Information Systems and Supply Chain Management Chapter 10 Information Systems and Supply Chain Management

Organizational Structure and HR Management Retailing Strategy Retail Market Strategy Financial Strategy Site Location Information Systems Retail Locations Organizational Structure and HR Management Customer Relationship Management

Supply Chain Management Supply chain management is the delivery of economic value to customers through management of the flow of physical goods and associated info from vendors to customers Ryan McVay/Getty Images

Strategic Importance of Supply Chain Management Opportunity to Reduce Costs Transportation Costs Inventory Holding Costs Provide Value to Customers by Making the Right Merchandise is in the Right Place at the Right Time Fewer Stockouts Greater Assortment with Less Inventory Improved ROI

Improve Return on Investment Return on assets = Net profit margin x Asset turnover Net profit = Net profit x Net sales Total assets Net sales Total assets Efficient Supply Chain Management  Higher Asset Turnover Same Sales Using Less Inventory

Illustration of Supply Chain

Benefits of Efficient Supply Chain Management Fewer stockouts – merchandise will be available when the customer wants them Tailoring assortments – the right merchandise is available at the right store Customers respond to the convenience as evidenced by increased sales Ryan McVay/Getty Images

High Return on Investment An efficient supply chain can improve a retailer’s ROI Increases sales – customers are offered more attractive assortments Net profit is improved by increasing gross margin and lowering expenses Inventory levels are lower, lower investment and total assets are lower with asset turnover higher PhotoLink/Getty Images

Wal-Mart’s Sustainable Advantage Wal-Mart’s success is its information and supply chain management systems. Why are competitor’s lagging behind? Wal-Mart made a substantial investment in developing its systems and has the scale economies to justify it. The software is unavailable elsewhere and is constantly updated and improved Ryan McVay/Getty Images

Minimizing Stockouts Stores need to place orders with distribution centers in a timely fashion Make sure merchandise in stockrooms is on the shelves Distribution Centers need to send right quantities Buyers place orders at the right time with vendors Royalty-Free/CORBIS Managers need to provide enough lead time for deliveries Forecast demand accurately

Information and Merchandise Flow

Information Flow

Flow of Merchandise Efficient supply chain would know the customer Store would advertise to these customers Buyers would purchase more of this wine Distribution center would be prepared to distribute the wine PhotoLink/Getty Images

Information Flow 1. When customer makes a purchase, sales associate scans UPC code or RFID chip on merchandise and customer credit card/loyalty card Steve Cole/Getty Images 2. Information about purchase is transmitted from POS terminal to the buyer/planner 3. Information about purchases are aggregated by buyer/planner and sent to distribution center and vendor to ship merchandise StockTrek/Getty Images

Information Flow 4. Buyer/planner communicates with vendor and places a purchase order to re-supply stores. 5. Buyer/planner notifies distribution center about incoming orders and how they are to be distributed to stores PhotoLink/Getty Images 6. Store managers inform distribution center about receipt of merchandise and coordinate deliveries David Buffington/Getty Images

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. It should. Experts estimate that it is second in size only to that of the U.S. government

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 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

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

Advantages of Using a Distribution Center Effects of forecast error for individual stores are minimized 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 Ryan McVay/Getty Images

Logistics Strategy Pull Supply Chain Merchandise shipped to stores based on sales and inventory levels in the stores Push Supply Chain Merchandise shipped to the stores based on forecasted sales rate (c) Brand X Pictures/PunchStock

Merchandise Flow

Activities Performed by Distribution Center Managing inbound transportation Receiving and checking merchandise Storing or cross docking merchandise Preparing merchandise for the sales floor Ticketing and marking Putting on hangers Shipping merchandise to stores Managing outbound transportation Ryan McVay/Getty Images

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

Crossdocking Ryan McVay/Getty Images Merchandise flows directly from the vendor’s trucks through the retailer’s distribution center and is loaded on the trucks going to the retailer’s stores without being stored in the distribution center

Reverse Logistics Retailers recover loss through on-line auctions © image100 Ltd The McGraw-Hill Companies, Inc./Andrew Resek, photographer Steve Cole/Getty Images Royalty-Free/CORBIS Customer Store Distribution Center Vendor

Bull-Whip Effect An uncoordinated channel of built up inventory when retailers and vendors do not coordinate their supply chain activities

What Causes a Bull-Whip Effect? Delays in transmitting orders and receiving merchandise Over-reacting to shortage Ordering in batches rather than generating a number of small orders Chad Baker / Ryan McVay/Getty Images

Retailers and Vendors Work Together By working together they can reduce the level of inventory in the chain and reduce the number of stockouts. Use EDI Exchange information to reduce need for backup inventory, improve sales forecasts and production efficiency Vendor manage inventory Collaborative planning, forecasting and replacement PhotoDisc/Getty Images

Initial Efforts at Coordinating Vendor and Retailer Supply Chain Efficient Consumer Response (ECR) – Food Retailing Quick Response (QR) - Apparel

Packaged Goods Manufacturers Promotions > Advertising consumer promotions - coupons trade deals Why? Short-Term Orientation Competitive Reaction Power of Supermarkets

Efficient Consumer Response 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

Response by Manufacturers P&G - Reduce Consumer Promotion Increase Advertising Build Brand Image, Loyalty Reduce Price Sensitivity Every Day Whole Price - No Trade Promotions

Mfg-Distributor/Retailer Fashion, Clothing – Quick Response Consumer Inherently Unpredictable Demand Old Solution - Over Buyer and Markdown Quick Response Provide Initial Assortment Forecast Sales for Intermediate Form Monitor Early Sales Make Final Assortment

Vendors and Retailers Working Together Inherent Conflict Motivating Collaborative Solutions Mutual Idiosyncratic Investment – Credible Commitments – Schilling (NATO Troop) Need Safe Guards Trust vs. Contracts

Vendor Managed Inventory

Radio Frequency Identification 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 (c) Digital Vision/PunchStock

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 Jeff Maloney/Getty Images