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CHAPTER 7

CHAPTER 7. MANAGING THE RESPONSE TO SALES. LEARNING OBJECTIVES. To understand the concept of response within RPM Become familiar with information-based systems that have allowed retailers to change ‘stock management’ to ‘demand and supply management’

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CHAPTER 7

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  1. CHAPTER 7 MANAGING THE RESPONSE TO SALES

  2. LEARNING OBJECTIVES • To understand the concept of response within RPM • Become familiar with information-based systems that have allowed retailers to change ‘stock management’ to ‘demand and supply management’ • Appreciate the contribution of QR (quick response) and ECR (efficient consumer response) and CPFR (collaborative planning, forecasting and replenishment) to efficient product replenishment

  3. RESPONSE • Principle: sell one = replenish one • Fine tuning the response of stock intake against sales (automatic replenishment) • Ensures high availability without high stock levels • A responsive stock management system keeps products in stock whilst organising the supply chain to operate at minimum cost

  4. SALES BASED ORDERING • Automatic ordering and replenishment based on previous sales • Based on the principle of exponential smoothing • Automatic ordering can be managed by exception • Automatic replenishment relies on supply source (DC or supply depot) being able to respond directly to demand. AR Systems will alert stores to problems

  5. ECR and QR • These are two responsive product management philosophies that aim to align demand management with supply management • Rely on collaboration and data sharing between retailers and suppliers (partnerships) • Rely on integrated IT-based stock management systems and involve logistics through the supply chain

  6. ECR and QR • ECR generally concerns food and FMCG products, which have more stable demand and higher volumes • ECR is focused on efficiency (cost saving) • QR systems are unit based, tailored to higher value, lower volume items • QR systems involve supply techniques that allow retailers to respond effectively to fashion and seasonal sales variation • QR is focused on agility (which leads to efficiency)

  7. QR (QUICK RESPONSE) • Sales information transmitted directly to supplier • Supplier replenishes directly to store • Supplier replenishes according to predetermined assortment plan for season • Supported by swift and flexible manufacturing techniques that can switch to making fast selling merchandise instead of slower lines

  8. SUPPLIER INVOLVEMENT IN RESPONSIVE REPLENISHMENT SYSTEMS • Real time information helps with production planning and ordering of raw materials • Compatible IT systems needed • Distribution from supplier to retail outlet must be reliable and cost effective • Supplier must send stock that is ready to sell (pre-retailing) • Co-operation and trust needed between retailer and supplier

  9. CPFR (COLLABORATIVE PLANNING AND REPLENISHMENT) • Formalised management support system • Encourages sharing of information on market demand • Forecasting becomes more accurate, production more closely matched to sales • Pools expertise of retailer and suppliers and sometimes other supply chain members • Together, devise business plans, forecasts, and agree actions and financial remedies in case of below forecast performance • Collaborating on promotional activity especially important

  10. DRAWBACKS OF RESPONSIVE SYSTEMS • Small, frequent deliveries drives up cost, which may outweigh benefit of leaner stock • Logistical problem of many suppliers delivering small orders (DC or consolidation centres may be built into supply chain to alleviate) • Readiness / ability of all suppliers to replenish quickly • Readiness of retailers to share data and collaborate fully

  11. SUPPLIER (VENDOR) MANAGED INVENTORY (SMI / VMI) • Retailer relinquishes stock management operation to supplier • Retailer provides accurate and real-time sales data and promotional plans • Automatic replenishment is guaranteed by supplier • More complex than shelf stocking service • strategic development of product range is taken on by supplier • supplier instigates increased variety in successful categories • supplier is able to give retailer’s customer best range

  12. STRATEGIC RESPONSE • Response is not just about replenishment • Availability levels: • stock of planned assortment is on shelf • planned assortment is ‘right’ for customers • Customer loyalty in a saturated market is an indication that product assortment is correct • Micro-marketing techniques (loyalty programmes, data mining, and geo-demographic profiling) can be used to inform strategic assortment planning, as well as less technical methods: • listening to customers, suppliers, consulting product market reports, competitor analysis

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