SCM in Retailing

8/3/2019 SCM in Retailing

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SCM in Retailing

Supply chain is a network of organizations thatare having linkages, both upstream anddownstream in different processes and activities

that produce and deliver value in the form ofproducts and services in the hands of ultimateconsumer.

SCM raises the challenge of integrating and

coordinating the flow of materials from multitudeof suppliers , including offshore, and similarlymanaging the distribution of finished product byway of multitude of intermediaries.

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The objective is to plan and coordinate all the

activities necessary to achieve desired level of

delivered service and quality at lowest possible

cost.

Supply chain management is primarily

concerned with integration of all partners inthe value chain and seeks to achieve linkages

and coordination between processes of other

entities in the pipeline i.e. suppliers andcustomers, and organization itself.

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The scope of supply chain management

includes the entire gamut of activities stratingfrom procurement and management of raw

materials through to delivery of final product

to the customer.

The ultimate purpose is to satisfy the customer

by establishing linkages of people at all levels in

the organization directly or indirectly to the

market place.

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Various drivers of supply chain as a

management initiative are:

1. Expectations of customers-looking for

increased value addition.

2. Response time sensitivity

3. Need for reliability

4. Cost consciousness

5. Information sensitivity

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Flows in the Supply Chain

There are two flows that are required to beconsidered in supply chain

1. Goods flow, wherein merchandise moves from

manufacturer to the retail store and from thereto the consumers.

- There are normally a few aggregation and

distribution points in between.

- Goods can also flow backward if rejected.

2. The other is information flow.

These two flows are interlinked 5


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The goods flow occurs because of

(a) Purchases made from the retailer by the

customer, and

(b) Orders placed on the manufacturer by the

retailer

Movement of goods creates information in the

form of changes in stocks and payment.

What should be the priority in this flow and

counter flow of merchandise and information?

A retailer aims to satisfy the consumer and

maximize financial gains at the same time.

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Key Elements of Supply Chain in

Retail1. Sourcing and flow of goods, and2. Merchandise management, which is actually

managing the goods.

Managing goods implies decisions like what to

sell, how much, when, of what type and so on.

In traditional business terms, merchandising

management includes role of planning,

purchase, sales & marketing and logistics that

includes transportation and warehousing.7


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As retail organizations try to generate end-to-

end efficiencies, boundaries between these

two areas have blurred.

In fact, in most of retail organizations, the

supply chain and merchandising management

teams have blended to bring out the bestresults.

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Role of SCM IN Retail

The traditional approach of supply chainmanagement is based upon optimizing

production, handling and transportation

through the calculation of economic batchquantities.

In a new market set-up, manufacturers are not

only producing products on the basis of their

demand but collaborating with customers in

product development.

In such a situation supply chain becomes the

demand chain. 9


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Demand chain is market driven, which responds to

the needs of market more rapidly. Retail supply chain presents the following challenges:

(a) Linking the consumer in the supply chain planning

process,

(b) Managing product life cycles,

(c) Promotional planning,

(d) Planning for seasonal products,

(e) Determining cost effective supply channels,

(f) Forecasting and scheduling in a volatile economic

environments.

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As companies experience intense pressure to reduce

costs, expand into new markets and develop new

products, their supply chains expand and become

more complex.

The critical differentiating factor that synchronize

across the entire supply chain in retailing arecollaborating with customers in addition to the

suppliers.

Therefore, undertaking customer profiling, customer

loyalty and customer segmentation initiatives andincreasing performance through managing existing

products as well as new products are becoming

increasingly important in the changed scenario.

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Types of SCM in Retail

1. Push Based SCM

- Traditional approach to SCM wherein materials

and products flow from suppliers to

consumers via production and distributorunits.

2. Pull Based SCM

- Modern approach to SCM which is also calleddemand supply network wherein the actual

consumption pull distribution, pull production,

which in turn pulls material supply.13


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SCM- A solution in Retail Environment

Most retailers have many products, stores andpromotional events.

This results into higher inventories, lower margin due

to additional markdown, and lower customer

satisfaction.

The Supply chain solutions offer retailers substantial

improvements of cross functional and cross enterprise

business processes. However, in SCM India continues to be perceived as a

low value added activity of managing transportation

and warehousing.

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Retailers face a common set of problems and

pressures related to operational efficiency,customer intimacy, and product differentiating.

Operational efficiency means cutting costs

while maintaining the stock availability.

SCM solutions are concerned with philosophy

of nurturing the suppliers and other service

providers in a win-win situation by providing

goods and services to the customers in atimely and cost effective manner.

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Integrated Supply Chain Flow

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Customer

Needs

Identify

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Create the

Product/service

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Build the

Product/service

Deliver the

Product/service

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CH

A

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Service to

The

customer

Customerneed

satisfaction

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SA

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Strategic Sourcing and Procurement

The most critical function, which helps in

merchandise planning and management

process in SCM, is strategic sourcing and

procurement. With shrinking retail margins, SCM efficiencies

have helped retailers to maintain margins at

consistent levels. Also, in some cases SCM efficiencies lead to

continuous reduction in inventory costs,

overheads and material cost.17


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There are two major aspects of strategic

sourcing and procurement.

1. Vendor Management

2. Logistics Management

A. Vendor Management

- Includes processes like

(a) Selection and training of the vendors

(b)Developing IT back up(c) Increased collaboration, and

(d) Evaluation of the vendors.

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The processes are set up to ensure

The delivery is made in time,

The quality is right,

Vendors are made partners in the entire planning process.

Vendor selection is an important outcome of the sourcing

process and result in most organizations having robust vendor

management programmes. Most international organizations have a complex vendor

selection procedures as they often go for global sourcing of

products and also need to take into account legal issues of

imports.

Global organizations end up working with much larger networks

as compared to Indian retailers.

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B. Logistics Management

- Several innovations have been done by the retailers.- Most retailers typically start with the automation of

warehousing function, which is more under their

control.

- This involves the establishment of auto replenishmentsystem.

- Implying that system should automatically place an

order for delivery to the warehouse based on the

movement of stock at the store level.

- This is the starting point of Quick Response (QR)

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Next is the auto purchase order system, in

which the system can automatically order the

goods from the vendor for regular and core

products.

This system is being used extensively in

supermarket industry where most of the goods

are standardized and so systems can be put in

place for auto purchase order generation.

This is known as Effective Customer ResponseSystem (ECR).

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Finally, the entire process culminates in the

Collaborative Forecasting and Planning System,

where category forecasts are made incollaboration with the vendors.

The system of the retailers are integrated with

those of vendors so that the vendors can easilyassess the performance of their own as well as

competitive products in retail stores on day to

day basis.

The vendor becomes completely responsible for

the performance of his products at the store

level and manages the show for retailer.22


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The role of retailer is restricted to being

enabler.

This is known as Collaborative Planning

Forecasting and Replenishment (CPFR).

CPFR has been introduced successfully by some

of the large discount chains in the US.

Indian retailers are also undertaking similar

supply chain initiatives for effective

performance.

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Logistics facilities also include development of

cross-docking facilities at the Distribution

Centres (DCs).

Cross docking involves a continuous movement

of goods across the DCs to the stores without

the actual storage at the DC.

The prerequisite is strong planning and vendor

relationship management.

Internationally big players like Wal-Mart,J.C.Penny and Sears have been using it quite

extensively.

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Use of IT in Retail supply Chain Traditional way of making the right merchandise

available at a right price and at the right store does not

ensure better business performance.

Increased competition from global players leading to

laser thin margins and diminishing profits has

compelled retailers to seek new ways of improving

corporate performance.

SCM specialists are leveraging IT to create adaptivesupply network, which connects seamlessly the supply,

planning, manufacturing and distribution operations.

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It aids in providing real-time visibility across the supply

network, thereby enabling quick decision making.

The areas of focus in developing newer

methodologies, processes, and technologies are:

(1) Cost Effective Supply Channels

(2) Forecasting(3) Distribution & logistics

(4) Inventory Management

(5) Sourcing & Procurement

(6) Reverse Logistics

(7) Stores allocation

(8) Warehousing and Transportation Management.27


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The major benefits of implementing these programmes

include

(1) Reduced inventories and stock outs,

(2) Fresher products

(3) Quicker, more agile supply chain

(4) Decreases indirect costs such as damages, nonmoving or obsolete inventory as well as the

administration related to each of these activities.

Retail industry is realizing the importance of IT in

carrying out these process improvements leading to

greater operating efficiencies and increasing profits.

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In India, the awareness of IT systems and their

usage is minimal resulting in poor decision

making.

As the organized retailing expands IT will be an

integral part of it.

Current trends portray increasing use of e-

business supported supply chain management.

The use of e-business in supply chain is not just

confined to the use of Internet.

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ERP

EDI

MRP-I/MRP-II

JIT

VMI

CRM

Bar Code/

RFID

Forecasting

Customer

Interface

ManagementSuppliers Customer

Manufacturer

LAN CRM ISCM DSS


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Objectives of Integrated Information

Systems

Providing information and visibility

Enabling single point contact

Allowing making of decisions based on totalsupply chain information

Enabling collaboration with supply chain

partners.

Information serves as a glue to create a

coordinated and cost effective supply chain

by integrating the flows in the following areas.31


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1. Inventory : demand patterns, carrying costs, stock

out costs and ordering costs.

2. Transportation: cost, customer location, shipments

3. Facilities: location, capacity and scheduling

4. Production: quantity and lot size

Role of IT in SCM

Enables better coordination amongst supply chain

partners through cost-effective information flow. Supports collaboration and coordination of supply

chain through information sharing.

Used for support in decision making.32


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Prominent Examples Demonstrating

Potential Benefits Cisco reported savings of US$ 500 million by

restructuring its internal operations and integrating

processes with suppliers and customers with the help of

web tools.- Currently, 90 percent of Ciscos sales are facilitated on

line.

Intel replaced hundreds of clerks by an automated on

line ordering applications. Celestica, one of the world's largest electronic

manufacturing & services company has applied a web

solution to better coordinate its global supply base.33


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IT has helped Celestica to improve its

responsiveness to customers.

For example, through IT it enables Dell to

maintain its delivery promises to the end-

customers.

IT is becoming essential ingredient in managinglogistics operation in the networks.

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RFID in SCM

RFID leads to Smart Retailing or Secured Retailing. The traditional way of capturing and entering data into

computer system is to gather the data on paper and key

it in after the events occur.

A more evolved data capture system is based on theuse of bar code labels, where by manually scanning the

code one can identify the item, and its characteristics.

To overcome the disadvantages of manually captured

data, an advance automatic and item level data capture

system Radio Frequency Identification Device (RFID)

has been developed.

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RFID is a method of remotely storing and

retrieving data using devices called RFID tags.

A RFID is a small object, such as an adhesive

sticker, that can be attached to or incorporated

into a product.

RFID tags contain antennas to enable them to

receive and respond to radio frequency queries

from RFID transreceiver.

Companies like Wal Mart, Proctor & Gamblemake it mandatory for their suppliers to put

RFID tags on their products.

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Boeing uses RFID tags to track parts as the

product move through the facility. RFID-based systems provide efficiency and

accuracy similar to those of printed bar code

systems.

In addition, it offers additional benefits such as

- Insensitivity to grease and contamination

- Label face readability

- Faster speed.

- Security

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- These forecasts were frequently inaccurate and

resulted in massive safety stocks to protect the

service levels.

- More significantly, the consumer, arguably the

most important supply chain participant, was

completely left out of the planning equation.

- Till now, at retail store level forecasting

information was not used in replenishment

planning and ignored inventory management. Integrated planning starts at the store level

putting the consumer in the drivers seat.

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- A forecast of consumers demand based on sales

history and anticipated demand in collaboration with

customers and suppliers is developed.- Each store calculates a replenishment plan based on

its own unique consumer demand forecast, ordering

rules and parameters.

- This information is used to create a customized, time-phased schedule of future product needs.

- Each supply chain partner calculates its own

replenishment plan and shares this data with its

suppliers.

- Thus, a fully integrated schedule of product

needs is created.41


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Benefits

- Sharing information and working with single set of

numbers enables downstream partners in a better

position to meet the demand resulting into better

customer service.

- A simple and consistent process for providing allpartners viz, stores, distribution centres and

suppliers with actionable information leads to

reduced cost.

- As guesswork is completely eliminated andindividual store projections are aggregated, it

reduces unnecessary inventory at both distribution

centre and manufacturing levels.

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2. Managing product Life Cycle

- New product get listed every day anddeciding which store will sell the new

products and when is the second challenge.

- Product phase-out presents another

challenge.

- Traditionally when a product is flagged as

discontinued the store stops ordering.

- Ineffective planning of product exit results in

some stock left over in the supply chain.

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The introduction of new product is customized for each

store based on their forecast at the store level.

- A store can plan to be out-of-stock of a discontinuedproduct by reducing the forecast and merchandise

space.

- The decision to list or de-list a product is made

centrally.

- A retail level forecast for new products is created that

reflects the historical pattern of sales of similar

products.

- For discontinued products, the store forecast is

adjusted to reflect product and shelf space

demand.44


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Benefits

- Planning at each store on a daily basis gives

immediate feedback on how well the new product is

selling.

- The combined demand from all stores accurately

reflects how the product is selling at retail, companywide.

- Results in accurate evaluation of new product

launches.

- Proactively planned and managed product exitsminimizes the leftover stocks at store level and

reduces the need for inventory markdowns and costly

clearance deals.45


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The forecasting and replenishment process

monitors consumer demand at the store level

while promotion is in effect and immediatelytransmits meaningful information back through

the supply chain.

- By constantly re-planning replenishment fromthe store level and moving inventory only on

need basis, everyone has an opportunity to

make mid-course promotional corrections.- Promotions rarely go according to plan and it is

important to be able to react to changes before

it is too late.47


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- A promotional sales forecast is added to the

base forecast of consumer demand, at the store

level.

- Replenishment plans for all stores are added

together to create the distribution centres

demand plan.- The distribution centre and their suppliers re-

calculate their replenishment plans based on

the new information.- As sales occur, exceptions are identified and a

new plan is created.

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- Additional shipments can be scheduled immediately

to meet unforeseen demand and similarly shipments

can be delayed to under performing stores, leaving

stocks available for those stores that may need it.

- If the stores are permitted to procure their

merchandise individually , it is important to providethem with tools to set the realistic targets.

- This information is communicated to the distribution

centres that can then re-plan purchases based on

stores post-promotion buying behaviour.

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4. Planning for seasonal products

- Effective planning for seasonal products

presents one of the biggest challenges to supply

chain managers.

- The start of each selling season has to be

planned carefully and stores require products inadvance in order to set-up properly.

- Seasons like Diwali, Eid, Christmas, Halloween

and Easter cause an extreme spike in demandand usually do not occur on the same date

every year which means planning must be

completed well in advance.51


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- The goal is to end the season with minimal carryover.

Based on historical sales and market knowledge, each

store forecasts consumer demand for a seasonalproduct.

- Stores determine inventory levels needed before,

during and at the end of each season, usually well in

advance of the season.

- Being able to define a season end-date minimizes the

chances of carry over and product returns.

- By defining tolerances, the store can also indicate whatpercentage of lost sales or overstock is acceptable at

the end of the season.

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- Time-phased distribution requirement plans are

created to reflect this forecast and shelf-

requirements, on a store to store basis.

Benefits

- Product is on the shelf when it is needed in a

particular store, based on identified, store-specificmerchandising requirements.

- Better management of the flow of inventory to the

stores minimizes seasonal carryover.

- Stores can also plan out-of-season assortments sothat the product category is available, albeit at a

reduced level.

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5. Integrating with category management

- Category management is defined as a process that

involves managing product categories as business unitsand customizing them on store-by-store basis to satisfy

customer needs.

- Going by the above definition, category management

must therefore take place at store level.

- For managing the product categories effectively,

forecast is needed for every product at every store.

- Unfortunately, category management done at thecorporate level allows poorly performing stores to

hide.

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Managing a category cant be done without a plan that

contains forecasted sales, inventory levels and purchases

for each item in that category.

- Such plans for each category must exist at the store level

and this is the point at which marketing and supply chain

converge.

- Marketing defines the assortment that sits on the shelvesand the supply chain keeps the shelves full.

- Future projection of sales, inventory , purchases are

converted into revenue and costs at retail level.

- Projections are rolled up from SKU to category to

department to total store.

- Roll up are done at corporate level from SKU to category

to department to store. 55


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Benefits

- By evaluating categories at the store level, all key

performance measures e.g. GMROI, Sales per squarefoot, stock turn over, stock to sales, purchases etc can

be analyzed.

- Financial roll-ups showing sales, inventory, margin etc

provide information needed by the store managers tomanage their assortments more effectively.

- Shelf plans are translated directy into store level

replenishment plans.

- What is on a store shelf is what sells in a particular

region thereby resulting into increased sales and

reduced inventory costs.

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6. Determining cost-effective Supply Channels

- Most store deliveries originate from the distribution

centres.- High volume/ bulky products, promotional/seasonal

products or perishable are shipped directly from the

suppliers to the store.

- Distribution centres with a fixed product delivery

schedules e.g. weekly shipments to eah store do not

have the ability to respond to an individual stores

unique demands.- Moreover, there is no analysis done know whether

fixed delivery schedule is the most effective or even

the most profitable route to follow.

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A store-level, time-phased replenishment plan projects

as to how much inventory is needed in future to

maintain desired inventory levels.- Once future order quantities are known, the can be

analyzed on either store-by-store, regional or any other

basis.

- The most cost-effective source i.e. distribution centre ora supplier is determined and purchase orders are issued

to the right source e.g. purchase orders are sent to

specific suppliers during promotions.

- Individual stores establish their own delivery schedules,including days of the week shipments are required.

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Benefits

- Reduced costs as a result of having a more cost

effective delivery method or by eliminating theneed for additional outside storage space at the

distribution centre.

7. Planning capacities at the store level- Staffing levels are seldom tied to sales forecast

and this results in unrealistic budgets and costly

variances.Providing store managers with accurate

information and effective labour planning tools

will help lower labour costs in the store.59


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- The key is to use the same information to

generate labour requirements as used to

manage the flow of products through the store.Projections are made to schedule labour

requirements considering the time-phased

replenishment plans.- Store managers plan for the requirements a

week or two in future taking into account the

holiday as well.

- The same information is used to budget, plan

capacity and schedule labour at the store level

as well as the distribution centre environment.60


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Benefits

- By using sales, inventory, and purchaseprojections expressed in rupees, a more

realistic budget is created.

- Since labour plans are made on current DRP, it

provides best possible planning information.

- As plans are updated, the resulting resource

plans can be adjusted thereby

avoiding/reducing unnecessary costs.

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Green Supply Chain Management

GSCM is defined as the management of materials andresources from suppliers to manufacturers/service

providers to customer and back, with the natural

environments explicitly considered.

GSCM encourages all components of supply chain foreconomical use of virgin raw materials, reduction of

wastes during production i.e. environment conscious

manufacturing (ECM), promotion of recycling,

remanufacturing and reuse, and proper dumping of

used components/goods.

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GSCM involves planning, development, implementation of

manufacturing processes and technologies that minimize oreliminate hazardous waste and reduced scrap.

Includes basically life Cycle analysis (LCA) of the product and its

impact on environment at each stage of its life.

Remanufacturing can reduce significantly both the consumption

of raw materials and pollution resulting from discarded used

components and sub-assemblies.

Recycling is performed to retrieve the material content of used

and non-functioning product.

Aim is to meet the need of the present without compromising

the requirements of future generations.

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Implementation of GSCM1. Environment Management System (ISO 14000)

- Part of overall management system which

includes structure, planning activities,

responsibilities, practices, procurements,

processes and resources for developing,implementing, achieving, reviewing and

maintaining environment policies.

- Aims at providing guidance for developing acomprehensive approach to environmental

management and standardizing some key

environmental tools of analysis.64


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2. Education and Training

- GSCM can be effectively implemented through

education and training to personnel involved at

various stages of supply chain.

- Companies must educate the consumers and

suppliers regarding GSC programmes.

- Can be made possible in following ways by

holding

(a) Workshops and arranging seminars onactivities of GSC.

(b) Creating awareness on the benefits of GSC.65


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3. Commitment to GSC programme

- It is important that commitments to GSC be

made by top management officials and

members of the company.

4. Reports and rewards

- Incentives for performers and disincentives or

punishment for those who deviate from GSC

guidelines.

5. Feedback

- Inputs from consumers, suppliers and

employees.

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6. Regulatory Measures

- The water(Prevention and Control of Pollution)

Act, 1974 and its amendments.

- The Air (Prevention and Control) Act, 1981 and

its amendments.

- The environment (Prevention)Act, 1986 and its

amendments.

- Hazardous Waste (Management &

Handling)Rules, July 1989, and

- The Public Liability Insurance Act, 1991.

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SCM in Retailing

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