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Supply Chain Management Strategy for Retailers


Supply Chain Management Strategy for Retailers A presentation to Bailian Group Executives November 16, 2006 by Katrina Savitskie, Ph.D. Assistant Professor – PowerPoint PPT presentation

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Title: Supply Chain Management Strategy for Retailers

Supply Chain Management Strategy for Retailers
  • A presentation to
  • Bailian Group Executives
  • November 16, 2006
  • by
  • Katrina Savitskie, Ph.D.
  • Assistant Professor
  • Dept. of Marketing Supply Chain Management

  1. Traditional vs. World Class Operations
  2. Logistics
  3. Collaboration
  4. Retail Dynamics
  5. Future Trends and Implications

I. Traditional vs. World Class Operations
Characteristics of Traditional Operations
  • Driven by capacity and economies of scale
  • Anticipatory operations strategy dictated by
    long-range forecasts
  • Accounting focused on controlling cost at expense
    of other logistics cost variants
  • Management activities functionally oriented

Traditional Operations
  • Characterized by uncoordinated internal
    activities split among different organizational
    departments - relay team
  • The result high inventory levels, low levels of
    customer satisfaction

The New Imperative for Operations Be Flexible
and Responsive!
  • Design all systems and processes with the prime
    objective of improving speed and reliability of
    response to demand
  • Traditional organizations with multiple
    bureaucratic layers have little chance of
    surviving in the new marketplace

Evolution of World Class Operations
  • Sparked by increasing domestic and international
  • The information age enabled improved coordination
  • Change in focus to the strategic process of
    creating value through meeting customer needs in
    a cost effective manner

Characteristics of World Class Operations
  • Shift from anticipatory to response-based systems
  • Managerial focus on TOTAL delivered cost
  • Use sophisticated performance measurement tools
    to facilitate awareness of cost tradeoffs
  • Increase internal integration of source/make/
    deliver processes

World Class Operations
  • Coordination between internal activities
    facilitated by single/compatible information
    systems and shared planning
  • Lower inventory levels, total internal system
    performance improved

World Class Operations (continued)
  • Link demand with supply
  • Seek to combine processes, to integrate separate
    groups of people performing adjacent tasks, and
    to simplify processes by reducing paperwork

Benefits of World Class Operations
  • Enhanced customer value
  • Reduced inventory investment
  • Improved profitability
  • Quicker response to changing market needs
  • Establish competitive/differential advantage
  • BUT -- Need to involve all internal and external
    players to realize full benefits!!

II. Logistics
That part of the supply chain process that
plans, implements, and controls the efficient,
effective flow and storage of goods, services,
and related information from the point-of-origin
to the point-of-consumption in order to meet
customers requirements. Council of Supply
Chain Management Professionals (formerly the
Council of Logistics Management) Updated
Where Does the Work of Logistics Occur?
  • At the sources of raw materials and supply and
    within and between each channel entity right up
    to consumption and beyond.
  • It includes raw materials, work-in-process
    (manufacturing support), finished goods, and
    supporting information

Logistics Flows
Logistics the management of inventory at rest
and in motion Mercer Management Consulting Group
Prior to 1980 Functional Management
Logistics Evolution
  • Characterized by uncoordinated internal
    activities split among different organizational
  • High inventory levels, low levels of customer

Logistics Evolution (continued)
1980s Internal Integration
  • Coordination between internal activities
    facilitated by single/compatible information
    systems and shared planning
  • Lower inventory levels, total internal system
    performance optimized
  • External relations still not optimal

Logistics Evolution (continued)
1990s External Integration/SCM
  • Information shared with suppliers/customers to
    manage resources more efficiently
  • Economies of scale and enhanced bargaining power
    lower cost structure
  • Customer satisfaction increased

Logistics Paradigm Shift
  • View the system as seeking to meet specified
    customer service levels at the least total system
    cost, NOT each functional area
  • From functions to integrated processes
  • From products to customer value
  • From transactions to relationships
  • From inventory to integrated information
  • From functions to total system performance

Logistics An Important Weapon of Corporate
  • 20 spent on logistics for every 1 spent on
  • 10-30 of total manufacturing costs 4-8 of
  • Ranked second only to product quality in
    importance to industrial buyers

Logistics of Business IS Big Business
1980 GDP 2.80 trillion Logistics Cost
451 billion 16.1 of GDP Transportation
Cost 214 billion 47.5 of Logistics Cost
2000 GDP 9.96 trillion Logistics Cost
1.006 trillion 10.1 of GDP
Transportation Cost 590 billion 58.7 of
Logistics Cost
2004 GDP approx. 11.8 trillion
Logistics Cost 1.015 trillion 8.6 of GDP
Transportation Cost approx. 500 billion
Roughly 50 of Logistics Cost
Source Annual State of Logistics Report
Increase in Logistical Work and Complexity
  • Order cycle times can balloon from 3-7 days to
    30-50 days.

Changes Drive a Five-foldIncrease in Costs
  • Transit Costs
  • Ocean
  • Rail
  • Drayage
  • Line Haul Truck
  • Holding Admin.
  • Port Services
  • Warehousing
  • Inventory Carrying Costs
  • Risk
  • Price uncertainty
  • Loss Damage
  • Lost Sales
  • Obsolescence
  • The risk related costs are the real opportunity

Getting Logistics Right is Importantin Global
Economic Competition
  • Logistics is a major American competitive

Maintain Logistics Competency
  • Consolidate coordination of supplier management
  • Eliminate ownership ambiguity
  • Aggressively manage outsourcing relationships
  • Retain sufficient internal logistics competency
    and knowledge
  • Utilize a total cost view
  • Implement transparent and simplistic metrics
  • ? Gain potential value from the outsourcing

III. Collaboration
SCM Trends Collaboration
  • Main drivers
  • Cost reduction
  • Service improvement
  • Risk reduction
  • More professionalism in the processes
  • Increased market share
  • Improved learning capacity and innovativeness

Innovative Forms of Collaboration
  • Collaboration in the Supply Chain
  • Partnerships with customers and suppliers
  • Horizontal collaboration
  • Between logistics service providers
  • Between shippers in the inbound process
  • Between shippers in the outbound process

Collaboration Between LogisticsService Providers
  • Cost reduction
  • Service improvement
  • Risk reduction
  • Professionalism
  • Growth
  • Drivers
  • Synergies/increased utilization rate
  • Cutting overhead costs
  • Covering geographical areas
  • Offering complementary services
  • Common investments
  • Economies of scale (WMS/TMS)
  • Becoming a world player

Formats Ad hoc, partnerships, joint ventures,
mergers, etc.
Wheres the OpportunityPick Your Competency
  • Export / Import Execution
  • Shipment Visibility
  • Transportation Management
  • Merge In Transit Programs
  • Modal Optimization
  • Landed Cost Optimization
  • Final Mile Deliveries
  • Global Workforce Management
  • Vendor Managed Inventory Programs

Demanding Supply Chains
IV. Retail Dynamics
Logistics Importance in the Retail Grocery Channel
  • Logistics costs represent 7 of 447BB annual
    Retail Grocery Sales - or 31.3BB
  • Logistics costs represent over 13 of total
    landed cost of product to retailer - 2nd largest
    controllable cost after labor
  • Logistics management influences the availability,
    condition of goods, and replenishment time to

Keys to Retail Supply Chain Renewal
  • Customer relevance
  • Internal alignment
  • External virtuality
  • Technology and planning synchronization
  • Measurement usage

Retail Value Propositions
  • Retail distribution channel over past 50 years
    has achieved economic efficiency and market
    effectiveness domestically but now serving the
    world and its not working as effectively
  • Some firms have failed to retain consumer loyalty
    while alternatives are increasing relevancy by
    responding to dynamic market signals

Events Stimulating Change- Retailer
  • Increased product proliferation
  • Explosion of forward buy due to promotions
  • Consolidation of the fragmented retail industry
  • E.g., Wal-Marts interest in acquiring Trust Mart
  • Success of supply chain integration/world class
    logistics practices in other consumer industries
    - recognized in Efficient Consumer Response (ECR)
  • Competition from non-traditional players (e.g.,
    mass merchandisers or clubs)

Mass Merchant Competition
Challenges for Retail Grocery Channels
  • Emphasis on convenience
  • Changing mix in food sales from packaged grocery
    to fresh and prepared
  • Use of technology to apply knowledge about heavy
  • Serving markets of growing diversity
  • Balancing profits with quality and service
  • (from Michael OConnor)

Grocery Item Mix
Proliferation of New Retail Formats
Combination Store
Low Price Service
Conventional Supermarket
Mom-N-Pop Store
Warehouse Store
Convenience Store
Wholesale Club
Specialty Foods
Limited Assortment
Additional Considerations
  • Meals Away From Home - 52 of total food
    purchases - Most growth projected next decade
  • Home Delivery of Traditional Groceries -
    Estimated to reach 10 to 20 of total grocery
  • Convenience Stores - Growing market share
  • Mass Merchants - Fastest growing grocery share -
    combined food and general merchandise

BusinessWeek OnlineJANUARY 17, 2005 ASIAN
  • Surveys show that the top factors Chinese
    consider in deciding where to shop today
  • Convenience
  • Spaciousness
  • Comfort of store
  • Selection offered
  • Price
  • So what does this mean to the future

Characteristics of Integrated Supply Chain
  • Competitive forces lead manufacturers and
    distributors to improve responsiveness and
    service and eliminate costs
  • Manufacturers
  • Delivery format, quantity, presentation, and
    frequency is specified by retailer
  • All products through retailer warehouse - no
    direct store delivery
  • Retailers
  • Daily shelf-ready retail delivery - no back
  • Sales-based ordering using POS data
  • All promotions are store specific

Retail Industry Best Practices
  • Retailers will be focusing on supply chain
    efficiency in order to stay competitive
  • Compare processes, product, and services with
    best in class standards
  • Establish objective tools for improving control
    of processes and motivating appropriate decision
    making taking into account total pipeline
  • Almost 25 of retailers plan for half of their
    merchandise assortments to be private label

Retail Industry Best Practices (continued)
  • Need to upgrade systems, especially point-of-sale
  • Leverage store level shopping data which provides
    valuable real time data to be shared throughout a
    retailer's supply chain network
  • Quickly and efficiently respond to change
  • Recognize the possible need to redesign and/or
    relocate stores
  • Continued expansion efforts both domestic and
  • Consider additional outsourcing opportunities

Benefits of Integration
  • Faster cycle times and reduced inventory
  • Move product faster through warehouse (strive for
    less than 24 hours)
  • Increase turns
  • Reduced administrative expenses
  • Electronic ordering decreases PO admin expenses
  • Reduced distribution costs through cross docking
  • Reduces labor
  • Reduces product damage and returns
  • Allows low-cost, next-day replenishment over a
    broad area
  • Increased sales and reduced unsalable products
  • In-stock levels increase
  • Reduce cycle time

Retail Supply Chain Reality
Supply Factors
Demand Factors
  • Globalization
  • Consolidation
  • Product proliferation
  • Alternative delivery/retail options
  • Technology/information explosion
  • Greater convenience
  • Higher quality
  • More variety
  • Price-consciousness
  • Sensitivity to environmental issues

Retail Supply Chain Bottom-Line
  • Traditional focus on forward buy based on
    promotion mentality have enabled economic
    efficiency and market effectiveness, yet many
    retailers fail to retain consumer loyalty
  • Increased loyalty will be achieved through
    improved responsiveness and service and reduced
    pipeline costs

IV. Future Trends and Implications
Events Stimulating Change
  • Information Technology Explosion
  • Industry/Business Changes
  • Number and scope of competition
  • Customer service demands
  • Time-based competition
  • Quality focus

What the Future Brings
  • Increased focus on end-consumers vs. trade
    customers to pull products through channels
  • Management of consigned inventory
  • Increasingly smaller, more frequent, customized
    shipment sizes
  • Focus on external relationships that reduce asset
    requirements and improve customer value
  • Further investment in information exchange
    capabilities (like Bailan Groups RFID efforts)

Logistics Implications
  • Distribution networks will serve much larger
    geographical territories
  • Increased use of third party warehousing and
    transportation firms
  • Close relationships with logistics service firms
    that involves exchange of strategic planning

Chinas Logistics Challenge
Need a network to service all of China regardless
of the current locations
Discussion Questions
  • How does the move to the central part of China
    and to the area of Shenzhen impact the business
    decisions for the Bailian Group?
  • How does it impact customer service efforts?
  • Again does it matter what industry you are in?
  • ? Please form small groups (4-5 people) and
    consider these questions

Implications (continued)
  • Logistics networks will have
  • Minimal storage space
  • Maximum staging space
  • For value enhancement activities
  • Rapid product assortment and packaging (cross
  • Light assembly and manufacturing
  • Multiple transportation options will be used

Critical Success Factors
  • Top management support
  • Cross-organizational vision and trust
  • Cross-functional and cross-enterprise
  • Relevant performance measurement
  • Cross-organizational decision-making
  • Cross-functional ownership
  • Operational connectivity

  • Integration means different things to different
    companies at different stages of relationship
  • Strike a balance between standardization and
  • Applying learning, skills, and new knowledge to
    other relationships
  • Viewing supply chain integration as a long term

  • If you are not constantly reinventing yourself
    in light of the changing world, you are becoming
  • -Theodore Roosevelt