chapter 1- basic concepts of retail buying

7/29/2019 Chapter 1- Basic Concepts of retail buying

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Supply Chain Management


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The way materials flow through differentorganizations from the raw material supplier tothe finished goods consumer.


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Flow of products and services from:Raw materials manufacturersIntermediate products manufacturersEnd product manufacturersWholesalers and distributors andRetailers

Connected by transportation and storageactivitiesIntegrated through information, planning, andintegration activities


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Supply

Chain forMilk

Products


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Supply Chain

A Supply Chain consists of all the partiesinvolved, directly or indirectly in fulfilling acustomer request for goods or services.

Each party is involved in various functionsinvolved in receiving and fulfilling acustomers request


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2-8

New

Product

Development

Marketing

and

Sales

Operations Distribution Service

Finance, Accounting, Information Technology, Human Resources

e a ue a n: n agebetween Supply Chain and

Other Functions


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Production: refers to the capacity of a supply

chain to make and store products.Key Production Decision Responsiveness VSEfficiency

Factories and Facilities with Excess Or

Limited capacities?Focuses on:

Customer & market demand

Resource Management

Internal sourcing (what and which plants)Outsourcing to capable suppliers

Capacity Management


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Inventory is spread throughout the supplychain and includes everything from rawmaterial to work in process to finished goodsthat are held by the manufacturers,distributors, and retailers in a supply chain.

How Much Inventory and Where to Store It?

Reasons for holding inventory:Cycle InventoryThis is the amount ofinventory needed to satisfy demand for theproduct in the period between purchases of theproduct.


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Safety Inventorythat is held as a bufferagainst uncertainty.

Seasonal InventoryThis is inventory that isbuilt up in anticipation of predictable increasesin demand that occur at certain times of the

year

Analysis of fluctuations in demand

Identification of optimal storage locations insupport of customer demand

Identification of optimal storage locations insupport of customer demand


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Location: refers to Strategic placement ofproduction plants, distribution and stockingfacilities

It is the geographical positioning /siting ofsupply chain facilities

Factors that relate to a given locationincluding the cost of facilities, the cost of labor,

skills available in the workforce, infrastructureconditions, taxes and tariffs, and proximity tosuppliers and customers.


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Transportation: refers to movement ofeverything from raw material to finished goodsbetween different facilities in a supply chain

In transportation the trade-off between

responsiveness and efficiency is manifested inthe choice of transport mode.

Ship which is very cost efficient but also theslowest mode of transport

Rail which is also very cost efficient but can beslow. This mode is also restricted to usebetween locations that are served by rail lines

Airplanes are a very fast mode of transport and

are very responsive.


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Pipelines can be very efficient but are restrictedto commodities that are liquids or gases suchas water, oil, and natural gas

Trucks are a relatively quick and very flexible

mode of transport. Trucks can go almostanywhere.

Electronic Transport is the fastest mode oftransport and it is very flexible and cost

efficient. However, it can only be used formovement of certain types of products such asdata, and products composed of data such asmusic, pictures, and text.


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Timely and accurate information holds thepromise of better coordination and betterdecision making.

Information is used for two purposes in anysupply chain:

1. Coordinating daily activities related to thefunctioning of the other four supply chaindrivers: production; inventory; location; and

transportation.2. Forecasting and planning/Decision Makingto anticipate and meet future demands.

Obtaining, linking and leveraging information

across the Supply Chain


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1. Producers

Raw materials, Intermediary Products, Finishedgoods

2. Distributors: are companies that takeinventory in bulk from producers and delivera bundle of related product lines tocustomers

A distributor is typically an organization thattakes ownership of significant inventories ofproducts that they buy from producers andsell to consumers


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A distributor can also be an organization thatonly brokers a product between the producerand the customer and never takes ownership of

that product

Distributors buffer the producers fromfluctuations in product demand by stocking

inventory.

Perform Sales work and at times

Marketing/promotion / After Sales Services


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3. Wholesalers: stock a range of products fromseveral producers. The role of the wholesaleris to sell onto retailers. Wholesalers usuallyspecialize in particular products.

4.Franchises: are independent businesses thatoperate a branded product (usually a service)in exchange for a license fee and a share ofsales.

5. Agents: sell the products and services ofproducers in return for a commission (apercentage of the sales revenues)


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6. Retailers operate outlets that trade directlywith household customers. Retailers can beclassified in several ways:

Type of goods being sold( e.g. clothes, grocery,furniture) Type of service (e.g. self-service, counter-service)

Size (e.g. corner shop; superstore) Location (e.g. rural, city-centre, out-of-town) Brand (e.g. nationwide retail brands; local

one-shop name)


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7. Customers or consumers are anyorganization that purchases and uses aproduct

A customer organization may purchase aproduct in order to incorporate it into anotherproduct that they in turn sell to other

customersA customer may be the final end user of aproduct who buys the product in order toconsume it.


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8. Service Providers are the organizations that

provide services to other participants whichmay include:

Logistic Providers which provide transportationand warehousing services

Financial Service providers such as Banks,collection agents, credit companies

Other service providers such as MarketingResearch companies, Advertising agencies,engineers , legal consultants, HR consultantsetc


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The design and management ofseamless,

value-added process across organizationalboundaries to in order to minimize total systemcost and satisfy end customers


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Reliability

Responsiveness

Flexibility

Cost

Asset Management

Quality


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Increased Sales: Faster to Market Improved Quality Pricing Flexibility

InnovationLower Total Cost: Acquisition Cost Processing Cost Quality Cost Downtime Cost Risk Cost Cycle Time Cost Conversion Cost Non-value Added Cost Supply Chain Cost Post Ownership Cost


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Return onInvestments

10.0%

Total assets$4,000,000

Sales

$5,000,000

Divided by

Profitmargin

8%

Asset turnoverrate1.25

Multiply

Cash$300,000

Accountreceivable$300,000

Inventories$500,000

Assets

Labor

$700,000

Materials$2,300,000

Overhead

$800,000Operatingcostelements

($515,000)

($3,685,000)($2,185,000)(10.3%)

(1.26)

($3,975,000)

($1,075,000)

($475,000)

(13.0%)

What if wedecreasematerials costby 5%?(or $115,000)

Sales$5,000,000

Net income$400,000

Divided by

Fixed assets$2,900,000

Current assets$1,100,000

Plus

Other costs$800,000

Sales

$5,000,000

Cost ofGoods Sold$3,800,000

Minus

Plus


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If the same profit increase were to be generatedby increasing sales, what sales increase would

be required?At the existing 8% profit margin, the followingcalculation provides the answer

Profit increase = new sales X .08

$115,000 = new sales X .08

new sales = $1,437,500

therefore..

($1,437,500 / $5,000,000) X 100 = 28.8%or a sales increase of 28.8% is required tomatch the profit increase generated by a 5%reduction in materials cost


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Decision Phases of a SupplyChain

Supply chain strategy or design Supply chain planning

Supply chain operation


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Push/Pull View of SupplyChains

Processes are divided into two categories,pull or push

Procurement,Manufacturing and

Replenishment cycles

Customer Order

Cycle

Customer

Order Arrives

PUSH PROCESSES:

executed in anticipation

of a customer order

PULL PROCESSES:

executed in response to acustomer order


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Push/Pull View ofSupply Chain Processes

Supply chain processes fall into one of twocategories depending on the timing of theirexecution relative to customer demand

Pull: execution is initiated in response to acustomer order (reactive)

Push: execution is initiated in anticipation ofcustomer orders (speculative)

Push/pull boundary separates pushprocesses from pull processes


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Push/Pull View ofSupply Chain Processes

Useful in considering strategic decisionsrelating to supply chain designmore globalview of how supply chain processes relate to

customer orders Can combine the push/pull and cycle views

L.L. Bean (Figure 1.6)

Dell (Figures 1.7)

The relative proportion of push and pullprocesses can have an impact on supplychain performance


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Examples of Supply Chains

Gateway

Zara

WW Grainger and McMaster-Carr: MRO

suppliers* Toyota

Amazon.com

How do these supply chains differ in terms oftheir design? Where are the push/pullinterfaces? How does the location of theseinterfaces affect their design?

chapter 1- basic concepts of retail buying

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