Supply Chain Management in Retail

Supply Chain Management

Supply Chain Management encompasses every effort involved in producing and delivering a final product or service, from the suppliers supplier to the customers customer. Supply Chain Management includes managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer.

Supply Chain Management

A supply chain is a sequence of organizations - their facilities, functions and activities - that are involved in producing and delivering a product or service. The integration of business processes from the end consumer back to original suppliers, providing products, services, and information that add value for customers Supply chain management deals with linking the organizations within the supply chain in order to meet demand across the chain as efficiently as possible.

Importance
Why is supply chain management so important?
To gain efficiencies from procurement, distribution and logistics To make outsourcing more efficient To reduce transportation costs of inventories To meet competitive pressures from shorter development times, more new products, and demand for more customization To meet the challenge of globalization and longer supply chains To meet the new challenges from e-commerce To manage the complexities of supply chains To manage the inventories needed across the supply chain

Challenges
Why is supply chain management difficult?
Different organizations in the supply chain may have different, conflicting objectives Manufacturers: long run production, high quality, high productivity, low production cost Distributors: low inventory, reduced transportation costs, quick replenishment capability Customers: shorter order lead time, high in-stock inventory, large variety of products, low prices Supply chains are dynamic - they evolve and change over time

Supply chain Issues

Strategic, tactical and operating issues
Strategic - long term and dealing with supply chain design Determining the number, location and capacity of facilities Make or buy decisions Forming strategic alliances Tactical - intermediate term Determining inventory levels Quality-related decisions Logistics decisions Operating Production planning and control decisions Goods and service delivery scheduling Some make or buy decisions

Issues
Key issues in supply chain management include
Distribution network configuration How many warehouses do we need? Where should these warehouses be located? What should the production levels be at each of our plants? What should the transportation flows be between plants and warehouses? Inventory control Why are we holding inventory? Uncertainty in customer demand? Uncertainty in the supply process? Some other reason? If the problem is uncertainty, how can we reduce it? How good is our forecasting method?

Issues
Distribution strategies Direct shipping to customers? Classical distribution in which inventory is held in warehouses and then shipped as needed? Cross-docking in which transshipment points are used to take stock from suppliers deliveries and immediately distribute to point of usage? Supply chain integration and strategic partnering Should information be shared with supply chain partners? What information should be shared? With what partners should information be shared? What are the benefits to be gained?

Issues
Product design Should products be redesigned to reduce logistics costs? Should products be redesigned to reduce lead times? Would delayed differentiation be helpful? Information technology and decision-support systems What data should be shared (transferred) How should the data be analyzed and used? What infrastructure is needed between supply chain members? Should e-commerce play a role? Customer value How is customer value created by the supply chain? What determines customer value? How do we measure it? How is information technology used to enhance customer value in the supply chain?

Effective Supply chain

Creating an effective supply chain Develop strategic objectives and tactics Integrate and coordinate activities in the internal portion of the supply chain Coordinate activities with suppliers and customers Coordinate planning and execution across the supply chain Consider forming strategic partnerships Unlike a traditional distribution center in which merchandise is handled manually when it enters and is removed from storage, Automatic Storage and Retrieval Systems (ASRS) ensure that merchandise that is received is stored and drawn from storage automatically. This ensures first-in-first-out selection and reduces shrink.

Push/Pull View of Supply Chains

Pull processes: execution is initiated in response to a customer order

Push processes: execution is initiated in anticipation of customer orders

SUPPLY CHAIN DESIGN: Three Components

1. Insourcing/OutSourcing (The Make/Buy or Vertical Integration Decision) 2. Partner Selection (Choice of suppliers and partners for the chain) 3. The Contractual Relationship (Arm's length, joint venture, long-term contract, strategic alliance, equity participation, etc.)

Wal Mart-Hub and Spoke System

The hub and spoke system enabled Wal-Mart to achieve significant cost advantages by the centralized purchasing of goods in huge quantities..
and distributing them through its own logistics infrastructure to the retail stores spread across the U.S.

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Wal-Marts Procurement
Wal-Mart emphasized the need to reduce purchasing costs and offer the best price to the customer. The company directly procured from manufacturers, by passing all intermediaries. Wal-Mart finalizes a purchase deal only when it is fully confident that the products being bought is not available else where at a lower price. Wal-Mart spends a significant amount of time meeting vendors and understanding their cost structure. By making the process transparent, the retailer can be certain that the manufacturers are doing their best to cut down costs.

Using EDI for Procurement

The computer systems of Wal-Mart were connected to those of its suppliers. EDI enabled the suppliers to download purchase orders along with store-to-store sales information relating to their products sold.
On receiving information about the sales of various products, the suppliers shipped the required goods to Wal-Marts distribution centers.

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Logistics Management
An important feature of Wal-Marts logistics infrastructure was its fast and responsive transportation system. The distribution centers were serviced by more than 3500 company owned trucks.

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Cross-docking
To make its distribution process more efficient, WalMart also made use of a logistics technique called cross-docking. In this system, the finished goods were directly picked up from the manufacturing plant, sorted out and then directly supplied to the customers. The system reduced the handling and storage of finished goods, virtually eliminating the role of the distribution centers and stores. The manufacturer directly forwarded the goods to a place called the staging area. The goods were packed here according to the orders received from different stores and then directly sent to the respective customers.

Inventory Management
Wal-Mart invested heavily in IT and communication systems to effectively track sales and merchandise inventories in stores across the country. With the rapid expansion, it was essential to have a good communication system. Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own stocks, reducing pack sizes across many product categories, and timely price markdowns. Instead of cutting the inventory across the board, WalMart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most, while reducing the overall inventory levels.

Inventory Management
Employees at the stores had the Magic Wand, a handheld computer which was linked to in-store terminals through a radio frequency network. These helped them to keep track of the inventory in stores, deliveries, and backup merchandise in stock at the distribution centers. The order management and store replenishment of goods were entirely executed with the help of computers through the Point-of-Sales (POS) system. Through this system, it was possible to monitor and track the sales and merchandise stock levels on the store shelves.