Session 18

SCM and IT in Retail

Session Objectives
SCM in Retail Its importance, evolution and innovations Retail Logistics Reverse Logistics IT in Retail The Internet as a retail opportunity

The Basic Supply Chain

SCM process is a value chain where bottlenecks, value adding factors are addressed, thus enabling retailers to deliver value to the end customers efficiently. Retailer is the link between the customers and the rest of the supply chain
Flow of orders Feedback
RETAILER

Supplier

Raw/Packing Material Warehouse Stock

Manufacturer

Manufacturer Warehouse Stock

Retailer Warehouse Stock

Retail Store

Consumers

Capacity

Stock

Capacity

Stock

Stock

Stock

Products

Flow of goods

Supply Chain Objectives Deliver

Product

Time

Right
Place Price & Profit
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Factors for Successful SCM

Single entity to reduce administrative delays
Retailers control it in developed economies while manufacturers control it in urban India and wholesalers in mofussil areas

Inventory perspective
Leaner and cleaner

Strategic decision making

With top management involvement

A systems approach
Role of IT and decisions on outsourcing
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Typical Supply Chain

Suppliers

Manufacturing

Distribution Center(s)

Customers

Physical flows Information flows Financial flows

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 Complexity

Suppliers 100 +

Manufacturers 3+

Distribution Centre 20 +

Customers ???

Physical flows (100+ SKUs) Information flows (GRNs, POs, GPs ) Financial flows (CNs, DNs, cheques )
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 Pressures

Competition

Technology

Prices

Product Lifecycles

Environmental Concerns

Seven Principles of SCM

1. 2. 3. 4. 5. 6. 7.

Segment customers based on service needs and adapt supply chain to serve segments profitably. Customise the logistics network to the service requirements and profitability of customers. Ensure consistent forecasts and optimum resource allocation. Differentiate product closer to the customer and speed conversion across the supply chain. Manage sources of supply strategically to reduce the total cost of owning materials and services. Develop strategy that supports multiple levels of decision making. Adopt channel spanning performance measures for effectiveness and efficiency

Drivers of SCM
Minimising uncertainty Reducing lead times Minimising the number of stages Improved process quality Managing demand Taking initiatives at an industry level
From suppliers, processes and demand Mapping critical activities and managing to increase efficiencies Business process reengineering Integrated process integration and flatter organisations Proper forecasting and smoothening of demand For transportation and warehousing
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SCM Framework
Customer Service

STRATEGIC

Channel Design Network Strategy STRUCTURAL

Warehouse design and operations Transportation Management Materials Management

FUNCTIONAL

Information Systems Policies and Procedures Facilities and Equipment Organisation and Change Management

IMPLEMENTATION

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SCM -- Underlying Philosophy

Integration !!!
Marketing team which analyses sales data and working out how to meet targets Merchandising team for understanding customer needs Materials team getting the best price for the merchandise
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Supply Chain Network Structure

Network of channel members Retailers gauge the wants and needs of customers and share information with suppliers to plan production and inventory levels Benefit to customers Benefits to retailers
Wider range and low stock outs Lower markdowns and enhanced profitability

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Channel Structure
Channels are designed around service output demands of:
Lot size Delivery time Spatial convenience

Costs in the channels can be reduced by postponing changes in the form to the last possible point Channel structure is affected by technological, cultural, physical, social and behavioural variables.

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Channel Structure
The three primary decisions that influence network structure:
Identifying the members of the supply chain

Determining the structural dimensions of the network

Vertical Horizontal Retailers position from source of supply

Primary Provide operational and managerial activities Secondary Banks, warehouse owners, transporters, advertising agencies

Managing the process links

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ZARA
Products move from sketch pad to store shelf in three weeks Investment into production and warehousing facilities Owns 60% of production and 40% of fabric 200 designers responding to feedback from 47 countries 5 million sq. ft. warehouse connected to 14 factories through underground tunnels Shipping of material to Zara stores in floor ready merchandise

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Innovations in SCM
Vendor Managed Inventory through EDI Collaborative Planning Forecasting and Replenishment Cross docking

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Vendor Managed Inventory

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Collaborative Planning Forecasting and Replenishment

Alignment of forecasts of retailer and suppliers Managing them on exception basis Sharing of forecasts, results and data on the internet

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Cross Docking
Merchandise flows directly from the vendors trucks through the retailers distribution center and is loaded on the trucks going to the retailers stores without being stored in the distribution center

Ryan McVay/Getty Images

Wal-marts Bentonville warehouse has 19 conveyor belts; can ship 360 cartons a minute 264 dock doors take goods from suppliers trucks and ship them through 116 shipping lanes to 125 stores
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Benefits of Efficient Supply Chain Management

Fewer stockouts merchandise will be available when the customer wants them Tailoring assortments the right merchandise is available at the right store Customers respond to the convenience as evidenced by increased sales
Ryan McVay/Getty Images

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Minimizing Stockouts

Make sure merchandise in stockrooms is on the shelves

Stores need to place orders with distribution centers in a timely fashion Distribution Centers need to send right quantities

Buyers place orders at the right time with vendors

Managers need to provide enough lead time for deliveries

Royalty-Free/CORBIS

Forecast demand accurately

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Wal-Marts Sustainable Advantage

Wal-Marts success is its information and supply chain management systems. Why are competitors lagging behind?
Wal-Mart made a substantial investment in developing its systems and has the scale economies to justify it.

The software is unavailable elsewhere and is constantly updated and improved

Ryan McVay/Getty Images

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Food and Grocery Supply Chain

Farmer
Consolidator

Farmer
Commission Agent

Farmer

Traders Wholesalers

Retailers

Consumers
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Food and Grocery Supply Chain

35 to 40% wastage in supply chain Organised retail procuring straight from farmers and consolidators Also investing in cold storage and refrigerated vans Hub and spoke approach at state level May even have two or three hubs in bigger states

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Retail Logistics
Retail logistics incorporates the following functions :

The physical movement of goods The holding of these goods at stock holding points The holding of goods in quantities required to meet the demand from the end consumer The management and administration of the process

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Logistics management
The core of SCM is in logistics management. Logistics strategy can either be pull strategy or a push strategy. At the heart of logistics is the distribution centre. It serves several functions from co-ordinating inbound transportation ,receiving ,checking , storing ,cross docking and coordinating outbound transportation.

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Logistics Strategy
Pull Supply Chain Merchandise shipped to stores based on sales and inventory levels in the stores

Push Supply Chain Merchandise shipped to the stores based on forecasted sales rate

(c) Brand X Pictures/PunchStock

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Activities Performed by Distribution Center

Managing inbound transportation Receiving and checking merchandise Storing or cross docking merchandise Preparing merchandise for the sales floor Shipping merchandise to stores Managing outbound transportation
Ticketing and marking Putting on hangers

Ryan McVay/Getty Images

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Advantages of Using a Distribution Center

Effects of forecast error for individual stores are minimized 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

Ryan McVay/Getty Images

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Logistics in India
Size $ 50 billion per year Growth rate 40% per annum 60% through road 15% of the business comes from organized players

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Reverse Logistics
Disposition of returned goods through:
Putting back into inventory Sold through liquidation centres Broken down to component parts

The basic approach is how to recapture value in this flow

Customer

Retailer

Distribution Centre

Vendor
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Retailing Strategy
Retail Marketing Strategy Financial Strategy Site Location

Information Systems
Retail Locations
Organisational Structure and HR Management Customer Relationship Management
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Technology in Retail
Product identification Quick billing Credit card and other payments Logistics Trend analysis and forecasting Loyalty programmes Interactive kiosks Virtual display cases Electronic point of sale and signage E commerce

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The effect of a single customer transaction

Marketing & Promotions Inventory Management Customer Transaction Warehouse Sales Analysis Customer Database Credit Card Payments
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Reordering Merchandise

The Need for Product Identification

Thousands of products handled led to Universal Product Code in the 50s In 1972 European countries formed European Article Numbering which is followed in India 13 digit code:
First three digits Country Code Next four digits Company Code Next five digits Product Code Last digit Check digit

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Information and Merchandise Flow

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

Steve Cole/Getty Images

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 to ship merchandise

StockTrek/Getty Images

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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
David Buffington/Getty Images PhotoLink/Getty Images

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Database Management
Database Management is the use of systems to organise, retrieve, search and manage data Elements are:

Data Warehousing - 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 Data Mining the extraction of data for specific applications

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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 EDI saves time, eliminates manual errors, strengthens relationships and saves costs
Royalty-Free/CORBIS

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Factors affecting the use of technology

The Scale and scope of operations The financial resources available to the organisation The nature of the business Human Resources available

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Radio Frequency Identification

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

(c) Digital Vision/PunchStock

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Why the Hesitation with 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

Jeff Maloney/Getty Images

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