cilt level 5 professional diploma

CILT Level 5 Professional Diploma

3.INVENTORY AND WAREHOUSE ISSUES Learning Outcomes

After studying this module you will be able to:-

• Apply appropriate techniques to organise and manage the inventory of a retail operation

• Assess different warehousing systems and their support requirements

• Understand the importance of the warehouse in support wider retailing objectives


For the retail inventory manager, the key elements of the role

include:-

• Managing the internal relationships with trading, buying and finance colleagues.

• Managing the external relationships with suppliers, and determining whether to employ Vendor Managed Inventory with some or any of these.

• Applying the appropriate inventory techniques, such as allocation

• Taking responsibility for planning managing the inventory levels and availability to the appropriate targets agreed within the business


3.1 BASIC PRINCIPLES UNDERPINNING INVENTORY MANAGEMENT SYSTEMS In the earlier sections , we explained that the retail sector has become more competitive and there are a number of general challenges for retailers to deal with in their supply chains, these include:-• Managing increasing volumes- from distant suppliers

due to Global sourcing.• Broadening product ranges – including holding a more

diverse product range• Intense competition – Especially from Internet based

competitors with minimal overheads.• Requirements for faster – And smaller but more frequent

deliveries Continued pressure – On keeping down costs and

continually reviewing efficiency improvements.


Inventory management systems need to be able to cope with a variety of other challenges, these will obviously vary considerably between retrial sectors but the main areas include:

• Product Shelf-lives - especially high value technological influenced product

• Store variations– Keeping relevant stock to suit geographical market and demand.

• Product seasonality – Volatility in markets needs to be Agile supply chain management.

• Product families - Need to hold variety to give customer choice


• Multiple purchases - some products are often

purchased in multiples such as (DIY) Wallpaper floor tiles etc Sku need to reflect multi pack buy.

• Dependent demand - Some product purchaser are closely linked with other product lines such as paint = paint brush etc

• Supplier capabilities - Supply and demand must always be met good partnerships will reduce the risk of not meeting your customer service agreement.

• Promotional activity - These activities need to be well researched and balanced as a lack of product to meet promotional demand could push potential customers to the competition.


Fortunately inventory management systems have been transformed since the 1980s. Integration of data with other parts of the organisation, through an ERP package or just a properly integrated set of systems, more powerful computing and helpful “what if” tools, provide the professional inventory manager with the opportunity to achieve improved availability and lower waste and mark downs. The basic principles can be summarised:-

• Avoid averages - Try not to stock using the average store sale

• Avoid general broad-brush - look at each store individually key areas may be display space

• Check the relationship between the pack size- rate of sale and maximum shelf space allocated.

• Review any minimum order values or quantities – Create a realistic and economic order for suppliers (JIT)

• Work closely with the most important suppliers – Discuss requirements and future plans


• Integrated management of the range – supply chain

and overall management systems should be integrated and complimentary to each other.

• Proper range change and promotional planning – These activities need to be carried out as stand alone projects with attention to detail including sales forecasts and tracking of actual performance. (Included within the plan should be a Exit strategy)

• Supplier performance management – KPI indicators should be used to monitor and communicate both internally and externally performance.

• Timely and accurate data capture and transfer – Point of sale and loyalty cards etc


The inventory specialist clearly has a number of challenges, some of these are about managing a portfolio of hundreds or thousands of skus from a variety of suppliers, but it is not supply about data analysis and interpretation. Equally as important are the people-related skills to work with colleagues and external suppliers to delivery improved service, which should relates to sales, with lower levels of inventory and obsolescence or mark-down

Modern inventory systems can enable far better management of retail inventories, but there are three potential and related problems:-Many of these systems are very complex :

• Retailers need to invest - Heavily on staff induction and training this will ensure their expensive systems are utilised to their full potential. If system are not understood they effectively become a “black box”


Task 7You have been asked by a retailer to plan and manage the inventory management system. Apply the appropriate techniques to organise and manage the inventory of your chosen retail organisation. Discuss the advantages and disadvantages of modern systems such as EPOS, EDI and Automatic Identification and Data Capture. (3.1.1)


3.1.1 INFORMATION AND DATA

Modern systems are used extensively in retail businesses to manage, control and provide management information to facilitate decision-making. The quality and accuracy of the information within the systems is dependent upon the quality of the data used, the sources and the ability of the organisation to maintain it.

There are a number of important elements within the Data Systems area, which need to be present and working, to provide very efficient and effective Retail Logistics operations:

• EPOS - Electronic Point Of Sale

• Automatic Identification and Data Capture - Bar coding allows a company to monitor a product lines logistic movements and sales activity

• Local Area Networks - Such as Argos kiosk transaction counters or stock management scanning devices used for operating a warehouse.

• Enterprise Resource Planning Systems –These systems are fully integrated with POS.


3.1.1 INFORMATION AND DATA

• EDI – The transfer of information both upstream and downstream is important if the supply chain is to meet the demands of the retail market. The EDI System does this transfers information electronically between systems and confirms when information has been delivered.

• Information Flows - Connecting the technology enables accurate data to be passed between partners within the supply chain. This will allow information to flow much faster and effectively.


3.2.1 WAREHOUSE MANAGEMENT SYSTEMS

We noted earlier that modern warehousing systems have enabled organisations to operate larger and more complex warehouses efficiently, in a way and on a scale that would have been either impossible or too costly without them. This does not mean that all warehouses must have a full-scale WMS, it is perfectly possible to control smaller and simpler operations without them. The evolution of the WMS has been a significant reduction in the use of paper within the warehouse and improvements in the ability to mange, track and report on activities and the performance of people and resources.

Whilst automated warehouse operations will have their own bespoke control systems and organisations will have their own broader systems, this sections focuses upon the role and evolution of the WMS.


The WMS is the computer control for the management of the product and materials handling equipment in a distribution centre(s) it facilitates the efficient management of the flow of products from receipt and storage through picking despatch. The four main functions of a traditional WMS are:-

• Stock Receipt – Receipt and release of stock on to system

• Stock location and control - Binning location

• Order processing – Priority and allocation of work.

• Routing and planning of picking activities – Monitors pick rates and accuracy


To manage these functions in an efficient manner the WMS requires the provisions of a variety of different pieces of information to manage the operations:-

• Product Data - Weight – Size – Hazards'• Supplier data – information as to what supplier will

be delivering to the DC• Location data – Information on the various storage

location• Stores data – Information contained about each

store which is to be delivered to• Resource Data – Information available on both

people and equipment availability• Activity Data – Information about various activities

involved in carrying out different types of work


Typical benefits from implementing a WMS are:-

• Data integrity improvements – Allow faster and more accurate activities to take place, also improved stock accuracy

• Productivity – enables to monitor operators in pick rates and replenishment tasks. Also identifies key areas where more efficient use of equipment can be utilised.

• Time –compression – Speeds up activities and reduces bottlenecks allowing faster put away picking and dispatching of goods. Monitors measures and controls performance

• Space Utilisation – Enables warehouse manager to use warehouse more effectively.

• Cost - The overall effect of the above should reduce cost


WMS Systems have been available for more than three decades and there have been significant improvements in functionality, including:-

• Support for value adding activities such as labelling and rework

• Better track and trace to enable better visibility of order status and real time adjustments to activities and priorities

• Multi-location, to manage multiple DCs• Better planning functionality, tools to make planning

and “what if” analysis easier and quicker • Increased configuration • Broader capabilities • Support for simultaneous • Support for improved communications technology


TASK 8

List the main functions of a WMS and the information systems required to successfully manage retail operations. Identify the

typical benefits of implement an effective WMS. (3.2.1)


3.2.2 ERP VERSUS BEST OF BREED

We discussed the development ERP packages in Section 2.4.1 this has created different choices for organisation. Some retailers want to leverage the common data and integrated system in their ERP system and will implement the WMS module from their ERP Vendor.

Historically these modules have been less functionally rich than the best of breed alternatives, but the gap has been closing Best of Breed vendors have responded by acquisitions and merger to consolidate their market position and extend their offerings to include other areas, such as merchandise management and transport management.


INVENTORY MANAGEMENT

We discussed many of the underlying principles and challenges in the Inventory Management unit earlier. We recognised the challenges facing the retail inventory specialist, with increasing competition, shorter product life cycles and global sourcing.This section covers three mechanisms to help manage inventory and improve relationships and communications with suppliers. These can be compared with QR and ECR, which we discussed earlier


3.3.1 VENDOR MANAGED INVENTORY There are four key elements in the VMI process:-

• The supplier calculates the re-order points for individual skus based on historical sales data.

• The retailer exchanges forecasts, promotional plans and sales data with the vendor ideally through EDI or other electronic data transfer

• The supplier generates reverse purchase orders when the re-order point is reached, to initiate the require replenishments

• Replenishments are based on the supplier’s own forecasted demand and inventory plans

The underlying principle is that the supplier has a greater knowledge of the (smaller) range of products that they supply, so they should be better placed to forecast and manage the flow of goods, improving availability whilst reducing stock and costs. A good VMI process should allow the supplier to plan and manage their own manufacturing (or purchasing) process more efficiently.


VMI is not a silver bullet which can improve every retail supply chain, and it has received a variety of criticisms, including: -

•There is a risk of increased cost and reduced flexibility•There is too much focus on maintaining stock levels at DCs•The retailer may well be better equipped and motivated than most supplier to manage the vast majority of the range.•There are concerns over confidentiality of future plans, especially where the supplier is dealing with the retailer’s major competitors.•There is a risk that the supplier manages the inventory in a way that suits them far better than the retailer, resulting in a sub-optimal (for the retailer) outcome.•The focus is primarily on the short-term and is too tactical •There is a risk that there is too much focus on technology and insufficient on relationships and communications.

VENDOR MANAGED INVENTORY


CO-MANAGED INVENTORY A development on from VMI is Co-Managed Inventory (CMI), which is similar but the supplier manages the replenishment process and develops forecasts in the retailer’s system – the order placed by the supplier is still a recommendation and will not be firm until/unless agreed by the retailer.

Somerfield were a strong user of CMI, they began the first major trial in Europe in the mid 1990s. They worked with twelve leading suppliers, including Lever Brothers, Nestle, Kelloggs and Britvic. The stated benefits were.

• Improved forecast accuracy • Stock levels reduced by up to 25% without affecting customer

service • Service levels improved by 25% • A better response to promotions • improved communication and understanding • It established a basis for ECR principles


3.3.2 COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT

CPFR is a business model that takes a holistic approach to supply chain management and information exchange among trading partners. It uses common metrics, standard language, and firm agreements to improve supply chain efficiencies for all participants. It is broader than VMI, a wider attempt to co-ordinate production, purchase planning, demand forecasting and inventory replenishment between the partners in the supply chain.


The basic premise of CPFR is that all supply chain participants develop a synchronized forecast. Every participant in a CPFR process – supplier, manufacturer, distributor, retailer – can view and amend forecast data to optimize the process from end to end. Essentially, CPFR puts an end to guesswork in forecasting. It means that manufacturers and retailers share their plans, with detailed knowledge of each other’s assumptions and constraints.

CPFR evolved from ECR, initially as Collaborative Forecasting and Replenishment (CFAR) in 1996 and was refined to CPFR by the Voluntary Inter-Industry Commerce Standards (VICS) in 1997. The VICS definition of CPFR is “a collection of new business practices that leverage the internet EDI in order to radically reduce inventories and expenses while improving customer service


CPFR addresses a number of issues that were not covered by VMI. Including:

• The influence of promotions on sales forecasts and inventory policies

• Sharing or promotion schedules, POS data and inventory plans to facilitate single forecasts and lower stock levels

• Consolidation of multiple (and often contradictory- forecasts both within and between companies into a single, joint agreed plan

• Co-ordination and synchronisation between departments and processes across the supply chain


CPFR is another initiative to align retailer/supplier relationships, the challenges and consequences of the inefficiencies and mis-alignments can be summarised as follows:

• Supplier’s manufacturing operations may have little visibility of the demand that they will receive and consequently may be unable or slow to react to changes. The symptoms will be excess capacity, excess inventory and obsolescence and inadequate stock availability.

• Supplier’s head office will not be able to anticipate changes in demand The symptoms will be poor service to the retailer, in terms of lower than required on Time In Full delivery performance.

CILT Level 5 Professional Diploma •Retailer’s head office will not be aware, or possibly concerned, of the manufacture’s constraints. The symptoms will be disappointment with the supplier’s ability to meet the demand and a far greater level of late adjustments and urgent orders, which will add cost and administration problems to the process.

•Retailer’s stores will not receive the promotions in the right quantities at the correct times. The symptoms will be insufficient inventory on some skus, too much inventory on other skus and a significantly more time consuming process than necessary.

•Customers, often driven by advertising will not be interested in the supply chain challenges, but may be disappointed. This manifests itself in lost sales and potentially lost future loyalty.

•A sale increase of 47% in 3 months

•Inventory reduced by 17%

•Warehouse service levels increased from 93% to 97%


In the UK Sainsbury’s used a system from Eqos Limited, focused on promotional activity, covering 80% of promotional volume from 250 suppliers, integrated into the supplier’s systems, benefits were reported as:-

• 20% reduction in out-of-stocks for promoted lines • £2.5m reduction in waste and administration costs• Benefits from CPFR can be summarised as:• Higher sales • Lower inventories and obsolescence • Faster cycle times• Increased customer satisfaction


3.3.3. RETAIL EXCHANGES

The explosion of the use and opportunities offered by the internet in the late 1990s led to a large number of Business to Business (B2B) exchanges being established. These have developed and been extended, in this context the key element is that they facilitate direct links between buyers and suppliers to improve supply chain efficiency. As with the other forms of electronic interaction we have discussed, they improve the accuracy and speed of transactions and can integrate the planning functions, potentially allowing the relationships to become more customer focused. It is important to note that they are often used with a sub-set of the retailer’s supplier base.

The advantages of Exchanges are:-

•Standardisation

•Simpler interfacing

•Lower operating costs


Tesco’s Tesco information exchange (TIE) was used by over 1,100 suppliers – representing 80% turnover – and over 4,000 users in 2001 and received 130,000 hits per month. The top three sites were for Epos sales, depot stocks and service levels.

Modern ERP systems are now able to offer a significant amount of this functionality, with the benefit of date integration and standardisation of operating platform, although this may not be functionally rich enough for some applications.


Task 9Explain the benefits and limitations of data protection

collection and transfer systems. Analyse the effectiveness of this information in the support of retail

operations Identify mechanisms that will help to manage inventory and improve relationships and communication

with suppliers. VMI, CPFR and the Retail Exchange. (500-850 words) (3.3.1)

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cilt level 5 professional diploma

Documents

professional inventory

inventory levels

retail inventory manager

product lines

lack of product

product purchaser

product families

vendor managed inventory