SCM and IT in Retail

Session 18

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Session Objectives

SCM in RetailIts importance, evolution and innovationsRetail LogisticsReverse LogisticsIT in RetailThe Internet as a retail opportunity

The Basic Supply Chain

SCM process is a value chain where bottlenecks, valueadding factors are addressed, thus enabling retailers todeliver value to the end customers efficiently.Retailer is the link between the customers and the rest ofthe supply chain

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RETAILER

Supplier

Raw/Packing MaterialWarehouse

Stock Manufacturer

ManufacturerWarehouse

Stock

RetailerWarehouse

StockRetailStore

Capacity CapacityStock Stock Stock Stock

Flow of orders

Flow of goods

Consumers

Feedback

Products

Supply Chain Objectives

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Right

Deliver

Product

Place

Time

Price & Profit

Factors for Successful SCM

A systems approach

Role of IT and decisions on outsourcing

Strategic decision making

With top management involvement

Inventory perspective

Leaner and cleaner

Single entity to reduce administrative delaysRetailers control it in developed economies while manufacturers control it in

urban India and wholesalers in mofussil areas

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Typical Supply Chain

Suppliers Manufacturing DistributionCenter(s)

Customers

Physical flows

Information flows

Financial flows

… Complexity

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Physical flows (100+ SKUs)

Information flows (GRNs, POs, GPs ……)

Financial flows (CNs, DNs, cheques … …)

Suppliers

100 +

Manufacturers3 +

DistributionCentre 20 +

Customers???

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… Pressures

Competition

Prices

Environmental Concerns

Technology

Product Lifecycles

Seven Principles of SCM

1. Segment customers based on service needs and adaptsupply chain to serve segments profitably.

2. Customise the logistics network to the servicerequirements and profitability of customers.

3. Ensure consistent forecasts and optimum resourceallocation.

4. Differentiate product closer to the customer and speedconversion across the supply chain.

5. Manage sources of supply strategically to reduce thetotal cost of owning materials and services.

6. Develop strategy that supports multiple levels ofdecision making.

7. Adopt channel spanning performance measures foreffectiveness and efficiency

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Drivers of SCM

• From suppliers, processes and demandMinimisinguncertainty

• Mapping critical activities and managing toincrease efficienciesReducing lead times

• Business process reengineeringMinimising thenumber of stages

• Integrated process integration and flatterorganisations

Improved processquality

• Proper forecasting and smoothening of demandManaging demand

• For transportation and warehousingTaking initiatives atan industry level

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SCM Framework

CustomerService

STRATEGIC

Channel DesignNetwork Strategy

STRUCTURAL

Warehouse design and operationsTransportation Management

Materials ManagementFUNCTIONAL

Information SystemsPolicies and ProceduresFacilities and Equipment

Organisation and Change Management

IMPLEMENTATION

SCM -- Underlying Philosophy

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Integration !!!Marketing team which analyses sales data and workingout how to meet targets

Merchandising team for understanding customer needs

Materials team getting the best price for the merchandise

Supply Chain Network Structure

Network of channel membersRetailers gauge the wants and needs of customers andshare information with suppliers to plan production andinventory levelsBenefit to customers

Wider range and low stock outsBenefits to retailers

Lower markdowns and enhanced profitability

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Channel Structure

Channels are designed around service output demandsof:

Lot sizeDelivery timeSpatial convenience

Costs in the channels can be reduced by postponingchanges in the form to the last possible pointChannel structure is affected by technological, cultural,physical, social and behavioural variables.

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Channel Structure

The three primary decisions that influence networkstructure:

Identifying the members of the supply chain Primary – Provide operational and managerial activities Secondary – Banks, warehouse owners, transporters,

advertising agenciesDetermining the structural dimensions of the network Vertical Horizontal Retailer’s position from source of supply

Managing the process links

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ZARA

Products move from sketch pad to store shelf in threeweeksInvestment into production and warehousing facilitiesOwns 60% of production and 40% of fabric200 designers responding to feedback from 47 countries5 million sq. ft. warehouse connected to 14 factoriesthrough underground tunnelsShipping of material to Zara stores in floor readymerchandise

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Innovations in SCM

Vendor Managed Inventory through EDICollaborative Planning Forecasting andReplenishmentCross docking

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Vendor Managed Inventory

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Collaborative Planning Forecasting andReplenishment

Alignment of forecasts of retailer and suppliersManaging them on exception basisSharing of forecasts, results and data on the internet

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Ryan McVay/Getty Images

Cross Docking

Wal-mart’s Bentonville warehouse has 19 conveyor belts;can ship 360 cartons a minute264 dock doors take goods from suppliers’ trucks and shipthem through 116 shipping lanes to 125 stores

Merchandise flows directlyfrom the vendor’s trucksthrough the retailer’sdistribution center and isloaded on the trucks going tothe retailer’s stores withoutbeing stored in the distributioncenter

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Benefits of Efficient Supply Chain Management

Fewer stockouts – merchandise will beavailable when the customer wants them

Tailoring assortments – the right merchandiseis available at the right store

Customers respond to the convenience asevidenced by increased sales

Ryan McVay/Getty Images

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Minimizing Stockouts

Royalty-Free/CORBIS

Forecast demand accurately

Make sure merchandisein stockrooms is on theshelves

Buyers placeorders at the righttime with vendors

Stores need to placeorders with distributioncenters in a timely fashion

DistributionCenters need tosend rightquantities

Managers need to provideenough lead time for deliveries

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Wal-Mart’s Sustainable Advantage

Wal-Mart’s success is its information and supply chainmanagement systems. Why are competitor’s laggingbehind?

Ryan McVay/Getty Images

The software is unavailableelsewhere and is constantlyupdated and improved

Wal-Mart made a substantialinvestment in developing itssystems and has the scaleeconomies to justify it.

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Food and Grocery Supply Chain

Farmer Farmer Farmer

Consolidator Commission Agent

Traders

Wholesalers

Retailers

Consumers

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Food and Grocery Supply Chain

35 to 40% wastage in supply chainOrganised retail procuring straight from farmers andconsolidatorsAlso investing in cold storage and refrigerated vansHub and spoke approach at state levelMay even have two or three hubs in bigger states

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Retail Logistics

Retail logistics incorporates the following functions :The physical movement of goodsThe holding of these goods at stock holding pointsThe holding of goods in quantities required to meet thedemand from the end consumerThe management and administration of the process

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Logistics management

The core of SCM is in logistics management.Logistics strategy can either be – pull strategy or a pushstrategy.At the heart of logistics is the distribution centre. Itserves several functions from co-ordinating inboundtransportation ,receiving ,checking , storing ,crossdocking and coordinating outbound transportation.

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Logistics StrategyPull Supply ChainMerchandise shippedto stores based onsales and inventorylevels in the stores

Push Supply ChainMerchandise shippedto the stores basedon forecasted salesrate

(c) Brand X Pictures/PunchStock

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Activities Performed by DistributionCenter

Managing inbound transportationReceiving and checking merchandiseStoring or cross docking merchandisePreparing merchandise for the sales floor

Ticketing and markingPutting on hangers

Shipping merchandise tostoresManaging outboundtransportation

Ryan McVay/Getty Images

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Advantages of Using a Distribution Center

Effects of forecast error forindividual stores are minimizedEnables retailers to carry lessmerchandise in the storeEasier to avoid running out of stockRetail store space is moreexpensive than space at thedistribution center

Ryan McVay/Getty Images

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Logistics in India

Size $ 50 billion per yearGrowth rate 40% per annum60% through road15% of the business comes from organized players

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Reverse Logistics

Disposition of returned goods through:Putting back into inventorySold through liquidation centresBroken down to component parts

The basic approach is how to recapture value in this flow

Customer Retailer DistributionCentre

Vendor

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OrganisationalStructure and HR

Management

Retail Marketing Strategy

Retailing Strategy

Financial Strategy Site Location

Information Systems

Retail Locations

Customer RelationshipManagement

Technology in Retail

Product identificationQuick billingCredit card and other paymentsLogisticsTrend analysis and forecastingLoyalty programmesInteractive kiosksVirtual display casesElectronic point of sale and signageE commerce

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The effect of a single customer transaction

CustomerTransaction

Warehouse

Marketing&

Promotions

CustomerDatabase

CreditCard

Payments

SalesAnalysis

ReorderingMerchandise Inventory

Management

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The Need for Product Identification

Thousands of products handled led to Universal ProductCode in the 50sIn 1972 European countries formed European ArticleNumbering which is followed in India13 digit code:

First three digits – Country CodeNext four digits – Company CodeNext five digits – Product CodeLast digit – Check digit

Information and Merchandise Flow

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Information Flow

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

3. Information about purchases areaggregated by buyer/planner and sent todistribution center and vendor to shipmerchandise

1. When customer makes apurchase, sales associatescans UPC code or RFID chipon merchandise and customercredit card/loyalty card Steve Cole/Getty Images

StockTrek/Getty Images

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Information Flow

6. Store managers informdistribution center aboutreceipt of merchandise andcoordinate 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 tostores

David Buffington/Getty Images

PhotoLink/Getty Images

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Database Management

Database Management is the use of systems toorganise, retrieve, search and manage dataElements are:

Data Warehousing - the coordinated and periodic copyingof data from various sources, both inside and outside theenterprise, into an environment ready for analytical andinformational processingData Mining – the extraction of data for specificapplications

41Royalty-Free/CORBIS

Electronic Data Interchange

EDI is the computer-to-computer exchange ofbusiness documents between retailers andvendorsMerchandise salesInventory On HandOrdersAdvanced shipping noticesReceipt of merchandiseInvoices for payment

EDI saves time, eliminates manual errors,strengthens relationships and saves costs

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Factors affecting the use of technology

The Scale and scope of operationsThe financial resources available to the organisationThe nature of the businessHuman Resources available

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Radio Frequency Identification

Radio Frequency Identification (RFID) allows anobject or a person to be identified at a distanceusing radio waves.

Reduces warehouse and distribution labor costsReduces point of sale labor costsInventory savings by reducing inventory errorsReduces theft – products can be trackedReduces out of stock conditions

(c) Digital Vision/PunchStock

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Why the Hesitation with RFID?

RFID is expensive – the returnon investment is lowIt still only makes sense to puttags on pallets, cartons,expensive merchandise or hightheft itemsRFID generates more data thanwhat can be currently processed

Jeff Maloney/Getty Images

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