Cox School of Business/SMU Retailing MKTG 3346 Retail Supply Chain Professor Edward Fox Cox School of Business/SMU

What is Supply Chain Management? The integration of business processes from the end consumer back to original suppliers, providing products, services, and information that add value for customers Source: Levy and Weitz

Why Focus on Supply Chain Management? Improve return on investment Improve product availability Reduce Costs! Increase Efficiency! Net profit = Net profit x Net sales Total assets Net sales Total assets Adapted from Levy and Weitz

Example of a Simplified Supply Chain Source: Levy and Weitz

Information and Merchandise Flows - - - - Merchandise flow Information flow Buyer Vendor Stores Distribution center Customer Sales info 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 retailer’s 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.”

Merchandise Flow 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. 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 aren’t 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 Self distribution is backward integration – it offers the retailer more control! Source: Levy and Weitz

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 retailer’s 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 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 Consumer Retailer Manufacturer Information EDI Electronic Ordering Electronic Funds Transfer Point-of Sale Data Affinity Card Data Forecasting Information Consumer Retailer Manufacturer Cross Docking Computer Controlled Material Handling Flow Through Distribution Barcoding Vendor Managed Inventory Just-in-Time Manufacturing Product