Chapter 10 Information Systems and Supply Chain Management McGraw-Hill/Irwin Retailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved.
Download ReportTranscript Chapter 10 Information Systems and Supply Chain Management McGraw-Hill/Irwin Retailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved.
Chapter 10 Information Systems and Supply Chain Management McGraw-Hill/Irwin Retailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved. Retailing Strategy Retail Market and Financial Strategy Chapter 5, 6 Retail and Site Locations Chapter 7, 8 Information Systems & Supply Management Chapter 10 Organizational Structure and Human Resource Management Chapter 9 Customer Relationship Management Chapter 11 10-2 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? 10-3 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. Ryan McVay/Getty Images 10-4 Illustration of Supply Chain 10-5 Why is Efficient Supply Chain Management so Important to Retailers? ■ Improved product availability ■ Higher return on investment ■ Strategic advantage 10-6 Improved Product Availability Benefits of Efficient Supply Chain Management to Customers: ■ Reduced stockouts – merchandise will be available when the customer wants them ■ Tailoring assortments – the right merchandise is available at the right store Ryan McVay/Getty Images These benefits translate into greater sales, lower costs, higher inventory turnover, and lower markdowns for retailers 10-7 Strategic Importance of Supply Chain Management ■ Opportunity to Increase Sales by Making the Right Merchandise is in the Right Place at the Right Time Fewer Stock-outs Greater Assortment with Less Inventory ■ Opportunity to Reduce Costs Transportation Costs Inventory Holding Costs ■ Improved ROI 10-8 Fast Fashion Enabled by Efficient and Effective Supply Chain Management Fast Fashion: a retail business strategy that uses a supply chain management process to rapidly introduce fashionable merchandise and quickly respond to customer demand for the merchandise 10-9 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 10-10 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’ 10-11 Strategic Advantage : Wal-Mart ■ Wal-Mart’s success is from its information and supply chain management systems ■ Why are competitor’s lagging behind? Made a substantial investment in developing its systems and has the scale economies Through experience and learning, changes are always made to improve the system Coordinated effort of employees and functional areas throughout the company 10-12 Why are coordinated efforts important? Example: A task of keeping stores in stock Stock stores with adequate shelf space Stock stores with appropriate frequency Buyers place accurate, timely orders with vendors and distribution centers Forecast accurately Distribution Centers need to send right quantities when the stores need it Buyers and marketing managers coordinate merchandise delivery with special sales and promotions Managers need to provide enough lead time for deliveries 10-13 Higher Return on Investment Return on assets = Net profit margin x Asset turnover Net profit = Total assets Net profit x Net sales Net sales Total assets 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 Same Sales Using Less Inventory 10-14 Information and Merchandise Flow 10-15 Information Flow 10-16 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) 10-17 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 10-18 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 10-19 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 10-20 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 10-21 Data Warehousing 10-22 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 Standards: • UCS (Uniform Communication Standard) • VICS (Voluntary Interindustry Commerce Solutions) Transmission system: • Intranet: local area network (LAN) that employs Internet technology • Extranet: collaborative network that uses Internet technology to link businesses with suppliers, customers, etc. 10-23 Royalty-Free/CORBIS 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 Ryan McVay/Getty Images 10-24 Benefits of EDI ■ Reduces cycle time – inventory turnover is higher ■ Improves overall quality of communications through better record-keeping ■ Information can be easily analyzed 10-25 Stockbyte/Punchstock Images Pull and Push Supply Chain Push Supply Chain Merchandise is allocated to stores on the basis of forecasted demand Pull Supply Chain Orders for merchandise are generated at the store level on the basis of POS sales data 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 10-26 Requirements for a Pull Approach to Work ■ Requires a more costly and sophisticated information to support it ■ Should have the flexibility to adjust inventory levels on the basis of demand ■ Push supply chains are efficient for merchandise that has steady, predictable demand 10-27 The Physical Flow of Merchandise Logistics ■ Logistics: The aspect of supply chain that refers to the planning, implementation, and control of the efficient flow and storage of goods, services, and related information from the point of origin to the point of consumption to meet customers’ requirements 10-28 Merchandise Flow 10-29 Advantages of Using a Distribution Center ■ More accurate sales forecasts are possible when retailers combine forecasts for many stores serviced by one distributor ■ 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 10-30 Advantages of Direct Store Delivery ■ Gets merchandise faster, and is thus used for perishable goods (meat and produce) ■ Helps the retailer’s image of being the first to sell the latest product (video games) or fads ■ Some vendors provide direct store delivery for retailers to ensure that their products are on the store’s shelves, properly displayed, and fresh 10-31 Who Can Use DC’s? ■ Retailers selling non-perishable merchandise ■ Retailers offering merchandise that has highly uncertain demand like apparel ■ Retailers selling merchandise that needs to be replenished frequently ■ Retailers that carry a large number of items shipped in broken case quantities like drug stores ■ Retailers with many outlets Ryan McVay/Getty Images 10-32 Activities Performed by Distribution Center ■ Managing inbound transportation ■ Receiving and checking merchandise ■ Storing or cross docking merchandise ■ Getting merchandise floor ready Ticketing and marking Putting on hangers ■ Preparing to ship merchandise to a store ■ Managing outbound transportation 10-33 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 Customer The McGraw-Hill Companies, Inc./Andrew Resek, photographer Store Steve Cole/Getty Images Distribution Center Royalty-Free/CORBIS Vendor 10-34 Logistics for Fulfilling Catalog and Internet orders ■ When fulfilling orders from individual consumers, retailers ship small packages with one or two items to a large number of different places Distribution centers for picking and packing orders for consumers 10-35 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 10-36 Bull-Whip Effect The built up inventory in an uncoordinated channel where retailers and vendors do not coordinate their supply chain activities 10-37 What Causes a Bull-Whip Effect? ■ Delays in transmitting orders and receiving merchandise ■ Over-reacting to shortages ■ Ordering in batches rather than generating a number of small orders 10-38 Retailers and Vendors Work Together Four approaches for coordinating supply chain activities to reduce the level of inventory in the chain and reduce the number of stock-outs (in order of the level of collaboration) PhotoDisc/Getty Images ■ 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) 10-39 Initial Efforts at Coordinating Vendor and Retailer Supply Chain ■ Efficient Consumer Response (ECR) – Food Retailing ■ Trade Promotions => Forward Buying => Extremely Uneven Production ■ Motivation for Packaged Goods Mfrg Stop Price Promotion, Forward Buying Level Out Demand ■ Motivation for Supermarkets Rise of Warehouse Clubs/Discount Store • Use of EDLP Pricing Need to Become More Efficient Excessive Inventory - $30 Billion ■ Quick Response (QR) Apparel ■ Inherently Unpredictable Demand ■ Old Solution - Over Buying and Markdown ■ Quick Response (modeled after JIT) Provide Initial Assortment Forecast Sales for Intermediate Form Monitor Early Sales Make Final Assortment 10-40 Vendor Managed Inventory (VMI) ■ Manufacturer access to POS information ■ Replenishment automatically triggered ■ Enables demand-based view of replenishment & production planning – reduce bull whip effect 10-41 Vendor Managed Inventory (VMI) The vendor is responsible for maintaining the retailer’s inventory levels in each of its stores 10-42 VMI Logistics POS Make Decide Pack Buy Buyer Store Order Pick Receive Pack Sell Ship Store Ship Factory Warehouse 10-43 Why VMI Works Supplier Distribution Manufacturer Store Consumer b Order Time Demand Order Order Time Time Reduce Bullwhip Effect Time React to real demand can reduce inventory & out of stock 10-44 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 10-45 VMI—What 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 10-46 CPFR (Collaborative Planning, Forecasting, and Replenishiment) ■ Developed by VICS and adopted by ECR Europe ■ The sharing of forecast and related business information and collaborative planning between retailers and vendors to improve supply chain efficiency and product replenishment ■ The most advanced form of retailer-vendor collaboration that involves sharing proprietary information, such as business strategies, promotion plans, new product developments and introductions, production schedules, and lead time information. 10-47 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 10-48 Radio Frequency Identification (RFID) 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 10-49 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 ■ Consumers worry about privacy invasion 10-50