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Friday, January 6, 2012

QR codes for Retail

QR (Quick Response) codes – the small black and white two-dimensional bar codes that have started showing up everywhere from magazine advertisements to storefront window displays. QR codes are a physical link that connects the online and offline world -- a powerful tool businesses can use to make it simple for consumers to engage with their brand The QR code is a simple and effective tool that brands can integrate into their overall mobile marketing strategies to more deeply engage a new generation of digitally savvy consumers. And as smartphones continue their skyrocketing adoption rate
it is important for businesses to embrace the simplicity of the QR code as a way to enhance the customer experience, drive traffic, and connect with consumers wherever they are.

Here are some potential uses of QR Codes in various industry verticals
Retail
As consumer adoption of smartphones and tablets continues to increase at a staggering rate, the retail industry has taken notice of the massive value that a comprehensive mobile strategy provides to their bottom lines. Since a new generation of consumers is increasingly using the mobile Web as a primary gateway to the Internet, the nation’s retailers are determined to more deeply engage with consumers and strengthen the link between their physical stores and the mobile Web. What retailers have quickly realized is that new mobile technologies can make shopping not only easier for consumers, but also more lucrative for themselves.
One of the most effective ways retailers can take advantage of QR codes is by integrating them into print advertisements as a vehicle to incentivize users to visit their brand on the mobile Web. After scanning a QR code in an ad, a consumer would be directly linked to a product, a special coupon or offer, or other exclusive content. Target is a great example of a retailer that has seized the opportunity to integrate QR codes into its advertising. In a recent campaign, for example, Target directed readers who scanned its QR codes to videos featuring style expert Sabrina Soto, during which she shares information and tips on how to use Target home decor and furnishing products.
Another powerful way for retailers to use QR codes is by incorporating them into the in-store experience -- directing shoppers who scan the codes to enhanced product information, reviews, or other related content online. Successfully enhancing the in-store shopping experience, Macy’s recent “Backstage Pass” campaign encourages shoppers to scan QR codes included on product displays in order to access exclusive video content that provides fashion inspiration, advice, and tips from style icons and experts like Martha Stewart, Tommy Hilfiger, and others.
Additionally, Best Buy was an early mover on QR code technology and last year added QR codes to all of its product information tags. Users who scan the QR codes on Best Buy product tags are directed to the product detail page on Best Buy’s mobile site. Demonstrating the emphasis that Best Buy places on QR codes, a Best Buy executive was recently quoted by Advertising Age as saying that they view QR codes as a “personal shopping assistant.”
In addition to their consumer benefits, QR codes also present a unique opportunity for retailers to capture crucial customer information. For example, retail brands can easily include a quick sign-up area on the QR destination page that encourages visitors to enter their email address in order to receive special loyalty deals, exclusive content, or other store information.
Travel
Perhaps the most compelling use case of QR codes in the travel world is the paperless ticket, popularized by airlines like Delta, which allows travelers to use their smartphone as a boarding pass. By simply downloading the boarding pass to their phone, travelers can eliminate the threat of losing their printed boarding pass and, most importantly, save time at the airport.
A recent campaign from Jet Blue incorporated QR codes onto poster advertisements in the New York City subway system. Upon scanning the code, users were directed to a landing page where they were prompted to enter their contact information for the chance to win a free flight.
Airlines can also place QR codes in targeted advertisements within in-flight magazines. By encouraging readers to scan these codes, airlines can send customers directly to special offers or deals. Another way for airlines to greatly enhance the customer experience is by incorporating QR codes into their awards programs. By printing QR codes on awards statements or other materials, airlines can easily direct users to the online award status area.
Hotels are another logical industry where QR codes can make a big impact. On the hotel property, QR codes can be used to easily direct guests to local activity guides on their mobile phones so they can avoid lugging printed guidebooks throughout the day. This is beneficial for the guest, in addition to the hotel itself which can use these information guides to deepen relationships with local businesses.
Further, hotels can encourage guests to write online reviews of their hotels while they are still on the property -- and the positive experience of their stay is still fresh in their minds -- by creating a dedicated display where guests are asked to scan a QR code that directs them to an online reviews page. Finally, to encourage repeat visits and increase recommendations, hotels should integrate QR codes on referral cards they provide guests upon checkout. After scanning these codes, users should be directed to an offer to book additional rooms with a special friends and family rate.
QR Codes Enhance the Mobile Experience
Recent data from IDC states that smartphone manufacturers expect to ship over 450 million units in 2011, a more than 50% increase from the amount shipped in 2010. As smartphones are becoming ubiquitous, brands must take advantage of all available mobile tools to more deeply engage a new generation of consumers who are increasingly shopping on their own terms.
As we’ve demonstrated, QR codes represent a simple and affordable opportunity for businesses to connect smartphone users with branded digital content and enhance the shopping experience. To move the needle on overall mobile Web traffic, and increase revenue, brands must develop a plan that seamlessly integrates QR code engagement into their overall multichannel strategy.
Cheers
Spacedpractice.com

Point of Sale - Part 2

Most basic POS systems consists of a cash drawer, receipt printer, monitor, and an input device. Employees can use touch screens, programmable keyboards, scanners, or handheld terminals to enter data into a POS system.

A cash drawer is generally a compartment underneath a cash register in which the cash from transactions is kept. The drawer typically contains a removable till. The till is usually divided into compartments used to store each denomination of bank notes and coins separately to make counting easier. The removable till allows moneys to be removed from the sales floor to a more secure location for counting and creating bank deposits.
A cash drawer is usually of strong construction and may be integral with the register or a separate piece that the register sits atop. It slides in and out of its lockable box and is secured by a spring-loaded catch. When a transaction that involves cash is completed, the register sends an electrical impulse to a solenoid to release the catch and open the drawer.
Cash drawers that are integral to a stand-alone register often have a manual release catch underneath to open the drawer in the event of a power failure. More modern cash drawers have eliminated the manual release in favor of a cylinder lock, requiring a key to manually open the drawer. The cylinder lock usually has three positions: locked, unlocked, and release. The release position is an intermittent position with a spring to push the cylinder back to the unlocked position. In the "locked" position, the drawer will remain latched even when an electric signal is sent to the solenoid.

Many users find touch screens more intuitive to use than keyboards and touch screens provide flexible user interfaces and programming. Most touch screens are sleek flat-panel LCDs, which cost slightly more than traditional CRT monitors, but last longer, use less electricity, and take up less space. With both CRT and LCD displays, avoid "overlay" touch screens added on to regular monitors. They can be prone to breakdowns.
POS System Keyboards:
Grocery stores often prefer programmable POS keyboards that allow you to program individual keys for specific item codes and prices. Some POS keyboard models are standard 101-key models that you find with any computer. Others are smaller, more POS-specific devices, such as the flat-panel membrane keyboards common in fast food outlets. Often, POS keyboards come with built-in magnetic stripe readers for processing credit cards.

Scanners read a bar code and send the resulting numbers back to your POS system computer, improving speed and accuracy during checkout. They typically connect to the system through Y-connectors called wedges that make them function as an extension of the keyboard. Choose a scanner based on your average customer volume at checkout. 
  • Several customers: If you do not usually have more than a customer or two in line, CCD scanners or entry-level laser scanners should meet your needs.
  • Constant flow of customers: A fairly constant flow of customers might call for auto-sensing CCD or laser scanners. Auto-sensing CCD and laser scanners turn themselves on when an item is placed in front of them, scan the code, and then turn off again.
  • High-volume businesses: Very high volume businesses should investigate omnidirectional scanners and embedded scanners. Omnidirectional scanners send out 15 or 20 lasers simultaneously, letting you scan a bar code from any angle. Top-of-the-line embedded scanners, popular in supermarkets, are omnidirectional scanners installed below a counter.
Every POS system needs a printer to create credit card slips and receipts for customers. Many restaurants also use POS printers to send orders to kitchen and bar staff. You'll find dot matrix printers and thermal printers. Inexpensive dot matrix printers, also known as impact printers, use pins and an ink ribbon to print on regular paper. They are better suited for kitchens where ambient temperature can prevent thermal printers from working effectively. Thermal printers use heat and special heat-sensitive paper to generate receipts. They cost slightly more than dot matrix printers, but are faster, quieter, and generally more reliable because they have fewer moving parts. Over several years of use, the higher costs for thermal paper are just about balanced out by the need to buy both paper and ribbons for dot matrix printers.

Also known as pole displays, customer displays show item and price information to the customer and some support advertising (often called secondary displays). Compare size and display appearance and make sure your software is compatible with the display's emulation.

A cash register is a mechanical or electronic device for calculating and recording sales transactions, and an attached cash drawer for storing cash. The cash register also usually prints a receipt for the customer.
In most cases the drawer can be opened only after a sale, except when using a special keys, which only senior employees and the owner have. This reduces the risk of employees stealing from the shop owner by not recording a sale and pocketing the money, when a customer does not need a receipt but has to be given change (cash is more easily checked against recorded sales than inventory). In fact, cash registers were first invented for the purpose of eliminating employee theft or embezzlement, and their original name was the Incorruptible Cashier. It has also been suggested that odd pricing came about because by charging odd amounts like 49 or 99 cents, the cashier very probably had to open the till for the penny change and thus announce the sale.

POS software processes credit cards, but you'll still need a magnetic stripe reader to read the credit cards. Keyboards and touch screens often have built-in readers. If your input device does not, you'll need to purchase a standalone magnetic stripe reader.
Finger ID Reader:
For added security, you may also want to add a fingerprint ID reader to your POS system that limits which employees can access the POS terminal. Unlike PIN codes that can be read over someone's shoulder or magnetic swipe cards that can be forgotten by employees, stolen, or lost, fingerprint ID boxes read thumbprints and ensure the right employees can log on.
Source: Retailer Warehouse
Cheers
Spacedpractice.com

Point of Sale (POS) - Part1


Point of sales (POS) or checkout is both a checkout counter in a shop, and the location where a transaction occurs. Colloquially, a "checkout" refers to a POS terminal or more generally to the hardware and software used for checkouts, the equivalent of an electronic cash register. A POS terminal manages the selling process by a salesperson accessible interface. The same system allows the creation and printing of the voucher.

Benefits of a Point of Sale (POS) System
  • Save money with a POS system: A computerized point of sale system can cut down on shrinkage (the inventory that disappears from your store or restaurant) due to theft, waste, and misuse. It can also ensure that every item in your store or on your menu sells for the correct price and generate detailed sales reports that can help you focus on higher-margin items.
  • Get more information with a POS system: Know where you stand at any point of the day. A POS system can instantly tell you how many of a particular product have sold today (or last week, or last month), how much money you have in your cash drawer, and how much of that money is profit. Detailed sales reports make it much easier for you to keep the right stock on hand. Track inventory, spot sales trends, and use historical data to better forecast your needs. Often, POS software can alert you to reorder when stock runs low. Plus, it allows you to collect the names and addresses of your best customers as part of standard transactions, which you can then use for targeted advertising and incentive programs.
  • Increase productivity with a POS system: POS systems can dramatically reduce the time you have to spend doing inventory, sales figures, and other repetitive but important paperwork. The savings here: time and peace of mind. In retail settings, barcode scanners and other POS features make checkout faster. Restaurants will find their order process greatly streamlined as orders are relayed automatically to the kitchen from the dining room. In both cases, your customers get faster, more accurate service.

Cheers
Spacedpractice.com

Wednesday, December 28, 2011

Markdown Pricing - Necessary Evil in Retail


Markdowns are often associated with margin degradation and profit loss. Although inevitable, retailers have historically viewed markdowns as a necessary evil designed to help sell old or slow-moving inventory. Retailers typically leverage markdowns to get rid of leftover inventory at the end of a season. Even though selling products at lower prices means a decrease in margin for the business, it leads to increased foot traffic in stores.


Here are some Markdown terminologies for a better understanding

  • Markdown - A reduction from the original or previous retail price of merchandise
  • Markdown Money - Money obtained from manufacturers to cover lost gross margin dollars, which result from markdowns that occur late in the season.
  • Permanent Markdown - A reduction in the retail price of merchandise to clear the merchandise from inventory.
  • Temporary Markdown - A reduction in retail price for a specified period, usually short term, with the intent that the merchandise will ultimately be repriced
There are two major types of Markdown retailers regularly use
1. Flat Markdown- Usually a one level markdown applicable under following scenarios
a - EOSS - End of Season sale
b - Size Markdown - for Non selling sizes
c - Defective products- Usually in apparel where there is a color mismatch, wrong style, pockets in wrong place, irrepairable designs on Embroidery or Patches, irregular sizes, improper wash handfeel
d - Near expiry products like Grocery, Perishables and Dairy foods

2. Phased Markdown - applicable to products which have short shelf life with high seasonality especially apparel which have to make way for fresh merchandise to be replaced frequently

A Flat Markdown can be a temporary markdown or a permanent markdown where as a Phased markdown will always be a Permanent markdown

In a temporary markdown it is always easy to reverse the markdown price back to its original price when the temporary markdown is executed for a specific time period usually to drive traffic to stores especially during new store or product launches or any other significant instore events.

In a permanent markdown there is no price reversal untill all the stock is cleared. SKU's which go for a phased markdown are more likely to be delisted from the assortment by the retailer for the upcoming season especially when it s a Retailer's private label where margin erosion is high. If the retailer need to markdown an outright purchase Branded item then it is imperative he considers the Purchase price of that item as the retailer would have secured fantastic discounts on an outright purchase. So he need to make sure markdown margin should not eat into the purchase price of the item. Retailers also have clauses with suppliers for cost sharing arrangements or buyback contracts for non selling items.

Cheers
Spacedpractice.com



Monday, October 31, 2011

Consumer Shopping Habits


Shopping Habits
Consumers are shifting their shopping habits from wandering the malls to shopping at local power strips where they can get a wider variety of goods in the shortest amount of time. During the past few years, fundamental changes have occurred in the way Americans are shopping, how often they do so, and why they favor particular brands, stores, and products. People are better educated and have greater access to information, and thus have become more demanding of the goods and services they purchase. Consumers’ newfound craving for goods that afford excellent value and design, is often overcoming their taste for pricey status symbols. An increasing willingness to cross-shop retail channels is bringing a new elasticity to people’s budgets. They are saving money at discount stores on some items, while spending more for others bought elsewhere. There has been a decline in shopping as a leisure time activity. Americans made an average of 36 shopping trips for apparel in 2001, down 8% from 39 shopping trips in 2000, and down 16% from 43 trips in 1999.
Preference of shopping places differs for different types of productlines. For example, more women’s apparel than men’s is purchased in specialty and department stores. Men’s apparel is more prevalent in discount stores and general merchandise chains. In the children’s segment, a considerably higher portion of apparel is purchased in discount stores. Because children quickly outgrow their clothing, parents are less inclined to spend a lot of money on a single item and therefore more inclined to shop at discount stores.
Source: Apparel Retail / Industry report/2003
Cheers
Spacedpractice.com

Sunday, October 30, 2011

Must Have SKU's

I recently visited an ice cream store to buy a family pack to treat my friends visiting home after a long time. What caught my attention being in the retail field is quite interesting. On the freezer which serves as a gondola was a poster from one of the famous ice cream manufacturers which said "MUST HAVE SKU's". This poster contained some of the hot selling flavors available in various packaging and sizes like the Bars, Cups, and Family packs. It also indicated the size and price of those items.

Now the important question - What purpose does it serve by displaying this poster. It could actually work wonders and it is a win win situation for all stake holders involved like the Ice cream Manufacturer, the Retail Store owner as well as the Consumer

For a customer by looking at this poster he can actually decide which are the best icecreams available in the shop and eases his selection making process especially when there are so many flavours to chose from with all the fancy names quite difficult to comprehend the contents in the icecream with its name.

For the Retailer he can make sure this must have SKUs are always replenished to suit the demands of the customers and never run out of stock or a lost sale opportunity

For the Manufacturer he can consistently push his fast moving items and high margin SKUs to the retail shops there by resulting in high price realization and achieve economy of scale in production to improve his supply chain efficiency, sales and bottom line.

Amazing a small poster can be such a source of innovative retail strategy creating a win-win situation for all stake holders part of the value chain

Cheers
Spacedpractice.com

Wednesday, September 21, 2011

Kishore Biyani's Latest Interview - GST Bill bigger than Foreign Direct Investment (FDI) in India


Kishore Biyani

Source: PTI, MoneyControl.com published on Wed,21 Sep,2011
The Future Group Founder and Chief Executive Kishore Biyani today said implementation of the new uniform tax regime -- goods and services tax (GST)-- is likely to play a bigger role for the retail industry than foreign direct investment.     
"Foreign direct investment (FDI) will be a game-changer but an even bigger game-changer will be GST. I see this happening in the next 12-18 months. This will make the ground even," Biyani, who runs the country's largest organised retail chain under the Big bazaar brand, told the two-day India Retail Forum which began here today.     
The existing regulations do not allow FDI in multi-brand front-end retail, while 100% FDI is allowed in wholesale retail. The government is now toying with the idea of allowing 51% FDI in multi-brand retail, but a final call is yet to be taken.     
"GST is a bigger game-changer because everybody will be on a level-playing field. Today small retailers have bigger advantage as the tax they pay is different," he said.     
Introduction of GST would subsume Central and state taxes like excise, customs, service tax, sales tax and VAT. A Constitution amendment Bill had already been introduced in the Lok Sabha for rolling out GST in the Budget session but is pending for parliamentary approval as the Finance Ministry has so far been unable to elicit support from the Opposition block, especially the Bharatiya Janata Party.     
The BJP-ruled states are opposing the current amount of revenue compensation that the states would be getting from the Centre post-GST roll-out. They also have apprehensions about losing fiscal and financial autonomy under the proposed GST regime.
The GST Bill cannot be legislated into a law without a two-thirds majority in Parliament as it involves some set of Constitutional amendments.     
Biyani further said consolidation in the manufacturing supply side has not been able to catch up with the demand consolidation and noted that the proposed new manufacturing policy will help to ease the situation.     
The government will soon unveil a national manufacturing policy, which aims to attract overseas investments and increase the share of the sector in the economy.     
Though the policy was to be cleared by the Cabinet last week, last minute differences on issues regarding relaxing environmental and labour laws between the Environment and Commerce ministries held back the Cabinet from notifying the much-awaited policy.     
The Environment Ministry was opposed to the provisions of a special purpose vehicle in the new policy, which according to it, would create conflicts of interest. According to the draft policy, environmental self-regulation by an SPV within the national manufacturing industrial zone is allowed, which is also permissible even under the present environmental laws.     
The government aims at increasing the share of manufacturing sector from the present 16-17% to 25-26 percent of the GDP by 2020. Manufacturing contributes over 80 percent to overall industrial production.     
Bharti Wal-Mart Managing Director and Chief Operating Officer and Wal-Mart India President Raj Jain said, "there is lack of representation for retail stakeholders especially the supply chain suppliers and FDI in supply chain should also be considered under FDI in multi brand retail formats."
Wal-Mart's Jain further said, "food inflation is going to be a structural issue. The consumption of people is increasing with their rising income levels. We have to improve food production because we cannot import at large scale. So we need to invest in technology that can improve basic food production. That is why we need FDI in retail."     
Allaying fears that FDI will take over neighbourhood stores, Boston Consulting Group Partner and Director Abheek Singhi said, "consumption will grow four-folds over the next few years and thus FDI will not threaten mom-n-pop shops."     
Biyani pointed out that local grocery stores have not been shut when the domestic organised retailers entered the market.     
Aditya Birla Retail Chief Executive Thomas Varghese said, "the policy changes to FDI under multi-brand retail format is framed and there is a lot of clarity in the draft policy and is probably likely to be rolled out in the next 6 months."
Cheers,
Spacedpractice.com

Saturday, September 17, 2011

Strategies to counter Supply Chain Challenges

Strategies to counter challenges faced due to Cost drivers and Supply chain drivers
Retailers need to tune the Profitability levers to derive more value for the goods and services they offer to the consumers. Retail industry is identified by two profitability levers.
1. Revenue enhancement levers
2. Cost reduction levers

1. Revenue Enhancement Levers - 
Retailers have to engage in revenue enhancement to drive profitable volumes. To increase their revenues they will need to move closer to their customers by adopting Market Expansion and Customer Centricity and redirect their promotional efforts to suit the customers needs and preferences.

a - Customer centricity can be achieved by using business intelligence tools which create Market Mix modelling and Market Basket analysis. The Marketing Mix model uses analytical and statistical methods to quantify the effects of various media and marketing efforts on a product's performance and allocate scarce resources into most profitable marketing channels. Market Basket analysis uncovers consumer spending patterns by categorizing customer purchasing behaviour and creates association rules to group similar products bundled together to increase upselling and cross selling opportunities. Customer centricity helps retailers to determine how they can sell more to existing customers and increase the shopping basket size of the shoppers.

b - Market Expansion is another strategy that retailers need to adopt to determine new customers in existing markets and new markets. Market expansion can be achieved through higher penetration by expanding more stores, Retail format development through market segmentation by identifying target customers and adding new merchandise to suit their distinct needs, Opening multi-channel retailing options like online shopping, catalogue orders and horizontal marketing through alliances with various channel partners.

2. Cost Reduction Levers
Retailers need to focus on reducing costs by improving efficiency and optimizing capacity. Opportunities for cost savings can be implemented using the Strategic Profit Improvement (SPI)Model to reduce COGS (inventory costs, transportation costs, ordering costs, shrinkage costs and lost sales) Operating expenses (Administrative expenses, advertising and selling expenses) thereby improving Net profit margin.

a - SKU Rationalization helps keep optimal number of SKU's and eliminating low productive SKU's. This decision of addition, deletion and retention of SKU's is based on measuring metrics on Operational fronts, Financial performance and Customer purchase decisions.

b - Efficient Assortment Planning helps retailer shift to more profitable products by building the assortment model on Retail data (Salesvolumes, Profit and GMROI),  Market data (Marketshare/SKU, Salesvelocity) and Consumer data (Loyalty, Consumer worth, Traffic builders, profit builders)

c - Improve inventory accuracy by minimizing the difference between system inventory levels and physical inventory levels and eliminating "Phantom stock"(misplaced products). A good idea here would be initiate cycle counts immediately when the physical or system inventory levels fall to zero. This will help eliminate triggering unnecessary order placement or reduction in forecast for new orders.

d - S&OP Planning aligns all of company's business plans like Sales, Finance, Marketing and Production into one integrated set of plans where the endgoal would be ensure accurate forecasts of supply and demand.

e - Secondary distribution - Increased control over secondary distribution from warehouse to stores by channelling an increased proportion of supplies through Distribution centres.

f - Restructuring Logistics systems to reduce inventory and improved efficiency through Composite Distribution. For example distribution of mixed temp items through same DC and on same vehicle reduces transportation costs and increases speed of delivery.

g - Quick Response adoption to cut inventory levels and improve speed of work flow and reducing leadtimes. Through a quick response strategy retailers can benefit by increased stock turns and higher quantity of products cross docked.

h - Supplier Collaboration to maximize bottom line value of the retail supply chain. Collaboration with suppliers can be done through a Vendor Managed Inventory(VMI) process where supplier does the forecasting and stocks the products and despatches according the customer's demand using EDI Mechanisms,CPFR - Collaborative Planning and Forecasting for replenishment, Category Captainship where the retailer delegates the pricing or the assortment planning function to a leading manufacturer. Popular with agreement between WalMart and P&G.

Cheers,
Arroon
Spacedpractice.com

Friday, September 16, 2011

Supply Chain Drivers in Retail

Now that we have seen the Cost driving components in the previous article let us look at the main drivers of the Supply chain.

Supply chain drivers primarily are divided into four elements.

1. Facilities
The facilities include all those areas where materials are stored, assembled, produced and sold. Significant factors considered while setting up a facility are the geographical reach of the location and access to various suppliers, customers and end consumers, Flexibility in terms capacity of the location to produce and the operations and warehousing methodology used in the facility whether it is product based or function based.

Warehouse

2. Inventory
Inventory in supplychain consists of raw material inventory, work in progress and finished goods inventory. Any change in inventory levels can have a dramatic effect on the effectiveness and responsiveness on the supplychain. Few vital points considered in determining inventory levels are the Ordering cost, Holding costs, Cycle inventory, Lot size, Service levels, Reorder points and Safety Stock.


3. Transportation
The role played by transportation in a company's competitive strategy comes into effect prominently when the company considers the targetted customers demand. The company should be able to strike a balance between the speed of delivery and cost of transportation to increase its efficiency. The key challenges for the retail company in designing a transportation strategy would be
a. Deciding on the mode of transport
b. Selection of routes and networks
c. Whether to own transport inhouse or outsource to outside transporters.


4. Information
Information as a driver has much importance in the era of e-commerce and online retailing as information sharing and co-ordination between various stages of value chain helps increase profitability. The information tools available to retailers are EDI, Enterprise Planners, CRM and SCM Softwares and Internet.

Cheers,
Arroon
Spacedpractice.com




Thursday, September 15, 2011

Important Cost Drivers in the Retail Supply Chain

Success in retail is primarily determined by how the retail companies identify the cost drivers to effectively utilize available resources in order to reduce the costs and coordinate and integrate the various supply chain driver components in the value chain.
There are mainly four important cost drivers which are common in all Retail formats.




1. Inventory Costs
Inventory is a very large and costly investment which every stage of the supply chain needs to incur. It is very important to have a clearly defined inventory policy that provides optimal product availability balancing demand and supply, achieving economies of scale and act as buffer for protection from uncertainty in the order cycles.
Important metrics to measure inventory performance are Inventory turnover, GMROI (Grossmargin return on inventory investment), Stock to sales ratio, and sell through percentage.

2. Space
Space planning allows optimal capital investment on fixtures, increases space productivity and helps store execution to be aligned with corporate strategy. Better integration of Floorplan and Planograms helps reduce fixture costs and capture lost sales due to replenishment. It also helps reduce inventory carrying costs by integrating Space planning with Store replenishment by identifying Min/Max amount of SKU required for presentation quantities allowed.
It is important for the retailers to understand the relationship between Retail Space, Sales turnover and profitability. Big players also need to assess the contribution of IT to space allocation process by understanding the principles of a space allocation system. Some of the big IT players like JDA, Oracle and SAP have developed efficient retail softwares which optimizes the space planning process and improves space productivity.
Important metrics that help measure retail space performance are Sales per Square feet, GMROF (Grossmargin return on total floor space and average sales/ transaction.

3. Labor
Store Labor efficiency and capacity utilization of core departments like Stores and Warehouse functions play an important role in optimizing profits for the retail organization. Application of lean management principles helps retailers improve cycle time, throughput time and effective equipment utilization in store checkouts, warehouse picking, putaway, consolidation and shipping functions. Retailers also need to invest on training store staff to increase customer satisfaction and competence in closing sales. Human resource planning must include a program for job analysis, recruitment selection, training, motivation and rewarding valuable employees.
Important metrics that can measure Labor efficiency would be cycle time, throughput time, sales per employee and GMROL (Grossmargin return on labor).

4. Marketing
Retailers should explore the relationship between product management and retailer to to consumer communications through an integrated retail communication plan, focusing on the use of promotional communication to draw shopper's attention to maximize sales opportunities and increase category profits. Allocation of communication budgets to various marketing vehicles like Advertising, Sales promotions, Contests, Coupons, In-Store events and promotions should aim at informing the target customers about the various offerings and persuade the shopper to visit the store and convert prospects into loyal customers and clients who can spread the word of mouth.





Cheers,
Arroon

Spacedpractice.com