If consumers only purchased their requirements in line with their use, then it would
be relatively easy to reorganize the end-to-end supply chain from shelf to national
warehouse using lean principles. A simple demand-pull system replenishing tomorrow that
which has been sold today, direct to shelf, would streamline store operations and reduce
inventories significantly. Retailers like Wal-Mart the United States and Tesco in Britain have
pursued an everyday low price policy in an attempt to maximize this ‘steady state’
replenishment policy. However, in Europe, most retailers have found that customers enjoy
promotions and that promotions boost sales. In any case, events like Christmas and back to
school create huge surges in demand. Events may be divided in two: seasonal events and
promotional events, as shown
Seasonal events Promotions
Valentine’s Day
Mother’s Day
Summer holidays
Christmas
Retailers have no control over the timing of seasonal events and it is usually very
difficult to forecast likely demand with normal levels of accuracy. In contrast, promotional
events are planned by retailers and their suppliers. Consequently, while demand may be
unpredictable, the timing of such events is known in advance. It is surprising, therefore, how
often consumers will find that items on promotion are not on the shelf and that display aids
and promotional material will be missing. The event which has the greatest effect is
Christmas – where sales usually start growing in October, ramp up in November and peak in
December. This is the only profitable quarter for many retailers. The product is frequently
sourced from the Far East and once the order has been delivered there will be no further
shipments. Retailers need to plan for this activity months in advance and cross their fingers
that they will not miss sales through under-ordering or buy too much with the consequent
write-downs in the January sale. The position is further complicated in a national chain
Three for two
Buy one get one free
10% off for a week
Triple loyalty card points
Gift with purchase
where demand patterns will be different store by store and region by region. Many retailers
allocate their Christmas merchandise to individual stores on the basis of previous year’s
sales for the particular product category and hope for the best, A lean design supply chain is
unable to cope with such spiky demand, which will be affected further by marketing efforts
and the latest fad. Retailers therefore need to be particularly agile in their approach in order
to satisfy unknown demand.
Boots The Chemists (BTC) – the leading UK health and beauty retailer – has
approached this problem by outsourcing specific Christmas merchandise deliveries. These
deliveries are scheduled at different times of the day from ‘normal’ deliveries. In this way,
while not dealing with the issues created by unpredictable demand, store operations can
apply appropriate resources to unload vehicles and put away directly to shelf or indirectly
to stockroom. Historically, promotional events in BTC were a fairly hit and miss affair with
hundreds of products being promoted within a four-week window. There was a high reliance
on good luck for all the elements to come together prior to the start of the promotional
period. Inevitably some products, display aids and show material arrived late. Store
operations at the end of the supply chain then gad to try and mount the promotions with
what had been delivered. Consumers were dissatisfied with the result and sales were lost.
The solution was to create a dedicated promotions team within the categories. The teams
masterminded the overall promotional plan and were made responsible for the delivery of
products, display aids and show materials into the national distribution centers (NDCs). A
successful trial was then conducted whereby most of the work required to mount the
promotion was done by logistics staff in the regional distribution centers (RDCs) for each of
the individual stores. The trial comprised sending allocations of all the promotional
requirements to the RDCs from the NDCs. Staff in the RDCs then picked products for a
week’s anticipated sales (based on historical data for that line by individual store) into totes
for direct-to shelf delivery together with appropriate display aids and show material. The
totes were then placed on dollies, rolled on and off vehicles, and wheeled into the shop to
the correct gondola end (end of free-standing ‘island’ shelf in a store). After three days,
EPOS data was reviewed, and an accurate prediction of future sales to the end of the
promotion was made. This was then used to calculate future replenishment requirements.
Finally the merchandising teams were invited to devise clever ways to make shelves look
full at the end of the promotion without using a lot of stock. This resulted in fewer
‘remainders’ from a promotion that had to be written down. BTC is currently implementing
its design for a transformed end-to-end supply chain and the work described above is being
gradually rolled out. (Source: Philip Matthews, formerly Supply Chain Director, BTC)
Questions
1. List the logistics challenges of mounting promotions and events at BTC.
If consumers only purchased their requirements in line with their use, then it would be relatively easy to reorganize the end-to-end supply chain from shelf to national warehouse using lean principles. A simple demand-pull system replenishing tomorrow that which has been sold today, direct to shelf, would streamline store operations and reduce inventories significantly. Retailers like Wal-Mart the United States and Tesco in Britain have pursued an everyday low price policy in an attempt to maximize this ‘steady state’ replenishment policy. However, in Europe, most retailers have found that customers enjoy promotions and that promotions boost sales. In any case, events like Christmas and back to school create huge surges in demand. Events may be divided in two: seasonal events and promotional events, as shownSeasonal events Promotions Valentine’s Day Mother’s Day Summer holidays Christmas Retailers have no control over the timing of seasonal events and it is usually very difficult to forecast likely demand with normal levels of accuracy. In contrast, promotional events are planned by retailers and their suppliers. Consequently, while demand may be unpredictable, the timing of such events is known in advance. It is surprising, therefore, how often consumers will find that items on promotion are not on the shelf and that display aids and promotional material will be missing. The event which has the greatest effect is Christmas – where sales usually start growing in October, ramp up in November and peak in December. This is the only profitable quarter for many retailers. The product is frequently sourced from the Far East and once the order has been delivered there will be no further shipments. Retailers need to plan for this activity months in advance and cross their fingers that they will not miss sales through under-ordering or buy too much with the consequent write-downs in the January sale. The position is further complicated in a national chain Three for two Buy one get one free 10% off for a week Triple loyalty card points Gift with purchase where demand patterns will be different store by store and region by region. Many retailers allocate their Christmas merchandise to individual stores on the basis of previous year’s sales for the particular product category and hope for the best, A lean design supply chain is unable to cope with such spiky demand, which will be affected further by marketing efforts and the latest fad. Retailers therefore need to be particularly agile in their approach in order to satisfy unknown demand. Boots The Chemists (BTC) – the leading UK health and beauty retailer – has approached this problem by outsourcing specific Christmas merchandise deliveries. These deliveries are scheduled at different times of the day from ‘normal’ deliveries. In this way,
while not dealing with the issues created by unpredictable demand, store operations can
apply appropriate resources to unload vehicles and put away directly to shelf or indirectly
to stockroom. Historically, promotional events in BTC were a fairly hit and miss affair with
hundreds of products being promoted within a four-week window. There was a high reliance
on good luck for all the elements to come together prior to the start of the promotional
period. Inevitably some products, display aids and show material arrived late. Store
operations at the end of the supply chain then gad to try and mount the promotions with
what had been delivered. Consumers were dissatisfied with the result and sales were lost.
The solution was to create a dedicated promotions team within the categories. The teams
masterminded the overall promotional plan and were made responsible for the delivery of
products, display aids and show materials into the national distribution centers (NDCs). A
successful trial was then conducted whereby most of the work required to mount the
promotion was done by logistics staff in the regional distribution centers (RDCs) for each of
the individual stores. The trial comprised sending allocations of all the promotional
requirements to the RDCs from the NDCs. Staff in the RDCs then picked products for a
week’s anticipated sales (based on historical data for that line by individual store) into totes
for direct-to shelf delivery together with appropriate display aids and show material. The
totes were then placed on dollies, rolled on and off vehicles, and wheeled into the shop to
the correct gondola end (end of free-standing ‘island’ shelf in a store). After three days,
EPOS data was reviewed, and an accurate prediction of future sales to the end of the
promotion was made. This was then used to calculate future replenishment requirements.
Finally the merchandising teams were invited to devise clever ways to make shelves look
full at the end of the promotion without using a lot of stock. This resulted in fewer
‘remainders’ from a promotion that had to be written down. BTC is currently implementing
its design for a transformed end-to-end supply chain and the work described above is being
gradually rolled out. (Source: Philip Matthews, formerly Supply Chain Director, BTC)
Questions
1. List the logistics challenges of mounting promotions and events at BTC.
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