Marketing Chapter 9 Homework Another benefit provided by information systems that support supply chains is making sure the right merchandise is available at the right store

Chapter 9 – Information Systems and Supply Chain Management

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 –

distributors, vendors, and transportation

companies – to make sure the merchandise

that customers want is available when they

want it.

• The goal for the supply chain is to execute

four of the five rights of merchandising:

right product, right place, right quantity,

right time. Supply chain would not impact

“right price” as retail price is not a function

of the supply chain (although the cost of

transportation may be considered when

setting the retail price).

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

supply chain.

Ask students to think about the five “rights” of

merchandising. Which one of the five is not a

direct function of supply chain management?

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

investment as well as the coordinated effort

of employees and functional areas

throughout the company.

Zara’s strategic supply chain advantage is

discussed in PPT 9-7.

Walmart’s sustainable advantage through

supply chain management is summarized in

B. Improved Product Availability

• An efficient supply chain has two benefits

for customers: (1) fewer stockouts and (2)

tailored assortments. These benefits

translate into greater sales, higher

inventory turnover, and lower markdowns

See PPT 9-9 for summaries of the benefits of

supply chain management.

Ask students to consider how their feelings

toward a retailer change when the product they

want is not available in the store. Would they

shop online with that same retailer for the out-of–

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

of consumers will switch to another brand,

39 percent will go to another store to buy

the product, and the remaining 44 percent

will just stop shopping.

Ask students if stockouts drive consumers to

another brand, another store, or to stop shopping

all together.

long-term effects on sales and profits.

2. Tailored Assortments

• Another benefit provided by information

systems that support supply chains is

making sure the right merchandise is

available at the right store.

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

inventory turnovers are both higher.

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.

• When the manufacturer ships the product

to the DC or FC, it sends an advanced

shipping notice (ASN) to the distribution

center. An ASN is a document that tells the

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,

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.

• Data warehouses also contain information

about customers, which is used to target

promotions and group products together in

stores.

• 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?

See PPT 9-19

Ask students what benefit would there be for

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

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

2. Distribution center to stores

3. Alternatively, from vendor directly to stores.

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

The advantages of using a Distribution Center

are summarized in PPT 9-24

alternative versus the customer service

criterion of having the right merchandise at

the store when the customer wants to buy

it.

• 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

outlets are concentrated in metropolitan

areas, then the merchandise can be

consolidated and delivered by the vendor to

all the stores in one area. In some cases, it

is quicker to get merchandise to stores by

avoiding the extra step of using a

distribution center. This is particularly

important for perishable goods (meat and

produce), high-fashion items, or fads since

shelf life is limited.

B. The Distribution (or Fulfillment) Center

• The distribution center performs several

functions, which might include: managing

inbound transportation; receiving and

checking; storing and cross-docking; getting

merchandise floor-ready; ticketing and

marking; preparing to ship merchandise to

stores; and shipping merchandise to stores.

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

generally responsible for the purchase and

profitability of merchandise, whereas

planners are responsible for the financial

planning and analysis of merchandise and

its allocation to stores.

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.

3. Storing and Cross-Docking

• After the merchandise is received and

checked, it is either stored or cross-docked.

• Cross-docked merchandise is only in the

distribution center for a few hours before it

is shipped to the stores.

• Merchandise size and the sales rate

typically determine whether cartons are

cross-docked or stored.

Ask students to think about the variety of

products they purchase and which of those

products would be good candidates for cross–

4. Getting Merchandise Floor-Ready

• Floor-ready merchandise is merchandise

that’s ready to be placed on the selling

floor. Getting merchandise floor-ready

entails ticketing, marking, and, in the case

of apparel, placing garments on hangers.

Ask students if they think retailers are asking

too much of their vendors in making them

provide floor-ready merchandise. Consider

the challenges for manufacturers of having to

adhere to multiple retailers’ floor-ready

requirements. What about retailers that sell

one commodity (specialty store) as compared

to retailers that sell multiple commodities

(department store or discount store)?

5. Ticketing and Marking

Chapter 9 – Information Systems and Supply Chain Management

• 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.

• Order fillers take the merchandise to a

staging area where an electronic sorter

routes the merchandise to the bay with the

truck going to the store.

• In some distribution and fulfillment centers,

the filler functions are performed by robots.

7. Shipping Merchandise to Stores

• The management of outbound

transportation from distribution center to

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

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

chain functions. Many independent

companies are very efficient at performing

individual activities or all the supply chain

activities.

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.

efficiently than the retailer.

• The disadvantage is when retailers

outsource a supply chain activity they can

no longer develop a sustainable competitive

advantage based on the performance of

this activity (competitors can hire the same

firm for outsourcing).

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.

• The pull approach increases inventory

turnover, is more responsive to changes

in customer demand, and there is less

likelihood of being overstocked or out of

stock.

• Although generally more desirable, a

pull approach is not the most effective

in all situations. It requires a more costly

and sophisticated information system to

support it, some merchandise does not

allow retailers flexibility to adjust

inventory levels based on demand, and

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