Strategies For Managing the Food Supply Chain in a Modern Retail Environment - Coursework Example

Strategies for managing the food supply chain in a modern retail environment: how to provide quality and value for the consumer whilst maximizing returns for investors.” Executive Summary Aim The 6th largest Retailer in the foodstuff and consumer industry in the United Kingdoms, Best Value Stores (BVS), wishes to undertake "Strategies for managing its food supply chain in a modern retail environment and provide quality and value for the consumer whilst maximizing returns for investors.” 1 Outline The study aims to comprehensively inspect the proliferation of Food Supply Chains (FSC) across the world, for understanding the principal ingredients that constitute the success of international market leaders. There are several criteria for attaining leadership in the field, and it could be detailed as followed: 1. Lean Management SYSTEMS for Manufacturing and distribution combined with swift reactions to market demands and changes. 2. Although quality is not a password for market success, it is an eSSential contributory factor. HIGH QUALITY DOES NOT ENSURE PRODUCT ACCePTANCE, but POOR QUality spells disaster. 3. an efficient organizational and marketing network 4. INTENSIVE FOCUS ON INTRA ORGANIZATIONAL goals 5. Significant Joint ventures for mutual advantage. 6. INTERACTION AND INFRAstructure 7. OtHER CONNECTED plans The Challenges Corporate Marketing strategies, especially in the Consumer Food Industry, have undergone a metamorphosis in recent years and the current mantras are High Quality, Lower Pricing, Round- the- year availability and higher shelf lives for products through refrigeration and cold storage preservation. However the following constraints need to be addressed to: Functional difficulties Stricter local government and Food safety compliances, Hike in consumers’ demand and spending capacity. Product classification and coding. Local surroundings and legal aspects. Branding and characteristics of principal products. Difficulties in executing the present supply chain management systems The requirement to keep up the product identity for the supply chain system. Inability to distinguish unbranded mixed products. Compliances with national and international rules and regulations and problems associated with establishing one common link language for the supply chain system. SUMMARY The food industry has undergone conspicuous changes over the last decade and there is a paradigm shift towards ardent consumerism. In an industry where survival belongs to the fastest and most innovative players, combined with zeal and passion, market leadership is often defined as the ability to surmount competitive barriers and strive for further growth and market creations. Retail industry All of us form part of the market of Retail trade whose help we volunteer for meeting our daily consumption requirements. The retail market is categorically divided into durable and non-durable segments, durable constituting furniture, equipment and other products having long service lives, and non-durable which are food, clothing and other consumables. “Retail is the second-largest industry in the United States both in number of establishments and number of employees. The U.S. retail industry generates $3.8 trillion in retail sales annually ($4.2 trillion if food service sales are included), approximately $11,993 per capita. The retail sector is also one of the largest worldwide. Retail trade accounts for about 12.4 percent of all business establishments in the United States.” 2 Retail is indeed big and contributes significantly to the National Exchequer in terms of enhanced GNP. TABLE 1 Retail industry of UK – nutshell 11% of all enterprises in the UK are retailers, with 182, 475 VAT-registered businesses operating in 278, 365 retail outlets in 2006. UK retail sales were £256 billion in 2006, larger than the combined economies of Denmark and Portugal. The retail sector generates almost 6% of the Gross Domestic Product of the UK More than a third of consumer spending goes through shops Sales over the internet account for less than 4% of total retail sales, despite strong growth in recent years The retail industry employed 2.8 million people, as at the end of September 2006. This equates to 1 in 9 (11%) of the total UK workforce. Over the last five years, employment in retailing has grown by 130,696. During the last five years, high street prices rose only 4%, much less than the 16% increase in the all-items Retail Price Index 3 There have been remarkable changes in the last decade or so. In the olden days, retail shops usually comprised of family owning shopping malls and conventional departmental stores. But now all that has changed and although retailers are still available, they have been dwarfed by Chain and Multiple stores operating throughout the country with all types of quality goods available under one roof. This comfortable shopping experience has opened new vistas for consumers and contributes immensely to the proliferation of such shopping centers. FOOD INDUSTRY Today the retail trade is beset with functional difficulties, stricter local government and food safety compliances, varied consumer preferences, Product classification and coding. local surroundings and legal aspects. Also, the following aspects of retail trade are gaining currency like - Branding and characteristics of principal products, difficulties in executing the present supply chain management systems, compliances with national and international rules and regulations and problems associated with establishing a common link language for the supply chain management system Supply Chain Management: Definition 1. Supply chain management (SCM), to a large extent, is the management of materials, information, technology and funds from the raw material supplier to the consumer. It is essential to a companys revenue generating activities as it directly relates to growth, efficiency and customer satisfaction. SCM is also critical to a companys financial success in terms of revenue, cost and asset productivity and is instrumental in building collaborative working relationships between distributors, retailers, manufacturers, sales and marketing agents with the ultimate objective of building an efficient distribution system. 4 Demand & supply factors; supply chain management; event management and alerting systems; inward freight management; catch weight entry, activity management; enhanced throughput; date/lot tracking and rotation; full facility utilization, scientific labour standards; compliances with legal and suppliers’ requirements; enhancing dynamic logistics; matching business procedure, etc are some of the salient features of an ideal SCM system. SCM: System requirements I. An “Effective Lean system” Only modern Management techniques, employing quality customer services, reduced operational costs, minimum shrinkages, wastages and spillages of stocks and consumables and maintenance of efficient and required levels of inventories could help merchandisers to stay ahead in todays competitive business environment, where the competition is becoming fiercer and margins are eroding with each passing day. Operating a profitable lean sourcing program is not an easy task, but it is vital for companies seeking substantial cost savings. It is also a practical process for companies seeking substantial savings. This process helps buyers avail of the double benefits of cost savings and also stocking items until further price falls occur. It further entails an amalgam of competitive quoting, in line with ethical and fair practices and intending to build a long term vendor- buyer relationship General characteristics of a lean approach system: Under this system, there is continuous workflow and smooth flow from raw materials stage to finished goods, A just in time inventory is in place, there is shorter order- to- delivery lead time, and smaller batch production is undertaken. Under this system, production is based on orders in hand rather than on assumed future orders. There are minimal inventory requirements at each stage of production, the concept of Total Quality Management (TQM) is present and prophylactic methods of controlling wastages are adopted.The lean approach emphasizes team based work ethos with diverse skill operators capable of independent decision making and enhancing operational efficiencies Moral of Lean Sourcing/Production: To ensure the maximum returns to stakeholders by using minimum investments, inventories, efforts, time and space, The five areas that stoke lean sourcing/production are pricing, quality, service, safety and motivation. The mass production system symbolized the ideal production method during the 20th century; lean production is viewed as the most scientific production system of the 21st century. Savings that accrue due to installing of lean sourcing/manufacturing include reduced downtime, lower material, labour and overhead costs, inventory carrying costs, incidence of shrinkages, transit spillages/ wastages and enhanced quality, profits, flexibility of operations, higher Cash flows and higher level of customer satisfaction and vendor relationship. II. Quality Is a Must, but Not a Guarantee of Success In this new marketing era of the 21st Century, the Quality aspect ceases to be criterion for business – it is the driving force or, pre-condition for purchase of goods and services. The earlier expectations of Consumers seemed subjective, but, today, it has attained a dimension in terms of value expectation. The current standards of quality are in terms of value expectations and satiation both for the vendor and the customer. Quality has been achieved when both the vendor and the customer realize value entitlements. "Value expectations” focuses on: 1. For the customer – a just level of desire satisfaction to buy maximum quality products at the minimum possible price. 2. For the vendor – a just level of desire satisfaction to distribute quality products at the maximum possible profits, thus ensuring the highest returns to stake-holders. Total Quality Management (TQM); Ideal tool for SCM Total Quality Management refers to a complete approach which directs all focus of the functions of the Organization on Quality enhancement and regular improvement. It regulates the continuous flow of progressive improvement into the Organization for higher Productivity through a series of scientific and time tested standardized procedures. an effective Logistics and distribution system Logistics plays an important role in increased competition within the food industry. Despite the scalar advancement in the food distribution industry, rural growers are inhibited from gains derived from becoming a part of the system. However, the suppliers who were able to capitalize on the gains ushered the new technology have been able to enter long term relationships to the retail chain systems. JUST IN TIME This obviates the need for contingency stocks and reduces inventory carrying costs to minimal requirements for production. However, unexpected snags, especially with regard to transport logistics, could cause immense shortages in certain supplies if reserve stocks are not maintained at appropriate levels. Around 66 % of supplies to retail outlets are now being done on the basis of Factory Gate Prices (FGP) in an attempt to consolidate transport and fleet logistics utilization and contain distribution costs. This means that the onus of transportation now vests with the retailer outlets - from the warehouses of the producers to the retail stores The concept of hub-satellite networks obviated the tedium of the multiple distribution systems and introduces efficiencies in terms of effective supply chain management and lowered freight charges. Almost all of the major multiples’ grocery sales are now channeled through their Regional Distribution Centres (RDCs), Development of hub-satellite networks: The hub forms the focal point where bulk is broken down and produce loaded on to lorries for entry into stores or to the nearest satellite depot of the purchaser. Development of hub-satellite networks Source: AEA Technology Changes in the supplier base: Food supply competitiveness depend upon the authenticity of the sources and continuous supply. A prime reason for organizational success could be attributable to the ability to effect consistent supplies to customers. By enforcing a single window system, retail outlets could monitor products more warily and build better liaisons with vendors so that they can co-operate effectively. A broader sourcing could ensure timely supplies but could leave room for quality complaints and delay supplies. Production system: Seen against the backdrop of uncertain and ominous global conditions caused by disruptive elements, indigenous productions is seen as a best alternative, ensuring the highest quality standards at affordable prices Cross functional approach The basic idea of cross functional approach is to achieve total quality enhancement goals by way of cutting across lateral hierarchy of the organization. This is undertaken after corporate strategy and planning are determined, and the focus is directed towards goal attainments through cross functional approaches. Strategic partnerships Increasingly, the advent of globalizations has ushered in an urgent need for consolidation and mergers in order to neutralize competition achieve synergistic values and achieve efficient commercial success. Strategic partnerships assume value because the large retailers have a strong interest in the continuous supplies, while vendors are assured of ready markets for their produce.Thus, in the present scenario, mutually beneficial understandings between firms within the chain has assumed more importance. COMMUNICATION AND TECHNOLOGY IN SCM Through improved, effective and wide communications, Food Supply Chains can reap rich harvests. This is because consumers have become increasingly conscious about the food value and the consequences of the food they consume. There is strong, and growing, public interest in the food we consume and its method of production. This has come about largely as a result of successive public health controversies. . Consumers are constantly seeking food with higher levels of value conservation and absence of foreign inputs in the form of preservative agents. After indoctrination to the consumers, local natural foods could be supplied to them. Technology To a very large extent, use of relevant technology enhances the Supply Chain Management very significantly. The best way to attract customers is to reduce their waiting time and obviate the need for queuing. The use of modern technology which enhances efficient practices is an integral part of retail business today. Technology plays a predominant role in today’s business culture. E-Commerce Concepts in Food Supply Chain Management: The specific e-commerce needs of the supply chains have to be evaluated with special reference to the type of trade and its E-commerce concepts for supply chains have to build on the basis of these lines. For an analysis of e-commerce needs and solutions, the most relevant specifics include: Profit margins, Instability and Complexity. 5 Prof. Dr. Gerhard Schiefer University of Bonn, Meckenheimer Allee 174, D-53115 Bonn, Germany Tel. +49-228-733500, Fax +49-228-733431, e-mail schiefer@uni-bonn.de Local conditions and moral issues also play a vital role in the SCM. In Supply Chain Management, goods are constantly passing hands from one intermediary to another until it reaches the focal point. This cross-functional role cannot negate upcoming environmental and moral issues, especially in the context of free trade, which need to be addressed through specialized training, social commitment and conformity to policies and applicable regulations. It is essential to invest and go for standardization (by globally accepted Institutions) to ensure risk-free and practicable supply chain system, KEY STRATEGY TO PHENOMENAL SUCCESS Retaining customer loyalty: Today, retailers across the globe are concerned more about adding new customers to their lists rather than servicing existing customers. It is necessary to formulate guidelines in order to achieve the twin objectives of adding new customers’ and. servicing existing ones A retail outlet’s customer data base could be categorized into the following grades of shoppers: Frequent large spenders; Frequent, small spenders; occasional large spenders and occasional small spenders and erstwhile shoppers What medium should be used to communicate? Personalized communications using their known names and telephone calls should be the preferred media. E-mails are less expensive and could be sent to current and prospective customers simultaneously and results obtained How often should the firm communicate with current customers? Mails need to be addressed to current customers, once in 3 months, along with telephone calls, at least twice a year. This may be done mainly during the festive seasons to give them a feeling of being remembered and may add to their feeling of self-importance. What should be the mix of communications targeted at current versus new customers? Chain Retail outlets should spend at least 1/5 of their allocated budgets for sending messages to current customers, and then cater to prospective customers. About the Authors: Drs. Evans and Berman are co-authors of Marketing, 8E: Marketing in the 21st Century (www.atomicdog.com/evansberman) and Retail Management: A Strategic Approach, 8E (www.prenhall.com/bermanevans). They are also partners in Berman Evans Associates LLC, a consulting firm. They may be reached at mktjre@hofstra.edu or mktbxb@hofstra.edu. Here is why it is so important to target current customers, as well as new ones: Promotion of existing customers is more lucrative than trying to attract prospective ones New customers are attracted by low pricing and may not have customer loyalty. Current customers may buy products not covered by low pricing strategy or discount sales and this made add to the profit margins of the retail chain stores and thus offer higher returns to its stakeholders. If loyal customers are ignored they may become customers of competitors Additional Revenues can be made by paying greater attention on repeat customers. It is essential to develop a data base for each customer for reference Install a reward system which could motivate loyal customers. Repeat interaction with regular customers. Good customers need to be rewarded periodically Good customers need to be given free delivery or special rates once in a while New customers need to be entertained at the expenses of existing ones Other strategies to develop a successful Supply Chain System a) Introduce system to tackle Inventory Shrinkage Merchandise shrinkage due to errors, thefts and misuse are a rampant problem today. This obviously has serious concerns for retailers and has led a large amount of money being spent to find a solution for the problem. It is necessary that a effective anti-burglary alarm system be installed to tackle this problem and surveillance gadgets be unknowingly installed at vital points to take strict actions against the defaulters. Inventory Shrinkage costing Canadian Retailers Billions Annually Merchandise shrinkage costs Canadian retailers nearly $3 billion (Canadian) annually, according to Retail Council of Canadas (RCC) 2003 Canadian Retail Security Report. This equals $8 million per day in lost inventory. Shrinkage is the monetary loss incurred due to variance between merchandise on hand for sale and recorded merchandise received. Steps for loss prevention: (a) A large number of steps need to be taken to prevent losses in chain linked stores through joint efforts b) Establish Efficient Consumer Response (ECR) strategy for better co-ordination By concentration on the total supply system, rather than parts, a lot of economies could be achieved this requires the joint efforts of vendors and distribution networks. c) Develop an Electronic Product Code (EPC) for product identification The introduction of ECP as a product location and identification code could help effective control of the items and be used in conjunction with numbering systems in the supply chain. d) Develop a Customer Data Base and establish data-base retailing? Data base retailing: Customer data base is important because it helps us to refer back to customers when and if the need arisen in future. It could also be used for sales promotional and reminder activities for credit customers. e) Establish a policy to tackle “Unsaleables” Primary (baseline) steps 1. Categorization of products 2. Draw the physical supply chain 3. Develop a statistically valid supply chain audit sample 4. Conduct the initial audit 5. Determine the adjustable rate(s) Final Steps: A review of the items outlined in steps 1-3 may be necessary due to nature of the supply chain management unit, including, but not exclusive to: Introduction of new items Products abandoned Brand and company consolidations and takeovers. Fluctuations in market shares Carrying out the final price audit Confirm the new price Result: Supply Chain Benefits Lowered Warehouse inwards and Handling Costs Lowered Inventory Costs (across the supply chain) Lowered Time in documentation of PO and Shipment Rework Lowered handling Costs Lowered Product Merchandising Time on Item Introductions & Revie. Lowered Time and charges for Bill checkings. Supplementary information: a) UK Food Supply in the 21st Century: The New Dynamic Summary In todays’world the food supply networks are complicated In the years ahead, global uncertainties would play an major part in resources determination. Hence, present supply negotiations and policies are likely to undergo significant change. Attention has to be divested to the future transitions. b) Infrastructure Infrastructure, as noted above, is harmful to the successful carrying out of all types of food supply chain. Infrastructure at all levels of the food chain – manufacturing, storing, processing and movements - is required and must operate efficiently at the appropriate scale. c) Strategies for localization 1. Enhanced localization of FSC components - protecting and developing local infrastructure and businesses (e.g. maintaining existence of local slaughter houses, and creating efficient distribution system) 2. Simplification of the FSC - by-passing stages of sometimes complex FSCs (e.g. farms selling directly to shops) 3. Vertical integration - local businesses expanding across stages (e.g. farms moving into processing) 4. Horizontal integration - local businesses widening range of activities to other sectors (e.g. delivery businesses widening the range of produce they supply) The key elements to achieve sustenance, through localization will be: Development of local performance and certification parameters. Provision of a central computer aided network that will effectively link suppliers and outlets at various geographic levels Creation of Co-operatives at the market level of suppliers (producers and secondary suppliers such as butchers, bakers, greengrocers) and outlets (caterers, both public and private sector, and retailers) Facilitation of co-operatives to implement joint local distribution mechanisms, drawing on the logistical basis provided by the web-based ordering system and promotional resources of local food brand. Help to outlets to source from local suppliers, through the web-based ordering system and co-operative delivery mechanisms, to use the local food brand and associated publicity and to access further sources of support and grant aid Help to vendors to feed into the local delivery mechanisms, meet accreditation requirements and diversify production to satisfy local demands Summary: There are ample growth scopes for professional Supply Chain Networks, provided they are willing to work for it through an efficient, consistent and a highly systematic approach. It is the quality of professionalism, quality products and matchless customer service that make leaders The sources of strength to any organization is the dynamic leadership, efficient Management and highly competent staff – Work Cited The GS1 System – Helping Automate Business Processes and Supply Chains. GS1 UK 2005. http://www.gs1uk.org/supplychain-1.asp?fid=275 (accessed on April 11, 2007). Stock, J. R. The US Food Supply Chain. Bourlakis, C., & M. The Future of the Food Supply Chain Management. Schiefer, G., Helbig, R., & Rickert, U. (eds). 2001. E-Commerce and Electronic Markets in Agribusiness and Supply Chains. Universität Bonn-ILB, Bonn. A Complete Set of Supply Chain Solutions. From Planning to Execution. 2007. Manhattan Associates. www.manh.com (accessed on April 11, 2007). Read More