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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

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