Chapter 11

Information Systems
and Supply Chain
Management

Irwin/McGraw-Hill
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PPT 11-1
Supply Chain Management:

The integration of business processes from end

user through original suppliers that provides
products, services, and information that add
value for customers.

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PPT 11-2
A Simplified Supply Chain

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PPT 11-3
Strategic Advantages Gained
Through Supply Chain Management
1. Improve product availability: fewer stockouts,
assortments of merchandise that customer want
(for customers)
2. Improve return on investment (for company)
Return on assets = Net profit margin x Asset turnover

Net profit = Net profit x Net sales

Total assets Net sales Total assets

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PPT 11-4
Information and Merchandise Flows

Customer

Sales info

Quick Buyer Stores

response
systems

Distribution
Vendor center

- - - - Merchandise flow Information flow

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PPT 11-5
Information Flows

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PPT 11-6
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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PPT 11-7
Market-Basket Analysis

A market-basket analysis is one in which

retailers use data mining techniques to
determine what predominant categories
individual customers are buying.
Based on these analyses, Wal-Mart changed
the traditional locations of several items.
• Since bananas are the most common item in
America’s grocery carts, they sell bananas next
to corn flakes (to help sell more cereal) as well as
in the produce section.
• Kleenex tissues are in the paper-goods aisle and
also mixed in with cold medicine.
• Measuring spoons are in housewares and also
hanging next to Crisco shortening.
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PPT 11-8
Customer Loyalty Programs

Loyalty programs are set up to reward

customers with incentives such as discounts on
purchases, free food, gifts, or even cruises or
trips in return for their repeated business.

Retailers use them for two reasons:

• to retain loyal customers
• to collect information about them and what they buy

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PPT 11-9
Electronic Data Interchange

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.
REFACT: You don’t want to be a vendor that tries to deliver
to Federated Department Stores without an ASN. It will either
send the truck away until the ASN comes in or it will unload
the merchandise and send it to a staging area affectionately
called the black hole.

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 Proprietary EDI system

• Are data exchange system that are developed

primarily by large retailers for the purpose of
exchange data with their vendors

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PPT 11-10
Methods of Transmitting EDI Data

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PPT 11-11
Merchandise Flow

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 Types of Distribution Centers

• Traditional: is a warehouse in which

merchandise is unloaded from trucks and
placed on racks for storage
• Crossdocking: is one in which vendors ship
merchandise prepackaged in the quantity
required for each store. Since the merchandise
is ready for sale, it goes to a staging area rather
than into storage. Thus it less costly because
there is little or no storage
• combination of the two
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PPT 11-12

Crossdocking

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.
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PPT 11-13
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.
QR is the integrated link between the
information and the merchandise flows
(depicted in Ppt 11-4)

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PPT 11-14
Benefits of QR Systems

• Reduces lead time

• Increases product availability and lowers
inventory investment
• Reduces logistics expenses

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PPT 11-15
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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PPT 11-16
Logistics of E-Retailing

Retailers with stores move a large amount of

merchandise from distribution centers to
individual stores

Internet retailers have outbound shipments

averaging 1.8 items per order that are shipped
to addresses all over the world.

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PPT 11-17
Third-Party Logistics Companies

These firms facilitate the movement of

merchandise from manufacturer to retailer,
but are independently owned.
• Transportation
• Warehousing (Public warehouse)
•Freight forwarders: companies that
purchase transport services
• Integrated third-party logistics services

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PPT 11-18
Advantages of Using
a Distribution Center
• More accurate sales forecasts
• Less merchandise in the individual
store, thus a lower inventory investment
systemwide.
• Less out-of-stock
• More cost effective

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PPT 11-19
Why Use Direct Store Delivery

• If a retailer had only a few outlets

• If many outlets are concentrated in
metro areas
• It’s quicker
• If the vendor pays freight charges

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PPT 11-20 What Type of Retailer Should
Use a Distribution Center?
• Retailers with wildly fluctuating demand
• Stores that require frequent replenishment
• Stores that carry a relatively large number of
items or order in less than full-case quantities.
• Retailers with a large number of outlets that
aren’t geographically concentrated within a
metro area.

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PPT 11-21
Pull versus Push
Logistics Strategies
Pull logistics strategy - orders for
merchandise are generated at the store level on
the basis of demand data captured by point-of-
sale terminals.
Push logistics strategy - merchandise is
allocated to stores based on historical demand,
the inventory position at the distribution center,
as well as the store’s needs.

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