Buying and supply management in retail


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Buying and supply management in retail

  1. 1. Chapter 16 Buying and supply management in retail
  2. 2. Program <ul><li>Definitions </li></ul><ul><li>Role and importance of purchasing in trading and retail business. </li></ul><ul><li>Structure and organization of the purchasing process </li></ul><ul><li>Developments in trading and retail companies </li></ul><ul><li>Trends in sourcing and supply chain strategies </li></ul>
  3. 3. Definitions <ul><li>Trade and retail companies: </li></ul><ul><ul><li>Characterized by the absence of a production process </li></ul></ul><ul><ul><li>Value added is low compared to manufacturing companies </li></ul></ul><ul><ul><li>Existence is primarily based on the exchange of values </li></ul></ul><ul><ul><li>Time between the purchase and sale is very short </li></ul></ul>Category management: because of a short time between purchase and sale, buying and selling are sometimes integrated into one function.
  4. 4. Inbound logistics Outbound logistics Merchandising/ commodity management Facilities buying Human resources management Technology Infrastructure The value chain in trade companies (Adapted from Porter, 1985) Definitions
  5. 5. <ul><li>Trade companies can be divided into two levels: </li></ul><ul><ul><li>Wholesale level (B2B) </li></ul></ul><ul><ul><li>Retail level (B2C) </li></ul></ul><ul><li>Companies that operate on wholesale level deliver their products to other companies. </li></ul><ul><ul><li>Customers are retail, industrial and service companies. </li></ul></ul><ul><ul><li>Wholesale companies devote less effort to promotion, shop layout and selection of location. </li></ul></ul><ul><ul><li>Further wholesalers make large transactions with a limited number of companies . </li></ul></ul>Definitions
  6. 6. Wholesale and trade in the business chain Definitions Manufacturer Consumer Wholesaler Retailer
  7. 7. <ul><li>Trade companies fulfill the intermediary between </li></ul><ul><li>producer and end user. Their added value lies in </li></ul><ul><li>the following activities: </li></ul><ul><ul><li>Sales and promotion </li></ul></ul><ul><ul><li>Buying and building up a product assortment </li></ul></ul><ul><ul><li>Bulk breaking </li></ul></ul><ul><ul><li>Storage </li></ul></ul><ul><ul><li>Transportation </li></ul></ul><ul><ul><li>Carrying the risk </li></ul></ul><ul><ul><li>Market information </li></ul></ul><ul><ul><li>Management and marketing services </li></ul></ul>Purchasing in trade and retail companies
  8. 8. <ul><li>Regarding the retail trade, various types of stores can be </li></ul><ul><li>distinguished in the area of consumer products: </li></ul><ul><ul><li>Specialty store </li></ul></ul><ul><ul><li>Department store </li></ul></ul><ul><ul><li>Supermarket </li></ul></ul><ul><ul><li>Convenience store </li></ul></ul><ul><ul><li>Combination store, superstore and hypermarket </li></ul></ul><ul><ul><li>Service business </li></ul></ul>Purchasing in trade and retail companies
  9. 9. <ul><li>Stages in the buying-selling cycle: </li></ul><ul><ul><li>Estimating demand </li></ul></ul><ul><ul><li>Determining product assortment and distribution strategy </li></ul></ul><ul><ul><li>Selection of most suitable supplier </li></ul></ul><ul><ul><li>Contractual agreements </li></ul></ul><ul><ul><li>Ordering </li></ul></ul><ul><ul><li>Automatic replenishment </li></ul></ul><ul><ul><li>Expediting and evaluation </li></ul></ul><ul><li>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. </li></ul>Organization of the purchasing process
  10. 10. <ul><li>Cross-functional structure </li></ul><ul><ul><li>Teams are responsible for all aspects of a category in order to generate a maximum return for the retail company </li></ul></ul><ul><ul><li>Buying, styling, visual merchandising and distribution functions operate in one organizational entity. (‘category management’) </li></ul></ul><ul><li>Functional purchasing structure </li></ul><ul><ul><li>Purchasing is important and reports directly to top management </li></ul></ul><ul><ul><li>Ordering and purchasing often separate activities. </li></ul></ul><ul><ul><li>Purchasing and Category Management are conducted central and ordering is carried out decentral as much as possible. </li></ul></ul><ul><ul><li>Planning is more and more delegated to the suppliers (i.e. VMI) </li></ul></ul>Organization of the purchasing process
  11. 11. <ul><li>Changing consumer behavior in European countries: </li></ul><ul><ul><li>Ageing population, ongoing individualism, more men shopping </li></ul></ul><ul><ul><li>Increasing income gap between population groups </li></ul></ul><ul><ul><li>Growing number of earning couples </li></ul></ul><ul><ul><li>Increased exposure to other cultures and integration of ethnic minorities </li></ul></ul><ul><ul><li>Increased concern for the environment </li></ul></ul><ul><ul><li>Increased attention to healthier living </li></ul></ul>Developments in trade and retail companies This means that the commodity manager/ retail-buyer must constantly tailor his product assortment to more specific and often smaller groups.
  12. 12. <ul><li>Other developments…. </li></ul><ul><ul><li>Concentration: Globalization of competition and concentration through mergers and acquisitions. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Private labels: Private labels support retailer identity and image. Finding suitable suppliers for private label products will become increasingly difficult. </li></ul></ul>Developments in trade and retail companies
  13. 13. <ul><li>More developments… </li></ul><ul><ul><li>Space management: based on detailed cost information retailers decide on the most profitable display lay out. </li></ul></ul><ul><li>‘ Green’ issues: ecological considerations are growing in importance (e.g. natural ingredients, biodegradable packaging) </li></ul><ul><li>Information: Some developments in information technology have an immediate impact on consumers. Others are less visible to the consumer. For example: </li></ul><ul><ul><li>Electronic banking </li></ul></ul><ul><ul><li>Bar coding </li></ul></ul><ul><ul><li>Tele shopping </li></ul></ul>Developments in trade and retail companies
  14. 14. Supply chain strategy trends <ul><li>Modern supply chain management retail is based on the following concepts: </li></ul><ul><ul><li>Vendor Managed Inventory ( VMI ) </li></ul></ul><ul><ul><li>Efficient Consumer Response ( ECR ) </li></ul></ul><ul><ul><li>Collaborative Planning, Forecasting and Replenishment ( CPFR ) </li></ul></ul><ul><ul><li>Electronic marketplaces </li></ul></ul><ul><ul><li>Radio frequency Identification Detection ( RFID ) </li></ul></ul>
  15. 15. Vendor Managed Inventory (VMI) <ul><li>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 </li></ul><ul><ul><li>Typically the activities of forecasting, scheduling, requisitioning and ordering are performed by the supplier. </li></ul></ul><ul><ul><li>Electronic Data Interchange (EDI)s an integral part of the VMI process </li></ul></ul><ul><ul><li>Benefits of VMI </li></ul></ul><ul><ul><ul><li>Solidified customer-vendor relationships </li></ul></ul></ul><ul><ul><ul><li>Reduced shipping costs and lead time </li></ul></ul></ul><ul><ul><ul><li>Fewer human errors </li></ul></ul></ul><ul><ul><ul><li>Improved service levels </li></ul></ul></ul>
  16. 16. Efficient Consumer Response (ECR) <ul><li>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 </li></ul><ul><li>It is designed to re-engineer the grocery supply chain from a “push” system into a “pull” system by using e-commerce information technology </li></ul><ul><li>ECR attempts to eliminate inefficiencies by introducing strategic initiatives in four areas: </li></ul><ul><ul><li>Efficient store assortment </li></ul></ul><ul><ul><li>Efficient product information </li></ul></ul><ul><ul><li>Efficient promotion </li></ul></ul><ul><ul><li>Efficient product replenishment </li></ul></ul>
  17. 17. Efficient Consumer Response (ECR) <ul><li>Programs that companies need to have in place are: </li></ul><ul><ul><li>Category management (i.e. managing a group of products as strategic business units within each store) </li></ul></ul><ul><ul><li>Continuous replenishment program (CRP) </li></ul></ul><ul><li>Further support is needed of the following technologies: </li></ul><ul><ul><li>Barcodes / Scanners </li></ul></ul><ul><ul><li>Electronic Data Interchange (EDI) </li></ul></ul><ul><ul><li>Computer aided ordering (CAO) </li></ul></ul><ul><ul><li>Cross docking / direct store delivery </li></ul></ul><ul><ul><li>Activity based costing </li></ul></ul><ul><ul><li>The main obstacle is not technical but managerial , with managers </li></ul></ul><ul><ul><li>reluctant to transform their adversarial trading relationships </li></ul></ul><ul><ul><li>into open partnerships </li></ul></ul>
  18. 18. Efficient Consumer Response (ECR) Kurnia et al, (2002) 
  19. 19. Collaborative Planning, Forecasting and Replenishment (CPFR) <ul><li>CPFR allows cooperation across the supply chain , using a set of processes and technology models. </li></ul><ul><li>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. </li></ul><ul><li>Advantages of CPFR: </li></ul><ul><ul><li>Increased responsiveness </li></ul></ul><ul><ul><li>Product availability assurance </li></ul></ul><ul><ul><li>Optimized inventory and associated costs </li></ul></ul><ul><ul><li>Increased revenues and earnings </li></ul></ul><ul><ul><li>Improved relationships with trading partners </li></ul></ul>
  20. 20. Electronic marketplaces <ul><li>A distinction can be made between Open exchanges (accessible for everyone) and Private exchanges (only for members) </li></ul><ul><li>An e-marketplace can provide a platform for: </li></ul><ul><ul><li>Core commerce transactions which can automate and streamline the entire requisition-to-payment online </li></ul></ul><ul><ul><li>A collaborative network for production design, supply chain planning, optimization and fulfillment process </li></ul></ul><ul><ul><li>Industry wide product information that is aggregated into a common classification and catalogue structure </li></ul></ul><ul><ul><li>An environment in which sourcing, negotiations and auctions can take place in real-time </li></ul></ul><ul><ul><li>An online community for publishing and exchanging industry news, information and events </li></ul></ul>
  21. 21. Radio frequency Identification Detection <ul><li>RFID is a term for technologies that use radio waves to automatically identify. </li></ul><ul><li>Auto-ID Center is developing an open global network (a layer on top of internet) that can identify anything, anywhere, automatically. </li></ul><ul><li>This network will give companies near perfect supply chain visibility </li></ul><ul><li>Also, if widely adopted the network could: </li></ul><ul><ul><li>eliminate human error from data collection </li></ul></ul><ul><ul><li>reduce inventories </li></ul></ul><ul><ul><li>keep product in stock </li></ul></ul><ul><ul><li>reduce loss and waste </li></ul></ul><ul><ul><li>free up staff to perform more value added functions </li></ul></ul><ul><ul><li>improve safety and security </li></ul></ul>
  22. 22. Supply chain strategy trends <ul><li>The four major developments show how the landscape of the traditional retail buyer has changed </li></ul><ul><li>Advanced systems will allow them to optimize their supply chain operations </li></ul><ul><li>Future competition in retail will no longer be between individual companies, rather it will be among clusters of companies </li></ul><ul><li>As research shows the development towards this kind of collaboration can be troublesome </li></ul><ul><li>Trust between the partners, a long term commitment and a balanced sharing of risks and rewards is required to be successful </li></ul>
  23. 23. Conclusions <ul><li>The buying function plays a very important role in trade companies. </li></ul><ul><li>In retail companies buying policy is much more integrated with sales and marketing policy, </li></ul><ul><li>Company policy is primarily focused on improving turnover and margin whilst reducing working capital. </li></ul><ul><li>Retail today is a truly international business. </li></ul><ul><li>Advanced information systems allow the application of new logistics concepts such as VMI, ECR, CPFR and electronic marketplaces. </li></ul>