AUTOMATIC REPLENISHMENT SYSTEM

ARS THEORY

What is Automatic Replenishment System (ARS)?

ARS as the name suggests is an automatic way to replenish your stocks on floor.

You have SKUs and then you select the target qty. & re order point for the same.

Target Qty. Is the maximum qty. which you want to keep in store.

Re order point is the when the stock level @ store becomes equal to the same, a STO for the new stock transfer is generated automatically by ARS.

For example,

• there is a casserole which you want that you should have at least 50 pcs in your store every time
• suppose you sell 5 pcs a day that means you want to have stocks for minimum 10 days
• suppose the stocks take 4 days to reach the store from warehouse

Now minimum stocks is 50 that you want to keep so the re order point has to be 70 as it will take 4 days to reach the store so you should have 20 pcs more than 50. So you select the target qty. which is the maximum qty. you want to keep on floor anything between 80-100 (according to the floor capacity/Promotions), so you will be having 80-100 pcs on floor and as soon as the floor qty. touches 70 a new Stock transfer Order is generated which triggers transfer of difference qty. to the floor. By the time stock reaches the floor you will be having minimum of 50 pcs on floor.

Now situations are never so simple and easy @ floor in practical scenario.

ISSUES:

• slow/fast moving of the product

We can never be sure that the movement of the stocks i.e. the sales of the stocks left with us will be @ the same pace which we have thought of i.e. instead of moving 5 pcs a day you got an order of 50 pcs the very first day of STO generation so you are left with only 20 pcs, now you have only 20 pcs for next 4 days.

• stock connectivity on the floor

The transport vehicle which was carrying your stocks broke down.

• wrong forecasting(Bull Whip Effect)

Due to some customer order or promotion you had 5 pcs a day’s sale of casserole and now you have loaded the ARS accordingly but this year you didn’t had any such promotion or customer order so your sales/day decreases leading to high stock cover...Bull Whip Effect

• Wrong in warding of the stocks

Stocks have been in warded by wrong article code, your system shows 0 qty. of the same so same qty. is ordered again automatically by ARS leading to over stocking situation.

• Wrong Out warding of the stocks

Some other article have been sold at casseroles article leading to fall of floor count which will trigger the new STO generation leading to over stocking situation. OR you are selling casserole @ some other article so the floor stock becomes 0 but system still shows 100 qty. so the STO is not generated for the same.

• Manual generation of STOs

Sometimes manually STOs are generated which leads to over stocking, like if you are having enough stock of casseroles in warehouse then you generate manual STO in order to get the stock liquidated before it ages out, so all the ARS gets dis balanced here.

• Delay in STO generation

This is another issue being faced in the retail world that the STO generation is not done on time which leads to fall of minimum qty. which needs to be on floor.

Aftermath of above stated Issues:

• Normally you never work @ 100% of the ARS target qty. i.e. MBQ ratio.
• You always work @ 80% - 95% of the MBQ ratio.

After setting the ARS according to me you should check the below stated four points and you will be get a clear picture of what should be done and what not.

Let the ARS set by you work for 1 month and after that go ahead by4 laws of theory given below:

LAW 1 : If your floor situation says that you have excessive stocks on floor and you MBQ ratio is more than 100% then don’t change the ARS as your MBQ ratio( floor stock/ARS tgt qty.) is already >100% new order won’t be generated till re order point is touched, wait, sell and then your floor situation will be normal again.

LAW 2: If your floor situation says that you have excessive stocks on floor and you MBQ ratio is less than 100% then you need to decrease you ARS as already your floor is over stocked and MBQ ratio being lesser than 100% will trigger more STO generation which will worsen the situation on floor.

LAW 3: If your floor situation says that you have fewer stocks on floor and you MBQ ratio is more than 100% then increase the ARS. You are already having lesser stocks and ARS is more than 100% so the STO generation will take more time, so you need to immediately get the ARS increased. Need to check the flow of the stocks too in this scenario.

LAW 4: If your floor situation says that you have fewer stocks on floor and you MBQ ratio is less than 100% then don’t change the ARS as floor says you have less stock and MBQ ratio is also less than 100% so new STO will be generated and more stocks will flow in leading to balancing the stock levels on floor.

WHEEL OF RETAILING

1. New retailers often enter the market place with low prices, margins, and status. The low prices are usually the result of some innovative cost-cutting procedures and soon attract competitors.
2. With the passage of time, these businesses strive to broaden their customer base and increase sales. Their operations and facilities increase and become more expensive.
3. They may move to better up market locations, start carrying higher quality products or add services and ultimately emerge as a high cost price service retailer.
4. By this time newer competitors as low price, low margin, low status emerge and these competitors to follow the same evolutionary process.
5. The wheel keeps on turning and department stores, supermarkets, and mass merchandise went through this cycles.

This is what is presently happening with Big Bazaars as they entered as the low cost stores but now things are going the other way.

Now there is one thought of changing the image of Big Bazaar of being a low cost quality store rather than being high discounting store. Now you might find lesser discounts as it is improving on the quality of the products available in the store for the customer.

But this theory could also be true here as Easyday is coming up with lesser prices in some products but customer is not aware that they are giving more discounts on few articles and covering the same from other articles whereas Big Bazaar works overall at low Net Margins.

CATCHMENT AREA ANALYSIS

Retail Analysis is an inherently complex and dynamic issue because of interactions that occur between different retail centers.  If all retail centers were alike, offering exactly the same shops and services with regards to price and quality then we could assume that the population within the catchment would spend all of its money in the nearest centre.  However, different centers are not the same and people’s mobility means that they will often travel to their preferred destination instead of their closest one. Changes in population, access and retailing also alter relative attractiveness. An important element of the study is therefore to provide a robust assessment of the current catchment area of the city, taking into account different types of retailing such as food and non-food, with the latter disaggregated into bulky and non-bulky goods. 

Factors that influence consumers’ decisions on where to shop include:

• Presence and strength of ‘anchor’ traders

• Volume, quality and mix of retail provision

• Additional services and facilities

• Leisure provision

• Accessibility

• Parking

• Shopping Environment

While differences between adjacent centers effect the distribution of expenditure in the present time, it is equally important to gauge how changes to supply and new development in competing locations will impact on a centre in the future.  Within 10 Kms of Ambience Mall, the population has a wide choice of retail destinations, including Sahara Mall, Metropolitan, DT City Center, then malls in Vasant Kunj & Saket and many more.  If Ambience fails to improve the above criteria while the surrounding centers make improvements then it effectively declines as a retail centre and people will drive further distance to reach locations that fit their preferences.

BULL WHIP EFFECT

The bullwhip effect or whiplash effect is an observed phenomenon in forecast-driven distribution channels.
It refers to a trend of larger and larger swings in inventory in response to changes in demand.
Because customer demand is rarely perfectly stable, businesses must forecast demand to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are given, companies often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop, thereby not reducing inventory. The effect is that variations are amplified as one moves upstream in the supply chain (further from the customer).

Causes of BWE :

• Panic ordering reactions after unmet demand.
• Perceived risk of other players' bounded rationality.

• Dependent demand processing
  • Forecast Errors
  • Adjustment of inventory control parameters with each demand observation
• Lead time Variability (forecast error during replenishment lead time).
• Trade promotion and forward buying.
• Anticipation of shortages.

Now, all the above given gyan has been copy pasted from wiki, but why I am doing this? whats the use of this???Why have I started this blog?

Reason here has only been one & only one that is just in order to be in touch with the facts of retail which I had read in MBA. I don't want them to get eluded out of my mind as all the engineering crap did. Plus one more thing just came in my mind right now that I would share my own personal experiences which have blessed me with few learning. I don't have huge work experience but even then, we all can simultaneously learn and teach and moreover SHARE....

Now coming back to BULL WHIP EFFECT.

There is hell a lot written on wiki which is very much informative & a bit confusing too according to me.

There were many other reasons written there but according to me above stated reasons are most important ones & the ones which are important to get this phenomenon grabbed easily.

I am working as a category manager of Luggage category in Future group and my profile is of Sales & merchandising. I have to keep a track of what stocks are moving to the 21 big bazaar stores. Everyday I have to make projections of what quantity of stocks will be required at the stores in promo periods and normal days. And after every promo period I feel same bull whip effect playing at some of my stores, and it worsens when I allocate stocks for next promo period.

Projections play a very important role during any promo period as we always consider last 3 or 4 promo period and analyse the rend of sales in brands at article level. Never let your projections go out of the limits nor try taking same growth patterns for all the stores/outlets. Try considering sales pattern of a particular store in particular category. You might end up having 10% growth for one store & 40% growth for other.

In order to minimize the same I have made one habit of inter store transfers during the promo period & also of pre bookings with advance payments on the basis of stocks available at the nearest stores.

I counter the huge left overs at one store by inter store transfers & stock out situations by advance bookings.

So, any retailer who is working at the same profile can use this thing (in fact must be already using it) to counter the same & also would be able to understand the position of worsened BULL WHIP EFFECT.

If you like this blog then write a comment on it & if not even then write a comment otherwise its actually not mandatory too...

See ya all later with my new copy pasted gyan, till then NAMASTE...