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5th Edition5th Edition

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Chapter 10

Information Systems and Information Systems and Supply Chain ManagementSupply Chain Management

McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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Retailing Strategy

Retail Market Strategy

Financial Strategy Site Location

Information Systems

Retail Locations Organizational Structure and HR Management

Customer Relationship Management

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Supply Chain Management is the integration of business processes from end user through original suppliers that provides products, services, and information that add value for customers.

Supply Chain Management

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What Supply Chain Management Entails

Logisticsor

PhysicalDistribution

Logisticsor

PhysicalDistribution

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Illustration of Supply Chain

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Strategic Importance of Supply Chain Management

• Opportunity to Reduce Costs

– Transportation Costs

– Inventory Holding Costs

• Provide Value to Customers by Making the Right Merchandise is in the Right Place at the Right Time

– Fewer Stockouts

– Greater Assortment with Less Inventory

• Improved ROI

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Return on assets = Net profit margin x Asset turnover

Net profit = Net profit x Net sales

Total assets Net sales Total assets

Improve Return on Investment

Efficient Supply Chain Management Higher Asset Turnover

Same Sales Using Less Inventory

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The Flow of Information and Merchandise

- - - - Merchandise flow Information flow

Buyer

Vendor

Stores

Distribution center

Customer

Quick response systems

Sales info

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Information Flows

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Information Flow

2. Information about purchase is transmitted from POS terminal to the buyer/planner.

3. Information about purchases are aggregated by buyer/planner and sent to distribution center and vendor

1. When customer makes apurchase, sales associatescans UPC code on merchandiseand customer credit card/loyalty card

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Information Flow

6. Store managers inform distribution center about receipt of merchandise and coordinate deliveries

4. Buyer/planner communicates withvendor and places a purchase orderto re-supply stores.

5. Buyer/planner notifies distributioncenter about incoming orders andhow they are to be distributed to stores

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Data Warehousing

Data warehousing is the coordinated and periodic copying of data from various sources, both inside and outside the enterprise, into an environment ready for analytical and informational processing

Wal-Mart makes good use of its data warehouse. It should. Experts estimate that it is second in size only to that of the U.S. government

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Data Warehouse Structure

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Electronic Data Interchange

• EDI is the computer-to-computer exchange of business documents between retailers and vendors

• Merchandise sales

• Inventory On Hand

• Orders

• Advanced shipping notices

• Receipt of merchandise

• Invoices for payment

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Networks for EDI

• Proprietary Systems – Network using special software

• Extranet – Public internet with access restricted to partners

• Intranet – Internet withaccess restricted topeople within acompany

security

Easeof

access

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Physical Flow of Merchandise

Merchandise is sent from vendoreither to the retailer’s distributioncenter (1) or directly to store (3).

Retailer send merchandise from itsdistribution center to its stores (2).

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• More cost effective

• More accurate sales forecasts

• Less merchandise in the individual store, thus a lower inventory investment system-wide.

• Less out-of-stock

Advantages of Using a Distribution Center

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When to Use Distribution Centers

• Unpredictable merchandise sales – wide fluctuations in demand

• Frequent replenishment required – high number of units sold per day

• Items shipped to store in less than full case quantities

• Many retail outlets that are not concentrated in one area

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When to Use Direct Store Delivery

• Retailer has only a few outlets

• Many retail outlets are concentrated in metro areasyielding increased efficiency of direct store delivery

• Important to get merchandise in store quickly

•Fashion - first to have latest video game

•Merchandise perishable - produce

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Activities Performed by Distribution Center

• Managing inbound transportation

• Receiving and checking merchandise

• Storing or cross docking merchandise

• Preparing merchandise for the sales floor

– Ticketing and marking

– Putting on hangers

• Shipping merchandise to stores

• Managing outbound transportation

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Crossdocking

Merchandise flows directly from the vendor’s trucks through the retailer’s distribution center and is loaded on the trucks going to the retailer’s stores without being stored in the distribution center

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Logistics Strategy

PullMerchandise shipped to stores based on sales and inventory levels in the stores

PushMerchandise shipped to the stores based on forecasted sales rate

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Quick Response Delivery System

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.

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Benefits of QR Systems

Reduces lead time

Increases product availability and lowers inventory investment

Reduces logistics expenses

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Costs of QR Systems

Smaller orders - more expensive to transport

Greater order frequency - deliveries and transportation more difficult to coordinate

Computer hardware and software must be purchased by both parties.

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Logistics Support for Electronic Channel

• Requires a different type of distribution center

– Picking and packing individual items sent to customer vs.

– Receiving, storing, and cross docking cartons to stores

• Multi-channel retailers may outsource fulfillment of Internet orders to third party

– Target, Toys R Us Target

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Outsourcing Supply Chain Management Functions

Transportation

Warehousing

Freight Forwarders

Integrated Third PartLogistics Services

Cost

vs.Control

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Third-Party Logistics Companies

These firms facilitate the movement of merchandise from manufacturer to retailer, but are independently owned.

• Transportation

• Warehousing

• Freight forwarders

• Integrated third-party logistics services