Logistic and supply chain management in retail
In today’s rapidly changing business environment particularly in retails industry, there are ever-greater demands being placed on retailer and how they deliver goods (products) and services to their customers quicker, with greater added value, to the correct location, with no relevant inventory position, reduced damage or outdated goods, lost of earning to mention few.However, customers themselves are becoming more sophisticated, wanting more quality, design, innovation, choice, convenience and service, and they customers want to spend less money, effort, time and possibly with no risk.These has force more retailer to adopt continuous improvement, highly competitive and dynamic for survivor and sustainability.
Hence, Supply Chain Management (SCM), Logistic and Value Chain management became the main topic for improving efficiency, revenue generation, retain customer loyalty, customer services and satisfy customer’s need.
The supply chain in grocery retail industry consists of different departments, ranging from procurement of materials to customer service. Supply chain management means transforming a company’s “supply chain” into an optimally efficient, customer-satisfying process, where the effectively of the whole supply chain is more important than the effectiveness.
Lidl is a German chain of discount grocery stores that operates in numerous countries across Europe, in UK alone Lidl have about 568 outlets / supermarket stores. Lidl’s largest market is Germany where it competes with fellow German discounter and arch rival Aldi. In reading the paper, one must examine and understand the trend and shifts in retails industry business thinking. It is imperative to know the six major shifts in grocery retails business thinking that may suit Lidl grocery stores.
The first shift is from cross-functional integration to cross-enterprise integration.
The second: from physical efficiency to market mediation;
The third: from supply chain to demand focus;
The fourth: from Lidl single-company product design to collaborative, concurrent product, process, and supply-chain design;
The fifth: from cost reduction to breakthrough business models; and
The sixth from mass market supply to tailored offerings.
Each shift entails has its own components whether it be integrating within or integrating across Lidl – the groceries retailer company.
Supply Chain Management- Definition:
Harrison and Hoek (2011, p.32) defines supply chain management as “SCM encompasses the planning and controlling of all processes involved in procurement, conversion, transportation and distribution across a supply chain. SCM includes coordination and collaboration between partners (suppliers, intermediaries, third party service providers, grocery retails outlets and customers). In essence, SCM integrates supply and demand management within and between companies in order to serve to serve the needs of the end-customer.”
Supply chain management (SCM), also called logistics network, includes suppliers, industrialized centers, warehouses, depots or distributions centers, and retail outlets, as well as unprocessed materials, work-in-progress stock, and finished goods that run linking the facilities. SCM is all about having the right product in the right place, at the right price, at the right time and in the right condition.
In general terms, Supply chain management (SCM) is the process of planning, implementing and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, finished goods, delivery to various retailer depots / distribution centres and to all retail outlets for consumption.
Opportunities enabled by Supply Chain Management
These following strategic and competitive areas can be used to their full advantage if a supply chain management system is properly implemented.
Fulfillment: Ensuring the right quality and quantity of products are delivered to retail outlet shelves for sale at the right time. This is enabled through efficient communication, ensuring that orders are placed with the appropriate amount of time available to be filled. The supply chain management system also allows retailers to constantly see what is on stock and making sure that the right quantities are ordered to replace stock
Womack and Jones (1996) describe the lean enterprise as collaborative form spanning the supply chain and argues that supply chains should be organized around value streams to eliminate waste, responding to the pull of the product through the supply chain by customers, to eliminate stocks by organizing value-creating activities around flow, and further stated that the advantage is also to reduce markets to stable, predictable demand through collaboration and co-operation, rather than the turbulence created by conventional inter-firm competition and aggressive uncoordinated sales promotions.
Logistics: Keeping the cost of transporting finished product to their respective outlet as low as possible consistent with safe and reliable delivery. Here the supply chain management system enables retailer to have constant contact with its depot/distribution centre and depots team, which could consist of trucks, trains, or any other mode of transportation. Christopher. M, (2005, p.4) defined “Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organization and the marketing channels in such a way that current and future profitability are maximized through the cost-effective fulfillment of orders”. While Piercy (1997) explain that efficient consumer response is based on ‘co-operative partnerships’ between retailers and manufacturers who commit to collaborate in reducing costs in supply chain. Piercy (1997) highlighted efficient consumer response is a powerful weapon which demonstrably reduces supply-chain costs but criticized for reducing consumer choices and competition and restricting manufacturer strategic development.
Charles Dominick (Next Level Purchasing.com – President) explains, “the three types of entities of a supply chain: customers, a producer, and the producer’s suppliers. The extended supply chain includes customers’ customers and suppliers’ suppliers. SCM oversees and optimizes the processes of acquiring inputs from suppliers (purchasing), converting those inputs into a finished product (production), and delivering those products – or outputs – to customers (fulfillment).”
Supply chain management strategies were designed to cut the number of suppliers and reduce purchasing costs; but wasn’t to manage supply risk. Even today, while struggling through a global recession, there is little agreement between buyers and sellers at major manufacturing firms on what constitutes information technology.There seems to be a universal agreement on what a supply chain is.Some describe it as a network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products.While reading the passage many consumers are still concerned about what supply chain management really is and how it is applied to its companies.
Porter (1985, p.114) identifies five primary activities which add value to the final output of a retail company: Inbound logistics; Operations; Outbound logistics; Marketing and sales activities and Services. In support of the primary activities of the value-chain, Porter also identified support activities. These are procurement, human resource development, technological development and infrastructure; all these feed into each stage of the primary activities of the value-chain. This value-chain gives room for logistic and supply chain management improvement and provides insight into retails competitors
Figure 1. The Value Chain
Lehman and Winer (1991) suggest concentrating the value-chain analysis under five key competitor abilities: Ability to conceive and design; ability to produce; ability to market; ability to finance and ability to manage.
Supply chain management is getting a lot of attention in e-business. WhyBecause the existing supply chains are mostly outdated for the e-business era, in which inventories and costs must be eliminated wherever they are found. Traditional supply chains were designed in a time of modest competition and slow response time but for retailer such as Lidl to succeed in today’s customer-driven environment, Lidl must emulate Tesco and Sainsbury store and add value to way of delivering online sales and the logistic of supply to each customer in a value-for-money approach. Lidl have to streamline intercompany (manufacturer to Lidl depots/distribution centres) processes just as they do with processes that reside within a Lidl outlet’s boundaries. By reengineering the intercompany supply chain, corporate boundaries are becoming meaningless. The result: enormous payoffs for all partners in the chain.
Evaluate Logistics and Supply Chain Management in Grocery Retail Industries in UK and identify where improvement in logistic is possible within retails firm of choice. To also examine the Impact of Supply Chain Management and identify if there is room for improvement
To investigate whether there is a balance between investing in front-end and back-end (from customer / shop floor to depot/warehouse and to manufacturers) operations.
To understand logistics management in Lidl, explore for efficiency and effectiveness of supply chain in modern retail stores that maintain lower inventories than traditional retail.
Explore supply chain perspective to help the UK retailers identify superior suppliers and distributors and help them improve productivity, which ultimately brings down the customers costs.
Replicate its national supply chain model in UK for global presence, taking into account the unique features of the regional market and emphasize on local sourcing of goods within each outlet.
Ques. 1: Why do modern retails stores carry a lower inventory?
Ques. 2: Why do effective logistics reduces company and its customer cost in modern retails stores?
Ques. 3: How does modern retail gain a competitive advantage in the application of improved logistics and supply chain management?
A systems approach was planned for this research. A systems approach presumes an objective reality that can be (more or less) “discovered”, the systems approach means that the world can be thought of, and divided into different systems. Arbnor and Bjerke (1997, p.111) define a system as a “set of components and the relations among them”, where a component means e.g. a function or a department in Lidl – the groceries retailer company.
The research will involve an explicative study based on the results of a survey, which will be conducted. The questionnaire will be formulate and sent to Lidl groceries retailer’s Head Office and outlets. If very little response is attained from questionnaire, the research will switch quickly to using qualitative methods (primarily face-to-face interviews) with key industry professionals, logistics division and middle to top management. Probably statistical representative of Lidl – the grocery retailer company, these interviews when conducted may generate a set of indicative prioritize areas and provide room for improvement.
Qualitative study may be more appropriate for this research because the main research will entails a lot of information that may not be quantified, such as the Lidl SCM strategies, logistics versus SCM perspectives, differentiation of services offering and uniqueness features of Lidl (grocery retails firm).
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Charles Dominick; President & Chief Procurement Officer, Next Level Purchasing, Inc. www.nextlevelpurchasing.com
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