Main

ECR
Contents
Summary
Introduction
Category management
Product replenishment
Enabling technologies
Conclusion
Bibliography

Product Replenishment

Introduction

Most improvements in operational activities can be found in the way a store is replenished. Efficient Product Replenishment deals with efficient delivery of the correct product on the correct time at the correct place in the correct quantities. This process is primarily a logistic oriented strategy, which is activated by consumer demand, which is called a 'pull' situation. As we saw in the previous chapter, three trajectories can be identified:

• Trajectory from manufacturer to warehouse,
• Trajectory from warehouse to retailer,and
• Trajectory from retailer to consumer.

The aim of Efficient Replenishment is to integrate these three independent trajectories into the logistic chain in order to create one efficient and effective trajectory throughout the whole chain. This can be accomplished by working together and by using several logistic methods.

In general there are two methods: methods which work downwards the chain and methods which work upwards the chain. Downward methods focus on the trajectories from manufacturer to consumer. Much attention is paid to these methods, because it affects the main part of the stream of goods. This chapter deals with the following methods:

• Continuous Replenishment (CRP),
• Direct Store Delivery (DSD),
• Cross docking,
• Transport, and
• Order Support Systems.

The upward methods deal with the stream of goods, which are sent in the direction from consumer to manufacturer. One can think of empty containers, pallets, empty packing, defective products and material, which has to be recycled. For many years this topic received little attention, but the upward stream of goods is becoming more and more a hot item, due to environment policies.

Still many companies do not react on this, because most methods result in an increment in costs and are therefore not considered efficient. But other companies realize that profits can be gained by using these methods as a marketing instrument (see example below). That is why methods concerning the upward stream will not be discussed in this chapter, because they are still in preliminary stage.

Continuous Replenishment (CRP)

One of the major subjects in Efficient Replenishment is called Continuous Replenishment (CRP). Continuous Replenishment coordinates the information trajectories and the stream of goods in the logistic chain in order to create a continuous stream of products. This enables retailers to keep fewer products in inventory.

The advantage of inventory reduction is lower inventory costs and shorter product lead times. Also the operational costs often decrease due to decrement in handling. The effect is higher and improved service levels, because less out-of-stock sales will occur and the retailer will become more flexible.

Continuous Replenishment consists of three stages. First one has to determine the order to be placed for each product based on the sales, which are registered at the cash register. Then the order has to be processed correctly at the warehouse. Finally the goods have to be delivered. These stages have to be well coordinated in order to reduce errors and to create a continuous process.

Enabling technologies can be of great help; Scanning and Electronic Data Interchange (EDI) can speed up the process of ordering and reduce errors in processing the order, due to standardization of information. Furthermore good relations and cooperation between trading partners is very important in order to make Continuous Replenishment work. Only when all involving partners are willing to share information, such as information on sales, CRP can work.

Direct Store Delivery (DSD)

Direct Store Delivery (DSD) covers deliveries of electronic orders directly from manufacturers to stores. This concept only improves the relation between two trading partners and eliminates the use of a warehouse for the store.

The manufacturer also can have benefit from Direct Store Delivery in some extent. The number of errors will be reduced due to standardized electronic communication. Reduction in communication by paper means reduction in processing time and saves money. Finally direct delivery can mean short lead times for products, which can result in great savings.

Direct Store Delivery is not applicable to every type of product. Only products, which are sold in large numbers and have great volumes, can be advantageous when using Direct Store Delivery. One can think of beer and bread. Other products will probably result in increment of transport costs, which will not outweigh its advantage. Moreover, one must also remember that more replenishments will result in higher personnel and handling costs. In general, one really has to consider whether Direct Store Delivery is a good solution in the present relationship between trading partners. Direct Store Delivery is very dependent on the situation and trading relations.

Cross docking

Cross docking considers moving goods in a warehouse with minimal handling. Goods, which are brought in from manufacturers, are not stored in the warehouse, like in the traditional way. Instead they are shifted into trucks, which are meant to drive away to the store. This method decreases the inventory costs and handling costs. Cross docking also reduces lead times of products. This can result in lower prices, which serves the consumer's needs.

Cross docking in its optimal form consists of shifting a whole pallet, arrived from the manufacturer, to the truck of the store without any handling. This is only possible when a store needs a whole pallet from a specific manufacturer. When this is not the case, one speaks of partial cross docking. In that case parts of a pallet have to be shifted to another pallet first. In both cases no inventory is used for storage, thus eliminating the warehouse's storage function.

Cross docking requires close cooperation with manufacturers, warehouses and stores. Coordination of the information trajectories is a necessary condition in order to coordinate the stream of goods. It is necessary that a warehouse has information about the goods to arrive before shifting these over to trucks. Therefore enabling technologies, such as Electronic Data Interchange (EDI) and usage of sales information, can improve the process. Without standardization the warehouse cannot make a schedule related to usage of docks and personnel.

Cross docking is only applicable to products with short lead times and which are ordered in great quantities. This technique is frequently applied in warehouses, which form the most important part in this process.

Transport

Transport is picking up, moving and delivering products between different parts in the logistic chain. A great deal of the logistic costs is due to transport. Reduction of the integral transport costs can be achieved by decreasing handling costs, more efficient capacity planning and better route planning. The definition of transport reveals that two parties in the logistic chain are involved, thus cooperation again plays an important part.

Improvement when picking up and delivering products can be made by re-arranging the process of loading and unloading products. Quick response of transporters on electronic orders can establish efficient transport by using trucks with the correct transport capacity. Electronic messages can also be used for reporting traffic jams and route planning systems, which can result in efficient routes. This also enables last-minute changes of trips to manufacturers.

Order Support Systems

Ordering by computer is an important medium, which is relevant when considering efficient delivery in the logistic chain. Order support systems are systems that implement the order process by means of Information Technology (IT). The goal of Order Support Systems is faster and better order processes and processing of the orders. This does not only affect ordering for consumers, but also for retailers and warehouses.

Users are able to quickly send an order with the advantage that errors are reduced in processing that order. This means that lower lead times are established, which result in less out-of-stock sales and eventually lower prices. A necessary condition is the usage of standardized electronic communication.

In practice, retailers use a hand terminal with an optic pencil. By scanning the barcode with the optic pencil, one can order several products with that barcode. The order can be sent directly to the warehouse and in the optimal case the cash registers are also connected with this system. This enables the retailer to monitor the daily sales and historic data in order to predict future sales. This prediction can be used for Efficient Store Assortment.

If you have any suggestions, comments, or links related to any of my subjects, please send E-mail to: S.Bhulai@few.vu.nl.