Chapter 16 Buying and supply management in retail - PowerPoint PPT Presentation


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Chapter 16 Buying and supply management in retail


Chapter 16 Buying and supply management in retail Program Definitions Role and importance of purchasing in trading and retail business. Structure and organization of ... – PowerPoint PPT presentation

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Title: Chapter 16 Buying and supply management in retail

Chapter 16 Buying and supply management in retail
  • Definitions
  • Role and importance of purchasing in trading and
    retail business.
  • Structure and organization of the purchasing
  • Developments in trading and retail companies
  • Trends in sourcing and supply chain strategies

  • Trade and retail companies
  • Characterized by the absence of a production
  • Value added is low compared to manufacturing
  • Existence is primarily based on the exchange of
  • Time between the purchase and sale is very short

Category management because of a short time
between purchase and sale, buying and selling are
sometimes integrated into one function.
Inbound logistics
Outbound logistics
Merchandising/ commodity management
Facilities buying
Human resources management
The value chain in trade companies (Adapted from
Porter, 1985)
  • Trade companies can be divided into two levels
  • Wholesale level (B2B)
  • Retail level (B2C)
  • Companies that operate on wholesale level deliver
    their products to other companies.
  • Customers are retail, industrial and service
  • Wholesale companies devote less effort to
    promotion, shop layout and selection of location.
  • Further wholesalers make large transactions with
    a limited number of companies.

Wholesale and trade in the business chain
Purchasing in trade and retail companies
  • Trade companies fulfill the intermediary between
  • producer and end user. Their added value lies in
  • the following activities
  • Sales and promotion
  • Buying and building up a product assortment
  • Bulk breaking
  • Storage
  • Transportation
  • Carrying the risk
  • Market information
  • Management and marketing services

Purchasing in trade and retail companies
  • Regarding the retail trade, various types of
    stores can be
  • distinguished in the area of consumer products
  • Specialty store
  • Department store
  • Supermarket
  • Convenience store
  • Combination store, superstore and hypermarket
  • Service business

Organization of the purchasing process
  • Stages in the buying-selling cycle
  • Estimating demand
  • Determining product assortment and distribution
  • Selection of most suitable supplier
  • Contractual agreements
  • Ordering
  • Automatic replenishment
  • Expediting and evaluation
  • Retail buyers pay more attention to marketing and
    sales aspects than industrial buyers. The
    function of retail buyer evolves from straight
    buying to commodity or category management.

Organization of the purchasing process
  • Cross-functional structure
  • Teams are responsible for all aspects of a
    category in order to generate a maximum return
    for the retail company
  • Buying, styling, visual merchandising and
    distribution functions operate in one
    organizational entity. (category management)
  • Functional purchasing structure
  • Purchasing is important and reports directly to
    top management
  • Ordering and purchasing often separate
  • Purchasing and Category Management are conducted
    central and ordering is carried out decentral as
    much as possible.
  • Planning is more and more delegated to the
    suppliers (i.e. VMI)

Developments in trade and retail companies
  • Changing consumer behavior in European countries
  • Ageing population, ongoing individualism, more
    men shopping
  • Increasing income gap between population groups
  • Growing number of earning couples
  • Increased exposure to other cultures and
    integration of ethnic minorities
  • Increased concern for the environment
  • Increased attention to healthier living

This means that the commodity manager/
retail-buyer must constantly tailor his product
assortment to more specific and often smaller
Developments in trade and retail companies
  • Other developments.
  • Concentration Globalization of competition and
    concentration through mergers and acquisitions.
  • International co-operation Due to the
    concentration of power on the suppliers side,
    trade companies are searching for
    internationalization as an option to
    counterbalance this development.
  • Private labels Private labels support retailer
    identity and image. Finding suitable suppliers
    for private label products will become
    increasingly difficult.

Developments in trade and retail companies
  • More developments
  • Space management based on detailed cost
    information retailers decide on the most
    profitable display lay out.
  • Green issues ecological considerations are
    growing in importance (e.g. natural ingredients,
    biodegradable packaging)
  • Information Some developments in information
    technology have an immediate impact on consumers.
    Others are less visible to the consumer. For
  • Electronic banking
  • Bar coding
  • Tele shopping

Supply chain strategy trends
  • Modern supply chain management retail is based on
    the following concepts
  • Vendor Managed Inventory (VMI)
  • Efficient Consumer Response (ECR)
  • Collaborative Planning, Forecasting and
    Replenishment (CPFR)
  • Electronic marketplaces
  • Radio frequency Identification Detection (RFID)

Vendor Managed Inventory (VMI)
  • VMI is a continuous replenishment program in
    which the retailer provides the supplier with
    detailed information to allow the supplier to
    manage and replenish product at the store or
    warehouse level
  • Typically the activities of forecasting,
    scheduling, requisitioning and ordering are
    performed by the supplier.
  • Electronic Data Interchange (EDI)s an integral
    part of the VMI process
  • Benefits of VMI
  • Solidified customer-vendor relationships
  • Reduced shipping costs and lead time
  • Fewer human errors
  • Improved service levels

Efficient Consumer Response (ECR)
  • ECR is a grocery industry supply chain management
    strategy aimed at eliminating inefficiencies, and
    non-value-added costs, thus delivering better
    value to the end customers
  • It is designed to re-engineer the grocery supply
    chain from a push system into a pull system
    by using e-commerce information technology
  • ECR attempts to eliminate inefficiencies by
    introducing strategic initiatives in four areas
  • Efficient store assortment
  • Efficient product information
  • Efficient promotion
  • Efficient product replenishment

Efficient Consumer Response (ECR)
  • Programs that companies need to have in place
  • Category management (i.e. managing a group of
    products as strategic business units within each
  • Continuous replenishment program (CRP)
  • Further support is needed of the following
  • Barcodes / Scanners
  • Electronic Data Interchange (EDI)
  • Computer aided ordering (CAO)
  • Cross docking / direct store delivery
  • Activity based costing

The main obstacle is not technical but
managerial, with managers reluctant to transform
their adversarial trading relationships into
open partnerships
Efficient Consumer Response (ECR)
Kurnia et al, (2002) 
Collaborative Planning, Forecasting and
Replenishment (CPFR)
  • CPFR allows cooperation across the supply chain,
    using a set of processes and technology models.
  • Providing dynamic information sharing and
    integrating both demand and supply side
    processes, for effectively planning, forecasting
    and replenishing customer needs through the total
    supply chain.
  • Advantages of CPFR
  • Increased responsiveness
  • Product availability assurance
  • Optimized inventory and associated costs
  • Increased revenues and earnings
  • Improved relationships with trading partners

Electronic marketplaces
  • A distinction can be made between Open exchanges
    (accessible for everyone) and Private exchanges
    (only for members)
  • An e-marketplace can provide a platform for
  • Core commerce transactions which can automate and
    streamline the entire requisition-to-payment
  • A collaborative network for production design,
    supply chain planning, optimization and
    fulfillment process
  • Industry wide product information that is
    aggregated into a common classification and
    catalogue structure
  • An environment in which sourcing, negotiations
    and auctions can take place in real-time
  • An online community for publishing and exchanging
    industry news, information and events

Radio frequency Identification Detection
  • RFID is a term for technologies that use radio
    waves to automatically identify.
  • Auto-ID Center is developing an open global
    network (a layer on top of internet) that can
    identify anything, anywhere, automatically.
  • This network will give companies near perfect
    supply chain visibility
  • Also, if widely adopted the network could
  • eliminate human error from data collection
  • reduce inventories
  • keep product in stock
  • reduce loss and waste
  • free up staff to perform more value added
  • improve safety and security

Supply chain strategy trends
  • The four major developments show how the
    landscape of the traditional retail buyer has
  • Advanced systems will allow them to optimize
    their supply chain operations
  • Future competition in retail will no longer be
    between individual companies, rather it will be
    among clusters of companies
  • As research shows the development towards this
    kind of collaboration can be troublesome
  • Trust between the partners, a long term
    commitment and a balanced sharing of risks and
    rewards is required to be successful

  • The buying function plays a very important role
    in trade companies.
  • In retail companies buying policy is much more
    integrated with sales and marketing policy,
  • Company policy is primarily focused on improving
    turnover and margin whilst reducing working
  • Retail today is a truly international business.
  • Advanced information systems allow the
    application of new logistics concepts such as
    VMI, ECR, CPFR and electronic marketplaces.