Uploaded byAmit Kumar Garg
Retail procurement process and analysis
The document provides a detailed overview of supply chain and purchasing management concepts, emphasizing the importance of effective procurement and sourcing strategies in enhancing business profitability. It explores various categories of primary and support activities in the value chain, alongside key metrics for inventory management and sales performance. Additionally, it highlights the qualifications and expertise of Amit, a retail business consultant, underlining his role in driving innovation within the retail sector.
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Retail procurement process and analysis
- 2. firm infrastructure Support human resource management M ar activities gi technology development n procurement inbound operations outbound marketing service logistics logistics & sales M a rg in Primary activities Drawn from Porter, 1985
- 3. Primary activities canbe divided in five generic categories:  Inbound Logistics The procurement function should be able to meet  Operations the material requirements related to inbound and outbound logistics, and to operations.  Outbound logistics  Marketing and sales  Services
- 4. Support activities canbe divided in four generic categories:  Procurement  Technology development  Human resources management  Firm infrastructure Procurement activities may be also related to supplying products and services for the other support functions.
- 5. Aspects Buying for primary Buying for support activities activities Product assortment Limited to large Very large Number of suppliers Limited, transparent Very large Purchasing turnover Very large, considerable Limited Number of Purchase orders Considerable Very Large Average order size High Small Control Depends on type of production Limited, forecast-related or Decision-making unit planning project-related planning Engineering, manufacturing Fragmented, varies with specialists dominant product or service
- 6. Different definitions...  Ordering… Buying… Operational, short Operational, short term, deal and term, deal and  Purchasing… margin margin oriented oriented  Procurement…  Sourcing… Strategic, long  Supply Chain Management… Strategic, long term, performance and term, performance and value value  Value chain management…. oriented oriented Purchasing: relates to every activity the company receives an invoice for…
- 7. purchasing function tactical / initial ordering/ operational Expediting Follow Internal Speci- Selecting Contracting Ordering and up/ Supplier customer fication evaluation evaluation Sourcing Supply Buying Procurement
- 8. Purchasing: All activities forwhich the company receives an invoice from outside parties. Differentiation between:  Purchasing function  Purchasing department Definition: “Managing the company’s external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured at the most favorable conditions”. Procurement: All activities that are required in order to get the product from the supplier to its final destination.
- 9. Sourcing: Finding sources ofsupply, guaranteeing continuity in supply, ensuring alternative sources of supply and gathering knowledge of procurable resources. Purchasing Management: All activities that are required to manage supplier relationships. Supply Chain Management: The management of all activities, information, knowledge and financial resources associated with the flow and transformation of goods and services up from the raw materials suppliers, component suppliers and other suppliers in such a way that the expectations of the end users of the company are being met or surpassed Value Chain Management: Challenging suppliers to improve the value proposition to the end-customers of the value chain. Usually the supplier works closely together with the customer’s technical and marketing staff to reduce the product’s overall costs and add new designs or features to the product which increase the value for the end-customer.
- 10. 5 Admin. 12 Services 18 Capex 3 Spares 60-85 60-80 50-70 60-80 12 Trade- items Produc 25-50 10-40 50 tion parts Retailers Computers Consumer Automotive Pharma Service Typical electronics industry structure adapted from Kluge, 1996
- 11. Importance of purchasingto business Challenge for managers: how to manage our EXTENDED ENTERPRISE ? Sales: Profit 1,5 % 100% Value added: 20 % Question: what should managers do? Purchased materials And services: 78,5 % Purchased materials and services have a large impact on company profitability…
- 12. Definition of concepts Challenge: how to manage our EXTENDED ENTERPRISE ? Sales: Profit 1,5 % 100% Value added: 20 % Question: what should managers do? Purchased materials And services: 78,5 % Suppliers determine 78,5% of total cost, innovation, carbon footprint and customer value…
- 14. What to Buy? How much to When to From whom buy? buy? to buy? Store Image Satisfy Cust. Suppliers Financial Obj. Open-to-buy Wants The Market Type of Merchandise Negotiations Mdse. Budget Estimated Control Systems Unit Sales Sales Price Reductions Terms Merchandise Beginning Inv. Inventories Policies Purchases Ending Inv. Shortages
- 15.  Lead time: length of time between order placement and receipt of goods  Importance of safety or cushion stock: protection against strikes, delays  Base or cycle stock: amount sufficient to accomodate regular sales  Lead time + Safety stock + Basic stock = Inventory Level
- 16.  Al’s GrocerySupermarket wants to maintain a 3-week supply of domestic biscuits in inventory and average sales of MLite biscuits are 500 6-packs per week. The order point is 1500 (500 X 3 weeks). When inventory drops below 1500, more biscuits should be ordered.
- 17.  Suppose theorder interval is 2 weeks. We must consider to include stock to maintain during the order interval and add to our order point -- in order to determine our order ceiling. Order ceiling=Order point+Order interval sales.  1500 + (500 X 2) = 2500
- 18.  We canthen determine our order quantity by subtracting stock on hand from order ceiling.  Order Quantity = Order ceiling - stock on hand
- 19.  Turnover @retail  Retail sales/Avg. inv. in retail $  Turnover @ cost  Cost of goods sold/avg. inv. at cost ▪ Total $ Available for Sale= BI + Purchases ▪ COGS=Total $ available for sale - Ending inventory  Turnover based in units  # of units sold/Avg. inv. in units
- 20.  Divide theturnover figure into 12 (months in year) to determine the number of times of merchandise needed to support the desired sales based on turnover  Examples: ▪ Turnover = 4; Stock-to-sales = 3.0 ▪ Turnover = 2.8; Stock-to-sales = 4.28 ▪ Turnover = 10; Stock-to-sales = 1.2  Lower the turnover, the higher the stock-to-sales ratio
- 21.  Step 1: Calculate sales-to-stock ratio  GMROI=gross margin% * sales-to-stock ratio  Step 2: Convert sales-to-stock ratio to inventory turnover  Inventory turnover = sales-to-stock ratio * (100% - Gross margin %, expressed as decimal)  Calculate average stock-to-sales ratio  Average stock-to-sales ratio = # months/inventory turnover  Calculate monthly stock-to-sales ratios
- 22.  Don’t confusestock-to-sales ratio with the sales-to- stock ratio  Sales are the same in both ratios  Stock in the sales-to-stock ratio is the average inventory at cost over all days in the period  Stock in the average stock-to-sales ratio is the average BOM inventory at retail  BOM stock-to-sales ratio is an average for all months
- 23.  BOM stock= monthly sales * BOM stock-to- sales ratio  EOM stock (BOM stock for current period is the same as the end-of-month for the previous period)  Monthly Additions to stock = Sales + Reductions + EOM inventory - BOM inventory
- 24.  GMROI =gross margin return on inventory investment measures how many gross margin dollars are earned on every dollar of inventory investment  Sales-to-stock ratio = net sales/avg. inv.  GMROI = gross margin/avg. inv.  GMROI combines the effects of profits and turnover
- 25.  Calculate ProjectedEOM stock  Actual BOM stock + monthly additions + order amount - Planned monthly sales - planned monthly reductions  Open-to-buy = Planned EOM stock - Projected EOM stock
- 26.  Calculate projectedEOM stock  Projected BOM stock + actual order - monthly sales - planned reductions  Open-to-buy = Planned EOM stock - Projected EOM stock
- 27.  ABC Analysis  Rank order merchandise categories (SKUs) by some performance measure ▪ Contribution margin ▪ Sales Dollars/Units ▪ Gross margin ▪ Gross margin return on investment ▪ Sales or gross margin per square foot  Determine optimal stocking formulas based on performance measures
- 28.  Sell-Through Analysis  Comparison between actual and planned sales to determine whether early markdowns are required or whether more merchandise is needed to satisfy demand  Multiple-Attribute Method  Used to evaluate vendors using a weighted average score for each vendor (current or proposed).
- 29. DuPont analysis: Sales 105 Cr. Capital turn- Total assets over ratio / 145 Cr 2.1 x Net assets - 50 Cr. Interest free liabilities 95 Cr RONA 9.9 % Ă— Sales 105 Cr. Income before tax - Other costs 5 cr 40 cr Margin / Total costs 4.7 % + 100 cr Purchased Sales mat. & serv. 105 cr 60 cr Amounts in Rs. Crores
- 30. DuPont analysis: Sales 105 Cr Capital turn- Total assets over ratio / 145 Cr 2.1 x Net assets - 50 Cr Interest free liabilities 95 Cr RONA 12.4 ---- % 9.9 Ă— Sales 105 Cr + 25 % !! Income before tax - Other costs 6.2 -- 5 Cr 40 Cr Margin / Total costs 5.9 --- % 4.7 + 98.8 ----100 Cr Purchased Sales mat.& serv. 105 Cr 58.8 --- 60 Cr Amounts in Rs Cr -2%
- 32. Amit is aRetail Business Consultant with 11 years of experience with multi retailer format Super Market, Hypermarkets, Lifestyle and Specialty stores. Experienced in Buying, Merchandising, Category Management, Vendor Management and Supply Chain Management for multiple product categories. He is experienced across the retail value chain in conducting business analysis and defining business requirements, Retail Business Process Reviews, Software Product Development and Analytics for retail business transformation and IT enhancement programs on retail supply chain, vendor management & multi-channel commerce. He holds an MBA in International Business, certification from NIFT, Fashion Retail Management and trained Certified Business Analyst as per IIBA norms. Currently, he is Senior Retail Functional Consultant with Leading Retail IT company of analytic solutions for global retail and CPG organizations in roles such as Functional Consultant and Business Analyst responsible for creating new solutions to drive innovation and thought leadership across the retail business unit.