BBR603 –Merchandising &Supply chain Management

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DRIVE Spring 2017

PROGRAM Bachelor of Business Administration- BBA

SEMESTER Semester 6

SUBJECT CODE &

NAME

BBR603 –Merchandising &Supply chain Management

1 Discuss the concept of retail supply chain.

Concept of retail supply chain

Answer: Concept of Retail Supply Chain

The success or failure of a retail supply chain depends on stock-outs. Stockouts (lost sales) represent the failure of supply chain. It is a serious situation for a retail organisation as it is difficult to determine the accurate amount of lost sales and goodwill. As a result, stock-outs have become strategically important items instead of only an operational issue.

Besides stock-outs, the retail supply chain faces various other issues, which are given below.

Ø  Gathering accurate customer requirement

Ø  Complex supply chain due to fragmented supply basis

Ø  Small store shelf life

Ø  Focus more on services like free home delivery than the products

Ø  Changes in the customers’ tastes, preferences, and buying behaviour

Ø  Handle multichannel marketing

Ø  Handle mass customisation

Elements of Retail Supply Chain

The elements of retail supply chain are the different processes involved in the transportation of goods from suppliers to retailers and then to customers. These processes can be broadly divided into the following categories.

Merchandise management processes: It involve the following processes:

Ø  Category management processes: Include the classification of merchandise category and formation of strategies to manage these categories

Ø  Merchandising forecasting and budgeting processes: Help in long term forecasting of merchandise requirements, financial budgeting process, and budget control process

Ø  Assortment management processes: Include planning processes (line and range planning, space planning, and pack planning) and execution processes (merchandise allocation and planogram execution)

Ø  Price management processes: Include planning processes, such as promotion planning, trade funds planning, promotion optimisation, and promotion collaboration, and execution processes, such as price and promotion execution

Private label design and sourcing processes: It Involve designing of private labels, packaging design, outsourcing manufacturing, selecting vendors, and releasing purchase orders.

Ø  Logistics management processes: Refer to the processes related to the inventory movement such as transportation, warehousing, and inventory management

Ø  Customer service processes: Include managing reverse logistics, customer orders, loyalty programs, and multi-channel logistics

2 Elaborate on the management of retail product life cycle.

Management of retail product life cycle

Answer: Management of Retail Product Lifecycle

Retail product design

Product design has become an essential part of retailers’ supply chain processes. For some products, customers’ choices vary to a wide range, and where private labels dominate, the success/failure of the retailers depend on the product design. The examples of such products include apparel, jewellery, and footwear. In case of grocery or packaged products, the private labels are preferred and thus, the product design becomes important. Private labels provide several benefits such as ensuring customer loyalty, sustainable margins, and product differentiation. Thus, retailers start involving ever more in the development of the private label.

Private labels

Private labels are the products that are owned, controlled, promoted, and sold by retailers in their stores. The private labels are named either on the store’s name, including Foodbazaar and Foodworld, or on the name created by store, such as Food Bazzar’s Treaty Treat.

Private labels can be categorised into the following types:

Ø  Store brand: Contains the retailer’s name, like Westside and McDonalds

Ø  Umbrella brand: Includes the products promoted by common brand name such as Amul retails various dairy products

Retail packaging

Retail packaging enables an organisation to satisfy customers’ needs and making the product more attractive and convenient to carry by using some innovative ideas. In addition, innovative packaging enables organisations to create a new market and communicate with their customers effectively. For example, the tetra pack of Frooti helps the customers to take their drink on their way. Similarly, the sachets of shampoos help the organisation to increase product awareness and make the product available to the masses.

Retail distribution

Retail distribution involves distribution of merchandise from the suppliers’ factory to the retail store for selling to the end customers. Retail distribution can be done through different models, which are presented below:

The process of retail distribution involves the following steps:

1. Managing various processes, including order picking, packing, and despatch activities in the supplier’s warehouse.

2. Scheduling and routing of trucks by the supplier to identify the best route and timings for the transportation of merchandise.

3. Sending Advance Shipping Notification (ASN) by the supplier to the place of shipment destination, which can either be a retail store or retail warehouse. ASN includes the information about the quality, quantity, and expected arrival of merchandise. This information allows the retailers to make the required preparation for the arrival of merchandise and cross check the merchandise with the order made.

4. Checking orders and storing information about the receipt of goods by the retailers.

5. Managing merchandise in a retail store by the retailer or the supplier based on product category.

3 What are the factors affecting merchandise buying functions?

Factors affecting merchandise buying functions

Answer: Factors affecting merchandise buying functions

Merchandising is not an isolated function. It is affected by several factors, which are discussed as follows:

Size of a retail organisation: Retailing function varies with size of an organisation. The requirement of an independent retailer is different from the needs of a large retail chain organisation. In case of an independent retailer owning a single store, the owner or manager along with the sales person perform the buying function of merchandise. In addition, the buying function is centralised in a single retail store. On the contrary, in case of a large retail chain organisation, the buying function is performed by a procurement team and the buying function can be either centralised or decentralised.

Type of retailing: The buying function of merchandise is different for different types of retailing. For example, the buying function for the mail order/catalogue retailing is entirely different from the online retailing. In mail order/catalogue retailing, the buyer is required to prepare a plan in advance to procure the merchandise. This is because the production of catalogues takes a long time, and identifying the right vendor for a wide range of merchandise is also a time consuming task. In contrast, in online retailing, the buyer needs to be aware of the products bought by the customers frequently, so that they can procure these products as soon as possible.

Type of merchandise: The buying function of merchandise would vary based on the type of merchandise. For example, the buying function for fashion merchandise would involve a deep research to procure the latest trends products. On the contrary, in case of staple merchandise (like rice, wheat, and pulses), the buyer needs to purchase a product that can be sold at a reasonable price

4 Elaborate the process of merchandise planning.

Process of merchandise planning

Answer: Process of merchandise planning

Merchandise planning is based on merchandise strategy prepared by the organisation. The process of merchandise planning involves two important tasks, which are:

Ø  Determining goals for effective merchandise management

Ø  Preparing plans to meet the merchandise management goals

In many retail organisations, senior management is responsible for providing the direction to establish these goals and preparing plans for meeting these goals.

Key concepts in merchandising

Merchandising involves various concepts, including merchandise mix and merchandise assortment. Hence, in this section, you will get an overview of merchandising concepts, which are:

Merchandise mix: The merchandise mix represents the full range of products that a retailer offers to its target customers. Merchandise mix is an appropriate combination of product lines, product items, and product units.

Merchandise assortment: Merchandise assortment refers to the number of different product items a retailer stocks within a particular product line.

Assortment is the number of SKUs within a category. Stores having a large assortment are said to have a good depth. For example, Levi’s stores have a large assortment of jeans and accessories that complement the jeans. Thus, Levi’s stores have a good depth. The depth determines the number of SKUs within each category.

Merchandise budget: This is the financial plan that indicates the value of investment in each product and the total inventory, based on a pre-set profitability or other performance measures. While merchandise mix planning is directed at meeting the customer oriented objectives, it is equally important to meet the firm’s financial objective of profitability. To ensure profitable operations, the retailer must use merchandise budget in which sales volumes, stock levels, retail reductions, purchase orders, and profit margins are planned and controlled.

Merchandise hierarchy: It is defined as the process of planning the merchandise mix for a retail organisation. It is an organised group of merchandise mix at different levels that depends on the type of product and retail store.

5 Discuss some of the standard color schemes adopted in retail stores with example.

Standard color schemes

Answer: Shoppers most often choose what they buy based on color. In fact, it can account for up to 85 percent of the reason people buy one product over another, according to the Color Marketing Group, a professional organization for color designers in Alexandria, Va.

Color's influence on consumer behavior isn't confined to just merchandise. The colors surrounding customers while they're shopping also can influence whether they make a purchase. "Colors in a store format can create different emotions and store retailers can use that," says Rich Kizer, a St. Charles, Ill.-based retail design consultant.

Here are five ways store colors can affect the shopping experience and help turn browsers into buyers:

1. Tell a story with color. Rather than simply select colors you like, it can be more effective to start with a theme and choose colors that represent that concept. For example, you could capture the essence of the beach with colors reminiscent of sand, water and sunshine. That would transport customers to an environment they associate with relaxation and enjoyment and make them want to stick around your shop longer.

2. Comfort and calm customers. Warm colors like oranges and browns are inviting and reassuring to shoppers, while cooling colors like green and blue can have a calming effect, says Georganne Bender, a partner and retail consultant with Rich Kizer.

3. Alert your shoppers to certain products. Bright colors like yellow and red grab customers' attention, stopping them in their tracks before they breeze by a product display. That's because yellow is the color first perceived by the retina, according to Linda Cahan, a West Linn, Ore., retail design consultant. Red, of course, has long been associated with stopping, whether it's on a traffic signal, emergency vehicle or store design.

6 Write short notes on:

a) Retail Replenishment

b) Retail ERP

Answer: a) The process of filling up the empty shelves of retail stores with new merchandise is called retail replenishment. However, this definition does not address all the business conditions of retail inventory management. The replenishment of products in a retail store depends on several factors, such as type of merchandise and demand of merchandise. For example, in case of seasonal merchandise, the quantity of products is based on the season, while in fashion merchandise, the replenishment quantity depends on the demand of the product. Hence, in a retail store, the replenishment of products should be done carefully. From the discussion so far, it can be said that the retail replenishment is the acquisition of products on a regular basis to support the estimated demand. Retail replenishment has evolved over the past few years. As a result, various models for retail replenishment have been developed. Given below are some of these models in the order of their evolution:

Retailer Driven Replenishment (RDR)/Computer Based Ordering (CBO) system: It is the most common and traditional model of retail replenishment. In this model, the retailer generates a replacement order and sends it to the supplier. This model involves the use of information systems for ordering the merchandise. Thus, it is also termed as Computer Based Ordering (CBO) system.

b) Are you aware of the term ERP? ERP systems refer to the software packages that integrate all the data and related processes of an organisation into an integrated IS. An ERP system uses a central database that holds all the data relating to various system modules. To achieve a seamless integration, an ERP system uses multiple hardware and software components. ERP packages are heavily used by larger retail chains. Designed to facilitate the administration and optimisation of the internal business processes across an enterprise, ERP package has become a competitive tool for the larger retail organisations. ERP software uses a single database that allows different departments to communicate with each other through information sharing. ERP systems comprise function-specific components that are designed to interact with the other modules, including order entry, accounts payable, accounts receivable, purchasing, distribution, sales, inventory management, human resources, and supply chain.

Strengths and Weaknesses of Retail ERP System

Strengths	Weakness
1. Provides enterprise wide view	1. Expensive to acquire
2. Allows integration with systems of business partners	2. Requires to train employees
3. Aids routine decision making	3. Compatibility issues with other systems
4. Streamlines business processes	4. Security concerns

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