Retailing in the Western world is mature, saturated and subjected to intense competition. Growth and survival in today’s retail world totally depends on sustainable competitive advantage. And developing a sustainable competitive advantage requires serious commitment and a customer orientation attitude.
On the basis of market research and intelligence, retailers have to understand customer needs as well as consumer buying behaviour so that they are equipped to delight their customers. Customer delight is possible if and only if retailers are able to satisfy specific and special needs with a personal touch – by offering excellent price/quality ratio. Moreover, there is a need to share this commitment and attitude with retail partners, such as suppliers, manufacturers and wholesalers.
Retailers need to share information with their suppliers relating to customer buying behaviours in an instant and consistent format. Sharing of information needs a foundation of mutual trust and long terms partnership and a vision of one goal – satisfying the customers needs at low cost. This kind of orientation and strategy is nothing but a step towards ‘managing a smooth supply chain’.
Supply chain management has evolved over the years. At every stage of evolution the concept has taken a step forward and now it has become a strategic and value added function in retailing. Despite an evolution having taken place, it has coincided with confusion in the true understanding and implementation of the concept. The concept, however, is crystal clear to those who have experienced real life implementation or researched on related cases.
A simple and effective supply chain management model (as depicted in the figure below) highlights the importance of various business processes and their co-ordination.
Supply Chain Management or SCM begins with ‘bargaining’ with suppliers and long-term relationships. Marketing departments analyse customer needs and demands for specific products, which insures the right negotiations with suppliers. Supply management aims at the procurement and purchasing of specific products, based on partnerships with suppliers. Logistics refers to the actual movement or delivery of products. It includes movements of goods into the retail distribution centre, movements within the centre and movements out of the centre and into the retail stores. Operations are the activities involved in converting the products supplied by the supplier into products sold to the retail customer.
The main objective and intention behind a smooth SCM operation is to stimulate buying the right things at the right time at the right price – reducing the order cycle and ensuring flexibility. Large retail chains, such as
Wal-Mart, Safeway and The Gap, have strategically implemented SCM and have grown because of that.
Proper and committed implementation of SCM can result in sustainable competitive advantages. Supply chain management leads to fewer stock outs and to the availability of merchandise and assortments that customers want. This implies a high-perceived value of the retail store in the minds of the customer. In financial terms, SCM can result in better sales and lower markdowns for retailers.
Implications for Independent Retailers
Supply chain management, integrated logistics, ECR, Quick Response and other related concepts are mandatory as well as lucrative in today’s competitive retail world. Are these concepts and management jargons meant only for big retailers or can independent retailers be party to them as well? Implementation of these concepts requires a lot of investment in terms of finance, human resource and Information Technology.
The Supply Chain Management Model
Source: Bloomberg, LeMay and Hanna
Independent retailers may not have the money or expertise to research and experiment with the feasibility of these concepts in their respective businesses. So how can these retailers introduce and create efficient supply chain models and extract benefits out of it – the way large businesses do? The answer is that the one time investment and implementation of SCM is virtually impossible. In my view, they should work towards it in gradual stages. They can and should, if they have to survive and grow in this concentrated and competitive trading scenario; and they can do so by introducing the concept in the same way as large retailers do.
The key words here are ‘responsiveness’, ‘reliability’ and ‘relationship’. The retailer should be agile with customer centeredness, the ability to respond and act quickly and swiftly. Reliability is related to transparency in the flow of material, with its foundation based on mutual trust. SCM’s effectiveness and strength lies in the quality and power of the relationship between the chain partners (all organisations within the supply chain should be termed and committed as partners).
The ‘single supplier’ vision followed by some retailers has resulted in drastic and radical cost reductions and added value to the overall company’s strategy. Successful supply chains are those that follow the philosophy of win-win solutions and mutual trust. ‘Better, faster and cheaper’ should be the logistics vision and mission. Joint and mutual strategy development, win-win thinking, transparency and information sharing are the prerequisites in achieving this vision. At the tactical level, the focus should be to reduce order cycle time and stock levels.
The very first step towards achieving this should be introspection…
The retailer should evaluate all the product categories in terms of their respective floor productivity and share in the total sales (a step towards category management). The products with high financial benefits should be taken as the starting point for SCM. There should be a minimum stock level (in terms of SKUs, but all possible SKUs should be present in the store for customers) for these performing categories. The retailer should either aim at a single supplier or at a number lesser than the current for these products.
POS information should be communicated instantly to the supplier through EDI…
The supplier would then act to deliver the sold quantity in a Quick Response. On the other hand, categories with lower financial benefits should be supported with good stock levels (based on past experiences of sales) so that the retailer does not have to order for the same repeatedly. Moreover, the retailer can also clinch a good bargain for these categories from the supplier by increasing the order quantity and highlighting the fact that market share being low, prices need to be comparatively low too.
The Author is
Head – Business Development
River Water Retail Management & Design Pvt. Ltd.