Retail Supply Chain

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

Source: Levy and Weitz

Why Focus on Supply Chain Management?

Improve return on investment
Reduce Costs! Increase Efficiency!

Net profit = Total assets

Net profit x Net sales 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

Vendor - - - - Merchandise flow

Distribution center

Information flow

Source: Levy and Weitz

Information and Merchandise Flows TECHNOLOGY

Bar coding Computing
Databases and data warehouses Electronic Data Interchange (EDI) POS Scanning

Radio frequency identification (RFID)

Modern supply chain management is enabled by the application of technology

Information Flow

Source: Levy and Weitz

Information Flow ELECTRONIC DATA INTERCHANGE (EDI)

EDI is the computer-to-computer exchange of business documents from retailer to vendor, and back. Advanced shipping notice (ASN) is an electronic document received by the retailers computer from a supplier in advance of a shipment.

http://www.disa.org/

Source: Levy and Weitz

Information Flow EDI METHODS OF TRANSMITTING DATA

Source: Levy and Weitz

Merchandise Flow

Source: Levy and Weitz

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 of distribution Setting the shelf

Disadvantage
Cost Clutter

How to Distribute?

The retailer must decide whether to run its own distribution operations, or purchase from wholesalers, brokers, jobbers or other intermediaries

How to Distribute? 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 Distribute? 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 arent geographically concentrated in a metro area

Adapted from Levy and Weitz

How to Distribute? 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 Distribute? 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 retailers 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

Efficient Consumer Response

In response to the benefits that discount retailers realized from Quick Response, he grocery industry initiated Efficient Consumer Response (ECR) in the 1990s Tenets of ECR Efficient Assortment Efficient Replenishment Efficient New Product Development Efficient Promotion

Efficient Consumer Response

ECR was not as successful as Quick Response

Vendors were larger and more powerful Reluctance to make large investments

Quick Response & ECR

Information

Point-of Sale Data Affinity Card Data Forecasting

EDI Electronic Ordering Electronic Funds Transfer

Consumer

Retailer

Manufacturer

Product

Cross Docking Computer Controlled Material Handling Flow Through Distribution

Barcoding Just-in-Time Vendor Managed Manufacturing Inventory