Retail Supply Chain

-
Overview and Challenges
Value proposition and Supply
Chain
 ZARA
 H&M
 UNIQLO

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Role of a supply chain

 Retail is a low margin business - Having the

right inventory is the key to a retailer’s success
 The effectiveness of retail supply chain can
dictate if the retailer will flounder or flourish
 Primary role of the supply chain is that of
breaking bulk and filling orders OTIF(On time
in full )
 Right product at right location at the right time
 Ensuring service levels while containing costs *

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 A Supply Chain performs two set of activities
 Physical Activities
 Market mediation Activities
 Physical Activities include physical movement of
raw materials into the firm, processing them to
finished goods, physical storage ,distribution to
the final customers
 Market mediation is related to addressing the
issues of mismatch between demand and supply

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Products : Functional
products
 Predictable demand
 Long product Life Cycle
 Low product variety
 Low Contribution margin
 Low stock out costs
 Cost Efficient supply
 chains seek to minimize physical costs production,
transportation and inventory storage

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Innovative products

 Unpredictable demand
 Short product Life Cycle
 High product variety
 High Contribution margin
 High stock out Cost
 Responsive supply chains seek to minimize market
mediation costs markdowns and stockouts

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Designing the right supply
chain for the right product

Source: HBR - What is the right supply chain for your product
Marshall L Fisher

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Physically Efficient V e r s u s
Market-Responsive Supply Chains
Physically Efficient
P rocess
P rim a r y p u rp o s e supply p r e d i c t a b l e
d e m a n d e f f i c i e n t l y at t h e
lowest possible c o s t
M a r k e t-R e sp o n siv e
P ro cess
respond q u i c k l y t o
u n p re d ic ta b le d e m a n d
in order to m inimize
s to c k o u ts , fo r c e d
m a rk d o w n s, a n d
obsolete i n v e n t o r y
The rate of n e w - p r o d u c t i n t r o d u c t i o n s has s k y-
r o c k e t e d in many i n d u s t r i e s , fueled both by a n
i n c r e a s e in the n u m b e r of c o m p e t i t o r s and b y
the efforts of existing c o m p e t i t o r s to p r o t e c t
or i n c r e a s e profit margins. As a result, m a n y
c o m p a n i e s have t u r n e d or tried to turn t r a d i -
tionally f u n c t i o n a l p r o d u c t s into i n n o va t i v e
p r o d u c t s . But they have c o n t i n u e d to focus o n
physical efficiency in the processes for s u p p l y -
ing those p r o d u c t s . This p h e n o m e n o n ex-
plains why one finds so many b r o k e n s u p p l y
c h a i n s — o r u n r e s p o n s i v e chains trying to s u p -
ply i n n o v a t i v e p r o d u c t s — i n i n d u s t r i e s such a s

Manufacturing f o c u s
Inventory s t r a t e g y
L e a d - tim e fo c u s
Approach to c h o o s i n g
s u p p lie rs
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maintain high a v e r a g e
utilization r a t e
g e n e r a t e high turns a n d
minimize i n v e n t o r y
t h r o u g h o u t the c h a i n
shorten lead time as l o n g
as it d o e s n ’t
increase c o s t
select p r i m a r i l y for c o s t
and q u a l i t y
deploy excess b u f f e r
c a p a c ity
deploy s i g n i f i c a n t
buffer stocks of p a r t s
or finished g o o d s
invest a g g r e s s i v e l y
in ways to r e d u c e
lead t i m e
select p r i m a r i l y for
speed, f l e x i b i l i t y , a n d
q u a lity
a u t o m o b i l e s , p e r s o n a l c o m p u t e r s , and c o n -
sumer p a c k a g e d g o o d s .
The a u t o m o b i l e i n d u s t r y is one classic ex-
ample. Several years ago, I was involved in a
study to m e a s u r e the impact t h a t the variety o f
o p t i o n s available to c o n s u m e r s had on p r o d u c -
tivity a t a Big Three auto p l a n t . As the s t u d y
began, I tried to u n d e r s t a n d variety from t h e
c u s t o m e r ’ s p e r s p e c t i v e by visiting a dealer n e a r
my home in the P h i l a d e l p h i a area and “ s h o p -
ping” for the car model p r o d u c e d in the p l a n t
we were to study. From sales l i t e r a t u r e p r o -
vided by the dealer, I d e t e r m i n e d t h a t w h e n
one took into a c c o u n t all the choices for c o l o r ,
in te rio r fe a tu re s , d riv e tra in c o n fi g u ra tio n s , a n d
o t h e r o p t i o n s , the c o m p a n y was actually o f f e r -
ing 20 million versions of the car. But b e c a u s e
Activities within supply chain

 Broadly the activities within a supply

chain can be broken into
 Planning
 Execution (Source, Make, Deliver & Return)

Planning Execution
• Ordering
• Forecasting • Receiving / Manufacturing
• Replenishment • WMS activities

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Forecasting

 System based forecasting

 Moving averages
 Smoothing
 Regression
 Expert or judgmental forecasting
 ‘We’ beats ‘Me’
 Use early sales to improve accuracy
 Flexible replenishment to buffer for
forecast errors
Greater the accuracy of the forecast, better is ability to meet customer
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Supply chain execution

 Supply chain execution is significantly

impacted by the retailers' inventory strategy
 Three Options of Inventory Management
 DC supply (Stable products with no special
handling)
 Put-away model
 Cross docking
 DSP model (Perishables)
 Vendor managed inventory (specialized pdt
categories) Service Levels
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Supply Chain Cost
Cross docking videos

 http://www.youtube.com/watch?v=Xr9z1NoXr8M
Supply chain process

 http://www.youtube.com/watch?v=e9RR17JDdSI
GST implication on the supply
chain network
 Eliminates need of warehouse in each state
 Lower fixed cost (manpower, Equipment etc.)
 Aggregation of demand reduces demand
variability and hence safety stock - Lower
Inventory holding
 Favorable transportation contracts usage of larger
trucks and higher economies in primary
distribution
 Reduced complexity /multiple transactions
leading to improved supply chain visibility

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Distribution network post GST
Further Reading
 World class Warehousing and Material Handling by Edward Frazelle
 The new science of retailing by Marshall Fisher and Ananth Raman
 HBR - What is the right supply chain for your product by Marshall Fisher
 HBR – Rapid fire fulfillment
 HBR – Mass customization at HP

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