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Retail Operation Management

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					Operations Management in
the Retail Sector;
The Strategic Response
Lucy Daly and Neil Towers, FIOM, Indigo Retail Solutions




INTRODUCTION                            Group recommends that retailers                 Managing relationships with
                                        need to ensure that they find the           customers and suppliers is a key
The fashion industry has undergone
                                        right balance between price, inventory,     issue in effective management of the
considerable change over the years,
                                        agility, adaptiveness, innovation and       supply chain. However, the textiles
with increasing global competition
                                        cost cutting to maximise success in         industry tends to be dominated at the
and the move towards a global
                                        today’s competitive marketplace.            end of the chain by large, powerful
supply chain impacting on lead times
                                        New products should be tested in the        high-street retailers with multiple,
and supply chain management.
                                        market, and winners identified. Two-        often internationally located outlets.
The fashion retail buyer plays an
                                        way collaboration with the supply           Further back down the chain, the
important role in this process
                                        chain needs integrating into sourcing       manufacturing sector of the industry
through supplier selection and
                                        processes, and forecasting needs to         consists of large numbers of small
product decision-making, and the
                                        be a critical process that is reviewed      companies with a limited amount of
role is changing from purely
                                        monthly WITH the supply chain. The          power. Although it may be argued
operational to much more strategic.
                                        outcome for replenishment is rapid          that partnership agreements exist
    Retailing is tougher now than
                                        response, with winning products             between these companies in the
ever before. There is growing
                                        being identified and sales maximised,       textiles and clothing industry, it is
competition from new entrants to the
                                        and unsuccessful products deleted           questionable whether these are
marketplace. Consumers also want
                                        with minimal mark-downs and                 actually partnerships with benefits
greater choice, with more product
                                        excess stock.                               for all parties, or whether these are
options being replaced more
                                            It is common practice for retailers     a means by which the retail sector is
frequently, resulting in reduced
                                        to deal with manufacturers, with            able to exert power over the smaller
product lifecycles. Also Consumers
                                        centralised buying and considerable         suppliers in order to push down
want a more exciting shopping
                                        negotiation on prices, quality              prices {2}. With the intensification of
experience with innovative stores,
                                        and delivery schedules {4}. In              globalisation and the quest to achieve
imposing increased operating costs
                                        addition, in many chains there is           greater profits through reduced
on the retailer. On top of this add
                                        an intermediary – often an import           purchase prices the industry has
shrinking margins and higher mark-
                                        or export agency – acting as a              moved away from partnering
downs, and the future looks bleak for
                                        significant figure within the chain {15}.   between organisations {8}.
retailers.
                                        The addition of the intermediary has            A number of strategies have been
                                        come about as a result of increasing        employed in the textiles and clothing
SUPPLY CHAINS IN RETAIL
                                        globalisation within the industry.          supply chain, in order to improve
The supply chain in the textiles        Globalisation of the textile and            supply chain management, including
industry is complex. Often the supply   clothing supply chain is currently          quick response and accurate
chain is relatively long, with a        intensifying, with many companies           response {5}. JIT (just-in-time) is
number of parties involved {8}.         either sourcing components from             also common in textiles and clothing
Consequently, careful management        overseas, or moving manufacturing           and is the delivery of finished goods
of the supply chain is required in      to countries with lower labour costs        just in time to be sold throughout the
order to reduce lead times and          {8}. In addition, the fashion industry      supply chain. To counteract the
achieve quick response highlighting     is characterised by a number of             threat of the increasing number of
the need to use an approach, such as    factors, namely a short lifecycle, high     imports and levels of overseas
agility. The Institute of Operations    volatility, low predictability, and high    sourcing, the UK industry needs to
Management Retail Special Interest      impulse purchase {7}.                       concentrate on quick response




24          CONTROL Number 8 2004 iomnet.org.uk
methods such as flexible delivery                 OPERATIONS MANAGEMENT                        shorter, transportation and delivery
through domestic sourcing, reduced                IN RETAIL                                    more efficient and merchandise is
levels of stock within the supply                                                              presented ‘floor ready’ on hangers
                                                  In recent years there has been a shift
chain, and increased net margins {2}.                                                          and with tickets attached {3}.
                                                  towards low wage countries for the
    The lean, agile and leagile                                                                    But errors in forecasting can
                                                  manufacture of consumer goods with
approaches to supply all effectively                                                           result in lost sales and excess
                                                  products sourced from the Far East,
sequence and manage the                           and also from Italy, Portugal and            inventory. Products where demand
manufacturing process in order to                 Turkey. Companies are taking                 can be accurately predicted should be
reduce lead times. Key to this is                 advantage of lower priced products           differentiated from those where
improved customer order demand                    from overseas in an attempt to               demand is difficult to determine, and
management and a reduction in                     improve competitiveness, and                 forecasting and sourcing strategies
wasteful activities. This is crucial              discounts can be between 15% and             should be applied accordingly {11}.
because in all enterprises there is a             35% for products sourced from Asia           Consequently the role of the buying
finite amount of resource available.              and Africa {10}. Often this decision is      team is essential to a retailers’
Consequently scheduling for                       made without consideration of the            success.
shop floor control in a production                true costs associated with such a                Abernathy {1} proposes a
environment has become focussed                   move {11}. Long lead times mean              model for a lean management of
against wastage in manufacturing                  that companies have to rely heavily          the supply chain for the textiles and
and supply. This is particularly                  on long-term forecasts, which may be         clothing industry (Figure 1). He
relevant to the textiles and clothing             unreliable. It is estimated that             argues that lean retailers require
industry, in response to increased                levels of merchandise sold at mark-          rapid replenishment of products,
competition and compounded with                   down price has grown to in excess            and shipments need to meet strict
small businesses where the problem                of 33%, and that one in three                requirements in terms of the
becomes more acute with less                      customers is unable to find the              delivery times, order completeness
resource available. The challenge                 goods required in stock. It is estimated     and accuracy. Key to this is the
enterprises face is to either focus               that errors of pre-season forecasts          use of bar codes, EDI and shipment
on speed and efficiency through                   may be as high as 50%, and that in           marking.
the supply chain to replenish a                   comparison forecasts based on                    The supply chain in the textiles
pre-determined stockpile, or to                   observations of 20% of sales had             industry is complex, with many
produce exact quantities in response              errors as low as 8% {11}.                    different parties being involved.
to servicing customer orders                          Companies in the fashion industry        For example, many manufacturers
effectively. The research illustrates             are increasingly using time as a             sell products to agents, who then
how companies in the sector                       factor for enhancing competitiveness.        sell on to retailers, so often there is
manage to service the demands                     In addition, reductions in lead time         not a link directly between the
of speed and efficiency whilst                    facilitate companies in addressing           manufacturer and the retailer.
responding with flexibility to                    an increasing demand for variety.             This use of third parties is
demand fluctuations.                              Development cycles are becoming              prolific throughout the chain.
                                                                                               Fashion and textiles is a volatile
                                                                                               industry, and getting the right
                                        Figure 1                                               product in the right place at the right
                                                                                               time can be difficult to achieve {6}.
                   Lean retailing-apparel supplier relations
                                   (Source: Abernathy (2000)
                                                                                               As a result relationships between
                                                                                               organisations are an essential
                                                                                               aspect of supply chain management
                      Apparel                                                                  as they facilitate transfer
                    manufacturer                         Retailer
                                                                                               communication within an industry
                                                                                               operating on a global basis. Within
                                                                                               a textile and clothing supply chain
                                                                                               with an intermediary, barriers to
      Apparel                                                                 Retail
      plant 1                                                                store 1           communication can be easily
                                                                                               recognised, as there is a third party
      Apparel          Manufacturers                Retailers distribution    Retail           in the chain controlling information
      plant 2        distribution centre            centre: cross docking    store 2
                                                                                               transfer. This has the effect that,
      Apparel                                                                 Retail           rather than add value to the chain,
      plant n                                                                store 3
                                                                                               the intermediary is adding cost.
                                                                                               These costs can be found in terms
                                                                              Retail
                                                                             store n           of distance, culture, volatility, and
                                                                                               can relate to both supply and
                                                                                               demand {15}.




                                                                                       CONTROL Number 8   2004 iomnet.org.uk      25
THE RETAIL MARKETPLACE                    fashionable clothing as part of the          Technology in Society, Vol 22,
                                          weekly shop, rather than visiting the        (2000) pp 5-31
Fast fashion has become an
                                          high street.                               2. Bhamra T; Heeley J; and Tyler D;
important factor within the UK
clothing industry, and the objective                                                    “A Cross-sectional Approach to
                                          THE FUTURE CHALLENGE                          New Product Development”, The
of getting clothing to stores within
the smallest lead time possible is of     The key to a successful future for            Design Journal, Vol 1, Issue 3,
paramount importance to companies.        retailing is to optimise the business         (1998) pp 2-15
This has resulted in an increasing        plan, optimise the total value chain       3. Birtwistle G; Siddiqui N; and
number of ‘seasons’, and shipping         cost, and to build trust and under-           Fiorito S, “Quick Response:
times from suppliers needs to be          standing in the supply chain through          Perceptions of UK Fashion
taken into consideration at sourcing      sharing risk, and increasing the              Retailers”, International Journal
{12}. Retailers are now moving as         benefits for all through improved             of Retail and Distribution
much of their sourcing away from the      communication. The Institute of               Management, Volume 31,
Far East, where shipping times can        Operations Management Retail                  number 2, (2003) pp 118-128
be as long as six weeks, to Eastern       Special Interest Group has brought         4. Bruce M and Moger S;
Europe, where shipping times can be       together a number of practitioners,           “Dangerous Liaisons: An
as little as 2-3 days. However, fast      consultants and academics to share            Application of Supply Chain
fashion does not apply to the whole       and develop the benefits that are             Modelling for Studying
range in stores, and as much as 80%       derived from adopting a strategic             Innovation within the UK
of goods may be core, basic continuity    response to this exciting operations          Clothing Industry”, Technology
lines, with fast fashion accounting for   management challenge.                         Analysis and Strategic
up to 20% {12}. Zara is an important           The contribution that can be             Management, Vol 11, No 1 (1999)
example of a fast fashion retailer,       made from the application of
                                                                                     5. Chandra C; Kumar S; “An
with rapid stock turnaround and           operations management tools and
                                                                                        Application of a System Analysis
vertical integration creating greater     techniques is considerable. The
                                                                                        Methodology to Manage Logistics
control over product lifecycles.          process of moving product in
                                                                                        in a Textile Supply Chain”,
    The fashion retail market has         response to actual or perceived
                                                                                        Supply Chain Management, an
become increasingly turbulent over        customer demand is well defined in
                                                                                        International Journal, Vol 5,
the years. Grocery retailers are          the manufacturing context. The
                                                                                        number 5, (2000), pp 234-244
moving into apparel retail, selling       challenge is to transfer the underlying
                                                                                     6. Christopher and Peck, “Fashion
branded goods at discounted prices        principals to the retail context that
                                                                                        Logistics”, Logistics and Retail
by taking advantage of the grey           is characterised by volatile demand
                                                                                        Management Insights into
market {14}{12}{13}. This has             patterns, short life cycles, cost
                                                                                        Current Practice and Trends
resulted in the clothing retail market    versus replenishment times issues
                                                                                        from Leading Experts, Chapter 5,
becoming split into a number of           and service operations management
                                                                                        pp 88-109, Ed Fernie, J and
segments – luxury, high street,           influences on a global scale. The
                                                                                        Sparks, L, Kogan Page Ltd,
and supermarket/ out-of-town              whole retail process is driven by
                                                                                        London, UK, (1999)
discounter. Asda and Tesco are at         customer service, normally seen
                                          as stock availability in store that        7. Fernie J. and Sparks L; (eds.),
the forefront of this move and are
                                          is linked to brand or category                “Logistics and Retail
investing heavily. In 1999 Asda sales
                                          management focussed not just on               Management Insights into
of George apparel saw an increase of
                                          customer satisfaction of the sales            Current Practice and Trends
16% on the previous year. Retailers
                                          transaction but more importantly on           from Leading Experts” Kogan
are beginning to develop new
                                          future customer retention. Operations         Page Ltd., London, UK. (1998)
approaches in order to remain
                                          management is the vehicle to               8. Jones R; “UK Clothing Industry
competitive against such moves by
                                          consistently and reliably deliver these       and Market – An Update”,
retailers. 2000 saw the introduction
                                          requirements to the end customer,             Journal of Fashion Marketing
of the Per Una range by George Davis
                                          the consumer to persuade them to              and Management, Vol 4, No 2,
into Marks and Spencer stores world-
                                          return to the retail outlet for their         (2000) pp 182-187
wide. The use of designer ranges for
                                          subsequent purchase. This is a             9. Jones; “The Apparel Industry”,
high street stores is a growing trend
                                          fragile choice that is vulnerable to          Blackwell Science, Aylesbury
with Debenhams, Marks and Spencer
                                          marketplace changes and pressures             (2002)
and New Look all taking advantage of
                                          where only those recognising the          10. Lowson R; “Analysing the
consumer pre-occupation with
                                          large contribution made by                    Effectiveness of European Retail
designer brands. The entrance of
                                          operations management will prosper.           Sourcing Strategies”, European
supermarkets into the clothing
market has increased competition                                                        Management Journal, Volume
                                          REFERENCES                                    19, Number 5, (2001) pp 543-551
and redefined how customers shop
for clothing, with time-starved           1. Abernathy, “Retailing and Supply       11. Mattila H, King R and Ojala N;
customers able to purchase cheap             Chains in the Information Age”,            “Retail Performance Measures




26          CONTROL Number 8 2004 iomnet.org.uk
    for Seasonal Fashion, Journal of      13. Mintel; Womenswear Retailing,           and Intermediaries in Clothing
    Fashion Marketing and                     March 2002                              Supply Chains, Supply Chain
    Management, Volume 6, No. 4,          14. Mintel;Womenswear Retailing,            Management: an International
    (2002) pp 340-351                         March 1999                              Journal, Vol 5,
12. Mintel; Clothing Retailing In the     15. Popp A;“Swamped in Information          No 3, (2000) pp 151-161.
    UK, April 2002                            but Starved of Data”: Information



     About the authors

     Lucy Daly is a Consultant              this knowledge back to share with     developing in the area of
     working for Indigo Retail              UK industry. Her PhD research         marketing and operations
     Solutions. She has been involved       focused on the use of B2B             management within the concept
     in research for some 7 years, both     e-commerce in the sector, with        of supply chain management,
     as a consultant for Indigo and as      particular focus on SMEs.             with particular reference to small
     a Project Officer in the Textiles                                            and medium sized enterprises.
     Department at UMIST. In her            Neil Towers, FIOM is Director         He has wide international
     role at UMIST she worked on an         of Indigo Retail Solutions and        business and academic experience
     ESF-ADAPT project developing           Lecturer in Supply Chain and          at the forefront of a globally
     training for SMEs in the industry,     Merchandising at UMIST,               changing business environment
     and also identifying the transfer      Manchester. He joined the             from working in Europe, USA and
     of innovation through the supply       Department of Textiles at             South Korea, as well as in the UK.
     chain. Lucy has also taken part in     UMIST in Manchester in 1999           He is an active member of the
     a DTI Mission to the United            as a Business Development             Institute of Operations
     States, looking at the uptake of       Manager and Visiting Lecturer.        Management.
     e-commerce in the textiles and         His teaching, research and
     apparel sector, and then bringing      scholarly activity have been




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