SUPPLY CHAIN MANAGEMENT & RETAILER – SUPPLIER RELATIONSHIPS

1. SUPPLY CHAIN MANAGEMENT &RETAILER – SUPPLIER RELATIONSHIPS Adapted from Levy and Weitz

2. Information and Merchandise Flows Customer Sales info Buyer Stores Distribution center Vendor - - - - Merchandise flow Information flow Source: Levy and Weitz

3. Merchandise Flow Source: Levy and Weitz

4. 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.”

5. Merchandise FlowCROSSDOCKING 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

6. 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

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

8. 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

9. 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

10. 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

11. Quick Response General merchandise retailers pioneered the “Quick Response” initiative in the 1980s Just in time inventory partnership strategy between suppliers and retailers of general merchandise. It is aimed at reducing order response time, and achieving greater accuracy in shipping the correct goods in correct quantities, by employing computerized equipment such as barcodes and EDI to speed up flow of information. QR delivery systemsreduce operating expenses, out-of-stock situations, and forced mark-downs. Adapted from Levy and Weitz

12. Quick ResponsePROS AND CONS Point of Sale (PoS) tracking and Electronic Data Interchange (EDI) systemsconstantly up-date estimates of true consumer demand, and then places intelligent re-orders for goods with flexible manufacturers and their suppliers. Pros • Reduces lead time, Increases product availability, Lowers inventory investment Cons • Smaller orders - more expensive to transport and more difficult to coordinate, computerhardware and software must be purchased by both parties Both retailers and vendors must invest, or neither receives the benefits Adapted from Levy and Weitz

13. Quick Response • Point-of Sale Data • Affinity Card Data • Forecasting • EDI • Electronic Ordering • Electronic Funds Transfer Information Consumer Retailer Manufacturer • Cross Docking • Computer Controlled Material Handling • Flow Through Distribution • Barcoding • Vendor Managed Inventory • Just-in-Time Manufacturing Product

14. Types of Retailer-Supplier Partnerships • Continuous Replenishment Strategy:This is also called rapid replenishment. Here thevendors receive POS data and use these data to prepare shipments at previouslyagreed-uponintervals to maintain specific levels of inventory.  • This type of partnership is: a system between QR and VMI, because suppliers and buyers together agree on targetinventory and service levels. It involves less risk for retailers than VMI.

15. Types of Retailer-Supplier Partnerships • Vendor-Managed Inventory (VMI) System: • This is also called vendor-managedreplenishment (VMR) system. • Here the supplier decides on the appropriate inventory levelsof each of the products and the appropriate inventory policies to maintain these levels. • This type of relationship is being used in Wal-Mart and P&G, whose partnership began in 1985. It hasdramatically improved P&G’s on time deliveries to Wal-Mart while increasing inventoryturns • More integrated than the previous two systems, and requires a highlevel of trust between the supplier and the buyer.

16. Benefits of VMI Process RetailerBenefits: • Reduced inventory • Reduced stock-outs: The supplier keeps track of inventory movement and takes over responsibility of product availability resulting in a reduction of stock outs, therebyincreasing end-customer satisfaction. • Reduced forecasting and purchasing activities • Increase in sales: Due to less stock out situations, customers will find the right product atright time..

17. Benefits of VMI Process • Supplier Benefits: • Improved visibility results in better forecasting: With the VMI process,the retailer sends the POS data directly to the vendor, which improves the visibility andresults in better forecasting. • Reduces potential returns: As the supplier forecasts and creates the orders,mistakes, which could otherwise lead to a return, will come down.

18. Inventory Ownershipin Retail-Supplier Partnerships • Originally ownership of goods transferred to the retailer when thegoods were received. Now, some VMI partnerships are moving to a consignment relationship inwhich the supplier owns the goods until they are sold. • The benefit of this kind of relationship to theretailer is obvious: lower inventory costs. Furthermore since the supplier owns the inventory, it will be more concerned of managing it as effectively as possible. • For example, Wal-Martno longer owns the stock for many of the items it carries, including most of its grocery purchases. Itonly owns thembriefly as they are being passed through the checkout scann.