8 Retail Supply Chain Challenges & Prospects
8 Retail Supply Chain Challenges & Prospects
8 Retail Supply Chain Challenges & Prospects
Adeyemi John
Bachelor’s Thesis
February 2011
Pages Language
53 English
Retail supply chain; challenges and prospects aims to holistically review the retail
supply chain, the challenges and emerging trends, with a particular focus on the supply
chain for small business owners. Retailing tasks, retail classification, differences in
grocery and fashion retailing, challenges and opportunities for prospective retailers,
supply chain management and small businesses are discussed amongst others. The
feasibility for supply chain for the small retail business and results that help make the
case company edge competitors are also part of the discussion. Theories, opinions and
recommendations used in this research work were based on extensive use of primary
and secondary research methods which include interview, textbook, dictionaries, case
studies and internet media. At the end recommendations on inventory management,
formation of buying group and extensive use of niche merchandise are put forward in
this project work. The contents of this thesis will come in handy for prospective retail
entrepreneurs and researchers. There is also a possibility for further research into the
transformations in retail supply chain like the Quick Response, Factory Gate Pricing,
Efficient Consumer Response, Agile, Lean and leagile Supply Chains.
Keywords
Retail, small business, challenges, prospects, logistics, Supply Chain & Technology
Miscellaneous
CONTENTS
1. OVERVIEW ............................................................................................... 5
1.1 Aim of the Study ...................................................................................... 6
1.2 Company Presentation ............................................................................ 6
2. RETAIL ...................................................................................................... 7
2.1 Retail Tasks ............................................................................................ 8
2.2 Significance of Retail to the Economy ..................................................... 8
2.3 Retailing Classification ............................................................................ 9
2.3.1 Staple or Functional Products ........................................................... 9
2.3.2 Innovative Products ........................................................................ 11
2.4 Challenges of Retail Supply Chain ........................................................ 11
2.4.1 Supplier Reliability .......................................................................... 12
2.4.2 Misalignment of Retailers ................................................................ 12
2.4.3 Globalization ................................................................................... 12
2.4.4 Online Competition ......................................................................... 13
2.4.5 Big Retailer Prices .......................................................................... 13
2.4.6 Technology ..................................................................................... 14
3. SUPPLY CHAIN MANAGEMENT ........................................................... 14
3.1 Retail and Logistics ............................................................................... 15
3.1.1 Sourcing .......................................................................................... 17
3.1.2 Purchasing ...................................................................................... 17
3.1.3 Inventory Control............................................................................. 18
3.1.4 Quality Management ....................................................................... 18
3.1.5 Transportation ................................................................................. 19
3.1.6 Packaging ....................................................................................... 20
3.1.7 Warehousing ................................................................................... 20
3.1.8 Receiving and Inspection ................................................................ 21
3.1.9 Disposal and Recycling ................................................................... 21
3.1.10 Communication ............................................................................. 21
3.2 Integration of Logistic Mixes .................................................................. 21
3.3 Retail Supply Chain Transformation ...................................................... 23
3.3.1 Global Sourcing .............................................................................. 23
3.3.2 Quick Response.............................................................................. 24
3.3.3 Efficient Logistics Activities ............................................................. 25
3.3.4 Retailer Contribution Upstream the Supply Chain........................... 25
3.3.5 Green Logistics ............................................................................... 25
3.3.6 Efficient Consumer Response (ECR) .............................................. 26
3.3.7 Collaborative Planning, Forecasting and Replenishment (CPFR)... 26
3.3.8 Lean Philosophy ............................................................................. 26
3.3.9 Agility in Supply Chain .................................................................... 27
3.3.10 Leagile .......................................................................................... 29
3.3.11 Private Label Merchandize ........................................................... 29
3.4 Pricing Strategies .................................................................................. 30
3.4.1 Pricing Methods .............................................................................. 33
3.4.2 Specific Retail Pricing Strategies .................................................... 33
4. SMALL BUSINESS ................................................................................. 34
4.1 Financing Small Business ..................................................................... 35
4.2 Small Business Challenges and Characteristics ................................... 38
5. CURRENT STATE ANALYSIS AT ZAIKI INVESTMENT ....................... 40
5.1 Supply Chain in Zaiki Investment Oy .................................................... 40
5.2 Identified Problems ............................................................................... 41
5.3 Improvements ....................................................................................... 46
5.4 Discussion ............................................................................................. 51
5.5 Conclusion ............................................................................................ 53
REFERENCES ............................................................................................... 55
FIGURES
FIGURE 1 Hierarchy of Players in the Supply chain…………………………...16
FIGURE 2 The management task in logistics ................................................. 22
FIGURE 3 Agile supply chain ......................................................................... 28
TABLES
TABLE 1 Small business and supply chain feasibility..……….……………….52
5
1. OVERVIEW
It is already a fact that a chain is as strong as its weakest link. This is not alien
to a product supply chain which becomes incomplete without an effective and
efficient passage to the final customer. Consumer demands have changed
over the years from store based buying to online purchase, environmental
concerns, corporate social awareness, good product condition and packaging,
and on-shelf availability of the products. All these and more have sparked an
increased competition right from the upstream through downstream supply
chain to provide the ultimate value for money to the customers.
Due to the stiff competition between supply chains, the retail link has had to
alter practices for the bigger part of the transformations witnessed in the
industry. This is simply because of the vulnerability of the (retail) link to the
consequences of loose practices that might occur in the process. Big retailers
like Zara, P & G, Wal-Mart, & IBM have revised their retail practices more
often than their competitors in similar fields. Their winning emphases focus on
operational effectiveness and operational innovation and strategy according to
Chiles and Dau (2005, 15). Operational effectiveness is usually devised for
mass merchandise while the operational innovation is suitable for Fast Moving
Consumer Goods (FCMG). This is usually done in order to balance the deficit
that tends to occur between their service level and cost of operation. It is
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A quick check in the school archives reveals that discussion on retail has been
overlooked in the past. This motivated the author to take up the task of
studying the retail business focusing on the small business owners. This
introduction part will be followed by the theoretical aspects of the concepts
involved. These include in-depth analysis of retail, supply chain & logistics and
small businesses. These topics are discussed in chapters 2, 3, and 4
respectively. Chapter 5 contains the current situation analysis of the target
company and as well as the results and conclusions drawn.
This thesis topic aims to holistically review the retail supply chain in relation to
the challenges and emerging trends, but with a particular focus on the small
business. The interconnectivity of the retail and supply chain are discussed
and the strategies that help maintain competitive edge are also analyzed.
Small businesses and their characteristics make up the final theoretic basis of
the thesis. An analysis of the compatibility of a small business and supply
chain also make part of the discussions. Opportunities for feasibility and
viability are suggested at the end of the thesis.
liberal attitude to the business as this is just an attempt to keep him busy
during his retirement days, although he gave a valuable insight into the nature
of the business in that area.
2. RETAIL
Non-store retailing was born with the introduction of the Internet. This
generally means the transaction between buyers and sellers without meeting
at a property where the goods are sold. Most of these purchases are made
from the comfort of the buyers’ home using the Internet. This has been the
most popular form of buying over the past decade and is already tipped to
stay. It is now increasingly adopted by retailers to maintain competitive edge.
Non-store retailing can be done in six different categories (Non store retail
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Business to Business (B2B) are those purchases carried out between firms,
for instance between first & second tier suppliers. This can include supplier to
manufacturer, manufacturer to wholesaler and wholesaler to retailer.
One of the tasks of the retailer is the collection of an assortment of goods from
various marketers. They purchase in big quantities and sell in small quantities
to the customer. Breaking Bulk in which retailers buy products in big quantities
and then break them down into consumable sizes, is another of such tasks.
This buying style is to reduce transport cost to the retailer. They also ensure
that products are available for consumers to purchase. Retailers use forecast
data from the past sales history to determine the amount of stock to hold for
each period. Lastly, there are added services at the discretion of the retailer to
allure customers to their stores or rather give customer satisfaction. Such
services include gift wrapping, delivery, installation etc.
Staple products are products that are purchased on a daily basis. These
include grocery products, basic clothing etc. These set of items have
predictable sales. Automated planning systems are used to manage stock
replenishments for staple products. This is because these items have a
reliable sales history, thus they are forecastable. Durable staples can be held
in excess inventory for the short term unlike perishable items. Product
markdowns will be avoided. Sales data are used to compute order points and
order quantities based on past sales and forecasts. In a situation when lead
times can be shortened, safety stock can be reduced simultaneously.
Forecast errors occur when there is a difference between the actual demand
and the forecast. In such cases formulas are employed to make necessary
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Hugos further explains the seasonal inventory as those items purchased and
stored in anticipation for future demand. According to Chopra and Meindl
(2010, 48), ‘these are built up to counter predictable variability in demand.’
Either in retail or manufacturing, companies invest more in a low demand
period with the aim to have enough inventories to fulfill high demand periods.
By so doing, they make gains in economies of scale in transportation,
production (as the case may be) and ordering costs, all of which might not
make significant cost improvements with the cost of carrying inventory
consequently higher. Effective managers would have to determine, how to
balance this cost gap. In production for instance, if companies can change
their setup at a very low cost to meet high demand times, that will improve
their baseline rather than building inventory for the peak period. If the case
goes otherwise, then companies would do better by storing inventory during
low demand periods.
The safety inventory is the third type of inventory, kept to make-up for
uncertainty during a reorder period and variations in anticipated lead times.
Hugos further provided ways to reduce safety stock. Better forecasts reduce
forecast error. More on-timely delivery times so as to reduce lead times and
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These sets of products are more difficult to forecast. But they provide huge
profit margins to manufacturers or distributors. They are also characterized
with short sales period, which usually includes new product introduction,
seasonal products etc. Innovative products require a flexible supply chain
because they are difficult to forecast. They have a better profit margin and
occupy higher markup percentages than staple products. More differentially,
they have multiple retail paths to customers.
Challenges in a retail supply chain can be very costly if the system is not
properly designed. There are a lot of these bottlenecks retailers face in the
quest for a successful business. These glitches can be looked at as external
and internal problems. Although this classification is just the opinion of the
author, it is very possible for readers to view it otherwise. These challenges
are discussed under the following headings.
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This is perhaps a major problem for a retailer. If a supplier fails to perform his
function there will be no product for the retailer to sell. This can lead to lost
customers, plummeted sales turnover, lost profits etc. In the process of
supplier selection it is important to choose reliable suppliers. When carrying
out this task as a retailer, supplier history and reputation should be heavily
researched. After carefully identifying a supplier, supplier relationship
management is also an important part of the supply chain process to which
any retailer should endeavor to give a close attention. Reasons like
discriminative pricing, priority attention, first-hand information and process
innovation cannot be far-fetched as the benefits derived from such
relationships.
In the past, the manufacturers have been the ones who have designed the
supply chain. The effect of this has been detrimental to the business of the
retailer. Since the retailers are the ones who get the most important
information about the customer needs, it is quite logical for them to have a say
in how the whole process is structured for perhaps their own profitability and
needed service outcome. What this means is, for example, that some retailers
are opting to take control of transportation of their goods at the factory gate of
the supplier. The transportation cost will be carried by the retailer and be
subsequently introduced on the final price of the products. This trend is called
the Factory Gate Pricing and is taking over the U.K retail industry.
2.4.3 Globalization
In the 21st century, outsourcing and potential markets have impacted the way
the retail supply chain is structured. The strategies applied in this situation
depend on the nature of the merchandise. Notwithstanding, it still favorably
suits the big retailers better to source globally than their smaller counterparts
because of the absence of negotiation power. Low manufacturing cost
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especially on some innovative products from China and Asian countries have
shifted the paradigm from local manufacturing to global sourcing. Of course,
this affects the supply chain at large in terms of complexity as well as cost. But
this is where trade-offs in total cost vs. individual cost come into play.
Over the last decade, the Internet has changed the way we make purchases.
Whether the business to business (B2B) sector or the business to customer
(B2C) sector, there has been a considerable level of convenience that comes
with buying things online. For the B2B sector, it has been able to save cost of
travel and other imminent expenses. While Fernie and Sparks (2009, 208)
argue that the B2C sector has not been really profitable because of various
reasons, for instance the presence of intermediaries. Many more
entrepreneurs are looking into this channel to increase their baseline. It is only
certain that this online trend will continue as many more people begin to have
access to various sophisticated devices that can help them in making online
buying. Amazon, Netflix, e-bay etc. are pioneers of the online shopping
experience; they have made major revenues through their various innovation
strategies.
Bullying is a very common happening in the retail sector. Big companies, e.g.
Wal-Mart, have over the years been accused of bullying by many small and
medium sized retail outlets for their cut-throat prices. This is only a natural
occurrence because of the high negotiating power these companies possess.
They often take away the sense of community that has for long had a tradition
where people buy from smaller neighbourhood shops. Many governments
have been making unprecedented moves to help sustain these small retail
shops but have only seen their efforts mostly proved abortive (Is this the end
of local stores?).
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2.4.6 Technology
Apart from the traditional act of buying and selling most of the retail task is
driven by the supply chain. For profitability, a retailer has to look far beyond
these pure transaction functions. Although some argue that supply chain
implementation is complex, the numerous financial gains that have been
observed by the companies making a full potential of supply chain
management cannot be downplayed. Most big retailers already pay most
attention to the management of their supplies. These include alignment,
synchronization, and relationship building. Not all SME’s have paid attention to
supply chain management for various reasons. For some of them, it does not
add significant value to their operations and some they are just unaware of it.
designing the supply chain for optimization using tested tools and information
technology. It can also be termed an end-to-end process for information to
pass through all partners for action.
Companies that critically asses these operations and use best practices to
fulfill their activities will reap significant cost savings. The baseline for the
operations is the utilization of lean principles in their operation. Lean is the
term that originates from the Japanese auto giant Toyota to revolutionize the
car manufacturing industry. It simply is the elimination of any kind of wastes in
the supply chain process. Whatever does not add value from the customer
perspective should be rejected. Interestingly, each successive hierarchy in a
supply chain is a customer to the preceding hierarchy (supplier). This gave
birth to the idea of continuous improvement, which is the philosophy stating
that no particular business operation is perfect. The business must be re-
visited and loopholes should be eliminated as long as it gives no value.
function that has occurred in over the years. A more justifiable definition for
Logistics management is provided by the Council of Supply Chain
Management Professionals (CSCMP). They define logistics as ‘the part of
supply chain management that plans, implements and controls the efficient,
effective forward and reverse flow of goods, services and related information
between the point of origin and the point of consumption in order to meet
customers’ requirements’.
As it can be seen from the CSCMP definition above, logistics is a part of the
entire supply chain process. Ayers and Odegaard (2006, 7) define supply
chain as ‘Product life-cycle processes comprising physical, information,
financial and knowledge flows whose purpose is to satisfy end-user
requirement with physical products and services from multiple and linked
suppliers’.
The distinction between logistics and supply chain is that Logistics links
together the processes in a supply chain. The success of the whole business
which is dependent on the supply chain is thereby hinged on how well the
logistics tasks are performed. Therefore supply chain is all about processes
which depend on the design adopted by each company. According to Ayers
and Odegaard (2006, 3) they are shown in Figure 1 below.
3.1.1 Sourcing
3.1.2 Purchasing
function usually depends on the size of the firm. The Institute of Supply
Management (ISM) argues that when sales are flat and the inventory is not
turning as it should be a 2.5% savings in procurement costs equal the same
amount of profit by increasing sales by 10%. This is one way to look inwards
into the supply chain activities as a channel to profitability and the same goes
for retailers.
With adequate data on these three variables available, businesses can know
to what extent they can hold inventory to avoid markdowns and losses.
Waters suggests retailers should create an Open-To-Buy-Plan. Software for
inventory calculation and forecasting has also made it easier for business
owner to optimize the inventory decisions (Open to buy Planning).
There is the notion in industries that there is no single definition for quality
management. This is a generic term and the conception is different in
manufacturing, retail, transportation, banking, IT etc. But to a retailer, what
really make a quality operation is less waste, more sales and more profit,
Gorecki, (1996). These three philosophies does not seem as easy as they
look because they represent the sum of all the activities needed to be carried
out in retail supply chain management from sourcing to consumption including
logistics activities. Rose (2005, 41), classified quality management in four
different components: quality planning, quality control, quality assurance and
quality improvement. These four differentials are the success factors for
ensuring quality. A retailer will need to carefully look out for reliable suppliers,
ensure their products are of quality and find means to improve relationships
with best performing suppliers.
3.1.5 Transportation
Retail transportation has evolved greatly over the years. There has been a
transition from hands-off to hands-on transportation duties. This new power
gained by retailers pioneered by mega-groups like Tesco, Wal-Mart, etc., has
seen them take control of transportation from primary distribution to the
secondary distribution. This means that they employ the services of 3PL
companies to discharge these duties. But the emphasis on leagile (lean +
agile) supply chain has resulted reduced inventory and increased order of
small quantities. Retailers now have to monitor every part of their
transportation ever since they took responsibility. There are numerous risks
involved in transportation in general, especially when international logistics is
involved. Congested ports, rising fuel costs, pirates, natural disasters, labour
strikes, theft, underperforming logistics providers, to mention but a few, are
some of the issues to be encountered in international transportation and can
cause stock outs. It requires strategic thinking to come up with a workable
plan that will make transportation improve the whole operation of the retail firm
considering all the odds listed above. Transportation routings, transport
economics, transportation software including forecasting, optimization and
simulations are some of the tools deployed by forward thinking companies to
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3.1.6 Packaging
Having the right package for products is something very dear to retailers. The
big retailers have been strongly involved in collaborative R & D efforts with
manufacturers for packaging efficiency. There are numerous factors that can
be considered in packaging ranging from size, information, design, material
etc. The choice of packaging for products really goes a long way to determine
the salability for that particular product. If the packaging is right, it eases the
job of transporters and also reduces cost in a lot of ways. There has also been
increased talk of environmental concerns, which are becoming more of a
factor for consumers on their choice of environmentally friendly products.
3.1.7 Warehousing
Pallets placed on racks are used as a standard for the warehousing operation.
Warehousing of cold food chains is also a very important part of this function
especially for the staple retailers. Knowing the size of space needed for the
amount of SKUs the company utilizes is also important, because there is no
need for a waste of space in the warehouse particularly when it is outsourced.
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This function is very important to retailers especially those who pay attention
to quality. This is a way to ensure that customers do not receive poor service
for their money. The deliveries are checked for shortages and quality level on
arrival. This can be done by inspecting all individual items or by using some
calculated assumptions. The documents are received signed by the deliverer
and recipient. Returns are then looked out for if any.
Retailers have been charged with a part responsibility for ensuring that
customers have a clear reverse logistics channel after the life cycle of a
product. Most retailers are working hard to ensure that they contribute their
fair share to environmental concerns. A good example is the bottle return
policy exercised in Finland. Customers gain some amount of money on return
of their bottles or cans. This is some kind of incentive to help motivate
consumers in environmental awareness.
3.1.10 Communication
The saying that ‘information is moved and not product’ is important in this
case. The communication through the supply chain process particularly helps
logistics perform better. The information includes demand and supply
volumes, prices, stocks levels, product tracking. It is therefore imperative for
retailers to get hold of data that are useful for the upstream supply chain for
efficient and effective performance. ERP, EDIs’, tracking devices, GPS, RFID,
management systems, routing systems are all tools that allow for a smooth
operation, but will be very complex with them.
The success of retail depends on how the five logistics elements, as shown in
figure 2 below, are implemented. This is where the concept of integration
comes into force. The reason for this is that treating each of these elements
separately might not bring transparency into the system. This brings about
sub-optimal performance into the systems operation.
From the figure below, it can be said that the combined challenge for retail is
balancing the weight of cost and service level while utilizing these logistics
tasks. It is believed that if the system focuses more on cost, this might affect
the service level and also on the other way round.
Notwithstanding all the different entities discussed above, there have been
developments in the retail industry that are aimed at balancing service level
alongside costs. These are commonly referred to as retail supply chain
transformation. These are strategies that have sprung up from different
economies to challenge the status quo. One of such concepts includes e.g.
consignment stock; as a means to reduce the liability of the retailer to excess
inventory. To this end, researchers in the retail commerce business have
discovered new trends in retailing that are currently being adopted by the
leading companies to counter the effect of competition in their business.
Fernie and Sparks (2009, 10), highlight various transformations going on in
the retail industry. These changes can be attributed to increasing consumer
preferences on the demand for products. Explained briefly below are some of
the issues that have been discussed in the industry.
Low Cost Country Sourcing (LCC) is a trend that has radicalized the retail
industry over the past decades. Business owners look for ways to leverage
their investment and returns by towing this path. Of all the benefits that it
accrues, it also comes in handy with risks that can be as costly as damaging a
company’s long earned and much cherished brand not to talk of the
complexity that is inherent in the company’s supply chain. Consumer
awareness of their immediate environment is pushing them to demand more
accountability in the companies they patronize their products in which raw
materials or labour have been sourced abroad. There have been various
concerns expressed also by various Non-Governmental Organizations
(NGOs) that are increasing this level of awareness.
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The upstream supply chain normally includes the primary and secondary
distribution. The primary distribution is that from the manufacturing to the
warehouse/distribution center and the secondary from the warehouse to shop.
The retailers have increased their presence in both of these hierarchies of the
supply chain. This gives them the opportunity to utilize their own logistics
assets, which usually is included as part of the supplier task. The retailers
resume the operation of the logistics activities at the gate of the manufacturer
which has given rise to the FGP (Factory Gate Pricing), which means that
transportation cost is not included in the price of the merchandise from the
supplier.
This approach is geared to improve services and reduce cost in the grocery
retailing. The emphasis on collaboration between suppliers and retailers is to
standardize practices in order to eliminate unnecessary cost through the
supply chain. Such standardization for instance could be seen in material
handling equipment. According to Fernie and Sparks (2009, 49), the main
focus for ECR is category management, product replenishment and enabling
technologies. These three focus areas can be broken down further into sub
parts. Participants in the ECR conferences created a scorecard from Europe,
U.S, Latin America and Asia, which was used to appraise the performance of
trading relationships. These relationships came under four categories:
demand management, supply management, enablers and integrators.
Once again, the agile supply chain is created as a response to the lean
manufacturing system, which was somewhat adopted to suit the supply chain.
Nevertheless, theorists in the U.S argued that a supply chain must be agile to
meet the increasing volatility in demand of customers, especially in the fashion
industry. Christopher (2000) defines agility as ‘the ability of an organization to
respond rapidly to changes in demand both in terms of volume and variety’.
There is always a need for distinction, of not confusing lean with agile supply
chains. This is because lean focuses more on reducing waste while not been
as flexible to meet the shorter product life cycle, faster/shorter delivery times,
and most importantly leanness shows less attribute of maneuverability. He
explains further with a diagram the preconditions for a supply chain to be truly
agile.
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Market sensitivity means reading and responding to real demand rather than
forecasts which have been made previously. ECR has also made it possible
with I.T to get Point of Sale (POS) information about customers’ requirements
and responding directly to it. Organizations are still forecast driven rather than
demand driven. But the back bone here is for the supply chain to be designed
in such a way that it can react and adjust to this real time demand data. Virtual
implies that inventory does not exist, rather information technology drives the
supply chain and is used to move products faster. In the past complex
formulae have been made to optimize the amount of inventory that is needed
as well as the location of these inventories in the supply chain. But with the
advent of the EDI and the Internet, the basis on which these inventory
formulae were created does not exist. Real time data is now achievable by
partners in the chain, which automatically eliminates the stressful need of
using complex formulas.
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Process integration explains that sharing this information between the trading
partners, new product developments and using single information systems.
This enables data to be seen in real time amongst the partners. As companies
continue to outsource a large part of their activities there is continued reliance
on suppliers to be able achieve desired results. There should be no barriers in
the process sharing and must also be backed by trust and commitment
between partners. Network based attests to the statement that organizations
no longer compete, rather their supply networks. The supply chain is now
viewed as a collaboration of partners in the value chain. The organizations
that win are those who can better design, organize and manage relationships
amongst partners. This is because agility as good as it is, can be very
disruptive if there is any strain from any of the parties on the network.
Therefore the opportunity to winning is a relationship based network that has
the greatest responsiveness to demand.
3.3.10 Leagile
A leagile approach to supply chain is the alternative that seeks to balance the
contradiction between the lean and agile supply chains. Proponents of the
earlier two alternatives have suggested that lean can be adopted in some
parts of the supply chain and agility can also be applied in the other parts.
This is usually called the hybrid strategy. The most important consideration
here is that the characteristics of demand are known. One of the leagile
theories include the ‘postponement strategy’ which was pioneered by the
computer industry (Fernie and Sparks 2009, 128).
usually receive the blames for defects in their products but the retailer risks
swapping roles with the national brands with their increasing involvement in
private label merchandizing. British retailers like Costco, Tesco and Safeway
have had partnership to increase their involvement in private labeling.
Increased profit is the sole reason for retailers’ involvement in private labeling
by sourcing new products to customer specification. (Groeber, 2008.)
The competition amongst retailers can be a very stiff one and creating a
winning strategy can be a hard nut to crack. ‘Pricing is the only factor in the
marketing mix that produces revenue. Others like product, place, and
promotion are cost driven (Developing Pricing Strategy). The philosophy
behind pricing is simple. When the price of a commodity is high, it brings fewer
sales and when the price is low, it reduces profit. Finding the right price for an
item is central to the success of a business. More often than none, businesses
have failed because they could not articulate the right strategies when fixing
prices. It is said that if a business gains customers because of price, the
chances of losing them because of price is higher (Developing Pricing
Strategy).
Perhaps the first place to look at when finding a product price range is the
concept of Break-even. This is an economic tool that shows the relationship
between costs and the amount of sales that is required to recoup the
investment in the business. A business can usually use it as an insight to
pricing for the business. It is often calculated by Fixed Cost / (Selling Price per
unit - Variable Cost). By simple tweaking, an ideal price that will balance the
costs and revenue could be realized. Using this formula is easy if two things
are known, the cost of the goods/product (manufacturing costs) and the
operating cost/expenses (logistics costs, rent, water, telephone, wages,
adverts, office supplies and insurance).
The addition of these two costs make-up the total costs of the product and a
retail price should always be above the total cost for the business to be
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sustainable. Of course, the pricing choice must align with the overall strategy
of the business. Business strategies usually come from the marketing
perspective which is largely connected to price. These marketing processes or
strategic positions are explained further in the next headings.
Cost Leadership
This is a marketing strategy that allows businesses to sells standardized
products at the lowest possible prices compared to their competitors. This
means there is relatively low or no degree of differentiation and the product is
acceptable by the customers. Big retail companies like Wal-Mart have used
this strategy in their operation over the year and has worked well for them.
Companies that want to focus on price reduction must look into minimizing
cost of sales, invest in manufacturing technologies, use lean approach to
production and overhead costs and effectively tighten loopholes in its value
chain to improve costs. This includes simplifying processes, reducing cost,
relationship building, achieving efficiency and effectiveness (Cost Leadership
Strategy)
Product Differentiation
This is the opposite of cost-leadership. The product can sometime be called
customization. That is the features on the product are largely different from
similar products in the market. The uniqueness in cost-differentiation can be
seen from its price. They are high end products and are targeted at the upper
middle class of the society. The advantage of this strategy is that it gives the
producer more pricing power over the commodity without customers raising
many eyebrows over price. One of the most distinguished reasons for product
differentiation is to avoid a storm in price competition with competitors.
Market Segmentation
Segmentation allows businesses to identify the most potential customers
available in a market and positioning the business to serve this subset of
customers. It is also called the focus strategy because it pays attention to only
a portion of focus market. The bases of segmentation include geographic
segmentation, demographic segmentation, psychological segmentation and
behavioural segmentation. The requirements for market segmentation are
32
There are many factors that affect pricing decisions. The merchandize in
question is a good way to start looking at the price to charge for the product. If
demand for a product is high, there is always a chance to charge a higher
amount provided there is no real competition for the same product. But in the
case of fierce competition, even when demand is high, raising prices could be
detrimental to the business as customers will not hesitate to go to the next
seller. This is an obvious case of laws of demand and supply. Price elasticity
is also a key factor, because some products are sensitive to price increase
while some are not.
Having examined the factors influencing pricing decisions above, there are
pricing methods that can help maintain competitive edge in various market
positioning. Cost Based Pricing is arrived at after the cost of goods and the
fixed costs are known, the mark up percentage is added to the product and
that serves as the selling price. This method is simple as long as the costs
involved are calculated correctly. The downside to it is that, it does not take
into account the demand for the product and also the competitors’ prices. On
the other hand, Demand Based Pricing is set on the basis of demand
expected. It usually takes into consideration the acceptable price for the
intended target market. (Allen.)
Competition Based Pricing incites the myth that few businesses fail from over
pricing and many businesses fail from underpricing. Competition based pricing
is achieved by optimizing price for the product. The key here is to keep price
at record level from the fluctuating prices of the competitors. Price optimization
is done by knowing the users perception of the item, knowing the target
market and knowing the products competitive advantage. (Developing Pricing
Strategy.) Price Skimming is when a seller perceives monopoly, he charges
high price for new products. The high price is not sustainable because
competitors will want to bring down the cost. In this case the seller quickly
reduces the price of the product to retain a chunk of the market share. The
idea of Penetrating price is in contrast to the skimming strategy. A new
product is introduced to the market and priced low in order to gain market
share. As demand increases, the price is raised. This is especially good to
fend off competition and can even help take away customers from market
leaders. Other price adjustment strategies include discounts, product bundling
and dynamic pricing.
Fixing selling price for a retail business is much straight forward literally than
manufacturing for instance. Identifying cost data in retail businesses are more
closely linked to the logistics operations. Retailers have since been able to
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have more options in adjusting their prices with their involvement further up
the value chain. Taking charge of their own transportation creates more
pricing options. Retail pricing strategies include but cannot be limited to mark
up price on cost and vendor pricing.
Mark-up Pricing
Mark-up price on cost is simply adding industry standard profit margins to the
cost of the goods. Meanwhile, mark-up on retail is derived by dividing the
dollar markup by retail (Retailing Pricing Strategy).This is a percentage added
to the cost to get the retail selling price. A general advice is to keep the mark-
up high enough to provide for situations of discounts, shrinkage or other
unforeseen expenses so as to make the business viable in the long run. It is
not impossible for retailers to use different mark-ups on different product lines.
Vendor Pricing
Sometimes prices are set by the manufacturer and the retailers must adhere
to these pricing structures. Such prices, manufacturer Suggested Retail Price
(MSRP) is often adopted by smaller retailers to avoid pricing wars. It is
possible for some suppliers to have minimum advertised prices (retailers
cannot sell below these prices). This usually ties the retailer in price decision
making which can hamper competitive advantage. Competitive Pricing
involved prices that retailers set to win customers depending on their price
reference. Having a niche might be a good thing with this strategy. These
niches can be any of the marketing processes discussed above. They are
Differentiation, Cost Leadership and Focus Strategy. Retail prices are
psychological when prices are set at a level that customer perceives to be fair.
They are usually done by odd pricing. For instance, a product sold at 9.95
euros could be round off by a customer as 9 euros.
4. SMALL BUSINESS
Finding the definition for a small business can be a vexed question. This is
because a small business varies in meaning by country and industry. As a
general definition, ‘it is usually a firm of a certain size which falls below some
35
certain criteria. These criteria differ by countries regulatory bodies but they
include annual turnover, number of employees, and total value of assets.
(Business dictionary.) In the U.S.A small businesses are considered to be of
500 and fewer employees, 50 employees in the EU, and 15 employees in
Australia. These numbers also can increase significantly when SMEs’ are the
focus. These kinds of businesses can range from hairdressers, moms and
pops, tradesmen, accounting firms, lawyers’ chambers etc. The perception of
small businesses across various regions in the world is infinite. The SMEs are
also viewed as small businesses to some people but it all depends on the
factors to be considered in each case.
When an idea is ripe enough to start a small business, the next thing that
usually spring up to mind is the capital involved. Finding the source of funding
a business, however big or small, is not usually far-fetched. But actually
securing those funds can prove arduous for the business owner. Usually, the
first place to look at is the personal savings of the concept owner. Other
sources include family and friends, debt financing, equity share, grants, angel
investors, venture capitalists, strategic investors.
Personal savings perhaps is the first place to look when an idea starts to
loom. Every prospective entrepreneur would have to measure up his personal
account. With that he can have the firsthand knowledge if he is capable of
financing the business all by himself or not. This is usually not the case as
most business ideas can be capital intensive to start. Initial costs to be
incurred can include office space, business development cost, intellectual
property rights e.g. trademarks, patents. There is a big advantage in investing
100% personal funds in a business as there comes with it full control and
ownership. With that said, it also involves risks of investing one’s entire
fortune in a business that is not ascertained profitable. When the option of
personal funding is exhausted, the next option for funding is from close
relatives and friends. These people are the ones who encourage one to go
into business especially when there is a huge potential involved. They are
36
willing to help out of emotion that they can benefit from the success of the
business in future. The good side to it is that their funds come with little or no
interests to the borrower. Yet, all their funding might not be able to support the
fund raiser as they also have responsibilities to attend to financially. Usually if
a business fails, they might in turn forget about their lending as they were
aware the business is just a trial and might go either way.
Securing investment from the banks can be a huge plus. But apart from
having the biggest money to give out, there are always many hurdles to scale
for anybody who is ready to seek loans from them. Banks are known for giving
out loans to people but with a very great price as well. They have interest
rates charged on every penny they lend as well as requesting for collaterals to
serve as loan guarantees. Before a borrower can secure a bank loan, they
usually have to be credit worthy. This means that their credit history is good
enough to consider them for a loan. But if that is not cleared up, there is little
or no chance that a person can get a loan with a bad credit history. Bank
loans usually come in the form of Business loans and consumer loans
(Funding Sources).
Business loans are specifically lent out to borrowers who are willing and ready
to start up a business. This is also the hardest type of loan to secure from the
bank. There has to be loan guarantees in form of collaterals, guarantors, etc.
These guarantees are used as a way to protect the banks money in times of
financial hardship from the borrower. They also come with an interest which
increases if the borrower does not pay back on time. There is a possibility that
the bank will ask the borrower to pay back the full money at any time if they
find out the business is going to hit the rocks. Consumer loans are those that
are secured from the bank for personal reasons and have to be paid back
over a period of time. These include car loans, mortgages, equity loans and so
on. They are much more easily secured from the bank than business loans
provided the borrower has a good credit history. Finances from consumer
loans can be diverted into business, which is not a bank restriction as long as
the loanee pays back as agreed to the bank. But according to SCORE, a
consumer loan diverted into a business loan is considered an act of fraud if
the bank finds out.
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Another way to secure a bank loan is a bank overdraft, which is a short term
fund that is specifically given to small business owners. There is an initial
agreement between the two parties to allow the account holder to withdraw
funds until the balance goes below zero and the bank charges interest rates.
The amount that can be overdrawn should be within the limit agreed to by the
bank and the borrower. There is also a possibility of higher interest rate if the
withdrawn amount exceeds the agreed limit. Some people also believe in
angels that put money in businesses with the aim of receiving a return on their
investment. Angel investors are professional investors who are willing to
invest their money in other businesses than their own. They are ready to
receive returns from the borrower in terms of company share or repayment of
loan. They can be one’s neighbor, classmate, friend etc. They are people who
usually have made successes through starting up businesses and selling
them. Thus, they have some level of expertise in owning and running a
business. They now want to invest their money and not ‘really own’ a
business. Yet, they gain some form of control in the business they invest in
depending on the percentage of share agreed upon by both parties. Their
level of investment cannot be ascertained but opinions have it that their
investment range is not mostly higher than those of a venture capitalist. They
are best known through networking.
order to groom small and medium scale businesses that will help create jobs
for the populace.
Starting a small business can come with a great deal of enthusiasm. The gush
of an idea seems to keep the adrenalin pumping which is a good thing.
Inexperienced entrepreneurs have always found themselves at the receiving
end of the problems that plague small business without adequate planning in
place. Starting a small scale business is fraught with many obstacles that only
the experienced and the extra-ordinary business can survive. The statistics
are staggering. According to Ian Juul (2011), small businesses have unique
characteristics. Usually, they are startups by entrepreneurs who want to work
for themselves. Those characteristics will be expanded more in the next
headings.
Entrepreneurial Spirit
The business dictionary defined entrepreneurship as the ‘capacity and
willingness to undertake conception, organization and management for a
productive venture with all attendant risks while seeking profit as a reward’.
Entrepreneurs usually have unique qualities like uniqueness, motivation,
desire, taking risks and the required energy. All these are drivers to make a
successful business.
Management Skills
Usually, most small business owners do not possess the much needed
management skills. They are usually good at something. This is because
managing a company across the cross functional areas of management
including finance, marketing, production, etc. can be too much for a single
person to know it all. These businesses are often carried away with the
‘Entrepreneurial Myth’ which means that the person who knows much about
the technical things will be in a better position to run the business. They often
forget about the contribution of management skills in making the right
decisions.
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Limited Funding
As explained earlier, small businesses have their number one obstacle in
funding. This in particular is the sole determination of what is and what is not a
small business. Funding sources for small businesses have been discussed
above.
Personal Reward
If a business owner manages to grow his business, then the reward is usually
personal. This has some financial and psychological advantages to it. There is
the freedom to make decisions without consultation amongst others.
Limited Technology
According to Isidro, a study by Arthur Andersen titled ‘Survey of Small and
Mid-Sized Businesses: Trends for 2000’ reveals that small businesses
consider the use of e-commerce as a recipe for growth. However, they have
not been able to do so because of the rapid changes in technology as well as
the cost of implementing it.
Government Bureaucracy
Government red tape surrounding business environments can be a
challenging thing for small businesses. In a survey by the Sage Business
Index (2011) amongst 9 countries shows red tape by government is the most
challenging situation facing at least 8 of those countries. They include
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Germany, Austria, Spain, U.K, U.S.A, South Africa, Singapore, France and
Canada, out of which only the U.S.A and Spain feel the government handling
of the economic situation is affecting their business.
Small business owners are largely plagued with challenges that may easily
take them out of business especially when they are not well grounded with the
opportunities that can prosper their business. According to Knaup (2005, 51)
only 66% percent of businesses in the U.S manage to survive their first 2
years of operation. A literal comparison of this statistics to what we see and
hear often, one can conclude that this trend is not particular only to the U.S. It
often turns out to be a normal occurrence. However, it should be noted that
some countries enjoy access to government subsidies, which helps prolong
their operability.
The current state analysis of this thesis focuses on the supply chain aspect of
the business with an emphasis on the challenges and future potential for
better operability.
suppliers as well as a logistics provider when the business opened in 2005. All
of the company products are ordered from other European countries mostly
from the U.K., Belgium and the Netherlands. The suppliers from these
countries are big retailers because of the large numbers of African residents
there. The European free trade zone could be seen as a benefit to Zaiki
Investment. But for a small business like Zaiki, it is not feasible to ship directly
from Africa because of the disadvantage of economies of scale. This is partly
due to the small population of Africans in Finland and also competition
amongst retailers in the region. There are no standard ordering systems
available. A phone call or email is used when new products are needed.
Orders are compiled individually based on depletion. The suppliers are the
ones who also take charge of the transportation to ship directly to the store in
Haapaniemenkatu. The standard shipping time is 3-4 days according to the
owner.
When products arrive at the store in Helsinki, the majority of the products are
kept in the warehouse, which is a rented place close to the store. The main
reason for this is the lack of space for the pallets in the store area. This
reflects a typical retail approach for small businesses. The tools and strategies
being targeted to SMEs and large companies are clearly absent in this case.
There is almost no technological implementation in the whole activities of this
company. There is no guard against shelf theft, no simple barcode application
or other ordering information systems. These are a result of all the challenges
discussed below.
The challenges plaguing the case company can be generic of all small
businesses but there are also some other developments in Zaiki investment
which makes the analysis of this section a difficult task. The extent to which
the company continues to face these problems depends on its level of
awareness and acceptance of profitable small business ethics.
All the identified problems and recommendations that are described below
have been obtained through interviewing the owner of the business as well as
42
Low Enthusiasm
The business was established probably as an activity facility rather than an
entrepreneurial venture that seeks to multiply profits. During one of my
discussions with the owner, he said that after working in the Finnish civil
service for about 35 years, he started the business so that his early retirement
periods would not grind him due to inactivity. He is not ready to enter into
competition. With this kind of mind set, it is difficult to take a business to the
next stage. This is in particular a deviation from the entrepreneurship mindset
that prospers a business to the next level.
Lack of Funding
The company has not too much funds to expand activities over its current
stage at least to upstage its competitors. This is similar to all small
businesses. Most of them might be interested in expanding their businesses if
there is an opportunity for more funding. As a retiree, the owner does not have
much aggressiveness to seek for more external funding unlike so many young
entrepreneurs. This is one of the banes of improving the business in terms
size and operation. Supply chain infrastructure is expensive and there is only
a certain level of business operation that can afford to obtain vertical
integration advantages in their business. The strategies that will also be put in
place business wise might require some funding, which in this case can be a
difficult proposition.
Business Practice
43
For an owner who has been working in the medical field most of his life, it will
not be any surprise that succeeding in the retail business will not come easy.
Considering also his age, it is difficult to see that the actual learning curve for
him in the retail industry is near impossible. Although, if he is still willing to
make an empire out of the business, it is never too late to tow the right track.
Like a lot of small businesses, he does not have the strategic foresight that is
being exhibited by most large organizations. There is little attention paid to
planning, which is the most important aspect of the business.
From this it is easy to conclude that, Zaiki Investment suffers from bullying
from these larger stores, who are always entering into his product market.
They have a price advantage as well, which makes it easier to entice
customers to their stores, although with sound business principles, strategists
have suggested that ‘it is not the big that eats the small, it is the fast that eats
the slow’ (Jennings and Haughton 2002). Competition like this is what fosters
growth in businesses and makes managers to think out of the box in other to
bring ideas that can spur their businesses onto the next stage. Also, it is
44
enough to say retail businesses are shielded from the patient issues that
sprout amongst manufacturing or innovation companies for instance.
Technology
On entering into the Zaiki investment store, the noticeable I.T. infrastructure is
a camera used to monitor the activity around the shop. My discussion with the
manager of the company showed that there is no real use for simple I.T.
systems in the company as the company is too small to accommodate such
an investment and the energy that goes with it. The owner described such
stores with franchise activities like Lidl, Stockmann as the ones who
necessarily require such technologies like Barcodes, RFID, POS machines
etc. My argument was such that, even if the business does not require
barcodes for automatic stock monitoring purposes, it could as well be used to
prevent theft which camera cannot detect.
Orders are made by phone calls, emails and fax. The order list is compiled
and conveyed to the suppliers when the items are big enough to make an
order. This order making method is very inconsistent to the progress of a
business that is avoiding stock out and in the process of losing customers.
45
This is because there are times when some items are omitted or in another
way there are discrepancies in conveying the message to the suppliers.
Bureaucracy
Zaiki Investment is the only company in Helsinki that sells only African
groceries with the owner’s roots in Africa. The company leads the way in
introducing basic African grocery into the Finnish market. Even though it tries
to optimize the product variation in its store, there still occur some challenges
in this regard. For instance, the Finnish law does not allow for a reduced tax
on the importation of beer products, which carry a 100% import duty and a
23% pre-tax unlike most other products in the store. According to Samson
Osazie, that product line would have been a winner for his business
considering the fact that other competing stores do not carry the license that
permits them to sell alcoholic products.
Supplier Reliability
One imminent problem the company faces is from suppliers. They have been
unreliable sometimes, and the way they operate has made the company have
many alternative suppliers, which the owner could not take count of. These
suppliers are dispersed in the U.K., Belgium and the Netherlands. Sometimes,
the orders are also not dispatched on time making there delays in the
expected time of arrival of the products. This unreliability of suppliers can be
very costly to the business, as I have witnessed during my duration at the
store, because there are many times when customers are turned down
because products are not available. In an ideal business situation, taking
account of the non-availability of shelf products and lost customers will
definitely show a reduced profit margin for the business. The customers in this
situation will locate a competing store that meets their need and has then won
them over.
Transportation
Transportation is one of the supply chain activities where businesses identify
cost saving potentials. Zaiki Investment is operating a business that has no
impact on its transportation activities. It was alarming to hear from the owner
that he has no knowledge of the transportation companies as he has
46
absolutely no interest in that aspect of the business. A company that does not
have on hand the impact of transportation cost on its activities has little or no
chance to survive in the competitive environment. Taking account of the cost
of transportation is vital to the overall strategic position of a company. It allows
the business to review costs regularly with transportation providers, when it
finds ways to reduce cost on the business. For this thesis purpose, it was
difficult to identify the transportation providers since the company does not
engage activity with any directly.
5.3 Improvements
Nevertheless, this work has been able to draw up some improvements to the
business which will definitely shift the company’s competitiveness from rock
bottom to a pace setter position, if these recommendations are carefully
considered. These improvements are discussed in more detail below.
Entrepreneurial Mindset
Perhaps the most important part of this recommendation is to see how the
owner can change his mindset from that of a retired civil servant to that of an
entrepreneur. During my times at the company, even though I learnt some
things there, it still was difficult to convey some simple practices learnt from
my studies and research to him, as he was not ready to make his approach to
the business an aggressive one. There is no way an organization can turn a
blind eye to the opportunities surrounding its business if it ever wants to
position itself viably. So my position here was to make the business owner to
47
rethink his strategy on the business and take advantage of the opportunities
that can come from it.
best, especially when dealing with bigger suppliers. This kind of action will
allow them to give minimum preference to such businesses.
Supplier Reliability
As described above, the identified problem with the suppliers could be linked
to the size of the business as well as the unprofessionalism on the part of
Zaiki Investment Oy. For a business practice involving suppliers, a strict
business ethic should be enforced at the same time maintaining a cordial
relationship. The company should improve the level of professional practice
when dealing with suppliers; this will allow the suppliers to take their orders
seriously. One way to improve this is to improve the ordering system in place
by using an industry standard particularly when dealing with bigger suppliers.
This is because, it will be difficult for suppliers who are using real time
inventory data from their customers to adjust to orders made by phone calls or
emails.
There are small business suites that can handle these kinds of integrated
logistics functions. An example is the Sofware as a Service (SaaS). However,
the type of technology that will work in this situation depends on how far the
supplier is willing to go to adopt this relationship practice.
Inventory Management
Even though the number of SKUs in the business is low due to the company
size, there can still be standard methods that will make ensure efficiency in
inventory. In Zaiki Investment Oy, there is a need to transition from the manual
stock taking activity to a more information centered inventory feasibility. This
means utilizing a POS system to give real time information of the stock level of
49
each SKU and also using an EDI to manage order information with the
supplier. A simple implementation of this practice shows to the supplier that
the customer is a serious minded business outfit.
other businesses owned by some Asians are also going into the sales of
African groceries, they do not have firsthand information on the demand of
Africans in Finland. They are in the business just to bully the small business
outfits. They do so by engaging in spy activities. Zaiki Investment has rejected
some pretentious customers who have come to act as spies for these larger
retail businesses. One way Zaiki Investment Oy can take advantage of its
African niche is to introduce the highly demanded Guinness beer and other
alcoholic drinks onto its shelf. However, this has not been possible on reasons
the owner sighted as a 100% excise duty on the products with a 23% pre-tax.
But this thesis still suggests that for the fact that no other similar business in
the region has the alcohol sales right that Zaiki Investment Oy possesses, it
can take advantage of these kinds of niche businesses while winning
customers for its other products.
It is the opinion of the writer that the recommendations explained above are all
of utmost relevance to position the company competitively. The most
important of all should be a change in chairman’s approach to the company.
Handling of the business from a competitive point of view so as to create a
more serious environment in terms of price, merchandise, customers and
expansion. Implementation of technology in a Logistics centric business is
almost inevitable. For any business to be taken in earnest it has to show some
level of practices that are globally acceptable and the use of IT is not an
exception. Ordinarily, bigger suppliers would not want a partnership with
smaller outfits but if a small company uses standard procedures, there can be
a room for compromises. Choosing suppliers that are reliable can also play an
important role in improving business operation. Even large corporations do not
take suppliers issues with light hand. Forming of the buying group is a
strategic approach to the business that can reduce purchasing cost through
the supply chain while also allowing the company to implement supply chain
design since purchases are made in large amount. The company needs to
diversify on its merchandise sourcing. For instance, a simple need analysis of
customers or of new potential target group should be done from time to time to
allow the company capture new customers with its new product introduction.
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5.4 Discussion
The two most important supply chain technologies include, the resource
planning systems which are used for the daily operation of the business and
supply chain. They help managers to plan, control and record day to day
activities. They provide real time information along the supply chain. The track
both information and movement of materials along the supply chain. Data
gotten from these activities can be used by managers to make decisions and
improve efficiency. Supply chain analytics systems are used to support
resource planning systems, which allows managers to make effective
52
Today, most business owners are more aware of the importance of these
technologies in their activities especially in the areas of inventory control,
accounting, order making, security etc. For these reasons, even the smallest
retailers have been seen to have a basic computer, POS machines (basic
functions) and product identification devices like RFID or Barcodes. The level
of technology adopted by different retailers depends greatly on the amount of
annual turnover and daily activities.
For this reason, the author has decided to propound a simple grid that shows
the relationship between supply chain and small retail businesses in order of
their suitability. Factors to be considered in this analysis will include the
business size, financial strength and supply chain alignment.
5.5 Conclusion
Small businesses generally do not have the bargaining power that larger
companies have; this has been one of the reasons it has been difficult for
them to take up supply chain management practices effectively. And for some
of them, doing business with bigger suppliers can be negligible to the supplier.
This has been the reason for their different approach to or inactivity witho
supply chain management, thus, making them gain fewer cost benefits.
However, a small business that shows a great potential could be given
rebates by the trading partners with the hope that their operation gets bigger
in the future. This style comes as a future benefit for the supplier as well.
supplier’s gate (factory gate pricing) but it can only be profitable for small retail
businesses if they form a coalition with similar sized businesses to gain the
advantage of economies of scale and scope. For the SME’s the cost of
employing the services of SCM consultants can be so high that they cannot
dream of it.
This project work was carried out to study the retail supply chain and the small
business. The whole body of the project has responded to the questions
asked by the aim of the thesis particularly emphasizing the challenges and
opportunities in relation to the case company. Other research possibilities
from this thesis could be in the area of discussions on individual retail supply
chain transformations as explained in this work.
55
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