Retail Supply Chain

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Retailing MKTG 3346
Retail Supply Chain
Professor Edward Fox Cox School of Business/SMU
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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
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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
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Example of a Simplified Supply Chain
Source Levy and Weitz
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Information and Merchandise Flows
Source Levy and Weitz
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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
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Information Flow
Source Levy and Weitz
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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 retailers computer from
  a supplier in advance of a shipment.

http//www.disa.org/
Source Levy and Weitz
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Information FlowEDI METHODS OF TRANSMITTING DATA
Source Levy and Weitz
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Merchandise Flow
Source Levy and Weitz
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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.
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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
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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

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How to Distribute?

• The retailer must decide whether to run its own
  distribution operations, or purchase from
  wholesalers, brokers, jobbers or other
  intermediaries

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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
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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
  arent geographically concentrated in a metro area

Adapted from Levy and Weitz
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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
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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
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Quick Response

• General merchandise retailers pioneered the
  Quick Response initiative in the 1980s
• QR delivery systems are inventory management
  systems designed to reduce the retailers lead
  time for receiving merchandise, thereby lowering
  inventory, improving customer service levels, and
  reducing logistics expenses

Adapted from Levy and Weitz
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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
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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

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Efficient Consumer Response

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

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Quick Response ECR

• EDI
• Electronic Ordering
• Electronic Funds Transfer

• Point-of Sale Data
• Affinity Card Data
• Forecasting

Information
Consumer
Retailer
Manufacturer

• Cross Docking
• Computer Controlled Material Handling
• Flow Through Distribution

• Barcoding
• Vendor Managed Inventory

• Just-in-Time Manufacturing

Product