Retail Supply Chain

Retailing
MKTG 3346
Professor Edward Fox
Cox School of Business/SMU
The integration of business processes from the
end consumer back to original suppliers,
providing products, services, and information
that add value for customers
What is Supply Chain Management?
Source: Levy and Weitz
Why Focus on Supply Chain
Management?
Improve return on investment







Improve product availability
Net profit = Net profit x Net sales
Total assets Net sales Total assets

Reduce Costs! Increase Efficiency!
Adapted from Levy and Weitz
Example of a Simplified Supply Chain
Source: Levy and Weitz
- - - - Merchandise flow Information flow
Buyer
Vendor
Stores
Distribution
center
Customer
Sales info
Information and Merchandise Flows
Source: Levy and Weitz
Information and Merchandise Flows
TECHNOLOGY
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
Information Flow
Source: Levy and Weitz
Information Flow
ELECTRONIC 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
Information Flow
EDI METHODS OF TRANSMITTING DATA
Source: Levy and Weitz
Merchandise Flow
Source: Levy and Weitz
Merchandise Flow
ASRS
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.
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.
Merchandise Flow
CROSSDOCKING
Source: Levy and Weitz
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
How to Distribute?
The retailer must decide whether to run
its own distribution operations, or
purchase from wholesalers, brokers,
jobbers or other intermediaries
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
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
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
Source: Levy and Weitz
Self distribution is backward integration it offers the
retailer more control!
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
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
Quick Response
PROS 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
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
Efficient Consumer Response
ECR was not as successful as Quick Response


Vendors were larger and more powerful
Reluctance to make large investments
Quick Response & ECR
Point-of Sale Data
Affinity Card Data
Forecasting
Consumer
Retailer
Manufacturer
EDI
Electronic Ordering
Electronic Funds
Transfer
Cross Docking
Computer Controlled
Material Handling
Flow Through
Distribution
Barcoding
Vendor Managed
Inventory
Just-in-Time
Manufacturing
Product
Information