POS - Point of Sale Explained

By Chester Ritchie

The term point-of-sale is used to describe a variety of things. This can include the checkout counter in a store or a place where transactions occur. More frequently, the phrase refers to a computerized cash register. The commonly used abbreviation for point-of-sale is POS. Each letter in the abbreviation is pronounced individually (e.g. P-O-S) versus pronouncing the abbreviation itself (e.g. paws).

When computers were first invented, large retailers were the first to implement point-of-sale systems to help automate many of the tasks involved with operating a retail store. These computers were very large and expensive. This limited the adoption of point-of-sale systems to large retailers such as grocery chains. The introduction of low cost personal computers during the 1980s allowed retail stores of all sizes to improve efficiencies with the help of pos systems.

A common point-of-sale system includes a computer, cash drawer, receipt printer, pole display, bar code scanner, magnetic swipe reader, modem and point-of-sale software. Each piece provides the following functionality:

- Personal Computer - Operates the POS software and provides hardware interfaces for devices such as printers, credit card readers and so on.

- Cash Drawer - A lock box that stores cash and is triggered to open by the pos software.

- Receipt Printer - Prints a paper copy of the sales transaction for the customer.

- Pole Display - LED display that faces the customer and shows each item and price scan.

- Bar Code Scanner - A laser type of device (gun style, counter style) that when triggered over a bar code, converts bar code lines into numbers. This number or SKU (Stock Keeping Unit) is then transmitted back to the pos computer for automatic price lookup.

- Magnetic Swipe Reader - Reads the magnetic strip on the back of a credit or debit card. The information stored on the magnetic strip includes the credit card number, expiration date, customer name, and address. The information is transmitted to a credit card processing network through the point-of-sale system for payment of merchandise.

- Modem - Allows the point-of-sale computer to communicate with bank credit card processing centers and to other locations of the store chain.

- Point of Sale Software - Software that runs on the computer, controls the various devices, and performs traditional cash register functions such as ringing a sale.

Today's point-of-sale software contains many more features in addition to the computerized cash register. As a result, the term POS System is slowly being replaced with the phrase Retail Management System. POS is now commonly referred to as only the cash register feature within a retail management system.

When point-of-sale systems were first introduced, their sole function was to ring sales by department codes. This simple automation allowed retailers to view their daily sales summarized by department. The automation saved a retailer many hours in determining which departments contained the best selling items and how many sales dollars were generated. Once these computers were in place, the rapid evolution of today's sophisticated retail management systems began.

The next step in the point-of-sale evolution was the addition of automatic pricing. Rather than entering a department code and then the price of an item, cashiers could now enter the SKU (Stocking Keeping Unit) of the item and the point-of-sale would retrieve the price. Automatic Pricing saved retailers money by removing the need to place a physical price tag on each item and in reducing pricing errors made by cashiers.

Since the point-of-sale system was now keeping an individual record for each inventory item, retailers wanted to maintain their stocking levels in the computer. This ushered in the era of real-time perpetual inventory. By placing a bar code that represented the SKU on each inventory item, the On Hand quantity of inventory was automatically reduced each time it was scanned at the point-of-sale. This feature allowed retailers to query their point-of-sale systems for up-to-date balances at a moment's notice.

Once inventory stocking levels and retail pricing were being managed by the point-of-sale system, the next logical step was to add purchasing and receiving modules to complete the inventory management loop. This closed loop inventory automation allowed a retailer to:

-Issue purchase orders to buy goods.
-Create inventory records and SKUs via the purchase order.
-Receive goods against the purchase order.
-On hand stock levels are increased based upon receiving.
-Print price tag with bar codes.
-Sell the goods via the point-of-sale cash register.
-On hand stock levels are depleted based upon SKU scans.
-Perpetual Inventory is automatically maintained.
-Generate reports on sales, inventory levels, purchases, and receiving.
-Manage inventory buying and markdown behavior based upon sales trends.

As you can see, the simple point-of-sale system grew into a powerful information system for managers and store owners. Today, point-of-sale systems continue to innovate and some even include:

- eCommerce integration
- Integrated accounting
- CRM - Customer Relationship Module
- Electronic payment processing
- Gift card management
- Service order management
- Marketing
- Revolving accounts receivable
- Customer traffic counters
- Integrated video surveillance
- Open To Buy planning
- Linear inventory modeling
- Special order management
- EDI (electronic ordering)
- And much more...

As retail management systems continue to add more robust features, the term point-of-sale will continue to refer to just a module within the overall system. Chester Ritchie is the Vice President of Sales & Marketing at CAM Commerce Solutions, Inc. (NASDAQ: CADA) located in California. For more information regarding point of sale systems please visit http://www.camcommerce.com.

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