Service Operation Management: Retail and Food Industry - Term Paper Example

? Service Operations Management: Retail & Food Industry Al’s Store – Home delivered grocery and ready to cook meal service Number: Assignment Due Date: 5 August 2011 Lecturer: Unit name & Unit Code: Table of Contents Executive summary 3 Introduction 4 Competitive Analysis of the Industry 5 Table (B): Competitive Analysis 6 New Service Offering: Home Delivered Grocery and Ready to Cook Meal Service all 100 percent organic 7 Figure (A) Al’s Store focus for Competitive Advantage 8 Targeting and Positioning of the New Service Offering 8 Changes in Internal Operations due to New Service Offering 9 Designing Operating System to Support the New Service 11 Customer Behavior toward New Service and its Influence on Al’s Store 12 Customer Management System 12 Conclusions & Recommendations 13 Executive summary This report is written to address some of the key issues faced by a service operations manager while attempting to introduce a new service. The company in question, Al’s Store is a local partnership concern between two brothers catering to a suburban community. The company is facing threat of customer shift towards hypermarkets and superstores on account of low price and variety of items under one roof. Hence in order to retain market share management decided to create a niche for itself in the market by shifting to organic and healthy food options and offer online grocery shopping and ready to cook meal service (100 percent organic) with home delivery option. The service is targeted towards working adults of executive level who seek convenience and quality both while managing busy households. The entire setup would place some financial burden over the management that can be uplifted by adding a new partner or taking loan from a bank. For the new service additional workers would be hired and online shopping portal would be established and maintained. Technological changes such as purchase of real time inventory management software linked to supply chain management would be adopted. Delivery vans and drivers will be outsourced. Operations management would be designed keeping in mind the concepts of quality, reliability, speed, health and convenience being the focus of the new service which would shape the customer behavior in the favor of Al’s Store paving way for increased profits and eventually expansion in to other localities as well. Introduction Al’s Store is operating since 50 years in a suburban area close to the main business hub. They have 3 branches covering the entire residential suburb and a warehouse with central location giving all branches excellent reach and timely delivery. The store offers all food and non-food grocery items as well as medicines. Employees of the company are local residents. Upper management is well educated and trained, where as the low end workers such as cashiers, teller and helpers are local young adults given basic training of how to efficiently run the counter with good speed and offer effective customer support. Entrance of hypermarkets, one stop shops as well as busy lifestyle of people and their changing preferences related to quality, type and cost of grocery has taken away a toll on Al’s Store market share. Further time pressed lifestyle has shifted consumer’s preference to shop online to save time. Due to time shortage busy households are forced to eat out increasing their cost of living as well as making them compromise on food quality and health. The report is focused on re-assessment of the company’s strategy. A new service is being offered to overcome the company’s existing weakness and giving it a special uplift that is aimed at re-capturing the lost market share. The report shall discuss a systematic review of how the Service Operations Manager identifies, plans, markets, executes and maintains the new service offering without compromising much on company’s operating capacity and financials. Competitive Analysis of the Industry Super markets and grocery stores come under the retail industry. It is a highly competitive and huge industry that has undergone substantial change & shifts over time. Table (A) Porter’s 5 forces analysis (Kotler, Philip, 2002) Threat of New Entrants To start up in the industry as a small scale retailer is easy, however if we talk about the level of competition as compared to supermarkets and hypermarkets entrance threat is none since the setup cost is high, requires investment in inventory, space & workforce and supplier contacts are difficult to achieve. Power of Suppliers Suppliers enjoy very little power due to quality standards set by the superstores and retail giants. Further, their contract with a good retailer can make their business soar. Hence retailers enjoy bargaining power over suppliers. Power of Buyers Consumers cannot negotiate on set prices; however their preference to buy quality goods at competitive prices is noted and given utmost importance when deciding the price of items. Availability of Substitutes Currently for Al’s Store this is the highest threat as their services are being substituted by what other supermarkets or hypermarkets are offering at more convenience and similar or improved quality though online shopping. Competitive Rivalry Retailing business is highly competitive. Market shares are continuously snatched based on promotions and unique offerings coupled with fast and reliable service. Table (B): Competitive Analysis Al’s Store (Grocery Store) Supermarkets Hyper markets / Warehouse stores Discount stores Key success Factors Reliability, experience & quality goods Online shopping, quality & variety One stop shopping for households at low cost Low priced goods Strategy Maintain existing market share Increase market share and profits Capture as much market by offering low margins. Integrate business together to form a giant corporation. Capture market based on low price. Strengths Area knowledge Consumer confidence Good supplier relationship Well managed Low maintenance cost Key locations Bargaining power over suppliers Huge coverage area Attractive store layout. Centralized buying (supplies) Convenience buying through website available Bargaining power over supplier Huge coverage area Organized layout Vertical structure Centralized buying (supplies) Customer can strike a good bargain Weaknesses Lack of technological advancements & less attractive layout. Sells mostly food items & high maintenance cost Membership fee Inventory management cost is high Bland boring look Usually situated far from residential communities Less appealing items, often near expiry, less fashion oriented brands. Based on the above analysis we can say that Al’s Store cannot compete with the size and low priced items offered by its competition (Wilson & Gilligan, 2001). The competitive edge can be achieved in the area of service offering. Al’s Store needs to change its business strategy to “Providing unique, customized and quality service offerings while adapting to a niche market & changing lifestyles to satisfy the target customers” (Huddleston, Whipple, Mattick & Lee, 2008). Hence the Service Operating Manager’s strategy would be “to design and manage unique customized quality service offering while efficiently utilizing company’s resources that leads to fulfillment of company’s strategy” (Render & Heizer, 2006). New Service Offering: Home Delivered Grocery and Ready to Cook Meal Service all 100 percent organic Al’s Store is going organic and tech savvy by offering 100 percent organic home delivered grocery items and ready to cook meal service through online shopping targeting working adults who prefer quality and health at convenience. First step is to develop the website. Second part would be adaption of organic and healthy food, identify and establish suppliers for organic items. Third part of the offer would be addition of ready-to-cook meals. Fourth addition would be of an online inventory management system linked with the supply chain management. Last addition to the offer would be option of home delivery. All the services mentioned above except for customized ready to cook meal menu have been adapted earlier by others but never as a complete package which would be Al’s competitive advantage over all. Service Operation Manager will focus on excelling in the quality, reliability and response time of the new service. Making sure the quality delivered is excellent, 100 percent organic, meal menus are customized as per customer preferences, website being run efficiently with real time inventory management and no blockages. Aspect such as low price, attractive store layout and huge variety of good available (Rhonda L. Smith, 2004) as done by majority of the competitors would not be the focus at Al’s Store, however, no compromise would be made on customer satisfaction and quality of goods being delivered. Figure (A) Al’s Store focus for Competitive Advantage Order once received would reach the warehouse’s internal online system and would be immediately collected and packed as per standards in bio-degradable cartons and bags. Cartons would be then dispatched via delivery vans as per customer specified time slot. Targeting and Positioning of the New Service Offering The service is targeted for busy households were adults work at executive post or have busy social life that does not allow them to go for shopping or plan / cook meals properly and prefer quality healthy food. This service requires customized and focused approach that cannot be materialized by retailing giants who operate mostly on mass customization principles, catering to all age and income groups and preferences. Al’s Store has the advantage of being familiar with the locality and having selected target audience in a restricted area that can be well managed and kept satisfied. Changes in Internal Operations due to New Service Offering First and foremost a web developer would be hired to design a simple & easy to operate website. Real time inventory of the items would be made visible to the customer as well as next best choice of related items in case a particular item is not available in the inventory. Further real time inventory management software (Krajewski, Lee J. & Ritzman, Larry P., 1999) to be purchased and linked with the website as well as internal inventory and supply chain management functions. Inventory levels would be checked on weekly basis by the manager and order would be placed with the suppliers to replenish the goods. For special occasions such as holidays inventory monitoring would be done every alternate days and extra stock would be ordered a week before. Just in time inventory management approach would be adopted to save cost since excessive inventory would not be kept and maintained that increases fixed costs. New suppliers would be identified and approached for ready to cook meals. They would be selected based on the criteria of organic and quality food. More than one supplier would be needed later on but start can be taken with one. Website would ask for customer’s preferences and limitations. The input would go to the database and select menu items that match the customer preference to the maximum. A dedicated online assistant would be available as well. Further, a nutritionist would also be hired part time to work on the project of designing specific meal menus keeping health and organic origin foremost. Existing warehouse of Al’s Store will serve as the dispatch point for the deliveries due to its central location. Total of 4 employees (re-allocated or hired) would be required to receive orders online via internal network, pack the items, load and dispatch (vans and drivers both to be outsourced initially). Major trade-off would be selecting people to be re-allocation since some might not be comfortable with being re-allocated from front line to a back end job. Further, shift towards better quality and organic food might hamper relations with existing suppliers who do not supply high quality standard or organic food. Building relationship with new suppliers for ready to cook meals would also take time. Most of all the additions in software & employees would increase cost of operations initially. However, the same is projected to be transformed into profits once the service is accepted and adopted by customers at full swing. Since inventory management software would result in just in time inventory management and reduce inventory holding cost. Further, it would help manage inventory count and reduce working hours indulged in counting and maintaining inventory manually by the inventory manager and officers (main area where employees can be re-allocated to warehouse). Another aspect would also be taken into account the marketing of the new service and its positioning which would include advertisement via billboards, radio and distribution of pamphlets (residential areas in mail, shopping centers, offices etc), hence increasing costs (Kotler & Armstrong, 2001). In order to meet the cost of improvising Al’s Store management can look into a number of options such as a new partner who would invest his equity portion in development of the new service, or they can ask the local bank for a medium size loan at reasonable interest rate. Loans are common in retail giants to finance inventory or meeting other working capital requirements. Designing Operating System to Support the New Service As per the new service actual physical work of employees would start once the order is received on the database and collections of items starts at the warehouse. For this, employees at warehouse would be selected based on their sharpness, flexibility and speed. Packaging of the items matter most since a lot of customer complain of broken or damaged goods when they open up bags / cartons at home. Hence thorough one day training would be given with guidelines posted on the wall of the ware house (as a constant reminder on what to pack first and how). Further the drivers outsourced would be hired based on a written and practical test that certifies they know best and fast routes across the town to deliver to the right address at right time. The delivery system would be designed to allow people to choose from; Immediate (one delivery van dedicated to it), relaxed delivery (within 6 hours of placing order) and next day delivery options. The amount of good delivered on time would be analyzed by customer sign-off sheets at the time of delivery to access the driver’s performance and special monthly awards would be given to the best driver. Employees would be trained to improve their packing and collecting skills from stacks and similarly rewarded on their speed and performance every month for encouragement. These rewards would be increased percentage of yearly bonus, airline tickets, gift items and shopping discount coupons. They would also be encouraged by being recognized and awarded certificates for their excellent performances. Customer Behavior toward New Service and its Influence on Al’s Store Management is expecting customer to respond positively to this new service offering since it is a win –win situation for them and it will boost the morale of the for growth into other areas. The profits retained earlier can be invested or new franchise partners can be found in potential areas. Area study would be a must as a starting point to asses if the target market is available in that area or not. Suppliers would be found or existing supplier would be given a chance to expand with Al’s Store. This would also require new employees to be hired and trained. Customer behavior related to ready to cook planned meal service would be of more importance since it is a niche that Al’s Store is trying to tap into (Steven Van Yoder, 2003). Their behavior is very much depended on the taste and quality of food. Hence the hired nutritionist needs to be well trained and experienced to cater to both quality and health aspect of the planned meals. Their acceptance would lead to expansion in more planned menus for special occasions, whereas complains and discontinuation of the ordering might lead to hiring a new nutritionist. Customer Management System Target audience is expected contact or visit the website which would ask them to register for free (a 5 minute process that requires only general information to be filled and no hidden fee). Once a customer registers they enter into our customer data base which would be managed electronically (Fitzsimmons, J.A. & Fitzsimmons, M.J., 2011). If the customer places an order they are moved from potential category to existing customer. If a customer doesn’t place order a soft reminder via email or mail can be dropped at their end encouraging them to buy online from Al’s Store. Conclusions & Recommendations Identification of competitive advantage would lead Al’s store to achieve its goal of re-gaining market share. A service that differentiates by catering to a niche market gives Al’s Store a competitive edge over its competitors and shall pave way for future profits and expansion without any major tradeoffs in terms of finances and service design. Al’s Store must continue to focus on its key strength of quality, health and convenience that would result in becoming good opportunities for success. Competitive advantage should always be exploited and hammered to maintain the niche. By following Kaizen - continuous improvement aspect (Heizer Jay & Barry Render, 2006) Al’s Store can face the future easily and ensure its survival. Word Count (excluding tables and figures and in-text citations): 2,200 words References Abilla, Pete (February 07, 2011). Intangible Aspects in Service Operations Management. 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