Chapter 9 – Information Systems and Supply Chain Management
09-1
CHAPTER 9
INFORMATION SYSTEMS AND SUPPLY CHAIN MANAGEMENT
ANNOTATED OUTLINE
INSTRUCTOR NOTES
I. Creating Strategic Advantage through Supply
Chain Management and Information Systems
• It is the retailer’s responsibility to gauge
customers’ wants and needs and work with
the other members of the supply chain –
• Supply chain management is a set of
activities and techniques firms employ to
efficiently and effectively manage these
flows of merchandise from the vendors to
the retailer’s customers.
• The goal for the supply chain is to execute
four of the five rights of merchandising:
• Retailers have increasingly taken a
leadership position in their respective
supply chains. Based on the consolidation
and emergence of large, global retail chains,
LO 9-1 Understand the strategic advantage
generated by a supply chain.
PPT 9-3 for supply chain definition.
PPT 9-4 illustrates the components of a typical
direct function of supply chain management?
How are the other four directly related to supply
chain management?
PPT 9-5 illustrates why efficient supply chain
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A. Strategic Advantage
• Not all retailers can develop a competitive
advantage from their information and
supply chain systems. Achieving this
advantage requires a substantial financial
Zara’s strategic supply chain advantage is
discussed in PPT 9-7.
B. Improved Product Availability
• An efficient supply chain has two benefits
for customers: (1) fewer stockouts and (2)
See PPT 9-9 for summaries of the benefits of
supply chain management.
Ask students to consider how their feelings
1. Fewer Stockouts
• A stockout occurs when an SKU that a
customer wants is not available.
• Data from apparel shoppers show that
when experiencing a stockout, 17 percent
Ask students if stockouts drive consumers to
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2. Tailored Assortments
• Another benefit provided by information
systems that support supply chains is
C. Higher Return on Assets
• An efficient supply chain and information
system can improve a retailer’s return on
assets (ROA) because the system increases
sales and net profit margins, without
increasing inventory.
• Retailers can lower transportation expenses
by coordinating deliveries.
• With more efficient distribution centers,
merchandise can be received, prepared for
sale, and shipped to stores with minimum
handling, further reducing expenses.
See PPT 9-10
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II. The Flow of Information through a Supply Chain
• The flow of information is complex in a
retail environment.
• The sales transaction data are also sent to
the distribution center (DC) or fulfillment
center (FC). When the store inventory drops
to a specified level, more merchandise is
shipped to the store. Inventories across
stores, distribution centers, or fulfillment
centers are automatically updated in the
system.
• In some situations, especially when
merchandise is reordered frequently, the
ordering process is done automatically,
bypassing the buyers/planners.
LO 9-2 Describe how information flows in a supply
chain.
information on the Information Flow process.
Discuss with students what may happen if the
incorrect UPC is scanned at the POS. How would
this impact stockouts, over-stocks, sales,
replenishment, etc.?
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A. Data Warehouse
• Purchase data collected at the point of sale
goes into a huge database known as a data
warehouse. The information stored in the
data warehouse is accessible on various
dimensions and levels.
• Electronic Data Interchange (EDI) is the
computer-to-computer exchange of
business documents from a retailer to a
vendor and back.
See PPT 9-17
Ask students what would they like to know
about their customers. How would they use
that information?
retailers and vendors to communicate
“seamlessly” through systems. How can EDI help
build a sustainable competitive advantage in
supply chain management?
B. Collaborative Planning, Forecasting and
Replenishment (CPFR)
• CPFR is a more advanced form of retailer-
vendor collaboration that involves sharing
proprietary information such as business
strategies, promotion plans, new product
See PPT 9-35, 9-36
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III. The Flow of Merchandise through a Supply
Chain
• Making merchandise flow involves first
deciding whether the merchandise will go
from the manufacturer to a retailer’s DC,
FC, or directly on to stores.
• Merchandise flows from:
1. Vendor to distribution center
LO 9-3 Consider the flow of merchandise
through a supply chain.
See PPT 9-21. Also see a diagram of
Merchandise Flow in PPT 9-22.
A. Distribution Centers versus Direct Store
Delivery
• Retailers can use a distribution center or
direct store delivery, depending on
The advantages of using a Distribution Center
are summarized in PPT 9-24
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it.
• Advantages of using a distribution center
are: (1) more accurate sales forecasts, (2)
the retailer’s ability to carry less
• Distribution centers are not viable for all
retailers. If a retailer has only a few outlets,
then the expense of a distribution center is
probably unwarranted. Also, if many
• What type of retailer should use a
distribution center? Retailers with wildly
fluctuating demand at a store level, stores
that require frequent replenishment, stores
Ask students why DSD would be better for
perishable goods. High-fashion goods? Fads?
B. The Distribution (or Fulfillment) Center
• The distribution center performs several
functions, which might include: managing
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inbound transportation; receiving and
checking; storing and cross-docking; getting
See PPT 9-23 for the activities performed by a
distribution center.
1. Managing Inbound Transportation
• Buyers and planners are more involved in
coordinating the physical flow of
merchandise to the stores. Buyers are
2. Receiving and Checking Using UPC or RFID
• Receiving refers to the process of recording
the receipt of merchandise as it arrives at a
distribution center.
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3. Storing and Cross-Docking
• After the merchandise is received and
checked, it is either stored or cross-docked.
• Using a cross-docking distribution center,
merchandise cartons are prepackaged by
Ask students to think about the variety of
products they purchase and which of those
products would be good candidates for cross–
docking. What products would be best stored at
the DC and why?
4. Getting Merchandise Floor-Ready
• Floor-ready merchandise is merchandise
that’s ready to be placed on the selling
floor. Getting merchandise floor-ready
Ask students if they think retailers are asking
too much of their vendors in making them
provide floor-ready merchandise. Consider
5. Ticketing and Marking
• Ticketing and marking refers to affixing
price and identification labels on the
merchandise.
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• It is more efficient for a retailer to perform
these activities at a DC than in the stores.
6. Preparing to Ship Merchandise to a Store
• After receiving the store order, the
computer at a distribution center creates a
pick ticket, a document that tells the order
filler how much of each item to get from
the storage area.
7. Shipping Merchandise to Stores
• The management of outbound
transportation from distribution center to
stores has become increasingly complex as
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C. Inventory Management-through Just-in-Time
Inventory Systems
• Just-in-time (JIT) inventory systems, also
known as quick response (QR) inventory
systems in retailing, are inventory
management systems that deliver less
merchandise on a more frequent basis than
traditional inventory systems.
• The benefits of a JIT system include
reduced lead time (the amount of time
between the recognition that an order
Discuss with students how reduced lead times can
better forecast demand. How would lower
inventory investments delivered more frequently
help improve profits and stockouts?
IV. System Design Issues and Trends
A. Outsourcing Supply Chain Functions
• To streamline their operations and make
more productive use of their assets and
personnel, some retailers outsource supply
LO 9-4 Review the considerations and trends
in the design of supply chains.
See PPT 9-25
Ask students to weigh the pros and cons of
outsourcing supply chain functions.
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B. Pull and Push Supply Chains
• In a pull supply chain, orders for
merchandise are generated at the store
level based on sales data captured by
POS terminals. The demand for an item
pulls it through the supply chain.
• In a push supply chain, merchandise is
allocated to the store based on forecast
demand. A forecast is developed and
specific quantities of merchandise are
See PPT 9-26 for a summary of characteristics
of push and pull supply chains.
Ask students: Compare the advantages and
disadvantages of using a push supply chain versus
a pull supply chain. Which categories of business