By Valerie Lipow

Supply chain management (SCM) is a strategic process designed to ensure products are distributed to the right places, in the required quantities, at the best total systems cost. Besides ensuring consumers get what they want, SCM lets retailers focus on meeting consumer needs at the most affordable prices.

How do retailers use supply chain management skills to keep costs down and optimize profits?

SCM Flows: Materials, Information and Financial

Retailers have used tools such as barcoding and Stock Keeping Units (SKU's) for years. Large retailers can handle thousands of SKU's. Projections of demand based on up-to-date cash register information are gleaned from the data contained in barcodes and SKU's. They are continuously provided to merchandisers and suppliers.

Retailers and wholesalers use complex, real-time, enterprise-level computer networks to communicate point-of-sales information across the supply chain.

The benefits of planning throughout the supply chain include:

• Realistic Ordering Lead-Times: Suppliers are not surprised by the next order. Retailers respond better to demand spikes, minimize forced markdowns and avoid obsolete-inventory costs.
• Averting Problems: Stores easily identify potential stock-outs and request replenishment shipments before the inventory drops to zero. Deciding to de-list or replace a product is easier.
• Facilitating Resource Planning and Allocation: Product forecasts and supply schedules are easily converted to perform space planning, establish staffing needs and organize inbound/outbound shipments. Financial experts can plan cash flow and analyze margins into the future.

Supply Chain Specialist Skills

To work in logistics or supply management, retail professionals generally need:

• A degree in science, economics, logistics or engineering.
• Excellent math skills.
• Strong organizational skills.
• Good people skills.
• Comfort with IT systems.

However, everyone employed in retail is involved in the supply chain at some level. The Institute for Supply Management lists colleges offering supply management-related degree programs, certificate programs, review courses and distance learning opportunities you might find useful.

Functional vs. Innovative Products and SCM

Instead of classifying retail goods as soft (like clothes) or hard (like refrigerators), think of retail products as functional or innovative:

• Functional: These are commodities with predictable demand patterns, such as light bulbs or toothpaste. They have many substitutes and typically low retail-profit margins. They have long lead order times, rare stock-out situations and usually small price markdowns. For functional products, a pretty formal transaction relationship among the supply chain partners prevails.
• Innovative: Think trendy toys. These products have no history on which to project future sales. They have relatively high margins, very few if any substitutes, lead times from suppliers in days, frequent stock-out situations, drastic markdowns to clear excess inventory and unpredictable demand. Innovative product supply chains rely on a closer relationship among the supply chain partners; often suppliers and retailers collaborate in product development activities.

Does SCM Work?

In a world of SKU's and high tech computer networks, why can't retailers fill their stores with stuff people want to buy at full price, without generating huge overstocks and clearance sales?

Retail products are dynamic. Competition may commoditize a previously innovative product -- think personal computers. Or due to approaches such as private labels, category management and branding, a functional product may become an innovative one -- think Abercrombie and Fitch sweatshirts.

Today's retail customers are knowledgeable and demanding. They have more choices of where, when and what kinds of products to buy. In the era of brick-and-click retail channels, supply chain skills are crucial -- but retailers must use them with creativity and flexibility.