UNDERSTANDING SUPPLY CHAIN RETAIL & MANUFACTURING

In Retail industry the primary investment is in the merchandise flowing through its network, at rest or in motion. Exclude any real estate assets from this discussion as these are not core to supply chain operations. Whether a retail company owns the stores, or leases them, does not impact its operations substantially. Therefore managing this asset (inventory in the network) becomes core to a Retailer’s success. That is why the Retail supply chains are distribution focused. After the cost of merchandise, the largest overheads in retail are related to their stocking and distribution of goods. So much so that GMROI for Retailers is quite commonly interpreted and computed as Gross Margin Return on Inventory (as against Gross Margin Return on Investment).
A lean distribution chain means optimal services levels between the supplying and consuming network nodes and a higher inventory turns. The level of inventory directly affects the operational cash-flow and ability to service customers – and both these competing needs must be managed effectively.

In a Manufacturing industry /environment the goods (raw materials as well as finished goods) within the network are a large investment, but another substantial investment is in manufacturing/process equipment, and resources. All equipment gets depreciated over time irrespective of the percentage utilization. However such equipment adds value to a manufacturer’s operations only when it is being utilized. Therefore manufacturers must worry about maintaining optimal levels of inventory to maintain the services levels among the supplying and consuming network nodes but also about keeping the equipment and resources effectively utilized. In doing so the focus of the supply chain changes considerably from being distribution focused to being asset focused. This introduces the need for manufacturing planning, scheduling and sequencing so that all manufacturing operations as well as transportation operations are optimally planned for best use of resources.

Network:
Another difference that accentuates the different core requirements for the Retail and Manufacturing supply chains is simply the size of the network. A retailer’s network typically consists of multiple warehouses, and a large number of retail locations that may run into thousands. A manufacturer on the other hand will normally have only a handful of manufacturing locations and warehouses. Therefore managing the flow of material (merchandise, raw materials, or finished goods) through this network through optimal transportation, and warehouse planning becomes much more important in a retail environment.
Also the sheer number of items dealt within the Retail environments is huge compared to most Manufacturing environments (exceptions exist). This adds a large number of vendor shipping locations to the network making it unwieldy and complex for retailers.
As above, Retailer’s network primarily consists of storage locations (such as warehouses) and selling locations (such as stores). A Manufacturer’s supply chain network primarily consists of storage locations (warehouses for raw materials, or finished goods), and manufacturing locations (factories). An extended network for both the environments can model the vendor’s shipping points as well.

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KUNAL BHASIN