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Supply Chain Management

A Retailers Guide to

R etail Co uncil of Canada

Founded in 1963, Retail Cou ncil of Can a d is the Voice of Re tail. It is a n ot-for-profit association w hose mo re a th an 9 ,0 00 m embers repre sent all re tail formats, inc lu di natio nal and regional dep artment sto res, mass ng me r - c h a ns, s pecialty c hains, independent sto res and online merc h a ns. t t RC C s peaks for an indus try that to uch es the daily liv es of Ca n a dians in e v e corner of the cou n t y ry r by pro vid ing job s; con sumer valu e; world-class product selection; and the colour, sizzle and enterta in m e of the marketplace. nt Can adian re tailers take pride in their industry and the co ntr ibution it makes to the cou n tr ys well-being. And wh e ne v er the o p portunity pre sen ts itself, RC C is there prom oting retail as a caree r; as a portal to the world of wo rk; as an ec o n o ic driv e r; and as a barometer of c onsumer ta s te and c o n ifdence. m s Retail Cou ncil of Canada 1255 Bay S treet, Suite 800 Toronto, O ntario, M 5R 2 A 9 Tel: 1-8 88-373-8245 E -mail: info @ret ailc ou ncil.org w ww.ret ailco un cil. or g

A B O U IBM T
IBM is the worlds larg est information tech nolo gy company, w ith ove r 80 years of leadership in helping busin ess es innovate. With c onsult- a n ts and professional staff in mo re th an 160 cou n tries globally, IBM Business Co n sulting Services provides clients with business process and industry exp ertise, a deep understanding of tec h nolo g y solutions that address specific industry issu es, and the ability to design, build and r un those solutions in a way that deliv ers bottom- line va lue for Can adian business es. For more information, c o ntact: IBM Can a d Business Con sulting Service s a Re tail Practice 10 Yo rk Mills Ro ad, Suite 400 Toronto, O ntario, M 2P 2 G 7 Attention: L ino Casalino, Can adian Re tail Lea de r, lino.casalino@ca.ibm.com Visit w ww. i b m. com / b c s /re t ail

A Retailers Guideto SupplyChain Management

Table of Contents
Executve Summary i Introduction W hat is Supply Chain M ana gem ent and why is it important for retailers? What are the typical Supply Chain issues faced by Canadian retailers? What are some of the current Supply Chain initiatives retailers are working on? What tools are available to enable improvements in Supply Chain Management? Where is Supply Chain Management heading in the future? What steps should retailers be taking now to improve their Supply Chain? Glo ssary of terms Online Reso urces Abou the author t 3

ExecutiveSummary
During the p a s fe w deca d e retailers have bee n facing increasing t s, competitiv e pressures fro m a number of sources. In a bid to improve profitability and efficiency, retailers are seeking wa y s to reduce costs, improve efficiency and enh a n custome r service ce through efficient supply chain management. H owe v e to m a age r, n the supply chain most effectively, retailers must understand exactly w hat the supply chain en co mpass es, its key con epts, c and co m on issues and challenges the y ma y fa ce a s they m implemen t a workable strate gy. With pre valent issu es such a s high inventory levels and lo w service levels, Canadian retailers are embarking on numero us initiatives to improve their supply chains. Th e s initiatives are e wide-ranging. O n one end of the spectrum, retailers are still struggling with the basic s m anual processes, da ta inaccuracies, and disp a rate syst ms. O n the other end, retailers are investigating the use of e e merging practices and tec h n ologies aimed at deliv ering su b sta ntial improve m e in performance. nts M any retailers are tu rning to technolog y to improve their supply chain. Tech nolo gy alone will not drive o ptimization ; however, it ca n be a performance enabler. Typically, retailers have imple m e nted best- of-breed solutio ns or hav e custom-developed their ow n applications. Supply chain planning, e ven t man agemen t and pro c u rement tools are some of the many popular off the shelf software tools available for retail enablement. Understanding what th e s tools offer and how the y can enable retail process e s is e the first step in choosing the right software for their business. H owe v e initiatives in th e s areas must h a v e strong business r, e sponsorship and a n associated business case. Even with the right tools in place, a re tailer will hav to implement e a v ariety of strategie s to obtain a competitive supply chain. S ome of these strategie s include developing a n innovative supply chain vision, focusing on differentiating competencies, utilizing dyn amic global sourcing and implem enting deman d sy n ch ronization. With the appropriate roadmap in place, supply chain excellence ca n be a key competitive differentiator for any re tailer. With these factors in mind, this paper provides an overview of supply chain m a n gem e in a retail setting, trends and a nt business issues that su rround it, current initiativ es, available tools, and strategies for successful implem entation as retailers move forward. .

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A Retailers Guideto SupplyChain Management

Introduction: What is Suppl Chain Management y and why is it important for retailers?
Supply chain management is a well-know n te rmthat ha s been highly publicized throughout the business community during the p a s tdeca de. In its most generic sense, it is a te r m that re fe to the flow of products and services from suppliers to manufacturers and retailers through to the rs ultimate d estination the consumer. It also refers to the flow of information backwards and forward through the supply chain between the co nsumer, retailers, manufacturers and suppliers, en abling the rapid replenishment of existing products or the development of new product to s meet chan ng market demands. But how is supply chain man agement de fined for retailers? gi Supply ch ma n a ain gement fu nc tions w ithin a retail environ m e include the planning, execution, o ptimization and measurement of the nt following: sourcing /pro c u rement, Collaborative Planning Forecasting and Replenishmen t (CP FR), demand foreca stin g (as it p ertains to product q u a nitie s and time require m e t nts), inventory replenishment, inbound and outbound trans portation, store logistics and ware house man agement. While e ach of the s e func tions are processes unto themselves, they are all rel ted and should, in effect, be inte g a rated and considered holistically rather tha n in isolation. Further, supply chain ma n a gemen t should be tightly inte grated w ith merchandising, assortmen t planning, m arketing (n ew product introduction), information technology, fin ance, and human resource ma n a gement.

Supply chain ma n a gemen ts importa nce ha s been gaining m omen- tu m and fo cus from retailers. There are numero us reaso ns for this. During the pa s two deca d e major changes in supply chain man agemen t ha vebeen driven across a v ariety of industries by some comm o n t s, trends: Con su mers ha ve b ecome increasingly demanding in te rm sof their expectations of price, selection, availability and quality of both products and services. The y are seeking higher degrees of product and service customization. Emp owered customers e xpect on-time delivery, self-s ervice with real-time orde r c o nfg uration and status information, and o ptimally priced product/s ervice b undles. i Product lifecycles ha v es h ru n k dramatically, and a s a result, speed- to-market and product innovatio n ha v e become critical to corpo - rate success. The de velo pm ent of n ew techn y solutions and the increasin g utilizatio n of the We b h a v een abled o ptimization and connectivity between olog trading p artners. This is evidenced by collaborative hu b e-pro cu ent solutio ns, o ptimization alg orithms and e ven t man agement s, rem solutions. Supply chains ha veb ecome increasingly global and complex, presenting greater challenges in managing supply and demand. N ew customer and dis tribution channels are bein g developed, then enhanced by technological in novatio ns and geo graphical expansion. Existing c h a nnels are unde r pressure and require constant ch a n e to retain market position. g Figure 1. On-demand Maturity Model

A Retailers Guideto SupplyChain Management

Comp anies h a v dramatically increased their use of global sourcing partners for cost and capability reasons, ex tendin g the number e of pla y e involved in delivering valu e to a customer. rs Cost reduction co n e s to be a major corporate agend a item, and the costs inherent in the supply chain ma n a tinu gemen t func tions tend to be significant in te rm sof overall corporate spend. Current m ar- gin pressures are s e v ee, and supply chain performa nce is focused increasingly r on the overall business impact and shaeholder value. r The s etrends h a v emoved industries fro m the static and func tional view of the 1980s through to the horizo ntal process view and eventually the external collaboration view of the early 2000s. The future of supply chain ma n a gement will be one of on-demand a nenviron m e where c ommunities of suppliers, manufacturers and retailers are linked by a supply chain We b communicating in a real-time, nt sense-and-respo n environment. This will be enabled by techn e s such a s Radio Fre q u cy Identificatio n (R FD), wire- less, and mobility d ologi en I infra str ctures. We will dis cuss the outlook for supply chain management in later sectio ns. u The retail industry ha s fa ce tremend o u change and challenge when it comes to supply chain ma n a d s gement. In fact, there are some uniqu e characteristics of retailin g that increasethe complexity of the retail supply c hain : Retail is a highly variable business. Whether it is the time of year, the we ather outside, the relative confidence of cons umers or product prom otions, retail demand for products and services fluctuates throughout the year. T his fluctuation ha s a tre m e ousimpact not only for nd retailers who must ensure that products arrive on their shelves in the most cost-effective manner, but for all m embers of the supply chain who deal with the complexities of product lead times and production dep ende ncies. Retail complexity is high. Re tailers typically ca rry tens of thousands of sto ck keeping units (SKUs), furthe r proliferated in complexity by the number of pe rmutations and c o m binatio ns associated w ith store-s pecific assortments. Can a d v a st geo - graphical as area, which force s retailers to deal w iththe re quirements of both rural and urban locations, also adds to the complexity.

 Retailers are the last node prior to the consumer in the supply chain. W hy doe s this matte r and w hy doe s this create added complexity for the retaile r? Most suppliers and manufacturers will ship in pallet quan tities. The retaile r mus t tak e the s e pallet q u a nitie s and break them d ow n into store-required q u a nitie s of ca s e sand units. While a m anufacturer will typically ship a relatively small t t nu mber of SKUs to the retailer, the retailer must receive a hig h nu mbe r of SKUs and sort these SKUs into store shipments. Depending o n the ty p eof retailer, the store shipm ents could include vas different products soaps, sho e bottles, electronics, glassware and shirts tly s, all requiring different typesof handling. The in-store logistics process must then take the s ebox/unit shipm ents and place the units on the shelv e sbefo re they are purchas d by the consumer. e Retail is multi-channel. Consumers purc h a s eproduct from retail sto res, We b sites, kiosks, mail order and catalo g u e. Some product s is picked off the shelf directly. S ome product is shipped to consumer households. S ome product is ordered via the We b and then picked up at the retail outlet. The variety of logistical scenarios must be carefully planned and e xecuted so that product is shipped w ith optimal s ervice to the consumer and m inimal cost to the retail organization. In this con ext, effective supply chain man agement b ecomes importa nt for retailers a s it can help them balance supply and dem and. t It ca n assist retailers by ensuring the right product is available for consumers, thereby reducing out-of-stock merch andise and providing optimal s ervice levels. It ca n provide a m echa nism for establishing stro nger relatio nships with suppliers and business p artners. Finally, the supply chain func tions in a retail environ m e tend to accou n t for a hig h percentage of the costs and assets associated with o pe nt rating a retail environ m e Therefore, retailers who have connected their supply chain processes, implemented enabling technologies, and nt. streamlin ed their asset base will likely be higher p erformers th a nretailers w h oh a v eloosely implemen ted disparate sy s ems. t

A Retailers Guideto SupplyChain Management

What are the typical Supply Chain issues faced by Canadianretailers?

A s Ca n a retailers co n dian tinue to loo k at their ope rations to identify o pp ortunities for improve m e many are dealing w ith issues in their supply nt, chain, including: High inventory levels. A s discussed earlier, inventory reduction is viewed a s a ke y opp ortunity for Can adia n retailers. In fact, retail inventory is seen, globally, a s the single most important lev e r for re tailers to co ntol costs, particularly during w eak econo ic times. In the r m IB M /E x e c u tiv e c h n o lo g ye ta il IOO u tlo o p ublished in April 2003, the inventory man agement category wa s identified by T R C k 35 p e rc en t of global CIOs a s the greatest opprtunity to cut costs through invest ent in tech nolo gy. o m Low service levels to retail stores. In some cas es, retailers struggle to ensure that the right product is available in the right qu an tities at store level. Some re tailers h a v targeted specific growth categories, but ha vebeen u na e to translate their growth plans e bl into improved category p erformance, largely d ueto o pe rational inefficiencies. O thers suffered a s a result of consumer feedback, a n indication that the retail outlets seemed to h a v efre q u out-of-stocks, affecting consumer brand image for the re tailer and in creasing lost ent sales d ue to out-of-sto c k Out-of-stocks could represent 2 per cent to 3 per cent of additional sales, rathe r th an lost sales. s. High transportation and logistics co s Deliv ering to h undreds of locatio ns across Can a d acan represent a high cost for m any ts. Ca n a dian retailers. Further, m anagin g in-bound product that a rriv e s fro m all ove r the world adds to the complexity (s uc h a s length y lea d times) and cost. Retail logistics costs, including distribution cen tre o p e ns and transportation costs, ca n typically range from ratio 3.5 pe r c en t to 4.5 pe r c en t of sales. Complexities assoc iated with global sourcing. Offerin g an assortment of products to the co nsumer that is competitive and of value often m eans retailers must search the globe for the bes t possible product at the lowest cost. This m eans sourcing from around the world, which carries the added complexity of lengthy product lead-times and supplier labour man agement. Supplier product costs could be a s hig h as 70 pe r cent of re venues, depending on the product category.

 Outdated and/or non-integrated technologies. Re tail is a n industry p o p ulated by a wide v ariety of solutions area s s uc h a s point-ofsale (PO S), merchandising and assortment man agement, business in telligence, fina ncial ma n a gement, and labou r s cheduling. In most cas es, re tailers are running leg acy applicatio ns or a m yriad packa ed software applicatio ns that need to be interfaced. Retailers typically g spend less than 2 per cent of re venu es on information tech n gy. olo Innovaton is diffused throughou the indu i t stry. The retail industry will benefit from accelerating the spread and imple m e - tatio n of n innovative technology a business practices. M any of the innovations will bring limited bene fits e ven for companies imple m e nd nting them unless the innovatio ns are widely and quickly adopted w ithin the industry. (Source: Re tail Supply Chain Industry Innovation Panel Report, Re tail Council of Can a d aO ctober 2002.) , While m a retailers do not fully understand their tru e supply chain process costs, estimate s ra nge from 11 per cent to 15 per cent of ny sales, repre senting a very significan t cost ba se for any retailer operating in tod a y difficult environ m e A t the roo t of all the s eissu es is s nt. da ta . For m any Ca n a dian retailers, data man agemen t continues to be a major thrust whether it is product, inventory level or price accuracy. For this reason and many others already discussed, supply chain ma n a gement has been a key priority for Canadian re tailers. It is e xpected that supply chain m an agem e t will continue to be a ke y priority for Canadian retailers a s a result of the following: n Wal-M a co n es to de fine ope rt tinu rational excellence in the area of supply chain ma n a gemen t and retailers are takin g lesso ns from he worlds t large s tretailer. Can adia n retailers also ack no w ledge that to beco me a player of world-class status and to compete in the global retail ec o n o m y, the y mus t come e quipped w ithworld-class supply chain ope rations and kn o w-how. With the ongoing global instability, u ncertain ty ove r the directio n of in tere s t rate s and fluctuating oil prices, Can adia n retailers h a v edealt w ith a le vel of consume r co nfdence and spendin g which in the p a s t12 m o nths i amou nt d to slo w (or in some retail se gmen ts negative) e same-store sales growth. This slow growth left m any retailers w ith more inventory in their stores and dis tribution centre s th a n there was demand for, thereby forcing retailers to loo k at cost reduction o p p ortunities a s a m eans to improve corporate profitability.

A Retailers Guideto SupplyChain Management

The proliferation of tech nological adva ncemen t and communica - tio n standards such as R F I G lobal Tra de Item Nu mbe r (GT IN), ECCnet D, and others are forcing retailers to understand the s eglob- al/local initiatives and how the y can potentially apply them to opti- miz e the supply chain in their o w nenviron m e For instance, the Uniform Code Council, Inc. (UCC) ha s an no nts. unced the 2005 S u n date initiative. This initiative requires U.S. and Can adia n retailers to ha v e the capability to scan and process E AN-8 and E AN-13 rise symbols, in addition to 12-digit UPC symbols, at the POS by January 1, 2005.

What are some of the current Supply retailers are working on?

Chain

initiatives

Companies tod a y are placing more emphasis o n the supply chain to transform their business model. They are radically chan n g the wa y a n gi organization senses, thinks, inte rp and reacts. M or and more, suc rets e cessful companie s are organizing their supply chains horizontally (a s o ppsed to the traditio nal vertical func o tional silos) and orche s rating end-to -end extended supply chains, or valu e ch in n etworks. The y are t a extending the four walls inside their ente rpis e s by inte g r rating mo re w ith the outside through sharing know ledge and innovatio n with suppliers. Re tailers are reviewing their supply ch practice s and defining visions for the future; but at the s a m time, they are fixin g the basic s ain e cleansing da ta, defining improved metrics, standardizin g business processes and practices, training staff, and inte grating tec h n gy olo all in ho pes of developing a low-cost supply chain that competitively positions the organizatio n for the future. Let us examine w hat Can adia n retailers are cu r ently doing to improve their supply chain, focusing on c u r ent initiativ es. (Future initiativesand trends will be explored in a late r section.) Collabora tive Planning, Foreca sting and Replenishment (C PFR). Retailers are interested in finding wa y sto reduce invento - ries and improve their ability to both anticipate and fulfill cons umer demand. The y are improving their forecasting and merch andise planning activities and finding wa y sto work w ithmanufacturers and suppliers to reduce cycle times and inventories throughout the entire supply chain. The y are also lookin g at wa ysto replenish inventory rapidly through auto-replenishm e tools and ways to improve working capital suc h nt a s Sca n- ased Trading. B Radi Frequency Identification (RFID) asses ment. Canad ian re tailers are assessing o s technology. They are closely watchin g Wal-M a and other ke y rt and in some ca s e piloting R F ID s

retailers, includin g Metro AG, to dete rm ine the readiness of the techn ology and the success of rollout efforts. More importantly, they are developin g their ow n business ca s e sto link the us e of R F IDtechn ology to business be n and imple m e efits ntation costs. M e AGs Future tro Store Initiative has deliv ered very stro ngresults to date results that will increase the visibility and popularity of retail technologie s s uc h a s R F D. Concerns, while minor, are mostly asso- ciated I w ithprivacy issu es for example, the exten t to which retailers h a v e know ledge about the products consumers h a v e their homes. in Buying optimiz ation. Re tail organizatio ns are p erforming strategic sourcing reviews, streamlinin g their buying practices and policies and inves tigating the p o ential for e-pro c u t remen t technologies, particularly for non-merc h a e spe These projects tend to be low-risk ndis nd. but are associated w ith high returns: reduction in uncont rolled, u napproved spendin g from 5 pe rcent to 30 pe rcent; bulk dis count savings of up to 2 0 p ec en t;and, significant reduction in adm inistrative costs. They are also con ng to review their merch andise buying practices r tinui and looking for wa y s to reduce costs, improve inventory levels and b ette r man age their ba s e of suppliers. This is particularly important for Can adia n retailers wh o are sourcing products from around the globe. Data synchroniz ation. Re tailers are also lookin g at way s to syn c h roniz e their da ta w ith that of their trading p artners. It has been show nthat inaccuracies in the supply chain co nt ibute to approximately 10 to 15 per cent of total out-of-stocks. In addition, standards in r data syn ch ronization s uc h a s UCCnet and ECCnet h a v ecre ated a comm o n wa y for retailers and manufacturers to de fine product and pricing information. Data syn ch ronization enables rapid purc h a s eorder and invoice reco n ciliation, elim nate s da ta re-entry and reduces catalo g u i e e rrors. For example, the Hardline s E-Collaborative Com merce Committees in the U.S. and Can a d aare bringin g together buye and rs sellers to implemen t e-com merce solutions that improve cons r value in the overall hardlines supply chain. ume Reviewing supply chain network infrastructure. R evisiting the supply c hain n e work is no small fe at. Few retailers are t interested in reviewing the cost-effectiveness and service levels supplied by dis tribution cen tres to re tailers acro ss Ca n a d aThis . process normally involves utilization of sop histicated algorithm s that take large amou nts of da ta and dete rm ine costs and b e n fitsof e alte rn ative n etwo rk d esigns. There are other retailers w h o are constructing n ew dis tribution centre s to support their growth and productivity objectives.

A Retailers Guideto SupplyChain Management

Outsourcing non-core functions. A t a macro level, the retail industry has not yet, unlike other industries, outsourced core business process es such as hu m a resources. Howev er, retailers hav e outsourced supply chain fun ctions and continue to outsource n application man agement services (not c omplete outsourcing of information technolo gy, but rather outsourcing of selec ted application support func tions, suc h a s help desk). Legacy application replacement. S ome Ca n a dian re tailers are running portions of their supply chain with custom-de velo ped applicatio ns, but more and more of these custom applicatio ns are being replaced w ithpacka ed software applicatio ns. For example, a number g of Ca n a retailers are replacing their legacy ware house man agement solutions w ith off-the-shelf packa ed software. The s eprojects tend no t dian g to fo cus o n the techn g y alone but involve c h a n es to busin ess processes, pe ople, the organization, and metric s in orde r to olo g improve s ervice levels from he distribution centre and/or lower service costs. t Supply chain visibility / inform ation flow. Canadian re tailers are looking for ways to improve supply chain visibility across the entire pipeline. Supply chain event man agement tools ha ve provided the capability to view end-to -end processes across the supply chain. This end-to -end view ca n help identify bottlen e for both product and information flow, allowin g appropriate resolutions to tak e place. cks Supply chain processe automation. M any supply c hain automa- tion applications now exist in retail. Automated data collection is a s common application, due to the increase d use of data collection d evices and the high penetration of data warehouse. Also, many s technologies in the logistics space such as robotics hav improve d productivity dramatically, justifying their initial capital ex penditure. e While some of th e s initiatives involve the imple m e e ntation of tech- nology, retailers are developin g business ca s e sto sup port c h a n e s to their g supply chain environ m e The tech n gy initiatives are usually pre ce by a business process improvemen t initiative and su b s e qen t nt. olo ded u business ca s e linking the identified process and organizatio nal ch a n e s w iththe technology implementation. g

What tools are available to enable improvementsin SupplyChain Management?

There are a number of tools available to enable effectiv e retail supply chain man agement. The s e tools s p a na variety of pu rp s some are ose used to man age planning; so me are used for transaction-level processing ; some are used a s o ptimization algorithm s; others are inte gration tools that link suppliers to manufacturers to retailers. The retail industry is ch arac terized by a plethora of different systems. In fact, most retailers hav e taken a best-of-breed approach to their information technology architecture, as opp osed to imple m e nting Ente rp R esource Planning (E RP),(which is more w rise idespread in the consumer pack aged goods industry). Lis ted belo w are examples of off-the-shelf software sy s em s that impact and enable supply chain m a agem e t in a retail environ m e This is t n n nt. not mea n tto be a n ex h a ustive list of tools, nor is it mea n tto repre sent a ratin g of a vailable products. It is simply repre sentative of the p o ential t tools a vailable in each category. Merchandise and assortment planning systems. While some w ould argu e that merchandi ing and assortment planning s func tions are not supply chain func tions, they do h a v a n impact on a retaile rs supply chain as the y impact store service levels and e inventory levels. Tools from GERS, JDA, Retek, S A Pand STS can be used to assist in the merch a is ing and assortm ent planning nd process. M or broadly, th e s tools offer additional capabilities in supply chain m an ag e m n t from both a planning and executio n e e e pers pective. Supply chain planning and optimization. In te rm sof CP F Rand/or any o ther typeof retailer/supplier collaboration, there is a variety of tools available to retailers. Some of the aforementioned tools (from JDA, Rete k and S AP, plus tools offered by People Soft and Oracle) offe r Web-based collaboration func tionality. There are also other specialized tools from i2, M anugistics and Syn ch Systems. In addition to ra CP F R and Web-based collaboration, both i2 and M anugistics offer transportatio n o ptimization fu nc tionality as well as supply chain n etwork o ptimizatio n tools. They utiliz e alert-typ efunc tionality and exception-based ma n a gement to high- light issuesin the supply chain that require man agemen t attention.

A Retailers Guideto SupplyChain Management

Warehous Management System s (WMS). There are a wide variety of W M Sproducts in the marketplace to sup port the needs of the e retail industry, s uc h a s Catalyst, E X Eand M anh ttan. W M S roducts tend to focus on o ptimizing the flow of good within the fou r walls a p s of the distribution centre, but also offer some func tionality aimed at inbound an d outbound trans portatio n planning and execution. Event management. There are a number of products, includin g some listed above, which offe r e vent man agement func tionality. Th e s e products enable detailed tracking of supply chain e vents such as product movement or e quipment breakdo wn (i.e., supplier dow ntime) and provide m echanisms to identify alt e rnatives. Products include i2, Manugistics, Red Prairie, S A Pand Viewlocity. Marketplaces and exchanges. There are a number of market- places that can be utilized to improve supply chain m a agem en t n p erformance. Transportation organizations such as the N ational Transportation Exc h a n e (NTE) and Freightwise provide a mec h a - nism for g re tailers and manufac turers to buy and auction trans portation s pace. Simple auction marketplaces such as eBa y are being used to sell close-out or defective but saleable inventory and supplies no longer required by retailers. The World Wide Re tail Exc h a n e (W W E) g R offers members func tionality s uc h a s collaboration, data synchronization, negotiations and auctions, demand aggregation, and order man agement. Procurement tools. While some of the bro ade r off-the-shelf products from JDA, Retek and SAP offer procu ent func rem tionality and We b tools to assist in the pro cu remen t process, other more s pecialized e-pro cu remen t tools exist (e.g., Ariba, which is bein g used by STAPLES B usiness Depot, Targ et and Hallmark).

 Data synchronization. As is the ca se w ith othe r areas, some of the bro ade r applicatio n solutio ns such a s S AP, JDA , Syn ch and i2 ra offe r solutions for da ta syn ch ronization. ECCnet offers Canadian retailers a standardized online forum for da ta, images and bar code communication. O ther marketplace tools are offered by Trigo, L ansa and IBM (Websp here B usiness Inte grator and Crossworlds). RFID. Radio Fre q u cy Identificatio n is a highly popular topic for supply chain professionals. The con ept of taggin g pallets, ca s e sand en c item s w ith a radio freq u ency-enabled tag that ca n be rea d im m e ately and enable real-time tracking of product throughout the supply di chain is a con cept that is expected to transform supply chain man agemen t a s we k n o wit tod ay. Third-party logistics is not a tool in terms of application software but is worth mentioning because it can enable improvements in supply chain. A number of retailers hav already outsourced a portion of their supply chain to a third-party logistics organization. A n outsourcing e relationship, if properly man aged, can benefit a retaile r in terms of improving service le vels while reducing overall costs.

A Retailers Guideto SupplyChain Management

W hereis Supply Chain Management headingin the future?

A nu mbe r of retailers are taking the ne cessary steps to simplify their supply chain, reduce overall costs, reduce sto ck-out occu rences and reduce inventory levels. The y are looking at the implicatio ns of technologie s s uc h a s wireless and R F ID n the supply chain. But ho w would one o describe the cha racteristics of the future supply chain? Based on know ledge of w hat supply chain leaders in various industries are planning and doing both within and outside of the retail industry we ha veidentified the strategies that successfully competitive supply chains are utilizing. The y include : Innovative supply chain vision A fo cus o n differentiatin g competencies Dynamic global sourcing and demand synch ronizatio n Use of emerging tec h n ologie s

Figure 2. Integrated Retail Supply Chain Model

S ou rce :IB M B u sin e ss onsultin S e rv ic e2 0 0 4 C g s

Innovative supply chain vision. The winners in tod a ys competitive landscape will deploy smart supply chain models that deliv e r ga me-cha n ng s gi tandards of service at competitive cost. They will connect the end -to -end valu e chain and differentiate supply chain approaches ba sed o n product/customer se gmen ts. Successful innovation is the key driver for revenue growth, c ompetitive m argins and, in some ca s e e ven survival. In creasingly, this innovation h a s to be deliv ered through a virtual n etwork of partners working together in s, a collaborative environ m e to bring product and s ervice s to m a fa s te, sm arter and che aper. Re tailers such as Wal-M a and Zara h a v e nt rket r rt developed ga me-cha n n g supply chain s that provide their organizatio n s w ith a competitiv e ad vantage. gi Focus on differentiating competencies. The trend tow ard global sourcing and increasing use of p artners for supply chain activity is set to continue, fueling the growth of n etworked value chains. Re tailers are alrea d y sourcing global products and in creasing t eir use of h partners for areas such as logistics, transportation and distribution. Drivin g this trend is the imperative to not only see k unit cost advantage and sec ure best m a cap abilities, but also to sh a risks with partners and cre ate a pay-as-you -use variable supply chain model. rket re Operatio ns excellence in m anaging all supply chain fu nc ns remains a foundation for any world-class supply chain. Howev er, a n ew tio perspective on o pe ns excellence is re quired, no t only in what a company does but also in what a companys supply chain p artners do and ratio ho wa business orchestrate s them.

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A Retailers Guideto SupplyChain Management

Dynamic global sourcing and demand synchroniz ation. Global sourcing pa ttern will contnue to shift dyn s i amically in search of lower-cost sources. In addition, retailers will contnue to rationalize and harm nize their own global value chain resources in search of more i o efficient and effective means of satisfying global cu s tomer demands. Fast, flexible, efficient and transpaent respons to chan ng cus r e gi tomer demands and supply shock remains the goal for supply chain management and will b e essential to compete in this n e wworld. s Use of emerging technologies. Innovative new technologies (such as R FI ) co n e to e merge that en h a ne and transform supply D tinu c chain capabilities and afford n ew wa y sto deliv e r and fina n techn g y infra str cture o n a pay-as-you-use basis. This typeof model will be ce olo u a critical enabler that delivers new cap abilities, enha n s R O and sup ports fa s modular implementatio n of supply chain co n ce I t, cepts across multiple valu e chain p artners. For example, a major retailer cre ated a supply chain that is driven by customer demand and supply chain e vents. The first to implement supplier electronic collaboration, which was extended to Vendor M a n aed Inventory (V M I),this company is n o wusing g R F ID and scanners for inven- tory ma n a tags gement, auto-replenishmen t and loss prevention.

What steps should retailers be taking now to improve their SupplyChain?

1. Asses where you are now s Transformatio n of the retail supply chain is a jou rne y and re quire s a roa d map, or structured approach, on ho w to g et there. The journey should begin w ith a dia gn ostic ass essmen t of your companys cu r ent supply chain performa nce, and comparing it to a future end state. The assessm ent should also a naly z ehow your company is positioned relative to leadin g practice s of o ther companies both w ithin and outside of the retail industry. As a company matures through the various stages of a static ente rp rise model fu n c tiona l o ptimization, horizontal process integ ration, ex te rnl collaboration, on-demand supply chain certain cha a racteristics are evident. A dia g n ostic ass essmen t will help you dete rmine where you are o n the maturity model and help you prioritize initiatives that will ha vethe gre ate s t impact on shareholder valu e and ROI. Ba sed on this assessm ent of your supply chain maturity in te rm s of processes, organizatio nal aptitude and enabling technologies, you can begin to formulate a supply chain vision and strate gy. 2. Develop a strategy for making change ou r strate g yshould include the following ke y s teps:

 Identify the companys core supply chain differentiators and cap abilities, and assess cu r ent p erformance. Dete rmine which fun c tions could be better p erformed by a partner, and begin to identify th e s partners. e Define the supply chain process compon ents and needs for organizatio nal reconstruction. D e ifne the measurem ent framework, which is aligned w ithbusiness objectives and goals. S et targ ets and thresholds for the ke y supply chain performance indicators. Evaluate the financial and o perational value to be achieved in term s of financial perform ance and operational performance ch a cteristics such as cycle time, quality and s ervice level attainment. Us e modeling tools to simulate end-state fin a n statements ra cial and operational perform a criteria. nce De fine the real-time information and co n nectivity vision, including an open and services-based tech nolo gy architecture, required to support the vision. Prioritiz e which initiatives will ha v ethe greatestimpact on growth, ope rational excellence, R O and shareholder value. I 3. Create a roadmap to achieve transformation Transformation re quires a ro a d m that e stablishes the steps required to achie v e ap the vision. Each supply chain componen t h a sassociated performa nce criteria both fina ncial (e.g., costs, re venu e influence) and operational (e.g., cycle time, quality, service level attainment). The initiatives w iththe gre ate s tbusiness impact, both fin a n cially and o p e rationally, ca n be prioritized and implem e nted w ithspeed to bring valu e to the organization. A transformation port- folio should be cre ated which focuseson the s eprioritized initiatives. 4. Achieve the benefits of a new approach A n ew m in dset is required for imple m e nting the strategy. The old model of fixed strate g yand long implem e ntation times is dead. In its place, companies are dem anding either rapid R O or an R O that is self-funding, w ith a modular approach to implem e I I ntation, often involving pilots followed by a scale-up. M or scr tiny is now bein g placed o n the delivery and trackin g of b e n s, helping to ensure that b e n fitsflow through to the bottom line and e u efit e that multiple supply chain initiatives d o not d ouble account for b e n fitsand ov erstate the business case, especially in inventory and e process cost reductio ns. O n-dem and implem e ntation approaches (e.g., gain sh aring, pay-as-you-use) can provide the impetus to kickstart major transformation program s and g e n erate the ch a n e momentu mrequired to build a longer-termvision. g

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A Retailers Guideto SupplyChain Management

G L O S S A ROF T E R M S Y
3PL (Third Party Logistics): The use of an outside party to perform some part of the logistics func tion, typically trucking or warehousing. It is appro priate if there are eco nom ies of scale in logistics fu nction. A BC (A ctivity Based Costing): An accou nting method that attemp ts to closely associate costs, particularly indirect costs, with the activitie s that generate the costs. ASN (Adva nce S hippin g N otice): An electronic message from the shipper (or supplier or sender) to the customer that the product ha s been shipped and is expected to a rriv e d uring a specified time in terval. A SP (Application Service Provider): A ifrm that provides both computing power and business software to business e s via the Web. A business that use s an AS P can be billed pe r transaction, so that a small firm m ight be able to us e a powerful piece of software w ith having to p a y a high fixed out licens e fee for it. APS (Adva nced Planning & Scheduling): A computerized system that ex tra cts real-time information from the supply chain, with which to calculate a feasible schedule, resulting in a fast, reliable resp o e to the customer. A P S utiliz e s plannin g and scheduling ns techniqu es that consider a wide ra nge of constrain ts to produce an o ptimized plan. Ass ortment Planning: A process to define a retaile rs selection of mercha se. Includes both the depth and breadth of products ndi carried. B est of Breed: System s or func tions that exhibit the highe s t level of performa nce in their class. Tra d e o c c u r in multipleoffs fu n c system s when the costs of inte grating s e v eal system s tion r offset the benefits of having the b es t system in each individual area. C PFR (Collaborative Planning, Foreca stin g and Replenishment): A set of g uidelines for ho w participa nts in a supply chain sh are information, mainly forecas ts and plans for pro m o ns. See http://w ww.cpf.org tio r

Client/Server ERP: A networked information processin g architecture in which informatio n and the E R Pprogram are sto red o n both servers and clients, and processed coo pe ratively a s the client processor interacts w ith the serv er. Task s ma y be local, sh a or centralized. red, Collabora tive Hubs: An informatio n technology solution that transparently h an dles the transfer of nformation i between trading p artners. Cross Docking: A system for o pe rating a distributio n cen tre in which product from inbound vehicle s move almost im m e ately to outbound vehicle s w ith bein g put into storage. di out The supplie r of the inbound product ma y be a completely different firm from the receive r of the outbound product. The major purp of a cross-docking distribution centre ma y be to ose break bulk at some level (e.g. dow n to the skid level). Demand Foreca sting: The process of calculating and predicting future demand e vents usually based o n extrapolation fro m pastexp erience, and w ithvarying de gree s of u ncertain ty. Demand Synchroniz ation: The timely and accu updating rate of any item (i.e., product) information within and across ente rp e s to en sure a consistent match of data between the ris owne r/origi nator of the product da ta and all users of the data. ECCnet: Can a d online, standardized product regis try for as syn ch ronized data exc h a n e. Product listing through the g ECCnet regis try is alread y a standard term and condition of tra de in the Can adia n grocery, pha macy and fo o d ervice sectors. r s E-Procurement Solutions: Softw are sol tions that allow u the p urch a s and sale of supplies and services over e elec tronic n e wo rk s suc h a s the Inte rnet. t ERP (Enterp rise Rsource Planning): A comprehensive e software system that has coordinated modules to perform all the standard business data processing fu ncions s uch a s: t general ledger, accou n t receiv able, accou n t p ayable, asset s s man agement, H R /paroll, foreca sting, purchasing, y inventory, materials re quirem ents plannin g (MRP), production planning, ware house man agement, sales, orde r ma n a gement, and distribution.

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A Retailers Guideto SupplyChain Management

Event Manage ment Solutions: Information tec h n g y that allow s extraction and analysis of real-time information from the olo supply chain. Th e s solutio ns can monitor the status and pro m o tethe execution of events throughout the production and distribution e process fro m sourcing to ordering to delivery. GTIN (Global Trade Item Nu mber): A code, similar to UPC, for identifying products or SKUs. Lost Sales: A n a nalysis of actual/poential unsatisfied demand d u eto lac k of inventory. t Marketplaces and Exchanges: Virtual medium that allow s comm on groups of entities to undertake business transactio ns. The y can fo cus o n eithe r indirect or specific direct good and services, and may be built around v ertical (industry specific) or horizo ntal (cross s industry) lines. Maverick Spending: R e fes to purchase mad e w ith non-prefe r ed or non-contacted s ervice providers and may mean higher prices are paid r s r for good and services, service level agreem ents w ith contacted s ervice providers are n o th o n s r oured and potential probity issues. Merchandise and Asso rtment Planning Systems: Information systems that allow a n organization to effectively advertise, prom o e, and t organize the sales of a particular product. Generally involves both in-store and outside store activities that prom ot a product, including pricing, e assortment, product placement, signa displays, etc. ge, Merchandising: The activitie s associated w ith sellin g products, such as identification of the market, advertising at the right time in the right media, and cre ating attractiv e packa n g and displa ys. gi Optimization Algorithm s: An unambiguous formula or set of rules for solving a problem in a finite nu mber of steps resulting in an optimal solution. O utsourcing: The hiring by firm X of an outside firm Y to perform some activity Z that might otherwise be performed by X. POS (Point-of-Sale): Data typically accumulated by retail scanners. Users of the se d ta ha veup to the minute information on ho w a much of w hat product wa s sold when and at which outlet.

Postponement: A modificatio n to a productio n and distribution process, so that some operation on the product is d one later in time and close r to the final customer. Typically, there are tw o m otivations: a) less inventory needs to be carried earlier in the process becaus e of risk pooling, and b) transportatio n cos ts ma y be reduced becaus e the n ot-quite-complete product is easier to transport. Procurement: The process of acquiring supplies or s ervice s from external sources, beginning with the determ ination of a need for sup- plies of services and endin g w ith nt completio n or clos eout. co ract RFID (Radio Fre q u cy Identification): A type of label or badge that is read electronically rathe r tha n o ptically. Th e reade r need not en touch the label in orde r to rea d it. Typical storage cont nt is 126 bits of information. e SKU (Stock Keeping Unit): A distin guis h a produc t. e.g., mushroom soup /10oz, mushroom soup/2 0oz c onstitute tw o different ble SKUs. Supply Chain Planning & Optimization: The set of supply chain activitie s that focus on e valuating demand for material and capacit y and formulate plans and schedules based on meetin g that demand and company goals. System func tions often involved in the planning cycle include M a ste Production Schedule (M PS), Materials R e q r uirem en ts Planning (M RP), Rough Cut Capacity, Capacit y R e q irements u Planning (CRP), Distribution R e q irements /R eource Planning (D RP) and A dvanced Planning and Scheduling (A PS). u s UCC (Uniform Com mercial Code): A stand ard set of law s governing commercial transactions (bills of lading, le tters of credit, ba nk deposits, etc.) ado pt d by all state s in the U.S. excep t Louisia na (it us e sa varian t of the Napole onic code). e

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A Retailers Guideto SupplyChain Management

UC C (Uniform Code Cou ncil): http://w ww.uc-cou ncil.org An industry group to pro m o temulti-industry sandards for product identification or bar cod es. See t

UP C (Univ ersal Product Code): A 10 to 12-digit machine-readable numeric product code that originated in the food industry. The first s e v eal digits r repre sent the manufacturer, the remainin g digits the product. VMI (Ven dor M a na ed Inventory): An inventory man agemen t g

O N L IN R E S O U R C E S E
RETAIL COUNCIL OF CANADA Founded in 1963 , Retail Council of Ca n a d a the Voice of Re tail. It is a not-for-profit association whose mo re th an 9,0 00 members is repre s e t all retail formats, inclu d national and regional departm ent stores, mass merch a ns, special y ch n ing t t ains, independen t store s and online merch a ns. w ww.retailcouncil.org t
policy whereby the supplie r decides when to resto ck product at his custome rs site bas ed on up-to-the m inute usage information from the customer. The s eagree m e typically include apenalty to be paid by the supplier if there is a sto ck out, and a n upper limit o n h o w much inventory ca n nts be carried at the custo mer. The pay ent a rrangemen t ma y allow the customer to pay for product only when the customer uses it. The custo me r must m provide the supplier with up-to-date informatio n on sto ck level and p erhaps even fo reca stsof future usage. WMS (Ware house M a naemen t System): A software sy s em for tracking where product is stored in a wareho u generating pick lists, and prompting g t se, the proper outbound shipments.

IBM CANADA BUSINESS CONSULTING SERVICES IBM is the worlds largest information technology c ompany, w ith ov er 80 years of leadership in helping business es innovate. With c onsulta n ts and professional staff in mo re th an 160 cou n tr ies globally, IBM Busine ss Con sulting Servic es pro vides clien ts w ith business process and industry exp ertise, a deep understanding of tech nolo gy solutions that address specific industry issu es, and the ability to design, build and run those s o utio ns l in a way that deliv ers bottom line value for Canad ian business es. w ww. i b m. com / bc s /re t ail

ECCnet - Canadas National Product Registry Pro vides re tailers and dis tributors w ith clean, stand ardized data . w ww. eccnet. org

Global Commerce Initiative A v olu ntary body cre ated to improve the p erform ance of the inte rnatio nal supp ly chain for co nsumer g o ods through the collaborative develo pment and en d orsem ent of recommended stand ards and k ey business process es. w ww. g ci - net. or g

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A B O U T HE A U T H O R T
Lino Casalino, Canadian Retail Leader IBM Business Consulting Services Lin o Casalino leads the retail industry practice in Can a d afor IBM Business Consulting Services. With more tha n15 years of consult- ing exp erience, Lin o specialize s in helping c ompanies solve complex business problem s through the application of both business and techn g y olo solutions. Lino has assis ted more than 40 leading co n- sume r packag ed good and retail companies ove r the course of his consulting s services career. D esig nated a Certified Ma n a gement Cons ultant (C MC) and Professional Enginee r of O n tario (PEO), Lin o holds a Bachelor of Applied Science and Engineering fro m the Univ ersity of Toro nto, and a M aste of B usiness A dministration from the Univ ersity of Georgia . r Lin o ca n be reached at: Tel: 416-5 49-3116 E -mail: lino.casalino @ca.ibm.co m

A B O U IBM T
IBM is the worlds larg est information technolo gy c ompany, w ith ove r 80 years of leadership in helping busin ess es innovate. With c on sult- a n ts and professional staff in mo re th an 160 cou n t ies globally, r IBM Business Con sulting Services provides clients with business process and industry exp ertise, a deep understanding of tec h nolo g y solutions that address specific industry issues, and the ability to design, build and r un those solutions in a way that deliv ers bottom- line va lue for Can adian business es. For mo re information, c o n tact: IBM Can a d Business Con sulting Service s a Re tail Practice 10 Yo rk Mills Road, Suite 400 Toronto, O ntario, M 2P 2 G 7 Attention: L ino Casalino, Can adian Retail Leader Visit w ww.i b m. com / bc s /ret ail

IBM and the IBM logo are tra dem a s or reg is tered trademarks of In te rn rk ational Business Machines Corporation and are used unde r license by IBM Ca n a d a O he r comp any, product and service na me s ma y be tra dem ark s or service marks of o thers. Copyright IBM Corporation 2004. All rights Ltd. t re s e rved.

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RETAIL COUNCIL OF CANADA 1255 Ba y S treet, Suite 800 Toronto, O ntario M 5 R2 A 9 1-8 88-373-8245 info @retailcouncil.org w ww.retailcouncil.or g

IBM CANADA BUSINESS CONSULTING SERVICES Retail Practice 10 York Mills Road, Suite 400 Toronto, O ntario, M 2P 2 G 7 1-800 -IBM-7080 ex t. BCS w ww. i b m. com / bc s /re t ail