What is Supply Chain Management?

The integration of business processes from the

end consumer back to original suppliers,
providing products, services, and information
that add value for customers
Why Focus on Supply Chain
Management?

● Improve return on investment

Reduce Costs! Increase Efficiency!

Net profit = Net profit x Net sales

Total assets Net sales Total assets

● Improve product availability

Adapted from Levy and Weitz

Example of a Simplified Supply Chain

Source: Levy and Weitz

Information and Merchandise Flows

Customer

Sales info

Buyer Stores

Distribution
Vendor center

- - - - Merchandise flow Information flow

 The Basic Supply Chain

Raw material packaging Manufacturer warehouse

Supplier warehouse Manufacturer

Physical Flow
Finance Flow

Retailer warehouse
Retailer
Merchandise Flow
ASRS

Unlike a traditional distribution center in which

merchandise is handled manually when it enters and
is removed from storage, Automatic Storage and
Retrieval Systems (ASRS) ensure that merchandise
that is received is stored and drawn from storage
automatically. This ensures first-in-first-out selection
and reduces “shrink.”
Merchandise Flow
CROSSDOCKING

Unlike a traditional distribution center that stores

merchandise, in this crossdocking distribution
center, merchandise is received from vendors’ trucks
on one side of the building, moved to the other side
of the building, aggregated with merchandise from
other vendors, and shipped off to stores - all in a
matter of hours.
Source: Levy and Weitz
Direct Store Delivery (DSD)

…Some product manufacturers deliver product to stores,

rather than to retailers’ warehouses
● Examples
▼Frito-Lay
▼Coca-Cola
▼Nabisco
● Advantages
▼ Control ofdistribution
▼Setting the shelf
● Disadvantage
▼Cost
▼Clutter
Timing

Retailers must decide when each type of merchandise is to be stocked

To properly plan the timing, the retailer needs to consider its forecasts
and these various other factors
Peak seasons
Order and delivery time
Routine versus special orders
Stock turnover
Discounts
The efficiency of inventory procedures
Inventory management

Inventory :
is the goods and materials that a business holds for the
ultimate goals to have a purpose of resale (or repair).

Inventory Management :
How many units to order and when to order. It includes
determining no of units to be sent to store first time in a
season and subsequent replenishment.
Scope of inventory Controller

Determination
• of inventory policy
• Various stock levels
• Economic order size
• Safety or buffer stock
• Lead time
 Inventory Management – We need How
Much ?

Inventory Management is the most important aspect in Retail

merchandising
It involves managing stocks at various touch points, stock counting,
adjustments, valuation, reporting, transfers and closely linked to all
operations in HO, Warehouse and Store
Working with other teams (VM, Promotion, Supply Chain), Merchandising
team
Will come up with the levels of inventory needed in the store, including the
backroom stock, for all Categories of Products
Based on Inventory turn and Potential Sales for diff. types of products, come up
with a Replenishment Requirements for them Eg.
Fresh Veg./Fruits – Twice a day
Stationery – Once a week
Staples – Twice/ Thrice a week
Data will be fed back into Supply Chain teams and others teams and systems
 Replenishment

Since it is important for stocks to reach on time once

they are sold , replenishments are very important
How to Replenish?
RELY ON INTERMEDIARIES IF…

● The retailer has only a few outlets

● Many outlets are concentrated in metro areas
● Rapid replenishment is critical
(e.g., convenience stores)
● Vendor pays freight charges

Adapted from Levy and Weitz

How to Replenish?
SELF-DISTRIBUTE IF…

● Demand fluctuates greatly

● Stores require frequent replenishment
● Retailer carries a relatively large number
of items in less than full-case quantities
● The retailers has a large number of outlets that
aren’t geographically concentrated in a metro
area

Adapted from Levy and Weitz

How to Replenish?
BENEFITS OF SELF DISTRIBUTION

● More accurate sales forecasts

● Less merchandise in the individual store, thus
a lower inventory investment system-wide
● Less out-of-stock
● More cost effective

Self distribution is backward integration – it offers the

retailer more control!

Source: Levy and Weitz

How to Replenish?
THIRD PARTY LOGISTICS COMPANIES

● Firms sometimes outsource logistics operations

● These firms facilitate the movement of merchandise
from manufacturer to retailer, but are independently
owned
▼Transportation
▼Warehousing
▼Freight forwarders
▼Integrated third-party logistics services

Adapted from Levy and Weitz

Quick Response

● General merchandise retailers pioneered the “Quick

Response” initiative in the 1980s
● QR delivery systems are inventory management
systems designed to reduce the retailer’s lead time for
receiving merchandise, thereby lowering inventory,
improving customer service levels, and reducing
logistics expenses

Adapted from Levy and Weitz

Quick Response
PROS AND CONS
Pros
● Reduces lead time
● Increases product availability
● Lowers inventory investment

Cons
● Smaller orders with greater - more expensive to
transport and more difficult to coordinate
● Computer hardware and software must be purchased by
both parties

Both retailers and vendors must invest, or neither

receives the benefits
Adapted from Levy and Weitz
Ways of Replenishment

• The ABC analysis,

• The sell through analysis and
• The Multiple Attribute method.
Why is inventory management important

• Prevents loss of sale

• Prevents Stock outs
• Prevents Over
• Working capital is in control
• Reduces damages