SCM in Retailing

Supply chain is a network of organizations that are having linkages, both upstream and downstream in different processes and activities that produce and deliver value in the form of products and services in the hands of ultimate consumer. SCM raises the challenge of integrating and coordinating the flow of materials from multitude of suppliers , including offshore, and similarly managing the distribution of finished product by way of multitude of intermediaries.
1

 The objective is to plan and coordinate all the activities necessary to achieve desired level of delivered service and quality at lowest possible cost. Supply chain management is primarily concerned with integration of all partners in the value chain and seeks to achieve linkages and coordination between processes of other entities in the pipeline i.e. suppliers and customers, and organization itself.

 The scope of supply chain management includes the entire gamut of activities strating from procurement and management of raw materials through to delivery of final product to the customer. The ultimate purpose is to satisfy the customer by establishing linkages of people at all levels in the organization directly or indirectly to the market place.

 Various drivers of supply chain as a management initiative are: 1. Expectations of customers-looking for increased value addition. 2. Response time sensitivity 3. Need for reliability 4. Cost consciousness 5. Information sensitivity

Flows in the Supply Chain

There are two flows that are required to be considered in supply chain 1. Goods flow, wherein merchandise moves from manufacturer to the retail store and from there to the consumers. - There are normally a few aggregation and distribution points in between. - Goods can also flow backward if rejected. 2. The other is information flow. These two flows are interlinked
5

 The goods flow occurs because of (a) Purchases made from the retailer by the customer, and (b) Orders placed on the manufacturer by the retailer Movement of goods creates information in the form of changes in stocks and payment. What should be the priority in this flow and counter flow of merchandise and information? A retailer aims to satisfy the consumer and maximize financial gains at the same time.
6

Key Elements of Supply Chain in Retail

1. Sourcing and flow of goods, and 2. Merchandise management, which is actually managing the goods. Managing goods implies decisions like what to sell, how much, when, of what type and so on. In traditional business terms, merchandising management includes role of planning, purchase, sales & marketing and logistics that includes transportation and warehousing.
7

 As retail organizations try to generate end-toend efficiencies, boundaries between these two areas have blurred. In fact, in most of retail organizations, the supply chain and merchandising management teams have blended to bring out the best results.

Role of SCM IN Retail

The traditional approach of supply chain management is based upon optimizing production, handling and transportation through the calculation of economic batch quantities. In a new market set-up, manufacturers are not only producing products on the basis of their demand but collaborating with customers in product development. In such a situation supply chain becomes the demand chain.
9

 Demand chain is market driven, which responds to the needs of market more rapidly. Retail supply chain presents the following challenges: (a) Linking the consumer in the supply chain planning process, (b) Managing product life cycles, (c) Promotional planning, (d) Planning for seasonal products, (e) Determining cost effective supply channels, (f) Forecasting and scheduling in a volatile economic environments.
10

 As companies experience intense pressure to reduce costs, expand into new markets and develop new products, their supply chains expand and become more complex. The critical differentiating factor that synchronize across the entire supply chain in retailing are collaborating with customers in addition to the suppliers. Therefore, undertaking customer profiling, customer loyalty and customer segmentation initiatives and increasing performance through managing existing products as well as new products are becoming increasingly important in the changed scenario.
11

 Internationally, the development of modern retail formats is directly linked to the development of local economies. The bottlenecks in the supply chain in Indian retail segment are: (a) Fragmented markets (b) Lack of infrastructure (c) Absence of effective use of Information Technology These core issues are currently impeding growth of retail sector in India from coming on par with worldclass operations.
12

Types of SCM in Retail

1. Push Based SCM - Traditional approach to SCM wherein materials and products flow from suppliers to consumers via production and distributor units. 2. Pull Based SCM - Modern approach to SCM which is also called demand supply network wherein the actual consumption pull distribution, pull production, which in turn pulls material supply. 13

SCM- A solution in Retail Environment

Most retailers have many products, stores and promotional events. This results into higher inventories, lower margin due to additional markdown, and lower customer satisfaction. The Supply chain solutions offer retailers substantial improvements of cross functional and cross enterprise business processes. However, in SCM India continues to be perceived as a low value added activity of managing transportation and warehousing.
14

 Retailers face a common set of problems and pressures related to operational efficiency, customer intimacy, and product differentiating. Operational efficiency means cutting costs while maintaining the stock availability. SCM solutions are concerned with philosophy of nurturing the suppliers and other service providers in a win-win situation by providing goods and services to the customers in a timely and cost effective manner.
15

Integrated Supply Chain Flow

N E W P R O D C T D E V Identify Customer Needs I N T. V A L U E C H A I N Build the Product/service P O S T S A L E S S E R V I C E Service to The customer

Identify The Market

Deliver the Product/service

Customer need satisfaction

Create the Product/service

16

Strategic Sourcing and Procurement

The most critical function, which helps in merchandise planning and management process in SCM, is strategic sourcing and procurement. With shrinking retail margins, SCM efficiencies have helped retailers to maintain margins at consistent levels. Also, in some cases SCM efficiencies lead to continuous reduction in inventory costs, overheads and material cost.
17

There are two major aspects of strategic sourcing and procurement. 1. Vendor Management 2. Logistics Management A. Vendor Management - Includes processes like (a) Selection and training of the vendors (b) Developing IT back up (c) Increased collaboration, and (d) Evaluation of the vendors.
18

The processes are set up to ensure

The delivery is made in time, The quality is right, Vendors are made partners in the entire planning process. Vendor selection is an important outcome of the sourcing process and result in most organizations having robust vendor management programmes. Most international organizations have a complex vendor selection procedures as they often go for global sourcing of products and also need to take into account legal issues of imports. Global organizations end up working with much larger networks as compared to Indian retailers.

19

B. Logistics Management
- Several innovations have been done by the retailers. - Most retailers typically start with the automation of warehousing function, which is more under their control. - This involves the establishment of auto replenishment system. - Implying that system should automatically place an order for delivery to the warehouse based on the movement of stock at the store level. - This is the starting point of Quick Response (QR)
20

 Next is the auto purchase order system, in which the system can automatically order the goods from the vendor for regular and core products. This system is being used extensively in supermarket industry where most of the goods are standardized and so systems can be put in place for auto purchase order generation. This is known as Effective Customer Response System (ECR).
21

 Finally, the entire process culminates in the Collaborative Forecasting and Planning System, where category forecasts are made in collaboration with the vendors. The system of the retailers are integrated with those of vendors so that the vendors can easily assess the performance of their own as well as competitive products in retail stores on day to day basis. The vendor becomes completely responsible for the performance of his products at the store level and manages the show for retailer.
22

 The role of retailer is restricted to being enabler. This is known as Collaborative Planning Forecasting and Replenishment (CPFR). CPFR has been introduced successfully by some of the large discount chains in the US. Indian retailers are also undertaking similar supply chain initiatives for effective performance.

23

Physical Factors in Logistics

Involves investments in warehouses, transportation of goods and their management at the warehouses. Retailers undertake detailed GIS studies to ensure that the goods are transported to the relevant stores in the shortest possible time by the shortest routes. Most of the retailers outsource this function to third party logistics providers. Third Party logistics providers take responsibility of both inbound and outbound traffic at booth warehouse and the store level. 3PL4PL.pdf
24

 Logistics facilities also include development of cross-docking facilities at the Distribution Centres (DCs). Cross docking involves a continuous movement of goods across the DCs to the stores without the actual storage at the DC. The prerequisite is strong planning and vendor relationship management. Internationally big players like Wal-Mart, J.C.Penny and Sears have been using it quite extensively.
25

Use of IT in Retail supply Chain

Traditional way of making the right merchandise available at a right price and at the right store does not ensure better business performance. Increased competition from global players leading to laser thin margins and diminishing profits has compelled retailers to seek new ways of improving corporate performance. SCM specialists are leveraging IT to create adaptive supply network, which connects seamlessly the supply, planning, manufacturing and distribution operations.
26

 It aids in providing real-time visibility across the supply network, thereby enabling quick decision making. The areas of focus in developing newer methodologies, processes, and technologies are: (1) Cost Effective Supply Channels (2) Forecasting (3) Distribution & logistics (4) Inventory Management (5) Sourcing & Procurement (6) Reverse Logistics (7) Stores allocation (8) Warehousing and Transportation Management.
27

 The major benefits of implementing these programmes include (1) Reduced inventories and stock outs, (2) Fresher products (3) Quicker, more agile supply chain (4) Decreases indirect costs such as damages, non moving or obsolete inventory as well as the administration related to each of these activities. Retail industry is realizing the importance of IT in carrying out these process improvements leading to greater operating efficiencies and increasing profits.
28

 In India, the awareness of IT systems and their usage is minimal resulting in poor decision making. As the organized retailing expands IT will be an integral part of it. Current trends portray increasing use of ebusiness supported supply chain management. The use of e-business in supply chain is not just confined to the use of Internet.

29

ERP EDI MRP-I/MRP-II Suppliers JIT VMI Customer Interface Management CRM Customer Bar Code/ RFID Forecasting

Manufacturer

LAN

CRM

ISCM

DSS

30

Objectives of Integrated Information Systems

Providing information and visibility Enabling single point contact Allowing making of decisions based on total supply chain information Enabling collaboration with supply chain partners. Information serves as a glue to create a coordinated and cost effective supply chain by integrating the flows in the following areas.
31

1. Inventory : demand patterns, carrying costs, stock out costs and ordering costs. 2. Transportation: cost, customer location, shipments 3. Facilities: location, capacity and scheduling 4. Production: quantity and lot size Role of IT in SCM Enables better coordination amongst supply chain partners through cost-effective information flow. Supports collaboration and coordination of supply chain through information sharing. Used for support in decision making.
32

Prominent Examples Demonstrating Potential Benefits

Cisco reported savings of US$ 500 million by restructuring its internal operations and integrating processes with suppliers and customers with the help of web tools. - Currently, 90 percent of Cisco s sales are facilitated on line. Intel replaced hundreds of clerks by an automated on line ordering applications. Celestica, one of the world's largest electronic manufacturing & services company has applied a web solution to better coordinate its global supply base.
33

 IT has helped Celestica to improve its responsiveness to customers. For example, through IT it enables Dell to maintain its delivery promises to the endcustomers. IT is becoming essential ingredient in managing logistics operation in the networks.

34

RFID in SCM
RFID leads to Smart Retailing or Secured Retailing . The traditional way of capturing and entering data into computer system is to gather the data on paper and key it in after the events occur. A more evolved data capture system is based on the use of bar code labels, where by manually scanning the code one can identify the item, and its characteristics. To overcome the disadvantages of manually captured data, an advance automatic and item level data capture system Radio Frequency Identification Device (RFID) has been developed.
35

 RFID is a method of remotely storing and retrieving data using devices called RFID tags. A RFID is a small object, such as an adhesive sticker, that can be attached to or incorporated into a product. RFID tags contain antennas to enable them to receive and respond to radio frequency queries from RFID transreceiver. Companies like Wal Mart, Proctor & Gamble make it mandatory for their suppliers to put RFID tags on their products.
36

 Boeing uses RFID tags to track parts as the product move through the facility. RFID-based systems provide efficiency and accuracy similar to those of printed bar code systems. In addition, it offers additional benefits such as - Insensitivity to grease and contamination - Label face readability - Faster speed. - Security
37

Managing Reverse Supply Chainn

Reverse supply chain includes re-manufacturing and
refurbishing activities, processing returned merchandise, seasonal inventory, recalls, salvage, excess inventory, assets disposal and recovery. Retailers are facing challenges as return policies are becoming more lenient. In India, reverse supply chains have been used for promoting sales of new consumer products. The products collected back are reconditioned and resold at prices lower than the fresh products, and at much higher than scrap or salvage value.
38

Model for Retail SCM

The model for retail SCM looks at key supply chain challenges and provide solutions to them. 1. Include consumer in supply chain - Until now each partner in the supply chain developed their own forecast. - Since all parties worked in isolation, there was no coordinated input from other supply chain partners e.g. distribution centres, manufacturing plants etc.

39

- These forecasts were frequently inaccurate and resulted in massive safety stocks to protect the service levels. - More significantly, the consumer, arguably the most important supply chain participant, was completely left out of the planning equation. - Till now, at retail store level forecasting information was not used in replenishment planning and ignored inventory management. Integrated planning starts at the store level putting the consumer in the driver s seat.
40

- A forecast of consumers demand based on sales history and anticipated demand in collaboration with customers and suppliers is developed. - Each store calculates a replenishment plan based on its own unique consumer demand forecast, ordering rules and parameters. - This information is used to create a customized, timephased schedule of future product needs. - Each supply chain partner calculates its own replenishment plan and shares this data with its suppliers.

- Thus, a fully integrated schedule of product needs is created.

41

Benefits - Sharing information and working with single set of numbers enables downstream partners in a better position to meet the demand resulting into better customer service. - A simple and consistent process for providing all partners viz, stores, distribution centres and suppliers with actionable information leads to reduced cost. - As guesswork is completely eliminated and individual store projections are aggregated, it reduces unnecessary inventory at both distribution centre and manufacturing levels.
42

2. Managing product Life Cycle - New product get listed every day and deciding which store will sell the new products and when is the second challenge. - Product phase-out presents another challenge. - Traditionally when a product is flagged as discontinued the store stops ordering. - Ineffective planning of product exit results in some stock left over in the supply chain.
43

The introduction of new product is customized for each store based on their forecast at the store level. - A store can plan to be out-of-stock of a discontinued product by reducing the forecast and merchandise space. - The decision to list or de-list a product is made centrally. - A retail level forecast for new products is created that reflects the historical pattern of sales of similar products.

- For discontinued products, the store forecast is adjusted to reflect product and shelf space demand.
44

Benefits
- Planning at each store on a daily basis gives immediate feedback on how well the new product is selling. - The combined demand from all stores accurately reflects how the product is selling at retail, company wide. - Results in accurate evaluation of new product launches. - Proactively planned and managed product exits minimizes the leftover stocks at store level and reduces the need for inventory markdowns and costly clearance deals.
45

3. Promotional planning
- In a perfect scenario the stock would arrive just as the customer walks into the store. - But in real world, extra time is needed to arrange promotional displays and initiate other merchandising changes. - By the time, you know a promotion is doing better than planned, it is too late to react, especially on weekends. - Likewise, if the promotion does not work well, it is too late to reduce inventory levels and/or too costly to send the product backwards in the supply chain.
46

The forecasting and replenishment process monitors consumer demand at the store level while promotion is in effect and immediately transmits meaningful information back through the supply chain. - By constantly re-planning replenishment from the store level and moving inventory only on need basis, everyone has an opportunity to make mid-course promotional corrections. - Promotions rarely go according to plan and it is important to be able to react to changes before it is too late.
47

- A promotional sales forecast is added to the base forecast of consumer demand, at the store level. - Replenishment plans for all stores are added together to create the distribution centre s demand plan. - The distribution centre and their suppliers recalculate their replenishment plans based on the new information. - As sales occur, exceptions are identified and a new plan is created.
48

- Additional shipments can be scheduled immediately to meet unforeseen demand and similarly shipments can be delayed to under performing stores, leaving stocks available for those stores that may need it. - If the stores are permitted to procure their merchandise individually , it is important to provide them with tools to set the realistic targets. - This information is communicated to the distribution centres that can then re-plan purchases based on store s post-promotion buying behaviour.

49

Benefits - Since mid-course corrections are a key part of the process, early sales data is used to recalibrate forecasts/plans. - Inventory gets positioned to where it is selling, resulting in improved service levels. - The store manager gets more time to focus on merchandising and tracking sales, rather than on projecting when stock is needed to arrive. - Mid-course corrections also minimize the stock outs as well as excess stock after promotions. This reduces overall costs.
50

4. Planning for seasonal products - Effective planning for seasonal products presents one of the biggest challenges to supply chain managers. - The start of each selling season has to be planned carefully and stores require products in advance in order to set-up properly. - Seasons like Diwali, Eid, Christmas, Halloween and Easter cause an extreme spike in demand and usually do not occur on the same date every year which means planning must be completed well in advance.
51

- The goal is to end the season with minimal carryover. Based on historical sales and market knowledge, each store forecasts consumer demand for a seasonal product. - Stores determine inventory levels needed before, during and at the end of each season, usually well in advance of the season. - Being able to define a season end-date minimizes the chances of carry over and product returns. - By defining tolerances, the store can also indicate what percentage of lost sales or overstock is acceptable at the end of the season.
52

- Time-phased distribution requirement plans are created to reflect this forecast and shelfrequirements, on a store to store basis. Benefits - Product is on the shelf when it is needed in a particular store, based on identified, store-specific merchandising requirements. - Better management of the flow of inventory to the stores minimizes seasonal carryover. - Stores can also plan out-of-season assortments so that the product category is available, albeit at a reduced level.
53

5. Integrating with category management

- Category management is defined as a process that involves managing product categories as business units and customizing them on store-by-store basis to satisfy customer needs. - Going by the above definition, category management must therefore take place at store level. - For managing the product categories effectively, forecast is needed for every product at every store. - Unfortunately, category management done at the corporate level allows poorly performing stores to hide.
54

Managing a category can t be done without a plan that contains forecasted sales, inventory levels and purchases for each item in that category. - Such plans for each category must exist at the store level and this is the point at which marketing and supply chain converge. - Marketing defines the assortment that sits on the shelves and the supply chain keeps the shelves full. - Future projection of sales, inventory , purchases are converted into revenue and costs at retail level. - Projections are rolled up from SKU to category to department to total store. - Roll up are done at corporate level from SKU to category to department to store. 55

Benefits - By evaluating categories at the store level, all key performance measures e.g. GMROI, Sales per square foot, stock turn over, stock to sales, purchases etc can be analyzed. - Financial roll-ups showing sales, inventory, margin etc provide information needed by the store managers to manage their assortments more effectively. - Shelf plans are translated directy into store level replenishment plans. - What is on a store shelf is what sells in a particular region thereby resulting into increased sales and reduced inventory costs.
56

6. Determining cost-effective Supply Channels

- Most store deliveries originate from the distribution centres. - High volume/ bulky products, promotional/seasonal products or perishable are shipped directly from the suppliers to the store. - Distribution centres with a fixed product delivery schedules e.g. weekly shipments to eah store do not have the ability to respond to an individual store s unique demands. - Moreover, there is no analysis done know whether fixed delivery schedule is the most effective or even the most profitable route to follow.
57

A store-level, time-phased replenishment plan projects as to how much inventory is needed in future to maintain desired inventory levels. - Once future order quantities are known, the can be analyzed on either store-by-store, regional or any other basis. - The most cost-effective source i.e. distribution centre or a supplier is determined and purchase orders are issued to the right source e.g. purchase orders are sent to specific suppliers during promotions. - Individual stores establish their own delivery schedules, including days of the week shipments are required.
58

Benefits - Reduced costs as a result of having a more cost effective delivery method or by eliminating the need for additional outside storage space at the distribution centre. 7. Planning capacities at the store level - Staffing levels are seldom tied to sales forecast and this results in unrealistic budgets and costly variances. Providing store managers with accurate information and effective labour planning tools will help lower labour costs in the store.
59

- The key is to use the same information to generate labour requirements as used to manage the flow of products through the store. Projections are made to schedule labour requirements considering the time-phased replenishment plans. - Store managers plan for the requirements a week or two in future taking into account the holiday as well. - The same information is used to budget, plan capacity and schedule labour at the store level as well as the distribution centre environment.
60

Benefits - By using sales, inventory, and purchase projections expressed in rupees, a more realistic budget is created. - Since labour plans are made on current DRP, it provides best possible planning information. - As plans are updated, the resulting resource plans can be adjusted thereby avoiding/reducing unnecessary costs.

61

Green Supply Chain Management

GSCM is defined as the management of materials and resources from suppliers to manufacturers/service providers to customer and back, with the natural environments explicitly considered. GSCM encourages all components of supply chain for economical use of virgin raw materials, reduction of wastes during production i.e. environment conscious manufacturing (ECM), promotion of recycling, remanufacturing and reuse, and proper dumping of used components/goods.
62

 GSCM involves planning, development, implementation of manufacturing processes and technologies that minimize or eliminate hazardous waste and reduced scrap. Includes basically life Cycle analysis (LCA) of the product and its impact on environment at each stage of its life. Remanufacturing can reduce significantly both the consumption of raw materials and pollution resulting from discarded used components and sub-assemblies. Recycling is performed to retrieve the material content of used and non-functioning product. Aim is to meet the need of the present without compromising the requirements of future generations.

63

Implementation of GSCM
1. Environment Management System (ISO 14000) - Part of overall management system which includes structure, planning activities, responsibilities, practices, procurements, processes and resources for developing, implementing, achieving, reviewing and maintaining environment policies. - Aims at providing guidance for developing a comprehensive approach to environmental management and standardizing some key environmental tools of analysis.
64

2. Education and Training - GSCM can be effectively implemented through education and training to personnel involved at various stages of supply chain. - Companies must educate the consumers and suppliers regarding GSC programmes. - Can be made possible in following ways by holding (a) Workshops and arranging seminars on activities of GSC. (b) Creating awareness on the benefits of GSC.
65

3. Commitment to GSC programme - It is important that commitments to GSC be made by top management officials and members of the company. 4. Reports and rewards - Incentives for performers and disincentives or punishment for those who deviate from GSC guidelines. 5. Feedback - Inputs from consumers, suppliers and employees.
66

6. Regulatory Measures - The water(Prevention and Control of Pollution) Act, 1974 and its amendments. - The Air (Prevention and Control) Act, 1981 and its amendments. - The environment (Prevention)Act, 1986 and its amendments. - Hazardous Waste (Management & Handling)Rules, July 1989, and - The Public Liability Insurance Act, 1991.
67