Literature review of

Logistics in Modern Retail Trade

READ By

Tanapong Mongkhonkitwanit (5310745351)

Rungpol Virochpaka (5310745858)

This paper was prepared for Selected Topics in

Entrepreneurial Economics

Taught by Dr. Worawan Toommongkol

Faculty of Economics, Kasetsart University, Thailand
Introduction

This topic focuses on logistics in modern retail trade. It will show you what modern

retail trade in term of logistics is, how it is become very significant in the internationalizing

business world, how to use supply chain management to create effective logistics in modern

retail trade and also it includes how technology impacts to logistics in modern retail trade. In

traditional retail trade, it normally uses the supply chain management. And what about supply

chain management in modern retail trade? This topic is going to talk about the methods and

strategies that improve logistics supply chain such as RFID, Barcode, ECR, JIT, QR, WIP,

CPFR, EDI and etc. As the context in this topic, it will show readers how to improve the

logistics supply chain in modern retail and what should be implemented to make the whole

logistics supply chain more efficient. This topic also provides the information about

integration among supply chain components and especially in the relationship between

manufacturers and retailers. Technology is one of the important factors that can develop

logistics. One of my teachers told me that logistics is all about technology because

technology is the way to drive the whole economy system works. Using information

technology we can easily share the data and create a new opportunity to do logistics more

efficiently. It can reduce overall logistic costs and increase business profit to the firm.

Moreover, this topic included the trend of using Technology in logistic in the Future. This

topic that we wrote, we mostly use the knowledge from the lessons that we have been

studying since we were freshmen at Kastsart University and also the literature review on the

Internet and books. If there is any mistake, please accept our highest apologies.

Group members
What is retail trade in terms of logistic?

The retail trade is the management to sell the goods for any purpose of usage

including personal and household use.

The retail trade in terms of logistic is how to manage the goods flow in the whole

supply chain in order to increase the efficiency to meet customer satisfaction and cost

reduction to the components in supply chain especially for retailers and value-added

procedure to customers.

Moreover, as the traditional retail trade in retail outlets was controlled by

manufacturers and it very much miss affair. From the traditional retail trade with

globalization to modern retail trade that came along with logistic supply chain management,

retailers have recognized that they need to involve with the supply chain management, which

can be benefits both of services and cost reduction. Huge efforts have been made to

reorganize the system including reprioritize the movement of products along supply chain

procedure from production to consumption. To illustrate, as a student in Economics of

logistic areas, it can be imply that they want to shift from expected demand of goods to meet

the actual demand in order to produce the right amount with the lowest risk to loss.

Although, retail trade in terms of logistic is how to manage the goods flow in the supply

chain management to meet the customer satisfaction and cost reduction to supply chain

components the management that can be made in this retail trade have to be more precise

because due to the globalization nowadays. To illustrate, the development of technologies,

we can use the benefits of improvement of technologies such as Radio Frequency

Identification to make the system better and effective and it also can be benefits to meet up

the higher standard of customer satisfaction than it used to be. The transformation in
conceptualization from traditional to modern retail trade and derives the best outcome can be

costly due to the components of “Logistics Mix”. Logistics mix is including storage facilities,

inventory, transportation, transportation, utilization and communication.

The above components in logistics mix mostly are very costly but effective if we can manage

all of them well enough. Due to the retailers is one of the components in the supply chain,

they need to improve their ability to meet the lowest cost and maximize profit, in order to do

so, they really need to have a good supply chain management or even until remove some

functions out from ourselves and outsourcing logistics service provider because they

specialized it what they do. For example, warehousing, distribution center, transportation and

etc. Not only the components of logistics but also the good communication and information

flow among supply chain are significantly needed. Therefore, in order to reaches cost

reduction and maximizing profit of every components in supply chain management and

“Such developments clearly require supply chain cooperation and coordination” (Gustafsson

et al, 2006).
 Using supply chain management to create effective

logistics in modern retail trade

Nowadays, the development for managing retail is increasing because of the

technological improvements and high level of competition in the market. The goals of every

retailer are to meet customer satisfaction with maximum profit and minimum cost.

International brands found this critical issue. To achieve the goal, they have to reorganize

both of internal and external perspective. “ Such developments clearly require supply chain

cooperation and coordination “ (Gustafsson et al, 2006). As stated byGustafsson, the

integration of components insupply chain management is significant to increase opportunities

for internationalizing of customers good manufacturers. Most of the integrations require

strong relationship between manufacturers and retailers.

Moreover, statistic information (Lounela, J., Lorentz, H. (2008), P.13What is modern

retailing) shows 20-37% of customers will switch brands if out-of-stock (OOS) situations

occurred. This information can reflect as bad management in supply chain in terms of

inventory management. To reach customer satisfaction, the strategy to maintain customer

happiness and serve the customers demand should be well managed.In order to reach the

goals, there are several ways to make the whole supply chain efficient in terms of retail trade.

The management or strategic management should be implemented to increase the

efficiency in the framework to manage the inventory system from manufacturer until end

users. For example, Efficient customer response (ECR), Just in time (JIT), Quick response

(QR), Work in process (WIP), Collaborative Planning Forecasting Replenishment (CPFR)

and Electronic data interchange (EDI). These mentioned strategies should be implemented.
 To illustrate, “Efficient Customer Response” (ECR), is the main focus areas

addressed under ECR management. It can be defined as category management, product

replenishment and enabling technologies.

Source: Cooper & Lybrand, 1996 [Retrieved from (Lounela, J., Lorentz, H. (2008)]

This figure above shows the relationship of the components in ECR.

First, “Category management” is the process of managing and coordinating the

existing things that happened in all around the company. In this case, it can be defined as

optimize introductions, optimize assortment, optimize promotion and establish infrastructure.

Furthermore, This process is to categorize overall that exist in the company such as all the

departments, inventory, marketing plans, company images and infrastructure to optimize for
the best outcome. After finished this process that will leads to the next process, which is

Product replenishment.

Second, “Product replenishment” is the performance measures related to both demand

and supply. Moreover, the performance that can be measures must have the 4 elements,

which are integrated suppliers, synchronized production, continuous replenishment and

automated store ordering. Four of these elements are the main factors to drive product

replenishment successful and with these four elements, it will leads into two sides, which are

reliable operations and cross docking. With, product replenishment can be seen into two

sides, it must follow by technological improvement for integrated the system together with

optimum efficiency. Furthermore, the demand and supply are also considered. Demand is

focused on sales and store development to meet sales efficiency. Retailers focus on customer

satisfaction and consumer value. In brief, demand is focused on forecasting the right demand

to meet the best outcome for customers. In terms of supply, logistics costs are concerned such

as inventory held or distributions cost, service level, shelf availability as in logistics

reliability and as in administrative accuracy; invoice accuracy, master data precision are

included.

Third, “Enabling technologies” of ECR can measure the level in particular industry

standard. From the above statement product replenishment included reliable operations and

cross docking which both of these strongly require the technological improvement, which are

enabling technologies. For example, electronic data interchange (EDI), Electronic fund

transfer (EFT), item coding and database maintenance and activity-based costing (ABC

analysis). EDI is the flow of information by using Electronic. EDI can interchange the data

among supply chain components to increase the accuracy of products flow or material to

meet the efficient amount for usage. EDI can be high cost for small business but medium-size

to large-scale business should consider developing EDI to help manage the flow of products.
For example, as RFID or barcode system works to calculate available stock of products, the

digitized information in computer software system will flow this particular information

among supply chain components to show the amount of available stock of products and it

will be active the manufacturers to ship the products to retailers instead of traditional retail

that wait for out-of-stock and call to order products. Just in time can be use in terms of EDI

and item coding and database maintenance.

“Just in time” is adopted to reduce or eliminate lead-time and cost.JIT concept is

“zero- inventory”. This concept can be made but hardly done. If the retailers have no

inventory but on shelf products, it means that particular retailer have to have very good

replenishment system. The term Quick Response (QR) was coined in US in 1989 (Fermie,

1994, Hines, 2001). According to Kurt Salmon Associates (KSA), “only 11 weeks out of the

66- week lead time in the pipeline are spent in the form of Work-In-Process (WIP) are

finished inventories at various stages of the complex system”, (Christopher, 1997, 1998;

Christopher and Peck, 1998; KSA, 1997). This statement shows the important role of supply

chain management such that supply chain management must have quick response in

individual supply chain components. Furthermore, as the part of enabling technologies,

electronic fund transfer (EFT) is significantly required in terms of financial section. Activity-

based costing (ABC) is one of the most important analyses to make in here. ABC is

prioritizing the costs into order to see that what exactly influence the most and the least of the

activities made in the company. ABC must perform in the company to analyze the cost in

order to understand and well-managed costs to be sustainable development plan.

Next, the integration of components in supply chains both in external and internal

channels. We can use CPFR as Collaborative, Planning, Forecasting and Replenishment to

improve the system. The basic idea of CPFR is to make use of information technology to

manage the system. To be more precise, collaborative planning can be grouped, Collaborative
planning is the best strategic for both internal and external use to collaborate among supply

chain components. If the manufacturers and retailers collaborated and well planned, things

will be easier.

To result the best collaborative planning, forecasting and replenishment processes are

required to be optimized by using information technologies incorporating between

manufacturers and retailers which will results in more accurate customer’s demand.

Replenishment is one of the most important factors in the retailer’s stocks

management process. Customer satisfaction and brand loyalty will be lost if out-of-stock

situation is triggered, which will results in further customer’s product preferences.

Replenishment can be said as the part in the process of refill the products to retailers that

related to customer preferences of products consumption as out-of-stock situation can

switched customer mind to buy another products instead of the predetermined products.

Finally, the integration of strategic uses to perform the efficient system of supply

chain management significantly requires all components in SCM to work with the maximum

performance and especially in the improvement in advances technologies such as RFID,

barcode, computer software system and etc. The strategic usage to perform the efficient

system main objective is to have a very good information flow among supply chain

components, in this case, especially in manufacturers and retailers relationship.

Technologies Development in Logistics in Modern Retail

Trade

Since there is high competition among businesses, each firm tries to make the most

efficiency productivity, the highest profit and the lowest possible cost. Those lead to

development in its product, business strategies, business techniques and business tools. One

of the driving forces is “Technologies”. For example, it provides new and unrestricted access

with no limitation in all areas. It reduces lead-time and you can work anywhere you want.

Another example is warehouse technology. Technology in warehouse has changed

dramatically with computer devices in use from the office space to the forklift. Moreover, we

can use extensive use of technology to allow real-time tracking of orders, material and

automatic replenishment.

The development of the technology is depended on the investment of the firm and

depends on firm’s profit. From the macroeconomic theory, Cobb-Douglas production

function is  =  !! ! !!!! . That means the income of rental firm is depends on technology,

capital and Labour. On the other hand, to increase technology, the income of rental firm must

be increased. Therefore, if firm has positive business profit, the firm will consider investing

in new technologies. However, if firm has negative turnover, the firm may consider to not

investing. Another factor that affects technology movement is stock market. A fall in stock

prices might reflect bad news about technological process for example, if stock market falls,

no investor is going to buy stock because investors see that they are not going to make any

profit in the bad economy situation. Therefore, it makes firms in stock market have no capital

to buy or develop a new technology.

 Old technology will be replaced by new technology. If new technology can reduce

logistics overall costs. The firm has to make decision whether buy a new technology or keep

using old technology. It depends on how much new technology costs and the performance of

the new technology would be. If the new technology is quite expensive and the performance

of old technology and new technology is pretty exactly the same, firm may consider not to

buying the new technology. In contrast, if the new technology is not too expensive and the

performance new technology is a lot better, firm may consider to buying the new technology.

Firm also has to think that its employees can use this new technology or not. If not, how

much it costs to hire new employees that have ability to use this new technology and firm

may also think of how much it costs to replace old employees. Therefore, firm has to do

“Trade-off Analysis” whether buy a new technology or keep using old technology. The

picture below shows the research that firms tend to use the technology that is cheaper and

more performance. This research shows the order placement methods seem to be changing

from the example of fifty companies.

Order-Placement Trends

Source: Coyle, J., Bardi, E. and Lanqley, C. (January 22, 2002) Management of business logistics (7th Ed.)
 For the inventory system, Barcode is one of the technology that help retailers. Bar

Coding are standard markings that can be read by automatic or handheld scanners that allow

labour saving logistical activities for all supply chain members. Barcodes contains

information regarding vendors, product types, place of manufacture and product price.

As we are in “Information Age”, people can easily access to the information or share

their information to another person or even public no matter where they are with the internet

and World Wide Web. Those brought to a shift of traditional trade to modern trade. E-

Business (electronic business) is the organized effort of individuals to produce and sell, for

the profit, the products and products and services that satisfied society’s needs through the

facilities available on the Internet. To be in the e-Business, it is required to have 4 types of

resources including human resources, material resources, Information resources and financial

resources. Human resources are such as Web site designer, Programmer and Web masters.

Material resources are such as computer, software, high-speed internet connection lines.

Information resources are such as customer tracking system, order fulfilment and tracking

system and online content-monitoring system. Financial resources investors interested

supporting e-business firm and electronic payment from customers. The internet has created

new customer needs. E-business can satisfy those needs as well as traditional ones including

Global access to information and entertainment, virtually unlimited selections of products,

Opportunity for transaction and individually custom-tailored content.

E-Commerce can be defined as buying, selling and exchanging activities conducted

online. The process of e-commerce is consumer identify suppliers and select products or

services, make purchase commitments, complete financial transactions, and obtaining

service.
 The advantages of E-commerce are following by Lower operating costs, reduce

paperwork, reduce sourcing time, improve control over inventory, improve procurement

efficiency, find new supply sources, improve communications, improve personal use, lower

cycle item, reduce procurement prices, improve comparison shopping and reduce overall

price paid. However, the disadvantages of E-commerce are following by Security of

electronic messages, Lack of face-to-face contact, Standard protocol and System reliability.

In the future, disruptive technologies are those will help to make firms more

competitive, but will change the basis of competition. The internet will continue to expand

along with related technology. E-commerce, e-procurement and electronic marketplaces will

continue to grow in importance. Also, facilitates seamless connectivity of people and

processes throughout logistics and supply chain management. Asset will be smart asset (e.g.

trucks will know when they need to repair, building will personalize environments depending

on which people are within: etc). It will be availability of E-commerce-based markets for

products and for logistics and supply chain services, enhanced efficiency of access to higher-

quality knowledge, pertaining to logistics and supply chain initiatives, facilitates use of

comprehensive network design software and significantly increases the size and scope of

problems that can be analyzed, significant reductions in length of cash-to-cash cycles, drives

more meaningful collaboration and information sharing throughout the supply chain,

facilitates customer views of products to be purchased and visualizes logistics assets and

efficiency or loading. Interaction with computers by voice rather than digitize electronic,

manufactures will become their own suppliers by the automatic replenishment system.
References

-­‐ Cartmell, P., (2011, October 14). What Is the Meaning of Retail Trade?. Message

posted to http://www.ehow.com/facts_6798176_meaning-retail-trade_.html

-­‐ Anonymous. (2009) On what is CPFR?. Message posted to

http://www.logisticafe.com/2009/10/cpfr-

%E0%B8%84%E0%B8%B7%E0%B8%AD%E0%B8%AD%E0%B8%B0%E0%B9

%84%E0%B8%A3/

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-­‐ Coyle, J., Bardi, E. and Lanqley, C. (January 22, 2002) Management of business

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-­‐ MANKIW, N. (March 29, 2010) Macroeconomics (7th Ed.)

-­‐ Pride, W., Hughes, R., Kapoor, J. (2011) Foundations of Business (2nd Ed.)

-­‐ Literature of Cross docking (http://www.logisticafe.com/2009/08/cross-docking/)

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analysis(http://www.logisticafe.com/2010/06/%E0%B8%AA%E0%B8%B4%E0%B8

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