Retail and Service Logistics PDF

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Week 1: Introduction to logistics and retail operations What is retailing?  

Retailing is a set of business activities that add value to products and services sold to consumers for their personal or family use. A retail is a business that sells products and/or services to consumers for personal or family use

How retailers add value    

Provide variety and assortment (service) o Buy other products at the same time Break bulk (logistics) o Buy it in quantities consumers want Hold inventory (logistics) o Buy it at a convenient place when you want it Offer services o See it before you buy; get credit, layaway

Definition of supply chain management 

Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers.

Role of supply chain partners   

Typically, manufacturers make products and sell them to retailers or wholesales. Wholesalers engage in buying, taking title to, often sorting, physically handling goods in large quantities, then selling the goods (usually in smaller quantities) to retailers Retailers directly satisfy the needs of ultimate consumers. Last stage of the supply/value chain.

Apple Inc.   

Multi-channel (apple has their own retail store, their products also available thought retailers) They sell like normal brick and mortar retailers as well as e-tail-directly to customer For some products they work like a vertically integrated business, from product design right down to after-sales support

Week 2: service operations and service quality      

Intangible in nature Produced and consumed at the same time Often unique High customer interaction Inconsistent product definition Often knowledge-based

Retail customer service 

The set of activities and programs undertaken by retailers to make the shopping experience more rewarding for their customers. These activities increase the value customers receive from the merchandise and service they purchase

Basic customer services provided by logistics  

The 7R’s Right amount, product, time, place, condition, price, information.

Strategic advantage through customer service   

Good service keeps customers returning to a retailer and generates positive word-ofmouth communication, which attracts new customers The challenge of providing consistent high-quality service offers an opportunity for retailers to develop a sustainable competitive advantage Using customer service to project the right image, experience, quality & feel

Customer service approaches 

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Personalised o Greater benefits to customers o Greater inconsistency o Higher cost Standardised o Based on establishing a set of rules and procedures o Lower cost o Higher consistency o Meets but does not exceed expectations

Service strategies 

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Strategies for competitive advantage o Differentiation – better, or at least different o Cost leadership – cheaper o Response – rapid response Differentiation – in service means being unique in brand image, technology use, features, or reputation for customer service o Making it memorable o Customising the standard product o Reducing perceived risk – peace of mind o Controlling quality Cost leadership – provide the maximum value as perceived by customer. Does not imply low quality o Seeking out low cost customers o Standardising a custom service o Reducing the personal element in service delivery

Service outputs in supply chain   

Value add services, created by supply chain channel members and consumed by end users along with product purchases, are called service outputs End users have varying demands for service outputs For individual consumption needs there are discrepancies in exchange of goods and services in terms of: location, time, and quantity and assortment

Four generic supply chain service outputs necessary to satisfy customer requirements 

Spatial convenience is the amount of shopping time and effort will be required on the part of the customer

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Lot size is the number of units to be purchased in each transaction Waiting time is the amount of time the customer must wait between ordering and receiving products Product variety and assortment differs by supply chain

Adding service efficiency   

Delay customisation Modularisation – eases customisation of a service Automation – reduces cost, increases customer service

Role of technology in the service encounter     

Tech-free (face-to-face, physical proximity, no tech) Tech-assisted (only service provider has access to tech, face-to-face) Tech-facilitated (both customer and service provider have access to same tech) Tech-mediated (human-to-human, but not face-to-face contract) Tech-generated (replace human service provider with tech)

Using technology 

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Kiosks – offer opportunity to order merchandise not in store o Free employees to deal with other customers o Customers can learn about the merchandise on kiosks Vending machines Hand help scanners – help to provide customer service by allowing customers to scan large merchandise instead of struggling with the product to checkout Intelligent shopping assistants – a device connected to a shopping cart with customer database to provide personalised information to shoppers Mobile apps – checking prices, inventory, suggesting complementary/ substitute products

Commitment to service quality  

Service excellence occurs only when top management provides leadership and demonstrates commitment Top management’s commitment sets service quality standards, but store managers ae the key to achieving those standards

Dimensions of service quality  

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Reliability – ability to perform the service dependably and accurately o Ontime, in same manner, error free, every time Responsiveness – provide prompt service o Willing to help customers o Ability to recover o With professionalism Assurance – knowledge and courtesy of staff, ability to convey trust and confidence, competent to perform the service Empathy – provision of caring, individualised attention to customers, approachable. Tangible – refers to the appearance of the physical surroundings and facilities, equipment, personnel and the way of communication. A company should want all their customers to get a unique positive and unforgettable firsthand impression. The five dimensions are used to measure/judge service quality. All are assessed on a comparison between expected and perceived level of service

The model to identify gaps managers must satisfy     

Gap 1: knowledge/lack of understanding of customer Gap 2: design/standards – performance standards do not meet customer expectations Gap 3: conformance/delivery – the difference between standard and actual performance Gap 4: communications – overcommitment levels of performance than can be actually provided Gap 5: satisfaction – customers sometimes perceive performance to be higher or lower than expectations

Week 3: retail types and role of logistics in retail Retailer characteristics  

Variety (breadth) – is the number of merchandise categories or breadth of merchandise – Costco sells a wide variety of goods. Assortment (depth) – is the number of different items within a merchandise category – depth of merchandise – think of specialty toy stores with more models of toys, clocks, watches.

Types of merchandise retailers  

Food retailers – convenience stores, supermarkets, supercentres General merchandise retailers – department stores, specialty stores, discount stores

Types of retail formats for accessing target markets  

Store based – food oriented, general merchandise, freestanding, shopping centres Non-store based – mail order, direct sale, internet, street peddler, automated merchandising system

Week 4: retail channel and distribution   

Vertical integration – a firm performs more than one set of activities in the channel Backward integration – retailer performs some distribution and manufacturing activities Forward integration – manufacturers undertake retailing activities o Manufacturers owns distribution and retailing activities o E.g. ralph Lauren operates its own stores; apple uses apple stores for retailing

Logistical value proposition  

Logistical value proposition consists of commitment to key customer expectations and requirements at a minimum cost The two elements of this value proposition are service and cost minimisation o Firms must make appropriate trade-offs between service and cost for each of their key customers

Value added role of logistics in retail 

Place utility – moving goods from production points to points where demand actually exists. Logistics creates place utility primarily through transportation o Different modes of transportation – land (rail or road), air, maritime, pipelines o Transportation may have to overcome various challenges, e.g. geographical, political, economic

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Time utility – not only must goods and services be available where customers need them but also at a point when customers demand them – time utility is defined as the economic value added to a good or service by having it at a demand point at a specific time o Time utility challenges – getting products transported or delivered on-time is costly & complex. Effective management will be crucial Quantity utility – today’s business environment demands that products not only be delivered on time to the correct destination but also in the correct quantity. Quantity utility is created through a combination of production forecasting, scheduling and inventory control.

Logistical performance goals 

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Place and receive order as easily, accurately, and satisfactorily as possible o Minimal effort required, convenience factor, automated order-taking? Who manages replenishment? Minimise the time between ordering and receiving merchandise o Customers may even require a specific lead time o How long would you be willing to wait to get your hands on a newly released iPhone? Coordinate shipments from various suppliers o Some complex orders may involve multiple suppliers, e.g. components for computers Have enough goods on hand to satisfy demand, without having so much inventory that heavy markdowns will be needed o How much is too much/too little? Predicting demand, analytics, real-time information Place merchandise on the sale floor efficiently o Easy to access, easy to replenish Process customer orders properly and in a manner that is satisfactory to customers o We may be surprised that a number of retailers may not process orders instantaneously Work collaboratively and communicate regularly with other supply chain members o When to expect a delivery? What happens if there is a delay Handle returns effectively and minimise damaged products o Costly to exercise, prevent where possible, o Difficult to avoid, as product returns affects customer experience and subsequent sales Monitor logistics performance o Back back-up plans in case of system breakdowns, unforeseen delays o Learn from mistakes, and implement continuous improvement

How logistics add value in retail      

Warehousing merchandise Transportation of merchandise Inventory of necessary stock Consolidation, assortment and break bulk Shelf management Sourcing and order replenishment

Consolidation and break-bulk to reduce transportation cost Consolidation – receiving materials from a number of sources and combining them into exact quantities for a specific customer or retail  Break-bulk – breaking a single large shipment into smaller ones, and arrange deliveries to multiple destinations Sorting – involves reconfiguration/assortment of freight as it flows from plant to retail o Types of assortment – mixing, cross-docking. o Mixing combines inventory from multiple origins (like cross-docking) but also adds items that are regularly stocked at the mixing warehouse o Sorting is usually performed at an intermediate location between origin and destination 

Cross-docking   

Combines inventory from multiple origins into a pre-specified assortment for a specific customer By passes the storage area in warehouses and distribution centres Is used extensively by retailers to replenish store inventories

The role of 3PL in retail logistics 

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Logistics service providers are external providers who manage outsourced activities on behalf of shippers or customers whose business processes they support. They are also commonly referred to as 3PLs A third-party logistics firm may be defined as an external supplier that performance all, or parts of a client’s logistics function

3PL service typically include       

Coordinating vendor shipment Consolidating freight Inbound and outbound transportation Warehousing Freight bill auditing/payment Customs brokerage Freight forwarding

Outsourcing   

Many retailers have turned to outsourcing for some of the operating tasks they previously performed themselves With outsourcing, a retailer pays an outside party to undertake one or more of its operating functions The goals are to reduce the costs and employee time devoted to particular tasks

Role of 3PL in retail 

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By outsourcing logistics activities to third party logistics providers, retailers can maximise the effectiveness of their supply chains, ensuring that customers’ expectations are met Store inventory and fulfillment, distribution order management, warehouse management, returns management, direct to customer order fulfilment

Challenges with outsourcing of logistics   

Finding a suitable 3PL Over reliance on 3PLs, switching 3PLs, bringing logistics in-house Management the 3PL’s performance, KPIs

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Customer service – service quality and customer satisfaction

Why outsource?    

Logistics is resource and labour intensive Extensive knowledge and experience of 3PLs Speed of implementation, scaling up and scaling down Retailers wish to focus on their core business

Week 5: merchandise planning, inventory, and replenishment Merchandise management Merchandising is the process involved by which a retailer attempts to offer the appropriate quantity of the right merchandise, in the right place and at the right time, so that is can meet the company’s financial goals o Sense market trends o Analyse sales data o Make appropriate adjustments in price and inventory levels Merchandise category – the planning unit  A merchandise category is an assortment of items that customers see as substitutes for each other  Vendors might assign products to different categories based on differences in product attributes  Retailers might assignment two products to the same category based upon common consumers and buyer behaviour 

Types of merchandise  

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Staple merchandise – grocery store examples: milk, bread, canned soup Assortment merchandise – apparel, furniture, automotive, and other categories for which the retailer must carry different products in order to give customers a proper selection Fashion merchandise – products that may have cyclical sales due to changing tastes and lifestyles Seasonal merchandise – products that sell well over non-consecutive time periods Two distinct types of merchandise management systems for managing o Staple (basic)/functional merchandise categories  Continuous demand over an extended time period  Limited number of new product introductions  Easy to forecast demand  Continuous replenishment o Fashion/innovative merchandise categories  In demand for a relatively short period  Continuous introductions of new products, making existing products obsolete  Athletic shoes, laptop computers, women’s apparel

Functional products    

Satisfy basic functions or needs Stable and predictable demand Long life cycles Supply chains are easy to manage

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Low profit margins

Innovative products     

Purchased for innovation or status Highly unpredictable demand Short life cycle Supply chains are more difficult to manage High profit margins

Category management  

The process of managing a retail business with the objective of maximising the sales and profits or a category Objective is to maximise the sales and profits of the entire category, not just a particular brand

Managing inventory turnover  

Inventory turnover helps assess the buyer’s performance in managing asset (merchandise inventory) How many gross margin dollars are earned for every dollar on inventory investment?

Merchandise planning process   

Forecasting Assortment planning Determining inventory level

Forecasts  

These are projections of expected retail sales for given period Components o Overall company projections o Product category projections o Item-by-item projections o Store-by-store projections

Sever steps in forecasting

Factors affecting sales projections Controllable Promotion Store locations Merchandise placement Cannibalisation

Uncontrollable Seasonality Weather Competitive activity Product availability Economic conditions

Developing an assortment plan 

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Assortment plan is a list of the SKUs that a retailer will offer in a merchandise category and reflects the variety and assortment that the retailer plans to offer in a merchandise category o Variety is the number of different merchandising categories within a store or department o Assortment is the number of SKUs within a category Model stock plan – is the number of each SKU in assortment plan that the buyer wants to have available for purchase in each store

Determining the appropriate inventory level   

To provide a selection of goods for anticipated demand and to separate the firm from fluctuations in demand To take advantage of quality discounts from supplier/wholesaler To hedge against inflation

Inventory management decisions    

How can handling of merchandise from different suppliers be coordinated? How much inventory should be on the sales floor versus in a warehouse or storeroom? How often should inventory be moved from non-selling to selling areas of a store? What inventory functions can be done during non-store hours?

Importance of backup stock   

Choosing an appropriate amount of backup stock is critical to successful assortment planning If the backup stock is too low lose sale and customers If the backup stock is too high, scarce financial resources will be wasted on needless inventory that could be more profitably invested in more variety or assortment o Staple merchandise planning  Buyer determines – basic stock or assortment plan, level of backup inventory  System – monitors inventory levels, automatically reorders when inventory gets below a specified level  Cycle stock – inventory that goes up and down due to the replenishment process  Backup stock – inventory needed to avoid stockout

Problem balancing inventory levels   

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