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Chapter

RMG 200 Chapter Notes -Electronic Data Interchange, Markdown, Data Warehouse


Department
Retail Management
Course Code
RMG 200
Professor
Brent Barr

Page:
of 4
ANALYZING MERCHANDISE PERFORMANCE
A. ABC Analysis Evaluating the Assortment Plan and Vendors
- ABC analysis: an analysis that rank orders SKUs by a profitability measure to determine which items should
never be out of stock, which should be allowed to be out of stock occasionally ad which should be deleted from
the stock selection
- This principle suggests that retailers should concentrate on products that provide the biggest return
- This rank order reveals the general 80-20 principle (80% of a retailer’s sales or profits come from 20% of the
products)
A items
5% of items and represent 70% of sales
- Should never be out of stock
- Can be expensive to carry because they generally require
high levels of backup stock to buffer against variations in
demand and lead time
B items
10% of the SKUs and an additional 20%
of sales
- Includes some of the other better selling colours and
patterned shirts
- Occasionally it will run out of some SKUs in the B
category because its not carrying the same amount of
backup stock as for A items
C items
65% of SKUs but contribute only 10%
of sales
- Planner may plan to carry C items in only certain odd
sizes, with special orders used to solve out of stock
conditions
D items
Remaining 20% of SKUs
- No sales whatsoever during past season, having become
out of date or shopworn
- Markdown, give away or get rid of it
Step 1 Rank order SKUs using one or more criteria
- Contribution Margin = Net Sales Cost of Goods Sold Other variable expenses
o Variable expense sales commission
- Other measures commonly used in ABC analysis are:
o Sales dollars
o Sales in units
o Gross margin
o GMROI
- Sales or gross margin per square meter measure are also useful in ABC analyses
Step 2 Determine how items with different levels of profit or volume should be treated differently
- The planner has defined the A,B,C, and D SKUs by rank ordering each SKU by sales volume and examining the
distribution of those sales
B. Sell Through Analysis
- A comparison of actual and planned sales to determine whether early markdowns are required or whether
more merchandise is needed to satisfy demand
- The decision for determining when a markdown is necessary depends on experience with the merchandise in
the past
o Whether the merchandise is scheduled to be featured in advertising
o Whether the vendor can reduce the buyer’s risk by providing markdown money
- The need to make adjustments depends on variety of factors including experience with the merchandise in the
past, plans for featuring the merchandise in advertising, and the availability of markdown money for evaluating
vendors from vendors
C. Multiattribute Model
- A method for evaluating vendors that uses a weighted average score for each vendor, which is based on the
importance of various issues and the vendor’s performance on those issues
- Step 1: Develop a list of issues to consider in the decision the list should be balanced to access several issues
of vendor performance
- Step 2: Include a ranking for each issue in column 1 importance ranking should be determined by the
buyer/planner in conjunction with the merchandise manager
- Step 3: Make judgments about each individual brand’s performance on each issue this should also be joint
decision between the category and merchandise managers
- Step 4: Evaluate the overall performance score of each vendor by combining the importance ranking and
performance scores of the vendor.
- Step 5: Determine vendor’s overall rating, add the products for each brand for all of the issues.
STRATEGIC ADVANTAGES GAINED THROUGH SUPPLY CHAIN MANAGEMENT
- Supply chain management: the integration of business processes from end user through original suppliers that
provides products, services, and information that add value for customers
- It is the retailer’s responsibility to guage customers’ wants and needs and work with the other members of the
supply chain wholesalers, manufacturers, transportation companies to make sure the merchandise
custoemres want is available when they want it
- Manufacturers ship merchandise either to a distribution centre operated by a retailer, or they ship directly to
stores
Improved Product Availability
- An efficient supply chain has two benefits for customers:
o fewer stockouts
o assortments of merchandise that customers want when and where they want them
- these benefits translate into greater sales, higher inventory turns and lower markdowns for retailers
THE FLOW OF INFORMATION
A purchase will trigger a series of information messages throughout the system. (Eg. purchase of a pair of jeans)
1. The sales associate scans the UPX tag on the jeans. A sales receipt is created.
2. The purchase information is recorded in the POS terminal and sent to the buyer/planner. The buyer/planner
uses this information to plan additional purchases and make markdown decisions.
3. The purchase information is typically aggregated by the retailer, and an order is created and sent ot the vendor
using a system called electronic data interchange (EDI)
4. The buyer/planner communicates with the vendor regarding the purchase order for the merchandise.
5. The buyer/planner communicates with the distribution centre to coordinate deliveries from the vendor and to
the stores, check inventory status.
6. Store managers also communicate with the distribution centre to coordinate deliveries and check inventory
status.
Data Warehousing
- Data warehouse is the coordinated and periodic copying data from various sources, both inside and outside the
enterprise, into an environment ready for analytical and informational processing
- The information stored in the data warehouse is accessible on several dimensions and levels, depicted in the
data cube
- Analysts from various levels of the retail operation extract information from the data warehouse for making a
plethora of marketing decisions about developing and replenishing merchandise assortments
- Data warehouses also contain detailed information aout customers, which is used to target promotions and
group products together in stores
Electronic Data Interchange
- Electronic data interchange (EDI): the computer to computer exchange of business documents from retailer to
vendor and back
- In addition to sales data, purchase orders, invoices, and data about returned merchandise are transmitted from
retailer to vendor
- Advanced shipping notice (ASN): an electronic document received by the retailer’s computer from a supplier in
advance of a shipment
o Tells the retailer exactly what to expect in the shipment
Ways in which EDI data can be transmitted:
Intranet
- A secure communication system that takes place within one company
- Buyers can communicate and coordinate with store and distribution centre
personnel
Extranet
- A collaborative network that uses internet technology to link businesses with their
suppliers, customers, or other businesses
- Typically private and secure in that they can be accessed only by certain parties
- Generally an extension of a company’s intranet, modified to allow access by
specified external users
Radio Frequency
Identification Technology
- A technology that provides real time data collection and detection of product via
automated messages received by an antenna which reads radio frequency tags on
product
- Benefits include:
o Positive shopping experience for the customer
o Simplified merchandise processing for sales associates
o Cost reduction for the retailer
o Reduced over ordering and over production on the part of supplier
o Reduced inventory in stores
o Increased inventory turns
o Increased efficiency for employees in finding and handling inventory
facilitating inventory replenishment
o Reduced loss on data coded items
o Reduced shrinkage
- Collaboration, planning, forecasting, and replenishment (CPFR): a collaboration
inventory management system in which a retailer shared information with
vendors
- CPFR software uses the data to construct a computer generated replenishment
forecast that is shared by the retailer and vendor before its executed
Security
- Security policy: set of rules that apply to activities in the computer and communications resources that belong
to an organization
- Security policy should set the following objectives:
o Authentication the system should be able to ensure or verify that the person or computer at the other
end of the session really is what it claims to be
o Authorization the system should be able to ensure that the person or computer at the other end of the
session has permission to carry out the request
o Integrity the system should be able to ensure that the arriving information is the same as that sent
THE PHYSICAL FLOW OF MERCHANDISE LOGISTICS
- Logistics : part of the supply chain process that plans, implements, and controls the efficient, effective flow and
storage of foods, services, and related information from the point of origin to the point of consumption in order
to meet customers’ requirements
- Supply chain management includes logistics, but it is more comprehensive and strategic concept that includes
customer relationship management, inventory management, and vendor relations
- Different merchandise flows include:
o Merchandise flows from vendor to distribution centre
o Merchandise then goes from distribution centre to stores
o Alternatively, merchandise can also go from vendor directly to stores
- UPC code: the black and white bar code found on most merchandise
o Used to collect sales information at the point of sale using computer terminals that read the code
o This information is transmitted computer to computer to buyers, then distribution centers and then to
vendors, who in turn quickly ship replenishment merchandise
Quick Response Delivery Systems