INDUSTRIAL ENGINEERING APPLICATIONS IN RETAILING:STRATEGIC OBJECTIVES FOR RETAIL SUPPLY CHAIN MANAGEMENT

STRATEGIC OBJECTIVES FOR RETAIL SUPPLY CHAIN MANAGEMENT

Improved Forecasting Ability

Collaborative forecasting and replenishment is the term used to represent the joint partnership be- tween retailers and vendors / manufacturers to exchange information and synchronize the demand and supply. With improved forecasting, the amount of material and inventory that vendors, manufacturers, and retailers have to have in hand is reduced. Most forecasting, if it is done (much more likely in larger retails), is done separately. It is only within the past five years that retailers have discovered the value or implemented any joint forecasting partnerships (e.g., Procter & Gamble and Wal-Mart. P&G maintains an office in Bentonville, Arkansas, where Wal-Mart world headquarters is located, to serve this important partnership).

Supply chain management advances rest firmly on the flow of information. Overwhelming paper flow, separate computer systems and databases, and nonnetworked computer systems are unacceptable in the supply chain era. Linking computers on a single platform of information with fast access to all information needed to make decisions fosters enterprise-wide solutions that make up supply chain management.

The success of the Procter & Gamble / Wal-Mart relationship has been looked to as the model for what will be happening in retailing over the next 10 years. It has also served as the model that P&G will be using with its business partners to grow and prosper. Since supply chain management pro- cedures were implemented, market share for P&G went from 24.5% in 1992 to 28% in 1997, while net margin increased from 6.4% to 9.5% (Drayer 1999).

Typically it is the retailer that develops a forecast and hands it to the vendor / manufacturer. Trusting mutually beneficial relationships are not the operational reality between retailers and vendors/ manufacturers (see Figure 3). Even greater efficiency will be achieved when multiple retailers in a geographic region combine their information seamlessly with multiple vendors / manufacturers to allow the most efficient delivery and manufacturing of product. Why should Procter & Gamble plan and ship with Wal-Mart, then do it again with Target, with K-Mart, and with the hundreds of smaller retailers in the area, when if they did it together, the costs would be lower for all?

Faster and More Accurate Replenishment

Direct product replenishment offers to increase the efficiency and effectiveness of retail operations. According to a Coopers & Lybrand study (1996), direct replenishment improves retail operations by allowing:

• Integration of suppliers with mission and function of store

• More reliable operations

• Synchronized production with need

• Cross-docking and associated savings and efficiencies

• Continuous replenishment and fewer out-of-stock positions

• Automated store ordering and more attention and money available for more important areas of the business

Retailers would need fewer people to be experts in a product area. Fewer mistakes would be made. Markdowns (need to sell inventory that did not or would not sell) would be minimized making margin enhancement possible. Goods would reach the consumer faster. Less inventory storage would be needed. There would be lower distribution expenses since much of the inventory would be stored at the manufacturer until needed.

Since inventory is a retailer’s number one asset, making that asset more productive feeds the bottom line directly. Continuous and time-minimal replenishment schemes are easier with basic everyday items that move through the store quickly. Grocery stores have widely implemented elec- tronic data system techniques to maximize the efficient replenishment of fast-moving merchandise.

Other retailers are just beginning to learn how to use point-of-sale information to minimize quantities of merchandise stored (needed to buffer poor forecasting and slow replenishment). Ernst & Young estimates that savings in inventory management would give the economy a $35 billion boost.

Flexible Channel Capability

The emerging e-commerce pressures are forcing retailers to build supply chain flexibility. Getting merchandise to the consumer outside of the store chain while maintaining the stores (frequently called a clicks-and-mortar strategy) forces retailers to understand how to deliver items directly to the consumer as well as to the consumer from the stores. Federated Department Stores (parent company of such retailers as Macy’s and Bloomingdales) realized the different nature of e-commerce and purchased one of the better mail-order fulfillment houses (Fingerhut) to build the expertise for their emerging e-commerce initiatives. Retailers who have the flexibility to provide multiple access points (stores, catalog, Internet) will be better positioned for success than solely store-based or Internet- based retailers. Petsmart will deliver Internet-ordered goods from their local stores. They have an Internet distribution system built into their already vast network of stores.