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Session 2 World of Retailing & SCM 1-2 What is Retailing? Retailing – a set of business activities that adds value to the products and services sold.

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Presentation on theme: "Session 2 World of Retailing & SCM 1-2 What is Retailing? Retailing – a set of business activities that adds value to the products and services sold."— Presentation transcript:


2 Session 2 World of Retailing & SCM

3 1-2 What is Retailing? Retailing – a set of business activities that adds value to the products and services sold to consumers for their personal or family use. A retailer is a business that sells products and/or services to consumers for personal or family use. James Darell/Getty Images

4 1-3 The Distribution Channel

5 1-4 Examples of Retailers Retailers: Kohls, Macys, Wendys,, Jiffy Lube, AMC Theaters, American Eagle Outfitter, Kroger Firms that are retailers and wholesalers that sell to other business as well as consumers: Office Depot, The Home Depot, United Airlines, Bank of America, Costco

6 1-5 Manufacturing, Wholesaling and Retailing Vertical Integration – firm performs more than one set of activities Ex: retailer invests in wholesaling or manufacturing Backward Integration – retailer performs some distribution and manufacturing activities Ex: JCPenney sells Arizona jeans (Private Label) Forward Integration – manufacturers undertake retailing activities Ex: Ralph Lauren operates its own stores

7 1-6 How Retailers Add Value Break Bulk -Buy it in quantities customers want Hold Inventory -Buy it at a convenient place when you want it Provide Assortment -Buy other products at the same time Offer Services -See it before you buy, get credit, layaway

8 1-7 How Retailers Add Value The value of the product and service increases as the retailer performs functions. Bicycle is developed at manufacturer Bicycle is developed in several styles Bicycle is offered in convenient locations in quantities of one Bicycle is featured on floor display Bicycle can be bought on credit or put on layaway

9 1-8 Worlds Largest Retailers

10 1-9 Nature of Retail Industry is Changing Mom and Pop Store To Todays Retailer

11 1-10 Retailing is a High Tech Industry Selling Merchandise over the Internet Using Internet to manage supply chains Analyze POS data to tailor assortments to stores Computer systems for merchandise planning Ryan McVay/Getty Images

12 1-11 Globalization of Retailing Source Merchandise From Around the World Wal-Mart Operates in U.S., China, Mexico, UK, Germany Carrefour has Stores in 25 Countries Don Farrall/Getty Images

13 1-12 Comparison of Distribution Channels Across the Globe

14 SCM drives RETAIL 1-13

15 10- 14 Retailing Strategy Retail Market Strategy Financial StrategySite Location SCM &Information Systems Retail Locations Customer Relationship Management Organizational Structure and HR Management

16 10- 15 Supply Chain Management Supply chain management is the delivery of economic value to customers through management of the flow of physical goods and associated info from vendors to customers Ryan McVay/Getty Images

17 10-16 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

18 10-17 Return on assets = Net profit margin x Asset turnover Net profit= Net profit x Net sales Total assetsNet salesTotal assets Improve Return on Investment Efficient Supply Chain Management Higher Asset Turnover Same Sales Using Less Inventory

19 10- 18 Illustration of Supply Chain

20 10- 19 Benefits of Efficient Supply Chain Management Fewer stockouts – merchandise will be available when the customer wants them Tailoring assortments – the right merchandise is available at the right store Customers respond to the convenience as evidenced by increased sales Ryan McVay/Getty Images

21 High Return on Investment An efficient supply chain can improve a retailers ROI Increases sales – customers are offered more attractive assortments Net profit is improved by increasing gross margin and lowering expenses Inventory levels are lower, lower investment and total assets are lower with asset turnover higher PhotoLink/Getty Images

22 Wal-Marts Sustainable Advantage Wal-Marts success is its information and supply chain management systems. Why are competitors lagging behind? Ryan McVay/Getty Images The software is unavailable elsewhere and is constantly updated and improved Wal-Mart made a substantial investment in developing its systems and has the scale economies to justify it.

23 Minimizing Stockouts Royalty-Free/CORBIS Forecast demand accurately Make sure merchandise in stockrooms is on the shelves Buyers place orders at the right time with vendors Stores need to place orders with distribution centers in a timely fashion Distribution Centers need to send right quantities Managers need to provide enough lead time for deliveries

24 10- 23 Information and Merchandise Flow

25 10- 24 Information Flow

26 10- 25 Flow of Merchandise Efficient supply chain would know the customer Store would advertise to these customers Buyers would purchase more of this wine Distribution center would be prepared to distribute the wine PhotoLink/Getty Images

27 10-26 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 to ship merchandise 1. When customer makes a purchase, sales associate scans UPC code or RFID chip on merchandise and customer credit card/loyalty card Steve Cole/Getty Images StockTrek/Getty Images

28 10-27 Information Flow 6. Store managers inform distribution center about receipt of merchandise and coordinate deliveries 4. Buyer/planner communicates with vendor and places a purchase order to re-supply stores. 5. Buyer/planner notifies distribution center about incoming orders and how they are to be distributed to stores David Buffington/Getty Images PhotoLink/Getty Images

29 10- 28 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

30 10- 29 Royalty-Free/CORBIS 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

31 10-30 EDI Security There are implications of security failures (loss of data, loss of public confidence), but retailers have security policy objectives: Ryan McVay/Getty Images Authentication – system assures person on other end of session is who it claims to be Authorization - that person has permission to carry out request Integrity – info arriving is the same that was sent

32 10- 31 Benefits of EDI Reduces cycle time – inventory turnover is higher Improves overall quality of communications through better record-keeping Information can be easily analyzed

33 10- 32 Advantages of Using a Distribution Center Effects of forecast error for individual stores are minimized Enables retailers to carry less merchandise in the store Easier to avoid running out of stock Retail store space is more expensive than space at the distribution center Ryan McVay/Getty Images

34 10- 33 Logistics Strategy Pull Supply Chain Merchandise shipped to stores based on sales and inventory levels in the stores Push Supply Chain Merchandise shipped to the stores based on forecasted sales rate (c) Brand X Pictures/PunchStock

35 10- 34 Merchandise Flow

36 10- 35 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 Ryan McVay/Getty Images

37 10- 36 Who Can Use DCs? Retailers selling non-perishable merchandise Retailers offering merchandise that has highly uncertain demand like apparel Retailers selling merchandise that needs to be replenished frequently Retailers that carry a large number of items shipped in broken case quantities like drug stores Retailers with many outlets Ryan McVay/Getty Images

38 10- 37 Crossdocking Merchandise flows directly from the vendors trucks through the retailers distribution center and is loaded on the trucks going to the retailers stores without being stored in the distribution center Ryan McVay/Getty Images

39 10- 38 Bull-Whip Effect An uncoordinated channel of built up inventory when retailers and vendors do not coordinate their supply chain activities

40 10- 39 What Causes a Bull-Whip Effect? Delays in transmitting orders and receiving merchandise Over-reacting to shortage Ordering in batches rather than generating a number of small orders Chad Baker / Ryan McVay/Getty Images

41 10-40 Retailers and Vendors Work Together Use EDI Exchange information to reduce need for backup inventory, improve sales forecasts and production efficiency Vendor manage inventory Collaborative planning, forecasting and replacement PhotoDisc/Getty Images By working together they can reduce the level of inventory in the chain and reduce the number of stockouts.

42 10- 41 Initial Efforts at Coordinating Vendor and Retailer Supply Chain Efficient Consumer Response (ECR) – Food Retailing Quick Response (QR) - Apparel

43 10- 42 FMCG Goods Manufacturers Promotions > Advertising –consumer promotions - coupons –trade deals Why? –Short-Term Orientation –Competitive Reaction –Power of Supermarkets

44 10- 43 Efficient Consumer Response Trade Promotions ==> Forward Buying ==> Extremely Uneven Production Motivation for Packaged Goods Mfrg –Stop Price Promotion, Forward Buying –Level Out Demand Motivation for Supermarkets –Rise of Warehouse Clubs/Discount Store Use of EDLP Pricing –Need to Become More Efficient –Excessive Inventory - $30 Billion

45 10- 44 Response by Manufacturers P&G - Reduce Consumer Promotion Increase Advertising –Build Brand Image, Loyalty –Reduce Price Sensitivity Every Day Whole Price - No Trade Promotions

46 10- 45 Mfg-Distributor/Retailer Fashion, Clothing – Quick Response Consumer Inherently Unpredictable Demand Old Solution - Over Buyer and Markdown Quick Response –Provide Initial Assortment –Forecast Sales for Intermediate Form –Monitor Early Sales –Make Final Assortment

47 10- 46 Vendors and Retailers Working Together Inherent Conflict Motivating Collaborative Solutions –Mutual Idiosyncratic Investment – Credible Commitments – Schilling (NATO Troop) –Need Safe Guards –Trust vs. Contracts

48 10- 47 Vendor Managed Inventory

49 10- 48 Radio Frequency Identification Radio Frequency Identification (RFID) allows an object or a person to be identified at a distance using radio waves. Reduces warehouse and distribution labor costs Reduces point of sale labor costs Inventory savings by reducing inventory errors Reduces theft – products can be tracked Reduces out of stock conditions (c) Digital Vision/PunchStock

50 10- 49 Why the Hesitation with RFID? RFID is expensive – the return on investment is low It still only makes sense to put tags on pallets, cartons, expensive merchandise or high theft items RFID generates more data than what can be currently processed Jeff Maloney/Getty Images

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