Operations Management: Supply Chain Strategies

Simply, supply chain moves a product or service from supplier to customers. Lambert, Stock and Ellram (1998) define a supply chain as the alignment of organizations that brings products or services to market. It is a system of organizations, people, technology, activities, information and resources involved in. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. Stank et al.(2001)emphasises that supply chain management generally involves integration, coordination and collaboration across organizations and throughout the supply chain. The concept includes planning, implementing, control manufacturing and delivery processes. The goal of supply chain management is to link the market, distribution, manufacturing and supplier according to the principle of customer’s demand are better met at low cost (Hill, 2000). One of the key challenges in supply chain management is matching supply with demand. While downstream members insist on responsive suppliers, upstream members are reluctant to allocate their supply before receiving information about customer orders (Wilson 2004). In order to deal with this problem, every parts of supply chain are working more closely and companies are now approaching their suppliers as ‘long-term’ partners. For instance, in the retailer sector, most of the companies have launched programs to reduce the total number of direct suppliers and establish strategic partnerships with them. These long-term relationships can provide major benefits for both parties. While the upstream member provides the money and technology for the downstream partner, each member in turn receives a more stable demand requirement.

With an increasing awareness of the strategic value of production and service, organizations are beginning to focus on their production and service supply chains. Strategy Planning decisions are made in shorter timeframes. At this level, the operation of supply chain is concerned with the forecasting and strategic positioning, which to meet customer service demands in a manner consistent with the response, and cost as guarantee and service agreements. There are 5 benefits of supply chain strategies, which are:

(1) Cost reduction (through better inventory management, asset utilisation, shorter cycle times, efficient distribution and materials procurement).

(2) Improved customer satisfaction (ensuring on-time and in-full delivery of the right products to the right location).

(3) Improved operational efficiency (through the reduction or elimination of non-value adding activities).

(4) Improved organisational flexibility to cope with dynamic markets and customer requirements

(5) Development of better relationships with other organisations within the supply chain.

Supply chain strategies gain the companies competition. Organizations increasingly find that they must rely on effective supply chains to compete in the global market. In Hill’s (2000) new management paradigms, the changes of supply chain management are to be realised. For most companies, developing a supply chain is a multiphase task. The sequence of activities that make up an integrated supply chain are designed to, ideally, add more value in an effort to realise the benefits of supply chain management. This paper focus on Mark & Spencer’s supply chain strategies and illustrates how the products’ characteristics and origin can impact the supply chain decisions and strategies taken by the M&S.

2. Background

2.1 Marks & Spencer

Marks & Spencer was established in 1884 and is now one of the UK’s leading retailers, serving around 10 million customers a week, with approximately 65,000 full and part-time employees. As one of the UK’s leading retailers, Marks & Spencer sells stylish, high quality, great value clothing and home products, as well as outstanding quality food, responsibly sourced from around 2,000 suppliers globally. Marks & Spencer have over 600 stores located throughout the UK. Marks & Spencer is unique in selling only its own label products. This control of its supply chain has enabled the company to achieve high levels of innovation in product development as well as its use of technology. But in 1998, M&S announced a 23% fall in half year results and warned of further bad news. Pre-tax profits halved from ¿¡1.2 billion to ¿¡546 million, the fall again to ¿¡418 million for the year of 2000 (The Economist Newspaper, 2000). It’s a huge decline, many investors are disappointed about M&S’ performance. It is clearly that M&S faced difficulties and its poor financial performance lead to profits fall. Obviously, M&S misunderstood the reasons for the decline in profits included operation of supply chain. Meanwhile, the competitors put together global purchasing networks. Reducing cost, improving customer satisfaction, improving operational efficiency, improving organisational flexibility and developing more reliable partners are effective and efficient increasing the competition of other companies. “Instead of the usual drab M&S interior, it is now Californian shopping mall meets modernist chrome and creamy marble floors. Roomy walkways and designer displays have replaced dreary row after row of clothes racks”(Gilbert, 2003). Focus on further developing, M&S should be managed the retail supply chain strategically and supported by IT and database marketing, into the movement of mass customisation, that means creating potential for selling unique product and service to each customer. M&S put Plan A into practice in January 2007. which highlights one hundred commitments to achieve in five years. Plan A not only looks at the commitments to be made by M&S, but also the areas along the supply chain where changes. It can be made to reduce waste, use sustainable raw materials and trade ethically (http://plana.marksandspencer.com/about, 2010). Due to the success of the program, M&S have now stated identified a new goal of becoming the world’s most sustainable major retailer.

2.2 Three types of products in M&S

Wang et al. (2001) has drawn attention to the fact that due to declined product life cycles, rocketing manufacturing costs, and the globalisation of market, supply chain management increases attention. With improved supply chain management, product costs can be reduced, at the same time, excellent product quality and customer services are maintained. Products’ characteristics decide the supply chain strategies. Autograph clothes, cakes and high technology Christmas gifts are three types of products we concentrate on.

In autograph clothes, moreover, M&S cannot solve the problems simply by improving its fashion taste and judgment. The mean reason is that a large number of people are not inclined than young people to spend a high proportion of their disposable income on clothes. Facing this, M&S will concentrate first on regaining the loyalty of core customers, who prefer classically stylish clothes. In addition, M&S develops their product markets by improving their ‘diffusion brand’ business targeted at different socioeconomic groups (Fernie et al., 2004). As part of its plan to segment its products across different lifestyles, M&S has already announced the appointment of George Davies to design and supply a collection of women’s clothing for the fashion-conscious woman. This sub-brand will be available only at M&S. This new brand is the M&S’ innovation products. The Company also plans to regain the confidence of its customers in the quality and fit of its clothing. In the next few years, the company’s performance highly depends on the clothes market. 

Compared with clothes, Food is M&S’ functional product. In food, the company also face the keen competition but it focused on newness, simplifying ranges and emphasising quality and uniqueness. During 2004 the company opened 31 Simply Food stores of which 13 stores were in partnership with Compass (Gilbert, 2003). Food is M&S’ profit growth point, food takes up 15% of the floor space, however, it accounts for around 40% of sales (The Economist Newspaper, 2000). Unfortunately, M&S has been unable to respond to challenge. In other words, the company lost its advantages. The Economist Newspaper (2000) has drawn attention to the fact that M&S only shares less than 3% of the British grocery market, while Tesco covers almost 18% of the market. However, this business is a key platform for future growth. M&S Foods should be continued to earn customers’ trust for providing quality and convenience. Here, M&S’ cakes will be illustrated clearly.

Christmas gifts are new products that M&S intends to meet the mass customisation. High technology Christmas gifts can consist of either different combinations of functional components, and mix of functional and innovative components.

Date presentation, analysis and discussion

3.1 Three types supply chain strategies analysis

Since there are three types of supply chain strategies-lean supply chain, agile supply chain and hybrid supply chain, a problem that management faces is which type of supply chain is best suited for the organisation. It is believed that the product that the organisation manufactures or selling decides the supply chain selection (Huang et al., 2002). Different products have different sell methods, so they have diversity supply chains. Lean supply chain focus on reducing cost and decreasing waste for already available products. It’s easy to satisfy the customer requirements because the product demand is stable and it can be accurately forecasted. Supplier attributes to provide high quality but low cost services. Shorten lead time and minimizes inventory are basic principles for lean supply chain strategy. In contrast, agile supply chain strategy is designed for innovation product. This market changes rapidly, reducing lead time is one of the core principle. Supplier attributes involve speed and flexibility and the company should deploy necessary stocks for unpredictable market requirements. Hybrid supply chain strategy use both lean and agile supply chain strategy. One product has traditional components and innovational components. The company should use both strategies to meet customer requirements. The chain helps to achieve mass customisation by postponing product differentiation until final assembly (Huang et al., 2002). Low cost and speed are concerned by supplier. Research by Huang et al. (2002) suggest that at components level, shorten lead time but not at the expense of cost is best way. While at product level, it needs to invest aggressively in ways to reduce lead times. The characteristics of lean, agile and hybrid chains are summarised as shown in Table 3.1.1.

Aim

Reducing cost and decreasing waste for already available products.

product demand is stable and it can be accurately forecasted.

innovation product

market changes rapidly

use both lean and agile supply chain strategy.

meet customer requirements

Supplier

low cost

speed and flexibility

low cost, speed and flexibility

Inventory

minimizes inventory

necessary stocks for unpredictable market requirements

minimize functional components inventory

Lead time

shorten lead time, no extra cost

invest more to reduce lead time

at components level, shorten lead time but not expense extra cost

at product level, it needs to invest more to reduce lead times.

Product design

maximize performance and minimize cost

use modular design as long as possible

maximize performance and minimize cost

use modular design as long as possible

3.2 Product characteristics and supply chain strategy

Happek (2005) points out that supply chain strategies define how the supply chain should operate in order to compete. Supply chain strategy is an iterative process that reduces the cost at operational components. Different products’ characteristics can impact the supply chain strategies. Huang et al.(2002) rightly points out that products can be categorised into three types, which are functional, innovative, and hybrid. M&S foods are functional products. As Wang et al. (2001) point out, functional products’ demand can be forecasted accurately and their market share keeps stable. Food products have a long life cycle and their own loyal customers. Customers need them all the time. Secondly, autograph clothes are innovative products. They are new products developed by M&S to capture the customers’ attention, meanwhile keep a wider share of the market. Through master’s design, they are totally different from the present clothe types. Designed clothes are fashion and more closed to the customer requirements. At times, autograph clothes represent a breakthrough in product pattern. Innovative products are the reflection of customers’ changing requirements. High technology Christmas gifts are hybrid products. They consist of both different combinations of functional components and the innovative components.

Typically, supply chain can be classified into three types: lean supply chain, agile supply chain and hybrid supply chain (Huang et al., 2002). Lean supply chain means persistent improvement processes to focuses on cost reduction, flexibility and incremental improvements for already available products. Organisation insists on improving process to focus on the elimination of waste or non-value steps across the chain. The lean supply chain provides higher profits and the reduction of set-up times is one of the best way. Through cost reduction, flexibility and aiming for external responsiveness, it’s easy to respond to customer requirements. Party food, meat&fish, satsumas and clementines are all offered in stores. Taking cakes as example, M&S cooks them everyday. Some kinds of cakes can not be stored for a long time. In addition, customers’ tastes change every season. But when product demand is stable and it can be accurately forecasted, so M&S managers both lean production and time compression in parallel to be economical, flexible, and responsive. However, the market scenario keeps changing rapidly. M&S realised that along with customisation demands, they had to adaptable to future requires. Customer requirements were changing all the time and product life cycles were getting shorter and shorter. Therefore, along with being lean, they now had to respond to the market changes, in order to keep competitive. This meant that M&S would now have to minimizes inventory throughout the chain, shorten lead time as long as it does not increase cost and manufacturing focus on maintain high average utilisation rate.

In contrast, autograph clothes basically focus on responding to unpredictable market changes. It rely on new design and methods, utilizes information and technologies. So autograph clothes should be conformed to agile supply chain strategy. “Agility relates to the interface between a company and the market. It profits by responding to rapidly changing, continually fragmenting global markets by being dynamic, context-specific, aggressively changing, and growth oriented, driven by customer-designed products and services”(Wang et al, 2001). M&S Understands customer requirements by interfacing with the market and being adaptable to future changes, it has already appointment of George Davies to design and supply a collection of women’s clothing for the fashion-conscious woman. This sub-brand will be available only at M&S. This new brand is the M&S’ innovation products. It helps M&S to capture new market. They, at times, represent a breakthrough in product design. Innovative products are the result of customer demands, which indicate customers constantly changing requirements. Autograph clothes help M&S in combating the unpredictable market, by being adaptable to it. Wang et al, (2001) point out that the foregoing reasons justify the usage of an agile supply chain for the manufacturing and introduction of innovative products into the market. Fashion changes rapidly, only by being agile and adaptable can the M&S meet fashion customer demands.

Finally, as Christmas holiday is near, Christmas gifts appear on M&S stores. Cards, Christmas hampers, Christmas trees and Christmas decorations attract a large number of customers. At the same time, traditional Christmas gift with high technology draw customers’ attention. Huang et al,(2002) conclude that an hybrid supply chain generally involves ”assemble to order” products whose demand can be forecasted. The chain helps to achieve mass customisation by postponing product differentiation until final assembly. High technology Christmas gifts consist of both different combinations of standard components and some innovative components. The core competency of any Christmas products’ retail would be products design and innovation. Though Christmas gifts look the same, there are different technologies used. It may produce Christmas gifts of varying kinds, even for the same model, as per customer requirements. However, the processing would more or less remain the same, so the use of lean manufacturing techniques is the best way. While the others components would generally with different specifications that may contain innovative features. The M&S has to be agile to understand and satisfy customer requirements by being responsive, adaptable and innovative. As a result, the every part of decorations may be produced using either lean or agile techniques. Both lean and agile techniques may be utilised for component production. Then, M&S would employ an assembly line to produce the complete Christmas gifts per customer requirements. This requires the use of agile manufacturing techniques, because customer requirements could change rapidly. By using hybrid supply chain, the M&S can achieve cost minimisation, mass customisation, and adaptability to future changes.

Based on previous analysis, supply chain types should be matched product. Three types products-functional, innovative and hybrid need three types supply chain strategies to support. Different products have different characteristics. They need dissimilar inventory strategy, diversity lead time and different product design strategies. Match product with supply chain show Figure 3.2.1.

4. Conclusion

As Fernie et al, (2004) point out, “Marketing strategy entails a series of decision about products or services and markets which will exploit market opportunities in order to meet marketing objectives.” In today’s highly competitive and dynamic retail market, Marks & Spencer have achieved this by its supply chain strategies. In order to remain competitive in the global market, M&S started utilising newer technique and the more logical supply chain management philosophy. In regard to the market for different produces they have been shown that a differentiation strategy in this sector might benefit retailers more than in other sectors, due to products’ characteristics decide the supply chain strategies. “To overcome initial hurdles and drawbacks associated with supply chain design, the lean supply chain concept was introduced” (Wang et al, 2001). Due to product demand is stable and it can be accurately forecasted, it focused on reducing cost and decreasing waste for already available products. One of its major drawbacks is it can not reflect future market requirements in time. Thus, it is difficult to deal with the new products. This gave birth to the agile supply chain, which responds to market changes, by manufacturing and selling customer designed products. This market changes rapidly, reducing lead time is one of the core principle and the company should deploy necessary stocks for unpredictable market requirements. Hybrid supply chain strategy is between lean supply chain and agile supply chain. One product has traditional components and innovational components. The company should use both strategies to meet customer requirements. Maximize performance and minimize cost and using modular design as long as possible should be taken into account. Products have three characteristics, which are functional, innovative and hybrid. A conceptual model is then presented to match product categories with supply chain types. Supply chain strategy decision has significant impacts on company’s competitive edge.