What is POS?

"POS" is an acronym for "Point of Sale", which is in itself a shorter form of "data capture at the point where a sale is made". The term came about as evolving computer hardware and software made it possible to capture the information about a retail sale at the very time the sale was made.

The opposite of "point of sale" would be writing information on receipt pads, or entering it into an off-line cash register or some other device. That data would later be either keyed or loaded into a computer where software would process the data.

Before the spread of inexpensive personal computers, the most common point of sale device was the electronic cash register. That device could accumulate limited sales information and print tape summaries at the end of a shift or the end of the day. The more advanced registers might even record sales on a cassette tape or other storage device which could be read by a computer.

Computerized POS systems replace the cash register but essentially do the same job. The computer, however, can record vast amounts of information about the sales process. When connected to a network, all of the "cash register computers" can communicate with each other and with a central system. Inventory can be updated in real time, customer information is available to the sales clerk, and managers always know how the store is performing.

POS systems are a fact of life for large retail operations. Chain stores use POS to integrate retail operations on a global basis. The scanner is tied to the cash register, which updates the store's central inventory instantly. The local store's computer links to the home office computer. The corporate buyers get realtime stocking levels at every store in the country. Centralized purchasing buys in quantity and coordinates shipping in the most efficient manner.

Advances in technology, in particular networking, allow POS system to reach out to the customer before the sale. Stores have long provided services like Bridal Registerers. Today's registry is automated and available on an in-store kiosk. The bride enters wedding information then browses catalogs and selects items she wants. Friends of the bride are told to check the registry kiosk for the bride's list. The kiosk displays the list, sorted by price and availability. The friend selects a group of items and the kiosk prints a bar coded list including the aisle and shelf where the item can be found. At check out, the cash register clerk scans the bar code on the printout and the computer updates the brides registry to show what's been purchased. For national stores, the in-store kiosk actually connects to the headquarters computer via the internet. Any store in any location can view the same registry data. Better yet, any customer can access the registry from their home computer and internet browser!

POS for EVERYONE

For larger retail establishments, POS is a fact of life. Everyone expects these places to have scanners and computer terminals. POS is just as valuable a tool for the average Mom and Pop store as it is for the big guys. Advances in technology, and the associated drop in cost, means that Mom and Pop can and should have their own POS system.

Small POS systems are inexpensive, easy to install, easy to use, and very valuable. The key is to tailor the purchase to the needs, and spending level, of the store or shop. You can spend a few hundred dollars and use your current PC, or you can spend many thousands and get a hardware and software package.

SOFTWARE CONSIDERATIONS

The central component of any point of sale system is the software. This defines exactly what the system will do and what hardware can be used.

Simple software is designed to keep simple inventory counts, accept sales, print receipts, and provide some management reporting. More comprehensive software will provide inventory management, sales analysis, purchasing, and marketing features.

Common Software Components:

• Inventory: All point of sale systems should include inventory tracking. Each item that is sold will be listed in the inventory file with its description, price and cost. More advanced inventory systems will included dozens of data points about each item: is it taxable, can it be discounted, when was the first purchase, the first sale, the more recent purchase and most recent sale. What's the cost and the price. What's the markup.
  
  POS systems have the ability to maintain a real-time count of the quantity on-hand of any item in stock, obviously a very handy thing to know. In practice that real-time count is seldom 100% accurate. Theft, breakage, keying errors and simple oversight insure that some errors will creep into the system.
  
  Even with a computer POS system controlling the inventory, a physical count of stock is still required from time to time. The programs, reports and techniques for taking and recording an inventory count vary from system to system. Some are better than others; some are just so bad that they're never used.
  
  Some software assumes that all inventory is kept in very specific places. It assumes that one can walk to that location and count everything. In many retail stores that's not the case; products may be displayed all over the store in settings. Even if that's not the case, customers have a habit of picking an item up in one place and laying it down in another. It's worth asking how the POS software handles counting in that situation
  
  
• Vendors: Many inventory systems will also keep a file of "vendors". That is who do you buy from. The inventory will usually store items along with their vendor. Each item is identified by both vendor and item number.
  
  
• Customers: The key to any sales activity is customers and customer relations. POS systems provide various levels of customer record keeping and later communications.
  
  It the most simplistic form, point of sale doesn't need any customer information. If the shop is selling coffee, there's little need to get the customer's name and address at the point of sale. On the other hand, if the store is selling collectible art, it can be very important to record information about the customer so they may be contacted when new pieces are available.
  
  When evaluating POS systems, one should look at the amount of data that can be stored for a customer, the ease of finding an existing customer, and the ease of entering data. Ideally the software should allow both identified customer sales AND simple cash sales.
  
  Note that some systems require customers to be entered into the database outside of the point of sale screen. That makes it awkward to add a new customer who's standing at the counter with a purchase. The better approach is to allow a customer to be entered at the point of sale as well as through more general screens.
  
  
• Mailing lists: If the POS system keeps customer information there must be a way to use that data. The most common use is for automated mailing-lists. POS system might offer several levels including mailing labels, shipping labels, envelopes, letters and mail merge.
  
  The basis of any effective mail list management is the ability to select groups of addresses. When evaluating POS software, pay attention to the manner and effectiveness of data selection. Is it possible, for example, to select groups of customer based on purchasing habits, on zip code, on phone area code?
  
  Labels, and envelopes are often included directly in a POS package. It's worth checking the type of labels and envelopes that are used. Shipping labels and envelopes are typically printed one at a time as needed. General mailing labels, and sometimes envelopes, are often produced in large batches. See if the software will print a custom LOGO on letters and labels.
  
  "Mail Merge" is the most generic form of address handling. Basically the POS software will export name and address information into an industry standard file which can be loaded into a word processing program, a spread sheet, or another database.
  e-mail is a relatively new service for POS software. One should check to see if this is supported and how. Some software requires that the store have a web site, other software does not. Some integrates with the POS system, others work separately.
  
  When evaluating POS systems, ask about mailing lists. Also ask if vendors and customers can both be selected for labels, etc. Also ask if a vendor can also be a customer or if that would require two entries.
  
  
• Point of Sale: The heart of the POS system is the actual point of sale operation. This is the most important piece of the software to evaluate.
  
  Most point of sale systems are designed for "character based user interface". That simply means that the clerk doesn't need the mouse; everything can be done on the keyboard. With counter space at a premium, a small footprint for the keyboard or data entry device is important. (Some applications use "touch screen" technology to eliminate the keyboard entirely.)
  
  POS procedures should be evaluated carefully. The most useful questions follow the order that actions are typically taken. Here are some questions to ask:
  
  
  • How is the sale started? If a customer account is required, is there a simple lookup feature which can quickly find the customer by account number, name, address, phone number or other identifier?
    
    Is there a simple "cash sale" procedure which does not require collecting customer name and address information.
    
    
  • How are items entered? If a scanner is used, what is the manual backup procedure when the bar code won't scan? Is there an effective way to lookup items in inventory?
    
    Is there a method for adding an item to inventory during the sales process? Many shops and stores have items on the shelf which, for whatever reason, were never put into the computer. There needs to be a way to sell these items.
    
    
  • How are mistakes corrected and how are items removed from the order when the customer changes his or her mind?
    
    
  • How are line item discounts entered? Is there a method for marking items that are not to be discounted?
    
    
  • How are payments entered? Does the system limit the number of transaction types (Cash, check, Visa card, Mastercard, chickens, eggs, etc.)?
    
    Is there a method identifying payment types which require the collection of special information like serial numbers, charge card authorizations, check numbers, etc.?
    
    
  • Is there a method for enter overall order discounts? Can this be limited by management policy?
  
  
  
• e-commerce: "Electronic commerce" broadly defines business on the internet. Web sites are used to advertise and sell products. E-mail is used to communicate with customers. Traditional POS systems are generally designed to run on a local machine or a local network. This distinction is rapidly changing because of the speed at which the internet is evolving.
  
  POS systems may take advantage of the internet and e-commerce in several ways. The most comprehensive systems may have a complete internet component where a "web store" directly links to the POS system. This approach still requires a certain level of sophistication and a lot of system security.
  
  A middle ground approach is to have the "web store" software collect data on the web server then later transfer that data to the POS system. This provides insulation between the web and the local databases therefore requiring less security.
  
  The most common approach is manual intervention. The web store and local POS systems are completely separate. E-sales are recorded on the web and communicated to the store via e-mail. The e-mail orders are then manually entered into the POS system just as a traditional mail order would be entered.
  
  
• Management Reporting: The second most useful feature of computerized POS systems, after the point of sale function, is management reporting. Unlike an electronic cash register, a computer POS system can record vast amounts of information.
  
  The first and most frequent report is the simple "cash drawer close out". At the end of the day or the end of the shift the POS computer is instructed to print a summary of the activity. This allows the clerk to count and balance the cash in the drawer.
  
  Most POS systems will have a variety of periodic reporting procedures. Typically there will be a month end procedure and perhaps a yearly procedure as well. The number of reports and the content varies from system to system.
  
  Most POS systems will also provide a number of reports and procedures which are run as needed. Sales analysis, for example, may be done seasonally, or reports may be run which target a specific vendor or line of products.
  
  The number and type of special reports varies widely from system to system. Software developers tend to provide far more reporting than any one store will need. Each store finds the particular reports or procedures which are useful in their setting and they never look at all the others.
  
  
• Sales Tax: Every POS system, and even electronic cash registers, will compute sales tax. The unique feature of computer POS system is the ability to provide sales tax supporting documentation. Depending on how history is stored on the computer, it's possible for a POS system to show complete sales tax information months, even years, after the sales were recorded.
  
  
• Sales Analysis: Most POS systems will provide some level of sales analysis. The most basic information is simply the quantity sold for any item. More comprehensive systems keep other information as well. At the item level, the software might track summary totals for:
  • quantity on hand
  • quantity on back order by customers
  • quantity on order from the vendor
  • date of first purchase (when did the shop start stocking the item)
  • date of first sale
  • date of last order from the vendor
  • date of last sale
  • quantity purchased month to date and year to date
  • quantity sold month to date and year to date
  
  
  A more comprehensive sales history system may keep a full sales history for every item. Every sale would be listed separately, thus allowing historic sales analysis. Some system will allow this tracking to be done selectively on an item by item basis, or a vendor by vendor basis.
  
  Some systems will allow customer sales history as well. This can be very useful in targeted promotions where advertisements or letters can be directed to the customer who are most likely to buy a particular product.
  
  Some systems track "demand" as well. This is usually done for trend analysis and reflects just the quantity sold by month or some other period. Demand history is very useful for showing seasonal trends for specific items or categories of items.
  
  "Product history" is found in some software. A "product" is usually defined as a category of items rather than a specific item. For example, you might stock fifty different teddy bears and track sales history on each one. Product history would be a summary of all teddy bear sales rather than for individual bears.
  
  As with "product analysis", it's useful to have "vendor analysis". This is usually a feature of the sales analysis in general since detail item history, by definition, allows vendor summaries. Item history, on the other hand, requires lots of storage and vast amounts of history may take some time to process. Some software designers recognize that and provide a vendor history summary similar to product summaries.
  
  
• Purchasing: Inventory management software has long been used to facilitate accurate purchasing. The software can quickly evaluate current stocking levels in relation to desired minimum and maximum levels. It can then suggest which items should be purchased.
  
  Formal purchasing systems typically have several components and steps which revolve around the "purchase order" (PO):
  • Suggested PO's where the computer evaluates stock and suggests which items to buy.
  • Manual PO's which are arrived at manually
  • PO "release" which tells the software that the PO has been sent to the vendor so that the software can show the quantity of each part that is currently on order.
  • Receipt of inventory where a shipment is checked into the computer and the released PO is updated.
  • PO Close which tells the software that the PO is completed.
  
  Purchasing systems are very important in some types of business. In other's, they are of less use and may provide no benefit at all. Consignment stores, for example, tend to find merchandise shows up unexpectedly when a consignor stops in with something to sell.
  
  If the store doesn't plan to use a formal purchasing system there should be some method of receiving stock outside of the purchasing system and it should provide for an audit trail and for quickly entering new items which are not already in the inventory file.
  
  
• Consignment Sales: Vendors can be classified broadly as wholesale and consignment. A shop purchases items from a wholesale vendor and then resells those items at retail. Wholesale items are paid for up front so money is tied up. If the item does not sell, the shop owner is stuck with the item. In many cases, taxes must be paid on unsold inventory.
  
  Consignment items are not purchased by the shop owner. The vendor or manufacturer provides the items to the store at no cost and the vendor retains ownership. When the item is sold the money goes to the vendor minus a sales commission paid to the shop. Consignment sales do not tie up the shop owners own money.
  
  Some POS software is specifically designed to manage consignment sales. These systems will track wholesale and consignment sales separately. Special reports may be provided for consignors. Commissions and fees may be automatically calculated. Consignment checks may be printed. Special procedures may be available to receive stock from consignors.
  
  Consignment sales may have special reporting requirements, which the POS software should support. The store does not own consignment items; it is the agent and caretaker. One certainly wants excellent records of what products have been taken on consignment and what items have been sold. Records of consignment payments are also important since it may be necessary to report these payments to the IRS on a form 1099.
  
  
• Bar Codes: Most store and shop owners immediately associate POS systems with scanners. They expect to just scan items and that's that. In fact, scanning is not a given. There are a number of considerations, the first being "does scanning really have a benefit". The truth of the matter is that many small shops can get along just fine without a scanner.
  
  Two things are required to use a scanner in a POS system. First, the software must understand the bar code and be able to use it to identify the item. If the store prints its own bar codes, one would assume that the software would understand it. The most common code on packaged merchandise is the UPC code (more on that later.) Unless the shop uses the UPC code as its own item number, the POS software will need the ability to cross reference UPC codes to the in-house item numbers.
  
  The second requirement is that the items must have a bar code attached to them if they are to be scanned. If items are not pre-coded, the store must print its own tags or labels. Some, but not all, POS software will print bar codes. Software that does may have restrictions on the type of code, the size, and the format. Some consideration must be given to the format of the item number and how large it will be when printed as a bar code. A three inch bar code does not work well on an ear ring.
  
  Bar codes are not as simple as they might seem. There are quite a number of different types. Most quality bar code scanners support all of the most common codes and have the ability to automatically identify the code being scanned. The software doesn't get involved. The most common code is "3 of 9" or "CODE39". This is a relatively tight code which can be printed fairly small. Most scanners recognize CODE39, although some may have a lower limit on the size of a bar code.
  
  
• UPC codes: It's important to understand a bit about UPC codes.
  
  UPC codes are administered by the Uniform Code Council, Inc.. This group defines UPC standards and assigns vendor ID's. A UPC code is made up of the vendor ID and an item number assigned by that vendor. To use the UPC code, the POS software must understand this code and allow it to be associated with an item in the inventory file.
  
  In many situations, the UPC code is not the best way to identify an item in a store's own inventory. The UPC is not a single standard code. There are variations by industry and country. Trying to use the UPC code as the item number may be more confusing than helpful.
  
  The best POS software will allow both an in-house item code and a separate UPC code with an automatic cross reference between the two.
  
  
• General Accounting is not necessarily a part of a POS software system. General Accounting refers to payroll, accounts payable, and general ledger. Where the point of sale, inventory, and related functions may have many requirements which are unique to certain industries and certain products, general accounting is largely consistent across most businesses.
  
  Many very good POS systems do not include General Accounting functions. Rather the software developers recommend that the store use one of the all-in-one packages that are readily available and very inexpensive. In many cases, stores will have their accountant perform the general accounting functions while the store uses the POS and Inventory system to manage the real work of the store... selling products.

HARDWARE CONSIDERATIONS

Many POS systems require nothing more than a PC. The heart of the POS system is the software, not the hardware. Only two pieces of hardware are required: the computer and a printer. The computer, of course, includes a keyboard, monitor and mouse; but if the computer is a lap top, then it's all built in.

Other hardware (bar code scanners, receipt printers, cash drawers, etc.) is usually associated with POS systems and many people think that these are required. A number of POS systems are sold as complete packages which include hardware. While that may be an advantage in some cases, it also tends to encourage inflated prices.

Many small shops can run perfectly well with a single PC that serves as both point of sale terminal and as back room computer. It's simply a matter of deciding what to do when. New merchandise can be entered into the computer when there are no customers to be checked out. Reports can be run at the end of the day or in the evening. The computer might be a lap top which would allow the "back room" work to be easily taken home. Some people even have a computer at home and one at work and they transfer data between the two on a regular basis to allow work at home.

Whether a complete package is purchased, or the software and hardware are assembled separately, it's worth understanding some of the common hardware components. It's also worth noting that many shops start with simple systems then, as system requirements grow, additional hardware is added.

Common Hardware Components:

• The Computer:
  
  All POS software is going to require a computer. Because POS is a well established application, there are many software packages and they run on many different types of computers. The focus of this discussion is small to medium sized stores which will be running PC based software using Microsoft operating systems.
  
  Point of sale software has been written for the PC since the machines were first introduced. The early software was all written for MS/DOS and never knew what a mouse was. Even today, there are numerous POS systems which continue to run as MS/DOS applications. Point of sale is a well understood application and it's one that doesn't necessarily benefit from a graphical user interface and a mouse. In face, a mouse can be a real pest on a cramped sales counter.
  
  Most new POS software is being written for the Windows environment. There are no other options within the PC world. Although many functions of this software will be built for a mouse and use common Windows standards, the actual point of sale program should be designed so that a mouse is not required.
  
  Point of sale and inventory is a business application. If the software has been around for a few years, it was probably designed for computers which came the current crop with their massive hard disks and huge amounts of memory. That means that the software was designed to be efficient and work with limited resources. It will run on some very small and even some very old computers.
  
  Each POS package should come with specifications which define the minimum amount of hardware that is required. When the actual POS component has small requirements, and a network is anticipated, a useful purchasing strategy is to buy small, inexpensive machines for the counter, and a larger machine for back room operations. If the store will run with a single computer, it might be appropriate to buy a larger machine and later make it the back room machine as new computers and a network are added.
  
  
• Monitors:
  
  The computer monitor is the largest piece of most computer systems. Because counter space is often limited, many POS systems are packaged with small monitors. If a network is used, the back office machine might have a full size monitor, but the counter machines, which are used only for point of sale, have very small monitors.
  
  As flat panel monitors have dropped in price, many stores opt to use these at the counter. The flat panel takes a limited amount of space and are very attractive.
  
  There are number of special POS monitors. These are typically very small. Some are designed to be matched with a small receipt printer and a small keyboard. The entire package might sit atop the cash drawer to make a very small footprint.
  
  
• Receipt Printer:
  
  Some type is printer is required to print sales receipts for the customers. A number of small printers are built just for this purpose. They typically use roll of "paper tape" for the receipt.
  
  Receipt printers come in many variations and with many different capabilities. They have a wide range of connection methods as well including parallel, serial and USB, which make it possible to have both a receipt printer and a system printer on the same computer.
  
  Some POS systems will have specific requirements for receipt printers. This must be checked before purchasing the printer.
  
  Receipt printers are more expensive than many ink jet Windows printers. The cost is justified because the receipt printer is a rugged, commercial device that is expected to work without fail forever.
  
  Most receipt printers use a inked ribbons for printing. Some printers require special ribbons which can be expensive. The same is true for rolls of paper. It may not be possible to buy ribbons or paper for a particular printer at the local office products super store.
  
  
• System Printer:
  
  POS software will generally require a "system printer" which can produce management reports. This printer can be a laser, an ink jet, or any other Windows printer.
  
  Some stores use the system printer for receipts. When using the system printer the receipt may require a full sheet of paper. The decision of which printer to use can be made based on the number and the size of the receipts. If a store is printing hundreds of receipts a day, and most are small, then a paper tape receipt printer makes sense. If the store prints only a few receipts, or if the receipts are going to contain a lot of information, then a system printer may work.
  
  If a single computer is going to be used for everything, and both a system printer and a receipt printer are going to be used, one must consider how the printers will connect to the computer. There are many ways to have more than one printer on the same computer, but there are technical considerations and trade offs. There may also be software restrictions or requirements which must be met.
  
  
• Multi-purpose Printers:
  
  Several manufacturers make multi-purpose printers. The POS 425 series from Okidata, for example, combines a roll paper receipt printer, a sheet fed report printer and a MICR check reader in a single small footprint printer. These are relatively expensive printers, but if the application is right, they can be well justified.
• Cash Drawer:
  
  A cash drawer is not required, but most stores will want one. There are many drawers on the market with prices that vary depending on the construction, size and other factors.
  
  Cash drawers are fairly standard in size at 16" x 16" by 4". They can fit under a counter with mounting brackets, or can sit on a shelf or on top of the counter. The computer, monitor, keyboard and other devices can sit on top of the cash drawer if desired.
  
  Many cash drawers are connected to the computer via the receipt printer. This is a very important point since it may mean that the receipt printer is required if the software is going to open the drawer automatically. If that can't be done, the clerk may need to use the key to open the drawer.
  
  
• Scanner: Scanning bar codes is really quite simple. Most PC based scanners are built as "keyboard wedges". The scanner plugs into the computer's keyboard socket then the keyboard plugs into the scanner. That is, the scanner wedges itself between the computer and the keyboard.
  
  Wedge scanners normally sit idle. When an object of any type is passed with a few inches of the scanner face, the scanner comes on and fires off a laser beam. The reflection of the beam is analyzed by the scanner to decide if the object is a valid bar code. If so, the scanner sends the bar code information to the computer just as if someone were typing it on the keyboard. The software usually doesn't know where the input came from.
  
  Everyone is familiar with the built in scanners used by grocery stores. Other retail stores are more likely to use a hand held scanner which offer more flexibility and can scan a bar code at some distance. Pen type "wands" are sometimes used but these typically require direct contact with the bar code.
  
  The price of the scanner reflects the quality and features. Commercial scanners will automatically discriminate between many different types of bar codes. Less expensive scanners may be limited to only the most common code formats. Some scanners have considerable range, others have to be very close to the bar code. Some scanners can read very small tags, others require larger tags.
  
  Keyboard wedge type scanners are passive devices. That means that the software doesn't and the computer don't know anything about the device. The scanner reads the bar code and piggy backs the data on the keyboard input. This passive nature gives the store has many options when selecting an appropriate scanner.
• Networks: While a small store can work with one computer, it's often nice to have more than one computer and connect them with a simple network. Current versions of Windows have built-in networking capability. Most current computers also come with network cards pre-installed since it's assumed that the customer will want high speed internet access and that is most frequently done via networking.
  
  Despite the fact that small local area networks have become very easy to implement, that does not mean that the POS software will work on a network. Software must be designed to use a network. It must be able to lock data so that two people don't try to change the same thing at the same time.
  
  It is very common for software to be priced as "single user" and "network version". The network option puts much more demand on the software and requires special design considerations. The network version will always cost more than a single user version.
  
  Most software vendors charge more for a network version of their system. Many also charge an additional fee for each workstation. For example, one buys the single user version, then adds network support, then adds a connection module for each work station.
  
  
• Modem and Telephone support:
  
  A final consideration is a modem and telephone line for support services. If a computer has a modem, and there is a telephone line available, many software companies can provide direct, computer to computer support and training services.
  
  With the growth of the internet, almost all computers in recent sold in recent years include a modem. With the growth of broad band internet services, some computers are dropping the standard modem in favor of a network card. The best bet is to make sure that the computer has BOTH devices.
  
  If on-line support is anticipated, the store may be required to purchase a remote access software package such as Symantec's "PC Anywhere". This package allows the support technician to directly control the client's computer over the phone. It's an invaluable tool for remote support and training.
  
  
• Internet Access:
  
  Many software companies have begun to offer support only over their web sites. They post software updates, technical support information, and other items on the web. The customer must have an internet account to take advantage of this service.
  
  If the store anticipates selling via the internet, it will require a web site. To use that web site the store needs an internet connection. Most stores do not actually run their e-commerce sites from their own computer. Rather, they contract with an internet company to build the site and "host" it. that means that the web site is run on some other computer. The site communicates with the store via e-mail or other services.

CONCLUSION

Retail Point of Sale systems are a cost effective and practical way for even small stores to manage their business. The systems may be bought as software only, with the store providing its own computer, or a complete package of hardware and software may be bought. It is not necessary for the store to invest in everything at once. One can start small and grow the system with the store.

POS is no longer just for the "big guys". The PC has made the technology available to everyone.

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