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McGraw-Hill/Irwin
Retailing Strategy
Retail Market and Financial Strategy Chapter 5, 6 Information Systems & Supply Management Chapter 10 Organizational Structure and Human Resource Management Chapter 9 Customer Relationship Management Chapter 11
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Questions
How does merchandise and information flow from the vendor to the retailer to consumers? What information technology (IT) developments are facilitating vendor-retailer communications? How do retailers and vendors collaborate to make sure the right merchandise is available when customers are ready to buy it? What are the benefits to vendors and retailers of collaboration on supply chain management? What is RFID, and how will it affect retailing?
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Creating Strategic Advantage Through Supply Chain Management and Information Systems Supply chain management ..
A set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain. This chain incorporates which merchandise is produced and distributed in the right quantities; to the right locations; and at the right time; as well as to minimize system wide costs, while satisfying the service levels their customers require.
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Why is Efficient Supply Chain Management so Important to Retailers? Improved product availability Higher return on investment Strategic advantage
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These benefits translate into greater sales, lower costs, higher inventory turnover, and lower markdowns for retailers
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Improved ROI
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ZARA
Timely information from store
mangers with handheld devices to the corporate office Shorter cycle time from design to production to delivery to stores Shorter lead time - own production, small quantity production in close proximity, efficient logistics, premium transportation, frequent delivery No discounts necessary
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H&M
Improve channel performance by owning key components of SC Private label - designed by design teams, manufactured by subcontractors More efficient SC, shorter lead time ( 3 weeks to 60 days)
Zara : 7-30 days, however, own production plant Typical clothing retailer : 40-50 weeks
Minimize reaction time to market trend & customer feedback cost advantage - production time & inventory are reduced
Effect
reduce the fashion risk, avoiding overstocks and markdown product characterized by high exclusivity climate of scarcity
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Why are coordinated efforts important? Example: A task of keeping stores in stock
Stock stores with adequate shelf space Stock stores with appropriate frequency Forecast accurately
Distribution Centers need to send right quantities when the stores need it
Buyers place accurate, timely orders with vendors and distribution centers Managers need to provide enough lead time for deliveries
Buyers and marketing managers coordinate merchandise delivery with special sales and promotions
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Efficient Supply Chain Management leads to Increased Sales from more attractive assortments in stock Improved Net Profit Margins from increased gross margin and lowered expenses Lowered inventory from less backup inventory in stock and higher asset (inventory) turnover
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Information Flow
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Information Flow
When a customer makes a purchase (the toaster oven), sales associate scans UPC code on merchandise and customer credit card/loyalty card (1)
Steve Cole/Getty Images
PhotoLink/Getty Images
Information about purchase is transmitted from POS terminal to the buyer/planner. The planner uses this information to monitor and analyze sales and decide to reorder more toaster ovens or reduce its prices if sales are below expectations (2)
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Information Flow
Sales transaction data are also sent to the distribution center (6) When the store inventory drops to a specified level, more toaster ovens are shipped to the store, and the shipment information sent to the corporate computer system (5) so that the planner knows the inventory level, which remains in the distribution center. Information about purchases are aggregated by buyer/planner and sent to distribution center and vendor to ship merchandise (3)
StockTrek/Getty Images
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Information Flow
When inventory drops to a specified level in the distribution center, buyer/planner communicates with vendor, and then places a purchase order to re-supply stores (4) Buyer/planner notifies distribution center about incoming orders and how they are to be distributed to stores (5)
PhotoLink/Getty Images
Store managers inform distribution center about receipt of merchandise and coordinate deliveries (6)
David Buffington/Getty Images
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Information Flow
When the manufacturer ships the toaster ovens to the distribution center, it sends an advanced shipping notice to the distribution (7) Advanced shipping notice (ASN) is a document that tells the distribution center what specifically is being shipped and when it will be delivered. The distribution center then makes appointments for trucks to make the delivery at a specific time, date, and loading dock. Store managers inform distribution center about receipt of merchandise and coordinate deliveries (6)
David Buffington/Getty Images
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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
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Data Warehousing
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technology Extranet: collaborative network that uses Internet technology to link businesses with suppliers, customers, etc.
Ro y-Free/CORBIS
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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
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Benefits of EDI
Reduces cycle time - inventory turnover is higher Improves overall quality of communications through better record-keeping Information can be easily analyzed
Stockbyte/Punchstock Images
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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
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Push supply chains are efficient for merchandise that has steady, predictable demand
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Merchandise Flow
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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
image100 Ltd
Royalty-Free/CORBIS
Customer
Store
Distribution Center
Vendor
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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
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Bull-Whip Effect
The built up inventory in an uncoordinated channel where retailers and vendors do not coordinate their supply chain activities
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Use EDI Exchange information to reduce need for backup inventory, improve sales forecasts and production efficiency Vendor manage inventory (VMI) Collaborative planning, forecasting and replacement (CPFR)
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VMI Logistics
POS Make Decide Buy Store Pick Pack Ship Order Receive Sell
Pack
Buyer
Ship
Factory
Store
Warehouse
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Supplier
Manufacturer
Distribution
Store
Consumer
Order
Order
Order
Demand
Time
Time
Time
Ti
VMI Limitation
The vendor does not know what other actions (e.g., promotion) the retailer is taking that might affect the sales of its products in the future
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VMIWhat it Lacked
Focused on replenishment activity only Static-model based (assumed fixed reorder points to trigger replenishment) Often only moved inventory ownership rather than removing it Incomplete information for decision making Vendor and retailers use different systems and data bases
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CPFR
Common goals A single demand forecast developed collaboratively Collaborative Promotional planning & execution A single, shared data source Improved inventory management across entire Supply Chain Optimized replenishment strategies with joint ownership Process simplicity creates optimal framework for success
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