Retailing
MKTG 3346
Retail Supply 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 retailer’s
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
aren’t 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 retailer’s 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


Barcoding
 Just-in-Time
Vendor Managed Manufacturing
Inventory