The Lee Kong Chian School of Business Academic Year 2013/14 Term 1

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1 The Lee Kong Chian School of Business Academic Year 2013/14 Term 1 OPIM 340 RETAIL OPERATIONS Instructor Name : Bharani Krishnan Title : Adjunct Faculty of Operations Management bharanik@smu.edu.sg Office : LKCSB, Level 5, Adjunct Faculty Office COURSE DESCRIPTION This interactive course studies the important and complex field of retail operations, focusing on the analytical aspects of retail management. As global retailers seek to expand in Asia, there is an urgent need for managers with a strong analytical foundation in operations and an understanding of the cultural aspects of the region. Singapore is undeniably a retail powerhouse, offering a plethora of international brand retail outlets, complemented by distinctive boutiques highlighting regional designers. However, the Internet and social media have redrawn the battlelines in retail, forcing companies to scramble to keep ahead in the highly competitive and volatile global markets. The retail industry drives innovations in operations as retailers compete globally for increasingly discriminating customers and as the supply chain is stretched across continents. This course facilitates students in learning about retail operations in the Singapore context. Cases and Articles cover Department Store Retail, Grocery Retail, Luxury Products, Apparel Retail, Jewellery Retail. LEARNING OBJECTIVES By the end of this course, students will be able to: Evaluate the key financial performance indicators for retailers and the financial impacts of stock turnover and asset valuation. Understand the various aspects of merchandise management, including category management, space planning, and merchandise budgeting. Optimize assortments to maximize profit. Perform precise forecasting in a retail context to optimize a pre-season order or, in the case of quick response, the second order after initial sales are observed. Describe the particular aspects of a retail supply chain, including sourcing, ECR, and reverse logistics. Understand the conditions when revenue management is effective in retail and develop the optimal pricing strategy to maximize profits using differential and dynamic pricing. Understand the impact of S&OP and how this affects the upstream supply chain. Explain the importance of workforce scheduling in retail to align employee schedules to match customer traffic. Discuss retail expansion in Asia, both potential growth and challenges. Review the latest technologies in retailing and compare and contrast internet with bricks-and-mortar retailing. Analyze and compare two competing retail businesses based on the concepts we have covered in the course. PRE-REQUISITE/ CO-REQUISITE/ MUTUALLY EXCLUSIVE COURSE(S) Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites / co-requisites for this particular course. Do note that if this course has a co-requisite, it means that the course has to be taken together with another course. Dropping one course during BOSS bidding would result in both courses being dropped at the same time. ASSESSMENT METHODS Class Participation: 10 % Assigned Exercises: 20 % Group Contribution (peer review) 5 % Mid-term Examination: 20 % Group Project Presentation: 20 % Final Examination: 25 % Total: 100% 1

2 Final Grade Calculation (pre-moderation): A+ 95+ C A C A C B D B D B F * I reserve the right to lower the cut-off point for each grade. ACADEMIC INTEGRITY All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic work of other students) are serious offences. All work presented in class must be the student s own work. Any student caught violating this policy may result in the student receiving zero marks for the component assessment or a fail grade for the course. This policy applies to all works (whether oral or written) submitted for purposes of assessment. Where in doubt, students are encouraged to consult the instructors of the course. Details on the SMU Code of Academic Integrity may be accessed at INSTRUCTIONAL METHODS AND EXPECTATIONS Groupings and Group Size Please form groups of three. You are encouraged to find your own group members. The group-member list should be submitted to the TA no later than week 2. The TAs will then combine groups for the retail project. Class Participation Participation is a central part of the learning process for you and your classmates. You are expected to attend the class and complete the pre-class reading. Active participation in class discussions and group activities is required. Group Contribution The group contribution component will be evaluated by peers in your group. Your peers will assess your contribution to the group case write-ups. The assessment criteria will include effort, team spirit, initiative, work quality, knowledge and ideas. Teaching Materials This course is based on the 2010 publication by Marshall Fisher (Wharton) and Ananth Raman (Harvard): The New Science of Retailing, Harvard Business Press, The course web site will also provide additional resources for reading material, which will supplement this text. In addition, there is a course pack containing six HBS cases that need be purchased from the SMU bookshop. We will also be using some the articles from Harvard Business Review, and you can download these articles from the SMU library free of charge. Assigned Exercises In order to explore and internalize the analytical techniques learned in class, there will be regular assigned exercises/short case-write-ups/presentations assigned throughout the course. These will be assigned as group assignments and must be turned in (hard copy, one submission per group) at the beginning of class. No late submissions allowed. Group Project Presentation The group projects will involve a head-to-head analysis of competing Singaporean-based retail businesses. This will require a summary of the retailers' performance using various metrics, analysis of SCM practices, covering the topics we have covered in class, and conclusions and recommendations for future business growth. See detailed description at the end of this document. The chosen retailers should be finalized no later than Week 4. Each group is responsible to present their findings in a 30 minute presentation. The presentation will be evaluated on its thoroughness of industry analysis and application of topics from this course and on the quality of presentation itself. The slides must be professional and concise and the delivery crsip and able to keep the attention of the class. Credit will be given to effort and creativity in finding information. Examinations There will be a mid-term exam and a final exam. Both exams will focus on the materials covered in class using multiple choice, essay, and analytical questions. No make-up exams will be allowed without prior permission. 2

3 RECOMMENDED TEXT AND READINGS Marshall Fisher and Ananth Raman, The New Science of Retailing, Harvard Business Press, 2010 Reference Texts: Sunil Chopra and Peter Meindl, Supply Chain Management Strategy, Planning, and Operations, 4. Edition, Pearson, 2010 Rajesh Ray, Supply Chain Management for Retailing, McGraw-Hill, 2009 Timothy M. Laseter and Elliot Rabinovich, Internet Retail Operations: Integrating Theory and Practice for Managers, CRC Press, 2011 The case readings will be made available in a course pack and additional readings will be distributed in class. Case Study: Supply Chain Management at World Co., Ltd. ( ) Case study: Aldi: A German Retailing Icon (IES 184 / P-1071-E) Case Study: IBM Retail Business Assessment at Dillard s, Inc.: Managing Staffing Levels to Improve Conversion (HBS ) Case Study: Walmart China: Sustainable Operations Strategy (Ivey 908D09) Case Study: Focus on Diamond Retailing: Blue Nile, Zales, and Tiffany (KEL394) 3

4 WEEKLY LESSON PLANS Week No. 1 Topic Course Intro Retail Valuation Profit Planning, Asset Management, Key financial indicators, GMROI, Stock Turnover Assignment 1 Cases and Readings Fisher Chapter 1 2 Merchandise Management Category management, merchandise budgeting In-class exercise: Merchandise Budgeting Assignment 2, Prepare Case Study ALDI Ray Chapter 2 Due: Assignment 1 3 Assortment Optimization Assortment Planning, Private Labels Case Discussion: ALDI Assignment 3 Fisher Chapter 2 Case Study: ALDI Due: Assignment 2 4 Product Life Cycle Planning Lifecycle forecasting, Optimal First Buy, Early Sales Data, Replenishment In-class exercise: Catalog Data Assignment 4 Items 15-27, Prepare Case Study World Co. Fischer Chapter 3 Due: Assignment 3 5 Flexible Supply Chains Retail Supply Chains, Mass Customization, Strategic Alliances Case Discussion: World Co. Download Shelf Logic Fisher Chapter 4 Case Study: World Co. Due: Assignment 4 6 Store-Level Execution Key Elements of Store Execution, TPS in Retail, Space Optimization In-Class Exercise: Planogram Fisher Chapter 6 Article: Unlocking the Potential of Frontline Managers 7 Midterm Exam Prepare Case Study: Walmart China 8 Break 9 Retail Expansion in Asia/Global Sourcing Speaker: Case Discussion: Wal-Mart Prepare Case Study Dillards Assignment 5: Article: Fast, Global and Entrepreneurial: Supply Chain Management Hong Kong Style Case Study: Wal-mart China: Sustainable Operations Strategy 4

5 10 S&OP and Pricing in Retailing / Workforce Scheduling In-Class Exercise & Discussion: Dillards Assignment 6 Chopra Chapter15 Case Study: Dillards Due: Assignment 5 11 Technology in Retailing Industry Speaker: Point of sale Industry Speaker: Mobile technology Demand Management Prepare Case Study Diamonds 12 Omni channel Retailing Case Discussion: To be decided Store Visit: To be decided Fisher Chapter 7 Due: Assignment 6 Case Study: To be decided 13 Project Presentations 14 Study Week 15 Final Exam 5

6 RETAILER HEAD TO HEAD COMPETITION PROJECT Frequently two or more retailers will compete head to head for the same customers in a given product segment. Examples include department stores (BHG, Takashimaya, Isetan, Robinsons, TANGS), Grocery stores (NTUC Fairprice, Cold Storage), Apparel stores, Shoe stores, Bookstores (Borders Books, Kinokuniya), Pharmacies (Guardian, Watsons), Electonics stores (Besk Denki, Harvey Norman), Furniture/Housewares (IKEA, Courts), etc. This is a wonderful opportunity to learn about retail supply chain management by examining the different choices made by two competing firms facing similar challenges. In this project, you ll form a team of 4 people and learn about retail supply chain management by studying in depth two retailers that compete head to head, following the steps listed below. Your team members (6) will be formed by combining two homework groups, which will be done by the TA at the start of week 3 (after all homework groups have been assigned). PLEASE SUBMIT THE RETAILERS YOU PLAN TO STUDY BY LECTURE 4. I ALLOW ONLY ONE TEAM FOR ANY RETAILER FIRST COME FIRST SERVE ON CHOICE OF RETAILERS 1. Choose two competing retailers with stores accessible to you for a visit. Ideally they should be publicly traded or else it will be harder to get information. 2. Compare their stock performance over the last few years. 3. Scan their financial reports and gather information on as many of the metrics discussed in class as you can. Here are the most important ones. Sales growth = % increase in sales year to year Comp store sales increase = % increase in sales at stores open at least oneyear New store openings Acquisitions Return on Assets (ROA) = Operating profit/total assets Gross margin % = Gross profit/sales as a percent Inventory turns = Sales/Inventory valued at retail Gross margin return on inventory (GMROI) = gross profit/inventory valued at retail Sales per square foot = total store sales/total store square footage SG&A % Asset turns = Sales/total assets Identify major differences between the two retailers in these metrics and try to explain these differences based on your observations of the retailers operating practices. You may not be able to get information on all of these, but compare the two retailers on as many metrics as you can. 4. Browse each company s web site, read articles about them and scan their annual reports. 5. Visit one or more stores of each retailer. One of the great advantages of studying retail supply chains is that many aspects of a retailer s supply chain are on public display in their stores. Here are some suggested issues on which to compare the two retailers. a. Product: Number of SKUs and average amount of inventory in each SKU. (You will only be able to approximate the number of SKUs in the store e.g. do an exact count for a small section of the store and extrapolate from there or compare two departments of the two stores.) Which retailer has the broader selection in each category? Which has the deeper inventory? How do prices compare? How are the assortments chosen and on what basis is the forecasting for the merchandise done? b. People: Talk to the store people (you need to decide whether to play mystery shopper or to identify yourselves as SMU students doing a project each has advantages) and gauge their level of motivation, knowledge and friendliness. How do staffing levels reflect the peak sales periods? Learn what you can about incentives. Ask the store people what they do to drive sales. I find asking broad questions like What are you struggling with can be highly fruitful. c. Execution: How frequently can you not find what you are looking for? Ask store people how frequently they stock out of hot products and what they do about it. Conversely, how frequently do they worry about excess inventory 6

7 and what do they do about that. How frequently do they receive deliveries? What responsibility do they have for ordering? d. Store design: Square footage, is there a back room, signage, etc. Pictures and diagrams are a useful way to convey this information in your final presentation. e. Global presence: where is their country of origin and in which countries are they present? Can you identify specific differences in the merchandise, store locations/layouts, pricing etc. for different countries? f. Please view these as suggestions and feel free to explore whatever issues you think interesting. g. Conclusions. Which of the two retailers do you believe is more successful and what explains their success i.e. what are they doing differently than the other retailer? Could this be copied? How successful are they in the global marketplace? What advice would you give to the laggard? 7