MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY AND EDUCATION FACULTY FOR HIGH QUALITY TRAINING LOGISTICS & SUPPLY CHAIN MANAGEMENT IMPROVING TRADE PROMOTION FORECAST ACCURACY AT CIRCLE K VIETNAM SUPERVISOR: MBA. HO TH HONG XUYEN STUDENT: NGUYEN NHU QUYNH SKL 0 0 8 7 0 8 Ho Chi Minh City, April, 2021 MINISTRY OF EDUCATION AND TRAINING HCMC UNIVERSITY OF TECHNOLOGY AND EDUCATION FACULTY OF ECONOMICS BACHELOR THESIS TITLE: IMPROVING TRADE PROMOTION FORECAST ACCURACY AT CIRCLE K VIETNAM Student: Nguyễn Như Quỳnh Student ID: 18132055 Class: 181320B - K2018 Major: Logistics & Supply chain management Lecturer: Dr. Hồ Thị Hồng Xuyên Ho Chi Minh City, April 2022 NHẬN XÉT CỦA GIẢNG VIÊN HƯỚNG DẪN Tp. Giảng viên hướng dẫn i NHẬN XÉT CỦA GIẢNG VIÊN PHẢN BIỆN Tp.
Giảng viên phản biện ii ACKNOWLEDGEMENT I am grateful to have an opportunity to work at Circle K Vietnam where I learned and accumulated some lessons for myself, knowledge and invaluable experience from my mentor, Mr Duong Hoang Phuc, Planning & Replenishment Supervisor. With his dedicated guidance, support and empathy, I have currently touched the piece of experience in supply planning in Retail. I also would like to express my great gratitude to Ms. Ho Thi Hong Xuyen, my lecturer in the final project before closing my university time and other lecturers who were with me during academic journey.
Although I tried my best with hope to make a valuable research, there are still some limitations in terms of knowledge, ability to apply theory to practice and practical experience, so mistakes cannot be avoided. I hope to receive feedback from lecturers to make my report better, which can become helpful reference for the next student generation. Thank you sincerely! Ho Chi Minh City, March 2022 Student Nguyễn Như Quỳnh iii GLOSSARY TERM STAND FOR CIC Category-in-charge CRM Customer relationship management Ctn Carton DC Distribution center FA Forecast accuracy KPI Key performance indicator MAPE Mean absolute percentage error Pcs Pieces PO Purchase order ROP Reorder point SKU Stock keeping unit SO Store order SOH Stock on hand SOQ Suggested order quantity WIP Work in progress iv LIST OF TABLES Table 2. Tradeoffs in retail industry……………………………………………….
Class in ABC analysis management……………………………………. Category features as combining ABC & XYZ analysis…………………24 Table 2. Data set for example……………………………………………………. Residual output……………………………………………………………31 Table 3.
Item list for instance………………………………………………………36 Table 3. SKU Classification for Wine & Liquor……………………………………45 Table 3. Item list of CUNG DINH noodles…………………………………………46 Table 3. Replenishment analysis for CUNG DINH noodles……………………….
Actual Demand and Forecast in ABC class with multiple categories……. MAPE data set for each class……………………………………………. Difference between customer demand and SO for each classification……53 Table 4. List of variables’ effects sizes…………………………………………….
Data set for multiple linear regression……………………………………. Multiple Regression Analysis…………………………………………….57 LIST OF FIGURES Figure 1.1: CKVN’s digital loyalty programme and proposition. Asian convenience store market growth forecast by country (2017-2022) 8 Figure 1. Number of outlets for convenience store brand in Vietnam (2021)……….
Number of outlets, floor space and sales growth for convenience stores. Board of CKVN management ……………………………………………11 Figure 1. Merchandising management structure……………………………………11 Figure 2. Some FMCG departments and categories ……………………………….
Scatter Plot for Multiple Linear Regression……………………………. Forecast chart result………………………………………………………31 Figure 3. The flow of supply chain at CKVN………………………………………35 Figure 3. Sales by month (2019-2021)…………………………………………….
Variability of store order and actual demand for STRONGBOW Cider Dark (2021-2022)……………………………………………………………………. Comparison of MAPE value over ABC classification……………………52 Figure 4. MAPE values SO for each classification…………………………………53 Figure 4. Forecast after model applied…………………………………………….
58 vi CONTENTS GLOSSARY. iv LIST OF TABLES. v LIST OF FIGURES. 1 Background of the study.
2 CHAPTER 1: AN INTRODUCTION TO CIRCLE K STORES INC .1 About Circle K Stores Inc. Management structure at CKVN. 10 CHAPTER 2: LITERATURE REVIEW .1 The concept of demand planning .2 The characteristics of demand planning .3 Forecasting principles and process. Definition and characteristics of retail.
Apply multiple linear regression to demand forecast in retail. 25 CHAPTER 3: REPLENISHMENT PLANNING ACTIVITIES AT CKVN. General replenishment planning at CKVN. Demand forecasting at CKVN.
Lead time forecasting. Order cycle and service level goal analysis. 44 CHAPTER 4: ANALYZE AND IMPROVE PROMOTIONAL FORECASTING ACCURACY. Reason for low promotion forecast accuracy.
Analysis of forecast accuracy based on ABC classification. Difference between SO and actual demand. Multiple Regression for promotional dummy variables. Implement Multiple Linear Regression with variables.
Existing problems and future suggestions. 63 viii PREFACE Background of the study Retail has become a cross-platform, cross-channel, path-to-purchase experience. Every merchandise is under pressure to adapt business process to deliver the right product to the right place at the right time. They always orientate to the goal that streamline sales, ordering, invoicing, receiving and expense offset processes, also improves customer satisfaction by enabling a smooth purchasing experience with complete product data available.
Customer expectations are changing day by day, if you think they only want cheap products, you are dead wrong. In fact, more and more people especially young generation tend to pay more with merchandise that can satisfy customer experience, fast and convenience. That is the reason why planning and replenishment all items to make sure product availability on the shelves play critical role in retail industry, especially Convenience Store like Circle K (CK). Manufacturers make great efforts to push sale as much as possible to get revenue, highlight their reputation and widen market share by working with partners (Modern Trade) to commit provide enough product during promotion on-boarding period.
Promotions are essential to every retail success, but too often, poor execution delivers poor results. They usually face with the challenges of inaccurate promotional forecasts which result in either low availability and lost sales or, if overestimating the demand impact of a promotion, costly spoilage and markdown losses down the road. It is even risky towards products with short shelf life (3-6 months), the rule put for manufacturers and distributors is 60%-70% of shelf life. In case over-forecasting for promotion and stock a large amount of products, it is possible to face with pain points on expired date issues which result in cost for damage products.
Category in-charge (CIC) relies on a combination of past experience and supplier projections to plan promotions, then planning team must calculate the predicted promotional sales uplift. Individual stores are place store orders for promoted products to meet demand, while planning team must estimate how much stores will order and what that means for distribution center (DC) inventory and purchasing requirements. Shared data is a key 1 element in eliminating the guesswork and making it possible to execute promotions with a high level of accuracy. In this paper, I will research factors forward-thinking retailers are putting into practice to improve their promotion planning and outcomes.
Research methodology To get a good result, many techniques were used. Observation, data set collected and analyzed using mostly EXCEL, process inspection. The thesis methodology will go through Academic Acknowledgement, Analyze and Improve forecast accuracy for items throughout promotional program. In Academic Acknowledgement, I will go generally the retail operation, range of service, and the role of planning and replenishment for retail supply chain.
The goal is to see the impacts of external elements to forecasting accuracy in retail, which will be able to find out the bottlenecks that have a negative effect to customer service level. In Analyze and Improve forecast accuracy, I will point out the view for over-forecast or under-forecast for promotional items following each category and then I will have some suggestion for improve forecast accuracy with the goal to decline stockout or excessive inventory rate by applying statistics to improve performance. The approach includes planning and replenishment process, SKU classification analytics, strategies. All of these come from my personal experience at CKVN during my daily working.
Scope of research My research will focus on demand forecasting to improve planning and replenishment activities in retail. Data set was extracted from the promotion in December 2021 for items at various categories to ensure for the research result. I will assess the past promotion happening at all CK’ stores and make a comparation between actual sales and forecast. It is included in: Chapter 1: An introduction to Circle K Store Inc Chapter 2: Literature review Chapter 3: Planning and replenishment at CKVN Chapter 4: Analyze and suggest improvement to promotional forecast accuracy 2 CHAPTER 1: AN INTRODUCTION TO CIRCLE K STORES INC 1.1 About Circle K Stores Inc Circle K (CK) is an international chain of convenience stores, owned by the Canadian multinational Alimentation Couche-Tard – the largest convenience retail industry operator.
Founded in El Paso, Texas, CK has been the largest chain of company-owned and operated (non-franchised) convenience stores in the United States. Arizona’s Grand Canyon region is the largest for the company. CK committed to providing the kind of comfortable and convenient shopping experience that will keep our customers coming back. A brief timeline of CK’s history: 1951: Fred Hervey purchases three Kay’s Food Stores in El Paso, Texas - stores which served as the beginning of Circle K 1957: Circle K expands into New Mexico and Arizona 1965: Circle K opens its 200th store in Tucson, Arizona.
The “Pepe” logo is introduced illustrating a young boy dashing to the nearest Circle K store. 1971: The Foodservice Division is introduced, and sandwiches are made in the company’s fast-food kitchen. The company marks its 20th anniversary with the opening of its 500th Circle K store in Deer Valley, Arizona. 1975: The 1,000th store is opened on Christmas Day in Lehi, Utah.
1979: Circle K signs its first licensing agreement with a Japanese retail chain. 1984: Sales reach the $1 billion mark. Circle K adopts United Cerebral Palsy (UCP) as its national charity and begins fundraising efforts in its stores. 1993: The company is purchased by Investcorp, an international investment group, and emerges from bankruptcy.
3 1995: Circle K completes an initial public offering of 6.5 million shares of common stock. Circle K launches Emily’s Meals & More, a new business venture in the home meal replacement category. 1999: a franchise program was introduced to support operators looking to build a business with a leading convenience store brand. 2003: Circle K has developed into a global brand represented in over 20 countries.
2008: Circle K heads overseas, adding licensing for stores in Vietnam through GR Vietnam International Limited. 2017: Continued roll-out of Circle K global brand to Canada (Ontario, Manitoba, Saskatchewan, Alberta, British Columbia, and the Maritimes), Latvia, Lithuania, Estonia, and Poland. 2020: CK has 9,799 stores in North America (primarily in the United States and Canada), 2,697 stores in Europe, and an additional 2,380 stores operating under franchise agreements worldwide1. Business activities Products CK is on behalf of convenience retail industry which includes various categories: packaged drinks, beer, dairy, biscuits & cookies, candy, chips and snacks, health & beauty, fresh food and non-food.
They aim at solutions for convenience whether it’s for on-the-go, at work or anywhere in-between treat time, lunch time, anytime. Category features: Packaged drinks & beer includes water, carbonated soft drinks, energy drinks, sport drinks, coffee, tea, juices (Coca Cola, Pepsi, URC, Heineken…). This is the key category in CK business because targeted customers are someone like convenience. Due to its importance for revenue, this type of item usually stocked with high level to make sure available in the physical stores.
On the holiday, packaged drinks are prioritized to be high stock at DC to satisfy the demand. Within beer & liquor products, they have the magic loading speed on the holiday about fourfold to daily sales. Stores will require a big quantity of beer products to stock and prepare for 4 holiday that make high Store Order (SO), stock day calculated following sales can cover more days than the real stock to adapt for SO, so in these special periods retail need to buffer stock at DC with a high level.