MAR3231 Exam 2
senior vice president (SVP) of stores
supervises all activities related to stores, including working with the regional manager, who supervise district managers, who supervise the individual store managers
net profit margin
tells you which share of a dollar in revenue translates into profit
private-label president
responsible for the conceptualization, design, sourcing, quality control, and marketing of private-label and exclusive merchandise
president of direct channels
responsible for the selection and pricing of the merchandise assortment offered through the catalog and internet channels, the maintenance and design of the retailer's web site, customer call centers, and the fulfillment centers that fill orders for individual customers
strategic relationships
retailer and vendor committed to maintaining relationships over the long-term an investing in mutually beneficial opportunities
productivity =
sales / number of employees
category captain
selected *vendor* (ex. general mills, kellogg's) responsible for (help) managing a category *advantages*: -Vendors frequently have more information and analytical skills about the category in which they compete than retailers -CC helps retailer understand consumer behavior -CC creates assortments that satisfy the customer -CC improves profitability of category *disadvantages*: -Vendor category captain may have different goals than retailer ('fox in the henhouse') -Blocks other brand's access to shelf spaces -Anti-trust legislation
culture
set of values, traditions, and customs of a firm that guides employee behavior
employee turnover =
# of employees leaving their job during the year/ # of positions
gross martin % =
(revenue-CoGS)/ revenue
advantages of centralization
-reduce costs (overhead falls with fewer managers) -coordinated buying achieves lower prices from suppliers -opportunity to have the best people make decisions for the entire corporation -increases efficiency *cheaper to be centralized because you don't need to hire as many people to be managers in different regions*
product availability
defines the percentage of demand for a particular SKU that is satisfied
national (manufacturer) brands
designed, produced, and marketed by a vendor and sold by many retailers
private-label (store, house or own) brands
developed by retailer and only sold in retailer's outlets
chief executive officer (CEO)
responsible for overseeing the entire organization
dealing with unprofitable customers
-offer less costly approaches for dealing with these customers -charge customers for extra services demanded Example of firing a customer include: -establish a minimum order quantity -increase the sales price to reflect the actual cost of servicing the customer -require a deposit for slow-to-pay customers
information flow
*1. customer - stores* When customer purchases a toaster oven, sales associate scans UPC (universal product code) code on merchandise and customer credit card/loyalty card (Flow 1) *2. stores - buyer/planner (sales information)* Information about purchase is transmitted from POS terminal to the buyer/planner, who uses this information to monitor and analyze sales and decide to reorder more toaster ovens or reduce its prices if sales are below expectations (Flow 2) Sales transaction data are also sent from store to DC (Flow 6) *3. stores - vendor* Potentially: Sales transaction data are sent directly from the store to the vendor, and the vendor decides when to ship more toaster ovens to the distribution center or stores (Flow 3) *4. buyer/planner - vendor* When inventory drops to specified level in distribution center, buyer/planner communicates with vendor, and then places purchase order to re-supply stores with toaster ovens (Flow 4) *5. buyer/planner - distribution center* Buyer/planner notifies distribution center about incoming orders and how they are to be distributed to stores (Flow 5) *6. distribution center - stores* Store managers inform distribution center about receipt of toaster ovens and coordinate deliveries (Flow 6) *7. vendor - distribution center* When manufacturer ships toaster ovens to distribution center, it sends advanced shipping notice to distribution center (Flow 7). DC then plans distribution (e.g., schedules trucks and loading times)
converting good customers into best customers
*Customer Alchemy*: converting iron and gold customers into platinum customers *Add-on selling* as a way to achieve customer alchemy = offering and selling more products and services to existing customers and increasing the retailer's share of wallet with these customers -Dog food, blankets, toys, etc. -American girl dolls
bullwhip effect
*The built up inventory *in an uncoordinated channel *where retailers and vendors do not coordinate* their supply chain activities What Causes a Bullwhip Effect in an uncoordinated supply chain? -Over-reacting to shortages -Delays in transmitting orders and receiving merchandise -Ordering in batches rather than generating a number of small orders when retailers and vendors do not collaborate, the bullwhip effect occurs
uses of culture
*advantages*: often stronger effect than rewards via compensation places, rules by supervisors or written policies/sense of commitment to an organization *disadvantages*: could be negative
advantages/disadvantages of national brands/labels
*advantages:* -helps retailers build their image and traffic flow -customers patronize retailers selling the branded merchandise -more desired by customers -reduces selling and promotional expenses -push some of the financial risk onto the vendor *disadvantages:* -lower margins -vulnerable and competitive pressures -limit retailer's flexibility
use of incentives
*advantages:* -strong motivating force -aligns employee with company goals *disadvantages:* -employees only focus on sales -less commitment to retailer
electronic data interchange (EDI)
*computer-to-computer exchange of business documents between retailers and vendors* (includes merchandise sales, inventory on hand, orders, advanced shipping notices, receipt of merchandise, invoices for payment)
issues related to sourcing merchandise
*costs* associated with global sourcing decisions *managerial issues* associated with global sourcing decisions -quality control, time to market, human rights & child labor, etc. *resident buying offices*: organizations located in major market centers that provide services to help retailers buy merchandise *reverse auctions*: one buyer (the retailer), multiple sellers; sellers bid for buyer's business; objective is to decrease price; no strategic relationships with vendors
HRM: issues in retail
*expense control* -control expenses to be profitable -retailers often hire people with little or no experience -a modest investment in hiring more staff may result in a significant increase in sales *part-time employees* -HR needs to vary depending on time of day, day of week, time of year, and promotion schedule -to minimize costs, retailers should complement their full-time employees with part-time workers -part-time employees are less expensive than comparable full-time employees *utilizing diverse employee groups* -increased efforts to recruit, train, manage, & retain mature, minority, and handicapped workers -different approaches need to be used to manage younger and older employees *international HR issues* -differences in work values, economic systems, and labor laws -> HR practices must differ -the legal/political system in countries often dictates the HRM practices
downward performance spiral
*financial performance problems* -low profits -high costs *retailer's response* -layoffs -freeze on hiring and promotion -reduced training -salary freeze -greater use of part-time employees and more outsourcing *employee response* -decreased motivation and effort -poor customer service -lower job satisfaction -greater turnover *cycle repeats*
developing and sourcing private label merchandise
*in house*: large retailers (ex. jcpenney, macy's, the gap, american eagle) have divisions specialized in -identifying trends, designing, specifying products -selecting manufacturers -monitoring and managing manufacturing conditions and product quality *acquisition*: limited brands acquired MAST industries -MAST -one of the world's biggest contract manufacturers, importers, distributors of apparel *outsource*
managing diversity
*managing diversity*- HRM activity designed to realize the benefits of a diverse workforce, which includes but is not limited to skin color, nationality, gender, sexual orientation, and people with disabilities *diverse training*- consists of developing cultural awareness and building competencies *support groups and mentoring*- groups of minority employees that exchange information and provide emotional and career support
buying organization
*merchandise group*-The highest classification level. Each merchandise group is managed by a general merchandise manager (GMM), or senior VP *department*-Departments are managed by a divisional merchandise manager (DMM) *classification*-A group of items targeting the same customer type, such as girls' sizes 4-6 *category*-Each buyer manages several merchandise categories (e.g., sportswear, dresses, swimwear, outerwear categories for girls' sizes 4-6) *SKU*-The smallest unit available for inventory control Size, color, style
motivating talent: aligning goals
*policies and supervision:* -indicate what employees should do (ex: returns) -behavior enforced by managers -downsides? *compensation-related incentives:* -commission, bonus, stock options *organization culture:* -the set of values, traditions and customs of a firm that guides employee behavior -behavior enforced by social pressure
categories of private brands
*premium*- comparable to, even superior to, manufacturers brand quality, sometimes with modest price savings *exclusive brands*- developed by a national brand vendor and sold exclusively by the retailer (publix brand, american rag at macy's) *copycat*- imitate the manufacturer's brand in appearance and packaging, often perceived as lower quality, offered at a lower price *generic brands*- target a price-sensitive segment by offering a no-frills product at a discount price -> are non-brands (medicine) use brands as a heuristic-mental shortcut to make a decision
developing talent: selection and training
*selective hiring:* -recruit the "right people" -simply seeking the best/brightest may not always be most effective approach *training:* -increasing investments in management training programs and developing leaders -increasing attention to college graduates (generation y) -averaging 7 hours per employee per year, the retail industry spends less time training than all other industries
legal issues in HRM
-*Equal Employment Opportunity*: Protect employees from unfair discrimination in the workplace. -*Compensation*: 40-hour workweek, overtime pay, minimum wage, and employee pensions. -*Labor Relations*: The process by which unions can be formed and the ways in which companies must deal with the unions. -*Employee Safety And Health*: The employer is obligated to provide each employee with an environment that is free of hazards that are likely to cause death or serious injury. -*Sexual Harassment*: Unwelcome sexual advances, requests for sexual favors, and other inappropriate verbal and physical conduct. -*Employee Privacy*: Employees' privacy protection is very limited. -*Developing Policies*: HR department is responsible for developing programs and policies to increase awareness of legal restrictions and know how to deal with potential violations.
legal, ethical, and social responsibility issues for buying merchandise
-*Purchase Terms and Conditions*: Restricts the prices and terms that vendors can offer to retailers; it forbids vendors from offering different terms / conditions to different retailers for same merchandise and quantity -*Resale Price Maintenance* -*Commercial Bribery*: A vendor or its agent offers to give or pay a retail buyer "something of value" to influence purchasing decisions -*Chargebacks*: A practice used by retailers in which they deduct money from the amount they owe a vendor without getting vendor approval -*Buybacks*: Used to get products into retail stores. Two scenarios: 1.Retailer allows a vendor to create space for its goods by "buying back" a competitors inventory and removing it from a retailer's system. 2.Retailer forces a vendor to buyback slow-moving merchandise -*Counterfeit Merchandise*: Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed major problem is counterfeiting intellectual property -*Gray Markets and Diverted Merchandise*: "diverted" merchandise is similar to gray-market merchandise except distribution isn't necessarily across international boundaries -*Exclusive Dealing Agreements*: Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors (e.g., Safeway - Coca-Cola) -*Tying Contract*:An agreement that requires the retailer to take a product it doesn't necessarily desire (the tied product) to ensure that it can buy a product it does desire (the tying product) -a *black market* occurs when consumer goods are scarce, such as water or gas after a natural disaster; heavily taxed, such as cigarettes or alcohol; or illegal such as drugs or guns -*refusals to deal*: suppliers and retailers have the right to refuse to deal with anyone they choose -> except when it lessens competition
1. collecting customer data: customer database
-*Transactions*: collect complete history of purchases (e.g., purchase date, price paid, SKUs bought, whether or not the purchase was stimulated by a promotion). -*Customer contacts* by retailer (*touch points*) (e.g., visits to web site, inquires to call center, direct mail sent to customer). -*Customer preferences* (color selection, size selection, etc) -*Descriptive information* about customers (e.g., demographic and psychographic data) -*Customer's responses* to marketing activities
tips for effective negotiations
-Choose a good place to negotiate -Be aware of real deadlines -Separate people from problem -Insist on objective information -Invent options for mutual gain -Let the other party do the talking -Know how far to go -Don't burn bridges -Don't assume
staple (basic) merchandise categories
-Continuous demand over an extended time period -Limited number of new product introductions (i.e. 'new to world') -Hosiery, copy paper, canned soup, basic casual apparel -Relatively easy to forecast demand -Continuous replenishment relatively stable, fluctuate sometimes but not dramatically
fashion merchandise categories
-In demand for a relatively *short period of time* -Continuous introductions of (truly) new products, making existing products obsolete -Athletic shoes, laptop computers, women's apparel -Much more difficult to forecast demand more permanent streams of new to the world innovations - can become irrelevant over night (ex. iPhone 6 vs 7) -retailers buy seasonal SKUs in much the same way as they buy fashion merchandise
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
forecasting for service retailers
-due to the *perishable nature of services*, service retailers face more challenges than fashion retailers -offerings perish *at the end of the day, not at the end of the season* -must devise approaches for managing demand so that it meets, but does not exceed capacity
objectives of HRM: long term
-employee attitude -> customer satisfaction and loyalty -> long term performance -employee satisfaction -> reducing turnover
coordinating merchandise and store management
-improving buyer's appreciation for store environment (trainee program) -buyers making store visits -assigning employees to coordinating roles (store and HW staff meet regularly) *inter-dependencies must be coordinated*
disadvantages of centralization
-it is difficult for a retailer to adapt to local market conditions -it may have problems responding to local competition and labor markets -personnel policies make it hard for local managers to pay competitive wages
why does HRM give a sustainable competitive advantage?
-labor costs account for a significant percentage of a retailer's total expenses -the customer experiences are determined by the activities of employees (selecting merchandise, providing information and assistance, etc.) -these potential advantages are difficult for competitors to duplicate
data warehousing
coordinated and periodic copying of data from various sources, both inside and outside the enterprise, into an environment ready for analytical and informational processing
developing a sales forecast
-understanding the nature of the product life cycle -collecting data on sales of product and comparable products -using statistical techniques to project sales -work with vendors to coordinate manufacturing and merchandise delivery with forecasted demand Weather: when temperature increases by 18 degrees, sales of BBQ meat generally triple During recession lipstick sales increased because people want to look their best, especially if you're unsure of the future (also comfort food and alcohol increases) *understanding psychology is crucial
designing the organizational structure- merchandise management tasks: merchandise division
1. *buy merchandise* -select, negotiate with & evaluate vendors -select merchandise -place orders 2. *control merchandise inventory* -develop merchandise budget plans -allocate merchandise to stores -review open-to-buy and stock positions 3. *price merchandise* -set initial prices -adjust prices
allocating merchandise to stores involves 3 decisions:
1. *how much *merchandise to allocate to each store 2. *what type* of merchandise to allocate 3. *when* to allocate the merchandise to different stores
how to retain target customers
1. *personalization* (1-to-1 marketing based on data) -birthday coupon -amazon 2. *community* -nike run club
supply chain management (SCM)
1. SCM= efficient and effectively *manage the flow of merchandise* from the vendors to the retailer's customers 2. *integration* of suppliers, manufacturers, warehouses, stores and transportation intermediaries into a *seamless value chain* 3. merchandise is produced and distributed in the *right quantities*; to the *right locations*; and at the *right time* 4. *minimization* of system wide *costs*, while *satisfying the service levels* their customers require
designing the organizational structure- strategic management tasks: top management, board of directors
1. develop overall retail strategy 2. identify the target market 3. determine the retail format 4. design organizational structure 5. develop private-label merchandise 6. develop internet/catalog strategy 7. develop global strategy 8. coordinate multi-channel offering
why is efficient supply chain management so important to retailers?
1. improved product availability 2. reduced costs 3. higher return on assets
efficient supply chain management leads to
1. increased sales- from more attractive assortments in stock/available for purchase 2. improved net profit margins- from increased gross margin and lowered expenses 3. lowered inventory- from less backup inventory in stock & high asset (inventory) turnover -> same sales revenue while using LESS inventory
national brand buying process
1. meet with vendors 2.discuss performance of vendor's merchandise during the previous season 3.review the vendor's offering for the coming season 4.may place orders for the coming season 5.sometimes they do not buy at market, but review merchandise, return to their officers to discuss with the buying team before negotiating with vendors
retailers develop fashion forecasts by relying on:
1. previous sales data 2. market research (ex. quantitative methods such as surveys and qualitative methods such as focus groups, analysis of blogs/chat rooms) 3. fashion and trend services 4. vendors create a hypothesis: qualitative test a hypotheis: quantitiative
typical negotiation issues
1. price and gross margin 2.additional markup opportunities 3.terms of purchase 4.exclusivity 5.advertising allowances 6.transportation
designing the organizational structure/store management tasks: stores division
1. recruit, hire, and train store personnel 2. plan labor schedules 3. evaluate store & personnel performance 4. maintain store facilities 5. locate and display merchandise 6. sell merchandise to customers 7. repair and alter merchandise 8. provide services (ex: gift wrapping / delivery) 9. handle customer complaints 10. take physical inventory 11. prevent inventory shrinkage
estimation of average inventory via 2 approaches:
1. use information system to average the inventory in stores and distribution centers *at the end of each day* 2. divide the sum of the *end-of-month (EOM)* inventories for several months by the number of months
customer loyalty
1.*Loyalty is more then mere satisfaction* 2.*Committed to purchasing merchandise and services from a retailer.* -How much did they spend? (behavioral) -How likely are you to recommend it? -social value (attitude) 3.*Resist efforts of competitors to attract the loyal customer* 4.*Emotional attachment to retailer (ex. friendship)* -Personal attention -Memorable positive experiences -Brand building communications programs *Fulfill expectations = satisfaction* -Satisfaction predicts customer loyalty... loyalty is an outcome of satisfaction -Study shows that loyal customers visit 2x more often + spend 4x more money
building partnering relationships
1.*awareness*-no sale yet, reputation and image are crucial 2.*exploration*-buyer and vendor explore the potential benefits and costs of a partnership 3.*expansion*-the buyer has collected enough information about the vendor to consider developing a longer-term relationship 4.*commitment*-if both parties continue to find the relationship mutually beneficial, it moves to the commitment stage and becomes a strategic relationship
effectiveness of frequent shopper programs
1.Expense / Costly to run 2.Difficulty in Making Changes 3.Impact on Loyalty Questionable 4.Discounts Trigger Price-Sensitivity 5.Easily Duplicated - Difficult to Gain Competitive Advantage
logistics: activities preformed by distribution centers
1.Managing inbound transportation (Dispatcher) 2.Receiving and checking merchandise 3.Storing or cross-docking merchandise ~cross docking used to minimize time in the distribution center~ 4.Getting merchandise floor ready (e.g., ticketing and marking; putting on hangers) 5.Preparing to ship merchandise to a store 6.Managing outbound transportation
Elements in Effective Frequent Shopper Programs: Build Emotional Connection & Commitment
1.Tiered rewards based on customer value 2.Treat High CLV's as VIP's (e.g., private shopping, private tours) 3.Offer choices of rewards No all customers value the same rewards Non-monetary incentives, altruistic rewards 4.Reward all transactions to ensure the collection of all customer transaction data and encourage repeat purchases 5.Transparent and simple so customers easily understand when they receive rewards 6.Incorporate charitable contributions
FOUR approaches for coordinating SC activities to reduce level of inventory in the SC and reduce the number of stock-outs (in order of the level of collaboration)
1.Use EDI (as discussed above Electronic Data Interchange) 2.Share information (e.g., historic sales data) to reduce need for backup inventory, improve sales forecasts and production efficiency ~ forward-looking approaches are superior: ~ 3.Vendor-managed inventory (VMI) 4.Collaborative planning, forecasting and replacement (CPFR)
small retailer
95% of all retail firms only have one store 58% have less than 5 employees -small retailers you will have more responsibilities -generalist career, not very specific in what your position is doing
ABC classification of merchandise (inventory)
A-best seller items-> goal : higher product availability B- medium product availability C- lower product availability is acceptable
merchandise management and investment portfolio management
Activities / Responsibilities: -Dollars to invest in inventory -Invest in "hot" merchandise -Save a little for opportunities (open to buy) -Monitor portfolio of merchandise (stocks) -Sell losers (markdowns) Traders at stock exchange manage portfolio of stocks, and retail buyers manage a portfolio of merchandise inventory. Both continuously assess the risks associated with purchase decisions. buyers are basically stock brokers for a company... want to spend money on the "hot stocks"
2. analyzing customer data and identifying target customers
Analyze the customer database and convert the data into information that will help retailers develop programs for building customer loyalty. *Data Mining* = technique used to identify patterns in data *Retail Analytics* = applications of statistical techniques and models that seek to improve retail decisions through analysis of customer data.
1. collecting customer data: identifying information
Approaches that store-based retailers use: 1.Asking for identifying information (e.g., phone number, name and address) 2.Offering frequent shopper programs (often cards) -Loyalty programs that identify and reward customers who patronize a retailer -Private label credit card (that has the store's name on it) 3.Connecting Internet purchasing data with the stores 4.Use Biometrics -Measuring human characteristics (e.g., hand geometry, fingerprints, iris, or voice). 5.Place RFID chips on merchandise Kroger & Dunnhumby: kroger mails 55 million loyal customer mailings to their frequent-shopper cardholders every quarter Business to business company
the CRM process
CRM is an *iterative process* that *turns customer data into customer loyalty* through 4 activities: 1.Collecting customer data 2.Analyzing the customer data and identifying target customers 3.Developing CRM programs 4.Implementing CRM programs iterative process: sequential, repetitive
privacy concerns
Control over Collection: Do customers know what information is being collected? Do customers feel they can decide upon the amount and type of information collected by retailers? Control over Use: Do customers know how the information will be used by the retailer? Will the retailer share the information with third parties?
market basket analysis
Data analysis focusing upon the composition of the customer's market basket - what items are bought during a single shopping occasion? Uses: -Adjacencies for displaying merchandise -Joint (targeted) promotions Bananas in the cereal aisle as well as in the produce section Beer with baby diapers (Friday evening between 6 - 7 pm) Tissues with cold medicine Bug spray with household cleaning but also with hunting gear Shampoo and conditioner -Assortment planning (secure availability)
advantages of direct-to-store delivery
Gets merchandise faster, and is thus used for perishable goods (meat and produce) or products that are difficult to ship (ex. Risk of damaging) Helps 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
human resource triad
HR corporate store managers store employees
federal trade commission (FTC) guideline for fair information practices
Notice and awareness: Comprehensive statement about information storage, manipulation, and dissemination Choice/consent: Opt-in and opt-out options Access/participation: Customer able to confirm accuracy Integrity/security: Controls for theft and tampering Enforcement/redress: Mechanism to insure compliance
protecting customer privacy
Privacy by design: Shift responsibility for privacy from consumers to retailers (privacy is default). Simplified consumer choice: Allow customers to track their online activities. Greater transparency: Improve customer understanding
means of CRM
Retailers are concentrating on developing customer loyalty and increasing share of wallet by providing more value to their best customers *by using targeted, personalized merchandise, services, and promotions.*
winning the employee talent war
Retailers are engaged in a "war" with their competitors for talent (i.e., for effective employees and managers) who can effectively deal with the increased complexities of retail jobs (e.g., use of new technologies, increased P&L responsibilities, increased global competition, a diverse workforce). *develop programs to attract, develop, motivate, and keep talent*
outsourcing logistics
Retailers consider outsourcing logistical functions if those functions can be performed *better or less expensively* by 3rd-party logistics companies. competitive risk: -lose control, dependent on another company -other companies can copy you/ competitive advantage will decrease -cannot consider outsourcing a competitive advantage -can't focus on core competence if you have to focus on outsourcing
goal of CRM
Retailers now concentrate on providing more value to their best customers using targeted promotions and services to increase their *share of wallet* *share of wallet*: percentage of how much you spend at a store relative to how much you spend for that category ex: groceries; publix wants you to have 100% share at their store percentage of a customers' purchases made from a retailer
engaging employees
creating partnering relationships with employees 1. reducing status differences 2. promotion from within 3. balancing careers and families 4. provide benefits 5. use social media
collaborative planning, forecasting, and replenishment (CPFR)
Sharing of *forecasts* and related business information and collaborative planning between retailers and vendors to improve SC efficiency and product replenishment. 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.* -Common goals -Single demand forecast developed collaboratively -Collaborative promotional planning & execution -Single, shared data source -Improved inventory management across Supply Chain -Optimized replenishment strategies with joint ownership -Process simplicity creates optimal framework for success
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
category management
The process of managing a retail business with the objective of maximizing the sales and profits *of a category* -Objective is to *maximize the sales and profits of the entire category*, not just a particular brand (i.e., need to consider interdependencies among SKUs in the category). ex: Breakfast cereal category vs. kellogg corn flakes Diary product category vs. carnation milk products Men's knitted shirts vs. polo shirts
EDI security
There are implications of security failures (loss of data, loss of public confidence), but retailers have security policy objectives: -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
vendor managed inventory (VMI)
Vendor is responsible for maintaining retailer's inventory levels -Manufacturer has access to POS information -Vendor determines reorder point -> Replenishment automatically triggered Enables demand-based view of replenishment & production planning -> *reduces bull whip effect*
customer relationship management (CRM)
a business philosophy and set of strategies, programs, and systems that focus on *identifying and building loyalty with a retailer's most valuable customers*
scrambled merchandising
a retailer increases the width of its assortment (# of product lines) ex. a shop sells goods that are usually sold by another type of shop: food shop might start to sell some types of clothing -benefits: being responsive to customer's desire for one-stop shopping, increased sales (and gross profit) and attracting new customers
drop-shipping
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, and catalog and mail-order companies. Advantages for retailers: -Vendor assumes costs and risk of supplying merchandise to customers -Vendor builds/manages the DC Dis-Advantages for retailers: -Less control -Longer delivery times -Can increase delivery costs for customers (e.g., when items shipped from multiple vendors)
advantages/disadvantages of private label brands
advantages: -unique merchandise not available at competitive outlets -difficult for customers to compare price with competitors -exclusivity boosts store loyalty -higher margins disadvantages: -require significant investments in design, global manufacturing sourcing -need to develop expertise in developing and promoting brand -unable to sell excess merchandise -typically less desirable for customers
radio frequency identification (RFID)
allows an object or person to be identified at a distance using radio waves -Reduces warehouse and distribution labor costs (e.g., accurate data) -Reduces point of sale labor costs -Inventory savings by reducing inventory errors -Reduces theft - products can be tracked -Reduces out of stock conditions impediments to the adoption of RFID: -RFID is expensive - the return on investment is (currently still) low -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
merchandise category
an assortment of *items that customers see as substitutes for each other* -Marketing decisions on one SKU might influence consumer decisions related to other SKUs within the category -Typically, a buyer manages several categories -Vendors might assign products to different categories based on differences in product attributes -Retailers might assign two products to the same category based upon common consumers and buying behavior
employee engagement
an emotional commitment by an employee to the organization and it's goals -engaged employees care about their work and their company good employees = engaged employees
centralization
authority for retailing decisions that is delegated to corporate managers rather than to geographically dispersed managers
decentralization
authority is delegated to lower levels in the organizations
determining variety and assortment
buyers consider: *retail strategy*- number of SKUs to offer in a merchandise category is a strategic decision-> Aldi offers few SKUs at low prices (brands less relevant) *assortments GMROI* of the merchandise mix- trade-off between too much vs. too little assortment: increasing sales by offering more breadth and depth can potentially reduce inventory turnover and GMROI by stocking more SKUs *complementary merchandise* (combine low GMROI and high GMROI SKUs) effects of assortment size on *buying behavior* (ex. variety seekers) *physical characteristics* of the store (ex. space needed)
importance of backup (buffer) stock
choosing an appropriate amount of backup stock is critical to successful assortment planning -if backup stock is *too low* = lose sales and customers -if backup stock is* too high* = scarce financial resources will be wasted on needless inventory that could have been more profitably invested in more variety or assortment
sell-through analysis
compares actual and planned sales to determine whether more merchandise is needed to satisfy demand or whether price reductions are required
factors affecting sales projections
controllable: -promotions -store locations -merchandise placement -cannibalization uncontrollable: -seasonality -weather -competitive activity -product availability -economic conditions
non-store shipments
focus is on shipping to customers (rather than stores) When fulfilling orders from individual consumers, retailers ship small packages with one or two items to a *(very) large number* of different places Distribution centers for picking and packing orders for individual consumers
micro-merchandising
form of merchandising where the retailer modifies the arrangement of various products in shelves (ex. the shelf-space allocation) in accordance with the customers' needs and the local markets
organizational structure
identifies the activities to be performed by specific employees, and determine the lines of authority and responsibility in the firm -the design of the organizational structure needs to match the firm's retail strategy (ex: category specialists and warehouse clubs target price-sensitive customers -> aim to build a competitive advantage based on low cost) *organizational estruture = how you allocate positions and responsibilities
ABC analysis of assortment
identifies the performance of individual SKUs in the assortment plan rank-orders merchandise by some performance measure (ex. sales, GMROI) in order to determine which items -should never be out of stock -should be allowed to be out of stock occasionally -should be deleted from the stock selection A items: 5% of SKUs, represent 70% of sales B items: 10% of SKUs, represent 20% of sales C items: 65% of SKUs, represent 10% of sales D items: 20% of SKUs, represent 10% of sales
objectives of HRM: short term
increasing employee productivity
backup (buffer, safety) stock
inventory needed to avoid stock-out
cycle (base) stock
inventory that goes up and down due to the replenishment process
can offering price discounts achieve customer loyalty?
it depends... -price discounts get people into the door/to get attention to product -consistency -retail strategies like these can be *copied by competitors* -these strategies encourage *customers to be always looking for the best deal* rather than developing a relationship with a retailer
assortment plan
list of the SKUs that a retailer will offer in a merchandise category and reflects the variety and assortment that the retailer plans to offer in a merchandise category -> AP=breadth and depth -*variety (breadth)*: the number of different merchandising categories within a store or department -*assortment (depth)*: the number of SKUs within a category
which management function is responsible for the physical flow of merchandise?
logistics
slotting fee
manufacturers are asked to pay money so that a retailer will put their product on the shelf
attracting talent: employment marketing (branding)
marketing programs that attract "best and brightest" potential employees
designing the organizational structure/administrative management tasks: corporate specialists
marketing, manage financial performance, manage HR, visual merchandising, manage supply chain, management information systems, general counsel (legal)
gross-margin return on investment (GMROI)
measures how many gross margin dollars are earned on every dollar of inventory investment made by a buyer = (gross margin) / avg. inventory at cost
system for managing fashion merchandise categories
merchandise budget plan -this is a plan for the financial aspects of a merchandise category -> it specifies how much money can be spent each month to achieve the sales, margin, inventory turnover, and GMROI objectives -not a complete buying plan (doesn't indicate what specific SKUs to buy or in what quantities) -after the selling season, the actual performance is compared with the plan
push supply chain
merchandise is allocated to stores on the basis of *forecasted* demand = pushed from DC to stores 1.Less costly than a pull supply chain 2.Less sophisticated information system needed to support it 3.Efficient for merchandise that has steady, predictable demand
return on assets
net profit margin x asset turnover indicator that tells how efficient your company is in translating warehouse inventory into revenue
sales to stock ratio =
net sales / avg. inventory at cost
pull supply chain
orders for merchandise are generated at the store level of the basis of *POS sales data* = pulled from DC to stores 1.Less likely to be overstocked or out of stock 2.Increases inventory turnover 3.More responsive to changes in customer demand 4.Efficient when demand is uncertain, and hard to forecast
chief operations officer (COO)
oversees managers in charge of management information systems (MISs), supply chain, HR, and visual merchandising
global operations president
oversees retailing operations outside the home country
Developing and Implementing CRM Programs: Goals Related to the Customer Pyramid of Profitability
platinum (best/core customers... most loyal/least price sensitive) gold iron lead (negative LTV, let go) -converting customers up -getting rid of unprofitable customers top 20% of your clients contribute for 80% of your profits
order point
point below which inventory should not go or "you" will run out of stock before next order arrives
merchandise management
process by which retailer attempts to offer the *appropriate quantity of the right merchandise* in the right place and at the right time, so that it can meet the company's financial goals driven by: -Sensing market trends -Analyzing sales data -Making appropriate adjustments in prices and inventory levels How is this different than supply chain management? Buyer for macy's is given a budget and is told to spend it in the best way on the best products, etc.
reverse logistics
process of moving returned goods from customer destination for the purpose of capturing value or proper disposal (give to charity, throw away, auctions) Reverse-logistics systems are challenging: -Reverse logistics is (by definition) an ad-hoc system -Items may be damaged or require special handling -Transportation costs are high (e.g., costs of return can be up to 3x costs of outbound shipment) ad-hoc system: after the fact
estimating lifetime value (LTV)
the expected contribution from the customer to the retailer's profits over his/her entire relationship with the retailer people with the highest potential to generate profit in the future
model stock plan
the number of each SKU in the assortment plan that the buyer wants to have available for purchase in each store
what determines product availability
the number of units in back up (aka buffer or safety) stock in the model stock plan -the higher product availability, the higher the amount of backup stock necessary to ensure that the retailer won't be out of stock on a SKU when consumers demand it
empowering employees
the process of managers sharing power and decision-making authority with employees -gives employees confidence -provides greater opportunity to provide service to customers -employees are more committed to firm's success
benefits of efficient supply chain management to customers
translate into greater sales, lower costs, higher inventory turnover, and lower markdowns for retailers
negotiating with vendors
two-way communication designed to reach an agreement when two parties have *both shared an conflicting interests*
open-to-buy system (OTB)
used after the merchandise is purchased to monitor the flow of merchandise -compares forecasted EoM-inventory with actual EoM inventory -budgeting/planning tool: it determines how much of the buyer's budget has been spent and how much is left to spend
multi-attribute metod for evaluating vendors
uses a weighted average score for each vendor -the score is based on the importance of various issues and the vendor's performance on those issues buyers can evaluate vendors by using the following 5 steps: 1.develop a list of issues to consider in the evaluation 2.importance weights for each isssue are determined by the buyer/planner in conjunction with the GMM 3.make judgements about each individual brand's performance on each issue 4.develop an overall score by multiplying the importance of each issue by the performance of each brand or its vendor 5.determine a vendor's overall rating, add the products for each brand for all issues
national retail chain
will give employees a much more specific career vs. small retailer
HRM: challenges in retailing
work environment: -open long hours -peak sales periods -emphasis on cost control employees: -unskilled -part time -diverse backgrounds *add up to high turnover*
chief marketing officer (CMO)
work with staff to develop advertising and promotion programs
senior vice president (SVP) of merchandising
works with buyers and planners to develop and coordinate the mgt. of retailer's merchandise offering and ensure that it is consistent with the firm's strategy
chief financial officer (CFO)
works with the CEO on financial issues such as equity-debt structure and credit card operations
