Retailing Strategy & Planning

(Module 2)

DR. ANUPAMAA S. CHAVAN

STUDENTS ARE WARNED NOT TO SHARE THIS PPT WITH ANYONE OR ANY WEBSITE
Strategy 2

 The word strategy was first used in warfare

 It is derived from a Greek word ‘strategos’ meaning ‘army leader’

 Strategy is an art or science of directing military forces in a war or battle.

More attention to long-term strategic planning
3
than ever before

[email protected]
Dr. Anupamaa S. Chavan
 Due to the emergence of
 New competitors
 New formats
 New technologies
 Shifts in customer
needs
Elements in Retail Strategy 4

[email protected]
Dr. Anupamaa S. Chavan
Target Market
 themarket segment(s) toward which the retailer plans to focus its resources and
retail mix
 Criteria For Selecting A Target Market:
 Attractiveness –Large, Growing, Little Competition
 More Profits
 Retail Format
 the
nature of the retailer’s
operations—its retail mix
Sustainable Competitive Advantage © image100 Ltd

 an advantage over the competition

Can A Retailer Develop a Sustainable 5

Competitive Advantage by:

[email protected]
Dr. Anupamaa S. Chavan
Dropping the Price of Your Merchandise?
Building a Store at the Best Location?
Deciding to Sell Some Hot Merchandise?
Increasing Your Level of Advertising?
Attracting Better Sales Associates by Paying Higher Wages?
Providing Better Customer Service?
Sources of Competitive Advantage 6

[email protected]
Dr. Anupamaa S. Chavan
More Sustainable Less Sustainable
 Location
 Better Computers
 Customer Loyalty
 More Employees
 Customer Service
 More Merchandise
 Exclusive Merchandise/Private Labels
 Greater Assortments
 Low Cost Supply Chain Management
 Lower Prices
 Information Systems
 More Advertising
 Buying Power with Vendors
 More Promotions
 Committed Employees
 Cleaner Stores
Save a Lot – Limited assortment supermarket 7
1250 SKUs

[email protected]
Dr. Anupamaa S. Chavan
More Private labels
Prices 40% less than conventional
supermarkets
Low overheads:
• Card board Shipping Cases
• Own bags/ extra charges for
carry bags
Example of Positioning
More Sustainable Competitive Adv 9

[email protected]
Dr. Anupamaa S. Chavan
 Customer Loyalty
 Vendor Relations
 HRM
 Information System
 Location
Customer Loyalty 10

[email protected]
Dr. Anupamaa S. Chavan
Jeff Bezos

More than simply liking one retailer over another

Customers will be reluctant to patronize competitive

retailers

Retailers build loyalty by:

 Developing a strong brand for the store or store brands
 Developing clear and precise positioning strategies
 Creating an emotional attachment with customers through
loyalty programs
 Vendor Relationships 11

[email protected]
Dr. Anupamaa S. Chavan
Low Cost - Efficiency Through
Coordination
 Electronic Data Interchange (EDI)
 Collaborative Planning and
Forecasting to Reduce Inventory and
Distribution Costs

Exclusive Sale of Desirable Brands

Special Treatment
 EarlyDelivery of New Styles
 Shipment of Scares Merchandise
 Human Resources Management 12

[email protected]
Dr. Anupamaa S. Chavan
“Employees are key to build a sustainable competitive advantage”

Strategies for Recruiting and Retaining Talented Employees

Employee Branding

Develop positive organizational culture

Distribution and Info Systems 13

[email protected]
Dr. Anupamaa S. Chavan
Flow of Information
By decreasing costs here, there is
Vendor
more money available to invest
Distribution Center in:

Store
-Better services
-Increase in breadth and depth
-Decrease in prices
Location 14

[email protected]
Dr. Anupamaa S. Chavan
What are the three most important things in
retailing?
 “location, location, location”

Location is a competitive advantage

A high density of Starbucks stores

 Creates a top-of-mind awareness
 makes it very difficult for a competitor to enter a market
and find a good locations
 Growth Strategies 15

[email protected]
Dr. Anupamaa S. Chavan
Market Penetration

Market Expansion

Retail Format Development

Diversification
 Related vs. Unrelated
 Dr. Anupamaa S. Chavan
16

[email protected]
Growth Opportunities
 Market Penetration 17

 Attract customers from target market – Walgreens

[email protected]
Dr. Anupamaa S. Chavan
“on every corner”- Opening more store for same
target market

 Get current customer to visit store more often or buy

on each visit – increasing the variety and assortment
in the store for same target market
 Keeping the store open for longer hours

Cross Selling – sales associates in one department sell

complimentary merchandise from other departments

Example: Manicurist sells services plus hand lotion or nail

polish

Example: Salesperson sells leaf blower directs customer to

electrical department to purchase a 100 foot extension cord.
 Market Expansion 18

[email protected]
Dr. Anupamaa S. Chavan
Market expansion growth
opportunity involves using the
existing retail format in new market
segments
Dunkin’ Donuts – new stores (and at
gas stations) outside northeastern
Abercrombie & Fitch (for college
students) opens lower-priced chain
Hollister Co. for high school students
Retail Format Development 19

Develops a new retail format with a

[email protected]
Dr. Anupamaa S. Chavan
different retail mix for the same
target market
Multi-channel retailing
UK based TESCO:
 Tesco Express: small stores located close
to where customers live and work
 Tesco Metro: bring convenience to city
center location by specializing in ready-
to-eat meals
 Tesco Superstores: traditional stores
 Tesco Extra: one-stop destination with
the widest range of food & non-food
products and consumer
durable/electronic items
Diversification 20

[email protected]
Dr. Anupamaa S. Chavan
Introduces a new retail format toward
a market segment that is not currently
served by the retailer

Related diversification

Unrelated diversification

Vertical
integration into wholesaling
or manufacturing
Global Growth Opportunities

Selected retail markets

 Key to Success in Global Retailing 22

[email protected]
Dr. Anupamaa S. Chavan
Globally sustainable competitive advantage
 Low cost, efficient operations - Wal-Mart, Carrefour
 Strong private label brands: Starbucks, KFC
 Fashion Reputation - The Gap, Zara, H&M
 Category dominance – Best Buy, IKEA, Toys R Us

Adaptability
Global Culture
Financial Resources
 International Market Entry 23
Strategies

[email protected]
Dr. Anupamaa S. Chavan
Direct Investment
Joint Ventures
Strategic Alliances
Franchising
 Case Study - Tesco 24

[email protected]
Dr. Anupamaa S. Chavan
 Identify the More Sustainable and Less sustainable competitive advantages of
Tesco. Why did Tesco fail in US Market? Give suggestions pertaining to the retail
strategy of Tesco.


Strategic Retail Planning Process 25
 Dr. Anupamaa S. Chavan
26

[email protected]
 Dr. Anupamaa S. Chavan
27

[email protected]
1. Business Mission 28

[email protected]
Dr. Anupamaa S. Chavan
 •In developing the mission statement, managers must answer five
questions:
 (1) What business are we in?
 (2) What should be our business in the future?
 (3) Who are our customers?
 (4) What are our capabilities?
 (5) What do we want to accomplish?
2. SWOT Analysis: Internal Environment 29
2. SWOT Analysis: External Environment

Dr. Anupamaa S. Chavan

30

[email protected]
3. Identify Strategic Opportunities 31

[email protected]
Dr. Anupamaa S. Chavan
 After completing the situation audit, the next
step is to identify opportunities for increasing
retail sales.
4. Evaluate Strategic Opportunities 32

[email protected]
Dr. Anupamaa S. Chavan
 A retailer must focus on opportunities that utilize its strengths and its area of
competitive advantage.
 Both the market attractiveness and the strengths and weaknesses of the
retailer need to be considered in evaluating strategic opportunities.
 The greatest investments should be made in market opportunities where the
retailer has a strong competitive position.
5. Establish Specific Objectives and Allocate33
Resources

[email protected]
Dr. Anupamaa S. Chavan
 Specific objectives have three components:
 (1) the performance sought, including a numerical index against
which progress may be measured,
 (2) a time frame within which the goal is to be achieved, and
 (3) the level of investment needed to achieve the objective.
 Typically, the performance levels are financial criteria such as return
on investment, sales, or profits.
6. Develop a Retail Mix to Implement 34
Strategy

[email protected]
Dr. Anupamaa S. Chavan
 The next step is to develop a retail mix for each
opportunity in which investment will be made
and to control and evaluate performance.
7. Evaluate Performance and Make 35
Adjustments

[email protected]
Dr. Anupamaa S. Chavan
 The final step in the planning process is evaluating the results of the
strategy and implementation program.
 If the retailer fails to meet its objectives, reanalysis is needed. This
reanalysis starts with reviewing the implementation programs; but it
may indicate that the strategy (or even the mission statement)
needs to be reconsidered.
 This conclusion would result in starting a new planning process,
including a new situation audit

Chumbak
 36

Retail Location Planning

What Are the Three Most 37
Important Things in Retailing?

Location! Location! Location!

Eddie Tan/Life File/Getty Images

 Why is Store Location 38
Important for a Retailer?
 Location is typically prime consideration
in customer’s store choice.
 Location decisions have strategic
importance because they can help to
develop sustainable competitive
advantage.
 Location decisions are risky: invest or
lease?
LOCATION 39

 Unplanned ,
 Planned,
 Non Traditional
 Types of Locations
 Free Standing Sites 40
 City or Town Locations
 Inner City
 Main Street
 CBD – Central Business District
 Shopping Centers
 Strip Shopping Centers
 Shopping Malls
 Neighborhood and Community Shopping Centers
 Power Centers
 Lifestyle Centers
 Mixed –Use Developments (MXDs)
 Outlet Centers
 Theme/Festival Centers
 Large Multiformat Developments - Omnicenters
 Other Locations – Pop up stores, Kiosks, Airport, Store
within a Store
Selecting a particular location type 41

 Involves evaluating a series of trade-offs between:

 The size of the trade area (geographic area encompassing
most of the customers who would patronize a specific
retail site)
 the occupancy cost of the location
 The pedestrian and vehicle customer traffic
 The restrictions placed on store operations by the
property manager
 The convenience of the location for customers
Tradeoff Between Locations 42

There are relative advantages

and disadvantages to
consider with each location.
Rent

Traffic
Types of Locations
43
Matching Location to Retail Strategy 44

 The selection of a location type must reinforce the retailer’s strategy be

consistent with
– the shopping behavior
– size of the target market
– The retailer’s position in its target market

 Department Stores ➔ Regional Mall

 Specialty Apparel ➔ Central Business District, Regional malls
 Category Specialists ➔ Power Centers, Free Standing
 Grocery Stores ➔ Strip Shopping Centers
 Drug Stores ➔ Stand Alone
 45
Shopping Behavior of Consumers in
Retailer’s Target Market
 Factors affecting the location choice
 Consumer Shopping Situations
 Convenience shopping:
 Minimize the customer’s effort to get the product or service by locating store close to where customers are located

 Comparison shopping:
 Customers have a good idea of what type of product they want, but don’t have a strong preference for brand, model
or retailer.
 Competing retailers locate Near one another

 Specialty shopping: Typical for furniture, appliances,

apparel, consumer electronics,
hand tools and cameras
 Customers know what they want
 Costly /Designer labels
 Convenient location matters less
 46
Shopping Behavior of Consumers in Retailer’s
Target Market

 Factors affecting the location choice

 Density of Target Market
▪ Ex. Convenience stores in CBD; comparison shopping stores next
to Wal-Mart
 Uniqueness of Retailing Offering
▪ Convenience of locations is less important
▪ Ex. Bass Pro Shop – outdoor sports
 LEGAL CONSIDERATIONS 47
Other Legal Issues
 Environmental and Sustainability Issue
 Zoning and Building Codes
 Zoning determines how a particular site can be used
 Building codes determine the type of building, signs, size, type of parking lot, etc. that can be
used

 Signs
 Restrictions on the use of signs can also impact a particular site’s desirability

 Licensing Requirements
 Some areas may restrict or require a license for alcoholic beverages
Evaluating Specific Areas for Locations 48
 Economic Conditions 49
The growth of population and employment
How long the growth will continue, and how it will effect demand
for merchandise sold in its stores
Which areas growing quickly and why
 Competition 50
MHHE005371.JPG

 Someretailers are going

urban due to:
 Lack of competition
 High level of disposable
income
 Large, untapped labor force

The McGraw-Hill Companies, Inc./John Flournoy,

photographer
 Strategic Fit 51
Demographic, lifestyle profile, size and composition of households in
an area
REC0046.JPG
MHHE005732.JPG

Royalty-Free/CORBIS
REI – outdoor enthusiasts
The McGraw-Hill Companies, Inc./John Flournoy,
photographer

McDonald’s – families with kids

Operating Costs 52

Vary across areas

Affected by proximity
of area considered vs.
other areas where
retailer operates

 Local and state legal

environment has effect
 Number of stores in an Area 53
How Many Stores to Open in an Area?

Economies of Scale vs. Cannibalization

One promotional costs for all stores open stores as long as

profits increase

Justifies cost of distribution center

Increases sales per store

Target needs of regional market

Management has control of market

Evaluating a Site 54
for Locating a Retail Store
 When evaluating and selecting a specific site, retailers consider:
 The characteristic of the site
 The characteristic of the trading area
 The estimated potential sales that can be generated

15972CBI.JPG

Stockbyte/Punchstock Images
Evaluating a Site 55

for Locating a Retail Store

 The characteristic of the site
 Traffic flow and Accessibility

 Location -
 Parking,
 Visibility,
 Adjacent Tenants ,
 Restrictions, Costs
Evaluating a Site for Locating a Retail Store 56

 Trade Area Definition

A contiguous geographic area that
accounts for the majority of a store’s
sales and customers
 Primary zone
▪ 60 to 65 percent of its customers
 Secondary zone
▪ 20 percent of a store’s sales
 Tertiary zone
▪ customers who occasionally shop at the
store or shopping center
Evaluating a Site 57

for Locating a Retail Store

 Estimating Potential Sales for a Store Site
 Huff’s Model
RCI0072.JPG

Analog Approach
Regression Analysis
Huff’s Gravity Model 58

Based on the premise that the probability which a

given customer will shop in a particular store or
shopping center becomes larger as the size of store
or center grows and distance or travel time from
customer shrinks
Application of Huff Gravity 59
Model
Huff’s Gravity Model (Continued)60

= Lamda (significance of time versus size of the store)

 Application of Huff Gravity Model
store size: 5,000 sq. feet
61

store size: 10,000 sq. feet

Based on its past

experience it has been
found that ^ (lamda) equals
2 for its store location
Application of Huff Gravity Model to calculate Sales at New Store
62
The probability of a Rock Creek resident’s shopping at the new location, PRC , is

Size sqft : new store = 10,000; old store = 5000

10,000/52
PRC =
10,000/52 + 5,000/102 = .889
Time req. by RC to new store 5minutes; old store 10 mins
Time req. by OH to new store 15mins, Old store = 5 mins
Lamda=2

The probability of Oak Hammock residents’ shopping at the new location, POH , is

POH =
10,000/152
10,000/152 + 5,000/52
= .182

The expected sales for the new location thus would be :

PRC X Annual Sales + POH x Annual Sales

.889 x $5million + .182 x $3 million

$ 4,445,000 + $ 546,000 = $ 4,991,000

 Application of 63
Huff Gravity Model (Continued)
The probability of a Rock Creek resident’s shopping at the new location, PRC , is

PRC = 10,000/5 2 =

10,000/52 + 5,000/102
= .889
The probability of Oak Hammock residents’ shopping at the new location,
POH , is

POH = 10,000/152
10,000/152 + 5,000/52
= .182
The expected sales for the new location thus would be :
.889 x $5million + .182 x $3 million = $4,991,000
Exercise - 2 64

There are 3 stores in area A, Details are as under

Stores Time in minutes Size in sq. ft.

1 15 3,000
2 5 10,000
3 20 30,000

Market size is Rs. 3,00,000 per annum for location A. Lamda is 2 (ie time taken is twice
significant than the size of the store). Calculate
1. the probability of traffic moving to various stores
2. The expected sales of each store
 The probability of traffic moving to various store
The expected sales of each store, 65
Market size of Area A = Rs. 3,00,000 Lamda = 2

________ 3,000/152__________ = 0.0273

 Prob of Store 1 : 3,000/152 + 10,000/52 + 30,000/202

________ 10,000/52__________ =
 Prob of Store 2 : 3,000/152 + 10,000/52 + 30,000/202
0.819

 Prob of Store 3 : ________ 30,000/202__________ = 0.154

3,000/152 + 10,000/52 + 30,000/202

 Expected Sales:
 Store 1: 3,00,000 X 0.0273 = Rs. 8,100
 Store 2: 3,00,000 X 0.819 = Rs. 2,45,700
 Store 3: 3,00,000 X 0.154 = Rs. 46,200
 Exercise - 3 66
 Kia is a household locality mostly occupied by middle income people. There are three
convenience stores in the vicinity Viz., A, B and C. The proximity of the store is of double
significant than the store size. All stores are 3500 sq ft in size. The data w.r.t the travel time is
given below:

Travel time (t)


Store A 1 min
Store B 5 mins
Store C 10 mins

 You need to find the probability of a consumer shopping at Store C. Also, provide your
interpretation for the same.
 Calculate the sales at each store if the market size of Kia is Rs 35,00,000 per annum
 Exercise - 4 67
 A Drugstore is considering opening a new location at shopping center A, with hopes
of capturing sales from a new neighborhood under construction. Two nearby
shopping centers, B and C, will provide competition. Using the following information
and the Huff gravity model, determine the probability that residents of the new
neighborhood will shop at shopping center A:

 Shopping center Size (000’s sq. ft.) neighborhood (miles)

 A 3,500 4
 B 1,500 5
 C 300 3

Assume that lamda = 2.

 Types of Leases 68

Percentage
Fixed - Rate
 Percentage leases – lease based on a % of sales.
 Retailersalso typically pay a maintenance fee-based on a percentage of
their square footage of leased space.
 Most malls use some form of percentage lease.
Exercise 69

 Assume a leased department operator studies three possible

locations with 200, 300, and 500 total square feet of store space
allocated to men’s cologne (by all retailers in the areas). A group of
potential customers lives 7 minutes from the first location, 10 minutes
from the second, and 15 minutes from the third. The operator
estimates the effect of travel time to be 2. Find the probability of
customers shopping at various stores in percentage
Cntd…. 70

Therefore, the probability of consumers’ shopping is

Exercise: 71
 Geographic Information System -GIS 72

 Firms such as Environmental Systems Research Institute (ESRI) (www.esri.com), Nielsen, which
purchased Claritas(www.claritas.com/sitereports/Default.jsp), and Pitney Bowes, which
purchased MapInfo (www.pitneybowes.com/us/location-intelligence/gisdata-sets.html), offer
services that combine updated demographic census data with data from other sources that
describe consumer spending patterns and lifestyles in a geographic area. In addition, they
provide a user-friendly interface so that the data can be accessed and analyzed easily
 Frequently, the outputs from the system are maps that enable retailers to visualize the
implications of the data quickly. For example, the map in Exhibit 8–4 shows the trade areas for
three branch banks that a retailer has in an MSA and a fourth branch it is considering, as well as
the residences of its customers relative to the branch at which they bank. This map suggests that
people bank near their work and that the new location might cannibalize from the other
branches.
 Geographic Information System used by
73

Retailers
 Site Selection: Retailers use GIS to analyze demographic data, traffic patterns, and competition in an area to
identify the best location for a new store.
 Inventory Management: Retailers use GIS to optimize inventory management by analyzing sales data and
customer demand to determine the best product mix for each store location.
 Supply Chain Management: Retailers use GIS to optimize supply chain management by analyzing
transportation routes, delivery times, and inventory levels to ensure timely and efficient delivery of
products to stores
 Customer Segmentation: GIS can be used to segment customers based on demographics, purchase history,
and other data to identify target markets and tailor marketing strategies accordingly.
 Market Share Analysis: GIS can be used to map competitor locations and market saturation to determine a
retailer's market share and identify opportunities for growth.
 Overall, GIS is a valuable tool for retailers to gain insights into customer behavior, sales trends, and
market conditions, which can help them make data-driven decisions and improve business performance
 These brands use GIS to analyze and visualize data related to their customers, competitors, and store
locations to makeinformed decisions about their business strategies.
Supply Chain Management & Information
74
Technology (IT in Retail)
 Efficient
and effective integration of suppliers,
manufacturers, warehouses, stores, and
transportation intermediaries into a seamless
value chain.

 Merchandise is produced and distributed in

the right quantities; to the right locations; and
at the right time.
 Minimization of system wide
costs, while satisfying the
service levels their
customers require.
Ryan McVay/Getty Images
Illustration of Supply Chain 75
Why is Efficient Supply Chain 76
Management so Important to Retailers?
 Strategic advantage

 Improved product
availability

 Higher return on investment

 Strategic Importance of 77
Supply Chain Management
 Opportunity to Increase Sales by Making the Right Merchandise is in
the Right Place at the Right Time
 Fewer Stock-outs
 Greater Assortment with Less Inventory
 Opportunity to Reduce Costs
 Transportation Costs
 Inventory Holding Costs
 Improved ROI
Strategic Advantage: ZARA 78

 Timely information from store

mangers with handheld devices
to the corporate office
 Shorter
cycle time from design to
production to delivery to stores
 Shorter lead time – own
production, small quantity
production in close proximity, REFACT:
efficient logistics, premium Consumers in central
transportation, frequent delivery London visit the average
apparel store four times
 No discounts necessary annually, but Zara’s customers
visit its shops an average
of 17 times a year.
 Strategic Advantage 79

 Wal-Mart’s success
is from its information and supply chain
management systems
 Why are competitor’s lagging behind?
 Made a substantial investment in developing its systems and has the scale
economies
 Through experience and learning, changes are always made to improve the
system
 Coordinated effort of employees and functional areas throughout the
company
 Improved Product Availability 80

These benefits translate into

Benefitsof Efficient greater sales, lower costs,
Supply Chain higher inventory turnover, and
Management to lower markdowns for retailers
Customers:
 Reduced stockouts –
merchandise will be
available when the
customer wants them
 Tailoring assortments –
the right merchandise is
available at the right
store
 Higher Return on Investment
81
Return on assets = Net profit margin x Asset turnover

= Net profit x Net sales

Net sales Total assets

= Net profit
Total assets

Efficient Supply Chain Management leads to ➔

 Increased Sales from more attractive assortments in stock
 Improved Net Profit Margins from increased gross margin and lowered expenses
 Lowered inventory from less backup inventory in stock and higher asset (inventory) turnover

Same Sales Using Less Inventory

Information and Merchandise 82
Flows
Information Flows 83
 Information Flows 84
(Continued)
When a customer purchases a toaster
oven, sales associate scans Universal
Product Code (UPC)on merchandise
and customer credit card/loyalty card
(Flow 1)

Information about purchase is

transmitted from POS terminal to the
buyer/planner. The planner uses this
information to monitor and analyze
sales and decide to reorder more
toaster ovens or reduce its prices if
sales are below expectations (Flow 2)
 Information Flows 85
(Continued)

Sales transaction data are sent directly from the store to the
vendor, and the vendor decides when to ship more toaster
ovens to the distribution center and stores (Flow 3)

When inventory drops to a specified level in the

distribution center, buyer/planner communicates
with vendor, and then places a purchase order to
re-supply stores with toaster ovens (Flow 4)
 Information Flows 86
(Continued)

Buyer/planner notifies distribution center

about incoming orders and how they are to
be distributed to stores (Flow 5)

Store managers inform distribution center

about receipt of toaster ovens and
coordinate deliveries (Flow 6)

When the manufacturer ships the toaster ovens to

the distribution center, it sends an advanced
shipping notice to the distribution center (Flow 7)
 Data Warehousing 87

Data warehousing is the coordinated

and periodic copying of data from
various sources, both inside and
outside the enterprise, into an
environment ready for analytical and
informational processing

 Wal-Mart makes good use of its data warehouse.

Experts estimate that it is second in size only to that
of the U.S. government
 Electronic Data Interchange 88

 EDI is the computer-to-computer exchange of business documents between retailers and vendors
 Merchandise sales, Inventory On Hand, Orders
 Advanced shipping notices,
 Receipt of merchandise, Invoices for payment

 EDI is the computer-to-computer exchange of business documents between retailers and vendors
 Standards:
▪ UCS (Uniform Communication Standard)
▪ VICS (Voluntary Inter Industry Commerce Solutions)

 Transmission system:
▪ Intranet: local area network (LAN) that employs Internet technology
▪ Extranet: collaborative network that uses Internet technology to link businesses with
suppliers, customers, etc.
 EDI Security 89

There are implications of security failures (loss

of data, loss of public confidence), but retailers
have security policy objectives:
 Authentication – system assures person on
other end of session is who it claims to be
 Authorization - that person has permission
to carry out request
 Integrity – info arriving is the same that was
sent
The Physical Flow of Merchandise - 90
Logistics

Logistics:
 The aspect of supply chain that refers to the planning,
implementation, and control of the efficient flow and
storage of goods, services, and related information from
the point of origin to the point of consumption to meet
customers’ requirements
 Merchandise Flow 91

Retailers can have

merchandise shipped
directly to their stores (path
3) or to their distribution
centers (paths 1 and 2)
 Activities Performed 92
by Distribution Center

 Managing inbound transportation

 Receiving and checking
merchandise
 Storing or cross docking
merchandise
 Getting merchandise floor ready
 Ticketing and marking
 Putting on hangers
 Preparing to ship merchandise to a
store
 Managing outbound transportation
 Advantages of Using 93
a Distribution Center
 More accurate sales forecasts
are possible when retailers
combine forecasts for many
stores serviced by one
distributor
 Enables retailers to carry less
merchandise in the store
 Easier to avoid running out of
stock
 Retail store space is more
expensive than space at the
distribution center
 Outsourcing Logistics 94

Retailersconsider outsourcing logistical functions if

those functions can be performed better or less
expensively by third-party logistics companies
Transportation
Warehousing
Freight Forwarders
Integrated Third-Party Logistics Services
 Pull and Push Supply Chain 95

Push Supply Chain Pull Supply Chain

Merchandise is allocated Orders for merchandise are

to stores generated at the store level
on the basis of on the basis of
forecasted demand POS sales data

• Less costly than a pull supply chain • Less likely to be overstocked or out
• Less sophisticated information of stock
needed system to support it • Increases inventory turnover
• Efficient for merchandise that has • Responsive to changes in customer
steady, predictable demand demand
• Efficient when demand is uncertain,
and hard to forecast
Advantages of Direct Store Delivery 96

Getsmerchandise faster, and is thus used for perishable goods

(meat and produce)

Helpsthe retailer’s image of being the first to sell the latest

product (video games) or fads

Some vendors provide direct store delivery for retailers to ensure

that their products are on the store’s shelves, properly displayed,
and fresh
 Reverse Logistics 97

The process of moving returned goods from their customer

destination for the purpose of capturing value or proper
disposal

Retailers recover loss through on-line auctions

Reverse-logistics systems are challenging

 Items may be damaged or require special handling
 Transportation costs are high
Supply Chain for Fulfilling Catalog and 98
Internet orders

When fulfilling orders from individual

consumers, retailers ship small packages with
one or two items to a large number of different
places
 Distribution centers for picking and packing orders for consumers
 Drop Shipping 99

Drop-shipping, or consumer direct fulfillment, is a

system in which retailers receive orders from
customers and relay these orders to vendors and
then the vendors ship the merchandise ordered
directly to the customer.

Drop-shipping has been used for years by

companies that sell bulky products such as lumber,
iron, and petroleum, as well as catalog and mail-
order companies.
Collaboration between Retailers and Vendors
100 in
Supply Chain Management

Bullwhip Effect - The built

up inventory in an
uncoordinated channel
where retailers and vendors
do not coordinate their
supply chain activities
 What Causes a Bullwhip Effect? 101

Delaysin transmitting orders and receiving

merchandise

Over-reacting to shortages

Ordering in batches rather than generating a number

of small orders
Collaboration between Retailers and
102
Vendors in Supply Chain Management

Four approaches for coordinating supply

chain activities to reduce the level of
inventory in the chain and reduce the
number of stock-outs (in order of the level
of collaboration)

 Use EDI
 Share information to reduce need for backup inventory, improve
sales forecasts and production efficiency
 Vendor manage inventory (VMI)
 Collaborative planning, forecasting and replenishment (CPFR)
 Vendor Managed Inventory (VMI) 103

Manufacturer access to POS information

Replenishment automatically triggered

Enables demand-based view of replenishment &

production planning – reduce bull whip effect
CPFR (Collaborative Planning, Forecasting, and
104
Replenishment)

Developed by VICS and adopted by ECR Europe

The sharing of forecast and related business information and
collaborative planning between retailers and vendors to improve
supply chain efficiency and product replenishment
The most advanced form of retailer-vendor collaboration that
involves sharing proprietary information, such as business strategies,
promotion plans, new product developments and introductions,
production schedules, and lead time information.
 CPFR (Collaborative Planning, 105
Forecasting, and Replenishment)

Common goals
A single demand forecast developed collaboratively
Collaborative Promotional planning & execution
A single, shared data source
Improved inventory management across Supply Chain
Optimized replenishment strategies with joint
ownership
Process simplicity creates optimal framework for
success
Radio Frequency Identification (RFID)
106

Radio Frequency Identification (RFID) allows

an object or a person to be identified at a
distance using radio waves.
Reduces warehouse and distribution labor
costs
Reduces point of sale labor costs
Inventory savings by reducing inventory
errors
Reduces theft – products can be tracked
Reduces out of stock conditions
 Impediments to the Adoption of RFID
107

RFID is expensive – the return

on investment is low
Itstill only makes sense to put
tags on pallets, cartons,
expensive merchandise or high
theft items
RFID generates more data than
what can be currently processed
Consumers worry about privacy
invasion
 108

Retail Franchising
 Refer Notes Given
 109

Thank you