2. Objectives
• Flow of merchandise and information from
vendor to retailer to consumers
• IT developments facilitating vendor-retailer
communications
• How do retailers and vendors collaborate to
make sure that right merchandise is available
when customers are ready to buy it
• Benefits to vendors and retailers of collaborating
on SCM
• RFID and its effect on retailing
3. Creating strategic advantage through
SCM and IS
• Retailers connect customers with vendors who want to
provide merchandise
• It is retailers responsibility to gauge customer needs
and wants and work with other members of the supply
chain- distributors, vendors and transportation
companies
• This is to make sure that merchandise is available to
customers when they want it
• SCM is a set of business activities that manages the
movement of products to retail distribution centres
and stores and the exchange of information between
retailers and vendors
4. • Retailers- increasingly assuming leadership role
• Small retailers- large mfgs and vendors determined how
when, and where the merchandise is to be delivered
• With consolidation and emergence of larger national retail
chains- retailers taking active interest in SCM
• Size of retailers – give them more power over vendors and
thus able to control their SCs
• Addly, retailers are more knowledgeable about their
customers
• This info is being shared with suppliers to plan production,
promotions,deliveries,assortment and inventory level
6. Three benefits of Supply chain
• Improved product availability
• Higher ROI
• Strategic advantage
7. Improved product availability
• Stockout occurs when an SKU a customer wants is
unavailable
• Will help in customer retentionReduced
Stock outs
• To make sure that right merchandise is available at
the right store
• Stores adjust according to merchandise on basis of
season
• Retailers use statistical methods- to analyse
customer data and adjust assortments
Tailored
assortments
Efficient SCM
leads to the
following:
-Greater sales
- Lower costs
-- Higher
inventory
turnover
- Lower
markdown
for retailers
8. Higher ROI
• An efficient SCM and IS can improve ROI because it
increases :
- Sales: customers are offered more attractive assortments
that are in stock
- Net profit: Increase gross margin and lower expenses:
special buying opportunities- products bought at low cost,-
improving GM
- Margins : lower operating expenses by coordination and
reducing TC
- Assets (Inventory turnover) : Efficient SC- leads to lower
inventory levels- lower investment- total assets are lower-
so assets and inventory turnover is also higher
9. Strategic advantage
• Is difficult to develop, once developed it is
sustainable enough to give competitive
advantage
• Eg Walmart: high investment in SCM and also
has large economies of scale
• Efficient coordination within all areas of
company
10. Information and Merchandise Flows
Customer
Stores
Distribution
centreVendor
Buyer/Planner
Information flow
Merchandise flow
12. Information Flows
• Step 1: Cashier scans the UPC- Universal Product Code and generates a
sales receipt- no 1
• Step 2: Info regarding the transaction is captured at POS terminal and
sent to central computer system where it can be accessed by the planner
of the product category- no 2
• Step 3: Sales transaction data are sent to the distribution centre- no 6
• Step 4: When store inventory drops to a specified level- more stock sent
to the store and this info is sent to computer system no 5,so the planner
knows the inventory level
• Step 5: When inventory level drops to a specified level, no4,the planner
places the order and informs the DC no 5
• Step 6: When mfg ships the order sends an ASN – to the DC no 7
• Step 7: When order is received the planner is notified and pays the
vendor no 5
• Certain situations – data sent from store directly to the vendor no 3
13. Data warehouse
• Purchase data collected at the point of sale
collected in a huge database known as data
warehouse
• Information can be accessed at various levels:
SKU, vendor, category, department,
merchandise,store division,company
• Used to collect info about customers so as to
modify promotions and products
14. Electronic data interchange (EDI)
• Communications between vendors and retailers occur
via EDI.
• It is a computer to computer exchange of business
documents in a structured format.
• Specific symbols used
• Benefits:
- Reduces cycle time- or time to place order and receipt
- Improves overall quality with better record keeping
and less errors
- data available in an easy to read format
15. Push and Pull supply chains
Pull SC
• a SC where in orders for merchandise are
generated at store level on basis of sales
data captured by POS terminal
• Demand for an item pulls it through the
SC
• Less chances of stock out: since inventory
is based on consumer demand
• Increases inventory turnover
• Becomes useful when demand is erratic
• requires sophisticated costly IT system
• for some fashion merchandise, retailers
cannot adjust ionventory according to
demand
Push SC
• Here merchandise is allocated through
the store on basis of forecasted demand
• Forecast developed, inventory shipped at
regular intervals
• Used for predictable demand
• Thus retailers use a combination
16. Logistics
• It is the physical flow of the merchandise within
the supply chain
• Is the aspect of SCM that refers to the planning,
implementation, and control of efficient flow and
storage of goods, services and related
information from the point of origin to point of
consumption to meet consumer requirements
• Merchandise--- vendor to DC
• Merchandise --- DC to store
• Merchandise --- vendor to store
17. Collaboration between vendors and
retailers in SCM
• Main objective for retailers and vendors is to make stock available
in stores when customers want it and to achieve this task with
minimum cost and investment
• SC efficiency dramatically improves when vendors and retailers
share information and work together
• Vendors can make sure that inventory is available JIT when the
retailer needs it without having excess inventory
• When retailers and vendors do not coordinate their SCM activities,
excess inventory builds up in the system even if the retail sales for
that product is constant. This effect is called as “Bullwhip” effect
• Occurs due to delay in transmitting orders and receiving
merchandise, overreacting to shortages, and ordering in batches
18. contd
• Four approaches for coordinating SC activities
are:
1. Using EDI
2. Sharing information
3. using vendor managed inventory (VMI)
4. employing collaborative planning,
forecasting, and replenishment (CPFR)
19. Using EDI
• used to transmit the purchase order info
reduces the time taken for retailers to place
orders and for vendors to acknowledge the
receipt and communicate delivery info
20. Sharing Information
• Excess inventory caused due to – inability of vendors
to know what actual level of store retail sales are.
• If they know they are increasing, production schedule
can be planned accordingly
• Walmart Retail Link : data warehouse and decision
support system that provides vendors with two years
sales history and inventory levels for products across
5000 stores
• With sharing, thus vendors can improve their sales
forecast, production efficiency, and reduce excess
inventory
21. Vendor Managed Inventory (VMI)
• VMI is an approach for improving supply chain efficiency in
which the vendor is responsible for maintaining the
retailers inventory level at each of these stores
• Vendor determines a reorder point – a level of inventory at
which more stock is reqd. The retailer shares data with
vendor through the EDI.
• When the inventory drops to the order point the vendor
generates the order (reverse purchase order) and delivers
the merchandise
• Usually applied at the retailers DC
• But difficult for the retailer to know the other actions of
vendor: SP schemes for competitors brands
• Eg TAL and JC Penney, frito Lay
22. CPFR
• collaborative planning, forecasting, and replenishment
(CPFR) is the sharing of forecast and related business
information and collaborative planning between retailers
and vendors to improve SC efficiency and product
replenishment
• Here retailers share sales and inventory data when using
VMI approach, whereas vendor is responsible for managing
inventory
• CPFR is an advanced form of retailer –vendor collaboration
that involves sharing of proprietary info such as business
strategies, promotion plans, new product development etc
• Eg Walmart-Procter and Gamble
23. RFID
• Radio Frequency Data Identification- RFID
• It is a technology that allows an object or person to be
identified at a distance using radio waves.
• These devices or tags are inserted into ocean going
containers, on shipping cartons, behind merchandise
labels. They transmit data about the object in which
they are embedded.
• Is more superior than a bar code – with ability to store
more data and upload data on the device
• Eg it can keep a track of where the item is in SC,where
it is stored in a distribution centre
• Data can be obtained even in harsh environments
24. RFID
• Enables real time tracking of the product
from mfg to check out in the store
• Eliminates the manual point and read
operations needed to get data from UPC
• Thus it can significantly decrease warehouse,
distribution, inventory costs, increase margins
and provide better in stock conditions
25. Benefits of RFID
• Reduces warehouse and distribution labor costs: reduces
manual tracking and labor intensive sensors for point and
read approach
• Reduces point of sale labor costs: reduces costs for
checking shelf inventory. Increases the use of self scan and
reduces the incidence of employee fraud
• Inventory savings: Reduces errors
• Reduces theft
• Reduced out of stock condition
• Thus it helps to streamline SC
• High costs of purchase, processing and implementation
• Eg Pantaloons
