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Roberto Vona » 8.Purchasing and logistics management

Lesson content

Learning outcomes

Present the main decisions and tools for supply management in retail companies.

Lesson content

  • Logistics cycle and basic input for defining it.
  • Phases in the purchasing process.
  • Purchasing management models.
  • Brand loyalty, store loyalty, and choosing suppliers.
  • Effects of logistics on evaluation of suppliers.
  • Distribution Centres: operations and organisation.
  • Distribution Centres and the reordering process.
  • Advantages of Ordering Cycle over Two Bin System.
  • Logistics outsourcing.

Purchase and logistics management

Basic input and the purchasing process

Basic input

  • levels of width and depth of product range, bearing in mind market expectations and intensity of the competition;
  • the amount of in-shop stock-handling needed to keep the risk of stock breaks within acceptable limits;
  • the current and prospective number of network stores, based on the need for points of sale to improve their productivity performance and therefore the saturation level of their productive capacity.

The purchasing process

  • identifying sources of supplies;
  • contacting potential suppliers;
  • evaluating the standing of potential suppliers and comparing their quotes;
  • selecting suppliers;
  • setting up and updating¬† a list of suppliers;
  • negotiating sales conditions.

Supply management models

Centralised management models

All management operations, with the exception of sales, are carried out by a single subject, who analyses sales statistics together with the store managers, selects the suppliers, decides on promotional and pricing policies, sales objectives and merchandising plans for each store, and management power within the individual store is limited to the implementation of plans devised by central management.

Centralised purchasing model

In this model, managers of the points of sale enjoy greater decision-making autonomy: they provide central management with information on the quantity and type of products to purchase. Central management only places the orders and manages the logistics.

Decentralised management model

The buyer is only responsible for selecting the most suitable supplier and negotiating purchasing conditions. The store managers are responsible for what quantities to purchase and all aspects of logistics.

Effects of brand loyalty and store loyalty

The fundamental relationship between manufacturers and distributors changes depending on whether the product is a manufacturing brand or a private or general brand. When brand loyalty is lower than store loyalty the supplier, to convince the distributor, has to compensate for the reduced market strength by offering special concessions:

  • extra discounts;
  • referencing awards;
  • merchandising;
  • sales exclusives;
  • returns on unsold items;
  • payment extensions.

Changes to the structure of relationships in the supply chain have led to important changes to the systems for evaluating suppliers. It is possible to measure and classify the supplier’s productive output as well as their company resources and competences through standardised supplier-rating procedures.

Retail purchasing process

Distribution centres in grocery

The evolution of retail enterprises in grocery has led to: a gradual weakening in the market position of small independent businesses, traditionally served directly  by manufacturers or through wholesalers; increased market share and much larger retail operators have encouraged vertical integration of many independent businesses which used to operate in the phases preceding retail.

The result of these changes is that the flow of consumer goods in these markets seems to be more cost-effective if it passes through distribution centres.

Distribution Centre operations

  • managing reorders from suppliers;
  • incoming logistics management;
  • stock-handling and warehousing;
  • managing orders received from “customers”;
  • despatch of goods to individual points of sale.

Base stock

Advantages over the Two Bin System

“Mixed” orders are possible, made up of different products in different, sometimes small, quantities which total an acceptable order size. It allows for better management of the minimum purchasing and delivery quantities, which often form the basis of manufacturers’ sales policy.

Planning manufacturing operations is simpler and more effective.

It is easier to reach an acceptable compromise between the need to achieve satisfactory levels of efficiency and the need to guarantee the network an appropriate logistics service.

Base stock and quantities to order

Base stock and quantities to order

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