Retail Distribution and

Replenishment
 Today’s consumers leverage technology to make life easier, simpler and more
meaningful. They consume digital information constantly, exhibit a short
attention span, and choose to engage only with information that is personally
relevant to them at a specific moment

Consumers demand instant gratification and are intolerant towards sub-

optimal service

CONSUMER Before completing a single purchase, they traverse several channels,

TRENDS
demanding a seamless brand experience.

In order to attract, acquire and retain such omni-channel consumers, retailers

need to understand them and their preferences even before interacting with
them.

Retailers need to strengthen relationships with their existing customers; and

increase new customers by ensuring that the customer experience is
consistent across channels, and that products, services and associated
information are available - anytime, anywhere.
 The typical distribution channel for the consumer
goods company is a multilevel structure, while a
company manufacturing capital goods may sell its
products directly to the user without involving any
channel member.
Depending on the product and other marketing
variables, the manufacturing company opts for or
DISTRIBUTION designs a particular structure that fits into its
CHANNEL marketing philosophy and policy.

The major considerations are the cost of distribution,

wider coverage and maximum market penetration.
 Enterprises regularly evaluate the relative advantage of distributing
or buying products direct as contrasted to using the services of
wholesalers.

In some industries the trend is away from wholesalers, while in

others, wholesalers appear to be gaining in popularity.

Pharmaceutical and healthcare products are increasingly handled

WHOLESALERS through wholesalers, which permits faster delivery and lower
inventory to be maintained by pharmacists and hospitals.

The growth trend in mail order and telemarketing also has a

potential major impact on traditional marketing channel structure
for some retail industries.

Changes in the composition of demand, structure of supply, number

of channel participants, and traditional channel relationships need to
be regularly monitored to maintain logistical relevancy.
 A successful multi-channel strategy offers
customers a consistent quality of experience,
whichever channel they use. The customer's
experience in buying a product influences their
MULTI perception of the brand.

CHANNEL
STRATEGY
It must be ensured that all customer-facing staff in
the contact centres, retail outlets, order processing
departments and website development understand
and comply with the company's customer service
standards. Policies such as returns and delivery
charges should also be consistent across each
channel.
MULTI CHANNEL STRATEGY

Majority of shoppers conduct their pre-purchase research on the Internet, although

they may use other channels to make the final purchase. Therefore, an informative
website is a key element in a multi-channel retailing strategy

While operating a multi-channel strategy, the retailer has the option of charging the
same price for a product across all channels, or offering the customers different
prices, depending on their channel choice

Offering customers website prices that are lower than store prices is common
practice and reflects the lower overheads in website operations. The customers also
have a choice between lower online prices and personal service in the store.
 A multi-channel strategy gives the ability to
expand business on a national or global
scale without investing in further physical
stores.
MULTI An e-commerce website can be designed to
operate in multiple currencies and with local
CHANNEL content to attract customers in many
STRATEGY countries.
Business can be conducted across multiple
time zones with no restrictions on opening
or closing times.
LOGISTICS AND • Logistical strategies are, in part, determined by channel
structure.
DISTRIBUTION • All enterprises, regardless of size, must conduct
CHANNELS
immediate logistical operations within a defined set of
business relationships.
• Supply chains consist of relationships that exist among
businesses in buying and selling of products and services.
• An enterprise must plan and accommodate changes in
channel structure. In many situations managers should
actively stimulate change when logistical performance can
be improved.
 LOGISTICS AND DISTRIBUTION
CHANNELS
The distribution channel is the place of transaction for the firm’s products and it acts as an interface
between the customer and the firm.

However, the effectiveness of this interface is greatly dependent on the efficiency of the logistics
operation to move product in the required quantity and variety with speed. In fact, logistics programs
have to be tuned to the needs of channel members to reduce the loss of sales opportunity.

The basic role of logistics in the distribution channel is to ensure smooth movement of product to make
them available at distribution outlets as and when they are required by the customer.

This is not an easy task, since it involves a great degree of planning for material availability and movement
at the lowest cost and with speed.
 Logistics Elements for retail

STORAGE INVENTORY TRANSPORTATION UNITIZATION AND COMMUNICATION

FACILITIES PACKAGING
SCM and the Bullwhip effect
In a supply chain, the variability of demand is magnified as orders flow
upstream (end-customers to distributors to manufacturers to Tier-1 suppliers
to Tier-2 suppliers)

This phenomenon is called the Bullwhip Effect

The bullwhip effect impacts many companies across different industries

Causes
The Bullwhip effect is mainly caused by demand forecasting errors and by
inefficient supply chain management policies (such as lot sizing). It may also be
impacted by trying to reduce freight costs through sending larger batch sizes

Companies try to anticipate increases in demand and use buffer inventories to

avoid stock-outs

As a result inventory builds up throughout the supply chain and increases

overall operation costs
DISTRIBUTION CHANNEL
STRUCTURE
Channel structure refers to the group of channel members to
whom a set of distribution tasks have been allocated.

The channel structure plays a vital role in the physical

distribution of product.

It primarily facilitates product flow from the manufacturer to

the end customer through a hierarchy of channel members.
Relationships in the Supply Chain
Participants – retailer, wholesaler, distributor, manufacturer, logistics service providers

Power and dependence

Trust and commitment

Co-operation and co-opetition

Development of technology

Growth of e-commerce and multi-channel

Impact on Retail Logistics

Improvement of
Increased
logistical Adoption of QR
control
systems

Rationalization Increased return

Growth of SCM,
of primary flow (recycling,
ECR
distribution sustainability)
 Retail Distribution Models

Supplier Retailer

Retailer Warehouse / RDC

Supplier Supplier Warehouse / RDC Retailer

Supplier Retailer

Supplier Supplier Warehouse / RDC Retailer Warehouse / RDC Retailer

Typical Steps in the delivery
process

Supplier inventory
Supplier truck Advance shipping
check, order picking
scheduling and notice (ASN) sent to Actual dispatch
and dispatch
routing the store
activities

Verification of
receipt, quality Merchandising at Invoice / payment
Receipt at store
checks and store level process
inventory updates
 Retail Replenishment Models
Collaboration/
Trust

CPFR

Vendor
Managed
Inventory
Retailer driven
Continuous
Replenishment

Evolution
 Retailer driven replenishment
Review inventory,
re-order levels

Forecast, Safety stock, Decide on

Logistically efficient replenishment
quantities

Purchase order with EDI

quantity, date, Process Order
location

Update invoice on
Receipt
VMI

Vendor Management Inventory is a means of optimizing supply chain performance in

which the supplier has access to the customer’s inventory data and is responsible for
maintaining the inventory level required by the customer – APICS Dictionary

VMI is a strategy used by companies to overcome the bullwhip effect and reduce costs

VMI is also referred to as CRP – Continuous Replenishment Program

Key Aspects of VMI
The manufacturer (or
supplier) is responsible
It is a collaborative Data collection and
for maintaining the
supply chain initiative storage is centralized
retailer (or customer)
inventory levels

Supplier has access to

Consignment inventory
Business systems are the customer system and
and co-managed
integrated and share is responsible for
inventory are similar
information generating purchase
approaches
orders
Benefits to the Retailer
Improved customer service levels
Lower product purchase cost
Improved product delivery
Reduced supply uncertainty
Few distress purchases and/or expediting
Reduced working capital
Lower planning and ordering costs
Benefits to the Supplier
Improved demand visibility

Better customer service through reduced stock-outs

Improved cash cycle and reduced inventory levels

Reduced logistics costs

New service opportunities

Increased customer loyalty

Automated data exchange and reduced processing costs

 VMI Information Exchange
Daily Sales data from Past sales, stock Supplier
Retailer
POS, Stock status, System
System Promotions
Planned promotions

Determine Sales forecasts,

replenishment Other planning
details parameters
Order Confirmation
Review order and
make changes if Generate VMI order
required
Order Acknowledgment
Process VMI Order
Receive ASN and ASN and send ASN for
prepare for receipt of
delivery
material
CPFR

Collaborative Planning, Extends the collaboration

An industry-wide guideline
Forecasting and between retailers and
and standard
Replenishment suppliers

Extends beyond forecasting

to collaborative product
Unlike VMI, CPFR is a two- development,
Supported by IT vendors
way collaborative approach transportation, store design
and shared logistics
strategies.
 CPFR Approach

Develop
Create Sales Create Order
collaborative
Forecast Forecast
arrangement

Create joint Identify exceptions Identify exceptions

Generate Order
business plan to Sales Forecast to Order Forecast

Resolve exceptions Resolve exceptions

to Sales Forecast to Order Forecast
Performance Measurements
Inventory turns and the
Average inventory
distribution centres and Stock-outs at the store
carrying costs
the retail stores

Leadtimes, product
Fill-rates from the
Customer service levels freshness and
supplier
wastage/spoilage

Planning and ordering Transportation vehicle

costs utilization
Changes in Retail Logistics
Direct store delivery

Home delivery

Amazon and Flipkart

Swiggy and Zomato

Drones
DIRECT STORE DELIVERY

Direct Store Delivery (DSD) is a term used by retailers to specify products that are delivered directly to the
retail stores and placed on the shelves by a distributor and some time by the manufacturer.
DSD is generally available for the following product categories:
-Soft drinks
-Bottled water and mineral springs
-Juice
-Beer
-Spirits
-Ice creams
The advantage of using DSD is that the manufacturer establishes direct contact with the customer’s store
at the Point of Sale which can be used to improve customer retention and customer relationship through
personal service.
• Managing Retail Home Delivery
This is common for certain retail categories such
as white goods and furniture, which are difficult
to be carried home by the consumers
themselves. The retailer takes the responsibility
of door-delivering the items and, in some cases,
helping in installing or fitting the item.
The concept of home delivery was
revolutionized by some food retailers whose RETAIL HOME
business model was built around this concept.
DELIVERY
Home delivery has a separate set of logistics
challenges for the retailer. He needs to make
transport arrangement and drop boxes of
relatively small sizes for hundreds of homes
which have to be reached within a particular
time.
METRICS
Inventory turn at distribution centre
Inventory turn at retail
Average inventory carrying cost
Stock out levels at store
Fill rates from the suppliers
Customer service levels
Reduction in lead time and product freshness
METRICS
Planning and ordering cost
Customer ordering errors
Percentage of sales people time dealing with replenishments
Percentage reduction in paper work
Number of shipments
Truck utilization
Summary

Development of supply chain

relationships
Collaboration with CPFR