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

2. 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

3. 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
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4. 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

5. 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

6. Illustration of Supply Chain

7. 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
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8. 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
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9. 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
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10. 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
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Managers need to provide enough lead time for deliveries
Forecast demand accurately

11. Information and Merchandise Flow

12. Information Flow

13. 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
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14. Information Flow
1. When customer makes a purchase, sales associate scans UPC code or RFID chip on merchandise and customer credit card/loyalty card
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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
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15. 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
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6. Store managers inform distribution center about receipt of merchandise and coordinate deliveries
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16. 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

17. 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
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18. 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
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19. Benefits of EDI Reduces cycle time – inventory turnover is higher
Improves overall quality of communications through better record-keeping
Information can be easily analyzed
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20. 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
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21. 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

22. Merchandise Flow

23. 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
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24. 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
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25. Crossdocking
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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

26. Reverse Logistics Retailers recover loss through on-line auctions
© image100 Ltd
The McGraw-Hill Companies, Inc./Andrew Resek, photographer
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Customer Store Distribution Center Vendor

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

28. 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
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29. 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
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30. Initial Efforts at Coordinating Vendor and Retailer Supply Chain
Efficient Consumer Response (ECR) – Food Retailing
Quick Response (QR) - Apparel

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

32. 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

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

34. 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

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

36. Vendor Managed Inventory

37. 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

38. 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
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