With the changes to the retail environment driven in part by retail strategy it is important to align suppliers operations to meet these retail strategic changes. Areas such as Factory gate pricing, primary freight initiative and point of sale technology all have major ramifications to a suppliers supply chain.
See some articles on Retail Supply Chains below.
Some examples of our services in this area include:
- Assessment of the impact of primary freight initiative on transport, warehouse and inventory operations including:
- Delivery profile
- Line haul profile
- DC design
- Inventory levels
- Lead times
- Impact of both primary freight and FGP on a suppliers sales and operations planning systems such as Forecasting and demand planning.
- Assessment of the impact of primary freight on manufacturing operations
- Assessment of primary freight impact on a suppliers supply arrangement
- Assessment of the impact of factory gate pricing (FGP) initiative on transport, warehouse and inventory operations
- Assessment of the impact of FGP on manufacturing operations
- Assessment of FGP impact on a suppliers supply arrangement
- Assessment of changes to point of sale technology such as the introduction of roll cages, RFID, self check out and self scanning on:
- Warehouse design
- Transport requirements
- IT management systems
- Product tracking
- Supply-retail flows
For more information about these services, feel free to make direct contact with the following Logistics Bureau staff:
Sydney - David Riddle
Tel: +61 417 486 166
Melbourne - John Cole
Tel + 61 411 706 726
SE Asia - Colin Airdrie
Tel: +66 819 464 490
Article - Retail Supply Chains
Like any Supply Chain, Retail Supply Chains have their own unique challenges. They’re different from the Supply Chains you might see in industrial companies or wholesaling companies. And they have very different dynamics.
The retail supply chain is dealing with the consumer directly and the customer really is King. So everything in the retailer’s Supply Chain strategy needs to be focused on the customer, and of course the shareholders, that goes without saying.
So what makes retail supply chains so different? Well that of course depends on the type of retailer we’re talking about. Because the needs of hardware retailers will vary from those of a fashion retailer. But in general terms retailers need to deal with; very broad product ranges, ranges that change, perhaps by season, possibly high levels of promotional activity, a broad supplier base and maybe some long supply lead times if there is a high degree of importing. What all this means, is that the retailer’s supply chain needs to be very flexible, responsive and low cost if the market sector is highly competitive.
In terms of customer value, there’s a bit of a cocktail that customers are looking for. Price; this needs to be competitive. Range; can be very important say in a hardware retailer, where the customer expects a 1 stop shop for all their needs. Service; Customers will quickly go elsewhere if service is consistently poor. Quality is of course a given. Availability is probably one of the key customer expectations, particularly for advertised or promotional products. Convenience is also a key component. The Brand can be important depending on the retail sector, and lastly Fashion can play a key role.
So these are the ingredients of our customer value cocktail. Then there are the emotional aspects, such as in store look and feel. So for those managing the retail Supply Chain, delivering this cocktail of customer needs is the key to success, but doing it at the lowest possible cost. If we consider a generic Retail Supply Chain, broken down into the main areas of cost, it looks like this.
These costs will of course vary by company and sector and are are just an example. By far the biggest cost is the Cost of Goods or COGS. Often 60-70% of total sales. That’s why retailers place so much focus on buying well. It’s where they can make the biggest gains.
Next we have the inbound Logistics costs. These are the costs associated with getting product into the retailer’s distribution network from suppliers. Typically this is about 2-7% of sales. Then we have the retailers own internal Logistics operations, operating warehouses and delivery to the retail stores. Typically this is in the range of 3-5% of sales. Then we have in-store Logistics. This is all the product handling that takes place at the back dock, the stock room, and replenishing stock out on the retail floor. This is typically 3-6% of sales and can be the largest part of the store labour cost.
Finally, and one that people often forget, we have the opportunity cost. Often in the range of 2-6% of sales. And this is the cost of a lost sale and lost customer loyalty through poor On Shelf or On Floor availability.
So for the retail Supply Chain in particular, improving service and reducing cost is all about trade offs and taking an end to end view of the Supply Chain. Many retailers take their eye off the ball by focusing too much on specific functions rather than the end game of service and cost. For example buying in large quantities from suppliers, to get a lower unit cost. But what is the end to end impact? COGs will go down, but inventory levels will go up. Handling costs may go up and we might face a higher level of markdowns as we try to sell through all the stock. As another trade off example, we might adopt a policy of allocating all stock on receipt. That is, pushing all the stock out to the retail stores, rather than allowing them to request it. This reduces warehouse costs and reduces inventory holding, but it pushes stock levels higher at the retail stores and increases store handling costs. It can also reduce stock availability, as stock levels will vary all over the store network and some stock will get stranded at lower sales stores and again, this can lead to a higher level of markdowns to clear the stock.
So for those managing the retail supply chain, things can often be more complicated than in other industry sectors. The dynamics and trade offs can be different, and depending on the particular retail sector and product range, a number of very different approaches may be needed to meet the needs of different value streams. (see below)
So in summary, retail supply chains are different. They need to be very focused on the customer’s needs and on reducing costs, but most importantly, they need to be managed from an end to end perspective so as not to sub optimise any one function.
Article - Retail Value Steams
Over the years, we at Logistics Bureau have been lucky enough to work with hundreds of companies across many industries in many different countries and one of the things I always say to people is that in 99% of businesses, there is no single solution to the Supply Chain. By that I mean that most companies need to be flexible in how their supply chain is structured and managed, to best meet the needs of their specific customers and products. If you’ve watched our cost to serve video, you’ll know what I mean.
This need for flexibility in our approach to managing the supply chain, is probably most obvious in the retail sector. Retailers often have very broad product ranges and products that might have a short life cycle, so they need to have different approaches within the supply chain to deal with this, based on the product characteristics. Let’s look at a simple example, and we’ll break down our product range into two. Continuity Products and Non Continuity products.
Continuity products are those that the retailer aims to stock and sell over an extended period, as long as the customer wants to buy them. Bags of rice in a grocery retailer, bags of fertilizer in a gardening retailer, plain black socks for an apparel retailer. Those continuity products will come through the supply chain in a steady flow, and we need to manage that aspect of the supply chain well, to ensure we are never out of stock, and we get the product into the store at the lowest total supply chain cost.
Non Continuity products on the other hand, are not expected to sell forever. They might be seasonal or fashion items. The retailer needs to buy effectively, to get the product into stores at the right time and quantity, and then sell-through effectively, minimising the degree of markdowns and then move on to the next product. Examples of these non continuity products might be winter coats, BBQs, swimwear, mother’s day cards or Easter eggs, I’m sure you get the idea.
So the management focus for managing these different types of products through the retail supply chain is very different. Some retailers may only have continuity products, some may only have non continuity products, and some may have a mix. Most retailers have a mix of some degree. So let’s look at these two main value streams and how our approach needs to vary.
For the continuity products, they are in stock all year round, and we need to carry out range reviews periodically. We might be using Planograms to guide the stores on layout. In most cases we should be! We need to focus on maintaining high levels of stock availability. We need to maintain high stock turns, of 10 or more. We need to have the lowest possible supply chain costs; we need to measure supplier performance well, as this has a big impact on availability. And we need good replenishment processes and systems. For fast moving products we might use high frequency, short lead time replenishment. We might use some form of unit load to reduce handling, such as the plastic crates you see used in supermarkets for fruit and vegetables.
For the non continuity products, it’s all about seasons, fashion, promotional events and opportunity products. Our trading and promotional calendar will drive the product range reviews. It’s also about closely managing the product life cycle, from ranging to buying to distribution to selling it through with minimum residual product and mark down remaining. This needs a critical path approach to managing the supply chain. It’s about the product entry, sell through, mark down and exit. Then move on to the next products. It tends to be much more of a push or allocation system. Pushing products out into the stores, ready for the next season, event or promotion. It needs quick response and replenishment during the season. So as you can see it’s a very different approach to the continuity products.
So that was just a quick summary of how supply chains need to be managed differently, depending on the characteristics of the products being sold, using retail supply chains as an example. As you can see, in many supply chains, more than one approach needs to be used.
So when you think about your own supply chain, does one size fit all?