Supply Chain Management

 Supply

Chain Management is the integration of business processes from end user through original suppliers that provides products, services, and information that add value for customers.

 Strategic

Importance:

Opportunity to Reduce Costs
 Transportation Costs  Inventory Holding Costs

Provide Value to Customers by Making sure the Right Merchandise is in the Right Place at the Right Time
 Fewer Stockouts  Greater Assortment with Less Inventory

 Strategic

Importance:

Improved ROI:
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

The Flow of Information and Merchandise

Customer

Sales info

Quick response systems

Buyer

Stores

Vendor - - - - Merchandise flow

Distribution center

Information flow

When customer makes a purchase, sales associate scans UPC code on merchandise and customer credit card/loyalty card Information about purchase is transmitted from POS terminal to the buyer/planner Information about purchases are aggregated by buyer/planner and sent to distribution center and vendor

Buyer/planner communicates with vendor and places a purchase order to re-supply stores Buyer/planner notifies distribution center about incoming orders and how they are to be distributed to stores Store managers inform distribution center about receipt of merchandise and coordinate deliveries

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 is estimated that it is second in size only to that of the U.S. government

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EDI is computer-to-computer exchange of business documents between retailers and vendors Merchandise sales Inventory in hand Orders Advanced shipping notices Receipt of merchandise Invoices for payment

Merchandise is sent from vendor either to the retailer’s distribution center (1) or directly to store (3) Retailers send merchandise from its distribution center to its stores (2)


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Receiving and checking merchandise Managing inbound and outbound transportation Storing or cross-docking merchandise Preparing merchandise for the sales floor ◦ Ticketing and marking ◦ Putting on hangers Shipping merchandise to stores

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


Retailer has only few outlets Many retail outlets are concentrated in metro areas Important to get merchandise as soon as possible:
◦ Latest video games, music, fashion etc ◦ Perishable merchandise

Pull Merchandise shipped to stores based on sales and inventory levels in the stores

Push Merchandise shipped to the stores based on forecasted sales rate

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QR Delivery Systems are inventory management systems designed to reduce the retailer’s lead time for receiving merchandise Lowers inventory levels Improve customer service levels Reduce logistics expenses Vendors and retailers should equip with adequate computer hardware and software

Requires a different type of distribution center ◦ Picking and packing individual items sent to customer (vs. receiving, storing, and cross docking cartons to stores) Multi-channel retailers may outsource fulfillment of Internet orders to third party

Transportation  Warehousing  Freight Forwarders  Integrated Third Party Logistics Services

Buildup inventory in uncoordinated SCM system leads to ‘Bullwhip’ effect Coordination achieved through:
◦ Using EDI ◦ Sharing information ◦ Vendor Managed Inventory (VMI): Vendor replenishes inventory based on the data of the retailer ales movements ◦ CPFR: Collaborative Planning, Forecasting and Replenishment – developed by Walmart+P&G

Advantages:
◦ ◦ ◦ ◦ ◦ Reduced warehouse and distribution labor cost Reduced point-of-sales labor cost Accurate inventory information Reduced theft Reduced out-of-stock situation

Impediments to the adoption of RFID:
◦ Cost of RFID tag: 30 to 40 cents – should come down to 5 cents ◦ Reluctant to process the data