CHAPTER 5

Information Systems and

Supply Chain Management

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
 Learning Objectives
Learning Objective 9-1 Understand the strategic advantage
generated by a supply chain.
Learning Objective 9-2 Describe how information flows in a
supply chain.
Learning Objective 9-3 Consider the flow of merchandise
through a supply chain.
Learning Objective 9-4 Review the considerations and trends in
the design of supply chains.

©McGraw-Hill Education.
 Providing Goods to Customers
 Distribution Center (DC) - A warehouse that
receives merchandise from multiple vendors and
distributes it to multiple stores.
Advantages of Distribution Centers
• Provide more accurate sales forecasts to the
manufacturers
• Supports retailer to carry less merchandise in store
• Helps avoid stockouts
• Space less expensive at DC

 Fulfillment Centers (FCs)

• Ship directly to customers

©McGraw-Hill Education. © Abdelhak Senna/AFP/Getty Images

 Creating Strategic Advantage Through Supply Chain
Management and Information Systems 1 of 4

Learning Objective 9-1 Understand the strategic advantage generated by a

supply chain.

Wholesalers
• Firms that buy products from manufacturers and sell
to retailers
Supply chain management
• Activities and techniques to manage merchandise flow

©McGraw-Hill Education.
 Creating Strategic Advantage Through Supply Chain
Management and Information Systems 2 of 4

Strategic Advantage Through “Supply Chain

Management” and “Information Systems”
• Retailers realize higher-than-average return on assets
• Difficult for competitors to duplicate
• Fewer Stockouts
• Rain check
• Tailored Assortments
• Effective forecasting reduces overstock

©McGraw-Hill Education.
 EXHIBIT 9-2 Information Flows

Jump to long description in

©McGraw-Hill Education.
appendix
 The Flow of Information Through a Supply Chain
1 of 5

Learning Objective 9-2 Describe how information flows in a supply chain.

Information Flows for Exhibit 9-2

Flow 1 (Customer to Store)

• Scan universal product code (UPC) at point-of-sale terminal (POS)
Flow 2 (Store to Buyer)
• POS terminal records purchase and sends to buyer at corporate office
Flow 3 (Buyer to Manufacturer)
• Purchase information aggregated and sent to manufacturer
Flow 4 (Store to Manufacturer)
• Sales transaction data sent to manufacturer who decides when to ship more
merchandise
Flow 5 (Store to Distribution Center)
• When inventory drops at store, more product is shipped
Flow 6 (Manufacturer to Distribution Center and Buyer)
• Advance shipping notice (ASN) - An electronic document received by the
retailer’s computer from a supplier in advance of a shipment.

©McGraw-Hill Education.
 The Flow of Information Through a Supply Chain
4 of 5

Data Warehouse - Database of purchase data

collected at point of sale

Electronic Data Interchange (EDI) - Computer-to-

computer exchange of business documents from
retailer to vendor and back

©McGraw-Hill Education.
 The Flow of Information Through a Supply Chain
5 of 5

Vendor-Managed Inventory: Manufacturer

responsible for maintaining retailer inventory in
each store.
Features:
• Reduces stockouts with minimal inventory
• Reduce vendor and retailer costs
• Lack of two-way communication
• Collaborative planning, forecasting, and replenishment (CPFR)-A
collaborative inventory management system in which a retailer shares
information with vendors. CPFR software uses data to construct a
computer-generated replenishment forecast that is shared by the retailer
and vendor before it’s executed.

©McGraw-Hill Education.
 The Flow of Merchandise Through a Supply
Chain 1 of 6
Learning Objective 9-3 Consider the flow of merchandise through a supply
chain.

Exhibit 9-3 Merchandise Flows

Jump to long description in

©McGraw-Hill Education.
appendix
 The Flow of Merchandise Through a Supply
Chain 2 of 6
Distribution Centers versus Direct Store Delivery

• Direct Store Delivery (DSD) -A method of delivering

merchandise to stores in which vendors distribute
merchandise directly to the stores rather than going
through distribution centers.

©McGraw-Hill Education.
 The Flow of Merchandise Through a Supply
Chain 3 of 6
Distribution Center Delivery
 Managing Inbound Transportation
• Buyers - Person in a retailing organization responsible for the purchase and
profitability of a merchandise category. Similar to category manager.
• Planners - Employees in merchandise management responsible for the financial
planning and analysis of the merchandise category and, in some cases, the allocation
of merchandise to stores.
• Dispatcher - A person who coordinates deliveries from the vendor to the distribution
center or stores or from the distribution center to stores.

 Receiving and Checking Using UPC or RFID

• Receiving - The process of filling out paperwork to record the receipt of merchandise
that arrives at a store or distribution center.
• Checking - The process of going through goods upon receipt to make sure that they
arrived undamaged and that the merchandise received matches the merchandise
ordered.
• Radio frequency identification tags (RFID) - A technology that allows an object or
person to be identified at a distance using radio waves.

©McGraw-Hill Education.
 The Flow of Merchandise Through a Supply
Chain 4 of 6
Distribution Center Delivery continued
 Storing and Cross-Docking
• Cross-docking distribution center pre-packs merchandise
by vendor for a specific store

©McGraw-Hill Education. © Carla Gottgens/Bloomberg via Getty Images

 The Flow of Merchandise Through a Supply
Chain 5 of 6
Distribution Center Delivery continued
 Getting Merchandise Floor-Ready
 Ticketing and marking - Putting price and identification
labels on merchandise
 Preparing to Ship Merchandise to a Store
• Pick ticket - A document that tells the order filler how much
of each item to get from the storage area.
 Shipping Merchandise to Stores
• Requires sophisticated routing and scheduling computer
systems

©McGraw-Hill Education.
 The Flow of Merchandise Through a Supply
Chain 6 of 6
Quick response (QR) inventory system
The firm gets the merchandise just in time for it to be used in the
manufacture of another product or for sale when the customer
wants it.
Also called just-in-time (JIT) inventory system.

©McGraw-Hill Education.
 System Design Issues and Trends 1 of 8

Learning Objective 9-4 Review the considerations and trends in the design of
supply chains.

Outsourcing Supply Chain Functions

• Outsourcing - Obtaining a service from outside the company that had previously
been done by the firm itself.
• Public warehouses - Warehouse that is owned and operated by a third party.
• Freight forwarders - Companies that purchase transport services. They then
consolidate small shipments from a number of shippers into large shipments that
move at a lower freight rate.

• Advantages
 Independent firms can perform activity at lower cost
 Opportunity to fill trucks on the backhaul (backhaul Trips that trucks make
to return to distribution centers after delivering merchandise to stores.)
• Disadvantage
 Retailers lose competitive advantage based on activity performance

©McGraw-Hill Education.
 System Design Issues and Trends 2 of 8
Push and Pull Supply Chains
• Pull supply chain – requests for merchandise
generated at store level based on POS sales data
• Less likelihood of overstock or out of stock
• Increases inventory turnover
• Requires more costly information system
• Push supply chain – merchandise allocated to
stores on basis of demand forecast

©McGraw-Hill Education.
 System Design Issues and Trends 3 of 8
Radio Frequency Identification Devices - are tags
that transmit identifying information and are attached to
individual items, shipping cartons, and containers.
• Hold more data than bar codes
• Data can be acquired without an visual line of sight

©McGraw-Hill Education.
 System Design Issues and Trends 4 of 8
Supply Chains for Fulfilling Catalog and
Internet Orders
• Focused on the customer
• Warehouse design must accommodate
• Outsource fulfillment of non-store sale
• Separate area for shipments to individual customers
• Different FCs for new channels

©McGraw-Hill Education.
 System Design Issues and Trends 5 of 8
• Consumer Direct Fulfillment- A supply chain
system in which retailers receive orders from
customers and relay these orders to a vendor and
then the vendor ships the merchandise ordered
directly to the customer. Also called drop shipping.

©McGraw-Hill Education.
 System Design Issues and Trends 6 of 8
Customer Store Pickup
• Customer orders
online and picks up in
store
• Customer might
purchase other items
while in store
• Retailers must invest
in proper technology
• Mobile task
management - Technology
consisting of a wireless network and a
mobile device that receives demand
notification and enables a speedy response.
This allows the associate closest to the
ordered item to physically pull it and verify its
availability.
©McGraw-Hill Education. © Kristoffer Tripplaar/Alamy Stock Photo
 System Design Issues and Trends 7 of 8
Reverse Supply Chain - The process of moving returned
goods back through the supply chain from the customer, to the
stores, distribution centers, and vendors.

Two reasons for more attention to reverse

supply chain systems
• Growth of sales through Internet
• Increasing interest in environmental sustainability

©McGraw-Hill Education.
 LEVELS OF SUPPLY CHAIN

1. Strategic Level 2. Tactical Level 3. Operational Level

Planning long-term operations Planning the short term goals Decisions taken are
achievements implemented and the day-to-
day operations are managed to
fulfil the goals determined
during the first two steps
Strategic level issues includes: Short-term goals includes: Operational level involves the
• Choosing resources • Finding new suppliers following activities:
• Calculating costs • Gathering required • Ensuring that demand-
• Establishing customer materials and human supply equilibrium
demand resources • Managing materials,
• Product management • Creating schedules for operations and human
• Carrying out innovations suppliers and employees resources
meet customer demand • Ensuring transportation • Waste reduction
needs are met
• Looking at warehousing
facilities

©McGraw-Hill Education.
 Channels of Distribution

In the figure above, the channel 1 and 2 are "indirect-marketing channels".

Channel 3 is called a "direct-marketing" channel, since it has no intermediary levels.

©McGraw-Hill Education.
 Channels of Distribution….

1. Channel 1 contains two intermediary levels - a wholesaler and a retailer. A wholesaler

typically buys and stores large quantities of several producers' goods and then breaks into the
bulk deliveries to retailers with smaller quantities. Retails eventually sell to customer.
Example -distribution of medicines.
ProducerwholesalerRetailerConsumer

2. Channel 2 contains one intermediary. In consumer markets, this is typically a retailer.

Example: Producers such as Sony, Panasonic, Canon etc. sell their goods directly to large
retailers and e-tailers such as Comet, Tesco and Amazon which then sell onto the final
consumers.
ProducerRetailerConsumer

3. Channel 3 is called a "direct-marketing" channel, since it has no intermediary levels. In

this case the manufacturer sells directly to customers.
Example - factory outlet store.
ProducerConsumer

©McGraw-Hill Education.