Retail logistics

477
International Journal of Physical
Distribution & Logistics
Management, Vol. 29 No. 7/8, 1999,
pp. 477-494. # MCB University
Press, 0960-0035
Retail logistics
Lisa M. Ellram, Bernard J. La Londe and
Mary Margaret Weber
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Introduction
Recent trends in retailing, such as increased competition and the threat of
takeovers, have created pressure on retailers to improve both inventory
turnover and customer service. This article explores the way in which retailers
are using logistics to respond to these challenges. First, it examines current and
future customer service expectations among retailers. Second, it explores the
role of improved inventory control and the supply chain management concept
on customer service and retail logistics operations. Finally, it explores the
manner in which retailers are incorporating and planning to implement the
explosive growth in information technology to meet competitive challenges.
The article concludes by discussing how the retail logistics trends examined
here are creating some exciting opportunities and challenges for retailing
logistics as we enter the 1990s.
Background
Customer service is an increasingly important focal point for retailers[1].
Whereas customer satisfaction represents meeting consumer expectations at a
retail level, customer service involves upstream channel relationships. More
specifically, customer service can be defined here as ``a process for providing
significant value-added benefits to the supply chain in a cost-effective way''[2].
Customer service includes such factors as order completeness, cycle time,
consistency of performance, and response to errors, special requests and
services, and information requests.
The acceleration of retail competition has changed the nature of retailing.
Today, retailers are using customer service to provide an important
competitive advantage to their firm, to differentiate their firmfromothers[3].
The current issue and full text archive of this journal is available at
http://www.emerald-library.com
This article was previously published in lnlernal/cna/ lcurna/ cf lhvs/a/ D/slr//ul/cn &
Maler/a/s Managemenl. Vol. 19 No. 12.
IJPDLM
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Retailers expect that the importance of customer service will continue to
increase in the future. A1988 study of retailing logistics practices conducted by
the Ohio State University Logistics Research Group sponsored by Ernst &
Whinney, Inc., supports this conclusion. Increased customer service
expectations, in turn, increases pressure on the supply chain from vendors to
distribution centres (DCs), and fromdistribution centres to stores.
Objective
Retailers are being faced with many significant changes today. Increased
competition is creating greater pressure on retailers to simultaneously control
cost and improve customer service. Further, retailers are faced with a growing
number of complex technological options to help support their inventory and
customer service goals.
Based on the above changes, the objective of this article is threefold. The
first objective is to investigate the current expectations and future directions
for customer service among US retailers.
A second objective is to examine the role of improved inventory control and
supply chain management on customer service and retail logistics operations.
The third objective is to understand the implications of improved customer
service and inventory control on retail logistics at an operational level. The
opportunities for the use of information technology as a tool to support
customer service and inventory control objectives are explored here.
This article uses the results of a 1988 study of retailing logistics practices,
conducted by the Ohio State University Logistics Research group. This
research was sponsored by the firmof Ernst &Whinney, Inc.
Methodology/assumptions
A survey methodology was used because it was believed that this would be the
best way to reach a wide cross-section of retailers within the USA. Before the
survey was sent out, it was pretested with several large retailing firms and
industry consultants. Suggestions made by these parties to improve the clarity
of the questionnaire were incorporated into the survey.
A survey was mailed out to 1,087 retailing executives with logistics
responsibilities. The mailing list represented a cross-section of the retailing
industry, and was compiled by Ernst & Whinney from a number of industry
organisations. Ninety-two usable responses were received, representing 14,727
retail locations and 1986 annual sales of $35.1 billion. The sample encompasses
a broad cross-section of retailer types, as follows:
%
Discount stores 18
Department stores 14
Grocery/drug stores 15
Apparel stores 16
Retail logistics
479
Home improvement stores 20
Other 17
When interpreting the data from this survey, it is important to keep in mind
that there is no assurance that responses were received from ``typical'' retailers.
In addition, the research group chose not to define some terms such as ``Point of
Sale'' in detail because it was felt that this would significantly lengthen the
survey and lower the response rate. Different interpretation of terms by
respondents may impact the survey results.
The response rate for the survey was at a relatively low 9 per cent. This low
response rate in turn raised two related questions. The first question was:
``What was the reason for this relatively low response?'' While there are no
definitive reasons available, the research team speculates that the low response
rate was due to several factors. First, the focus of logistics activity in most
retail organisations is not centralised. There is not a clear person or title listed
in the retail organisation to which a questionnaire would naturally be directed.
The mailing list was pieced together from a variety of job titles and there is a
good possibility that a number of questionnaires were directed to retail
executives who were not interested or not qualified to respond. A second factor
may have been the fact that at the time of the study there was (and still is) a
degree of ferment caused by industry restructuring. This resulted in a high
number of returned ``no longer at this address'' questionnaires and the
speculation that there was a high degree of change in retail organisations at the
time of the survey.
The second and more important question is the ``quality'' of the response. It
is possible to get a good quality of response with a low response rate although
typically the odds are better with a high response rate. There are at least two
ways to check ``quality'' of response in survey research. One method is to
attempt to measure non-response bias. This is generally accomplished by
recontacting non-respondents and comparing their responses to the original
survey responses. Another way to measure ``quality'' of response is to evaluate
the internal consistency of the database. That is, do the data exhibit a
continuous and consistent trend? Are they consistent within categories and
between categories and with secondary sources of information? This method
was used in this research. The data were analysed by:
(1) retail type;
(2) size (no. of units) of respondent;
(3) level of technology utilised by respondent; and
(4) anticipated rate of future growth.
These evaluations suggested that the ``quality''of the data was robust for
purposes of the research questions addressed in the survey[4]. This approach,
however, does not directly treat the question of non-response bias.
IJPDLM
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Customer service findings
Figure 1 summarises the mean overall responses of retailers regarding the
importance of various customer service elements in the supply chain link from
vendor to distribution centre, and from distribution centre to retail store. The
responses are measured on a five-point scale, where 1 is unimportant, and 5 is
very important.
The most striking thing to note is that all of the customer service elements
are rated as being very important to retailers.
Vendcr lc d/slr//ul/cn enlre //n/
Currently, the most important customer service objective from the vendor to
the DC is reliable order cycle time. Consistency of delivery time allows retailers
to hold their DC inventory levels down, while having the desired inventory
available on a predictable basis for shipment to their stores.
Reliable order cycle time is followed closely in importance by the need to
have orders filled completely, and the desire for accurate and timely
information. Retailers rely heavily on their vendors for reliable delivery of
complete orders, and up to the minute information regarding order status.
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DC to store
Customer service elements
Mean responses calculated on a 5-point scale
1 = Unimportant 5 = Very important
Figure 1.
Importance of customer
service comparison of
service provided from
vendors to DC and DC to
stores
Retail logistics
481
D/slr//ul/cn enlre lc slcre //n/
In the DC to store link, the most important customer service goal is complete
order fill. Complete order fill allows stores to be replenished on out-of-stock
items so that they can meet consumer demand on an immediate basis.
The DC to store customer service elements are rated as marginally more
important than the vendor to DC elements. This difference, while small, makes
sense given the closer proximity of the DC to store link to the end consumer,
and the more immediate need for the product. In addition, the DC to store link
may be viewed as more important because there is generally very little
inventory buffer at the store level. The DC must have the needed goods
available quickly, accommodating the short planning horizon at the store level.
5ummarv
In assessing the importance of the top customer service elements to these
supply chain links, it is important to keep in mind that the important points of
all of the customer service elements were tightly clustered. All of the customer
service elements surveyed are important to the retailer, as shown in Figure 1.
The five most important customer service elements indicated by this survey
are:
(1) Orders are filled completely
(2) Order cycle time is short
(3) Order cycle time is reliable
(4) Accurate and timely information
(5) Quick correction of mistakes.
Availability of value-added services and ability to meet special requests are
also important customer service elements. Based on Figure 1, they are clearly of
less importance than the five factors above.
Future customer service directions
Respondents were also asked to identify for both the vendor to DC and the DC
to store link whether they expect each customer service element to increase or
decrease in importance by 1990. Even though all of the customer service
elements surveyed are currently considered very important, the vast majority
of retailers expect these customer service elements to grow in importance. The
expected change in importance of customer service elements is illustrated in
Table I.
The availability of value-added services, and the ability of the vendor or DC
to meet special requests are expected to increase in importance to a lesser
extent by those surveyed than the other customer service elements, with
around 50 per cent of those surveyed expecting these items to increase in
importance by 1990. Over 90 per cent of the respondents expect the remaining
elements to increase in importance by 1990. Thus, the customer service
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elements that are currently considered most important in Table I are expected
to become even more important, indicating a strengthening of current focus
rather than a shifting of focus regarding customer service elements.
Another interesting result apparent in Table I is that the majority of
customer service elements in the vendor to DC link are increasing in
importance more than customer service elements in the DC to store link. This
finding may indicate that retailers are increasing their interest in managing
relationships with their channel partners. It appears that there will be more
pressure on vendors to increase their customer service levels and improve
performance.
With the heightened awareness and interest in customer service, it seems
likely that retailers would be making some operating changes to adapt to this.
The remainder of this article explores the potential changes associated with an
increased customer service emphasis for the retail logistics function, in terms of
the implications for improved inventory control, increased supply chain
management, and the use of information technology.
Supply chain management to improve customer service
To meet increasing consumer demands, retailers are expecting better service
from their vendors and DCs. This alternative is generally more efficient and
less costly in the long run than simply increasing inventory levels to cover up
problems.
Supply chain management is a broad concept, as illustrated in Figure 2. It
views the supply chain as a single system, rather than a set of separate, but
related functions such as purchasing, sales, and distribution. Thus, supply
becomes the focus of the chain, and relies on strategic decision making[5].
Table I.
Importance of customer
service elements
% indicating element
will increase in
importance by 1990
% indicating element
will decrease in
importance by 1990
Orders are filled completely 73 5
Order cycle time is short 80 4
Order cycle time is reliable 76 4
Vendor meets special requests 55 15
Availability of value-added services 50 18
Accurate and timely information 73 3
Quick correction of mistakes 66 4
DCs/warehouses to stores
Orders are filled completely 65 4
Order cycle time is short 68 2
Order cycle time is reliable 71 1
DC/warehouse meets special requests 49 16
Availability of value-added services 50 16
Accurate and timely information 64 2
Quick correction of mistakes 62 2
Retail logistics
483
Traditionally, the objectives of different functional areas have been a source of
conflict. For example, marketing desires high customer service and product
variety and so requires an adequate supply of a large variety of products.
Manufacturing, on the other hand, needs stable production runs of a single
product to achieve economies of scale and level the workforce. Rather than
resolve the conflict directly through better planning and communication, the
historical approach has been to use buffer inventory to meet customer service
goals, while acting as a cushion for conflicting objectives.
Owing to the increasing competition and cost consciousness in the retail
sector, the method of resolving conflict through excess inventory is becoming
too expensive. This is where supply chain management becomes a viable
alternative.
The goal of supply chain management is to meet the challenge of conflicting
objectives directly by specifically examining the tradeoffs for the supply chain
system. The net result is that lower quantities of resources are required to
achieve the same service level. It is not a matter of simply shifting resources
from one channel member to another. It is a matter of improving
communications and evaluating tradeoffs so that total inventory in the channel
is actually reduced. All supply chain members should share this benefit. It is a
direction in which progressive retailers are moving.
Retailers see better management of supply chain resources as a priority. In
an attempt to control inventory levels and costs in the next two years, retailers
are focusing on the inventory control methods shown in Table II.
All of these inventory management priorities can be facilitated by a supply
chain management philosophy.
Increased turns are possible with lower inventory levels and/or better
supply chain communication to speed up the flow of inventory. The benefits of
increased technology are amplified when channel partners share technology, as
will be discussed in more depth below. Improved inventory allocation
Vendor
Retail DC
Carrier Carrier
Retail
store
Customer
Key
Physical flow
Information flow/communications
Figure 2.
Retail supply chain
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techniques are an important part of supply chain management, which takes a
total pipeline perspective regarding where inventory should be held. Finally,
reduced leadtime from vendor to DC is made possible by improved
communications in the supply chain.
Cutting edge retailers are beginning to recognise supply chain management
as a logistics strategy for improved customer service and more effective
inventory management. Sharing information with supply chain partners
through Electronic Data Interchange is one important trend which supports
these goals.
Use of technology to achieve customer service goals
A major area that retailers are turning to in support of their increased customer
service goals, and to track and improve supply chain performance, is
technology. Much of the technology that retailers are using and proposing to
use is information based technology. Thus, retailers are attempting to
exchange more accurate, timely and complete information for inventory via
technology.
The proliferation of information technology to support retailers has rapidly
accelerated in recent years. The growth of information technology has created a
new opportunity in logistics because now the required information is available
to support improved, efficient logistics operations for retailers. Improved
logistics operations, in turn, have created the potential for a repositioning of
retailing logistics, in accordance with the logistics concept. The logistics
concept deals with integrating logistics throughout the organisation. It views
the logistics system as a whole, from purchasing through final delivery of the
product to the customer. This broad framework is only possible in practice
with an integrated system for capturing, analysing, distributing and utilising
information.
Much of the information technology in use today has been implemented in a
piecemeal fashion, and is not directly connected to other internal or external
systems. Retailers are beginning to realise that they can enjoy the maximum
benefits by integrating technologies internally and with their channel partners.
The Ohio State University study of retail logistics practices looked at three
major information technologies: electronic data interchange (EDI), point of sale
systems (POS), and barcoding. These technologies were analysed in terms of
their impact on retail logistics.
Table II.
Inventory management
priorities
% of retailers who identify priority as
important
Increased inventory turns 100
Increased use of technology (e.g. EDI, barcoding) 80
Improved inventory allocation techniques 76
Reduced leadtime between vendor and DC 75
Retail logistics
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E/elrcn/ Dala lnlerhange
A key growth area in information technology in the future is EDI, defined here
as computer-to-computer transfer of information. Although the retailers
responding to the survey are transmitting only 10 per cent of their purchase
orders via EDI today, they expect to transmit 35 per cent by 1990, and 62 per
cent by 1995, as shown in Figure 3. This Figure indicates that retailers are
expecting rapid growth of electronic information transfer between themselves
and their vendors in all areas, especially purchase orders, bills of lading,
invoices, and advance shipping notices. These may all be areas of increased
responsibility for the logistics function.
The direct transfer of information between retailers and vendors can be
instrumental in improving logistics efficiency and supporting increased
customer service levels. First, EDI can help to decrease cycle time, as computer-
to-computer order transmittal is extremely rapid. In addition, it can improve
cycle reliability if electronic purchase orders are replacing a slower medium of
varying cycle length, like the mail, or handing orders to salespeople.
EDI should also immensely increase the accuracy and timeliness of
information transferred. Information regarding price changes, stock levels,
shipping dates, and other pertinent order data can be transmitted back fromthe
vendor to the retailer instantaneously on receipt of the electronic purchase
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Figure 3.
Electronic data
interchange
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order. In addition, error reduction occurs. Data are handled and coded fewer
times because they travel from computer to computer, rather than being
manually coded and recoded.
Finally, EDI should aid in rapid error checking and correction. Many order
errors will be discovered immediately because most systems will notify the
sender if they have an invalid item code or order size. The retailer can then
catch the mistake and correct it almost instantly, rather than discovering the
error when an incomplete order is received. Further, because the system should
reduce cycle time, retailers should receive faster response to other types of error
corrections as well.
Therefore, EDI can significantly support retailers in their efforts to increase
customer service. EDI will have a major impact on retail logistics operations in
terms of order processing, error checking, and information flow.
8arr/ers lc EDl /m/emenlal/cn
Interestingly enough, respondents to the Ohio State University retail study see
lack of vendor capability as the greatest barrier to implementation of EDI.
Perceived barriers to EDI implementation are illustrated in Table III. Vendors
and retailers must work together to implement compatible systems in order to
realise the benefits of EDI. Information technology is an important prerequisite
to good supply chain management. Information must be integrated thoroughly
in the supply chain in order to exchange information for inventory. Exchange
of information for inventory allows the supply chain to use information, rather
than inventory, as a buffer. Without the integration of information and control
throughout the supply chain, information may not be timely enough, or visible
enough, to manage the supply chain as a whole[6].
Improving internal systems is vital to support the goal of improved
customer service levels, and achieve the maximum benefits from EDI. Without
coordinated, integrated internal systems the increased speed and accuracy of
EDI cannot be fully appreciated. Improved internal systems will only be
possible when retailers overcome the second greatest barrier to EDI, as shown
in Table III: lack of resource commitment/cost of EDI.
Table III.
Barriers to EDI
implementation
High
impact (%)
Low
impact (%)
1 2 3 4 5
Technological/computer barriers 20 16 27 20 17
Lack of high level management commitment 13 20 35 23 9
Lack of resource commitment/cost 20 31 23 19 7
Lack of trust between retailer and vendor 13 14 27 24 22
Lack of customer capability 16 21 33 16 14
Lack of vendor capability 31 28 24 14 2
Retail logistics
487
lc/nl cf sa/e svslems and /arcd/ng
There are additional types of internal information technologies which retailers
are using today to improve customer service. Among the most important are
barcoding/scanning associated with barcoding, and point of sale systems.
These systems can work together, and in conjunction with EDI. Integrated
systems will allow rapid, accurate information capture so that the logistics
system can perform more efficiently and effectively in getting the right product
to the desired location when it is needed.
POS systems exist at many levels in actual practice, from electronic cash
registers to fully integrated microprocessors. In the case of the latter, and many
types in between, there may be a direct connection and information flow to the
main computer system. In addition to providing valuable, up-to-the minute
information on sales, such a system can be used to update inventory stock
status and generate purchase orders as needed.
Retailers responding to the OSU retail logistics study indicate both a high
current usage and expected growth in POS systems, as shown in Figure 4.
Eighty-five per cent of respondents indicated that they have some form of POS
system in place today. POS usage is projected to grow to 89 per cent of those
surveyed by 1990, and 98 per cent by 1995. Thus, virtually all of those
surveyed expect to have a POS system in place by 1995. In addition, those who
have POS systems are planning to increase the integration of those systems
with their central computer. Respondents who currently have a POS system
indicate that 88 per cent of their POS transactions are integrated with their
central computer systems today. For those currently using POS and planning
to use POS, this percentage will rise to 90 per cent by 1990, and 97 per cent by
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POS recorded store level transactions
POS transactions on central computer system
1988 1990 1995
Figure 4.
Use of POS systems
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1995. Thus, retailers are planning to take greater advantage of the potential
benefits of POS systems in the future, by increasing POS's integration with
their main system.
POS is generally not designed to stand alone; integration adds greatly to the
utility of the information a POS system captures. It can help improve customer
service by increasing the timeliness and accuracy of information, which in turn
will contribute to generating the purchase orders for the needed items on a
more timely and accurate basis. In addition, POS information allows retailers to
preallocate inbound merchandise according to actual store sales data. Thus,
when a shipment arrives at a DC, it can be immediately sorted and reshipped
by store, rather than shelved, and pulled by store when needs are determined.
Preallocation saves both time and rehandling expenses. Thus, the benefits from
POS technology can improve the performance of logistics operations.
To further increase the benefits of POS, retailers are taming to barcoding
and scanning of products. When scanning is used in conjunction with a POS
terminal, it allows a barcode, which is printed by the vendor on the package, or
attached by the retailer on to the price tag or package, to be optically read. The
optical scanning can be done with a wand or a scanner that is at the checkout
counter. The information from the barcode is read by the point of sale terminal
automatically, so that the price is rung up properly, inventory is reduced, and
the system is updated. It is an excellent way to prevent or reduce human error,
and integrate internal systems.
Barcodes can also be applied to external packaging. Barcodes on external
packaging may be used by the DC to track merchandise stock levels and
movements, identify inbound and outbound shipments, generate receiving and
shipping documents, and so on. Scanned information will be more accurate and
timely than manually collected data because there is less room for human error
and less manual data handling. Scanning and barcoding at the DC level can
also provide a shorter and more consistent cycle time by speeding up receiving,
shipping, and location of goods. A shorter, more accurate cycle time is
consistent with the logistics and company-wide goal of improving customer
service and inventory velocity.
To complete the cycle which is shown in Figure 2, merchandise delivered to
the store can also be scanned by the retailer. Retail scanning of deliveries can
increase the speed and accuracy of in-store receiving. Survey results indicate
that retail scanning is insignificant today, accounting for about 15 per cent of
merchandise received by retailers. However, it is expected to increase to 32 per
cent of merchandise received at the store level by 1990, and 58 per cent by 1995.
Retail scanning of inbound merchandise helps round out and integrate the
whole area of information technology and information transfer at the retail
level.
Integrating technology with supply chain management concepts
All of the internal technologies discussed in the previous section, and their
benefits can logically be extended to supply chain relationships.
Retail logistics
489
Technologically integrating the supply chain will increase logistics efficiency
and improve customer service.
Barcoding concepts can achieve important benefits throughout the supply
chain. Barcoding can be used to improve the accuracy and timeliness of
information, as well as reduce errors and speed the velocity of inventory
through DC operations. Figure 5 shows that retailers responding to the survey
indicate that they currently receive 24 per cent of their inbound domestic
merchandise with vendor barcoding on the carton. They expect that to increase
to 49 per cent by 1990, and 68 per cent by 1995. In addition, barcodes can, and
are, being applied by the DC. Retailers surveyed indicate that 21 per cent of
their merchandise which flows through a DC is barcoded by the DC. They
expect that to growto 37 per cent by 1990, and 41 per cent by 1995.
Further, retailers are anticipating that scanning at the DC level will increase
in the future. One way to make this more efficient is being explored by retailers
today. Scanning inbound merchandise involves working with vendors and
third parties to standardise barcodes used[7]. Standardised barcoding will
benefit all supply chain members by providing a common language for
communications, and decreasing redundant efforts of reapplying barcodes.
Figure 6 indicates that 26 per cent of merchandise flowing through DCs is
automatically scanned today. Given that >21 per cent of the merchandise is
barcoded by the DC, and assuming that DCs scan all self-applied barcoding, it
appears that only about 5 per cent of merchandise flowing through DCs is
scanned using the vendor's barcoding exclusively. By 1990, 36 per cent of the
DCs in this survey will apply their own barcodes. Given that 44 per cent of
merchandise flowing through the DC will be scanned, only about 8 per cent of
merchandise through DCs will use just vendor barcoding. Finally, by 1995,
80
60
40
20
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Key
Barcoded by DC
Scanned by DC
1988 1990 1995
Figure 5.
Use of barcoding
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retailers anticipate that 64 per cent of merchandise flowing through DCs will be
scanned. Since 50 per cent of the barcodes will be applied by DCs, only about 14
per cent of merchandise will utilise vendor applied barcoding exclusively for
scanning. While the trend is toward more scanning, and increased use of
vendor applied barcoding, it appears that there will be a great opportunity to
increase utilisation of vendor applied barcoding in the foreseeable future.
Also, as mentioned above, POS data can be used to automatically generate
purchase orders when a certain stock level is reached. These orders can be
automatically transmitted to the vendor via EDI. Coupled with preallocation of
merchandise, computerised information transmission increases the timeliness
and accuracy of information while reducing cycle time due to rapid order
generation and transmission.
Going a step beyond POS is the concept of quick response. Quick response
has been characterised as ``the wave of the late 1980s and early 1990s''[8]. Quick
response is a good illustration of how supply chain management can embody
the just-in-time concept and provide value-added to all parties concerned. Quick
response ties the vendor into the retailer's POS information for the vendor's
product, so that the vendor can monitor actual demand as it occurs. Thus, the
vendor anticipates orders before they are placed. Anticipation of customer
demand allows the vendor to be prepared to meet the retailer's need, reducing
inventory held and improving order fill throughout the supply chain[9].
It is important to keep in mind that in order for these technologies and the
supply chain management concept to be truly effective, several things are
Figure 6.
Use of barcoding by
retailers at the DC level
Retail logistics
491
required. First, retailers must resolve their internal conflicts, integrating
internal functions. Integration is important in order to present a unified supply
chain strategy to their supply chain partners. A unified supply chain strategy
involves a broadening of responsibility and integrating the role of the key
internal player in the supply chain-logistics.
However, it appears that the logistics function is not highly integrated into
many of the key retail functions which impact logistics. Seventy-eight per cent
of the survey respondents indicated that they have no responsibility for
merchandise replenishment. Fifty-three per cent of those surveyed indicated no
responsibility for inventory control, and 49 per cent responded that they have
no customer service responsibility. This issue of lack of integration of
responsibility between functional areas within the firm must be addressed by
top management before the benefits of a supply chain management approach
can be fully realised.
Further, retailers must work with their supply chain partners to integrate
their systems. Partners to be included are carriers, vendors, distribution centres
and customers. Integration will allow them to achieve important synergies, and
realise the combined benefits possible with information technology and supply
chain management. This combination could prove to be a formidable
competitive weapon for retailers.
As an example of the potential benefits of integration, manufacturers can
track the shipment of their products to the retailer. They can let the retailer
know, via EDI, exactly what will be on each shipment while it is in transit.
This information integration allows the retailer to preallocate their
inventories by store or distribution centre. Thus, when the shipment arrives,
the receiving location knows exactly how to handle/sort the shipment. There is
no delay in processing, or putting the shipment into storage and then pulling it
out. Preallocation can save days in getting merchandise out to stores, and save
on warehouse rehandling expense as well. So, if properly implemented,
integrated, and controlled, supply chain management can allow the entire
supply chain to reduce and better manage inventory through improved
communication and information flow.
Three challenges for the 1990s
Clearly, many significant shifts are occurring in retailing. These shifts will
likely have a profound effect on the way in which retailers compete, and the
role of logistics in retailing.
Based on the above research, there are three principal challenges facing
retail logistics as we enter the 1990s. First, retailers must come to realise and
implement the idea that customer service, while it begins at the store level,
must span the entire supply chain. The challenge here is for logistics managers
to integrate the customer service concept into all of their activities. Second,
retail logistics managers must be prepared for the effects of rapid growth in
technology, particularly the explosive growth in information technology.
Finally, supply chain management must be developed and integrated to fully
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exploit strategies for improved customer service and inventory management. A
supply chain management strategy will require logistics managers to change
the nature of logistics relationships throughout the supply chain.
(uslcmer sert/e as a slcre/ete/lhrcughsu/vha/n cnel
Redefining the role of customer service in retailing to go beyond the store level,
into the supply chain, creates many new issues for retailers. Retailers must
place an ever increasing reliance on the performance of their supply chain
partners. Retailers expect complete order fill, short and reliable order cycle
time, accurate and timely information, and rapid error correction on the part of
vendors and warehouses. In order to achieve these goals, retailers need to
establish closer relationships with their supply chain partners, encouraging
excellent communication. This supply chain emphasis is expected to continue
in the future. Retailers are starting to understand that they cannot provide good
service at the store level without a well functioning supply chain.
The challenge for retailing logistics is to seize the opportunities for improved
customer service. Retailing logistics must establish and maintain good supply
chain relationships. Good supply chain relations include maintaining realistic
expectations and recognising opportunities for improvement in operations.
Working with channel partners should be treated as a positive sum game,
where mutual cooperation can yield significant benefits to all parties.
Manage lhe excnenl/a/ grculh cf rela// lehnc/cgv
The second challenge for retailers as they enter the 1990s involves integrating
information technology throughout the retailing organisation. There have been
many significant shifts in the use of information technology in retailing to
provide improved customer service and inventory management. Such shifting
and growth would not be possible without improved information technology
such as we have today. The growth has been so tremendous that it is difficult,
but essential, for retailers to keep abreast of advances. In the future,
opportunities for further technological advances and increased efficiency and
utilisation of information technology lie in improving integration of these
different technologies.
There is danger for retailers who do not remain current with information
technology. As competitors are actively improving their operations via
technology, non-adopters will soon fall behind in efficiency, cost savings and
accuracy. Non-adopters could lose their competitive leverage. In addition,
choosing the right technology, and properly planning technology
implementation is essential. Mistakes in choosing, implementing and
integrating information technology can be costly, in terms of both expenses
and time delays.
As discussed earlier, the potential for synergistic benefits between internal
systems such as POS and barcoding/scanning multiply if these systems are
Retail logistics
493
properly integrated. EDI and barcoding from the vendor to the warehouse to
the store level can improve the accuracy and timeliness of information flow,
improving inventory velocity throughout the supply chain.
It is important for retailers to carefully consider modular capabilities and
compatibilities of internal information systems before making investments in
such technology. Logistics, merchandising, stores, finance, and all the
functional areas should have a shared information system so that one set of
information is available throughout the organisation. If the firm's information
system is not functioning well internally, there is no point in linking up with
external partners.
The su/v ha/n managemenl cnel musl /e /nlegraled
The third challenge for retailers is to integrate supply chains and supply chain
technologies in to their organisations. Top retail management must realise that
logistics can be an important contributor to customer service and profitability
if it is integrated with other functions. Internal interdependencies must be
managed through sharing of information and responsibility within the retail
organisation.
In addition, top retail management must accept that supply chain partners
can have a major impact on each other's operations, depending on the systems
that they have in place. Channel partners with very unique, complex systems
may have excellent internal integration and flow of information. However, the
complexity and uniqueness of the system may make it very difficult for an
outside firmto interface with the system.
Thus, it is becoming increasingly common in practice for a firmto work with
channel partners when it decides to implement an EDI project. Working with
channel partners early in the process encourages co-operation and systems
compatibility before major investments in information technology are made. It
is widely accepted that the most important factor in successfully implementing
an EDI programme is cooperation both within the firm and with channel
partners[10]. In addition, working with channel partners helps to overcome the
greatest barrier to EDI usage perceived by the retailers in this study, which is
lack of vendor capability.
Trust and alliance building are very important in supply chain information
transfer. The retailer may share proprietary information with the vendor which
can help the vendor to provide better customer service to the retailer. However,
information sharing requires confidence that the information will not leak to
competitors, or be used as leverage by the vendor against the retailer, as in
price increases. Sharing information requires a new type of relationship that
has not been commonplace in the USA. A relationship based on trust is a type
of relationship that progressive retailers are pursuing. These retailers recognise
the competitive advantage they can gain in customer service, and the mutual
benefits throughout the supply chain that such information sharing can
provide.
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Conclusion
Retailing logistics is at a very exciting turning point right now, on the brink of
many important changes and opportunities. It appears that there is tremendous
potential for the role of logistics in the retail sector to expand and evolve in the
future. Those retailers who aggressively pursue the opportunities associated
with a unified supply chain strategy and improved information management
will likely enjoy improved customer service, and a more integrated logistics
function. Integrating logistics could allow retailers to achieve an important
gain in their competitive position.
References
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the delivery of service quality'', lcurna/ cf Mar/el/ng, Vol. 52, April 1988, pp. 35-48.
2. La Londe, B.J., Cooper, M.C. and Noordewier, T., (uslcmer 5er/te. A Managemenl
lersel/te, Council of Logistics Management, Oak Brook, IL, 1988.
3. Cook, K., ``Information technology to reshape retailing'', D/scunl 5lcre Neus, 11 May 1987,
p. 122.
4. Armstrong, J.S. and Overton, T.S., ``Estimating non-response bias in mail surveys'', lcurna/
cf Mar/el/ng Researh, Vol. 14 No. 3, August 1977, pp. 396-402.
5. Houlihan, J.B., ``International supply chain management'', lnlernal/cna/ lcurna/ cf lhvs/a/
D/slr//ul/cn & Maler/a/s Managemenl, Vol. 15 No. 1, 1985, pp. 22-38.
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chain management'', lnlernal/cna/ lcurna/ cf lhvs/a/ D/slr//ul/cn & Maler/a/s
Managemenl, Vol. 15 No. 5, 1985, pp. 16-26.
7. Baker, B., ``Spreading the barcode gospel'', Tcmen`sTear Da//v, September 1986, p. 842.
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Hand//ng, May 1989, pp. 14-15.
9. Schwartz, N. (Ed.), D/scunl Merhand/ser, January 1986, pp. 40-6.
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pp. 81-6.