Transcript Analysis - Cengage Learning EMEA

Practice
17. The purchasing function
in trade and retail
companies
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Program
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Definitions
Role and importance of purchasing in trade and retail
companies
Structure and organization of the purchasing process
Developments in trade and retail companies
Sourcing and supply chain strategy trends
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Definitions
Trade and retail companies:
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Characterized by the absence of a production process
 Value added is low compared to manufacturing companies
 Existence is primarily based on the exchange of values
 Time between the purchase and sale is very short
Because of short time between purchase and sale, buying and selling
are sometimes integrated into one function. This is referred to as
category management
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Definitions
Inbound
logistics
Outbound
logistics
Merchandising/
commodity
management
Facilities buying
Human resources management
Technology
Infrastructure
The value chain in trade companies (Adapted from Porter, 1985)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Definitions
Trade companies can be divided into two levels:
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Wholesale level (B2B)
Retail level (B2C)
Companies that operate on wholesale level deliver their products to
other companies. Customers are retail, industrial and service
companies. Wholesale companies devote less effort to promotion,
shop layout and selection of location. Further wholesalers make
large transactions with a limited number of companies.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Definitions
Manufacturer
Wholesaler
Retailer
Consumer
Wholesale and trade in the business chain
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Role and importance of purchasing in
trade and retail companies
Trade companies fulfill the intermediary between
producer and end user. Their added value lies in
the following activities:
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Sales and promotion
Purchasing and building up a product assortment
Bulk breaking
Storage
Transportation
Carrying the risk
Market information
Management and marketing services
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Role and importance of purchasing in
trade and retail companies
Regarding the retail trade, various types of stores can be
distinguished in the area of consumer products:
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Specialty store
Department store
Supermarket
Convenience store
Combination store, superstore and hypermarket
Service business
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Role and importance of purchasing in
trade and retail companies
Main differences with industrial companies:
 Bottom line thinking: Primary reason for buying in trade companies is
to sell.
 Broad assortment: Trade companies generally have a very broad
product assortment for which management information systems are
necessary.
 Buying against supplier specifications: Trade companies frequently
buy what the market offers and are usually able to change suppliers
more easily.
 Short feedback loop: Moments of buying and selling are closer
together in a trade company.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Structure and organization of the
purchasing process
Stages in the buying-selling cycle:
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Estimating demand
Determining product assortment and distribution strategy
Selection of most suitable supplier
Contractual agreements
Ordering
Automatic replenishment
Expediting and evaluation
Retail buyers need to give more attention to marketing and sales
aspects than industrial buyers. The function of retail buyer evolves from
straight buying to commodity or category management
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Structure and organization of the
purchasing process
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Cross-functional structure
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Teams are responsible for all aspects of a category in order to
generate a maximum return for the retail company
 Buying, styling, visual merchandising and distribution functions
operate in one organizational entity. (‘category management’)
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Functional purchasing structure
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Purchasing is important and reports directly to top management
Ordering and purchasing often separate activities.
Purchasing and Category Management are conducted central and
ordering is carried out decentral as much as possible.
 Planning is more and more delegated to the suppliers (i.e. VMI)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Developments in trade and retail companies
Changing consumer behavior:
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Ageing population, ongoing individualism, more men shopping
Increasing income gap between population groups
Growing number of earning couples
Increased exposure to other cultures and integration of ethnic
minorities
Increased concern for the environment
Increased attention to healthier living
This means that the commodity manager/ retail-buyer must constantly tailor
his product assortment to ever more specific and often smaller groups.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Developments in trade and retail companies
Other developments….
• Concentration: Globalization of competition and concentration
through mergers and acquisitions.
• International co-operation: Due to the concentration of power
on the suppliers’ side, trade companies are searching for
internationalization as an option to counterbalance this
development.
• Private labels: Private labels support retailer identity and
image. Finding suitable suppliers for private label products will
become increasingly difficult.
• Space management: based on detailed cost information
retailers decide on the most profitable display lay out.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Developments in trade and retail companies
• ‘Green’ issues: ecological considerations are growing in
importance (e.g. natural ingredients, biodegradable packaging)
• Information: Some developments in information technology have
an immediate impact on consumers. Others are less visible to the
consumer. For example:
- Electronic banking
- Bar coding
- Tele shopping
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Sourcing and supply chain strategy trends
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Modern supply chain management retail is based on the
following concepts:
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Vendor Managed Inventory (VMI)
Efficient Consumer Response (ECR)
Collaborative Planning, Forecasting and Replenishment (CPFR)
Electronic marketplaces
Radio frequency Identification Detection (RFID)
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Sourcing and supply chain strategy trends
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Vendor Managed Inventory (VMI)
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VMI is a continuous replenishment program in which the retailer provides the
supplier with detailed information to allow the supplier to manage and replenish
product at the store or warehouse level
 Typically the activities of forecasting, scheduling, requisitioning and ordering are
performed by the supplier.
 The retailer does the invoice matching and handles payment
 EDI is an integral part of the VMI process
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Benefits of VMI
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Eliminating repetitive purchasing activities
Lowered costs of processing claims
Reduced inventory
Increased inventory turns
Solidified customer-vendor relationships
VMI has its drawbacks when not implemented properly. Be aware of EDI problems,
employee acceptance, and trust among the supply chain partners.
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Sourcing and supply chain strategy trends
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Efficient Consumer Response (ECR)
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ECR is a grocery industry supply chain management strategy aimed at
eliminating inefficiencies, and excessive or non-value-added costs
within the supply chain, thus delivering better value to the end
customers
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It is designed to re-engineer the grocery supply chain from a “push”
system into a “pull” system by using e-commerce information
technology
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ECR attempts to eliminate inefficiencies by introducing strategic
initiatives in four areas:
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Efficient store assortment
Efficient product information
Efficient promotion
Efficient product replenishment
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Sourcing and supply chain strategy trends
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Efficient Consumer Response (ECR)
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Programs that companies need to have in place are:
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Further support is needed by some critical technologies and concepts
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Category management (i.e. managing a group of products as strategic
business units within each store)
Continuous replenishment program (CRP)
Barcodes / Scanners
Electronic Data Interchange (EDI)
Computer aided ordering (CAO)
Cross docking / direct store delivery
Activity based costing
The main obstacle is not technical but managerial, with manager
reluctant to transform their adversarial trading relationships into open
partnerships
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Sourcing and supply chain strategy trends
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Collaborative Planning, Forecasting and Replenishment (CPFR)
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This concept allows cooperation across the supply chain, using a set of
processes and technology models.
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The goal is to provide dynamic information sharing that is integrating
both demand and supply side processes, and effectively planning,
forecasting and replenishing customer needs through the total supply
chain.
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Advantages of CPFR:
 Increased responsiveness
 Product availability assurance
 Optimized inventory and associated costs
 Increased revenues and earnings
 Improved relationships with trading partners
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Sourcing and supply chain strategy trends
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Electronic marketplaces
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A distinction can be made between Open exchanges (accessible for
everyone) and Private exchanges (only for members)
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An e-marketplace can provide a platform for:
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Core commerce transactions which can automate and streamline the
entire requisition-to-payment online
A collaborative network for production design, supply chain planning,
optimization and fulfillment process
Industry wide product information that is aggregated into a common
classification and catalogue structure
An environment in which sourcing, negotiations and auctions can take
place in real-time
An online community for publishing and exchanging industry news,
information and events
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Sourcing and supply chain strategy trends
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Radio frequency Identification Detection (RFID)
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RDID is a term for technologies that use radio waves to automatically
identify individual term.
 Auto-ID Center is developing an open global network (a layer on top of
internet) that can identify anything, anywhere, automatically.
 This network will give companies near perfect supply chain visibility
 Also, if widely adopted the network could:
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eliminate human error from data collection
reduce inventories
keep product in stock
reduce loss and waste
free up staff to perform more value added functions
improve safety and security
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)
Sourcing and supply chain strategy trends
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The four major developments show how the landscape of the
traditional retail buyer has changed
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Advanced systems will allow them to optimize their supply chain
operations
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Future competition in retail will no longer be between individual
companies, rather it will be among clusters of companies
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As research shows the development towards this kind of
collaboration can be troublesome
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Trust between the partners, a long term commitment and a balanced
sharing of risks and rewards is required to be successful
© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)