Supply Chain Strategy study for Marks and Spencer

The performance of most businesses it heavily relied on effective supply chain strategies. Marks & Spencer (M&S now onwards) is leading UK department stores. This assignment is the study of M&S product categories by concepts of responsive and efficient supply chain.

Supply Chain: Definition

The material and informational interchanges in the logistical process stretching from acquisition of raw materials to delivery of finished products to the end user. All vendors, service providers and customers are links in the supply chain. (SCM Glossary, 2010)

Elements of the Supply Chain

A supply chain consist of different elements which coordinate and work together to facilitate movement of products. The customer is start and end of the supply chain (Murray).

Customer: the customer is starting point of supply chain. Chain starts as soon as customer places order for the product. Further the customer contacts the company to purchase the product and giver order which constitutes quantity and specifications.

Planning: after receiving order planning department will prepare production plan and material requirements. Delivery date is estimated according to customer’s requirement and raw material availability. In nest step production planning will send material requisition to purchasing department to purchase raw materials required for order.

Purchasing: after receiving purchase requisition, purchasing department sends purchase orders to suppliers quoting quantity and delivery date of materials. Price negotiations are carried out at this stage.

Inventory: when supplier delivers raw material they are accepted into warehouse after checking of quality and specification required. This storing of material into warehouse is the inventory which is issued time to time as per production demand.

Production: after receiving production plan, production department will schedule actual production activity by collection raw materials from warehouse. as the product is produced and tested for quality they will transferred to warehouse department for shipping.

Transportation: after receiving finished products from production department, warehouse will arrange delivery and transport of ordered products. Delivery dates and locations are specified by the customer and agreed by the both customer and supplier. When the goods are received by the customer, the company will send an invoice for the delivered products.

The supply chain is a contributions and functions of its participants namely retailer, distributors, transporter, warehousing and initial suppliers. As a result supply chain is formed by many companies who coordinate which other to do business.

Source: Google

The stages of supply chain (Chopra and Meindl, 2007, p4)

Manufacturer

Component/raw material suppliers

Manufacturers

Wholesalers/distributors

Retailers

Customers

A supply chain is dynamic and involves the constant flow of information, product, and funds between different stages (Chopra and Meindl, 2007, p4).

Objectives of supply chain

The objective of every supply chain should be to maximise the overall value generated. (Chopra and Meindl, 2007, p4).

The value is generated by difference in cost of final product offered to the customer after processing it through the supply chain. For example, a customer purchasing bottles of wine from TESCO for £100. TESCO receives payment via online system and delivers the wine bottles to the customer by its efficient supply chain. So the difference between £100 the customer paid and sum of cost incurred to manage supply and distribution of wine bottles is the ‘Supply chain Surplus’. The more value generation in the supply chain can be achieved by getting more revenue and cost optimisation. Success of the supply chain is measured in terms of supply chain profitability and not in terms of the profits at an individual stage.

Competitive advantage of supply chain

To achieve competitive advantage supply chain operations must be efficient and customer satisfaction is achieved by lowest operation cost. The cost is associated with supply chain management process and technology. Supply Chain Management has three levels of activities that different parts of the company will focus on: strategic; tactical; and operational (Murray).

Source: Google

Supply chain at Strategic level: At this level, company will integrate its corporate strategy with supply chain policy. Decision are made regarding products category, manufacturing locations and plant capacity, supplier partnerships, sales and distribution channel selections.

Supply chain at Tactical level: Tactical decisions will search for solution of producing cost efficient techniques and strategies. This level is for supplier’s selection, and developing logistics partners for cost effective transportation. Warehousing and inventory control strategies are evaluated at this stage.

Supply chain at Operational Level: Operational objectives are satisfied at this level by selection of material handling system for products and production processes. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.

Supply Chain Management (SCM)

Supply Chain Management is the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole (Mentzer et al., 2001).

Concept of Supply Chains as pipelines can be defined by help of above definition. Supply chain management is the interconnections of different companies working together that relate each other via upstream and downstream links between different processes that produce value in the form of goods and services.

Background:

Marks & Spencer is one of the UK’s leading retailers with over 21 million customers visiting our stores every week (Annual report, 2009). Marks and Spencer is well known for selling quality cloths, home products and food at reasonable price. The company has 665 stores in the UK, 291franchisee stores in about 40 countries. This helped the company to become the UK’s largest clothing and footwear retailer in terms of both value and volume (Datamonitor, 2009).

The purpose of this report to analyse and discuss supply chain strategy for four different product sections adopted by Marks and Spencer. The study is carried out by visiting store and identifying products. Objective of visiting store is to look at various department and product category. The products are from different section such as Food, Beauty, Fashion accessories and Home furnishing. In this study origin of different products of M&S is identified to get idea about their influence on supply chain. Another objective of study is how M&S is managing inventory of different products. Explanation of supply chain strategy by sourcing decision studied.

M&S supply chain strategies

M&S have different supply chain strategies for different products. M&S manages their supply chain with customer requirements and origin of product. Company’s logistics policy is also dependant on product origin. Hence to improve supply chain performance of company using two approaches of supply chain strategy (Fisher, 1997).

A focus on managing supply chain by flexibility- Responsive supply chain

Responsive supply chain policy gives stress on high service levels and customer reaction. The inventory locations are placed close to customer. The reason is to continuous supply in case of sudden changes in demand. Therefore supply chain needs to be sufficient flexible to accommodate uncertainty. So this explains responsive flexibility as Agility (Slack et al 2004). M&S focuses on concept of Agility by concentrating on market demand continuously.

A focus on managing supply chain efficiently – Efficient supply chain

Efficient supply chain policy is to keep low level of inventory at retail locations. This helps company to concentrate more on manufacturing and allied functions making inventory cost less. Information flow is quick from retailer to manufacturer. This manages supply chain by delivering high demand period with adjustable lead time. Analysis of supply chain as whole to find delays in order to shorten throughput time is the basis for Lean supply chain concept (Slack et al 2004).

Products characteristics and Impact of origin on supply chain

French wine, Syrah Grenache 2009, Food & wine section

French wine, Syrah Grenache 2009 wine is from collection of Marks & Spenser Food & wine department. It is priced about £3.869. This wine is from France, specially sourced for Marks & Spencer. The fruity red wine is blended from grapes grown in the sunny warm winemaking region of southern France called the Languedoc.

Impact of origin of French wine on supply chain decisions and Strategies of retailer M&S

The facilities required for red wine production are located in France. However warehouses and distribution centres are located in all over UK to provide balance between demand and supply. Supply chain for wine is responsive supply chain to meet customer demand. For French wine M&S deploying strategy to store wines in local warehouses to cope with high demands. In this way supply chain can still supply even when dramatic changes occur in customer demand (Slack et al 2004). French wine transportation is main link between its supply chains. Wine is transported to UK stores by Rail. About 40 % of wine is transported to UK by rail (Rail fright group case study).

Global sourcing of wine from grape producing country is wise decision for M&S. It provides dedicated infrastructure for logistics from supplier side as the origin is major wine producing region in the world. M&S has benefit of wine logistics companies which has developed in European countries.

Autograph collection leather bags, Women’s Accessory section

The bag in above picture is from Autograph collection of M&S. This bag collection is sourced from India and costs about £125. Important sourcing reason from India is ECOMARK certified products from TATA international.

Impact of origin of the Autograph collection leather bags on supply chain decisions and Strategies of retailer M&S

TATA international group is leather product supplier for M&S. All Production facilities are located in India for the leather bag section. Demand of the leather bag collection in of seasonal pattern. M&S uses efficient supply chain policies for leather bag supply chain design. M&S keeps optimum inventory in local warehouses and concentrates more on decreasing manufacturing inventory cost. In high demand period information flow is directed towards manufacturing units from M&S retail locations. So manufacturing schedule is adjusted with this lead time to supply high demand. Then supply chain efficiently manages leather bag inventory to retail locations where stocks are kept low.

M&S apply policy of global sourcing for Leather bag collection. Sourcing from India is beneficial and supports company’s supply chain policy. India is hub for cheap labour and good quality leather products. However M&S get assurance of committed delivery from Indian suppliers.

Essential Colour Lipstick, Cosmetics section

The Essential colour lipstick shown in picture is sourced from China for M&S. Priced about £2.50 and it is for Autograph collection.

Impact of origin of an Essential Colour Lipstick on supply chain decisions and Strategies of retailer M&S

M&S follows responsive supply chain policy for the Essential colour lipstick. For this cosmetics item high inventory levels are maintained at UK store locations and Distribution centres. M&S strategy decision of sourcing Lipsticks from china is based on cost efficiency factors. Raw material prices and relatively cheap labour are also more important factors.

As Lipstick is manufactured in china logistics is more important part of supply chain and lead time for supply is more. But supply chain surplus from operations of The Essential colour lipstick are positive for M&S.M&S adopts global sourcing policy for The Essential colour lipstick brand. China is major supplier of cosmetic products to M&S.

Abbey Love seat, Home & furniture section

This love seat is for M&S sourced from UK supplier. Costs about £799. Comes with choice of fabric and leather colour of 79 varieties.

Impact of origin of Abbey love seat on supply chain decisions and Strategies of retailer M&S

M&S sourcing its furniture products from local manufacturers. As supply chain for Abbey Love seat is efficient supply chain. Low inventory are kept at M&S warehouses. As per customer specification order is processed at manufacturing units. So the local origin of supplier is beneficial to M&S for reducing cost and total lead time. In addition to this, keeping low inventory objective is satisfied, which further reduces inventory cost. This helps M&S to concentrate more on in store function of Home and furnishing processes to achieve balance. M&S strategy of local sourcing for Abbey love seat is depending on local tastes and preferences of customers. This helps M&S to get integrated with local community and share economic benefit. M&S and Abbey sit manufacturer have developed positive buyer supplier relations which is desirable for retailer’s reputation to customers.

Comparing and contrasting strategy of different products

Reasons for not having same supply chain are decided on logistical drivers namely facilities, inventory and transportation. In addition cross functional drivers such as sourcing decision and pricing.

Logistical drivers

When a company creates a logistics strategy it is defining the service levels at which its logistics organization is at its most cost effective (Murray).Marks & Spencer has adopted different logistics strategy from functional category of products.

French wine is sourced from grapes producing region of France. Logistics strategy for this classified as Food logistics. Autograph collection leather bags are the example of fashion logistics. The characteristic of fashion logistics is quick response (Christopher et al, 2004).Essential Colour Lipstick is the cosmetic brand of M&S. The supply chain of Lipstick falls under fashion logistics category. For Abbey Love seat, which is categorised in home and furnishing section logistics strategy, is dependent on low volume local sourcing market.

Facilities:

Facilities are key drivers of supply chain performance in terms of responsiveness and efficiency (Chopra and Meindl, 2007, p49). Location of each product production facility is very different. Responsive supply chain of French wine and the essential colour lipstick requires centralised distribution centres while efficient supply chain of leather bag collection and abbey love seat require comparatively lower inventory volume.

Inventory:

Inventory plays a significant role in a supply chain’s ability to support a firm’s competitive advantage (Chopra and Meindl, 2007, p49). M&S strategy for French wine and the essential colour lipstick is to locate large amount of inventory close to the customer i.e. retail locations. In contrast strategy for leather bag and abbey love seat is reducing inventory by using efficient supply chain management. This eliminates waste of excess stock for leather bag and abbey love seat furniture.

Transportation:

Transportation has large impact on both responsiveness and efficiency (Chopra and Meindl, 2007, p53). As M&S sourcing its product from different locations its choice of transportation mode is different for each product. Also transportation mode and supply network is depending on size and quantity of product ordered. Hence shipment size of French wine, the essential lipstick, leather bag collection and abbey love seat are different.

Cross functional drivers

Sourcing strategy:

M&S adapted global and local sourcing of its products. Sourcing products from local market has advantage for M&S as to participate in local community business. While sourcing local product such as Abbey love seat low inventory issue is tackled by M&S. Though products such as Leather bag, Lipstick and wine are sourced from origin of their raw material countries. The advantage of this sourcing is M&S is getting quality products from global supplier. These suppliers has infrastructure suitable for producing and distributing their products. For M&S sourcing wine, leather bag and Lipstick is not possible as local suppliers are not producing such products. To supply for demand of customers M&S selected source origin from other countries and region.

Pricing:

Pricing is the process by which a firm decides how much to charge customers for its goods and services (Chopra and Meindl, 2007, p60). The M&S products selected in this study have price range very low to high. Product such as lipstick is costs about £2.5 however abbey love seat pricing is about £800. Pricing depends upon how complex product company offering and what are the functional specifications. Supply chain of products is affected by the pricing as it influences level of responsiveness and demand profile (Chopra and Meindl, 2007, p60).

Conclusion:

The goal of M&S supply chain is to maximise company’s profits. Profits of supply chain are the difference between revenue generated from sales and total coast incurred in all stages of supply chain. Product specifications and origin impact largely on supply chain design and planning. Supply chain decisions at M&S are influenced by strategic, tactical and operational objectives of company.

Marks & Spencer is trying to achieve strategic fit by having right balance between responsiveness and efficiency. But in real market competition this balance is affected by logistical and cross functional drivers. The supply chain strategy practice for French wine and the essential colour lipstick increases responsiveness of M&S overall operations functions. While practice of efficient supply chain for the leather bag collection and abbey love seat keep balance on inventory levels reducing load on M&S operations functions. Use of faster transportation for products such as wine, leather bag items makes supply chain responsive. While transportation modes of Sourcing decision made by M&S for products such as wine, lipstick, leather bag and furniture makes right balance of choosing suppliers providing customers good quality products.

Impact of origin on supply chain has resulted positive for M&S. Under Project 2020 M&S aim to build a simpler supply chain that will improve customer availability and create a more efficient platform for growth (Annual report, 2010).

References:

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Martin Christopher, Robert Lowson, Helen Peck, (2004) “Creating agile supply chains in the fashion industry”, International Journal of Retail & Distribution Management, Vol. 32 Iss: 8, pp.367 – 376

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Google Images, http://www.google.co.uk/imghp?hl=en&tab=wi, acquired on 10 Nov, 2010