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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
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