Transcript chapter 7 - Routledge

CHAPTER 7
MANAGING THE
RESPONSE TO SALES
LEARNING OBJECTIVES
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To understand the concept of response within
RPM
Become familiar with information-based systems
that have allowed retailers to change ‘stock
management’ to ‘demand and supply
management’
Appreciate the contribution of QR (quick
response) and ECR (efficient consumer
response) and CPFR (collaborative planning,
forecasting and replenishment) to efficient
product replenishment
RESPONSE
Principle: sell one = replenish one
 Fine tuning the response of stock intake
against sales (automatic replenishment)
 Ensures high availability without high stock
levels
 A responsive stock management system
keeps products in stock whilst organising
the supply chain to operate at minimum
cost
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SALES BASED ORDERING
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Automatic ordering and replenishment based
on previous sales
Based on the principle of exponential
smoothing
Automatic ordering can be managed by
exception
Automatic replenishment relies on supply
source (DC or supply depot) being able to
respond directly to demand. AR Systems will
alert stores to problems
ECR and QR
These are two responsive product
management philosophies that aim to
align demand management with supply
management
 Rely on collaboration and data sharing
between retailers and suppliers
(partnerships)
 Rely on integrated IT-based stock
management systems and involve
logistics through the supply chain
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ECR and QR
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ECR generally concerns food and FMCG
products, which have more stable demand
and higher volumes
ECR is focused on efficiency (cost saving)
QR systems are unit based, tailored to higher
value, lower volume items
QR systems involve supply techniques that
allow retailers to respond effectively to
fashion and seasonal sales variation
QR is focused on agility (which leads to
efficiency)
QR (QUICK RESPONSE)
Sales information transmitted directly to
supplier
 Supplier replenishes directly to store
 Supplier replenishes according to
predetermined assortment plan for season
 Supported by swift and flexible
manufacturing techniques that can switch
to making fast selling merchandise instead
of slower lines
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SUPPLIER INVOLVEMENT IN
RESPONSIVE REPLENISHMENT
SYSTEMS
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Real time information helps with production
planning and ordering of raw materials
Compatible IT systems needed
Distribution from supplier to retail outlet must be
reliable and cost effective
Supplier must send stock that is ready to sell
(pre-retailing)
Co-operation and trust needed between retailer
and supplier
CPFR (COLLABORATIVE PLANNING
AND REPLENISHMENT)
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Formalised management support system
Encourages sharing of information on market
demand
Forecasting becomes more accurate, production
more closely matched to sales
Pools expertise of retailer and suppliers and
sometimes other supply chain members
Together, devise business plans, forecasts, and
agree actions and financial remedies in case of below
forecast performance
Collaborating on promotional activity especially
important
DRAWBACKS OF RESPONSIVE
SYSTEMS
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Small, frequent deliveries drives up cost, which
may outweigh benefit of leaner stock
Logistical problem of many suppliers delivering
small orders (DC or consolidation centres may
be built into supply chain to alleviate)
Readiness / ability of all suppliers to replenish
quickly
Readiness of retailers to share data and
collaborate fully
SUPPLIER (VENDOR) MANAGED
INVENTORY (SMI / VMI)
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Retailer relinquishes stock management
operation to supplier
Retailer provides accurate and real-time sales
data and promotional plans
Automatic replenishment is guaranteed by
supplier
More complex than shelf stocking service
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strategic development of product range is taken on by supplier
supplier instigates increased variety in successful categories
supplier is able to give retailer’s customer best range
STRATEGIC RESPONSE
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Response is not just about replenishment
Availability levels:
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stock of planned assortment is on shelf
planned assortment is ‘right’ for customers
Customer loyalty in a saturated market is an
indication that product assortment is correct
Micro-marketing techniques (loyalty
programmes, data mining, and geodemographic profiling) can be used to inform
strategic assortment planning, as well as less
technical methods:
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listening to customers, suppliers, consulting product market
reports, competitor analysis