Chapter 10--IS & Supply Chain

Supply Chain Management

-Efficient and effectively manage the flow of merchandise from the vendors to the retailer's customers. -Integration of suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain. -Merchandise is produced and distributed in the right quantities; to the right locations; and at the right time. -Minimization of system wide costs, while satisfying the service levels their customers require. ----------- Usually talking about raw materials being produced (upstream) Finished goods being sent to stores (down stream) Walmart is the inovator for this category CH 10 = The Wal Mart Chapter The first to use their supply chain as a point of differentiation and competitive advantage To do better in retail you better sell more or lower your costs somehow. Amazon is a discounter that competes with Wal Mart on price

Strategic Importance of Supply Chain Management

1. Opportunity to increase sales by making sure the right merchandise is in the right place at the right time -----Fewer stock-outs -----Greater assortment with less inventory 2. Opportunity to reduce costs -----Transportation costs -----Inventory holding costs 3. Improved ROA

Why is Efficient Supply Chain Management so Important to Retailers?

1. Strategic advantage-difficult to duplicate 2. Improved product availability 3. Higher return on investment ________ Most retailers try to copy what Wal Mart was the first to do. Lower the inventory you have in the store without losing a sale "we are out of it here but we have it in X store and will have it shipped to you" They are still keeping the sale and cutting down inventory You want to be able to sell as much merchandise as you can at full price—you don't want to cut prices/discount if you can avoid it Much higher ROI when you have an efficient supply chain

Strategic Advantage : ZARA

1. Timely information from store mangers with handheld devices to the corporate office. 2. Shorter cycle time from design to production to delivery to stores. 3. Shorter lead time - own production, small quantity production in close proximity, efficient logistics, premium transportation, frequent delivery. 4. No discounts necessary ________ Zara Pull Strategy versus having a push strategy Push strategy: Top-down Push merchandise on customers Pull: Put limited merchandise in the stores. Get items in store in very limited quantities They wait and see what the consumer does and then order more based on the trends of the customers The consumers behavior per store pulls / has direct influence on what is ordered next for the store Creates efficient supply chain management Problem: Most retailers outsource their production to other facilities around the world and don't have the level of control that Zara has because they own the entire supply chan. Many stores have a combination of the two—many trying to move to pull

Improved Product Availability

Benefits of Efficient Supply Chain Management to Customers: ------Reduced stockouts - merchandise will be available when the customer wants them ------Tailoring assortments - the right merchandise is available at the right store ~~~These benefits translate into greater sales, lower costs, higher inventory turnover, and lower markdowns for retailers~~~ _________ Marty thinks a lot of retailers don't get it right A lot of people are airing on the side of under-ordering and having stock outs What they say is—if your data is good, then you won't have stock outs

Collaboration between Retailers and Vendors in Supply Chain Management

Bullwhip Effect - The built up inventory in an uncoordinated channel where retailers and vendors do not coordinate their supply chain activities

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. Experts estimate that it is second in size only to that of the U.S. government ________ Harnessing information so that you may use it to boost your sales. Goal is market penetration Get existing customers to buy more

What causes the bull-whip effect?

Delays in transmitting orders and receiving merchandise Over-reacting to shortages Ordering in batches rather than generating a number of small orders

CPFR (Collaborative Planning, Forecasting, and Replenishment)

Developed by VICS and adopted by ECR Europe The sharing of forecast and related business information and collaborative planning between retailers and vendors to improve supply chain efficiency and product replenishment. The most advanced form of retailer-vendor collaboration that involves sharing proprietary information, such as business strategies, promotion plans, new product developments and introductions, production schedules, and lead time information.

Drop Shipping

Drop-shipping, or consumer direct fulfillment, is a system in which retailers receive orders from customers and relay these orders to vendors and then the vendors ship the merchandise ordered directly to the customer. Drop-shipping has been used for years by companies that sell bulky products such as lumber, iron, and petroleum, as well as catalog and mail-order companies.

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 _________ Usually outside the company Nordstrom partnering with Top Shop

Advantages of Direct Store Delivery

Gets merchandise faster, and is thus used for perishable goods (meat and produce) Helps the retailer's image of being the first to sell the latest product (video games) or fads Some vendors provide direct store delivery for retailers to ensure that their products are on the store's shelves, properly displayed, and fresh

The Physical Flow of Merchandise - Logistics

Logistics: The aspect of supply chain that refers to the planning, implementation, and control of the efficient flow and storage of goods, services, and related information from the point of origin to the point of consumption to meet customers' requirements. ______ Logistics Hubs: areas like Seattle that offer all of these things—allows merchandise to come in from any channel and go out of any channel

Activities Performed by Distribution Centers

Managing inbound transportation --Dispatcher Receiving and checking merchandise Storing or cross docking merchandise Getting merchandise floor ready ---Ticketing and marking ---Putting on hangers Preparing to ship merchandise to a store Managing outbound transportation _____ **CROSS STOCKING** VOCAB WORD USUALLY ON TESTS merch comes off truck and doesn't sit in the center it goes immediately from one truck to a conveyer belt to another truck and can reduce the cost from 9 cents to lest than oneee cent

Vendor Managed Inventory (VMI)

Manufacturer access to POS information Replenishment automatically triggered Enables demand-based view of replenishment & production planning - reduce bull whip effect

Advantages of Using a Distribution Center

More accurate sales forecasts are possible when retailers combine forecasts for many stores serviced by one distributor 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

Push and Pull Supply Chain

PUSH--Merchandise is allocatedto storeson the basis of forecasted demand  ----Less costly than a pull supply chain ----Less sophisticated information system needed to support it ----Efficient for merchandise that has steady, predictable demand PULL--Orders for merchandise aregenerated at the store level on the basis of POS sales data  ---Less likely to be overstocked or out of sock ---Increases inventory turnover ---Responsive to changes in customer demand ---Efficient when demand is uncertain, and hard to forecast

Impediments to the Adoption of 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 Consumers worry about privacy invasion

Radio Frequency Identification (RFID)

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

Merchandise Flow

Retailers can have merchandise shipped directly to their stores (path 3) or to their distribution centers (paths 1 and 2) **look at slides directly for diagram**

Outsourcing Logistics

Retailers consider outsourcing logistical functions if those functions can be performed better or less expensively by third-party logistics companies. Transportation Warehousing Freight Forwarders Integrated Third-Party Logistics Services

Higher Return on Assets

Return on assets = Net profit margin x Asset turnover **look at slide more for this point ______ Why do we measure ROA Because if you just compare profit margins with certain companies one might look better than the other with a skewed perspective Costco=low margin high turnover Macys=high margin low turnover It's a way of comparing industries If you put your money in a retailer you

Reverse Logistics

The process of moving returned goods from their customer destination for the purpose of capturing value or proper disposal. Retailers recover loss through on-line auctions Reverse-logistics systems are challenging ---Items may be damaged or require special handling ---Transportation costs are high

Strategic Advantage : Wal-Mart

Wal-Mart's success is from its information and supply chain management systems Why are competitor's lagging behind? -----Made a substantial investment in developing its systems and has the scale economies. -----Through experience and learning, changes are always made to improve the system. -----Coordinated effort of employees and functional areas throughout the company.

Supply Chain for Fulfilling Catalog and Internet Orders

When fulfilling orders from individual consumers, retailers ship small packages with one or two items to a large number of different places ----Distribution centers for picking and packing orders for consumers