Decision support tools for supply chain optimization in the supermarket industry

Retailers compete on many dimensions, however the pricing and promotional strategy is the most important, hence the praxis starts with providing a pricing strategy. A decision- support model is developed that allows for conducting what-if analyses on pricing against competition (positioning), for the different classes (tiers) of items. The model determines the impact of the given positioning on the sales values and gross profits. A promotional pricing model is then developed that utilizes multiple-regression analysis on pricing and promotional variables, including competition pricing and promotional activities, to develop forecasting formulas for demand levels. The model is utilized to maximize the resulting promotional margins while optimizing the sales values, as well as improving demand forecasting. The model resulted in significant improvement in promotional margin and better forecasting than the intuitive methods used by category managers. A detailed demand-planning and inventory-management system is proposed that takes the transfer pack size into thorough consideration. Forecasting is conducted and ordering cycles are determined to ensure superior availability at the lowest possible stock levels. This would lead to maximizing stock turns, thereby increasing the positive cash flow and enabling the retailer to expand and leverage economies of scale to compensate for the low margins in the supermarket industry. The praxis also touches upon the automation of ordering goods from suppliers into a Distribution Center (DC), and directly into stores, as well as the ordering from a DC to stores. Key Performance Indicators (KPI's) and reporting measures are recommended to ensure control of availability of the promotional as well as the normal items for customers. The above work provides a framework for optimizing the supply chain effectiveness through providing the right prices to generate optimal demand levels, maximizing the promotional effectiveness to generate the maximum profit margins, providing the proper forecasting to ensure availability of promotional and normal non-promotional items, and enabling an inventory management system to maximize cash flow through maximizing the stock turns.