Retail Supply Chain

1. Retailing MKTG 3346 Retail Supply Chain Professor Edward Fox Cox School of Business/SMU

2. What is Supply Chain Management? The integration of business processes from the end consumer back to original suppliers, providing products, services, and information that add value for customers Source: Levy and Weitz

3. Why Focus on Supply Chain Management? • Improve return on investment • Improve product availability Reduce Costs! Increase Efficiency! Net profit = Net profit x Net sales Total assets Net sales Total assets Adapted from Levy and Weitz

4. Example of a Simplified Supply Chain Source: Levy and Weitz

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

6. 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 application of technology

7. Information Flow Source: Levy and Weitz

8. 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

9. Information FlowEDI METHODS OF TRANSMITTING DATA Source: Levy and Weitz

10. Merchandise Flow Source: Levy and Weitz

11. 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.”

12. 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

13. 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

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

15. 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

16. 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

17. 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

18. 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 owned Transportation Warehousing Freight forwarders Integrated third-party logistics services Adapted from Levy and Weitz

19. 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

20. 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 receives the benefits Adapted from Levy and Weitz

21. 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 ECR • Efficient Assortment • Efficient Replenishment • Efficient New Product Development • Efficient Promotion

22. Efficient Consumer Response • ECR was not as successful as Quick Response • Vendors were larger and more powerful • Reluctance to make large investments

23. Quick Response & ECR • 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