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Unformatted text preview: g stores in each of its markets. Managers at the individual store level have the ability to
reduce prices to meet or beat the competition. Higher level management checks these changes on
a regular basis to decide if a company-wide price decrease is needed.
Price managers regularly monitor gross margin by category, actual versus an acceptable level of
markdowns in price, category sales in similar demographic areas for existing stores compared
with new stores, and overall market share at the store and category level (see Table 3). Loblaw
manages these indicators on a weekly basis consistent with typical retail grocery industry
practice. Risk Assessment of Supply Chain Product Management
In considering the five subprocesses comprising supply chain product management at Loblaw,
Mary Lou and her team conclude that the logistics and distribution subprocess is a particularly
high-risk area that warrants careful attention. The team develops and documents its conclusions
based on the three criteria for selecting key business processes:
1. Strategic Relevance of Logistics and Distribution
Loblaw management’s decision to be a low-cost distributor of retail groceries and related
products implies that all costs relating to inventory must be managed carefully. As the
1997 Annual Report states, “Supply chain product management, a process to manage
inventory from supplier to end consumer in the most efficient and cost effective manner,
continues to be an area of focus throughout the company.” Further, as noted in the
Annual Report, the possible entry of Wal-Mart and other new food competitors (e.g.,
drugstores) into the retail grocery market is perceived by Loblaw’s management to be a
strategic threat. Wal-Mart is well known in the retail industry as having the most
efficient and low-cost distribution system and as with other new competitors may use
grocery items as loss leaders. In response to this strategic threat, Loblaw entered into a
major strategic initiative to reduce its distribution costs substantially. Furthermore, all of
Loblaw’s traditional competitors are attempting to reduce their distribution costs.
Therefore, even if Wal-Mart does not enter the market, Loblaw, by reducing distribution
costs, would be better positioned to sustain its current competitive advantage.
Mary Lou consulted a North American grocery industry expert about the strategic
relevance of logistics and distribution. This discussion confirmed the preliminary
assessment that supply chain product management is a key source of competitive
advantage in the retail grocery industry. Furthermore, the industry expert agreed that
logistics and distribution is an important element of any strategic advantage generated
from supply chain product management. 23 n KPMG/University of Illinois
Business Measurement Case Development and Research Program July 1999o 2. Inherent Risk of Logistics and Distribution
Inventory ordering is a complex task based on factors such as time of year, advertising
promotions, and response to competitors. This requires significant managerial judgement
that raises inheren...
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This note was uploaded on 01/27/2014 for the course ACCY 405 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.
- Fall '08