5th Edition

Information Systems and Supply Chain Management Chapter 10 Information Systems and Supply Chain Management McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Organizational Structure and HR Management Retailing Strategy Retail Market Strategy Financial Strategy Site Location Information Systems Retail Locations Organizational Structure and HR Management Customer Relationship Management

Supply Chain Management 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.

What Supply Chain Management Entails

Illustration of Supply Chain

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

Improve Return on Investment Return on assets = Net profit margin x Asset turnover Net profit = Net profit x Net sales Total assets Net sales Total assets Efficient Supply Chain Management  Higher Asset Turnover Same Sales Using Less Inventory

- - - - Merchandise flow Information flow The Flow of Information and Merchandise Customer Sales info Buyer Stores Quick response systems Distribution center Vendor - - - - Merchandise flow Information flow

Information Flows

Information Flow 1. When customer makes a purchase, sales associate scans UPC code on merchandise and customer credit card/loyalty card 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

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

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

Data Warehouse Structure

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

Networks for EDI Proprietary Systems – Network using special software Extranet – Public internet with access restricted to partners Intranet – Internet with access restricted to people within a company Ease of access security

Physical Flow of Merchandise Merchandise is sent from vendor either to the retailer’s distribution center (1) or directly to store (3). Retailer send merchandise from its distribution center to its stores (2).

Advantages of Using a Distribution Center More cost effective More accurate sales forecasts Less merchandise in the individual store, thus a lower inventory investment system-wide. Less out-of-stock

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

When to Use Direct Store Delivery Retailer has only a few outlets Many retail outlets are concentrated in metro areas yielding increased efficiency of direct store delivery Important to get merchandise in store quickly Fashion - first to have latest video game Merchandise perishable - produce

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

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

Logistics Strategy Pull Merchandise shipped to stores based on sales and inventory levels in the stores Push Merchandise shipped to the stores based on forecasted sales rate

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.

Benefits of QR Systems Reduces lead time Increases product availability and lowers inventory investment Reduces logistics expenses

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.

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

Outsourcing Supply Chain Management Functions Transportation Warehousing Freight Forwarders Integrated Third Part Logistics Services Control vs. Cost

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