c o r d to be cr e a t e d on the master c o n t r o l tape and the o l d s t y l e r e c o r d changed t o r e f l e c t the q u a n t i t i e s marked down. Updating of the merchandise c o n t r o l tape. The merchandise c o n t r o l tape i s updated as o f t e n as the most f r e q u e n t l y prepared r e p o r t . Updating the tape c o n s i s t s of matching the a p p r o p r i a t e part of the tape 159 r e c o r d to the input cards and t r a n s f e r r i n g s a l e s , customer r e t u r n s , r e c e i p t s , r e t u r n s to vendors, i n t e r - s t o r e t r a n s f e r s , i n v e n t o r y adjustments, and p r i c e changes that have accum-u l a t e d s i n c e the previous updating run. The input cards are put i n t o a sequence corresponding to the tape r e c o r d ; they are updated a g a i n s t the e x i s t i n g merchandise c o n t r o l tape, and a new tape i s produced. Ignoring the d e t a i l s of input-output c o n t r o l , the l o g i c of the program f o r such an updating run would be q u i t e simple, ( i . e . a matter of l o c a t i n g the tape r e c o r d and adding or s u b t r a c t i n g the a p p r o p r i a t e f i e l d s on the card and t a p e ) . Using the updated tape, programs could then be w r i t t e n to produce the v a r i o u s r e p o r t s u s e f u l t o the merchandising d i v i s i o n . E s t a b l i s h i n g E x c e p t i o n C r i t e r i a Two of the merchandise c o n t r o l r e p o r t s t h a t w i l l be d i s c u s s e d , namely the Best S e l l e r Report and the Slow S e l l e r Report, are based on e x c e p t i o n c r i t e r i a . These are r e p o r t s which could be produced d a i l y and, remem-be r i n g the d i s c u s s i o n of buying problems i n f a s h i o n s , o b v i o u s l y they c o n t a i n i n f o r m a t i o n c r i t i c a l to the buyer. Before the r e p o r t s can be produced, one must c o n s i d e r the approach to be taken i n developing s u i t a b l e c r i t e r i a . To c i t e some experience gained from l i m i t e d a p p l i -c a t i o n s so f a r , one department s t o r e In the United S t a t e s has used, w i t h some success, a system based on percentage 160 20 of s a l e s l i m i t s . A f t e r the merchandise tape has been through the d a i l y updating run, the s t y l e r e c o r d s are t e s t e d to determine i f any s t y l e has s o l d 10 per cent o f i t s t o t a l stock i n a day and/or 20 per cent i n a week, and/or 30 per cent i n two weeks. I f so, i t has the poten-t i a l f o r r e - o r d e r , s u b j e c t to the buyer's d i s c r e t i o n , and would t h e r e f o r e be l i s t e d on a b e s t - s e l l i n g sheet. I t would be e q u a l l y reasonable to e s t a b l i s h percen-tage of s a l e s l i m i t s to determine slow s e l l i n g s t y l e s . The author of the a r t i c l e s t r e s s e d t h a t the c r i t e r i a used are by no means a b s o l u t e . Rather, they are c r i t e r i a which are e s t a b l i s h e d based on experience and are r e v i s e d and improved through experience. No hard and f a s t r u l e s e x i s t but the apparent success the o r g a n i z a t i o n i n v o l v e d had, demonstrates t h a t such a system i s f e a s i b l e . A "death r a t e " system i s another method which could 21 c o n c e i v a b l y be adapted to EDP. By t h i s system a time dead-l i n e i s set and coded i n t o the p r i c e t i c k e t when the merchandise a r r i v e s , t h i s d e a d l i n e r e p r e s e n t i n g the maximum time allowed before some a c t i o n i s c o n s i d e r e d . Once the merchandise has reached the death date, t h i s i s brought to the buyer's a t t e n t i o n by a r e p o r t and i t i s then considered ^ U C . R. McBrier, "Progress Report on E l e c t r o n i c Data P r o c e s s i n g , " S t o r e s , *+2:63, May, I960. 21w. Burston, "A Death Rate System t o Force Mark-downs and Speed Turnover," S t o r e s , 1+1:17, November, 1959. 161 f o r p o t e n t i a l markdown. Despite the system used i t seems c l e a r t h a t s p e c i a l care must be taken to operate the merchandise r e p o r t i n g system i n such a way as to p r o v i d e f o r c o n t a c t between per s o n n e l of the data p r o c e s s i n g department and the merch-a n d i s i n g d i v i s i o n . T h i s c o n t a c t i s necessary f o r determining changing r e p o r t requirements and r e v i s i o n of e x c e p t i o n c r i t e r i a . This q u e s t i o n deserves s p e c i a l c o n s i d e r a t i o n and w i l l be d i s c u s s e d f u r t h e r i n a l a t e r s e c t i o n . U n i t C o n t r o l Reports f o r F a s h i o n Merchandising The b e s t - s e l l e r r e p o r t . B e s t - s e l l e r r e p o r t s could be produced d a i l y based on a breakdown of s t y l e s by f a s h i o n departments w i t h d i f f e r e n t r e p o r t s prepared f o r each department manager. A s e r i e s of such departmental r e p o r t s should be g i v e n to the d i v i s i o n a l f a s h i o n merchan-d i s e manager. The r e p o r t could c o n t a i n data f o r each s t y l e t h a t q u a l i f i e s a f t e r being compared w i t h the e x c e p t i o n c r i t e r i o n . Some data which could be shown are the t o t a l s a l e s , t o t a l on-hand i n v e n t o r y breakdown by s t o r e s , the percentages of t o t a l s t o c k s o l d i n the p r e v i o u s day, week and two-week p e r i o d ( i . e . i f the s t y l e has been on the s a l e s f l o o r t h a t long) compared w i t h the percentages set by the e x c e p t i o n c r i t e r i a , t o t a l r e c e i p t s and s a l e s by c o l o u r , i f the s t y l e i s c o n t r o l l e d by c o l o u r . 162: Combined w i t h the buyer's knowledge of the merchan-d i s e s i t u a t i o n , t h i s r e p o r t could be extremely v a l u a b l e f o r showing those s t y l e s which must be r e o r d e r e d , show p o t e n t i a l for r e o r d e r , or a l r e a d y are r e o r d e r e d but must be rushed to a v o i d an o u t - o f - s t o c k c o n d i t i o n . The i n f o r m a t i o n could a l s o i n d i c a t e a poor d i s t r i b u t i o n amongst s t o r e s which, i f not remedied, may r e s u l t i n a l o s s of s a l e s through stock outs. The s l o w - s e l l e r r e p o r t . The i n f o r m a t i o n content and d i s t r i b u t i o n f o r t h i s r e p o r t should be very s i m i l a r to that of the b e s t - s e l l e r r e p o r t . T h i s r e p o r t i s used to p r o t e c t p r o f i t and prevent unnecessary markdowns by t a k i n g a c t i o n r e g a r d i n g promotion, s a l e s emphasis, and s m a l l markdowns before the s t y l e becomes a s e r i o u s problem. The p o s s i b i l i t y a l s o e x i s t s that open orders may be c a n c e l l e d and merchandise r e t u r n e d to the vendor i f a c t i o n i s taken q u i c k l y enough. The d i v i s i o n a l merchandise manager whose r o l e i s l a r g e l y one of a t r o u b l e shooter and c o o r d i n a t o r would be p a r t i c u l a r l y i n t e r e s t e d i n t h i s r e p o r t . The c l a s s p r i c e l i n e r e p o r t . T h i s r e p o r t breaks down u n i t s a l e s and on-hand i n v e n t o r y by p r i c e l i n e w i t h i n merchandise c l a s s i f i c a t i o n s . T h i s r e p o r t i s an extremely important i n d i c a t o r to the g e n e r a l merchandise manager, the d i v i s i o n a l manager, and the buyer, of the success they 163 are having i n adhering to t h e i r merchandising p o l i c i e s . Expanding volume i n high p r i c e l i n e s i n a department i n t e n d i n g to c a t e r to a m i d d l e - p r i c e l i n e c l i e n t e l e would c e r t a i n l y c a l l f o r some r e v i s i o n of the merchandise budget procedure. In a d d i t i o n to determining the merchandise c l a s s i f i c a t i o n s t h a t are s e l l i n g , the r e p o r t i s u s e f u l i n d e c i d i n g which c l a s s i f i c a t i o n p r i c e l i n e s to promote and determining whether any steps are necessary to balance the stock i n a p a r t i c u l a r department. This r e p o r t i s prepared monthly to a l l o w time f o r s i g n i f i c a n t trends to develop. I t l i s t s i n ascending p r i c e sequence s a l e s and on-hand f i g u r e s i n t o t a l and by s t o r e f o r a l l s t y l e s w i t h i n a c l a s s i f i c a t i o n . A l s o l i s t e d w i t h the i d e n t i f y i n g i n f o r m a t i o n of p r i c e l i n e and s t y l e number are the departments i n which the s t y l e i s s o l d , the manu-f a c t u r e r and the o r i g i n a l p r i c e . The aging r e p o r t . The aging r e p o r t i s prepared monthly to help f u r t h e r a s s i s t the buyer and d i v i s i o n a l managers to l o c a t e o l d and p o t e n t i a l l y troublesome merchan-d i s e so t h a t a p p r o p r i a t e a c t i o n can be taken. A l l s t y l e s are l i s t e d w i t h the i d e n t i f y i n g codes f o r the department, the c l a s s i f i c a t i o n , the manufacturer, the present p r i c e and the o r i g i n a l p r i c e . For each s t y l e the t o t a l q u a n t i t y r e c e i v e d t o date i s g i v e n along w i t h the s a l e s by month, the t o t a l on-hand i n v e n t o r y , and an aging d i s t r i b u t i o n f o r the on-hand i n v e n t o r y ( i . e . number of items over two V weeks o l d , number of items over one month o l d , e t c . ) . 161+ The s e c t i o n s of the updated s t y l e r e c ords on the merchandise c o n t r o l tape which contains the aged r e c e i p t s of the s t y l e by week and the cumulative s a l e s by months f o r the s t y l e are of p a r t i c u l a r r e l e v a n c e f o r p r e p a r i n g the monthly aging r e p o r t . A l l r e c e i p t s are entered by week on the c o n t r o l tape by the r e c e i p t cards d u r i n g an updating run. S a l e s c a r d s , prepared from p r i c e tags c o n t a i n i n g a code f o r the date the p a r t i c u l a r p i e c e of merchandise was r e c e i v e d , are used to s u b t r a c t one u n i t from the a p p r o p r i a t e received-by-week f i e l d on the tape. The received-by-week p a r t of the s t y l e r e c o r d a f t e r updating t h e r e f o r e r e p r e s e n t s the aged on-hand i n v e n t o r y . T h i s r e p o r t g i v e s those concerned more i n s i g h t i n t o the o p e r a t i o n s of a department i n h e l p i n g them to spot merchandise which may be o b s o l e t e , s o i l e d , and s u i t a b l e f o r markdown. The aging r e p o r t supplements the slow moving r e p o r t and i n the event that the o l d e r stock i s t o be c o n s o l i d a t e d f o r a c l e a r - o u t s a l e , the r e p o r t p o i n t s t o that stock to be c o n s i d e r e d . The manufacturer's r e p o r t . The purpose of t h i s r e p o r t , prepared at the end of each merchandise budgeting p e r i o d , i s to p r o v i d e a resume by s e l l i n g department of the amount each manufacturer's merchandise a c t u a l l y s o l d f o r , the o r i g i n a l r e t a i l value of the merchandise s o l d , and the d i f f e r e n c e between the two ( i . e . the net markdown). T h i s r e p o r t i s a u s e f u l one f o r showing the o v e r - a l l 165 o f , t h e d i f f e r e n t manufacturers, thus s e r v i n g as a guide to the department and d i v i s i o n a l managers i n t h e i r f u t u r e buying commitments. Manufacturers who have poor markdown rec o r d s should be r e p l a c e d by others w i t h more popular and p r o f i t a b l e l i n e s . O r g a n i z i n g f o r Merchandising-Data P r o c e s s i n g L i a i s o n I f an o r g a n i z a t i o n were to embark on a program t o i n c o r p o r a t e merchandise c o n t r o l r e p o r t i n g i n t o i t s EDP system the author f i r m l y b e l i e v e s t h a t s e r i o u s c o n s i d e r -a t i o n should be g i v e n to s e t t i n g up a merchandising-data p r o c e s s i n g l i a i s o n group. The f a s h i o n merchandising f i e l d i s a p a r t i c u l a r l y dynamic segment of department store r e t a i l i n g and as the r e p o r t s above i n d i c a t e , the r e p o r t i n g procedures t h a t are set up to provide s p e c i f i c types of i n f o r m a t i o n are u s u a l l y e s t a b l i s h e d t o neat a g i v e n set of circumstances. The t i m i n g of r e p o r t s , f o r example, w i l l vary c o n s i d e r -a b l y . Because the success or f a i l u r e of a merchandising season i s to a l a r g e extent determined i n the f i r s t three to s i x weeks of the season, d a i l y b e s t - s e l l e r and slow-s e l l e r r e p o r t s may be v i t a l l y important to the buyer d u r i n g t h i s p e r i o d . In the d e c l i n i n g weeks of the p e r i o d they are of l i t t l e use and may only be i s s u e d weekly or b i -monthly. The e x c e p t i o n c r i t e r i a on which these r e p o r t s are based are a product of the circumstances and may have to 166 be r e v i s e d during the course of the season. This i s not a very s i g n i f i c a n t t e c h n i c a l problem as the program used to prepare the r e p o r t can e a s i l y be w r i t t e n so that new e x c e p t i o n l i m i t s must be i n s e r t e d w i t h the data cards each time the program i s run. What could be an important problem, e s p e c i a l l y i n the i n i t i a l stages of c o n v e r s i o n to f a s h i o n merchandise c o n t r o l , i s the l a c k of manage-ment f o r e s i g h t i n a s s i g n i n g the proper type of person t o cope w i t h the v a r y i n g needs of merchandise management and c o n s u l t w i t h these people on a r e g u l a r b a s i s . I t i s a b s o l u t e l y e s s e n t i a l that systems i n use be reviewed f r e q u e n t l y t o determine t h e i r s u i t a b i l i t y i n the l i g h t of new c o n d i t i o n s . I t i s e q u a l l y important that one c o n s i d e r the q u a l i f i c a t i o n s of the person or persons needed f o r the job. The l i a i s o n f u n c t i o n would be performed between the data center p e r s o n n e l , who presumably would be under the s u p e r v i s i o n of the c o n t r o l l e r , and the merchandising d i v i s i o n p e r s o n n e l . The person or persons undertaking the job should have a combination of merchandising knowledge, knowledge of a d m i n i s t r a t i o n and a d m i n i s t r a t i v e r e s p o n s i -b i l i t i e s , and t e c h n i c a l experience i n programming. A good grasp of merchandising fundamentals i s o b v i o u s l y a n e c e s s i t y f o r such a p o s i t i o n to f a c i l i t a t e communication between two f a c t i o n s of r e t a i l i n g which may not t a l k the same t e c h n i c a l language. T h e i r d i f f e r e n c e i n outlooks r e q u i r e s t h a t someone be designated to brid g e 1 6 7 t h i s gap on a r e g u l a r and c o n t i n u i n g b a s i s . The task i s too important to be l e f t to haphazard meetings whenever t r o u b l e a r i s e s and judging from the content of the r e p o r t s , t h i s could occur f a i r l y f r e q u e n t l y . T e c h n i c a l knowledge of programming i s another important p r e r e q u i s i t e of the p o s i t i o n . T h i s knowledge ensures that d i s c u s s i o n s about p o s s i b l e merchandising a p p l i c a t i o n s are always d i r e c t e d keeping i n mind the c a p a b i l i t i e s of the EDP equipment. T h i s w i l l promote a c o n s t r u c t i v e approach to merchandising problems and prevent wasting the v a l u a b l e time of p e r sonnel i n the data c e n t e r . L a s t l y , the a d m i n i s t r a t i v e r e s p o n s i b i l i t i e s assoc-i a t e d w i t h merchandising must be c o n s i d e r e d . Although o r g a n i z a t i o n theory i n s i s t s t h a t o r g a n i z a t i o n s t r u c t u r e and r e s p o n s i b i l i t i e s must f i r s t be d e f i n e d and p e r s o n n e l found to f i t these p o s i t i o n s , i n p r a c t i c e r e t a i l i n g r e s p o n s i b i l i t y i s to a great extent a f u n c t i o n of the i n d i v i d u a l and a f u n c t i o n of changing circumstances. An understanding of these a d m i n i s t r a t i v e r e s p o n s i b i l i t i e s and t h e i r changes i s necessary i n order to d e f i n e what c o n s t i -t u t e s i n f o r m a t i o n f o r a p a r t i c u l a r r e t a i l i n g e x e c u t i v e . I f i nroads are to be made i n supporting merchandise management w i t h r e p o r t s produced by EDP equipment, one should r e c o g n i z e t h a t the i n s t a l l a t i o n s must be r e l a t e d i n a meaningful way to the people using i t s r e p o r t s . C r e a t i n g t h i s p o s i t i o n , which, probably would a c t i n a s t a f f c a p a c i t y to the EDP p e r s o n n e l , would give i t s occupants a perspec-t i v e which i s o r i e n t e d toward e x p l o r i n g ways of u s e f u l l y a s s i s t i n g the merchandising f u n c t i o n . CHAPTER V I CONCLUSIONS There seems to be l i t t l e doubt t h a t management today i s t a k i n g p a r t i n a r e v o l u t i o n of methods and techniques which have been prompted by some very r e a l needs on the pa r t of busin e s s . While the broad o u t l i n e s of t h i s r e v o l u -t i o n , as o u t l i n e d i n Chapter I I , present a very glamorous p i c t u r e of these s o p h i s t i c a t e d techniques, t h i s p i c t u r e i s by no means c h a r a c t e r i s t i c of the s i t u a t i o n which i s faced i n r e t a i l i n g . R e t a i l i n g at present makes very l i t t l e use of the ideas developed by the o p e r a t i o n s r e s e a r c h e r s . Despite the f a c t that r e t a i l i n g i n v o l v e s d e a l i n g w i t h masses of d e t a i l and that r o u t i n e r e c o r d keeping i s a necessary p a r t of r e t a i l i n g , one must not l o s e s i g h t of the need to pro v i d e i n f o r m a t i o n to management to f a c i l i t a t e the performance of the planning and c o n t r o l f u n c t i o n . The p r e s s i n g need f o r s h i f t i n g the emphasis i n data p r o c e s s i n g from volume r e c o r d keeping to the development of manage-ment i n f o r m a t i o n f o r p l a n n i n g and c o n t r o l has been under-scored i n an a r t i c l e by Gerald L. P h i l l i p p e , c o n t r o l l e r of the General E l e c t r i c Company who commented as f o l l o w s J There i s a f r i g h t e n i n g common d e s i r e today to prove that i n c r e d i b l e amounts of i n f o r m a t i o n can be developed w i t h e l e c t r o n i c d e v i c e s by p r e p a r i n g r e p o r t s that are i n c r e d i b l y l o n g , i n c r e d i b l y d u l l , and a l l i n a l l , j u s t p l a i n i n c r e d i b l e . . . . Info r m a t i o n alone i s not 170 enough . . . . What i s needed o b v i o u s l y i s a planned system of business i n t e l l i g e n c e . . . a "management i n f o r m a t i o n " system which s e l e c t s , r e j e c t s , e d i t s , and h e a d l i n e s business i n f o r m a t i o n — in:.short, which turns i t i n t o business i n t e l l i g e n c e . R e f e r r i n g t o the s o l u t i o n of the needs of manage-ment as a management i n f o r m a t i o n system, g l o s s e s over the ex t e n s i v e and time consuming d e t a i l t h a t i s i n v o l v e d . I t obscures the plann i n g which determines the o b j e c t i v e s of the o v e r - a l l systems e f f o r t ; the a n a l y s i s which combines elements of the e x i s t i n g system, breaking i t i n t o e a s i l y d e f i n a b l e processes and elements; and the d e s i g n of systems which i s the c r e a t i v e aspect combining elements of the e x i s t i n g system w i t h new techniques and processes to b u i l d a new system. The term tends to obscure the f a c t t h a t one i s working w i t h the p r e j u d i c e s of people and t h a t a p p l i -c a t i o n s are l i m i t e d by the l a c k of t e c h n i c a l knowledge and ed u c a t i o n of p e r s o n n e l i n a business s e t t i n g where each a p p l i c a t i o n i s i n some r e s p e c t s unique. The term a l s o obscures the f a c t that care must be g i v e n to produce a system w i t h an adequate means of c o n t r o l . The ob j e c t of such system d e s i g n must be some o p t i m a l balance of sound c o n t r o l coupled w i t h procedures a v o i d i n g the c r e a t i o n of an e x c e s s i v e volume of paperwork to achieve the r e q u i r e d G. L. P h i l l i p p e , "What Management R e a l l y Wants from Data P r o c e s s i n g , " Data P r o c e s s i n g Today. A Progress  Report (New York : American Management A s s o c i a t i o n , Management Report No. 2 6 , I 9 6 0 , p. 11. 1 7 1 checks and balances. In the a b s t r a c t , the i d e a of a management i n f o r m a t i o n system i s e n t i c i n g ; p r a c t i c a l imple-mentation of the r e l a t e d concepts presents problems which should not be underestimated. The o r g a n i z a t i o n a l problem i s one t h a t has a high p r i o r i t y amongst the l i s t of problems t h a t r e t a i l d e p a r t -ment s t o r e s must f a c e i n s u c c e s s f u l l y adapting EDP to t h e i r purposes. The planning and c o n t r o l f u n c t i o n of management r e q u i r e s that management r e p o r t s be b u i l t around the o r g a n i z a t i o n s t r u c t u r e . In r e t a i l i n g the q u e s t i o n of where branch s t o r e s f i t i n t o the o r g a n i z a t i o n and the s p e c i f i c d u t i e s and r e s p o n s i b i l i t i e s of p e r s o n n e l i n branch s t o r e s i s as yet l a r g e l y unresolved. T h i s s i t u a t i o n q u i t e o b v i o u s l y i n h i b i t s b e t t e r r e p o r t p r e p a r a t i o n . In a d d i t i o n , f r e q u e n t l y the r e s p o n s i b i l i t y f o r c o n t r o l l a b l e expenses i s not as f u l l y delegated to the department l e v e l i n the parent s t o r e as i t might be. The i n t r o d u c t i o n of EDP equipment a l s o has i m p l i c a -t i o n s w i t h r e s p e c t to the s t r u c t u r e and techniques of data h a n d l i n g . There has i n the past been a tendency to impose new p r o c e s s i n g techniques on fundamentally unchanged paper flow procedures. Systems a n a l y s i s and d e s i g n has o f t e n concentrated on studying e x i s t i n g systems r a t h e r than e s t a b l i s h i n g data and i n f o r m a t i o n requirements f o r the f u t u r e without regard f o r p r i o r l i m i t a t i o n s . Gregory and Van Horn, when r e f e r r i n g to the data system " s t r u c t u r e " 172 use the terra t o mean the n a t u r e of m a n a g e r i a l o r g a n i z a t i o n , the o r i g i n and type of d a t a c o l l e c t e d , the f o r m and d e s t i n -a t i o n of r e s u l t s , and the p r o c e d u r e s used t o c o n t r o l 2 o p e r a t i o n s . The " t e c h n i q u e s " of a d a t a - p r o c e s s i n g system r e f e r t o the t e c h n i c a l a s p e c t s o f the methods used t o o r i g i n a t e and p r o c e s s d a t a i n o r d e r t o f u r n i s h i n f o r m a t i o n i n some u s e f u l form. Gregory and Van Horn p o i n t out t h a t a change i n e i t h e r the s t r u c t u r a l or t e c h n i c a l a s p e c t s a l o n e seldom r e s u l t i n the b e s t system. R a t h e r , a change i n b o t h the s t r u c t u r e and t e c h n i q u e f a c t o r s o f t e n produces a more e f f i c i e n t and more e c o n o m i c a l system t h a n i s the case i f o n l y one f a c t o r i s changed. Department s t o r e management must be more aware of the n e c e s s i t y t o r e v i s e o l d o r g a n i z a t i o n s t r u c t u r e and systems when t h e y become o b s o l e t e . An example of t h i s concept drawn from t h i s t h e s i s i s the c e n t r a l i z a t i o n of d a t a p r o c e s s i n g and new a l l o c a t i o n of r e s p o n s i b i l i t y r e q u i r e d f o r the p r o c e s s i n g and r e p o r t p r e p a r a t i o n i n the f a s h i o n m e r c h a n d i s i n g d e p a r t -ment s. Co n c u r r e n t w i t h t h e problem of system r e d e s i g n i s the problem of r e - e d u c a t i o n . The w r i t e r ' s e x p e r i e n c e l o c a l l y has been t h a t , d e s p i t e the f a c t department s t o r e s have e i t h e r i n s t a l l e d EDP equipment or a r e i n t h e p r o c e s s of so d o i n g , the knowledge of EDP p r i n c i p l e s amongst R. H. Gregory and R. L. Van Horn, Automatic Data-P r o c e s s i n g Systems (Belmont, C a l i f o r n i a : Wadsworth, I 9 6 0 ) , P. 3 9 0 . 173 r e t a i l i n g p e r s o n n e l i s not v e r y w i d e s p r e a d . T y p i c a l l y t h i s knowledge has been r e s t r i c t e d t o a s e l e c t few i n the c o n t r o l d i v i s i o n s of department s t o r e s . I n the f u t u r e , department s t o r e s must p r o v i d e f o r a b e t t e r i n t r o -d u c t i o n of EDP p r i n c i p l e s t o o t h e r s t o r e p e r s o n n e l so t h a t more e x p e r i e n c e c a n be brought t o bear on t h e problems they f a c e . I n t h i s way, the t e c h n i c a l and p r a c t i c a l a s p e c t s of EDP i n a l l a r e a s of r e t a i l i n g can be brought t o g e t h e r . Areas of department s t o r e s o t h e r t h a n j u s t the c o n t r o l d i v i s i o n would t h e n be i n a p o s i t i o n t o b e n e f i t more f u l l y f r o m the equipment. U n d e r l y i n g a l l systems s t u d y and use of management s c i e n c e methods where t h e s e methods are a p p l i c a b l e , s h o u l d be a f o c u s on the i n f o r m a t i o n problems of management. Because i n f o r m a t i o n and d a t a r e q u i r e m e n t s are t h e most i m p o r t a n t d e t e r m i n a n t s o f system d e s i g n , n a t u r a l l y t h e s e r e q u i r e m e n t s s h o u l d always be uppermost i n the d e s i g n e r ' s mind. The more c o m p l e t e l y o r g a n i z e d the d a t a p e r t a i n i n g t o a p a r t i c u l a r problem a r e a I s , the e a s i e r the problem s o l u t i o n g e n e r a l l y becomes. W h i l e i n e a r l i e r a p p l i c a t i o n s o f EDP equipment t o b u s i n e s s t o o much a t t e n t i o n may have been d i r e c t e d t o t e c h n i c a l a s p e c t s , t h e r e i s now a w e l l developed t r e n d toward c o n s i d e r a t i o n of the broader a s p e c t s of i n f o r m a t i o n systems and g r e a t e r emphasis on t h e i n t e -g r a t i o n and e f f i c i e n c y of d a t a f l o w s t o p r o v i d e the d e s i r e d i n f o r m a t i o n . T h i s t h e s i s has s u p p o r t e d the 17^ g e n e r a l tendency toward wider a p p l i c a t i o n of EDP to r e t a i l i n g to combat the r i s i n g t i d e of paper work. In view of management's s t r e s s on the need f o r t a n g i b l e evidence of saving gained through b i t t e r experience, one has d i f f i c u l t y r e f u t i n g management's l o g i c i n concen-t r a t i n g on more commonplace accounting a p p l i c a t i o n s . However, i t was the c o n t e n t i o n of t h i s t h e s i s t h a t a l e g i t i m a t e case can be made to j u s t i f y the use of EDP equipment f o r merchandising a p p l i c a t i o n s . F a s h i o n merchandise c o n t r o l i s a merchandising area which shows p a r t i c u l a r l y good p o t e n t i a l f o r the a p p l i -c a t i o n of EDP methods. No hard and f a s t r u l e s e x i s t f o r a p p l y i n g automated methods i n f a s h i o n merchandising, but the types of r e p o r t s presented i n the l a t t e r p a r t of Chapter V i l l u s t r a t e a s t a r t i n the r i g h t d i r e c t i o n . The onus i s then on merchandising management to apply them-s e l v e s i n a c r e a t i v e way and to determine more completely the type of r e p o r t s which are most meaningful to them i n c a r r y i n g out t h e i r merchandising f u n c t i o n s . They must do t h i s bearing i n mind the p a r t i c u l a r merchandising s i t u -a t i o n s they face and the i n t i m a t e a s s o c i a t i o n and know-ledge they have of those problems. The f a s h i o n merchandising a p p l i c a t i o n i s one which should be i n t e g r a t e d i n t o the t o t a l data p r o c e s s i n g system along w i t h the a p p l i c a t i o n s commonly done now. E v e n t u a l l y , 175 i n a piecemeal f a s h i o n , the management i n f o r m a t i o n system i n r e t a i l s t o r e s w i l l probably be c o n s t r u c t e d . Recent advances i n data a c q u i s i t i o n and c o l l e c t i o n , data t r a n s m i s s i o n , and computer p r o c e s s i n g hold g r e a t e r p o t e n t i a l f o r data p r o c e s s i n g as a r e t a i l management t o o l than ever before. T h i s i s important to management because, i n the words of S. N. Alexander, C h i e f of the Data P r o c e s s i n g Systems D i v i s i o n of the N a t i o n a l Bureau of Standards: We are emerging from a p e r i o d i n which much of a f i r m ' s data served as a h i s t o r i c a l or p o l i c e f u n c t i o n , r a t h e r than a managerial f u n c t i o n , and e n t e r i n g a pe r i o d i n which they can be made a v a i l a b l e to a s s i s t management . . . . The importance of an understanding of data usage t o the manager should be q u i t e obvious. Once g i v e n c l e a r advice as to the use of the data, the manager of data p r o c e s s i n g can work backward and f i n d out what to gather, how much to gather, and what to process; and he can do an e f f i c i e n t t a s k of meeting the requirements of h i s j o b . 3 The e f f e c t i v e use of data p r o c e s s i n g from a manage-ment i n f o r m a t i o n standpoint w i l l improve only when systems p l a n n i n g , as a management f u n c t i o n , i s w i l l i n g t o view data p r o c e s s i n g i n i t s proper p e r s p e c t i v e : one element of a management i n f o r m a t i o n system which has as i t s b a s i c r e s p o n s i b i l i t y the c o n v e r s i o n of data i n t o i n f o r m a t i o n f o r use i n making d e c i s i o n s at a l l l e v e l s of r e t a i l manage-ment . 3 j . D. 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