Depending on the size of a retail business, the amount of goods with the organization can number in the hundreds of thousands. Receiving the goods takes a well managed and operated logistics team. The logistics team must understand the laws of economics and possess fluency in the laws of supply and demand.
The basic economic principles of Supply and Demand states, “if supply is high and demand is low, a surplus is inevitable and the costs of goods plummet” and “if demand is high and supply if low, costs will rise”. Supply and demand is relevant to a retail business since this principle relates to their receiving process, direct store delivery.
Direct store delivery is a process in which vendors and suppliers deliver goods to an establishment. In turn, the establishment sells the merchandise through a point of sale system.
With optimal conditions, a well run direct store delivery process will balance out the laws of supply and demand. Unfortunately, real world problems occur. The role of the business is to identify problems proactively and create action plans to prevent repeat performance. So what must be identified to prevent lapses in the direct store delivery process?
Vendors are the key ingredient in a successful direct store delivery process. Vendor/suppliers deliver the products thus the start to the supply/demand wheel. A business has to set up specific time for delivery and the vendors must abide by those times. If not, they lose their time slot and potentially lower the supply. Ultimately the demand for a particular product will be lowered if customers expect the product at a certain point and the vendor/supplier cannot deliver.
Never allow the vendor/supplier to substitute one product for another. The business should be the sounding voice in substitution issues. Once the power to decide falls into the hands of the vendor/supplier, the business has failed at identifying direct store delivery problems.
An effect of supply and demand revolves around prices. Work with vendors/suppliers if pricing is not aligned with in your market. Most vendors/suppliers work with several direct store delivery operation. Even though they will not be able to share other company’s prices, they will be able to adjust prices once your business has identified pricing variances.
Within the direct store delivery process, the business unit has to have an acute attention to detail. The record keeping must be without the slightest error, from the vendor/supplier or the business. The merchant has to understand what is being sold in the facility and be aware if the item is corrupting the supply and demand wheel.
For example, if the vendor/supplier provides the merchant with 100 widgets per day. The merchant only sell 10 widgets per day. If the merchant does not address the direct store delivery opportunity, the supply will be higher than the demand, potentially forcing the price to be driven down.
How do the merchant and the vendor/supplier create an alignment to have a successful direct store delivery process? Both parties have to meet and express each other’s expectation in business. Most vendors/supplies have a contract so they are bound, but the vendor/supplier could possibly be in breach of contract if they don’t provide service and affect the merchant’s sales and profitability.
The direct store delivery process is a component of the supply and demand economic wheel. Remember, if a wheel has a missing piece, it cannot roll correctly. Don’t be this missing piece.