Retail Supply ChainRetail Supply Chain

RetailingMKTG 3346

Professor Edward Fox

Cox School of Business/SMU

The integration of business processes from the end consumer back to original suppliers, providing products, services, and information that add value for customers

What is Supply Chain Management?

Source: Levy and Weitz

Why Focus on Supply Chain Management?

Improve return on investment

Improve product availability

Net profit = Net profit x Net sales

Total assets Net sales Total assets

Reduce Costs! Increase Efficiency!Reduce Costs! Increase Efficiency!

Adapted from Levy and Weitz

Example of a Simplified Supply Chain

Source: Levy and Weitz

- - - - Merchandise flow Information flow

Buyer

Vendor

Stores

Distribution center

Customer

Sales info

Information and Merchandise Flows

Source: Levy and Weitz

Information and Merchandise FlowsTECHNOLOGY

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 Modern supply chain management is enabled by the application of technologyapplication of technology

Information Flow

Source: Levy and Weitz

Information FlowELECTRONIC 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 retailer’s computer from a supplier in advance of a shipment.

http://www.disa.org/ Source: Levy and Weitz

Information FlowEDI METHODS OF TRANSMITTING DATA

Source: Levy and Weitz

Merchandise Flow

Source: Levy and Weitz

Merchandise FlowASRS

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.”

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.

Merchandise FlowCROSSDOCKING

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

aren’t 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

Source: Levy and Weitz

Self distribution is backward integration – it offers the Self distribution is backward integration – it offers the retailer more control!retailer more control!

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 ownedTransportationWarehousingFreight 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 ResponsePROS 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 Both retailers and vendors must invest, or neither receives the benefitsreceives 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 ECREfficient AssortmentEfficient ReplenishmentEfficient New Product DevelopmentEfficient 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

Point-of Sale Data Affinity Card Data Forecasting

Consumer Retailer Manufacturer

EDI Electronic Ordering Electronic Funds

Transfer

Cross Docking Computer Controlled

Material Handling Flow Through

Distribution

Barcoding Vendor Managed

Inventory

Just-in-Time ManufacturingProduct

Information