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Supply Chain Management (SCM)

Supply Chain Management(SCM) is the integration of business processes from enduser through original suppliers

that provides products, services,and information that add valuefor customers.

Retailers may be the mostimportant link in the supply chain.

They connect customers with the vendors who provide themerchandise.

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Improved Product Availability

An efficient supply chain has two benefits for customers:1. Fewer stock outs, and,2. Assortments of merchandise that customers want, where they

want it. These benefits translate into greater sales, higher inventory

turns, and lower mark- downs for retailers.

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One measure of retailing performance is the ability to generatea target return on investment (ROI).

An efficient supply chain and information system can increasenet profit and net sales, while at the same time reducing totalassets.

Net sales can increase by providing customers with betterassortments.

Improved ROI

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The Flow of Information

The flow of information is complex in a retail environment. retailers store information in data warehouses and this

information is transmitted to vendors through EDI(Electronic Data Interchange)

Data Warehousing: Purchase data collected at the POS goesinto a huge database known as a data warehouse.

A data warehouse is the co- ordinated and periodic copying of datafrom various sources, both inside and outside the enterprise, into anenvironment ready for analytical and informational processing.

The information stored in the data warehouse is accessible on severaldimensions and levels.

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Electronic Data Interchange (EDI): 5

is the computer- to- computer exchange of businessdocuments from retailer to vendor, and back. Inaddition to sales data, purchase orders, invoices, anddata about returned merchandise are transmittedfrom retailer to vendor

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Many Retailers now require vendors to providenotification of deliveries before they take place. Anadvanced shipping notice (ASN) is an electronicdocument received by the retailers computer from asupplier in advance of a shipment.

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Proprietary EDI Systems: are data exchange systems that aredeveloped primarily by large retailers for the purpose of exchanging data with their vendors.

Wal-Mart , for instance, has spent millions of dollars and severalyears developing one of the most advanced EDI systems in retailing.

Intranets: Also available over the Internet are intranets, which aresecure communication systems that take place within one company.

Extranets: Increasingly, EDI data are transmitted over the Internet

through extranets. An extranet is a collaborative network that usesInternet technology to link businesses with their suppliers, customersor other businesses.

The Flow of Information

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Christ University, Bangalore 6

Logistics is that part of the supply chain process that plans,implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the

point of consumption in order to meet customers requirements.

Supply Chain Management includes logistics, but it is a morecomprehensive and strategic concept that includes CustomerRelationship Management (CRM), Inventory Management andVendor Relations.

Logistics

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The Physical Flow of Merchandise-Logistics

The different merchandise flows are:

1. Merchandise flows from vendor todistribution center

2. Merchandise then goes from distributioncenter to stores

3. Alternatively, merchandise can also gofrom vendor directly to stores

Refer Exhibit 10- 5 on Page 320 of Levy and

Weitz Text

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Sometimes merchandise is temporarily stored at thedistribution center; other times its immediatelyprepared to be shipped to individual stores.

This preparation may include breaking shippingcartons into smaller quantities that can be morereadily utilized by the individual stores (breakingbulk), as well as tagging merchandise with pricetags or stickers, UPC Codes, and the stores label.

A UPC Code is the black- and- white bar code

printed on the package of most products UPC stands for Universal Product Code

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The Distribution Center (DC): performs several functions: Management of Inbound Transportation: Merchandise flows fromvendor to distribution center.

The dispatcher is the person who coordinates deliveries to thedistribution center

Receiving and Checking: Receiving refers to the process of recording the receipt of merchandise as it arrives at a distributioncenter. Checking is the process of going through the goods uponreceipt to make sure they arrived undamaged and that the merchandise

ordered was the merchandise received. Storing and Cross docking: There are three types of DCs: a

traditional, a cross docking, and a combination of the two.

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The first, a traditional distribution center is a warehouse in whichmerchandise is unloaded from trucks and placed on racks or shelvesfor storage. When the merchandise is needed in the stores, a persongoes to the rack, picks up the item, and places it in a bin. Themerchandise is transported via a conveyor system or other materialhandling equipment to a staging area where it is consolidated andmade ready for shipment to stores.

The second type of DC, called a cross docking distribution center. Isone in which vendors ship merchandise prepackaged in the quantity

required for each store. The merchandise already contains price tagsand theft detection tags, and in the case of some apparel, it is onhangers. Since the merchandise is ready for sale, it goes to a stagingarea rather than into storage. When all the merchandise going to aparticular store is in the staging area, it is loaded onto a truck andaway it goes. Cross docking distribution centers are less costly than

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traditional centers because there is little or no storage required,processing at the distribution center is minimal, and the centers can bemuch smaller than traditional centers. Getting Merchandise Floor- Ready: Floor- ready merchandise is

merchandise thats ready to be placed on the selling floor. Gettingmerchandise floor- ready entails ticketing, marking, and, in the case of apparel, placing garments on hangers. Ticketing and marking refersto making price and identification labels and placing them on themerchandise. It is more efficient for a retailer to perform these

activities at a DC than in the stores because they are time- consumingand messy. Getting merchandise floor- ready in stores can clog aislesand divert sales peoples attention from their customers.

Shipping Merchandise to Stores: Point- of- sale terminals in a storerecord each purchase. Data are transmitted to buyers and their staffsso they may formulate replenishment orders for all items in the store.

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The order for the store is transmitted computer- to- computer to thedistribution center. The computer at the distribution center creates a pickticket, a document that tells the order filler how much of each item to getfrom the storage area. The pick ticket is printed in warehouse locationsequence so the order fillers dont waste time crisscrossing thedistribution center looking for merchandise. The computer knows whichitems are out of stock so it doesnt even print them on the pick ticket.Order fillers put the merchandise on conveyers that take the merchandiseto a staging area where an electronic sorter routes the merchandise to the

bay with the truck going to the store. We have just described what is known as pull logistics strategy, in

which orders for merchandise are generated at the store level on thebasis of demand data captured by point- of- sale terminals.

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An alternative and lesssophisticated strategy is knownas a push logistics strategy, inwhich merchandise is allocated

to stores on the bases of historical demand, the inventoryposition at the distributioncenter, and the stores need.

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Management of Outbound Transportation: The management of outbound transportation from distribution center to stores has becomeincreasingly complex as chain stores expand.

Reverse Logistics: is a flow back of merchandise through the channel,from the customer to the store, distribution center, and vendor, forcustomer returns. Reverse logistics can be a serious problem. It can bevery complicated and expensive. The items may be damaged, andwithout the original shipping carton, thus causing special handlingneeds. Transportation costs can be high because items are shipped

back in small quantities.

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Quick Response (QR) Delivery Systems: are inventory managementsystems designed to reduce the retailers lead time (the amount of time between the recognition that an order needs to be placed and itsarrival in the store, ready for sale.) for receiving merchandise, therebylowering inventory investment, improving customer service levels,and reducing logistics expenses. QR is the integrating link betweenthe information and the merchandise flows.

Benefits of a QR System1. Reduces Lead Time

2. Increases Product Availability and Lowers Inventory Investment3. Reduces Logistics Expenses

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The Logistics of E- tailing

Fulfilling Internet orders from customers is very different thandistributing merchandise to stores Some, like Staples, have a fully integrated information system,

whereby distribution to stores and to customers ordering through awebsite or catalog is handled by the same information system.

Yet they use different DCs to service stores and Internet and catalogcustomers

Staples makes deliveries by trucks or UPS

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Outsourcing

To streamline their operations and make more productive use of theirassets and personnel, retailers are constantly looking to outsourcelogistical functions if those functions can be performed better or lessexpensively by third- party logistics companies.

Third- Party Logistics Companies: These are firms that facilitate themovement of merchandise from manufacturer to retailer but areindependently owned. Specifically, they provide transportation,warehousing, consolidation f orders, and documentation.

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