Sunday, November 9, 2014
Did your Giant Eagle ever run out of Bread? Probably never! Did Walmart run out of mattress? Probably yes!
Retailers have to spend a lot of resources to manage their inventory. If they don’t have an optimized inventory management system, they lose both customers and sales.
Walmart removed its barriers to sharing forecast information. This information is available to the suppliers over cloud and now the ‘Bull-whip’ effects can be avoided .
To manage the uncertainties in supply chain Walmart is using following strategies
1) Direct sourcing from manufacturers, bypassing all intermediate links
2) Understanding cost structures of the vendors by conducting meetings
3) Internal transportation through its company owned 3500 trucks
4) Using bar code systems making information like stock and cost quickly available.
Tesco, the largest retailer in UK, developed an automated store ordering (ASO) system based on Electronic Point of Sale (EPOS) technology. These systems automatically generate orders when the supply marks a lower pre-decided point. Before this, in many retailers the process involved some human intervention in the decision-making process, both centrally and at each individual store. This system reduced the inventory turnover period thus, reducing losses due to damage or stale inventory.
The ASO system could cope with this increased complexity and maintain customer service levels. As Jones and Clark (2002) note, ‘98.5% availability for each product gives, across a basket of 40 products, a probability of complete fulfilment of only 55%’.
Target, a major US retail chain also ensures product quality and on-time delivery to stores. It has developed a comprehensive system to manage its supplier relationships. The system includes strict requirements for suppliers and overseas factories it uses to manufacture store-brand products. This system and its global quality program promote and protect Target’s brand.
Now let us look at how Amazon deals with these issues. The diagram above illustrates the total supply networks of the global retail giant Amazon:
Step 1 as seen is when the customer places an order in wherever location he may be. The order is then assigned to the closest of the seven major distribution centers in the US. The next step is, as shown in the diagram, the shelf area shows a red light indicating that the product placed in the shelf has been ordered. It then creates ride conveyors through the DC, and in the end the items are sorted out by a bar code. The crates arrive at the central point and bar codes of the products are matched with orders, the items sorted and get assigned automatically into one of the many boxes. As shown in the diagram the bar code identifies a customer’s order and then the customer order is packed taped and weighed. The taped and weighed boxes are shipped by the United Parcel Services and sent to customer within seven days.
Thus, we see how these big retails chains have invested millions of dollars to efficiently handle their inventories. Such organizations are investing more and more to complete automate the process and reduce the time to delivery for the customers and have an effective inventory management system.