CHAPTER 7 MANAGING THE RESPONSE TO SALES

LEARNING OBJECTIVES To understand the concept of response within RPM Become familiar with information-based systems that have allowed retailers to change ‘stock management’ to ‘demand and supply management’ Appreciate the contribution of QR (quick response) and ECR (efficient consumer response) and CPFR (collaborative planning, forecasting and replenishment) to efficient product replenishment

RESPONSE Principle: sell one = replenish one Fine tuning the response of stock intake against sales (automatic replenishment) Ensures high availability without high stock levels A responsive stock management system keeps products in stock whilst organising the supply chain to operate at minimum cost

SALES BASED ORDERING Automatic ordering and replenishment based on previous sales Based on the principle of exponential smoothing Automatic ordering can be managed by exception Automatic replenishment relies on supply source (DC or supply depot) being able to respond directly to demand. AR Systems will alert stores to problems

ECR and QR These are two responsive product management philosophies that aim to align demand management with supply management Rely on collaboration and data sharing between retailers and suppliers (partnerships) Rely on integrated IT-based stock management systems and involve logistics through the supply chain

ECR and QR ECR generally concerns food and FMCG products, which have more stable demand and higher volumes ECR is focused on efficiency (cost saving) QR systems are unit based, tailored to higher value, lower volume items QR systems involve supply techniques that allow retailers to respond effectively to fashion and seasonal sales variation QR is focused on agility (which leads to efficiency)

QR (QUICK RESPONSE) Sales information transmitted directly to supplier Supplier replenishes directly to store Supplier replenishes according to predetermined assortment plan for season Supported by swift and flexible manufacturing techniques that can switch to making fast selling merchandise instead of slower lines

SUPPLIER INVOLVEMENT IN RESPONSIVE REPLENISHMENT SYSTEMS Real time information helps with production planning and ordering of raw materials Compatible IT systems needed Distribution from supplier to retail outlet must be reliable and cost effective Supplier must send stock that is ready to sell (pre-retailing) Co-operation and trust needed between retailer and supplier

CPFR (COLLABORATIVE PLANNING AND REPLENISHMENT) Formalised management support system Encourages sharing of information on market demand Forecasting becomes more accurate, production more closely matched to sales Pools expertise of retailer and suppliers and sometimes other supply chain members Together, devise business plans, forecasts, and agree actions and financial remedies in case of below forecast performance Collaborating on promotional activity especially important

DRAWBACKS OF RESPONSIVE SYSTEMS Small, frequent deliveries drives up cost, which may outweigh benefit of leaner stock Logistical problem of many suppliers delivering small orders (DC or consolidation centres may be built into supply chain to alleviate) Readiness / ability of all suppliers to replenish quickly Readiness of retailers to share data and collaborate fully

SUPPLIER (VENDOR) MANAGED INVENTORY (SMI / VMI) Retailer relinquishes stock management operation to supplier Retailer provides accurate and real-time sales data and promotional plans Automatic replenishment is guaranteed by supplier More complex than shelf stocking service  strategic development of product range is taken on by supplier  supplier instigates increased variety in successful categories  supplier is able to give retailer’s customer best range

STRATEGIC RESPONSE Response is not just about replenishment Availability levels:  stock of planned assortment is on shelf  planned assortment is ‘right’ for customers Customer loyalty in a saturated market is an indication that product assortment is correct Micro-marketing techniques (loyalty programmes, data mining, and geo- demographic profiling) can be used to inform strategic assortment planning, as well as less technical methods:  listening to customers, suppliers, consulting product market reports, competitor analysis