The supply chain Operations Management of Retailers
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Published: Mon, 5 Dec 2016
Since the rise of the Internet, there was a significant change of the business activity and the shopping behaviour for the consumer (Peterson et al. 1997). In the past years, the consumer used to purchase consumer items through the physical store (retailer). However, the development of information technology brings an innovative thinking and selection which is the online store (e-retailer). Compared with the other shopping channel, the online store not only creates a new sales environment but also reshape a shopping habit for the consumer. Mathwick et al. (2001) also comment that the online shopping will become an alternative marketing tool for the consumer because of the popularisation of the Internet. In general, although the physical store (retailer) and the online store (e-retailer) have some similar functions such as the product search and the customer service, it still has some differences within its supply chain operations which contain the inventory management, the aggregate planning, the supplier relationship and the product delivery. Therefore, the assignment will analyses the primary difference between the physical store (retailer) and the online store (e-retailer) and discusses the supply chain efficiency through the Amazon, the HMV and the Argos. Beside that, the approaches of the supply chain performance improvement and the strength of the information technology also will be represented.
The difference between the physical store (retailer) and the online store (e-retailer)
Chang (2000) explains that the physical store is a specific place which could obtain a face to face service such as communication and purchasing directly from the sales staff. Chang (2000) also highlights that the super market, the department store and the shopping mall could be generalised into the physical store (retailer).
With regard to the online store (e-retailer), Haynes & Taylor (2006) claim that the online shopping, which could be implemented by the Internet, is an innovative transaction model called electronic commerce (e-commerce). Chiang & Dholakia (2003) state that the online store could provides some benefits before the purchasing. First of all, the online store could reduces the time and cost. In the second place, the online store could achieve a high degree of customisation. Lastly, the online store has strengths for the location and the convenience. Brown et al. (2003) assert that the efficiency and flexibility are two competitive advantages for the online store. Kaufman-Scarborough & Lindquist (2002) contend that the consumer could not only acquire broad information but also obtain multiple selections through the online store.
Gutman & Mills (1982) explain that the feature of the product and the interaction of the shopping are two main differences between the physical store and the online store. For instance, when purchasing in the physical store, the consumer need to go to the store, to ask the price and to touch the real product, and then to buy it. Whereas, the online shopping, which only needs the computer and the Internet service, could bring the convenience purchasing activity for the consumer. Moreover, Farag et al. (2006) stress that the online store (e-retailer) builds the consumer purchasing habit record through the information technology, in order to increase the customer relationship management. In addition, Taher et al. (1996) assert that the interaction with the sales staff is the most attractive factor for the physical store. The consumer could obtain the pleasure form the interaction process which could not be achieved by the online store. Furthermore, Alba et al. (1997) point out three vital factors which could influence the purchasing pattern for the consumer. In the first place, the strength for the physical store is the product distribution, whereas the strength for the online store is the digital product market. Secondly, for the transaction, the physical store has three advantages such as delivery, touch and customer service representative, whilst the online store is unlimited of time and space. Finally, for the communication, the physical store utilise the mode of “one to one” or “one to many”, while the online store could adopt more diversification methods which include the mode of dynamic communication and the mode of static communication.
The supply chain management
In the recent years, the business competition environment should face not only the short product life cycle but also the requirement of customisation that causes the concept of supply chain is developed. Christopher (2005) claims that the supply chain, which is built by several organises or enterprise, is a network relation. Christopher (2005) also points out that the main target of the supply activity and chain relationship is to generate the product or the service. Slack et al. (2007) explain that the supply chain should contain the production activity and distribution process which could extends from the supplier’s supplier to the customer’s customer. Swaminathan et al. (1998) emphasise that the supply chain is a business system which could delivers the finish good or the service to the customer. Furthermore, the chain members within the business system include the supplier, the manufacturer, the distributor, the retailer and the customer. Simchi-Levi et al. (2008) assert that the supply chain is a two way process that is combined by the product flow and information flow.
Wisner et al. (2008) contend that the supply chain management could integrate the key functions which may contain the material purchasing, the manufacture management, the requirement management, the distribution planning and the quality management. Wisner et al. (2008) also highlight that the short term goal of the supply chain management is to reduce the inventory cost and to improve the productivity, while the long term goal is to increase the customer satisfaction, the market share and the profit. Christopher (2005) contends that the supply chain management is a chain relationship management which could creates a well value for the customer with a minimal cost. Mentzer et al. (2001) point out that the supply chain management has seven critical activities which include the business behaviour integration, the information sharing, the profit and risk sharing, the business collaboration, the customer service target, the chain process integration and the long term partnership.
It can be concluded from those definitions that the supply chain management not only manages the supplier relationship but also integrates the target of chain member, in order to achieve the best value for the customer. Furthermore, due to the supply chain management application, the significant change not only influences the manufacturer but also affects the retailer. Therefore, in the following paragraph, the difference of the inventory management, the aggregate planning, the supplier relationship and the product delivery for the physical store (retailer) and the online store (e-retailer) will be discussed.
The purpose of the inventory is to balance the uncertainty of the demand and the supply. Fogarty et al. (1991) claim that on the supply side, the inventory should be able to prevent shortages and to maintain the operation of the machinery and equipment. On the demand side, the inventory should be able to meet the prospective demand, the cyclical demand and the fluctuant demand (Fogarty et al. 1991). Markland et al. (1998) assert that there are six advantages for the inventory. In the first place, the inventory could meet the demand forecasting. Secondly, the inventory could reduce the cost of purchasing. Thirdly, the inventory could decrease the cost of out of stock. Fourthly, the inventory could maintain the independence of the operations. Fifthly, the inventory could make the production task more flexibility and smooth. Finally, the inventory could protect the business operations, when the price of the raw material rises. However, too much inventories may cause the problem of financial liquidity whereas too few inventories may cause the risk of the out of stock.
In order to manage the inventory more efficiency, the e-retailer (Amazon) adopt not only the vender managed inventory (VMI) with consignment but also the drop shipping. The vender managed inventory (VMI) with consignment is used in Amazon’s warehouse management. When Amazon adopts the inventory type of the vender managed inventory (VMI) with consignment, first of all, the supplier could storages their products in Amazon’s warehouse. Secondly, the inventory is managed by the supplier themselves, while the Amazon only has responsibility for selling. In addition, the inventory management type of the drop shipping is usually used by the e-retailer (Amazon) (Hsi 2010). Hsi (2010) also points out some critical factors that why the drop shipping is utilised by the Amazon. In the first place, the drop shopping could let the supplier to manage the stock easier. Secondly, the method of the drop shipping could reduce the level of stock for the warehouse. Thirdly, the Amazon does not need to set a department for the inventory management because the product could directly be delivered by the supplier. Fourthly, the Amazon does not need to concern the extra cost of overdue or damage. Lastly, the drop shopping could decrease the transportation cost when the variety products are purchased in once. With regard to the physical store (HMV), the number of out of stock reduction is an important issue for the physical store (retailer) that refers to the efficiency of the inventory management. The method of VMI still is a common technique for the retailer inventory management.
Wisner et al. (2008) assert that the aggregate planning, which could be distinguished to three categories such as the long range, the intermediate rang and the short rang planning horizon, is an operation plan for the capacity requirement. In other words, the aggregate planning is an approach to balance the supply and demand that could be generated by the demand forecasting, the current orders and the workforce etc. For the physical store (retailer), the aggregate planning is very important for their operations. For instance, the HMV, who adopts a centralised purchasing method for their business operations, needs a reliable aggregate planning to meet the demand forecasting that relate to the inventory management. For the online store (e-retailer), the well aggregate planning could not only reduce the risk for the hot product but also increase the free cash spin. For example, in the present age, the Amazon dose not always achieves the aim of zero stock. For the hot product, the Amazon holds a large number of stocks which is estimated by the aggregate planning, in order to improve the flexibility of inventory management and the satisfaction of the customer. In addition, due to the long term historical record database, the Amazon could make a more accurate and complete aggregate planning to obtain the competitive advantage.
The supplier relationships
In order to achieve a specific goal and profit, two individual businesses maintain a partnership called the supply chain partnerships which could brings the information and risk sharing (Maloni & Benton 1997). Vokurka (1998) claims that the well supply chain partnerships could not only reduce the level of stock but also increase the business performance. Buzzell & Ortmeyer (1995) assert that the supply chain partnership is a continuing relationship which could achieve the consensus of target, policy, business process, distribution and transportation between the supplier and the retailer. Peng (2006) highlights that there are two types of the supply chain partnerships for the B2B activity which contains the horizontal cooperation partnership and the vertical cooperation partnership. Peng (2006) also points out that the horizontal cooperation partnership is suitable for the e-retailer such as the Amazon. In addition, the technique of collaborative planning forecasting and replenishment (CPFR), which should be applied in a well partnership, could declines the problem for the inventory management. Thus, it can be concluded from the analysis above, to maintain the best supply chain partnerships is very important for the retailer and the e-retailer.
The product delivery
The Amazon develops their delivery service through the third party logistics such as the DHL (Hsi 2010). Hsi (2010) highlights two points for the Amazon’s product delivery. In the first place, the Amazon provides a function of the order check and the package tracking for their consumer. In addition, the Amazon applies some computer software to improve their delivery service which includes the warehouse management system, the Oracle, the SQL and the Linux. In terms of the product delivery of physical store (retailer), the product could be delivered by the store. For instance, when the customer purchases the mattress from the Argos, the customer could require the store to deliver it and to give an extra fee for the transportation. For the other example, when the customer purchases a lot of products which are more than a certain price from the HMV store, the HMV will provide a free service for the transportation. These two cases are the common product delivery method for the physical store.
The supply chain performance improvement
The third party logistics (3PLs), who could helps the enterprise to achieve the economies of scale through the specialisation within the supply chain network, is a well option for the supply chain performance improvement. Reynolds (2000) asserts that if the third party logistics could build a logistics information platform, which will help the data exchange from the e-retailer to the 3PLs. Tsai (2007) claims that the function of the 3PLs for the e-business could not only deliver the product but also manage the order or the customer service. For instance, in case of the traditional business activity, the supplier has responsibility to transport the product to the physical store (retailer). That will make an extra cost for the transportation. Therefore, if the 3PLs could be utilised in this situation, the supplier only need delivery their product to the 3PLs. And then, the 3PLs, who could transports directly to the customer, will perform a role of “last mile”. Besides that, the value added service, which contains the return management, co-packing and the retail ready POS displays etc, is a great additional service from the 3PLs. That also is another possible approach which also could enhance the supply chain performance. Therefore, it can be concluded that when the development of the supply chain is more specialisation, the role of the 3PLs will more and more critical for the physical store (retailer) and the online store (e-retailer).
The enterprise resource planning (ERP) is an information technology for the business process improvement and the business resource integration. Dovenport (1998) asserts that the ERP, which could shares the business information through the Internet, is an information technology for the business integration. Lin (2002) claims that when the ERP system is applied to the enterprise, there are four advantages could be obtained. In the first place, the ERP system could enhance the speed for the response. Secondly, the concept of the information sharing could be achieved by the ERP. Thirdly, the operation cost could be declined because the ERP bring the work flow reduction. Finally, the ERP system could create a better service for the supplier and the retailer. Thus, if the ERP system could be implemented within the supply chain, not only the physical store (retailer) but also the online store (e-retailer) will achieve the target of cost reduction, flexibility increasing and supply chain performance improvement.
To maintain a well relationship within the chain members is essential for the modern enterprise. Each enterprise or organisation of the supply chain play different roles and have different responsibility. The purpose of the supply chain management is to integrate those resources and processes, in order to achieve the final target. Moreover, although the existing partnership is very important, the retailer or the e-retailer still needs to explore the new suppliers that may decline the risk such as the out of stock from the current suppliers. Thus, the concept of the supplier relationship management (SRM), which could links the suppliers’ ability more efficiency, is another approach for the supply chain performance improvement.
The accurate demand forecasting or aggregate planning, quick response (QR), efficient consumer response (ECR) and collaborative planning forecasting and replenishment (CPFR) are four vital factors for the supply chain management that may also influence the chain performance. Inaccurate forecasting might causes the problem of out of stock or the excess inventory. However, to utilise the information of the QR and the strategy of the ECR could not only improve an in time response but also make an effective promotion and replenishment. In addition, the concept of the CPFR, which is base on the approach of the QR and ECR, is a technique for process integration between the supplier and the retailer. The most common technique of the vender managed inventory (VMI), which is a type of the CPFR, could create a shared solution for the market change and customer requirement through the information sharing from the upstream to the downstream. Thus, it is clear that the accurate aggregate planning or demand forecasting, QR, ECR and CPFR are four management techniques for the supply chain performance improvement.
The competitive advantage from the information technology
The e-business, which is an information technology for the new commercial activities such as B2B, B2C and C2C, bring an impact for the supply chain. Furthermore, the concept of the electronic supply chain could integrate the operation process for the supplier, manufacturer, distributor and retailer through the information technology. After that, a co-operation environment will be created that will bring the benefit for the supply chain.
The information technology of the radio frequency identification technology (RFID) brings a competitive advantage for the retailer and the e-retailer. Both of the retailer and the e-retailer could manage and track the stock information. Beside, the information technology of the EDI also could provide the service of transaction checking and tracking for the consumer.
The E-CRM (customer relationship management) is an electronic platform for the customer service management. The e-retailer (Amazon) could analyse the customer’s personal data and the historical transaction record which could help the e-retailer to infer the shopping habit or the loyalty of the customer. Furthermore, the customer’s long term transaction record or browse record also could become useful information of the marketing strategy for the new product. More accurate, in the pre-commercial activity, the E-CRM could not only deliver the order information but also save the purchasing record to the relevant department or the supplier. In the post-commercial activity, the data analysis and the data mining will be done, in order to build the complete customer relationship management database that may support the decision making for the business operations. In case of the Amazon, the E-CRM increases their market share and customer satisfaction. Thus, it can be concluded that the E-CRM could not only reduce the cost of operation but also enhance the speed of response.
The demand and supply always is an important issue for the business operations. For this reason, the concept of the supply chain management is playing an increasingly critical role in the current business. Furthermore, many management techniques also are created, in order to make the supply chain management more efficiency. In addition, the service of 3PLs is also a key role for the current supply chain operations. It is clear from the analysis above, the effective of inventory management, aggregate planning, supplier relationships and product delivery could bring the benefits for the retailer and the e-retailer. Moreover, the 3PLs service and the ERP, QR, ECR and CPFR implementation also could improve the supply chain performance for the retailer and the e-retailer. Lastly, the suitable information technology application such as the RFID, EDI and E-CRM could make a more efficiency and flexible business environment form the supplier to the retailer (e-retailer).
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