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RETAIL INTRODUCTIONAnshuman Dutta

www.anshuman-dutta.blogspot.com

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Consumer SegmentationConsumers: Persons who consume products or services

Customer segmentation: Retailers cannot target individual consumers, because the cost and complexity would be too high. Therefore, they cluster their consumer base into segments, where each segment has a high degree of commonality

Consumer Types Impacts

Merchandise assortments and brands Decor and ambience of the store Service package offered

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Types of Retailers

RetailerTypes

Grocery

Apparel

White Goods

Jewelry

Furniture

Hi-Tech

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Media Formats In store

Online

TV Shopping networks

Telephone

Print/ Catalog

Home selling

Retail Formats

Location

High street

Destination

Convenience store

Size

Shopping Mall

Supermarket

Hypermarket

Ownership

Private/Individual Owned

Public Owned/Listed

Franchisee

Merchandise Range Supermarket

Hypermarket

Specialty

Category Killer

Merchandise Segment Music (Performance)

Apparel/ Footwear

Drugs/ Pharmacies

Electronics

Price Discount

EDLP

Factory Outlet

Single Price Denomination

Business Model B2B

B2C

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Retail Dimensions

Organizational Hierarchy 1. Chain

2. Division

3. Region

4. District

5. City

6. Cluster

7. Store

Company

USA

West/ MH

Los Angeles

Westlake Village

Thousand Oaks

10921

Why Hierarchy

• Assign Responsibility • Targets

• Analysis

• Decision making

• Promotions

• Pricing/ Margins

Merchandise Hierarchy 1. Division

2. Dept

3. Category

4. Sub Category

5. Brand

6. Style

7. Options

8. SKU

Men’s Apparel

Trousers

Formal

Khakis

Reid and Taylor

Flat Style

Singles Pack

LW FHS B 32

Time Hierarchy 1. Year

2. Qtr

3. Period

4. Week

5. Day

09-10

2st

May

15

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Retailing Processes

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Value Chain of Retail

Merchandising

CORE

NON-CORE

Supply Chain Store Operations

Finance

Legal

Marketing

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Merchandising

Range Planning Merchandise Financial Planning

OrderPlanning

Sourcing / Procurement

Pricing

Promotions Space Planning

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Merchandise

Merchandise: Goods or services that may be sold or traded

Properties

SKU (Stock Keeping Unit)

Roles: Buyer – Merchandiser - Allocators

Colors, Sizes,Dimensions

Pack Size – Unit Of Measurement

Price: Cost and Retail

Hierarchy (Dept – Sub Dept – Class – Sub Class)

Vendor

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Width / variety/ breadth of merchandise- The number of merchandise categories

Major components of an assortment strategy

Depth of merchandise- the number of items in a category (SKUs)

Merchandising

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Merchandising Range Planning

Where Store/ Store Cluster Level etc. ?

When Season/ Month/ Week ?

What Merchandise to Sell ?

How The Quantity ?

Range = Width * Depth

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Merchandising

Merchandise Financial Planning

Assortment Planning

Assortment planning is the process to determine what and how much should be carried in a merchandise category. Assortment plan is a trade-off between the breadth and depth of products that a retailer wishes to carry.

Category PlanningCategory management is a process that involves managing product categories as business units and customizing them [on a store by store basis] to satisfy customer needs.

Item Planning

Item Planning lets you build plan by item, key item, or assortment—by vendor, class or item attribute—and across multiple sales channels. With Item Planning you can plan and forecast sales and inventory requirements in line with changes in demand to maximize margin potential for key items at every stage of the product lifecycle.

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Merchandising

Merchandise Order Planning

Open to Buy

Out of Season Planning In Season Planning

• Open to buy is the dollar amount budgeted by a business for inventory purchases for a specific time period

• Determines how much was spent and how much is left to spend

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Merchandising

Space Planning

Micro space planning Deals with how an category assortment fits into an allocated shelf area

Macro space planning Deals with space allocation at category level

Planogram

A diagram of fixtures and products that illustrates how and where retail products should be displayed, usually on a store shelf in order to increase customer purchases .

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Merchandising

Pricing is part of the marketing mix available to retailers

Buying Cost ($100)

Markup ($50, 50%)

Markdown ($20, 13.33%)

Regular Selling Price ($150)

Markup = MRP – Cost

Markdown = Old MRP – New MRP

Pricing/Promotion Management

C

Pricing

Cost + Fixed Margin = Grocery

Cost + Margin Based on Demand = Apparel

Trade Promotions Management:(1) Brand Based, (2) Location Based, (3) Account Based

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Core merchandising:

http://blogs.gartner.com/robert-hetu/retail-marketing-merchandising-must-sing-off-the-same-sheet-music/

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Merchandise Supply Chain and Optimization:

http://blogs.gartner.com/robert-hetu/retail-marketing-merchandising-must-sing-off-the-same-sheet-music/

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POS in Retail

• POS data is also not limited to retail and consumer facilities, as 3PLs, warehouses, and raw material manufacturers can collect this as well.

• Naturally, there is direct value for – Implying on-shelf availability, – Determining re-order points, – Analyzing trends and seasonality to forecast demand

Additional supply chain touch points that can be improved with POS data. These include:

Designing key performance predictors (KPPs)

Including POS data as part of the organization's Sales Inventory Operations Planning (SIOP) process

Leveraging POS data with shipment data.

Measuring the tradeoffs between forecasts and supply chain flexibility

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Travel Merchandising

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Supply Chain Management

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Retail Entities

Main Entities• Manufacturers• Retailers• Customers

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Others SCM partners• 3rd Party Logistics• Labor contractors• IT Vendors – (Applications, Infrastructure)• E Commerce• Advisories• Services – Repairs, Warranty• Advertising/ Marketing

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Supply Chain

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Supply Chain Management

“Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that the merchandise is produced and distributed in the right quantities, to the right locations, and at the right time, in order to minimize the system wide costs while satisfying the service requirements”

The 3 key processes in the supply chain are:

Inventory Management

Warehouse Management

Transportation Management

Vendors

Central DC 1

Central DC 2

Central DC 3

Local DC 1

Local DC 2

Logistics Partners

Store 1

Store 1

Store 1

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SCM key processes

The Supply Chain Management Program integrates topics from manufacturing operations, purchasing, transportation and physical distribution into a unified program. Key processes that make up the core of supply chain management are

• Customer Relationship Management• Customer Service Management• Demand Management• Order Fulfillment• Manufacturing Flow Management• Procurement• Product Development and Commercialization• Returns

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Warehouse Management

• Warehouse management aims to enhance inventory management by– Decreasing inventory levels– Improving order fulfillment – Reducing order cycle time

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Warehouse Layout/ Movements & Activities

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• Inbound Processes Receiving QA Putaway

• Outbound Processes Order processing Picking Replenishment Shipping

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Bullwhip Effect

What is the bullwhip effect?

The ripple effect of small changes in customer demand are magnified upstream through a supply chain all the way from the customer to the retailer to distributor to manufacturer. It is so named because of the resemblance to a bullwhip as the variability of demand increases sharply when you progress up the supply chain.

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ANALYTICS IN SUPPLY CHAIN RISK MANAGEMENT

Descriptive - what happened?

Diagnostic - Why did it happen?

Predictive - what will happen?

Prescriptive - how to make it happen?

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15 Key Innovations in supply chain strategy

Ford Assembly Line – Henry Ford installs the first moving assembly line of an entire automobile, the Model T, first produced in 1908

1913 Ocean Shipping Container: - Malcom McLean invented the standard steel shipping container first implemented in 1956 at the port of New Jersey

1950 Electronic Data Interchange (EDI) –Started when computer systems first had the capability to transfer data to other computer systems. Enables the exchange of electronic business documents.

1960

Material Resource Planning (MRP) – Josef Orlicky makes the first MRP system in Racine, Wisconsin. A year later, Gene Thomas from IBM invents the Bill of Materials Processor. For the first time, manufacturers could break down the BOM on a computer

1961 Universal Product Code (UPC) – a company called Logicon wrote a standard for something close to what became known as the Universal Product Code (UPC) to identify via a barcode a specific SKU. The first implementation of the UPC was in 1974 at a Marsh's supermarket in Troy, OH.

1970

Enterprise Resource Planning – In 1990, Gartner Group first employed the acronym ERP which came to represent a larger whole, reflecting the evolution of application integration beyond manufacturing.

1980 Dell Direct Orders – Michael Dell started his company in his dorm room shipping computers to customers. This developed into a unique model of make to order that provided custom configurations to customers and shipped to them

1984

FedEx Tracking System – After re-inventing the category of express parcel shipments, FedEx went a step further by developing a new computerized tracking system that provided near real-time information about package delivery. Outfitting drivers with smallhandheld computers for scanning pick-ups and deliveries, a shipment's status was available end to end.

1985

P&G's Continuous Replenishment: Order patterns were totally dependent on sales and retail buyer input until P&G bought a mainframe application from IBM for "continuous replenishment" re-wrote it for retail, and changed that entire value chain by driving orders based on DC withdrawals and sales data.

1987

Walmart Cross Docking – With rapid expansion in the number of Walmart stores, the company needed an effective communication system. They introduced the first cross docking system, which enabled them to track goods across all their DCs and stores.

1988

The Toyota Production System: Pioneered by Toyota's Taiichi Ohno and a few colleagues, TPS not only is the foundation for today's lean manufacturing and supply chain practices, but the concepts have penetrated virtually every area business

1990 Rise of the PC and Internet – this allowed the development of decision support systems for the supply chain on PCs as well as collaboration platforms for companies with their trading partners.

1990

HP Postponement – The ability to delay differentiation in product design can convey many advantages. HP was the first to use this approach delaying some of the localized decision for its DeskJet printers by customizing the printers at its local distribution centers rather than at its factories.

1994

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15 Key Innovations in Supply Chain Strategy• 1998 – Amazon Order & Delivery - Jeff Bezos left Wall

Street to start Amazon and within four months, Amazon.com became extremely popular. Within a month of its website launch it had filled orders from 50 states and 45 other countries. Amazon.com carried only about 2,000 titles in its Seattle warehouse; however, usually no warehouse was needed because most orders were placed through wholesalers and publishers.

• 2000s – RFID , Track and Trace – RFID was developed at the MIT Auto-ID Center. It is a code-carrying technology, and can be used in place of a barcode to enable non-line of sight-reading. Synonymous with track-and-trace solutions, and has a critical role to play in supply chains.

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Supply Chain Myths1. Reduce costs at all cost: This strategy suggests that reducing cost is the most important objective, which is not always the case. Companies need to "balance cost with service, invest in flexibility to reduce risk, and deploy the appropriate IT infrastructure for long-term visibility and growth."

2. Invest in flexibility: "Identifying the right trade-off between risk-mitigation strategies and cost is an important challenge." Companies need to identify how to get flexibility either through process, system, or product design and where is right to invest.

3. Apply the same operations strategy across the board: You can't deploy one supply chain across multiple channels, customers and products. Each product may have different requirements and characteristics. Product characteristics have to be matched with supply chain strategies. David Simchi-Levi uses the example of Gap Inc. The company owns three separate brands: Gap, Banana Republic and Old Navy. Each of the brands has a different customer value proposition. Because of this, there is a need for multiple supply chains to fit each type of customer.

4. Deploy the latest and best Information Technology (IT): "IT investment has to be driven by business needs." The latest technology cannot drive a change in the business because the company wants to keep up with the latest trends.

5. Ignore IT because it is just another commodity: Don't ignore IT altogether. While previously we discussed (Myth #4) that all technology is not necessarily right for your business, sometimes when technology is combined with the right business processes for supply chain integration it can significantly improve performance.

6. Treat Corporate Social Responsibility(CSR) as charity: Many executives believe that CSR is a waste of money and time; however, in many situations "when CSR is aligned with business value, it generates a new stream of revenue or an innovative way to reduce costs."

7. Leave Operations to the functional areas: "Operations significantly affect the firm's revenue and profit goals precisely because of their ability to control costs, shorten response times, and improve customer service." All of senior management needs to be involved with defining goals in Operations.

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Supply Chain Service

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Store Front

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Store Operations

• What all are needed for the store to run smooth• Understanding of the store characteristics• Practices to prevent and cut short losses due to various sources• Practices to best utilize all available resources in the store

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Store Operations - LP

• Merchandise• cash taken in from the sales of merchandise, the cash registers, • store fixtures• equipments required to sell merchandise, • building itself• people in the store: Associates, Managers, and Customers.

Shrinkage = Actual Physical Inventory – Book ValueResearch says the % of reasons for shrinkage • Employee theft, 46.8%• Shoplifting/ Customer Theft 31.6% • Administrative error, 14.4%• Vendor error 3.75% • Unknown error 2.86%

Loss prevention is all about protecting the assets of the company and the store.

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Why are Retailers use Multiple Channels

customer

store kiosk catalog Call center Web/E-mail mobile

Customer wants to interact in different waysEach channel offers a unique set of benefits for Customers

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Why Multichannel Retailing

• Increasing Online sales• Increasing Internet usage• Consumers interest to enjoy channel benefits• Consumers expect more from retailers in terms of product information,

convenience and customer service.

Merchandizing :— Out of Stock leading to loss of sales— Pilferage & shop-lifting— Managing consistent visual merchandizing— Workforce Management:— Time & Attendance management— Labor budgeting/scheduling— Recruitment & training— Staff productivity— Point of Sales :— Poor connectivity between store and host systems— No up-to-date information and customized

promotions and services— Absence of synchronized view of the customer and

inventory information

Supply Chain Analytics:— Visibility in SKU availability, Perfect order fulfillment,

optimizing inventory holdings— Supplier performance measurement— Merchandise Analytics:— Optimize merchandise mix— Track promotion effectiveness— POS Analytics:— Understanding Demand Patterns— Measuring store ,category, SKU performance— Customer Analytics:— Understand most profitable customers and cost to

serve them— Assortment planning and optimization

Low Inventory Turns : — Lack of accurate inventory information— Sporadic Demand of many items— Poor Supply Chain visibility

Demand Response— Lack of demand planning & forecasting processes— Very Price Sensitive Customers, volatile demand

pattern Total Landing Costs :

— Some suppliers, multiple tiers of distribution— Lack of Transportation Management Systems— Lack of Distribution planning & scheduling

mechanisms

Customer Experience & Loyalty:— Providing seamless Omni-channel experience— Personalized shopping assistance— Personalized promotions

Social Media engagement:— Brand crises management— Search Engine Optimization & Social Media

Optimization Multi-channel Fulfillment :

— Supply Chain & logistics pressures— Smaller, customized package sizes lead to high

transportation and labor costs

In-store ChallengesAnalytics Challenges

Supply Chain ChallengesOmni Channel and Digital Media

Challenges

Challenges in Retail Industry

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Thanks