Chapter 10
Information Systems and
Supply Chain Management
McGraw­Hill/Irwin
Retailing Management, 6/e

Copyright © 2007 by The McGraw­Hill Companies, Inc. All rights reserved.


10-2

Retailing Strategy
Retail Market Strategy
Financial Strategy

Site Location

Information Systems
Retail Locations

Organizational Structure and
HR Management

Customer Relationship
Management


10-3

Supply Chain Management
Supply chain management is the delivery of

economic value to customers through
management of the flow of physical goods and
associated info from vendors to customers

Ryan McVay/Getty Images


Strategic Importance of
Supply Chain Management
• Opportunity to Reduce Costs
– Transportation Costs
– Inventory Holding Costs

• Provide Value to Customers by Making
the Right Merchandise is in the Right
Place at the Right Time
– Fewer Stockouts
– Greater Assortment with Less Inventory

• Improved ROI

10-4


10-5

Improve Return on Investment
Return on assets = Net profit margin x Asset turnover
Net profit =
Total assets


Net profit x Net sales
Net sales
Total assets

Efficient Supply Chain Management  Higher Asset 
Turnover

Same Sales Using Less Inventory


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Illustration of Supply Chain


Benefits of Efficient Supply Chain
Management

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Fewer stockouts – merchandise will be
available when the customer wants them
Tailoring assortments – the right
merchandise is available at the right store
Customers respond to the convenience as
evidenced by increased sales

Ryan McVay/Getty Images



10-8

High Return on Investment
An efficient supply chain can improve a retailer’s ROI
• Increases sales – customers are offered more
attractive assortments
• Net profit is improved by increasing gross margin and
lowering expenses
• Inventory levels are lower, lower investment and total
assets are lower with asset turnover higher

PhotoLink/Getty Images


10-9

Wal-Mart’s Sustainable Advantage
Wal-Mart’s success is its information and supply chain
management systems. Why are competitor’s lagging behind?
Wal-Mart made a substantial investment
in developing its systems and has the
scale economies to justify it.

The software is unavailable
elsewhere and is constantly
updated and improved

Ryan McVay/Getty Images



Minimizing Stockouts
Stores need to place
orders with distribution
centers in a timely
fashion

Make sure merchandise
in stockrooms is on the
shelves

Distribution
Centers need to
send right
quantities

Buyers place
orders at the
right time with
vendors
Royalty-Free/CORBIS

Managers need to provide
enough lead time for deliveries

Forecast demand accurately

1010



1011

Information and Merchandise Flow


Information Flow

1012


Flow of Merchandise
Efficient supply chain would
know the customer
Store would advertise to these
customers
Buyers would purchase more
of this wine
Distribution center would be
prepared to distribute the wine

1013

PhotoLink/Getty Images


1014

Information Flow
1. When customer makes a
purchase, sales associate

scans UPC code or RFID chip on
merchandise and customer credit
card/loyalty card

StockTrek/Getty Images

Steve Cole/Getty Images

2. Information about purchase is
transmitted from POS terminal to the
buyer/planner
3. Information about purchases are
aggregated by buyer/planner and
sent to distribution center and
vendor to ship merchandise


1015

Information Flow
4. Buyer/planner communicates with
vendor and places a purchase order
to re-supply stores.
5. Buyer/planner notifies distribution
center about incoming orders and
how they are to be distributed to stores

PhotoLink/Getty Images

6. Store managers inform

distribution center about
receipt of merchandise
and coordinate deliveries
David Buffington/Getty Images


Data Warehousing

1016

Data warehousing is the coordinated and periodic
copying of data from various sources, both inside
and outside the enterprise, into an environment
ready for analytical and informational processing

Wal-Mart makes good use of its data warehouse.
It should. Experts estimate that it is second in
size only to that of the U.S. government


Electronic Data Interchange

1017

• EDI is the computer-to-computer exchange of
business documents between retailers and vendors
• Merchandise sales
• Inventory On Hand
• Orders
• Advanced shipping notices

• Receipt of merchandise
• Invoices for payment
Royalty-Free/CORBIS


EDI Security

1018

There are implications of security failures (loss of data, loss of
public confidence), but retailers have security policy objectives:

Authentication – system assures person on
other end of session is who it claims to be
Authorization - that person has permission to
carry out request
Integrity – info arriving is the same that was
sent

Ryan McVay/Getty Images


Benefits of EDI

1019

• Reduces cycle time – inventory turnover is
higher
• Improves overall quality of communications
through better record-keeping

• Information can be easily analyzed

Stockbyte/Punchstock Images


Advantages of Using a Distribution Center

1020

• Effects of forecast error for individual stores are
minimized
• Enables retailers to carry less merchandise in
the store
• Easier to avoid running out of stock
• Retail store space is more expensive than space
at the distribution center

Ryan McVay/Getty Images


Logistics Strategy

1021

Pull Supply Chain
Merchandise shipped
to stores based on
sales and inventory
levels in the stores
Push Supply Chain

Merchandise shipped to
the stores based on
forecasted sales rate

(c) Brand X Pictures/PunchStock


Merchandise Flow

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1023

Activities Performed by Distribution Center
•
•
•
•

Managing inbound transportation
Receiving and checking merchandise
Storing or cross docking merchandise
Preparing merchandise for the sales
floor
– Ticketing and marking
– Putting on hangers

• Shipping merchandise to
stores

• Managing outbound
transportation
Ryan McVay/Getty Images


Who Can Use DC’s?
• Retailers selling non-perishable
merchandise
• Retailers offering merchandise
that has highly uncertain
demand like apparel
• Retailers selling merchandise
that needs to be replenished
frequently
• Retailers that carry a large
number of items shipped in
broken case quantities like drug
stores
• Retailers with many outlets

1024

Ryan McVay/Getty Images


Crossdocking

Ryan McVay/Getty Images

Merchandise flows directly from the vendor’s trucks

through the retailer’s distribution center and is
loaded on the trucks going to the retailer’s stores
without being stored in the distribution center

1025