Marsden Stores - Operations Strategy and Service Delivery Systems - Case Study Example

Marsden Case Study Summary: This report studies the operational and manufacturing strategy of Marsden Stores which is a regional community grocery chain. The analysis has been done within the context of three paradigms of operations strategy given by Voss – competing through operations, using strategic choice in operations and best practices. The report also looks at the service delivery system of the Marsden group. It was seen that though the group is following the right policies, by moving into niche market and cutting costs by reducing product lines and suppliers. They have also consolidated their purchasing and distribution channels. But it also needs to include best practices and more robust systems to design a strategy, gather and analyze data. They should try to use efficient, reliable data acquisition and analysis methods to derive the performance and perception requirements sought by customers. They needed to adopt quality management procedures and should focus on training and motivation of employees such that they feel more involved in the working of the company. By analyzing the customer relevant information, they should be able to come up with the right strategy to sustain their competitive advantage. Moreover, the research carried out by Marsdens show that they were right about their decision to follow lean strategy and customers do not seem to be aware of their line reduction , probably due to smart merchandizing by the store owners. Introduction: Marsden Stores is a £480m turnover regional ‘community’ grocery chain with 215 outlets located in the villages and suburbs of major towns and cities along the M6 motorway corridor in England – from Walsall in the West Midlands to Lancaster in the North West. Marsdens national market share of predominantly food retailing is quite small [Approximately 0.8%], however, its regional market share in the Midlands and North West approaches 1.5%. Operations Strategy: Strategy is basically the broad, long-term view and the concern of the most senior management in the business. Operations, on the other hand, are the detailed day-to-day issues that are carried out by the lower management staff. They are the resources that create services and products. Many writers such as Skinner (1969), Hayes and Pisano (1996) etc., have discussed the contribution of operations to strategic success and the immense importance of a sound operations strategy. Voss (1995) identified three main paradigms of manufacturing strategy. The first is described as competing through manufacturing (operations) by aligning the capabilities of manufacturing to that of the market. Manufacturing can be considered not just in terms of its components, but as a system: It is “the complete system of lean production that extends from product planning through all the steps of manufacture and supply system coordination on to the customer” ( Womack et al. 1990). Berry and Hill ( 1992) reviewed the links between manufacturing systems and strategy and explored the importance of operations in gaining competitiveness. The second paradigm is the strategic choice based on the consistency (both internal and external) between the business and product. This paradigm draws its strength from Skinner (1969), who proposed the key choice areas in manufacturing strategy as plant and equipment, production planning and control, labor and staffing, product design and engineering, and organization and management. Later Hayes and Wheelwright added three more elements (1984), and then Hill (1993) categorized it into two areas: process and infrastructure. The third paradigm is the best practices approach. This approach also traces its roots to Hayes and Wheelwright, 1984 who described “world class manufacturing” as a set of practices, that would lead to superior performance. However, best practices are not static. As per Flynn et al (1999) the practices associated with world class manufacturing will continue to evolve, both in type and content. Voss also concluded that the three paradigms overlap and complement one another, and while each paradigm has its strengths and weaknesses, companies cannot ignore any of these completely without risking loss in competitive strength in manufacturing. (Voss, 1995). Fig 1 : Three paradigms of operation strategy. Let us examine these three paradigms in context of Marsden group. The Marsden group is a regional ‘community’ grocery chain with 215 outlets located in the villages and suburbs of major towns and cities. It is predominantly in food retailing and holds around 1.5% share in regional markets. They have different store formats for specific locations such as community supermarkets for primary shoppers, community convenience stores around petrol stations, community village stores for small rural communities and Metropolitan community range located within cohesive communities specially where the major market players are not visible. The different types of stores have products for everyone. Their 16000 product lines make sure that there is enough choice for its customers. By aligning its capabilities to that of market, it made itself competitive. These are capabilities deriving from manufacturing/ operations of the Marsden group. Hill ( 1985 ) developed a framework for formulating manufacturing strategies built on the concept of “order-winning” and “order-qualifying” criteria. These criteria identify the priorities for manufacturing. Marsden group came up with the idea and decision of rationalization of product range and suppliers The capabilities for low-cost manufacturing are derived from areas such as the use of appropriate manufacturing processes, workforce involvement leading to higher productivity, purchasing skills reducing the cost of components and the use of ‘lean’ manufacturing practices. Marsdens pursued a deliberate policy of ‘leaning out’ the product range through a combination of Product and Supplier rationalization. The purchasing and distribution channels were also consolidated and centralized. Earlier there had been three smaller distribution centers. The distribution center now stocks approximately 16,000 product lines which is a significant reduction from 20,000 product lines stored earlier. Depending on the location and sales, different products are stored at different locations. Marsdens are not competing on price alone. They are offering ‘Convenience’ by keeping stores open from 7.30am to 10.00pm, at appropriate ‘Locations’ such as neighborhood village stores or stores at/around petrol stations and an ‘adequate product range’ to provide a good choice to its customers. In the early 80s, the Marsden chain had positioned itself in direct competition with the big chains such as ASDA, Sainsbury, Tesco etc. But this did not prove to be a good strategy since the volumes though increasing were not matching that of the leading chains. Their profit margins were down and they were being further forced to slash prices because of this competition. Thus in 1984, they came up with the ‘Niche’ strategy which focused on opening metropolitan community stores at places where cohesive communities thrived and major leading stores were missing. Thus they used the second paradigm of strategic choice effectively by studying the internal as well as external factors affecting its profitability. The assumption of this paradigm is that internal and external consistency between manufacturing strategy choices increases performance (e.g., Woodward 1965; Hayes and Wheelwright 1979; Hill 1985; Ward, Bickford, and Leong 1996). Internal consistency refers to the cohesiveness between the different elements of a manufacturing strategy, while the external consistency refers to the agreement between the internal and the wider organizational context (e.g., marketing strategy). Best practices are the most efficient (least amount of effort) and effective (best results) way of accomplishing a task, based on repeatable procedures that have proven themselves over time for large numbers of people. Hayes and Wheelwright and Clark (1988) identify these key attributes of world-class manufacturers: Becoming the best competitor, Growing more rapidly and becoming more profitable than competitors, Hiring and retraining the best people, Developing a top notch engineering staff, Being able to respond quickly and decisively to changing market conditions, Adopting a product and process engineering approach which maximizes the performance of both and Continually improving. The Marsden group does not seem to be doing too well in adopting the best practices approach. They started the ‘lean’ program without undertaking any analysis on its impact on overall sales and profitability. They did this after almost three years. The pilot research should have been done earlier and this might have helped them to reduce product lines and enhance profit margins. Most of their staff did not know why and what policy of reduction the management was pursuing. They were simply following orders without contributing anything. Thus overall, Marsdens have followed a good strategy by moving into niche market and cutting costs by reducing product lines and suppliers, consolidating their purchasing and distribution channels. But now they should be looking at adopting quality procedures, training and motivating employees and involving them in decisions which they are required to follow. Service Delivery systems: The service delivery systems refer to that part of an organization that deals with the work of providing the services or goods to the customer. In case of retail and manufacturing industry, it includes the purchasing, manufacturing and the distribution channels of the organization. In Marsden group, some initiatives for creating a cost effective delivery system have already been taken. The purchasing function was centralized and distribution was consolidated into a 60,000 ft2 ambient grocery distribution center which supplies all outlets. Earlier there had been three smaller distribution centers that resulted in higher costs to company for maintaining these centers. The distribution center now stocks around 16,000 product lines. In 1997, this figure was around 20,000 product lines. This reduction was done during the drive to rationalize the product range and suppliers. Location wise also, the distribution center is strategically located in North Cheshire which is close to the junction of the M6 and M62 Motorways and is almost at the geographic center of the chain. There is a wide variety of stores in the chain and thus every product line at the distribution center is not displayed in all outlets. The stores have been classified as Community Village stores, Community Convenience Stores, Community Supermarkets, Metropolitan Community range. Thus based on the location and the type, different product lines are displayed at these stores. The pilot research carried out by the group consisted of seeking evidence of the outcome of following the product and supplier rationalization. They were also seeking information on the other competitive stores and their policy regarding range reduction. The management wanted to know whether their customers have noticed the product range reduction and what was their reaction to it. Or whether that has resulted in any negative outcome such as the customers opting for another store. The study was also aimed to find out if the way in which the display of the products affects purchasing decisions and how this affects category turnover. The results have been encouraging and somewhat astonishing. The research showed that all the leading stores were in fact going in for product and supplier rationalization in one way or another. It showed that there was no point in keeping certain lines which were merely serving as shelf warmers and had not been purchased since long by customers. Thus Marsdens had taken a right decision to go in for the rationalization. .This appeared to contradict Marsdens own buying intelligence section who asserted that other chains have increased the number of products in their range. Another surprising result was regarding the customer perception or awareness regarding the range reduction. The majority of respondents in Marsdens’ survey perceived that choice had increased. Only 6% thought choice had deteriorated. The survey also revealed that 85% of customers thought that there had been no noticeable changes to the range of products on offer. It is well known that the process performance is an important element of service delivery processes, but the perception of performance is also key to high marks in customer satisfaction. Perception enhancers are used to leverage the experience of the service encounter beyond mere process performance. Thus the customer perception that there was increase in product range could have been due to smart merchandising by the stores such as providing more facings of the leading brands on a display fixture, specially the ones that most customers were looking for. To encourage customers to spend more money at a fixture, it is important to differentiate between brands by positioning them at strategic locations. For example, the popular brands should be positioned at, or near the ‘hot spot’. These products yield higher turnover and are usually more profitable. The ‘Tertiary’ products, own label discount brands should be positioned at the bottom of the shelf or at the right or left hand extremities of the shelf since they did not yield the same level of profit as well known brands. When working with a reduced range, it is advisable to provide best sellers or the well known brands with multiple facings and placed on the best sites of the fixture. This simply means giving more space to the best selling products in order to grow sales. Another important finding was that though price was important, it was not the leading factor in deciding the product purchase. Rather the survey showed that neither price or special offers played a significant role in a purchasing decision. The most important factor, is ‘Favorite Brand’ [61%] and being persuaded by children [20%]. 63% also considered themselves to be ‘brand loyal’ and 80% of these said that if their normal supermarket did not stock their favorite brand they would shop elsewhere. 50% of these people indicated that they would switch supermarkets permanently if their favorite brand was not available. They also found that not only were other stores going in for range and supplier rationalization, even the suppliers themselves were keen to support these initiatives. This was probably because the competition in the supermarket was intense with diminishing profit margins. Therefore, any reduction in range and marginalization of their own competition was welcome. On the other hand, the employees and staff of the company themselves knew nothing about whys and reasons of doing this rationalization. Nor had anyone understood the importance of this decision. Conclusion: Thus after looking at the various aspects of operational strategy of Marsdens and its service delivery systems, it can be concluded that they are on the right track with good initiatives such as product and range rationalization and understanding and aligning their own capabilities with the market conditions. But there are certain areas that they need to look at such as ensuring that the organization is equipped to design a strategy, gather data, analyze data and act on all customer relevant information. They should try to use efficient, reliable data acquisition and analysis methods to derive the performance and perception requirements sought by customers. They should also try to incorporate the use of best practices paradigm in their organization. The relevance and robustness of Hayes and Wheelwright’s best practices foundation has been recently confirmed empirically by Flynn et al (1999), who also updated and improved the foundation by adding newer practices such as Just-in-time (JIT). Popular factory level practices today include Total Quality Management (TQM), Just-in-time (JIT) and Total Productive Maintenance (TPM), where each has a different starting point but all have many overlapping elements. These practices require the coordinated use of human (skills, knowledge and motivation), intangible (i.e. technology) and physical (i.e. specialized equipment) resources. References: 1.Berry, W. L. and Hill, T. ( 1992), “Linking Systems to Strategy,” International Journal of Operations and Production Management, 12, IO, 3- 15. 2. Colotla, I. 2002. Global Manufacturing Strategy Formation: A Proposal for a Process Approach Integrating Factory and Network Perspectives Institute for Manufacturing, University of Cambridge, United Kingdom 3. Flynn, B. B., Schroeder, R. G. and Flynn, E. J. (1999) 'World Class Manufacturing: An Investigation of Hayes and Wheelwright's Foundation', Journal of Operations Management 17: 249-269. 4. Hayes, R., Wheelwright, S. Clark, K. (1988) Dynamic Manufacturing. The Free Press. New York 5. Hayes, R., Pisano, G. (1996) Manufacturing Strategy: At the Intersection of Two Paradigm Shifts. Production and Operations Management, v. 5, n. 1, p. 25-41, Spring. 6. Hayes, R. H. and Wheelwright, S. C. (1984) Restoring Our Competitive Edge: Competing Through Manufacturing, New York: John Wiley & Sons. 7. Hill, T. ( 1985) Manufacturing Strategy, Macmillan, Basingstoke, UK. 8. Hill, T. (1993) Manufacturing Strategy: The Strategic Management of the Manufacturing Function, 2nd Edition, London: Macmillan Press Ltd. 9. Skinner, W. (1969) Manufacturing – Missing Link in Corporate Strategy. Harvard Business Review, v. 47, n. 3, p. 136-145. 10. Skinner, W. (1996a) Manufacturing Strategy on the “S” Curve”. Production and Operations Management, v. 5, n. 1, p. 3-14. 11. Voss, C. A. ( 1995), “Alternative Paradigms for Manufacturing Strategy,” International Journal of Operations and Production Management, 15, 4, 5- 16. 12. Voss, C., Winch, G. (1996) Including Engineering in Operations Strategy, Production and Operations Management, Vol. 5, No. I, Spring 1996 13. Ward, P., Bickford, D. and Leong, G. (1996), "Configurations of Manufacturing Strategy, Business Strategy, Environment, and Structure," Journal of Management, 22, 4, 597-626. 14. Womack, J. P., Jones, D. and Roos, D. ( 1990), “The Machine That Changed The World,” Macmillan, Basingstoke, UK. 15. Woodward, J. (1965), Industrial Organization: Theory and Practice, Oxford University Press, London. Read More