Information systems & Supply Chain Management

Objectives

• Flow of merchandise and information from vendor to retailer to consumers

• IT developments facilitating vendor-retailer communications

• How do retailers and vendors collaborate to make sure that right merchandise is available when customers are ready to buy it

• Benefits to vendors and retailers of collaborating on SCM

• RFID and its effect on retailing

Creating strategic advantage through SCM and IS

• Retailers connect customers with vendors who want to provide merchandise

• It is retailers responsibility to gauge customer needs and wants and work with other members of the supply chain- distributors, vendors and transportation companies

• This is to make sure that merchandise is available to customers when they want it

• SCM is a set of business activities that manages the movement of products to retail distribution centres and stores and the exchange of information between retailers and vendors

• Retailers- increasingly assuming leadership role• Small retailers- large mfgs and vendors determined how

when, and where the merchandise is to be delivered• With consolidation and emergence of larger national retail

chains- retailers taking active interest in SCM• Size of retailers – give them more power over vendors and

thus able to control their SCs• Addly, retailers are more knowledgeable about their

customers• This info is being shared with suppliers to plan production,

promotions,deliveries,assortment and inventory level

Supply chain

Three benefits of Supply chain

• Improved product availability• Higher ROI• Strategic advantage

Improved product availability

Reduced Stock outs

• Stockout occurs when an SKU a customer wants is unavailable• Will help in customer retention

Tailored assortments

•To make sure that right merchandise is available at the right store• Stores adjust according to merchandise on basis of season• Retailers use statistical methods- to analyse customer data and adjust assortments

Efficient SCM leads to the following:

-Greater sales- Lower costs- - Higher inventory turnover- Lower markdown for retailers

Higher ROI

• An efficient SCM and IS can improve ROI because it increases :- Sales: customers are offered more attractive assortments that

are in stock- Net profit: Increase gross margin and lower expenses: special

buying opportunities- products bought at low cost,-improving GM

- Margins : lower operating expenses by coordination and reducing TC

- Assets (Inventory turnover) : Efficient SC- leads to lower inventory levels- lower investment- total assets are lower-so assets and inventory turnover is also higher

Strategic advantage

• Is difficult to develop, once developed it is sustainable enough to give competitive advantage

• Eg Walmart: high investment in SCM and also has large economies of scale

• Efficient coordination within all areas of company

Information and Merchandise Flows

Customer

Stores

Distribution centreVendor

Buyer/Planner

Information flow

Merchandise flow

Information FlowsCustomer

Stores

Distribution centreVendor

Buyer/Planner

Information flow

Merchandise flow

1

6

2

3

5

7

4

Information Flows• Step 1: Cashier scans the UPC- Universal Product Code and generates a sales

receipt- no 1• Step 2: Info regarding the transaction is captured at POS terminal and sent to

central computer system where it can be accessed by the planner of the product category- no 2

• Step 3: Sales transaction data are sent to the distribution centre- no 6• Step 4: When store inventory drops to a specified level- more stock sent to the

store and this info is sent to computer system no 5,so the planner knows the inventory level

• Step 5: When inventory level drops to a specified level, no4,the planner places the order and informs the DC no 5

• Step 6: When mfg ships the order sends an ASN – to the DC no 7• Step 7: When order is received the planner is notified and pays the vendor no 5• Certain situations – data sent from store directly to the vendor no 3

Data warehouse

• Purchase data collected at the point of sale collected in a huge database known as data warehouse

• Information can be accessed at various levels: SKU, vendor, category, department, merchandise,store division,company

• Used to collect info about customers so as to modify promotions and products

Electronic data interchange (EDI)

• Communications between vendors and retailers occur via EDI.

• It is a computer to computer exchange of business documents in a structured format.

• Specific symbols used • Benefits: - Reduces cycle time- or time to place order and receipt- Improves overall quality with better record keeping and

less errors- data available in an easy to read format

Push and Pull supply chains

Pull SC• a SC where in orders for merchandise are generated at store level on basis of sales data captured by POS terminal• Demand for an item pulls it through the SC• Less chances of stock out: since inventory is based on consumer demand• Increases inventory turnover•Becomes useful when demand is erratic• requires sophisticated costly IT system• for some fashion merchandise, retailers cannot adjust ionventory according to demand

Push SC• Here merchandise is allocated through the store on basis of forecasted demand• Forecast developed, inventory shipped at regular intervals• Used for predictable demand• Thus retailers use a combination

Logistics

• It is the physical flow of the merchandise within the supply chain

• Is the aspect of SCM that refers to the planning, implementation, and control of efficient flow and storage of goods, services and related information from the point of origin to point of consumption to meet consumer requirements

• Merchandise--- vendor to DC• Merchandise --- DC to store• Merchandise --- vendor to store

Collaboration between vendors and retailers in SCM

• Main objective for retailers and vendors is to make stock available in stores when customers want it and to achieve this task with minimum cost and investment

• SC efficiency dramatically improves when vendors and retailers share information and work together

• Vendors can make sure that inventory is available JIT when the retailer needs it without having excess inventory

• When retailers and vendors do not coordinate their SCM activities, excess inventory builds up in the system even if the retail sales for that product is constant. This effect is called as “Bullwhip” effect

• Occurs due to delay in transmitting orders and receiving merchandise, overreacting to shortages, and ordering in batches

contd

• Four approaches for coordinating SC activities are:

1. Using EDI2. Sharing information3. using vendor managed inventory (VMI)4. employing collaborative planning,

forecasting, and replenishment (CPFR)

Using EDI

• used to transmit the purchase order info reduces the time taken for retailers to place orders and for vendors to acknowledge the receipt and communicate delivery info

Sharing Information

• Excess inventory caused due to – inability of vendors to know what actual level of store retail sales are.

• If they know they are increasing, production schedule can be planned accordingly

• Walmart Retail Link : data warehouse and decision support system that provides vendors with two years sales history and inventory levels for products across 5000 stores

• With sharing, thus vendors can improve their sales forecast, production efficiency, and reduce excess inventory

Vendor Managed Inventory (VMI)• VMI is an approach for improving supply chain efficiency in which

the vendor is responsible for maintaining the retailers inventory level at each of these stores

• Vendor determines a reorder point – a level of inventory at which more stock is reqd. The retailer shares data with vendor through the EDI.

• When the inventory drops to the order point the vendor generates the order (reverse purchase order) and delivers the merchandise

• Usually applied at the retailers DC• But difficult for the retailer to know the other actions of vendor:

SP schemes for competitors brands• Eg TAL and JC Penney, frito Lay

CPFR

• collaborative planning, forecasting, and replenishment (CPFR) is the sharing of forecast and related business information and collaborative planning between retailers and vendors to improve SC efficiency and product replenishment

• Here retailers share sales and inventory data when using VMI approach, whereas vendor is responsible for managing inventory

• CPFR is an advanced form of retailer –vendor collaboration that involves sharing of proprietary info such as business strategies, promotion plans, new product development etc

• Eg Walmart-Procter and Gamble

RFID

• Radio Frequency Data Identification- RFID • It is a technology that allows an object or person to be

identified at a distance using radio waves.• These devices or tags are inserted into ocean going containers,

on shipping cartons, behind merchandise labels. They transmit data about the object in which they are embedded.

• Is more superior than a bar code – with ability to store more data and upload data on the device

• Eg it can keep a track of where the item is in SC,where it is stored in a distribution centre

• Data can be obtained even in harsh environments

RFID

• Enables real time tracking of the product from mfg to check out in the store

• Eliminates the manual point and read operations needed to get data from UPC

• Thus it can significantly decrease warehouse, distribution, inventory costs, increase margins and provide better in stock conditions

Benefits of RFID• Reduces warehouse and distribution labor costs: reduces manual

tracking and labor intensive sensors for point and read approach• Reduces point of sale labor costs: reduces costs for checking shelf

inventory. Increases the use of self scan and reduces the incidence of employee fraud

• Inventory savings: Reduces errors• Reduces theft• Reduced out of stock condition• Thus it helps to streamline SC• High costs of purchase, processing and implementation• Eg Pantaloons