This book is a publication of:
Institute for Business Process Management
Düsseldorf
Germany
www.institute-bpm.com
First published in Germany 2010
Copyright © 2010 Joris J.A. Leeman, Düsseldorf
ISBN 9 783839 177334
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For
Mai Lan
Contents
About the Author
Foreword
Preface
CHAPTER 1: Introduction
1.1 Strategy, verticalisation and supply chain management
1.2 Manufacturers and Retailer
1.3 Competing Supply Chains
1.4 Supply Chain System – Model
1.5 Elements of the Model
Lessons learned
Summary
Terms
Questions
CHAPTER 2: Merchandise Flow Planning and Control
2.1 Time-to-Market and Vertical Integration
2.2 Choosing the Merchandising Business Model
2.3 Assortment Planning and Control
2.4 Replenishment and Synchronising Demand / Supply
Lessons Learned
Summary
Terms
Questions
Case: “Supplying Fast Fashion”
CHAPTER 3: Supply Chain Management
3.1 Thinking End-to-End
3.2 Competitive environment
3.3 Set up of the Information Systems network
3.4 Managing the Supply Chain
Lessons learned
Summary
Terms
Questions
Case: “Switched on: hi-tech strategy”
CHAPTER 4: Supplier Relationship Management
4.1 Developing Strategic Supplier Relationships (SSR)
4.2 Selecting Strategic Suppliers
4.3 Integrating the IT – System (B2B)
4.4 Monitoring Supplier Performance
Lessons Learned
Summary
Terms
Questions
Case: “The race for change: the global automotive industry”
CHAPTER 5: Outsourcing
5.1 „Offloading the Bricks“
5.2 Benefits of Outsourcing
5.3 How to implement Outsourcing: (1) Key Factors for Success
5.4 How to implement Outsourcing: (2) Partnership Development
Lessons Learned
Summary
Terms
Questions
Case: “ A Fiege Mega Center for Nivea’s skincare and beauty products”
CHAPTER 6: IT – Systems Platform
6.1 IT Systems to support the Business Processes
6.2 Collaborative IT - Systems
6.3 Creating the IT - Systems Platform
6.4 Defining the IT - roadmap
Lessons Learned
Summary
Terms
Questions
Case: “Unilever: a private exchange function”
CHAPTER 7: ECR and Collaboration
7.1 Efficient Consumer Response
7.2 EDI and IT Networking
7.3 EDI and Logistics Collaboration
7.4 ECR and CPFR
Lessons Learned
Summary
Terms
Questions
Case: “Metro taps into real-time visibility: RFID technology”
CHAPTER 8: E-Business Network
8.1 E – Business Strategy
8.2 Information Hubs / Portals
8.3 IT - Infrastructure
8.4 E – Business landscape
Lessons Learned
Summary
Terms
Questions
Case: “Cisco Borderless Networks”
CHAPTER 9: Organisation and Change Management
9.1 Planning the End-to-End Supply Chain System
9.2 Organising around the Strategic Building Blocks
9.3 Leading the Change Management Process
9.4 Controlling with Systematic Quality & Performance improvement
Lessons Learned
Summary
Terms
Questions
Case: “Dell Inc.: using the supply chain to compete”
Appendix
Other publications
Index
Notes
About the Author
Joris J.A. Leeman is the founder of the Institute for Business Process Management. He has extensive experience in organising the back-end part of the business: organisation, supply chain management, IT – systems, e-Commerce and e-Business, logistics and sourcing operations. He is a consultant, lecturer and author. Prior to this he worked as a manager, director and executive for global operating companies like MEXX, Johnson & Johnson and Esprit.
Besides his consultancy activities he is a part-time lecturer at the Arnhem Business School, HAN University of Applied Science, in The Netherlands. He is also a regular guest speaker at the MBA program of the Düsseldorf Business School at the Heinrich Heine University in Düsseldorf, Germany. In addition, he acts as a company trainer for the Supply Management Institute (SMI) at the European Business School in Wiesbaden, Germany.
He received his B.A. degree in Logistics & Economics from HAN University in The Netherlands. He received his M.A. degree in International Business and M.B.A. degree from Webster University, St. Louis, U.S.A.
Institute for Business Process Management
The goals of the Institute for Business Process Management are (1) to advise companies in improving their end-to-end business processes and organisation; (2) to train students, post graduate students, employees, managers and directors in the field of supply chain management, logistics, e-commerce and e-business, customer relationship management, retailing, export- and services management; (3) to publish books which enhance the knowledge of managing end-to-end business processes.
Institute for Business Process Management
Joris J.A. Leeman MBA
info@institute-bpm.com
www.institute-bpm.com
As senior manager, executive director and board member of companies within the apparel, retail and medical industries, I experienced very often a lack of understanding and interest for the back end part of the business. Too often senior management and board members are only focused on sales and forget about the organisation and operational completion of the sale.
In today’s market field retail prices are under pressure, gross margins are shrinking and labour costs are going up. Additionally, more and more qualitative demands are being made by the retailers: more deliveries in smaller lots, faster and on time deliveries, complete deliveries – no exceptions. All these demands require much more efficiency and effectiveness from the organisation to fulfil the completion of the sale. Trade offs between Time and Costs become very hard to make as ‘Every order is urgent’ and ‘It should be produced and delivered at the lowest costs’. If these trade offs are not balanced upfront within the organisation and within the total supply chain, substantial process costs and/or service level deficiencies will be the result. Here’s where my inspiration for this book started.
‘Profit and Success are not earned exclusively in the buying and selling of the merchandise anymore, but also in the efficiency and effectiveness of its integrated Processes and Systems to order, manufacture and deliver the merchandise.’
Why is it so difficult for executive management to balance the trade offs between Time and Costs for its processes and systems? As it requires on the one hand, a detailed understanding of the organisation’s processes, and on the other hand, it requires knowledge of available IT systems on the market. The lack of understanding starts here, as many directors do not fully know their supply chain processes and do not have enough IT know-how to judge which systems to use. In addition, the new technologies which integrate the buyers and sellers processes / systems into end-to-end supply chain networks do not help to simplify the understanding for executives.
‘Many organisations lack persons or a department to bridge the lack of understanding of its Processes and Systems. This book tries to fill this gap. It shows what the strategic building blocks are for developing an End-to-End Supply Chain Network within your company.’
This book intends to be pragmatic. It provides a framework, toolkit and roadmap for developing your own End-to-End Supply Chain System. The book should inspire you to explore the strategic building blocks and implement them within your company.
Düsseldorf, March 21st, 2010.
Joris J.A. Leeman
What’s the purpose of this book?
The purpose of this book is to help you with the development and implementation of a successful End-to-End Supply Chain Management – Strategy: optimising your processes from manufacturer to retailer. Brand label manufacturers and retailers are confronted with shortening product life cycles and a more demand, pull driven market, which lead to an increased importance of time-to-market, and trade off – decisions between Time and Costs. Thinking in the end-to-end supply chain requires a massive organisational change, in order to become faster, more flexible, transparent and driven at lower cost levels. On the one hand, internal cooperation between the internal departments merchandising, logistics and information technology is needed, and on the other hand, external collaboration with the partners in the supply chain: the suppliers, lead logistic service providers and retailers, is required. Functional silo’s within and between organisations is ‘out’, collaboration is ‘in’.
This book answers four questions:
How to develop an end-to-end supply chain – strategy?
How to create the necessary supply chain infrastructure?
How to make collaboration work between the partners in the network?
How to plan and manage the supply chain flows?
In other words, how do I plan, organise, lead and control the total supply chain, in order to use supply chain management as a weapon to create a competitive edge. This book provides a framework, toolkit and roadmap for developing your own End-to-End Supply Chain System. A roadmap which reviews all aspects, relevant to your specific situation, based upon a framework. It will enable you to systematically improve your sales productivity in the retail stores, and to enhance the operational / qualitative performance of your own processes and processes of your partners in the supply chain.
On purpose supply chain management will be discussed in a broader spectrum. You will not find detailed analyses and extensive descriptions. For all those individual aspects enough books are already available in the retail store. However, you do find a complete overview of all the subjects which relate to supply chain management. The strength and added value of this book, is its combination of all relevant elements, presented in a logical order, to guide you how to develop the End-to-End Supply Chain System. A path already completed by several companies successfully.
For whom has this book been written?
This book is useful for thinkers and practitioners! For everyone who wants to learn more about supply chain management and the development and implementation of an end-to-end supply chain strategy. If you are a CEO, COO, CFO, executive, supply chain manager, marketing manager, purchase manager, IT manager, retail manager, wholesale manager, distribution manager, project leader, team leader, staff member or consultant, this book provides you with many useful insights, practice experiences and lessons learned.
End-to-End Supply Chain Management is also very useful for higher education and university students. This book describes supply chain management at a strategic, tactical and operational level and combines theoretical descriptions with relevant practical experiences.
How is this book structured?
The book is divided into three parts: merchandising, logistics and information technology. Each part consists of 3 chapters. The nine chapters together form the strategic building blocks necessary to develop and implement the End-to-End Supply Chain System.
Merchandise Flow Planning and Control
Chapters 1, 2 and 9 focus on Merchandising and provide answers to the questions ‘how to develop an end-to-end supply chain management strategy’ and ‘how to plan and manage the supply chain flows’. Chapter 1 provides an introduction to the framework and the strategic building blocks necessary for the development of the Supply Chain System. It briefly describes the retail environment, scope and tasks for retailers and manufacturers. Chapter 2 focuses on the need for merchandise flow planning and development of the collaboration between retailers and brand label manufacturers to synchronise demand and supply of merchandise flows into the retail stores. It describes where and how to influence the bottom line by means of its cost drivers. Chapter 9 connects the three parts of the book, by means of: planning the End-to-End Supply Chain System, organising around the strategic building blocks, leading the Change Management process and controlling to realise systematic quality and performance improvement. It reviews all elements necessary for a successful implementation of Endto-End Supply Chain Management within your organisation. How do you successfully apply change management? What are a critical success factors?
Logistics
Chapters, 3, 4 and 5 focus on Logistics and provide mainly an answer to the question ‘How to create the necessary supply chain infrastructure’. Chapter 3 concentrates on how to set up Supply Chain Management, and facilitate its end-to-end thinking and management from ‘point-of-sale’ back into the factory. You get more insight in the value adds and costs of supply chain management; and how you can influence them. Chapter 4 concerns Supplier Relationship Management and how to integrate your suppliers on the back-end side of the supply chain. Chapter 5 focuses on Outsourcing Logistic processes.
Information Technology
Chapters 6, 7 and 8 focus on Information Technology and provide mainly an answer to the question ‘How to make collaboration work between the partners in the network’. In Chapter 6 the development of the IT – Systems Platform is being discussed to support the Merchandise Business System. Chapter 7 focuses on ECR and Collaboration with customers on the front-end side of the supply chain. Chapter 8 focuses on building the E-Business Network to enable the organisation to manage the End-to-End Supply Chain System.
Each chapter ends with a list of definitions used in the chapter.
Lessons Learned
The end of each chapter provides an overview with the ‘lessons learned’. They can be used as a reference when developing the end-to-end supply chain system within your company.
In order to support you when reading Supply Chain Management each chapter contains:
Learning topics at the beginning of each chapter;
Tables, figures and other illustrations to easily pick up the most important aspects from the text;
An opening case as a general introduction to the theme with case questions relevant to the learning topics at the end of the chapter;
Summary questions to review the learning topics from the chapter;
A summary of the chapter reviewing the learning topics;
A list with terms and its explanations.
Young professionals and managers being active in international trade, logistics and supply chain management must acquire knowledge, skills and experience how to develop strategy, operations and maintain trade- and customer relationships in international markets. According to the Dutch education system for bachelor students with a major in marketing management the competence card with general competences to be acquired may look as follows:
Source: Competence card cluster marketing and cluster retail/entrepreneurship, INHolland University of Applied Science, 2008.
The book supply chain management provides input and knowledge on all four competences with an emphasis on 2.1, 2.2, 3.3 and 1.1.
Supplements
Additional information can be found at the website of the Institute for Business Process Management (www.institute-bpm.com). For specific questions you can send an e-mail: info@institute-bpm.com .
At the end of the chapter you will be able to:
1. explain why verticalisation and supply chain management is so important for management today;
2. explain what distribution channels exist and which players are active in the supply chain;
3. name the three most important business drivers for brand label manufacturers and retailers;
4. provide a brief explanation of the supply chain system – model and how to create a competitive advantage with it;
5. name the most important strategic building blocks for the development of an end-to-end supply chain system.
In the flashing world of fashion sales nothing seems to be more important than time-to-market. Instead of following the traditional four fashion seasons (spring, summer, autumn and winter), today’s styles are changing once a month or even faster. Some women’s fashion chains become new collection shipments even twice a month. Welcome in the world of fast chic.
Several companies have chosen on purpose for this strategy, like H&M in Sweden, TopShop in England, and Zara and Mango in Spain. Mango/MNG Holding SL is located in the area of Barcelona and has more than 700 stores for women’s wear in 72 countries. Mango is known for its dared combinations of different clothing styles.
The development of a continuous flow of trendy new merchandise requires flexibility and speed from design to the manufacturing and the delivery of the product in the store. ‘We know how we have to improvise’, says David Egea, retail director of Mango. ‘In order to be able to react and have what the people want, we must go against some rules. And continue to go against the rules.’ When the clothes are coming from the production lines, Mango trusts its stock replenishment system which exactly determines what items need to be send to which stores.
The designers of Mango meet each other four times a year, to discuss the new trends for each of the most important collections. Design teams meet every week to discuss adaptations to changing trends. After agreements have been made regarding the style of the clothes and accessories, product management- and distribution team assigns the style a ‘label’, like trendy, formal or suitable for warm weather. When the items are classified, they are sent to one of the 731 shops which are, as such, are classified based on climate where the store is located, or based on the fact that large or small sizes are sold best. Mango’s distribution system takes care of the merchandise deliveries to the correct stores. The system sends order information to a large distribution sorter machine at Mango’s head office, which is surrounded by a rotating ring of a carton boxes on hooks. The clothes are being provided with a barcode, are being scanned and placed in one of the 466 store specific slots. Next, the items are being packed and shipped to the stores. Mango can add once a week new items, which is about six times more than an average clothing chain. Store managers can adjust the plans for their shops daily, based on the input of regional supervisors and from the head office.
Source: Erin White, ‘For Retailer Mango, Frenzied ‘Fast Fashion’ Proves Sweet’, Wall Street Journal, May 28th, 2004; Kasra Ferdows, Michael A. Lewis, Jose A.D. Machuca, ‘Rapid-Fire Fulfilllment’, Harvard Business Review (November 2004); Cecilie Rohwedder, ‘Making Fashion Faster’, Wall Street Journal, Februari 28th, 2004. Case from the book Bedrijfsinformatiesystemen, Kenneth C. Laudon en Jane P. Laudon, 9e editie, Dutch edition 2006, page 41.
The enormous success of vertical retailers like H&M, Zara, Gap and Next in the apparel industry since the ’90-ties, as well as today, force brand label manufacturers like Esprit, s’Oliver, Mexx, Tommy Hilfiger, Levi, Nike and department stores like Karstadt, Kaufhof, Lafayette, Printemps and El Corte Ingles to speed up their supply chains and verticalise/integrate their processes and systems upstream (towards their suppliers) and downstream (towards their wholesale customers) in the supply chain. The competitive environment is increasingly tough: the consumer is less predictable, demand increasingly fluctuates; retail prices are under pressure; competition is extending from products that were traditionally limited to upper, middle and lower segments of the market - and increasingly from the sports industry; gross margins are shrinking; retail store costs and personnel costs are going up. Those who do not manage their assortment planning and inventories well are continuously under pressure to markdown their merchandise, which makes it even more difficult for them to sell the next collection at its recommended retail price levels. The vertical retailers have responded by:
increasing the probability of designing a bestselling product by dramatically shortening the product’s time to market;
piloting the products in the stores and then replenishing the bestsellers within 14 days by new type of make-to-order processes;
driving the inventory sales productivity (as measured by stock turn, sales per square meter, markdown percentage) by keen assortment and delivery planning;
integrating the IT systems from point of sale back into production factories and from there towards fabric suppliers;
focusing on quality of workmanship through fitting and process quality.
Brand label manufacturers traditionally do not own their retail stores and retailers (department stores) do not own their factories. This easily leads to a competitive disadvantage in comparison with vertical retailers, who have their own retail stores and have tight control over their manufacturers.
‘To survive in today’s marketplace against the vertical retailers, brand label manufacturers and retailers (department stores) need to integrate their processes and systems from Point-of-Sale back into the Factory.’
Manufacturers and Retailers are forced by the changing market conditions to work together; much more than they have ever done before. Probably today’s most important retail issues where both are being confronted with are:
Time-to-market,
Shelf availability and
Transaction cost.1
Time-to-market is crucial in meeting the ever increasing fluctuation in consumer demand patterns. The consumer is more and more unpredictable. Reduced product development and product delivery time enables to decide later in the process about the final product to bring on the market. Deciding closer to the market enables to improve the forecast accuracy of consumer demand. Higher forecast accuracy improves the number of ‘bestseller products’ which are being sold on the retail space. Shelf availability is the next important retail issue. It refers to having the product on the shelf, at the right location within the store, and be able to replenish it fast enough to the retail space to maintain a high service level and avoid lost sales. Replenishment includes the refill from the stockroom in the store and (daily) replenishment of existing stock from the retail distribution center or manufacturer. It also refers to programs to replenish the stock by means of additional production runs at the manufacturer. Shelf availability is all about balancing a high service level percentage to the consumer versus maintaining a cost efficient inventory level in the store. Transaction costs refer to the overall cost per piece from manufacturing to retail sales. Small purchase lots might reduce the markdown risk, but also impact the inventory service level to the consumer. Large purchase lots reduce the purchase cost per piece, but might increase the overall markdown percentage.
These three retail issues can be seen as retail business drivers: they drive the retail sales productivity – performance. Both manufacturers and retailers need to have the right product, at the right place (shelf availability), at the right time (time-to-market), and at the right quality and lowest possible costs (transaction costs) for the consumer. Vertical retailers more or less own and control the complete process from purchasing the raw material to selling the final product in the retail store. Therefore, they are in a much better position to influence the retail business drivers. Brand label manufacturers and traditional retailers, like department stores and specialty retail chains therefore have to collaborate in their end-to-end supply chain in order to maintain an equal competitive position. Figure 1 provides an overview of the different retail channels and its players in the supply chain.
*Note: retailers could have a physical store (brick), online store (click) or both.
Figure 1: Retail channels and its players in the supply chain network
Three main different retail channels exist: vertical integrated, vertical collaboration and independent. Vertical integrated refers to the vertical retailers like Zara, Next. These brand label manufacturers run their own retail stores (forward integrated) and organise the manufacturing themselves (backward integrated).
Vertical collaboration refers to brand label manufacturers like Nike, Esprit. These brand label manufacturers cooperate / collaborate with retailers (department stores, franchise stores and retail chains) and preferred, key suppliers to maintain the end-to-end supply chain, as if it were owned by the brand label manufacturer. Next, they often run their own retail stores as well. In this book the term ‘verticalisation’ is being used to describe the process of developing a vertical collaborative – retail channel between retailers, brand label manufacturers and suppliers. Independent refers to the independent retailers and brand label manufacturers who do not work together with each other.
The effective and efficient management of the retail business drivers determine the success in the market for manufacturers and retailers. The performance results can be measured by means of three overall factors: operations performance, retail sales productivity and financial performance. Operations performance focuses mainly on the processes: its speed, systematic, flexibility, transparency, number of personnel, cost levels.
Figure 2: Retail business drivers and Performance results
Retail sales productivity focuses on the sales performance in the retail stores: its net sales p/square meter, gross margin percentage, stock turn, markdown percentage and service level percentage. Financial performance focuses on the profit and loss results: its sales, cost of goods sold, gross margins, expenses and net profit. Figure 2 provides a summary of the retail business drivers and its impact on the performance results of brand label manufacturers and retailers.
Verticalisation of the business will enable brand label manufacturers and retailers (department stores) to compete with the vertical retailers. Depending on how well it is being organised they will be more or less successful amidst the others. Therefore, in today’s environment competition between vertical retailers, brand label manufacturers and department stores (with brand labels or own private labels) is not only on the Product, but also on their Supply Chain System. The design and engineering of a complete end-to-end Supply Chain System includes the management of its:
Merchandise Planning and Assortment Flow
Logistics Infrastructure
IT - Systems Network.
Figure 3: Managing the end-to-end Supply Chain System
Merchandise Planning and Assortment Flow contains all the activities of a retail merchandiser / product category manager to define and manage which products and in what quantities price/fashion degree - levels move to which retail stores by what delivery cycles during the year. It includes the complete assortment planning and merchandising of its product flows.
Logistics Infrastructure focuses on the physical network infrastructure to manufacture, transport, consolidate and deconsolidate and distribute the merchandise to the retail stores. It highlights its sourcing structure, its central or decentralised distribution system and its transportation allocation methods.
IT – System network focuses on the information systems (hardware, middleware and applications), the electronic collaboration with external partners (suppliers, retailers and service providers) and set up of an e-business network to further enhance the collaboration via trade portals and internet.
These three parts form the heart of the end-to-end Supply Chain System which drives the verticalisation. In most companies these three parts act as complete separate functional departments or units. In many cases their individual actions are not supporting each other, which results in lost time, increased costs, lack of visibility or inflexibility and frustration.
Managing the end-to-end Supply Chain System requires internal cooperation and external collaboration between manufacturers and retailers. Firstly, internal cooperation of the merchandising, logistics and IT departments is essential to manage planning, execution and control of merchandise flows. Secondly, brand label manufacturers and retailers (department stores) need to collaborate with their retailers and suppliers in order to better manage the total supply chain. Internal cooperation and external collaboration provide the basics for managing the retail business drivers and improving the retail sales productivity. Figure 3 provides an overview of the elements to manage the end-to-end supply chain system.
‘The secret of success between competing Supply Chain Systems can be found in the effectiveness of its Merchandising, Logistics and IT systems design and implementation. Synergies in time and costs can only be realised if these three parts fit exactly.’
The design and implementation of a Supply Chain System as competitive weapon for gaining market share and optimised sales productivity in the retail stores is a complex and difficult job. It requires 100% commitment from top management to take the necessary strategic decisions and change management power to implement the required thinking and discipline to live it every day and systematically improve its sales productivity step by step. It is a journey to better results with many different steps, sometimes seemingly unrelated to each other.
However, at a certain point it all comes together and the merchandise flows through its system like a ‘water flow’. In each pipeline system, the water can be controlled by an opening and closing system to enable more or less water to flow through the pipes.
Figure 4: Supply Chain System – Model© (J.Leeman, 2005)
This is exactly what is happening with verticalisation: based on the POS information in the retail stores the demand is calculated in the merchandise planning system and this activates the control and supply of merchandise moving into the retail stores. However, in order to make the merchandise flow through the supply chain a logistics infrastructure needs to be available: the ‘pipeline structure’.
The development and implementation of an effective Supply Chain System can be done following the Supply Chain System - Model. This model provides the SCM strategic building blocks to create the ‘pipeline structure’ and manage the ‘water flow’ through the supply chain. Figure 4 shows the eight strategic building blocks necessary to develop and implement the Supply Chain System.
The Supply Chain System – Model consists of the following eight strategic building blocks:
The first strategic building block focuses on how to design and develop the merchandise planning and assortment flow. It concerns the (1) choice of the different types of merchandising business models (push, pull or combination), the (2) definition of the sales productivity targets for the retail stores (sales per m2, stock turn, markdown %, net sales per store), the (3) setting up of the merchandise allocation planning, and the (4) replenishment process to synchronise the deliveries and sales (demand/supply) in the retail stores. Merchandising business model, sales productivity and balancing demand/supply determine the retail planning and product delivery cycle. Hence, they are building blocks to create the Merchandise Planning and Assortment Flow.
Supply Chain Management (SCM) concerns (1) the End-to-End thinking within the organisation from point-of-sale back into the factory, (2) the development of a cost efficient and flexible physical SCM infrastructure to move merchandise from manufacturer to retailer, (3) the set up of an information systems network to create visibility within the pipeline and finally, (4) the focus on managing the supply chain by setting and managing time, service or cost drivers. Supply Chain Management is a building block to create the Logistics Infrastructure.
Supplier Relationship Management (SRM) concentrates on (1) developing strategic supplier relationships (SSR) with selected key suppliers. The key suppliers are selected based on a pre-defined set of (quality assurance) criteria and service level agreements (SLA’s) to measure the supplier’s performance. Next, SRM concentrates on (2) the development of IT – Systems (B2B) to integrate each others processes and systems. In addition, SRM focuses on (3) monitoring the supplier performance via factory visits, ongoing supplier rating performance and supplier education programs, which should lead to a systematic improvement of the selected quality assurance criteria and performance SLA’s. SRM is a building block to create the Logistics Infrastructure and IT – System network.
Outsourcing part of the logistics or IT function is an attractive building block to ‘offload the bricks’ and move faster as an organisation, without having to worry too much about buildings, equipment and people. In addition, it provides additional management capacity to the organisation. Key management can concentrate and focus their valuable time on the core competences of the organisation. Outsourcing offers flexibility, is variable costs driven and eliminates high fixed costs investments upfront. Next to the benefits of outsourcing, the key factors for success and partnership development with the logistic service provider are being described. Outsourcing is a building block to create the Logistics Infrastructure.
To speed up its supply chain both brand label companies as well as retailers (department stores) need to change their organisation focus from a single company view to a multiple company, network view. Information technology enables these organisations to operate within a multiple company / network and to collaborate with the different members of the End-to-End Supply Chain Systems Network. The key objective is to optimise and synchronise the demand / supply - process cycles by means of exchanging information between IT systems.
This strategic building block focuses on how to develop the IT – Systems Platform. The overall IT – Systems Platform concerns the (1) identification of the organisation’s key processes and business functions, (2) the creation of collaborative IT Systems between the different members of the supply chain, (3) the set up of the internal IT - Systems Platform, and (4) the definition of the IT-Roadmap. The IT - Systems Platform is a building block to create the Merchandising Planning and Assortment Flow and IT – System network (platform, collaboration, and e-business).
Efficient Consumer Response (ECR) and Collaboration, Planning, Forecasting and Replenishment (CPFR) are business practises to enable electronic business with other companies following specific worldwide transaction standards. It concerns on the one hand the exchange of information via EDI (Electronic Data Interchange) or via a web trade portal, and on the other hand the development of partnerships to collaborate and integrate each others’ processes regarding planning, forecasting, delivery and replenishment of inventory levels. ECR and Collaboration form together a building block to create the IT – System network.
E – Business network concerns the development of the IT network structure to collaborate with all the members within the end-to-end supply chain system. It discusses the headlines for the development of an E-Business network. It provides guidelines how to create an E – Business Strategy, which Information Hubs / Portals to set up to support the different key processes electronically, how to set up the IT – Infrastructure and how to define the future’s E – Business landscape. E – Business network is a building block to create the IT – System network.
Organisation and Change Management, in this book, concerns the process how to transform the organisation towards a verticalised company. It relates to the End-to-End thinking within the supply chain. To become a vertical driven company requires, besides a clear strategy and roadmap, a team consisting of change agents who drive the change management process within the organisation and with its customers, suppliers and external partners.
Figure 5 Chapter overview
The transformation should develop a pattern with ongoing systematic quality and performance improvements. In other words, how do I plan, organise, lead and control the total supply chain, in order to supply chain management as a weapon to create a competitive edge. Organisation & Change Management is a building block to create the Merchandise Planning and Assortment Flow, Logistics Infrastructure and IT – System network. It is the enabler for the verticalisation process within the organisation.
The book is divided into three parts: merchandising, logistics and information technology. Each part consists of 3 chapters. The nine chapters together form the strategic building blocks necessary to develop and implement the End-to-End Supply Chain System. Figure 5 provides an overview of the three parts and its related chapters.
Lessons learned
To survive in today’s marketplace against the vertical retailers, brand label manufacturers and retailers (department stores) need to integrate their processes and systems from Point-of-Sale back into the Factory.
The secret of success between competing Supply Chain Systems can be found in the effectiveness of its Merchandising, Logistics and IT systems design and implementation. Synergies in time and costs can only be realised if these three parts fit exactly
Summary
1. Explain why verticalisation and supply chain management is so important for management today;
Brand label manufacturers traditionally do not own their retail stores and retailers (department stores) do not own their factories. This easily leads to a competitive disadvantage in comparison with vertical retailers, who have their own retail stores and have tight control over their manufacturers. To survive in today’s marketplace against the vertical retailers, brand label manufacturers and retailers (department stores) need to integrate their processes and systems from Point-of-Sale back into the Factory.
2. explain what distribution channels exist and which players are active in the supply chain;
Three main different retail channels exist: vertical integrated, vertical collaboration and independent. Vertical integrated refers to the vertical retailers like Zara and Next. These brand label manufacturers run their own retail stores (forward integrated) and organise the manufacturing themselves (backward integrated). Vertical collaboration refers to brand label manufacturers like Nike, Esprit. These brand label manufacturers cooperate / collaborate with retailers (department stores, franchise stores and retail chains) and preferred, key suppliers to maintain the end-to-end supply chain, as if it were owned by the brand label manufacturer. Next, they often run their own retail stores as well. In this book the term ‘verticalisation’ is being used to describe the process of developing a vertical collaborative – retail channel between retailers, brand label manufacturers and suppliers.
3. Name the three most important business drivers for brand label manufacturers and retailers;
Manufacturers and Retailers are forced by the changing market conditions to work together; much more than they have ever done before. Probably today’s most important retail issues where both are being confronted with are: time-to-market, shelf availability and transaction cost.
4. Provide a brief explanation of the supply chain system – model and how to create a competitive advantage with it;
The development and implementation of an effective supply chain system can be done following the supply chain system - model. This model provides the SCM strategic building blocks to create the ‘pipeline structure’ and manage the ‘water flow’ through the supply chain. The secret of success between competing supply chain systems can be found in the effectiveness of its merchandising, logistics and IT systems design and implementation. Synergies in time and costs can only be realised if these three parts fit exactly. The supply chain system - model consists of eight strategic building blocks to develop the end-to-end supply chain, or in other words building blocks to manage the complete supply chain. The development of the ‘physical infrastructure’ and ‘management of the supply chain’ based on the merchandising -, logistics – and IT – systems are essential for the success of the supply chain system.
5. Name the most important strategic building blocks for the development of an end-to-end supply chain system.
The development and implementation of an effective supply chain system – model can be realised based on a strategic supply chain model. The model consists of eight strategic building blocks: merchandise planning and assortment flow, supply chain management, supplier relationship management, outsourcing, IT-systems platform, efficient consumer response and collaboration, e-business network, organisation - and change management.
Terms
Competitive strategy | The way how a company tries to differentiate itself from its competitors. Porter and Treacy & Wiersema have developed strategic directions how to do this. |
ECR | Efficient Consumer Response |
Input/output model | A simple tool to determine what sources (input) are needed to realise a desired production – or service – result (output) by means of transformation. |
Process | A composition of resources which transforms input into output to satisfy (internal and external) demand. |
Process management | The management of business processes |
Shelf availability | To have the product at the right location in the store and to realise a fast replenishment to maintain a high service level and to reduce missed sales. |
SRM | Supplier Relationship Management |
SCM | Supply Chain Management |
Supply chain network | A network of companies within a chain which together take care of the design, manufacturing, delivery and sales of products and/or services. |
Time-to-market | The time needed to design, develop, manufacture and deliver new products to the customer. The shorter the time needed, the higher the chance that these products meet the demand of the customers. |
Transaction costs | The general costs per piece from manufacturing up to sales in the store. |
Value chain concept | A concept developed by Porter which describes how a company can create competitive advantages based on nine value creating activities. |
Verticalisation | Front-end and back-end integration or collaboration within the chain to realise value advantages in time, quality, service and/or costs. |
Questions
1. Name and describe four reasons why brand label manufacturers and retailers are being forced to speed up and integrate their supply chains.
2. Explain the term and purpose of verticalisation.
3. Describe how vertical retailers adapted to the changing market.
4. Explain the difference between a brand label manufacturer, wholesaler and retailer. Provide an example for each organisation type.
5. Is a vertical retailer only a retailer or can it also be / become a wholesaler?
6. Explain the terms time-to-market, optimal shelf availability (OSA) and transaction costs.
7. What are the elements to design, develop and implement a successful end-to-end supply chain system?
8. How can you measure the sales productivity of a company? Explain what elements are of influence for each sales productivity factor.