Journal of Transport and Supply Chain Management

ISSN: (Online) 1995-5235, (Print) 2310-8789

Page 1 of 12 Original Research

Equipping small business retailers to manage logistical

supply chain drivers: A theoretical guideline

Authors: Background: Small businesses are seen as the impetus behind a country’s economic growth.
Themari Eicker1
The South African government’s continued commitment to prioritise the development of
Jacoba O. Cilliers1
small businesses, the promising rise of the retail sector in South Africa and the substantial
Affiliations: contribution of small businesses to trade, business services, personal services and construction
1
Department of make the small retailers a force to be reckoned with. Businesses often fail because of a lack of
Entrepreneurship, Supply
strategic fit between the competitive and supply chain strategies. It is imperative that the
Chain, Transport, Tourism
and Logistics Management, supply chain design, resources and processes provide the necessary capabilities to support the
University of South Africa, desired competitive strategy. Managing the three logistical supply chain drivers of facilities,
South Africa inventory and transportation can contribute to achieving a strategic fit between the selected
competitive strategy and supply chain strategy. The logistical supply chain drivers should not
Corresponding author:
Themari Eicker, only be managed as a cohesive unit, but should also be aligned with the orientation of the
[email protected] selected supply chain strategy, in terms of responsiveness and cost-efficiency.

Dates: Objective: The objective of this article is to provide guidelines from literature that small business
Received: 17 July 2017 retailers can use in managing their logistical supply chain drivers to be aligned with the
Accepted: 19 Sept. 2017 orientation of their selected supply chain strategy in terms of responsiveness and cost-efficiency.
Published: 22 Nov. 2017
Method: An extensive literature review was conducted pertaining to the management of the
How to cite this article:
Eicker, T. & Cilliers, J.O., 2017,
three logistical supply chain drivers by small retailers.
‘Equipping small business
Results: It was determined that small responsive retailers typically order inventory on a frequent
retailers to manage logistical
supply chain drivers: A basis, hold excess inventory, provide customers with a seamless in-store experience and are
theoretical guideline’, Journal located close to their customers. These responsive retailers make use of direct delivery from
of Transport and Supply suppliers (and to customers) to increase their flexibility and reduce lead times. On the other
Chain Management 11(0),
hand, small cost-efficient retailers typically do not hold excess inventory, and their stores are
a332. https://doi.org/​
10.4102/jtscm.v11i0.332 usually located further away from customers. These cost-efficient retailers take advantage of
both economies of scale when purchasing inventory and economies of distance when transporting
Copyright: inventory.
© 2017. The Authors.
Licensee: AOSIS. This work Conclusion: Literature guidelines with regard to the management of the logistical supply
is licensed under the chain drivers are provided to assist small retailers in achieving a strategic fit between the
Creative Commons
Attribution License.
selected competitive strategy and supply chain strategy.

Introduction
Background: Small business retailers’ role in South Africa’s economy
Small businesses are considered worldwide as the impetus behind income growth and prosperity
for individuals and communities (Abor & Quartey 2010:218; Aykan, Aksoylu & Sönmez 2013:939;
Katz & Green 2012:14; Mbonyane & Ladzani 2011:550). Nkosi, Bounds and Goldman (2013:1) state
that in South Africa small businesses create employment, ensure a more equal distribution of
income to citizens, promote the general economic welfare of citizens and improve local markets.
Therefore, any research conducted in the field of small businesses should be encouraged because
it is not only to the advantage of citizens, but also to the economic growth of a country (Nkosi et
al. 2013:1; South Africa. National Planning Commission 2012).

The continued commitment to prioritise the development of small businesses by the South African
government is reflected in their ambitious goal for the small business sector to create 90% of the
employment opportunities within South Africa by 2030 as outlined in South Africa’s National
Read online: Development Plan of 2030 (South Africa. National Planning Commission 2012). This Plan further
Scan this QR
code with your stresses the importance of supporting small businesses by encouraging both government and the
smart phone or
mobile device Note: This article is partially based on the first author’s thesis of the degree of Master of Commerce in Business Management at the
to read online. University of South Africa, South Africa, with supervisor Dr J.O. Cilliers, received October 2016, available here: http://uir.unisa.ac.za/
bitstream/handle/10500/22225/dissertation_eicker_t.pdf?isAllowed=y&sequence=1

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 Page 2 of 12 Original Research

private sector to procure from small businesses. Despite the nature of logistics management decisions made in small
South African small businesses’ access to ample opportunities businesses and the management of the three logistical supply
to contribute to economic growth (South Africa. National chain drivers within the small business environment. The
Planning Commission 2012), a staggering 80% of small discussion on the main literature findings regarding the way
businesses regrettably tend to close down within the first in which management decisions related to the three logistical
5 years of opening their doors (Strydom 2015:467; Van Eeden, supply chain drivers differ (based on the supply chain
Viviers & Venter 2003:12). strategy orientation) is structured in a Table. The final section
consists of the conclusion, limitations posed by existing
South Africa forms the biggest retail market in sub-Saharan literature and future research opportunities.
Africa, and the 20th largest in the world, with a wide
array of shopping malls and retail developments
(PriceWaterhouseCoopers 2012:2). Because population growth
Supply chain management in small business
is a key driver behind economic growth, Prinsloo (2016) Businesses often fail because of a lack of strategic fit between
predicts that South Africa’s positive population growth the competitive and supply chain strategies (Borella & Padula
coupled with expected income growth in the higher market 2010:44; Chopra & Meindl 2016:33). A strategic fit can only be
segments will result in retail spend to rise substantially. The achieved when the goals of the supply chain strategy are
promising rise of the retail sector in South Africa according to aligned with the goals of the competitive strategy (Borella &
the Gauteng Quarterly Bulletin (2012:4) and the substantial Padula 2010:47; Hoejmose, Brammer & Millington 2012:589;
contribution of small businesses to trade, business services, Qrunfleh & Tarafdar 2013:573; Soni & Kodali 2011:71).
personal services and construction (Stats SA 2016) make the Therefore, it is imperative that the supply chain design,
small retailers a force to be reckoned with. The crucial role of resources and processes provide the necessary capabilities to
retailers in a community’s economic and social welfare lies in support the desired competitive strategy.
their ability to provide consumers with choices and services
(Ligthelm 2008:37). Retail intermediaries, as the final businesses When selecting a competitive strategy, small businesses will
in a supply chain linking manufacturers to consumers, perform benefit from competing in narrow target markets, as they are
vital value-adding activities according to customers’ need for often prevented from competing in large markets, mainly
convenience (Prinsloo 2016:1). In an ideal customer-driven because of their limited resources (Box & Miller 2011:58;
supply chain, successful retailers know the exact level of Jooste et al. 2012:244; Leitner & Güldenberg 2010:171; Parnell
service that the customer expects at a minimal cost. They also 2013:217; Teeratansirikool et al. 2013:170). Lazenby (2014:167)
understand what customers view as important and what level and Parnell (2013:217) explain that when small businesses
of service they are willing to pay a premium for (Allen compete in a narrow target market (defined either
2012:330). In their efforts to effectively participate in a supply geographically, by products or services, or by customer type),
chain, retailers will reap the rewards of lowering costs related they are more likely to succeed and maintain a competitive
to inventory, transport, warehousing and packaging, while advantage than when competing in a broad target market.
increasing customer satisfaction (Petty et al. 2012:463).
Porter’s generic competitive strategy framework is the
Worldwide, most new entrants to retailing unfortunately dominant, universally accepted framework for competitive
have no experience of retail selling and have to learn the strategies within strategic management (Ehlers & Lazenby
trade through experience (Stokes & Wilson 2010:387). In 2010:179; Hsieh & Chen 2011:14; Lazenby 2014:160; Salavou
South Africa too, the dire need for more skilled entrepreneurs 2015:81). Although Porter’s framework was developed in
to run their small businesses efficiently and effectively is well 1980 it is still deemed relevant within the modern business
known (Choto, Tengeh & Iwu 2014:93–94; Lebusa 2013:76; environment as it captures the essence on which more complex
Malebana & Swanepoel 2015:109). Matabooe, Venter and competitive strategies are based (Banker, Mashruwala &
Rootman (2016:2) advocate mentorship of older, established Tripathy 2014:873). According to Porter (1985:11) a business’
businesspeople towards new entrants. Retailers’ need to competitive advantage can be focussed, either on providing a
learn from and emulate counterparts was observed by product or service at the lowest possible cost (low cost), or on
Kesavan and Kushwaha (2014:2118) who found that retailers, differentiating the product or service from rivals’ offerings.
for example, benchmark their inventory performance against
other organisations in the same industry or against competing Differentiation as a source of competitive advantage is more
retailers to guide their inventory decisions. suitable for innovative products with an uncertain customer
demand, operating in an unstable and dynamic market
This article attempts to provide a guideline from literature environment and serving less price-sensitive customers
and research reports that small business retailers can use in (Salavou 2015:82). Small business managers using the focus
management decision-making on logistical supply chain differentiation competitive strategy should ensure that they
drivers. The subsequent discussion commences with an are equipped to operate in an unstable and dynamic market
overview of the orientation on which supply chain environment by being flexible. They should implement
management strategies in small business are based upon. appropriate functional strategies in order to adapt easily to
Thereafter a literature review is presented, which focusses on changes in the market and fluctuating customer demand
the state of logistics in South Africa as a developing country, (Hsieh & Chen 2011:14; Parnell 2013:217). In other words,

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these strategies must be managed to be responsive (Banker stipulated by the specific supply chain strategy – depends on
et al. 2014:874, 875; Hines 2013:40, 62–63). the unique interaction of the different elements within the
supply chain. These elements are known as supply chain
The focus on low-cost competitive strategy is more suitable for drivers. Three logistical supply chain drivers were identified
functional products with certain customer demand, operating by the aforementioned authors, namely facilities, inventory
in stable and stationary markets and serving price-sensitive and transportation and three cross-functional supply chain
customers (Fawcett, Ellram & Ogden 2007:228; Hsieh & Chen drivers, namely information, pricing and sourcing. Although
2011:14; Salavou 2015:82). Small businesses competing with a all six drivers should be managed effectively in order to
focus on low-cost competitive strategy should concentrate on obtain the correct level of responsiveness and cost-efficiency,
lowering costs, for example by taking advantage of economies this article will focus on the three logistical supply chain
of scale (Banker et al. 2014:874, 875; Hines 2013:40, 62–63). After drivers as synchronisation agents in linking supply chain
selecting an appropriate competitive strategy, the different members with one another (Bowersox et al. 2013:4, 29). Before
functional strategies should be developed, which include the discussing the literature findings related to the management
supply chain strategy (West, Ford & Ibrahim 2015:34). of logistical supply chain drivers in terms of obtaining the
correct level of responsiveness and cost-efficiency, the
When selecting a supply chain strategy, management should logistics environment surrounding South African small
consider the trade-off between the level of responsiveness businesses should be contextualised.
and cost-efficiency at which they operate (Goldsby, Iyengar
& Rao 2014:143; Monczka et al. 2016:635; Simon et al. 2015:28; Literature review
Storsjö, Martins & Zanoni 2015:2); moreover, this strategy State of logistics in South Africa as a developing
should also be aligned with the overall level of responsiveness country
and cost-efficiency of the entire supply chain (Chopra & The World Bank rates the logistical performance of all
Meindl 2016:38). Although many factors (such as product countries every 2–3 years on a 5-point scale, where 1 indicates
characteristics; the level of demand and supply uncertainties a low overall logistics performance level and 5 a high overall
placed on the supply chain; and customers’ buying behaviour; logistics performance level. Although South Africa’s logistics
the position of the supply chain member within the supply performance fluctuated during 2007–2016 the country
chain; order winners and order qualifiers) influence the received its highest rating in 2016 – at 3.78, placing South
selected supply chain strategy, the strategy will ultimately be Africa’s logistics performance among upper middle income
orientated towards either responsiveness or cost-efficiency countries. An annual report that focusses on identifying
(Hines 2013:7). Table 1 depicts the characteristics of a supply logistical trends and opportunities for South African
chain strategy orientated towards responsiveness, directly businesses (Barloworld Logistics Supply Chain Foresight
followed by Table 2 that depicts the characteristics of a supply 2016:3–4, 19, 25, 28) has identified some logistical constraints
chain strategy orientated towards cost-efficiency. that possibly contributed to the country’s fluctuating logistics
performance rating during that period. These constraints
Chopra and Meindl (2016:56) explain that obtaining the included the unstable economy, political uncertainty, high
correct level of responsiveness and cost-efficiency – as cost burdens (such as overheads) and skill shortages in both

TABLE 1: Characteristics of a supply chain strategy orientated towards responsiveness based on literature.
Authors Characteristics
Having high Adapting easily Being suitable Reducing the risk Having the Serving Building mainly Having Working with
flexibility to market for innovative of supply ability to customers who short-term additional products
changes and products uncertainty propose new are relationships capacity characterised
unpredictable mainly through and innovative not with available to by shorter
customer risk-hedging and solutions to price-sensitive customers ensure Life cycles
demand safety inventory customers flexibility
Chopra and Meindl x - x - - - - x -
(2016:38, 60)
Morita et al. (2015:2) x x x - - - - - -
Qrunfleh and Tarafdar x x x x - - x x -
(2013:573, 579)
Gligor and Holcomb x - - - - - - - -
(2012:438–439)
Wieland and Wallenburg x x x - - - - - -
(2012:890)
Merschmann and x x - - x - - - -
Thonemann
(2011:43–44)
Fawcett et al. (2007:228) x x x - - - - - x
Christopher and - - - - x - x - -
Gattorna (2005:119–120)
Gattorna (2003:31–33) - - - - x - x - -
Lee (2002:106–108) - - - x - x - - x
Fisher (1997:106) - x x - - x - - x
Note: Please see the full reference list of the article, Eicker, T. & Cilliers, J.O., 2017, ‘Equipping small business retailers to manage logistical supply chain drivers: A theoretical guideline’, Journal of
Transport and Supply Chain Management 11(0), a332. https://doi.org/10.4102/jtscm.v11i0.332, for more information.

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 Page 4 of 12 Original Research

TABLE 2: Characteristics of a supply chain strategy orientated towards cost-efficiency based on literature.
Authors Characteristics
Being Focussing Being suitable Being Reducing the Serving Building Focussing Using Working
highly on achieving when suitable for risk of price- long-term on demand with
cost- economies of customer functional supply sensitive relationships cost- forecasts products
conscious scale, synergy demand is products uncertainty customers with customers competition characterised
and predictable mainly through mainly to by longer
implementing pooling or share life cycles
low-cost sharing of knowledge
processes resources
Monczka et al. (2016:636) x X - - - x - - - -
Wisner, Tan and Leong - - x x - - - - - x
(2016:112)
Liu et al. (2014:112–113) - - - - x - - - - -
Qrunfleh and Tarafdar - x - - - x - x x -
(2013:573)
Gattorna (2010:169) - - - - - - x - - -
Fawcett et al. (2007:228) - x - - - x - - - -
Hong and Jeong (2006:296) - - x x - - - x - x
Christopher and Gattorna - x - - - - x - - -
(2005:119–120)
Gattorna (2003:31–33) - x - - - - x - - -
Lee (2002:106–107) - - x x - - x x - x
Fisher (1997:106) x - x x - - - - - x
Note: Please see the full reference list of the article, Eicker, T. & Cilliers, J.O., 2017, ‘Equipping small business retailers to manage logistical supply chain drivers: A theoretical guideline’, Journal of
Transport and Supply Chain Management 11(0), a332. https://doi.org/10.4102/jtscm.v11i0.332, for more information.

upper and lower management. These constraints are in line Management and
with those faced by other developing countries, such as administraon costs
Inventory carrying cost
China and Malaysia (Li & Fung Research Centre 2008; Warehousing cost
Zuraimi, Yaacob & Ibrahim 2013:326). Transportaon cost

According to the Council for Scientific and Industrial

13.2%
Research’s (CSIR) 10th Annual State of Logistics Survey for
12.7%
South Africa (2014:28), the performance of South Africa’s
12.5% 14.5%
logistics industry is dependent on the country’s transport 14.0%
infrastructure, logistics service provision, cross-border trade 13.5%
13.9%
facilitation and telecommunication systems. The CSIR survey
Percentage

13.8%
(2014:1–7) further explains that South Africa’s economy is 14.3%

classified as a high transport-intensive economy, where

products have to be transported frequently to fulfil demand
(Havenga & Simpson 2014:35) because of the vast imbalance
59.0% 58.2%
between the demand and supply of products. The Logistics 57.8%
Barometer of South Africa is a platform created by the
Stellenbosch University’s Department of Logistics to report
on the national logistics costs, the different cost drivers and
the latest logistics trends in the country. Figure 1 illustrates 2013 2014 2015
the different components of South Africa’s logistics costs as Year
reported by The Logistics Barometer of South Africa for 2013, Source: Stellenbosch University, 2015, Logistics barometer South Africa, p. 7, viewed 21
September 2015, from http://www.sun.ac.za/english/faculty/economy/logistics/
2014 (estimated) and 2015 (forecasted).1 Documents/Logistics%20Barometer/Logistics%20Barometer%202015.pdf
FIGURE 1: Cost components of South Africa’s logistics costs for the period 2013–
Aligned with the CSIR’s survey The Logistics Barometer also 2015 in percentages.
classified South Africa as a high transport-intensive economy
because approximately 60% of all logistics costs for this Logistics management in small businesses
period were classified as transportation costs. Warehousing According to Soinio, Tanskanen and Finne (2012:33) small
costs ranged between 13% and 14% of total logistics costs and businesses are normally characterised as not having the ability
inventory carrying costs between 13% and 15% of total to manage their logistics activity. An effective logistics network
logistics cost during the period 2013–2015. South Africa’s can serve as a differentiating factor to distinguish a business
estimated cost of logistics as a percentage of gross national from its competitors (Nichols 2010; Wisner et al. 2016:301). The
income for 2014 and 2015 was 11.4% and 11.7% respectively, performance of a small business is directly influenced by
which was again in line with other developing countries logistics and can be enhanced by reducing overall logistics
(Stellenbosch University 2015:4, 7). costs, for example by reducing inventories and managing
transportation efficiently (Orfanos, Mylonakis & Evripiotis
1.The estimated (or forecasted) logistical costs for 2016 were not available when
finalising this literature study. 2010:21, 26). Although small businesses are more simply

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structured in terms of the number of employees, annual as product variety and level of shopping convenience, will
turnover, capital assets and the managerial involvement of influence the size and layout of the retail premises (Kotler
its owners than larger businesses (Erasmus, Strydom & et al. 2013:435). For example, a small retailer who strives to
Rudansky-Kloppers 2013:52; Töyli et al. 2008:61), their provide customers with a fast shopping experience would
logistics challenges remain the same. The essential components focus on obtaining a larger retail premises designed for fast
(drivers) of facilities, inventory and transportation, as well as and convenient shopping. Service retailers must aim to
the logistics linkages (identified by Monczka et al. 2016:659 as balance the optimal rate at which a service is provided and
inbound logistics, intra-organisational movements, outbound the cost of providing the service (Berman & Sapna 2001:429).
logistics and reverse logistics) are present in both large and An increase in the rate of providing the service will increase
small businesses (Zowada 2013:116). Therefore, the logistics cost, such as overheads and storing costs (if applicable) as
management decisions made by small business owners the retailer has to ensure that inventory and staff are
will in essence resemble the management decisions made available, whereas a decrease in the rate of providing a
in larger businesses, as confirmed in the literature review service will lead to a decrease in costs, as less inventory can
presented below. be kept (if applicable) and less staff employed. Managing
service facilities to reduce customers’ waiting periods (lead
times) will increase not only the retailer’s level of
Logistical supply chain drivers responsiveness, but also its profit, as more customers can be
Although the three logistical supply chain drivers cannot be assisted (Berman & Sapna 2001:429).
managed in isolation (Chopra & Meindl 2016:57), each driver
is presented separately in the subsequent sections for Retailers also require a facility to store additional inventory.
discussion purposes. The discussion will consider the role of Inventory can be stored either at the premises from which the
each supply chain driver within a retail supply chain; the business is operated or at a facility located elsewhere. Smaller
different management decisions related to each supply chain retailers are known to use a storage facility (or room) at their
driver; and the different decisions small business management retail premises to store inventory (Fernie & Sparks 2014:4).
need to make regarding the business’ orientation towards A storage facility can be used to hold several types of
responsiveness and cost-efficiency. inventory, for example safety or seasonal inventory in
preparation for fluctuating customer demand (Baker &
Facilities as a logistical supply chain driver Canessa 2009:425; Richards 2014:9). The amount of inventory
Facilities provide supply chain services that include the storage that the retailer decides to store directly impacts the size of the
of inventory, customer order fulfilment and assembling of storage facility, as well as the level of responsiveness and cost-
different parts of a product. If these services are managed and efficiency at which the retailer operates (Chopra & Meindl
designed effectively, it can result in improved customer service 2016:60). A retailer would require an additional facility (or
through increased responsiveness (Wisner et al. 2016:318). room) to store excess inventory in order to meet customers’
When facility decisions are aligned with the orientation of the needs immediately at the expense of increased facility costs.
selected supply chain strategy, businesses tend to be more On the other hand, a retailer who are more focussed on cost-
successful (Chopra & Meindl 2016:59). Businesses can use efficiency would generally not hold excess inventory –
facilities as a source of a competitive advantage, based on eliminating the need for an additional facility (or room) and
reducing either cost or lead times (Graungaard Pedersen, keeping facility cost low, at the expense of not meeting
Zachariassen & Stentoft Arlbjørn 2012:354). Designing a facility customers’ needs immediately (Kamath & Roy 2007:336).
network entails decisions related to the function, location and
capacity of the facility, which will impact supply chain Location of the facility: Retail businesses with brick-and-
performance in terms of the level of responsiveness and cost- mortar sites generally focus on the revenue-generating
efficiency (Horn et al. 2014:15). The different management potential of locations, as opposed to the cost focus of
decisions related to facilities are discussed below. manufacturers and wholesalers. When selecting a location,
retailers have to consider the drawing power of the location,
Function of the facility: Facilities can be classified, for the match between the target market and the demographics
example, as production, storage, the premises from which a of the customer-drawing area and the competitive
retailer operates or as a service facility according to its environment (Mariotti & Glackin 2012:495). Hatten (2012:308)
function. When retailing physical goods, the premises from further stresses the importance of retail compatibility when
which retailers operate, represents their facilities, service retailers select a location. Shoppers tend to be drawn to
facilities constitute those places where services are rendered clusters of related businesses, which synergistically serve the
to customers, often with the aid of inventory items (Bowersox market (Hatten 2012:308). Retailers should realise that
et al. 2013:37; Lawrence, Sivakumar & Arivarignan 2013:4771). shopping malls and centres could potentially draw more foot
Retail premises represent a convenient, permanent place of traffic. Although costly, the benefits of establishing a business
contact between buyers and sellers – which retailers should in malls and shopping centres to sell complementary
use to their advantage (Stokes & Wilson 2010:387). products or compete directly with similar offerings could
outweigh the benefits associated with a more cost-efficient
When designing or selecting the premises for retail outlets, single free-standing location (Mariotti & Glackin 2012:495;
managers should consider their target market. Factors, such Scarborough 2011:477). The decision of service providers on

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location differs somewhat in that service businesses would facility costs), at the expense of the level of responsiveness, as
need access to their customers and can generally survive in any change in customer demand cannot be met timeously.
lower-rent properties (Scarborough 2011:476). If professional
services are offered managers would require attractive office Small retailers must decide whether they prefer to make
space that is easily accessible because the image they portray provision for fluctuations in customer demand by having
is crucial (Allen 2012:310). additional capacity (thus increased responsiveness at higher
cost), or whether they would rather wait until a customer’s
Another key factor for retail businesses is the proximity of demand is known. This will allow retailers to purchase the
outlets to the customers they serve. Thus managers should appropriate level of inventory from suppliers, and so
decide to either use a centralised or decentralised facility eliminate the need for excess capacity (thus increasing cost-
system. When using a centralised facility system, a business efficiency at the expense of responsiveness) (Chopra &
will have fewer facilities than with a decentralised facility Meindl 2016:60–61).
system. The advantages of a centralised facility system lie in
lower facility costs (for example administration costs) and Inventory as a logistical supply chain driver
increased efficiency of the facility through economies of scale Inventory is kept in a supply chain to address the imbalance
(decreasing the facility cost per unit) (Graungaard Pedersen between the supply and demand of products (Chopra &
et al. 2012:353). The disadvantages of a centralised facility Meindl 2016:61) and should be managed effectively as one of
system are increased transportation costs and delivery times the business’ most expensive assets (Monczka et al. 2016:621–
because of the increased distances that inventory items travel 622; Wisner et al. 2016:209). The right amount of inventory
between suppliers, customers and the facility. Therefore, a should be purchased to support the business’ day-to-day
centralised facility system can increase cost-efficiency (if the activities because ineffective inventory management can lead
cost advantage gained from economies of scale outweighs to excess inventory and a waste of resources (Wisner et al.
the increase in transportation costs) at the expense of 2016:209). Poor and ineffective inventory management
responsiveness (because of longer distances travelled). directly impacts the growth of small business negatively
Gaining the advantages of economies of scale (by purchasing (Mbonyane & Ladzani 2011:553). Alhabeeb (2015:244) states
in large quantities), when using a centralised facility system, that inventory is used to achieve the objectives of operational
may prove to be more difficult for smaller businesses with flexibility, avoiding product stock-outs, saving on purchasing
their limited resources (Graungaard Pedersen et al. 2012:366). cost through quantity discounts and regulating product
supply while considering the cost implications of these
Alternatively, when using a decentralised facility system, a objectives. Businesses incur a number of different costs when
business will have more facilities available. The advantages building and maintaining inventory levels, such as the cost of
of using a decentralised facility system lie in the shorter ordering and purchasing inventory, carrying and storing
distances and delivery times of inventory items between the costs, as well as the cost of loss in sales because of stock-outs.
suppliers, customers and facilities (Schmitt et al. 2015:202).
Holding inventory closer to customers allows a retailer to The role of changes in the economic environment cannot be
reduce transportation costs and meet customers’ needs faster ignored during inventory decision-making. Kesavan and
(Richards 2014:20). Kushawa’s (2014:2120) main finding of research conducted
among public retailers in the USA was that stock-outs and
Capacity of the facility: The capacity of a facility refers to a the inventory-holding costs facing retailers have a significant,
number of issues, such as the maximum average rate at explanatory power over the observed differences in inventory
which inventory can flow through the system; the rate at investment behaviour across retailers during economically
which a service can be rendered; or the available storage turbulent times. Higher inventory costs would imply smaller
space at a facility (Bowersox et al. 2013:103; Wisner et al. profits and eventually lower inventory levels. The challenge
2016:527). The available capacity of a facility influences lies in finding the right balance between the amount of
business performance in terms of responsiveness and cost- inventory that businesses should carry to satisfy unpredictable
efficiency (Chopra & Meindl 2016:60). Having excess capacity customer demand and the cost of carrying such inventory
will increase costs, but will enable the business to respond (Alhabeeb 2015:242; Ehrenthal, Honhon & Van Woensel
swiftly to changes in customer demand (Kamath & Roy 2014:527; Pienaar & Vogt 2012:218). Inventory can be classified
2007:336). Excess storage capacity will allow a business to as either cycle, safety or seasonal inventory, depending on
store additional inventory and have the items on hand the purpose of the inventory. Managers need to consider both
whenever customer demand arises. Additional capacity for the amount of each type of inventory to hold, as well as the
service retailers can, for example, lie in having extra time cost implication of holding the inventory as this has a direct
available to perform additional services. Although excess influence on the level of responsiveness and cost-efficiency of
capacity can increase the level of responsiveness, cost- the business (Chopra & Meindl 2016:62).
efficiency will decrease, as idle capacity does not generate
revenue and also increases facility costs (Hugos 2006:10–11). Cycle inventory: Cycle inventory is the average amount of
On the other hand, by not having excess capacity available, inventory that is purchased or produced in order to satisfy
the level of cost-efficiency increases (because of a decrease in customer demand within a specific cycle (weekly or monthly

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or annually) (Horn et al. 2014:80). Within the retail sector, Seasonal inventory: Inventory that is accumulated to counter
cycle inventory will include products that retailers sell to predictable seasonal customer demand is called seasonal
customers, products that a service provider uses to render inventory. Retailers will purchase additional inventory in
the service to customers (Berman & Sapna 2001:430) and times when customer demand is low, in preparation for times
products that retailers use to produce other products (for when demand is high (Chopra & Meindl 2016:63; Ehrenthal
example a bakery). When ordering cycle inventory, managers et al. 2014:527). The decision to purchase seasonal inventory
must first consider the amount and frequency of inventory depends mainly on whether the retailer views the increase in
that is required (Islam et al. 2013:3–4). Businesses that carrying cost worth having the products available when
purchase cycle inventory in large batches do so to take customer demand is higher. Therefore, purchasing seasonal
advantage of economies of scale; as this will lead to a decrease inventory will increase the retailer’s level of responsiveness,
in the costs of transportation, ordering and purchasing. at the expense of cost-efficiency (Chopra & Meindl 2016:63).
While purchasing cycle inventory in large batches decreases
costs, managers should be aware of the cost increase in Transportation as a logistical supply chain driver
carrying a large amount of inventory, for example increased
Transportation is an important part of logistics and a key
facility costs. On the other hand, by ordering cycle inventory
driver within supply chain management (Monczka et al.
in smaller batches more often, retailers will be able to meet
2016:659). Transportation does not only refer to moving
customer demand more often as inventory is readily available
inventory, but also to the delivery of a service to a customer.
at the cost of increased transportation, ordering and
Transportation reduces the business’ financial resources
purchasing costs (Chopra & Meindl 2016:62, 280). Owner or
through costs for, among others, labour, fuel, vehicles and
managers can follow inventory management practices by
vehicle maintenance (Bowersox et al. 2013:187).
investing in inventory control systems and using basic
Transportation should be managed effectively and cost-
quantitative techniques to optimise their inventory levels,
efficiently because it generally forms one of the largest
such as computing inventory turnover ratios, determining
logistics expenses for any business (Bowersox et al. 2013:187).
the economic ordering quantity, calculating and setting
Effective transportation management refers to the extent to
reorder points for maximum and minimum inventory levels,
which transportation contributes to meeting customer needs,
doing regular inventory counts and setting inventory budgets
whereas cost-efficient transportation management measures
(Abanis et al. 2013:31, 36, 40).
how economical transportation can be used to meet customer
needs. Holter et al. (2008:22) identify two reasons for the
Safety inventory: Any additional inventory held above cycle
importance of transportation management, particularly in
inventory is classified as safety inventory. The purpose of
safety inventory is to prevent a loss of sales because of stock- small businesses. First, transportation is a process that is
outs (Coyle et al. 2013:324). Therefore, safety inventory repeated numerous times throughout the supply chain, and
buffers a business against unpredictable customer demand secondly, transportation is one of the most costly logistical
(Baker & Canessa 2009:425; Bowersox et al. 2013:48). activities for many small businesses, as already mentioned.
Managers should carefully determine the amount of safety Through the effective and cost-efficient management of
inventory items to hold, because if a surplus is held, a mark- transportation, customers’ expectations can easily be met
down may be required in order for these items to be sold. (Bowersox et al. 2013:187). For small retailers, transportation
Not only will income be lost (because of the mark-downs), in the supply chain will entail collecting or receiving
but the carrying cost will decrease cost-efficiency inventory from a supplier, and delivering inventory to
(Graungaard Pedersen et al. 2012:354). On the other hand, customers (if a delivery service is offered). The different
insufficient safety inventory may result in decreased routes and modes, by which inventory is transported to
responsiveness, and a consequent loss in sales (Baily et al. different locations, are referred to as the transportation
2008:164). The managers of small retail businesses should network. A well-designed transportation network will assist
determine the level of safety inventory depending on their a supply chain to achieve the desired level of responsiveness
orientation towards cost-efficiency or responsiveness. at the lowest possible cost (Chopra & Meindl 2016:64).
Johnson and Ruankaew (2017:12) propose that the efficiency
in inventory control in small businesses requires the adoption Routes of transportation: Chopra and Meindl (2016:64–65)
of inventory control techniques, such as economic reorder state that when designing a transportation network, managers
points, classification of inventory, forecasting and safety should consider two aspects; firstly, whether the inventory
inventory levels. As in the case of cycle inventory, the ability will be transported directly from the supplier to the customer
to calculate the reorder point would allow owners or and secondly, whether the inventory will pass through an
managers to determine the demand during lead time and the intermediate site, such as a cross-docking distribution centre.
safety inventory needed during stock-outs or before Direct shipment of inventory indicates that inventory does not
replenishment takes place (Badenhorst-Weiss, Van Biljon & go through an intermediate storage site, but is directly
Ambe 2017:141). Automation in inventory management can transported from a supplier to a customer. This means that the
add value in small businesses by triggering reorder points to coordination between the different supply chain members is
reduce stock-outs or by enabling forecasting for better relatively easy in many ways, for example, the scheduling of
purchases or by calculating the economic ordering quantities delivery times. According to these authors direct delivery will
for replenishment (Johnson & Ruankaew 2017:13). minimise the time that inventory spends in transit resulting in

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 Page 8 of 12 Original Research

increased responsiveness. On the other hand, when inventory unit will decrease as the size of the shipment (or load) increases.
is transported through an intermediate site the items are Similarly, economy of distance refers to decreased
usually sent to a cross-docking distribution centre. When a transportation cost per ton/kg as the distance (in km) increases.
cross-docking distribution centre is used, a supplier will send According to this principle, fixed transportation costs can be
a truck containing several customers’ inventories to the centre spread over more kilometres travelled which implies lower
to be combined with inventories from other suppliers. By per kilometre charges. Thus, if a small business owner could
coordinating and sharing transportation, the inbound costs source products at a good price from a supplier located further
can be lowered. An outbound truck will combine the away, fixed transportation costs can be lower. To summarise,
inventories from several suppliers destined for one customer based on the principles of economy of scale and economy of
(Chopra & Meindl 2016:423; Yu & Egbelu 2013:168). In a distance, small business owners can be cost-efficient by
storage facility, inventory from a supplier is received and maximising the load size and the distance transported within
stored until a customer needs the inventory. Inbound the boundaries of meeting customer service expectations and
transportation costs decrease because suppliers can benefit considering the variable costs incurred.
from economies of scale by sending large shipments of
inventory to the storage facility. Normally the outbound
transportation costs are low, as the storage facility centre is
Discussion of findings
located close to customers when using a decentralised facility Table 3 summarises literature findings on general facility,
system (Chopra & Meindl 2016:423). inventory and transportation management decisions based
on a small retail business’ (including service retailers’)
Road transportation: Small businesses primarily use road orientation towards either responsiveness or cost-efficiency,
transportation and select small delivery trucks and motor as aligned with its supply chain strategy.
vehicles to move inventory from its point of origin to its final
destination in the supply chain (Goldsby et al. 2014:24). Road The management decisions regarding the logistical supply
transportation is viewed as the most popular mode of chain drivers presented in Table 3 will contribute to achieving
transportation based on its speed and reliability (Goldsby et al. either responsiveness or cost-efficiency in different ways.
2014:17; Monczka et al. 2016:671). Furthermore, the available Small business retailers who base their supply chain strategy
highway networks enable vehicles to reach nearly every on responsiveness would carry excess inventory (stored either at
shipping and receiving location (Coyle et al. 2013:​405–406). the premises or a storage facility) in order to satisfy customers’
The ability of road transportation to deliver door-to-door also needs conveniently and immediately with available products.
makes it the most flexible mode of transportation. However, Similarly, a responsive service retailer will organise (arrange)
this flexibility comes at a cost because transportation by road is the facility to provide customers with a seamless service
relatively more expensive (Monczka et al. 2016:669). Although experience because of shorter waiting times and the availability
more expensive, the advantage of easy access to the final of sufficient staff and goods to render the service. In terms of
location normally outweighs the additional costs, according to location, responsive retailers will be driven by being close to
Chopra and Meindl (2016:416). In essence, road transportation customers to satisfy their need for convenience and shorten
will increase a retailer’s level of responsiveness, but at the their waiting times. Therefore, they would find a location close
same time will decrease the level of cost-efficiency (Hugo & to customers and, if necessary, open another outlet that is
Badenhorst-Weiss 2011:179–180). It should however be noted geographically closer to customers. They would also show a
that South African retailers are restricted by the available preference for being situated between clusters of related
infrastructure to mainly use road transportation. Therefore, businesses (often in malls and shopping centres) to provide
despite enjoying the benefits related to responsiveness, they complementary products and contribute to a convenient and
have to manage transport costing efficiently. Although De time-saving shopping experience. In their effort to be able to
Villiers, Nieman and Niemann (2017:170) summarise the provide sufficient products or services, responsive small
components associated with road transport costing as fixed (or business retailers will ensure that extra capacity (or space) is
standing) costs, variable (or running) costs and overhead costs available for storing items for immediate satisfaction. In terms
small business retail owners or managers would typically of inventory management responsive small retailers order
consider fixed and variable costs. For example, aspects such as smaller batches regularly (even at higher cost) and buy
vehicle depreciation and vehicle insurance are included as additional inventory (safety inventory) in order to have
part of fixed costs if they own the vehicle. Variable costs would inventory available as demand changes. Such additional
entail fuel and lubricant expenses when owning a vehicle and inventory would require additional storage space. When
carrier rates when outsourcing transportation. When making transportation decisions, responsive small retailers
considering costs, small business owners should base their will, if the occasion demands, resort to direct delivery from
decisions on two fundamental principles impacting on suppliers (and to customers) to speedily provide the products
transport efficiency, namely economy of scale and economy of and services required. The availability of road transportation
distance (Bowersox et al. 2013:203–204). A small business as the main option available to South African small retailers
owner or manager can achieve economy of scale in favours the responsive small retailer because of the speed,
transportation by transporting full loads or by collaborating flexibility and reliability associated with this mode of
with other small businesses to have a full load because the transportation. However, meeting customer expectations
economy of scale principle holds that transportation cost per should outweigh the costs incurred.

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TABLE 3: Logistical supply chain drivers’ management decisions.

Supply chain Components of decisions Management decision when focussed on Management decision when focussed on Relevant authors
driver related to facilities responsiveness cost-efficiency
Facilities Classification as storage, Facility characteristics: Facility characteristics: • R ichards (2014:9)
retail or service facility • Excess inventory (safety or seasonal) is purchased • Excess inventory (safety or seasonal) is not • Bowersox et al.
and stored, either in-store or at a storage facility purchased, and therefore there is no (2013:37)
situated away from the retailer. need for a storage facility. • Kotler et al. (2013:435)
• Retail facility (premises) is designed to increase the • A smaller retail facility (premises) is selected • Lawrence et al.
customer’s level of shopping convenience. Ample as limited or no excess inventory is held. (2013:4771)
storage space is available at the retail premises to • Service facility is managed to focus on • Berman and Sapna
store additional inventory. reducing costs by not holding excess inventory (2001:429, 430)
• Service facility is managed to reduce the time that and employing only the necessary number
customers wait to receive the specific service (lead of staff members.
time). Facility is flexible – by holding sufficient
inventory and staff to perform the service.
Location Number of stores: Number of stores: • C hopra and Meindl
• An additional shop is rather opened in order to be • Having only one facility from where the (2016:59)
located close to more customers, than expanding business is operated (centralised system). • Wisner et al. (2016:321)
current facility (decentralised system). • Schmitt et al. (2015:202)
• Richards (2014:20)
Retail compatibility: Retail compatibility: • Coyle et al. (2013:474)
• Situated between clusters of related businesses • Situated at a lower cost, free-standing location. • Allen (2012:310)
generally within costly malls or shopping centres. • Graungaard Pedersen et
al. (2012:353)
Closeness to customers: Closeness to customers: • Mariotti and Glackin
• Stores are located close to customers to increase • Stores located further away from customer to (2012:495)
responsiveness mainly through reduced lead times increase cost-efficiency by lowering costs (such • Scarborough (2011:477)
(decentralised facility system). as transportation costs) and to benefit from
economies of scale (centralised facility system).
Capacity or available Excess capacity: Excess capacity: • W isner et al. (2016:527)
space • Excess capacity is available to render a service • Fixed capacity is available to render • Fernie and Sparks
or to store inventory. services and store inventory. (2014:4)
• Bowersox et al.
(2013:103)
• Kamath and Roy
(2007:336)
• Hugos (2006:10–11)
Inventory Cycle inventory Order frequency of cycle inventory: Order frequency of cycle inventory: • C hopra and Meindl
• Order frequently and in smaller batches for • Order less frequently to minimise costs (2016:62, 280)
immediate satisfaction of customer demand, (such as ordering, carrying and transportation • Islam et al. (2013:3–4)
thereby forgoing the possibility of saving costs (such costs) and in large batches to benefit from • Graungaard Pedersen et
as ordering, carrying and transportation costs). economies of scale. al. (2012:352–353)
Safety (or excess) Quantity of safety inventory kept: Quantity of safety inventory kept: • B owersox et al.
inventory • Hold a large amount of safety inventory items to • Hold a small amount of inventory items (2013:48)
ensure immediate satisfaction of customer demand. to save on costs (such as carrying costs • Coyle et al. (2013:324)
and loss of income because of mark-downs). • Baker and Canessa
(2009:425)
Space to store safety inventory: Space to store safety inventory: • Baily et al. (2008:164)
• Pay rent for additional space to store safety • Hold a small amount of inventory items, and
inventory, thereby increasing the level of therefore additional space need not be rented.
responsiveness.

Seasonal inventory Provision for seasonal demand: Provision for seasonal demand: • C hopra and Meindl
• Purchase additional products in off-peak periods • Do not make provision in off-peak periods for (2016:63)
to make provision for increased demand in increased demand in peak periods; instead • Wisner et al. (2016:211)
peak periods. save on costs (such as carrying costs) during • Ehrenthal et al.
off-peak periods. (2014:527)
Transportation Routes Delivery of inventory: Delivery of inventory: • Chopra and Meindl
• Use direct delivery of inventory from and to • Order large quantities of inventory to qualify for (2016:64–65)
first-tier suppliers and customers in order to free delivery from suppliers. Larger retailers may • Yu and Egbelu
minimise transit time and to have inventory delivered to an intermediate site (2013:168)
increase responsiveness. to lower inbound transportation costs.
Transportation mode Road transportation: Road transportation: • D e Villiers et al.
• Fast, flexible transportation mode making access • Maximum load size and distance transported (2017:170)
to end locations easy. Lead times are reduced to take advantage of economy of scale • Monczka et al.
when using road transportation. and economy of distance. (2016:671)
• Goldsby et al. (2014:17)
• Bowersox et al.
(2013:203–204)
• Hugo and Badenhorst-
Weiss (2011:179–180)
Note: Please see the full reference list of the article, Eicker, T. & Cilliers, J.O., 2017, ‘Equipping small business retailers to manage logistical supply chain drivers: A theoretical guideline’, Journal of
Transport and Supply Chain Management 11(0), a332. https://doi.org/10.4102/jtscm.v11i0.332, for more information.

The small retailer driven by cost-efficiency shows no need for inventory or rendering additional services. Cost-efficient
a bigger store (or service facility) or a storage facility because retailers benefit from achieving economy of scale by ordering
of their decision not to keep excess inventory items (or to large batches of cycle inventory less frequently. They are
appoint additional staff for rendering the service). Cost however more cautious to carry safety inventory at extra
reduction also explains their decision to operate from a cost and keep only a small number of items for which larger
single, free-standing facility in a less costly location. A cost- costly space need not be rented. They would also rather save
efficient orientation might result in the facilities being on inventory costs during off-peak seasons (and not make
situated further away if retailers can benefit from reduced provision for increased demand in peak seasons) by not
transportation costs (and other costs) and economy of scale stocking up on such items. In terms of transportation
associated with a centralised facility. Being restricted in savings, cost-efficient small retailers benefit from free
terms of capacity eliminates the cost of carrying additional deliveries associated with large orders. As already mentioned

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 Page 10 of 12 Original Research

South African small retailers are bound to use road can be met. These responsive retailers should preferably be
transportation and therefore the cost-driven small retailer located close to their customers and strive to provide
will have to achieve economy of scale and economy of customers with a seamless in-store experience. The
distance, even if that entails collaboration with other availability of road transportation as the main option of
retailers. However, such savings should not compromise transportation is to the advantage of responsive small
satisfying customer needs and the variable costs incurred. retailers as this increases flexibility and reduces lead times.
On the other hand, retailers with a supply chain strategy
Future research opportunities orientated towards cost-efficiency should reorder inventory
in large quantities to gain the advantage of economies of
Empirical studies can be conducted to determine the scale, as well as economies of distance when transporting
application of these guidelines in different retail settings. inventory via road. These cost-efficient retailers do not hold
Because this literature study focussed only on the excess inventory and consequently do not require additional
management of the three logistical supply chain drivers by storage space. Their stores are usually located further away
small retailers, future research could focus on determining from customers where costs such as rent are lower than those
(by means of a literature study and empirically) how retailers locations situated closer to customers.
should manage the three cross-functional supply chain
drivers, namely information, sourcing and pricing.
Acknowledgements
Limitations of the study Competing interests
The authors declare that they have no financial or personal
The authors found that the literature related to the
relationships that may have inappropriately influenced them
management of the three logistical supply chain drivers were
in writing this article.
mainly conceptualised and presented for small businesses
operating in a developed economy. Therefore, some of the
suggestions related to the management of the logistical Authors’ contributions
supply chain drivers to either increase the retailers’ level of T.E. is a lecturer at the University of South Africa. This article
responsiveness of cost-efficiency might not be feasible for is based on her Master’s dissertation completed in 2017.
South African small businesses, unless empirically J.O.C. was the supervisor of T.E.’s Master’s dissertation and
established. Furthermore, the literature findings from which contributed to the conceptualisation of the article, as well as
the guidelines were deduced did not include a discussion on analysing and recording literature from the dissertation.
all three logistical drivers, which neglected the cohesion and
interaction between the drivers. Finally, the authors did not
structure the literature to specifically distinguish between
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