Business Process and Design Report

Ryerson University

Final Case Report Case Company: Sears

ITM 410 – Business Process Design Professor Helen Chen

April 16, 2015

By: Tayyaba Asad 500561116 Saljoq Khurshid 500567219 Manal Siddiqui 500572462 Julie-Anne Pinfold 500526627

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Table of Contents

TITLE PAGE

1. Executive Summary………………………………………………………………………..4

2. Background Overview

· Background, Process and Problem Identification……………………………………….5

· Rich Picture……………………………………………………………………………...7

3. Documenting the Current State

· Visit to Case Company………………………………………………………………….8

· Meeting the Employees………………………………………………………………...10

· Process Information……………………………………………………………………11

· Descriptive Model……………………………………………………………………...12

o Physical Data Flow Diagrams…………………………………………………...14

o Logical Data Flow Diagrams……………………………………………………15

· Diagrammatical Models (SIPOC)……………………………………………………...17

· Swimlane Diagrams……………………………………………………………………19

4. Creating Data Flow Diagrams

· Context Diagrams…………………………………………………………………...…23

· Physical Data Flow Diagrams………………………………………………………….24

· Logical Data Flow Diagrams…………………………………………………………..28

5. Performance Measurements and Evaluation

· Goals and Objectives…………………………………………………………………..32

· Performance Metrics…………………………………………………………………...33

· System Flow Charts……………………………………………………………………34

· Control Matrix and Plans………………………………………………………………36

6. Refining Problem/Opportunity Identification and Developing Options

· Out-dated Information Systems………………………………………………………..38

· Developed Options……………………………………………………………………..40

7. Process Mapping the Options

· SIPOC Descriptive Model…………………………………………………………..…43

· SIPOC Diagrammatic Model…………………………………………………………..44

· Swimlane Diagrams……………………………………………………………………45

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· Physical Data Flow Diagrams………………………………………………………….47

· Logical Data Flow Diagrams…………………………………………………………..51

· Control Matrix…………………………………………………………………………57

8. Cost Benefit Analysis

· Quantitative Analysis…………………………………………………………………..59

· Qualitative Analysis……………………………………………………………………66

9. Recommendations

· Overview of Recommendation………………………………………………………...68

· Analysis of Recommendation………………………………………………….………68

· Justification of Recommendation……………………………………………………...72

. Conclusion ……………………………………………………………………………..72

10. Bibliography………………………………………………………………………………73

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Throughout this report, we have conducted an in depth analysis of Sears Home Store with a

specific focus on analyzing their out-dated Information System AS-400. Based on our research and

inquiry into the company we discovered a major area for improvement that was in desperate need

of a solution. We focused on refining two major processes, which were returns and exchanges. By

analyzing the returns and exchanges processes we realized that communication was not being

synchronized throughout multiple departments across Sears which made it hard for the various

departments to access customer information. For Sears to remain efficient through their customer

service and improve their productivity, the following recommendation should be considered:

- Implement IBM I, which is an integrated operating system database middleware built for

businesses

By implementing the IBM I system, Sears would improve the returns and exchange process by:

- Optimizing for exceptional customer service resilience

- Synchronizing multiple departments in order to enhance communication

- Reducing the time required to update inventory in multiple locations

- Speed up crediting process for returned and exchanged merchandise

- Lessen the delivery time and errors for the returns and exchange process

- Improve security and auditing procedures

By implementing these recommendations, there would be a tremendous improvement for Sears

financial, non-financial and customer service issues, which would result in future growth

opportunities. This would enhance their communication throughout Sears home stores and provide

them with a competitive advantage.

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Sears Background Overview Background, Process and Problem Identification

Sears Canada is a well-known retailer that operates throughout all provinces and territories

across Canada since 1954 when the very first store was opened in British Columbia. They offer a

wide range of shopping options, with specialty stores, a merchandise catalogue, diverse range of

home products/services as well as an extensive online website for internet ordering. With 196

Corporate Stores, 195 dealer stores, 38 home improvement showrooms, 108 Sears Travel offices,

113 Department stores and a nationwide home maintenance, repair and installation network, Sears

is committed to satisfying Canadian consumers through providing superior services and products.

Sears has annual revenues of about $4 billion, with over 20,000 employees and has issued more

than 3 million Sears catalogues across all Canadian communities. Sears vision statement is "to

enrich the lives of Canadians through our products, services, community involvement and

experiences that help make every day a great day”. Their mission is to "capture the hearts and

minds of Canadians to be their trusted go to retailer." They compete with various retailers

throughout their industry such as The Bay, Wal-Mart, Leon’s, The Brick as well as many others

throughout Canada and want consumers to choose them as their go to retailer.

The 2 major processes we will be analysing are ‘Returns’ and ‘Exchanges’. We will focus

on the relevant departments that are involved and affected including Customer Service, Logistics

and Delivery. From here we will be reviewing how communication occurs between the The Sears

Home store, the Distribution Center and how products are distributed as well as how information

is recorded. We will be discussing the efforts and duties of the Sears employees throughout each

process as well as across each department (Customer Service, Sales, Logistics, Delivery). We will

also be looking at the effects that these processes have on the customers.

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Based on our research of Sears’ problem identification we found two major areas of

opportunity for improvement. These are also major problems that the company has which are in

need of a solution. Firstly, Sears’ has out-dated information systems and uses multiple software’s

for various business processes. Their information systems includes a database of customer

information along with their current and past orders, deliveries and returns. The issue is that these

software’s are not linked together which causes inconsistencies in information sharing and updates

which severely affects the decision-making processes. These inconsistencies cause severe

communication problems between various stores and distribution centers resulting in missed or

late deliveries due to their inability to coordinate.

The second area of improvement is in Sears’ logistics and supply chain management. There

are three issues within this department, which are in need of a solution. The biggest issue in this

area is that customers receive very large delivery windows, which vary between 6-8 hours. This is

very inconvenient for those who have jobs or other commitments, which they need to miss in order

to receive their delivery. Also, the distribution centers don’t immediately update their systems

when a product is being back ordered or when it has been discontinued and that is an

inconvenience when customers inquire about certain items. Lastly, the unavailability of big-ticket

items is an inconvenience because there isn’t a large quantity and therefore it isn’t properly

managed. As a result, when a customer orders an item it takes the logistics department a while to

record if the item is in or out of stock as well as the supply chain to update the availability of the

item. It will show the item as “available” when it really may not be or vice versa which is very

inefficient and inconvenient for the company and the customers.

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Rich Picture

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Documenting the Current State Visit to Case Company: Sears Methods used to collect Data

- Observation through job shadowing and interview questions. Interview Questions for Returns & Exchanges

1. Departments Involved Within the Exchange and Return Process: a. Customer Service Rep: Mostly us, (customer service) and receiving (logistics) for

returns, and Customer service, and delivery (Distribution center) for exchanges b. Logistics Associate: Customer service and us (logistics) for returns, and Customer

service as well as delivery (distribution center) for exchanges. c. General Sales Manager, Sales manager and BDL: Primarily customer service

and receiving (logistics) for returns, and for the most basic cases, customer service and delivery for exchanges

2. Role or Contribution to the Processes:

a. Customer Service Rep (Returns): I am in charge of processing the returns on the cash register and ensuring all the information is entered into the system correctly. I also ensure the customers receive the appropriate documentation and paper work and that they get credited for the return amount. We ensure the paperwork for the credit is filled out and left for the manager to authorize and enter into the system so the credit can be processed and approved by CCS (corporate customer service)

b. Customer Service Rep (Exchanges): The exchange process is called a ‘CODX’. In this process we first check the item availability on the system and then set up a manual-pick up for the merchandise and coordinate the pick-up for the same date as the delivery of the new merchandise. On the date of the pick up, we update our notes in the centralized sears system (AS400) and once the status is completed, CCS (corporate customer service) credits the customer for any outstanding credits.

c. Logistics Associate (Returns): We help the customer unload the merchandise from their vehicle, inspect the merchandise, fill out the return slips and then walk the customers back to the customer service desk to get credited. We are also responsible for filling out the RQ sheets (return request) so that all returned merchandise is picked up from our store and brought back to the warehouse (distribution center) by the returns trailer.

d. BDL-Business Development Lead (Returns and Exchanges): My responsibility is to ensure all paperwork supporting the return and exchange process is correctly

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filled out. I am in charge of calling in the returns trailer to pick up all returned merchandise and bring it back to the warehouse.

e. Sales Manager/Store Manager (Returns and Exchanges): We enter all the credit sheets into ARMS (Sears’ crediting system) to ensure that all customers are approved to receive the credit amount of their return

3. Problems or Opportunities Identified Within Each Process:

a. Customer Service Rep (Returns): The amount of time it takes to credit customers for returns is a definite problem. Not only do the credit sheets have to be manually filled, but even after they’re entered it can take up to two weeks from headquarters to approve it and give the customer the credit.

b. Customer Service Rep (Exchanges): The whole ‘CODX’ process is time consuming and slightly more complicated than it has to be. The amount of time it takes to set-up a manual delivery and collect the necessary information to begin the process (original receipt, customer information, credit card number) takes precious time. The process would be more efficient if we had access to the same information the managers have access to, we could then print the electronic versions of the receipt instead of manually looking through the physical copies that have all been filed away.

c. Logistics Associate: If we had access to the same AS400 systems that customer service use we could check inventory and monitor the status of deliveries on the computer instead of manually looking around the huge warehouse.

d. BDL (Exchanges): the time it takes to train someone to a do a ‘codx’ is too much. Also a major concern is when to enter the CODX’s in to the system Since CODX’s are an exchange, they are hit against the store, so they are subtracted from the end-of day balance. Since they are subtracted it is important to only enter them in the system (clear the CODX’s) when the company has had a good day with sales because even if you subtract a few hundred or thousand dollars it shouldn’t affect the bottom line too much.

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Employees Met

Position Department Major Responsibilities

Customer Service Representative (Emran Khan)

· Customer Service · Answering all customer questions regarding products · Save-the-sale: Negotiating with customers and providing incentives to prevent cancellations or returns. · Processing all sales, returns, exchanges and cancellations in Sears’ application system (AS400) and the cash register.

Sales Manager (Ajay)

· Sales · Ensure the daily sales targets are met · Authorizing sales: Overseeing the final sale, conducting final negotiations with customers, and offering any kind of additional discount or incentives. · Providing support to all associates and managers

General/Store Manager (Shahid Iqbal)

· Sales · Logistics · Customer Service

· Ensuring the daily sales goals are met · Authorizing sales: Overseeing the final sale, conducting final negotiations with customers, and offering any kind of additional discount or incentives. · Save-the-sale: Negotiating with customers and providing incentives to reduce returns, and cancellations · Supporting all staff and overseeing all departments.

BDL (Business Development Lead) (Lisa)

· Logistics · Customer Service

· In charge overseeing logistics and customer service. · Ensuring all big ticket merchandise are in stock · Delegating projects to logistics

associates · Supporting Customer Service

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Representatives with customer issues · Displaying/arranging all floor stock.

Logistics Associate (Georgio)

· Logistics · Unloading weekly trailers, opening and arranging floor stock · Preparing merchandise for final delivery · Logging all returned merchandise and sending it back to the distribution center

Driver Company: Highspeed Driver: Paul

· Local Delivery Company

· Delivering Merchandise to customers address · Unloading merchandise and carrying it into the customers place of residence

Processes

Process Department Function

Returns · Customer Service · Logistics

Dealing with returning all merchandise brought back into the store. Customers are credited and merchandise is sent back from the store to the distribution center.

· Microwaves · Rugs · Recliners & chairs

Exchanges · Customer Service · Logistics

Dealing with exchanging big-ticket merchandise. Includes picking up merchandise from customers home and coordinating a delivery for the correct merchandise on the same day (pickup and drop-off)

· Fridges · Washer & Dryers · Dishwashers · Sofa sets · Table sets

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Descriptive Model Returns

Paragraph Text 1 (Intro to Procedures for Returns)

Sears specializes in selling appliances, electronics, furniture, mattresses and other home furnishings across Canada. When customers are unsatisfied with their purchase, according to store policy they can return their merchandise within 30 days at the customer service desk using the following procedures:

2 (Customer)

At the customer service desk, the customer brings the receipt to return their unwanted merchandise. Upon approval, the customer then brings their merchandise to the pick up dock.

3 (Logistics Associate)

Once the merchandise is dropped off, the logistics associate unloads and inspects it for any damages. Next, the logistics associate fills out the return slip and brings the return slip to the customer service desk.

4 (Customer Service Rep)

At the customer service desk, Sears’s customer service representatives enter the customer order number on their computer where they are added to the daily returns file. Once the order number is entered, the representative verifies that the order information matches the receipt information. Next, the representative processes the return on their computer and credits the customer. Then the representative prints two customer return copies. One copy is filed for the company and the second is given to the customer.

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Exchange

Paragraph Text 1 (Intro to Procedures for Exchanges)

When customers are unsatisfied with their merchandise due to damages, ordering errors or simply because the customer changed his/her mind according to store policy they are authorized to exchange the product within 30 days of the purchase using the following procedures:

2 (Customer)

At the customer service desk, the customer brings the receipt to exchange the merchandise.The customer then explains the reason for the exchange. The Customer service representative then verifies the reason by viewing pictures of the damaged merchandise, or pulling up a furniture medic report and checking the notes.

3 (Customer Service Rep)

Once the customer service rep verifies the information, the representative checks the product availability and sets up the earliest and most convenient date for the new delivery. After setting up a delivery date for the new merchandise, the representative sets up a pick up date and time for the old merchandise and sends the information to the Corporate Customer Service Rep. After entering in the necessary information, the representative prints two copies of the customer exchange receipt. One receipt is filed away and the other is given to the customer.

4 (Corporate Customer Service Rep)

The corporate customer service representative sends the pick up request information to the appropriate distribution center.

5 (Truck Driver)

The truck driver delivers new merchandise and picks up the old merchandise.

6 (Distribution Centre Associate)

The distribution center confirms pick up and delivery has been successful and updates into computer.

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Data Flow Diagrams Physical DFD - Returns

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Physical DFD - Exchange

Logical DFD - Returns

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Logical DFD - Exchange

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Diagrammatical Model SIPOC Returns - Level 0

SIPOC Returns - Level 1

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SIPOC Exchange - Level 0:

SIPOC Exchange - Level 1 (Manual Pick- up):

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Swimlane Diagrams Returns - Level 0

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Returns - Level 1

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Exchange - Level 0

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Exchange - Level 1

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Creating Data Flow Diagrams Context Diagram - Returns and Exchanges

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Physical DFD Return - Level 0

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Physical DFD Return-Level 1

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Physical DFD Exchange - Level 0

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Physical DFD Exchange - Level 1

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Logical DFD Return - Level 0

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Logical DFD Return - Level 1

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Logical DFD Exchange - Level 0

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Logical DFD Exchange - Level 1

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Performance Measurements and Evaluation Goals and Objectives

This table shows the various goals/objectives at the three levels: strategic, tactical and operational in regards to our redesign for both processes of returns and exchanges at the Sears Home Store.

LEVEL GOALS/OBJECTIVES SUB PROCESSES (ACTIVITIES) Strategic Our goal in the long-term is to

develop a unified Information System, which will integrate all components of each sub process within returns and exchanges throughout Sears Home Store.

We will create one form of communication that allows information to be easily shared between each department that’s involved in the returns and exchange process. 1) The Customer Service department will know the inventory on hand without having to contact the Logistics Department. 2) The Customer Service department will know immediately what merchandise is in stock and which merchandise is being back ordered or has been discontinued. 3) The Corporate Customer Service Department will have access to the information of the delivery status of the merchandise and will be able to credit the customer more efficiently.

Tactical Our goal in the medium term is to reduce the amount of returns and cancellations of merchandise. We will be managing the returned and exchanged inventory more efficiently by enhancing the communication between the Departments across Sears Home Store.

In the mean time we will place RFID chips on all merchandise, which will keep track of all inventory in the store. RFID scanners will be used to store all merchandise and monitor returned and exchanged inventory in the store and across the Sears supply chain. Eventually in the long run it will be updated simultaneously in the new unified information system

Operational In the short term we will focus on enhancing the efficiency of all returns and exchanges which will give our customers a more enjoyable

We plan to accomplish this by printing instructions on all receipts letting customers know that if they wish to return or exchange their

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experience. merchandise to bring it to the dock pick up where we can handle this more rapidly. To further enforce this, we will train all sales associates within the departments to mention this once the customer has bought merchandise.

Performance Metrics

This table shows the performance metrics at three levels: strategic, tactical and operational and the financial as well as non-financial and financial ways that we can meet the performance metrics.

LEVEL PERFORMANCE METRICS

FINANCIAL NON-FINANCIAL

Strategic Less Returns/Exchanges Lead delivery time Responsiveness to Delivery performance More responsive Order lead time More Efficient Customer query time Quicker Manufacturer lead time Level of manufacturer’s defect free deliveries

Return rate: to reduce returns to 5% on net sales

Protection agreement: 50% of products sold should have warranty (PA)

Tactical Limiting the number of returns and order cancellations for stores Inventory order cycle Responsiveness to urgent deliveries Achievement of defect free deliveries

Delivery revenue: Average delivery should be $60

Card share: 75% of the purchases should be on a Sears card/ MasterCard

Operational Quality of delivered goods

Sales: measured by sales per hour, each

Installation revenue: Expected that 15% of

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Inventory count Documentation for returns Scheduling return trailers

associate should produce an average of $416 an hour

appliances should be installed by Sears

Returns Systems Flowchart Process- AS-IS System

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Exchange Systems Flowchart Process- AS-IS System

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Control Plans for Returns & Exchanges:

Effectiveness Goals Include:

A: Provide timely & Efficient Response Time to Customer Returns/Exchange Orders B: Provide Accurate Customer Information for Orders C: Provide timely Delivery of Orders for Pick-up & Drop-Off of Merchandise to Customers IV: Input Validity UC: Update Completeness IC: Input Completeness UA: Update Accuracy IA: Input Accuracy Above in the Control Matrix are the following Present Controls used in our As-Is System Now. Below the control plans are further described. P.C-1) Enter Customer Order Data: Once the customer wants to make a return or exchange the Customer Service associate enters the customer order information into the system to verify the customer’s information and previous purchases.

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P.C-2) Inspect Merchandise: An associate from the Logistics Department must ensure that the merchandise being brought back is in acceptable condition, so they inspect the merchandise to ensure that there are no severe damages to it. P.C-3) Approve Returns & Exchange Request: The same authorized associate from the Logistics Department, then must inform the Customer Service associate that the return/exchange is allowed to happen. P.C-4) Enter Customer Delivery Data (Exchange Only): The Customer Service associate inputs the date and time of when the customer’s old merchandise will be picked up, and when the new merchandise will be delivered. P.C-5) Approve Delivery Data (Exchange Only): The Distribution Centre must confirm that they have received the pick-up and drop-off order, and let the Customer Service associate know that they are accepting the delivery. P.C-6) Credit the Customer (Returns Only): Once the return has been processed through the system the Customer Service associate must then credit back the customer for the merchandise that they have returned. P.C-7) Record of the Process: Once the return has gone through 1 receipt is filed away to be kept on record to show the completed process of the return or exchange.

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Refining Problem/Opportunity Identification and Developing Options Out-dated Information System

As a company, Sears Home store in Brampton faces a variety of issues that have created

many obstacles, which are preventing the company to achieve their goals. Throughout our research

we’ve arrived at the conclusion that all of these issues are a result of one large problem; Sears’ out-

dated Information System. The current Information System that Sears is using is called AS-400.

IBM originally released AS-400 on June 21, 1988. The system has only received a small degree of

minor upgrades since its release date and on 2006 was renamed “System I”. Having the latest

technology within an organization is a crucial aspect of helping the company achieve its goals,

gain a competitive advantage and obtain success in the future.

With that being said, using out-dated technology, especially an out-dated Information

System that is responsible for managing the company's core processes, is detrimental to the future

success of an organization. Sears uses the As400 to keep detailed information about customers’

orders such as delivery dates, addresses, a history of their purchases, and the status of their

deliveries. The major issue with As400 is that it is not connected with Sears’ sales system or their

inventory system, which causes major communication issues across departments. This

miscommunication makes the delivery, returns and exchange processes extremely inefficient

because each one of these processes are closely interrelated and rely on input from each other.

Sears’ out-dated Information System often results in merchandise being delivered late or not at all.

A major inventory problem that arises is that the store doesn’t have an accurate record of which

customer merchandise is on hand and also when the company orders merchandise for customers,

the merchandise is often on backorder or discontinued.

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Also, because information about customers is not linked to other departments it takes much

longer to credit customers back or refund them for any amount of money owing to them. The

miscommunication greatly affects the return and exchange process because both of these processes

revolve around delivering merchandise, crediting customers, and ordering merchandise from

manufacturers.

Returns

The Return process is affected because since the AS-400 system used by customer service

is not synced with the system used by the Distribution center, it takes much longer for the

distribution center and Sears Headquarters to know the Brampton Sears Home stores inventory on

hand. This is a problem because Sears’ finance department cannot actually update the customer’s

credit card statements until they know that the inventory is accounted for. Since all returns are

processed at the Corporate level, the longer it takes for the Home store to update their “return’

inventory, the longer the customers have to wait to have their statements adjusted.

Exchanges

A simple exchange can be made very complicated when it involves multiple departments.

The biggest problem faced by this process because of the out-dated systems is that the delivery and

pickup of the customer merchandise are created on separate systems and the time it takes to fill out

the CODX forms and then adjust the sales book in ARMS (Sears’ adjustment Application) is

inconvenient and unnecessary. Furthermore since the delivery and pickup are created separately

there are often many issues with the overall delivery process. The drivers provide customers with a

6 hour delivery window in which they can expect to receive their merchandise. This causes an

extreme inconvenience for customers because most have to take a day off work and miss a days

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worth of pay because they have to wait at home for a delivery that they don’t know exactly when

will arrive.

Option 1: IBM I New Integrated System

The “IBM I” is an integrated operating system, database and middleware built for

businesses. It has the capacity to support multiple applications and processes and is a trusted tool

with security and auditing. It has a simple and user-friendly interface and it is the cheapest

alternative to upgrade to from AS-400. This system would be a great solution for Sears because

this platform would allow them to synchronize multiple departments in order to enhance

communication. By enhancing communication the return and exchange process would be more

efficient because it would reduce the amount of delivery errors and speed up the crediting process

to customers. As well all departments will be able to access customer information more efficiently.

Along with improving the returns and exchange process implementing this system will improve

Sears’ security and auditing procedures. It will allow us to properly keep track of merchandise on

hand, sold, backordered and discontinued. Furthermore “IBM I” supports an “Icloud” interface

which provides future growth opportunities for Sears to enhance their storage and provide them

with a competitive advantage compared to their competitors.

Returns

The IBM I system would improve the Return process by:

● Reducing the time required to update inventory both within the store and distribution

center.

● Reducing the amount of time it takes for Chase (Sears’ credit department) to credit back

customers for returned merchandise.

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● Decrease the overall length of time of the return process by eliminating paperwork (from

logistics associates).

Since the “IBM I” supports multiple application and processes it would reduce the time it

takes for information to update across all of Sears’ multiple systems. Customers would no

longer have to face the inconvenience of driving around to the back of the store with the

merchandise so that the logistics associate can inspect it. Instead, the logistics associate could

come to customer service to inspect it since they no longer would have to fill out the return

slips and update the ‘Return inventory’ and manually call in the return trailer to do a scrap pick

up of the returned merchandise. The reason they will no longer have to do this is because the

information that is entered into the IBM I system by the customer service rep is automatically

accessible by every other department. This means that once the status of the merchandise is

changed to “R” for returned, their will be no delay time for this change to be updated in Sears’

HQ or the distribution center. As a result of this decrease in delay time HQ and the distribution

center would know the inventory count at all times at the store level and “Chase” would be

able to credit back customers much faster at the conclusion of each return process.

Exchanges

The IBM I system would improve the exchange process by

● Eliminating the need to create a manual pick-up in the AS-400 System.

● Increasing the speed of the overall process by eliminating the need to fill out the CODX

forms and then balancing the exchange amounts into ARMS (sears’ financial adjustment

application).

● Reducing the amount of training required for customer service reps (CODX’s are time

consuming and complicated)

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● Increase the accuracy of deliveries by providing customer with a smaller delivery window

(as opposed to a 6 hour waiting time)

● Reduce the time it takes for the merchandise to be available for delivery

The biggest inconvenience for the exchange process is that it is much more complicated than it

needs to be as a result of poor communication between departments. The exchange process, also

known as a CODX is notorious for errors. The IBM I would reduce these errors and make the

process more efficient because as discussed earlier, since the IBM I systems are synchronized

across all Sears departments the inventory is updated faster. Since the inventory is updated faster

the manufacturers can have product available to deliver to the customer much faster than the as-is

system.

Also since the systems are interconnected, there will no longer be a need to set up a

delivery using one application system, and then setting up a pick-up using a different application

system. The need for customer service reps to create a manual pick-up will be completely

eliminated since the delivery date retained by the sales system in the register will be updated to the

distribution center as soon as the exchange transaction is complete. This means that the distribution

center can immediately began scheduling routs to trucks to do the exchange. Also, since the

communication between the Sears store and the distribution center will be faster and since the

inventory will be able to update quicker, the drivers will be able to provide customers with a

smaller and more precise delivery window that they can expect to receive their merchandise. This

will improve customer satisfaction because customers will no longer have to book off the whole

day from work waiting to receive a delivery.

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Process Mapping the IBM I Option

NOTE: The following diagrams represent the change in the return and exchange process after the

implementation of the IBM I Application system. Instead of highlighting the sub-processes that

were added we recreated all the diagrams from scratch because the implementation of the new

system does not just add new sub process to the As-Is system, it also causes the existing sub

processes to change. Therefore instead of highlighting the sub process that are added as a result of

our implementation, we created new DFD diagrams and Swimlane diagrams which provide an

accurate representation of the new processes.

SIPOC Diagrams Descriptive Model

Paragraph Text

1 - Suppliers IBM

2 - Input IBM i Application System

3 - Processes IBM I would be able to simplify and enhance the returns and exchange processes It would be able to make it easier for the employees at the Sears Home Store to process returns and exchange activities by reducing the amount of errors throughout the transactions IBM I is an excellent logging facility which will track the activity occurring on the system Employees will be able to update customer information and synchronize that information with multiple departments IBM I will also allow the employees to easily display customer information, which will speed up the process of returns and exchanges for customers

4 - Output Synchronize multiple departments to enhance communication Efficient return and exchange process – reduce amount of delivery errors and speed up crediting

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Improve the security and auditing procedures and provide future growth opportunities for Sears to enhance their storage Provide Sears Homestore with a competitive advantage compared to its competitors Process is smoother and provides a better experience for customers

5 - Customers - Returns and Exchange

Return: Customers who want to return unwanted products Exchange: Customers who want a replacement for defective products

SIPOC Diagrammatic Model:

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Swimlane Diagrams Returns

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Exchange

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Physical and Logical Data Flow Diagrams Physical DFD Return - Level 0:

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Physical DFD Return - Level 1:

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Physical DFD Exchange - Level 0:

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Physical DFD Exchange - Level 1:

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Logical DFD Return - Level 0:

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Logical DFD Return - Level 1:

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Logical DFD Exchange - Level 0:

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Logical DFD Exchange - Level 1:

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Returns Systems Flowchart Process- IBM I

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Exchange Systems Flowchart Process- IBM I

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Control Matrix for Returns & Exchanges Using the IBM I Option Effectiveness Goals Include:

A: Provide timely & Efficient Response Time to Customer Returns/Exchange Orders B: Provide Accurate Customer Information for Orders C: Provide timely Delivery of Orders for Pick-up & Drop-Off of Merchandise to Customers IV: Input Validity UC: Update Completeness IC: Input Completeness UA: Update Accuracy IA: Input Accuracy Above in the Control Matrix are the following Missing Control Plans that are added in addition to the present controls while using the IBM I system. Below the control plans are further described.

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Missing Controls that are added by IBM I M.C-1) Automatic Inventory Count: Once returns and exchanges are processed the system will automatically correspond the barcode ID on the product and add it back into the system as inventory or report it as a defective item. This will help to monitor all merchandise on hand as well as defective merchandise and allow inventory to be tracked more effectively at any time across departments. M.C-2) Compare Receipt Data to Master Data: Before a receipt is recorded as a return or exchange the receipt data will be automatically compared with the master data in the system to determine that the correct merchandise was brought back for inventory purposes before being printed. M.C-3) Independent Customer Master Data Maintenance: Our new system will preclude any one person from creating or editing a customer order record, and allowing all returns and exchanges to be done in a more effective manner. This will allow all information on customers to be shared across all departments that deal with returns and exchanges and allow the process to run smoother. It will make communication across all departments easier to manage and access without having to contact other departments on a regular basis. M.C-4) Turn-Around Document (Exchanges Only): Once the Customer Service Associate inputs the delivery information into the new system the delivery associates receive the order at the Distribution Centre and it automatically alerts them that they have a delivery, and it prints the order information in the warehouse to be dealt with immediately. This will make sure that all deliveries are processed within 1 business day, and will help to better prepare and organize the delivery process. M.C-5) Review Exchange Order (Exchanges Only): A file of open orders will be remained in the new system which allows the Distribution Centre to investigate all open orders to assure that merchandise is delivered as well as picked up from customers in a timely manner. M.C-6) Payroll Control (For Employees): Schedule only enough employees to deal with the exchange & returns process across the Logistics Department, Customer Service Department and all employees working in the Distribution Centre. This will ensure that the system will be checked and monitored regularly, and that when returns/exchanges happen that there are enough employees working to create and update customer orders.

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Quantitative Analysis The problem is that our AS-IS system is really out-dated. The current system is too costly compared to the services it provides the company with. The system isn't synchronized across the multiple departments, so accessing information is delayed. Deliveries aren't happening on time, costing the company a lot of money. Payroll controls (too many employees are working; overstaffed) INFLOWS for AS-IS System: The below data is all of the cash inflows that Sears Home Store has received over the past 5 years of operations.

Annual Revenue (Google Financials)

Year 1: 4,619,000.30 Year 2: 4,346,000.50 Year 3: 3,991,000.80 Year 4: 3,424,000,50 Year 5: 3,100,000.50 As you can see based on the 5 years of operations, the annual revenue has decreased substantially, and the major reason for this is due to the AS-400 system.

Delivery Fees (Sales): Consistent at approximately 50 deliveries a day, with $69.95 received for each delivery. (50 deliveries x $69.96 x 365 days)

Year 1: 1,276,588 Year 2: 1,276,588 Year 3: 1,276,588 Year 4: 1,276,588 Year 5: 1,276,588

OUTFLOWS: The below data shows all of the cash outflows that Sears Home Store gives out over a single year of operation. All information was provided by the Manager from Sears Home Store (Information in bibliography).

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Cost Item Price Cost of AS-400 System $10,000 Delivery Fees

$657,000/year ($30 per delivery * 50 deliveries per day * 365) + Duplicate Delivery Fees

Duplicate Delivery Fees $109,500/year (20% of delivery fees is due to duplicate deliveries)

Payroll Costs (Logistics Associates, Customer Service Associates, Backroom Associates)

$384, 384/year (12 employees * 11/hour * 8 hours per shift * 7 days a week * 52 weeks per year)

Payroll Costs (4 Managers: 2 for Customer Service & 2 for Logistics)

$200,000/year ($50,000k per employee * 4)

Compensation Fees for Returns & Exchanges $112720000/year (10% of Expenses) (Expenses: 1127.20 million * 0.10)

Returns & Exchange Fees

INFLOWS For IBM I System: The below data is all of the cash inflows that Sears Home Store has received over the past 5 years of operations.

Annual Revenue: As you can see this is the expected revenue over the next 5 years of operations with the implementation of IBM I. With the installation and usage of this new Information System we predict sales to increase by 3% due to the improved efficiency of customer information and deliveries.

Year 1: 3,526,720.515 Year 2: 3,632,522.13 Year 3: 3,741,497,794 Year 4: 3,853,742.728 Year 5: 3,857,211.096

Delivery Fees (Sales): (50 deliveries x $69.96 x 365 days)=1,276,588 We expect there to be 5 more deliveries each day for a total of 1,825 more deliveries each year (5 x 365) Therefore an additional $127,658.75 will be made in Delivery Sales (1825 x $69.95)

Year 1: 1,404,246.75 (127,658.75+ 1,276,588) Year 2: 1,531,905.5 (127,658.75+ 1,404,246.75) Year 3: 1,659,564.25 (127,658.75+ 1,531,905.5) Year 4: 1,787,233 (127,658.75+ 1,659,564.25) Year 5: 1,914,881.75 (127,658.75+ 1,787,233)

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OUTFLOWS: Below in the following chart are the cash outflows that we expect with the implementation of IBM I. As you can see with this new system we will require less employees to be working at a given time, less compensation fees and less duplicate delivery fee expenses.

Cost Item Price Cost of New System (IBM I) $20,000 Licensing for Software $2,000 Delivery Fees (Every year decrease the duplicate deliveries by 5%)

$651,525 (First Year) (($109,500*0.05) + $30 per delivery * 50 deliveries per day * 365)

Payroll Costs (Logistics Associates, Customer Service Associates, Backroom Associates)

$192, 192/year (6 employees * 11/hour * 8 hours per shift * 7 days a week * 52 weeks per year)

Payroll Costs (2 Managers: 1 for Customer Service & 1 for Logistics)

$100,000/year ($50,000k per employee * 2)

Compensation Fees for Returns & Exchanges $78904000/year (7% of Expenses) (Expenses: 1127.20 million * 0.07)

Returns & Exchange Fees

Payroll Costs will be less as the new system will be integrated and synchronized through multiple departments making it easier for employees to directly access information. As a result, many employees won’t be needed and the payroll cost will decrease. Delivery fees won't be duplicated, as the goal is to decrease the duplicate deliveries by 5 percent. Compensation for complaints will decrease by 7% since returns & decreases will decrease. Costs to update & maintain the system won't require much maintenance so that will decrease as well.

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NPV

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Payback Period

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ROI

IRR N/A Non-Financial Quantitative Analysis Customer complaints ● CONA is Sears’ customer complaint system that stores all unresolved customer complaints

for that particular store. ● All CONA notes older than 3 days old are categorized as Urgent. ● All CONA notes older than 2 days are categorized as Priority ● All CONA notes 1 day or less are categorized as Important ● Sears’ Customer service policy is to aim to have less than 5 open CONA notes. Any time

the CONA notes exceed 5, 2 of the 6 customer service reps scheduled for that shift are assigned to close all CONA notes.

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CODX Control ● Exchanges should only be recorded in the books when the daily sales goals are reached. ● CODX’s shouldn’t exceed $5000. ● If a customer receives damaged merchandise after 2 CODX’s no more are allowed. Instead

prompt customer to reselect or offer compensation. ● Compensation should not exceed 10% of the non-sale price of the merchandise.

ARMS Credit Time ● The company goals is to credit each customer within 72 hours ● Returns should be recorded in the book within 3 days ● Returns should not exceed more than 5% of net income.

Sears Card Activations ● Each Associate is to get 3 sears card activations every year. ● 75% of all purchases on credit card should be on Sears Credit card, OR a Sears Financial

mastercard ● 1000 Sears points can be redeemed for $10 ● Sears’ points are only valid for 6 months before they must be redeemed.

Qualitative Analysis:

There are issues not measured financially directly, such as quality, reliability of service, duration (cycle time) of process, risks, uncertainties, policy, regulations, etc.

Some of the issues that were not measured financially directly were the accuracy of delivery window, quality of merchandise from manufacturer, duration of the process, theft from the truck drivers, confirmation of delivery date and time and refusal of service. These issues were not financially measured because all of these issues are not in the hands of Sears itself, however they are in the hands of the head office. The following issues are:

● Accuracy of Delivery Window: If the delivery time is set for 3 pm, the merchandise will be delivered at that time, no later than the given time.

● Quality of Merchandise from Manufacturer: If the ordered merchandise is damaged or broken from the manufacturer.

● Duration of the Process: How long does it take for the delivery to be sent to the owner after they have placed the order.

● Theft from the Truck Driver: The safety of the merchandise as the order can be stolen or lost from the truck.

● Confirmation of Date and Time: Sears should call the customer about their order a day before the delivery date and remind them about the timing of the delivery.

● Refusal of Service: The delivery employees have the right to refuse the service due to bad weather, too many stairs as their job only entails them to drop the merchandise to the premise of the owner and not place it to the desired spot.

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Accuracy of Delivery Window:

- Delivery will arrive at the time given

- Customer does not have to wait for merchandise to be delivered all day

Quality of Merchandise from Manufacturer (Damaged):

- Inspected to ensure high quality products are delivered to the customer

Duration of the Process:

-The duration time for the delivery after the customer has placed the order will be less than a week

Theft from the Truck Drivers:

- Theft from the truck drivers will increase security

Confirm Delivery Date & Time with the Customer:

- Sears will call the customer in advance to confirm the delivery date and time

- Sears will make sure that the customer is available at the given time so they do not have to reschedule

Refusals of Service:

- The delivery employees are allowed to deny the service if the customers ask them to place the merchandise in a desired place as they only have to deliver the merchandise to the premise

- Refusal of service is due to bad weather, too many stairs, slippery stairs, etc.

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Recommendation IBM I Description

Based on our research of Sears we found a large variety of problems that are significantly

affecting the business processes, especially the “Returns” and “Exchange” process. We concluded

that many of these problems stem from its out-dated information system knows as AS/400. To

address these issues and in order to improve the “Returns” and “Exchange” process we decided to

implement the “IBM i” system.

IBM I

The “IBM i” is an integrated operating system, database and middleware built for

businesses. It has the capacity to support multiple applications and processes and is a trusted tool

with security and auditing. It has a simple and user-friendly interface, requires minimal training for

staff and is easy to learn.

Since the IBM i has the capacity to support multiple applications and processes it will

allow Sears to unify its existing application systems. Sears has a variety of application systems

each being used in specific departments and areas of the business. The Returns and exchange

processes are heavily depended on multiple departments such as customer service, logistics,

distribution and delivery. The problem with the current as is system is that the application systems

are not linked and so it takes a longer than necessary for information that is crucial to the

effectiveness of the two processes to flow through the organization. Our recommendation, the IBM

I, is going to address this issue and as a result improve the returns and exchange processes.

Analysis of IBM I The improvements in both the “Returns” and “Exchange” processes as a result of the

implementation of the ‘IBM i’ is demonstrated quantitatively through our financial and non-

financial analysis.

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NPV

Using an interest rate of 10%, the implementation of the IBM i showed a steady increase in

the Net Present Value over the next 5 years. Since money at the present moment may not be

worth the same in the future as a result of inflation and other factors, we wanted to ensure that our

recommendation results in an increase in cash flow across the analysis period.

Payback

Our total cost of implementing the ‘IBM i’ over the next 5 years was estimated to be

$3,318,148.75. Our Cash inflow for the first year of implementing the IBM i was estimated to be

$4,930,967.00. Consequently, our payback period on our financial analysis is shown as “N/A”

because our payback period is less than one year.

ROI

The Implementation of the IBM i provided us with the incremental cash flow projections seen in

the graph below. The high cost of initially implementing the system is the reason the incremental

cash flows are lower for the first 2 years. However, as seen in the graph below, over the course of

the analysis period the ROI pays off after year 2 and continues to steadily increase.

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Cash Flow

While comparing our As-is system to the IBM i another factor we looked at was the overall

cash flows. Based on our financial analysis of the 5 year projected period our recommendation

had a higher cash inflow and a lower cash outflow compared to the AS/400 system. This means

that implementing the IBM i will not only assist in bringing in more money, but it also costs less

to maintain and use the system.

Increase Delivery revenue

Over the 5-year analysis period the total number of deliveries are expected to increase by

approximately 5 each day and 1,825 every year. Each delivery being $69.95 would result in an

additional $127,658.75 made in delivery sales every year.

Reduce Duplicate Deliveries

This system also will also significantly reduce the number of duplicate deliveries that are

made every year. Duplicate deliveries are those that occur multiple times for a single order as a

result of ordering errors, missed/late deliveries and merchandise being delivered damaged.

Because the new system will automatically send pick-requests to the distribution center for the

exchange process and all other information required to schedule the delivery trucks and assign

them their appropriates routs and delivery schedules will be up to date and readily available, it

will help to reduce the number of duplicate deliveries by 5% each year.

Payroll

Originally using the AS-IS system we had 6 customer service representatives working during

each shift. 4 of the 6 employees deal with customers who walk into the store with returns and

exchanges or other problems as well as assisting with transactions. The other 2 are responsible for

completing CONA, which is an application used by sears to store unresolved return and exchange

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related problems that are more than 3 days old. Since the majority of the problems that they work

on are associated with returns and exchanges, the implementation of the IMB i will reduce the

required number of customer service reps to 4 each shift.

Training

Sears uses an application called “Click and learn” to train employees. Click and learn

includes a series of mini training modules that are assigned to employees to read and then

complete an online test. The IBM i training module will be added to the click and learn

application. The IBM i training module will replace a bunch of the as-is training modules since

the system will be taking over the AS/400. As a result there will be less “click and learns” for the

sales, logistics and customer service staff, which will reduce the time it, takes for management to

train new employees and retrain existing employees each year.

Customer Compensation costs

A major issue for using the AS/400 information system has been the compensation fees

that they have had to pay to unhappy and unsatisfied customers for errors made on behalf of sears.

These compensation fees are offered as an incentive to customers to not return or exchange their

merchandise and to keep it as-is condition in exchange for a small fee that is equivalent to 10% of

the value of the customers merchandise. These errors are all related to untimely or missed

deliveries, damaged merchandise and lengthy waiting times to receive credit for a return. By

increasing the efficiency of the Return and Exchange processes as a result of implementing the

IBM I, the compensation fees will be reduced by 7% every year.

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Justification for adopting IBM I

Although IBM I does require an initial start up cost to purchase and license the system and

software, we have discovered through our cost benefit analysis that the improvements that will

occur will significantly outweigh the costly investment.

With this new system there will be no additional costs needed to upgrade or maintain the

system, as that will be included in the maintenance contract with IBM that comes with the system.

The IBM I will ensure that all information regarding a customer's order will be accessible

across all departments (Customer Service, Logistics, Shipping & Delivery, etc.). This will allow

all employees working across these departments to access a customer's information more

efficiently, and once a customer comes back to return or exchange anything they can easily bring

it up on the new system. Once a customer wants to return or exchange something the Customer

Service Department will not only be able to easily pull up all of the required information, but also

any updates or changes under the customers order will be automatically updated across all of

Sears’ networks so each department involved within the Return and Exchange process will be

able to complete their sub-processes quicker which will improve the overall efficiency and

accuracy of the return and exchange process.

Conclusion

To conclude, Sears returns and exchange process would benefit from the IBM I system, as

it would synchronize multiple departments making communication more efficient. As a result, the

process will be smoother for the employees and the customers resulting in increased customer

satisfaction. This report has shown the many benefits of IBM I and evidently gives Sears various

reasons to implement this information system. Implementing IBM I would result in accuracy of

information, stored database for future reference, less paperwork, increased security and effective

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deliveries. Consequently, this recommendation will not only help maintain a successful future for

Sears but will provide them with an innovative cutting edge over their competitors.

Bibliography

"IBM I." Operating System Overview – Virtualization. IBM, 10 June 2013. Web. 10 Apr. 2015. <http://www-03.ibm.com/systems/power/software/i/virtualization.html>. ● Overview of the IBM i System

"AS/400 System Overview." TTGT Media (2009): 10. Print. ● Overview of the AS/400 system used in the As-is model

Iqbal, Shahid. "Sears' Returns and Exchange Process Overview." Personal interview. 6 May 2015. ● Interviewed the Store Manager for information about:

○ Control Plans ○ Problem identification ○ Operational, Tactical and Strategic goals ○ Stakeholders ○ Overview of Returns and Exchange process

"How to Redeem Your Points." Redeem Your Points. Sears, 3 May 2001. Web. 17 Apr. 2015. <http://www.searsfinancial.ca/SearsClubPoints/Redeem.aspx>. ● Information about Sears Credit Cards

"Google Finance: Stock Market Quotes, News, Currency Conversions & More." Google Finance: Stock Market Quotes, News, Currency Conversions & More. Web. 17 Apr. 2015. <http://www.google.ca/finance?fstype=ii&q=TSE:SCC>. ● Sears Financial Statements 2014