Retailing

MKTG 3346

Retail
Retail Supply
Supply Chain
Chain
Professor Edward Fox
Cox School of Business/SMU

What is Supply Chain Management?

The integration of business processes from the
end consumer back to original suppliers,
providing products, services, and information
that add value for customers

Source: Levy and Weitz

Why Focus on Supply Chain

Management?
Improve return on investment
Reduce Costs! Increase Efficiency!

Net profit
=
Total assets

Net profit x Net sales

Net sales
Total assets

Improve product availability

Adapted from Levy and Weitz

Example of a Simplified Supply Chain

Source: Levy and Weitz

Information and Merchandise Flows

Customer

Sales info
Buyer

Stores

Vendor

Distribution
center

- - - - Merchandise flow

Information flow

Source: Levy and Weitz

Information and Merchandise Flows

TECHNOLOGY
Bar coding
Computing
Databases and data warehouses
Electronic Data Interchange (EDI)
POS Scanning

Radio frequency identification (RFID)

Modern supply chain management is enabled by the

application of technology

Information Flow

Source: Levy and Weitz

Information Flow
ELECTRONIC DATA INTERCHANGE (EDI)
EDI is the computer-to-computer exchange of
business documents from retailer to vendor, and
back.
Advanced shipping notice (ASN) is an
electronic document received by the retailers
computer from a supplier in advance of a
shipment.

http://www.disa.org/

Source: Levy and Weitz

Information Flow
EDI METHODS OF TRANSMITTING DATA

Source: Levy and Weitz

Merchandise Flow

Source: Levy and Weitz

Merchandise Flow
ASRS

Unlike a traditional distribution center in which

merchandise is handled manually when it enters and
is removed from storage, Automatic Storage and
Retrieval Systems (ASRS) ensure that merchandise
that is received is stored and drawn from storage
automatically. This ensures first-in-first-out selection
and reduces shrink.

Merchandise Flow
CROSSDOCKING

Unlike a traditional distribution center that stores

merchandise, in this crossdocking distribution
center, merchandise is received from vendors trucks
on one side of the building, moved to the other side
of the building, aggregated with merchandise from
other vendors, and shipped off to stores - all in a
matter of hours.
Source: Levy and Weitz

Direct Store Delivery (DSD)

Some product manufacturers deliver product to stores,
rather than to retailers warehouses
Examples
Frito-Lay
Coca-Cola
Nabisco

Advantages
Control of distribution
Setting the shelf

Disadvantage
Cost
Clutter

How to Distribute?

The retailer must decide whether to run

its own distribution operations, or
purchase from wholesalers, brokers,
jobbers or other intermediaries

How to Distribute?
RELY ON INTERMEDIARIES IF
The retailer has only a few outlets
Many outlets are concentrated in metro areas
Rapid replenishment is critical (e.g.,
convenience stores)
Vendor pays freight charges

Adapted from Levy and Weitz

How to Distribute?
SELF-DISTRIBUTE IF
Demand fluctuates greatly
Stores require frequent replenishment
Retailer carries a relatively large number of
items in less than full-case quantities
The retailers has a large number of outlets that
arent geographically concentrated in a metro
area

Adapted from Levy and Weitz

How to Distribute?
BENEFITS OF SELF DISTRIBUTION
More accurate sales forecasts
Less merchandise in the individual store, thus a
lower inventory investment system-wide
Less out-of-stock
More cost effective

Self distribution is backward integration it offers the

retailer more control!
Source: Levy and Weitz

How to Distribute?
THIRD PARTY LOGISTICS COMPANIES
Firms sometimes outsource logistics operations
These firms facilitate the movement of merchandise
from manufacturer to retailer, but are independently
owned
Transportation
Warehousing
Freight forwarders
Integrated third-party logistics services

Adapted from Levy and Weitz

Quick Response
General merchandise retailers pioneered the Quick
Response initiative in the 1980s
QR delivery systems are inventory management
systems designed to reduce the retailers lead time for
receiving merchandise, thereby lowering inventory,
improving customer service levels, and reducing
logistics expenses

Adapted from Levy and Weitz

Quick Response
PROS AND CONS
Pros
Reduces lead time
Increases product availability
Lowers inventory investment
Cons
Smaller orders with greater - more expensive to
transport and more difficult to coordinate
Computer hardware and software must be purchased by
both parties
Both retailers and vendors must invest, or neither
receives the benefits
Adapted from Levy and Weitz

Efficient Consumer Response

In response to the benefits that discount retailers
realized from Quick Response, he grocery industry
initiated Efficient Consumer Response (ECR) in the
1990s
Tenets of ECR
Efficient Assortment
Efficient Replenishment
Efficient New Product Development
Efficient Promotion

Efficient Consumer Response

ECR was not as successful as Quick Response

Vendors were larger and more powerful

Reluctance to make large investments

Quick Response & ECR

Information

Point-of Sale Data

Affinity Card Data
Forecasting

Consumer

EDI
Electronic Ordering
Electronic Funds
Transfer

Retailer

Product

Cross Docking
Computer Controlled
Material Handling
Flow Through
Distribution

Manufacturer

Just-in-Time
Barcoding
Vendor Managed Manufacturing
Inventory