Marks and Spencer and Their Management of the Supply Chain - Case Study Example

1.0 Introduction Supply chain management can be defined as 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 (Braithwaite 2002). The supply chain also exists for the customer, as the customer is the one that adds the value to this process. Proper control and management of the supply chain, particularly for organisations operating in the service industry is important as it is responsible for the improved customer experience, reduced inventories, lower operating costs and improved use of fixed assets (Braithwaite 2002). The service industry relies heavily on the customer experience as it is subjective and therefore introduces complexities into the supply chain. These complexities arise from the variety of goods and services demand from the customer, as they are not uniform in their demand. Therefore the value of the supply chain always starts with customer, as they want shorter times to market for new goods and services. The customer also wants some level of customisation and personalisation to their circumstances which means the service organisation has to reduce its inventories and keep lower stock to prevent losses from unsold stock. Lower unit costs allow the service organisation to pass on a cost advantage to the customer, and this involves improving its use of existing assets in the first instance to reduce disruption to its quality advantage. This essay will analyse a case study of Marks and Spencer and their management of the supply chain. Marks and Spencer went from being one of the successful organisations in the world to almost being wiped out of the retail industry in the late 90s, as a result of its inability to react to the changing market conditions and to its inability to structure its supply chain process to cope with this change. This analysis will also look at the factors that led Marks and Spencer to its near-demise, the solutions they have implemented and possible solutions to maximise responsiveness. 2.0 Identifying problems with the supply chain Marks and Spencer (M&S) was established in an era where public opinion was still conservative and fashion dictated to the public. This was reflected in its styles and clothing lines, and its dated methods of supply chain management. M&S had two seasons which meant they had a large inventory and profits were dependent on the ability of the stores to clear this stock. This practice was significantly different to that of its competitors, who had realised that restructuring the supply chain process was the only way to meet the unstable customer demand. M&S had also failed to analyse its external environment, which led to its competitors gaining a competitive edge. For instance, Zara, a Spanish clothing retailer, had created its target market and its stock was only available in store for a maximum of 4 weeks, compared to 9 months for M&S. Zara was able to achieve this turnaround by managing its supply chain, which enabled it to be flexible to cope with fluctuating demands. The limited time for stock availability also meant that customers were exposed to more fashion ranges and designs and this created the perception of personalisation. So whilst Zara and other competitors were focussing their efforts on a niche market, M&S was still marketing to a non-descript market and not offering the choice, flexibility and speed demanded by the customer. M&S had failed to act on falling customer satisfaction ratings by simply ignoring them and not realising that part of this dissatisfaction lay in its earlier decision to withdraw the children's clothing range. By the time M&S had reached this realisation, profits had halved and the forecast was not promising. As they had not sold any of their stock, their warehouses were still filled with the previous season's clothing line, and there was no room for new season to come through. M&S' solution was to increase its offshore sourcing to improve their marketplace performance. M&S encouraged its suppliers to relocate to low wage economies so that they could capitalise on the low production costs, and this resulted in M&S setting up a warehouse in Sri Lanka which served as a consolidation point for locally produced merchandise. What M&S did not realise or consider at that point, was that their suppliers were in a different predicament than they were, and the decision to relocate to another area in the world was one that would not be taken lightly. For instance there were concerns over the political and economical instability in Sri Lanka. Despite their efforts to remedy the situation, M&S were still failing to predict and meet customer demand. For instance, they began experiencing a shortage of sizes and stock in store, especially for the larger sizes. This poor stock availability and the reluctance of their suppliers to support their new strategy to relocate resulted in another poor performance by M&S which further hindered their marketplace performance. 3.0 The potential benefits of low cost sourcing in supply chain management The failure of the preliminary strategy was another one of M&S' failures to recognise that by moving their sources to an offshore base, they would need to know more about the breakdown of costs for each garment. More so, UK manufacturers were not willing to abandon transport agreements and switch to those dictated by M&S. This meant that M&S could not capture the benefits that could be offered through low cost sourcing. In addition to this, M&S was still failing to respond to its customer's and market demands. Low cost sourcing offers savings and procurement opportunities through proactiveness, which will allow M&S to anticipate customer demand through increased flexibility and speed of production. Low cost sourcing allows for a multitude of small producers to specialise in various areas and work to a specification. This aids resource deployment, as the situation at M&S meant that there were still bottlenecks in the resource deployment which were resulting in massive delays for customers. For example, by having their production based in China, they would be exposing themselves to thousands of suppliers who would increase the speed with which they can implement cost savings, which will free up time to concentrate on other areas of the business such as marketing and design. Given that the objectives of supply chain management are to satisfy end customers, to formulate and implement strategies, to manage the chain effectively and efficiently and to manage the barriers to supply chain management; low cost sourcing can offer benefits in the way of capturing and retaining the end-customer business through the implementation of a single strategy that will enable all parties involved to satisfy the customers. Low cost sourcing will also allow M&S to absorb the costs of fluctuations which have become the norm for this industry. Such fluctuations arise from economic performances of the UK and other countries involved in the low cost sourcing, which will affect the cost of the products. Economic performances can also affect trade agreements which result in trade quotas being imposed. Other fluctuations arise from social and political conditions, as well as those arising from the showcasing of new fashion trends. 4.0 Opportunities for developing "parallel" supply chain strategies Low cost sourcing also presents opportunities for developing supply chain strategies, as they force the organisation to analyse the chain to determine were most time delays occur so that they can dealt with. Time delays work against shortening the time to market for a product. This can achieved through the development of parallel supply chain strategies which will enable M&S to access a wider pool of knowledge and expertise. As the number of suppliers' increases, each supplier will have its own area of expertise which can be exploited for the benefit of both organisations. Parallel supply chain strategies will also enable M&S to switch sources in case of a supply failure; however this cannot be achieved if M&S pursues its case of locating its suppliers in one location, i.e. Sri Lanka. Other opportunities also include the possibility to drive the price down through the process of competitive tendering. Instead of trying to encourage suppliers to relocate to Sri Lanka, M&S should capitalise on the opportunity of developing warehouses that will simplify routes and communication. So for instance, suppliers in the UK can send their goods to a central warehouse in the UK, and this will be used to manage the speed advantage. Likewise, suppliers based in Sri Lanka or the surrounding regions can utilise the centre in Columbo. This will reduce the routes to the customer which are currently responsible for the bottlenecks and poor communication. These opportunities exist for M&S as it worked with its suppliers for a relatively long time, and has knowledge of their supply chains. By integrating these other supply chain strategies that will benefit all parties in the chain, M&S will be aware of issues affecting its partners and suppliers. The development of parallel supply chain strategies can be aided through the adoption of Just-In-Time philosophies which will allow M&S to meet demand instantaneously with perfect quality and no waste. Just-In-Time (JIT) is a disciplined approach to improving overall productivity and eliminating waste (Slack et al 2005). It provides for the cost effective production and delivery of only the necessary quantity of parts at the right quality, at the right time and place, whilst using a minimum amount of facilities, equipment, materials and human resources (Slack et al 2005). JIT is also dependent on the balance between the supplier's flexibility and the user's flexibility. JIT is well suited as an aid to developing parallel supply chain strategies as it requires high standards in the organisation's performance objectives. These objectives include quality, which is responsible for minimising disruption and the build-up of the inventory. Each supplier will have their own processes for ensuring quality, however all efforts must be made to ensure these practices do not produce waste and errors, as this will obviously affect sufficient stock reaching the stores. Speed is also important in developing these strategies as JIT will enable this through meeting demand from production and not from inventory (Slack et al 2005). The current market is also demanding extensive choice and JIT will offer the flexibility to deal with this variety demand by allowing the production of batch sizes, which will result in the short delivery lead times. This is surely a much better option that encouraging all suppliers to use their supply chain which could prove to be incompatible with their own operations strategies. By developing parallel supply chain strategies, M&S could still maintain its relationships with its long term suppliers. 5.0 The development of a total end-to-end supply chain strategy as a solution A total end-to-end supply chain strategy will give M&S the capability to plan their supply chain, which will increase their ability to respond to market demands. To develop this strategy M&S need to develop specialised and differentiated supply chain strategies based on their customer segmentation to enable them to cater for the different market segments they serve (IBM 2004). For instance, this could involve signing up suppliers who will adopt JIT techniques so that the relative quality is maintained. This will also allow each individual supplier to set their own quality standards and improve their responsiveness to M&S' needs. This will also include the development of customised service levels and asset optimisation strategies to develop a common goal and strategy for all those in the supply chain. Collaborative planning and forecasting with its suppliers is required to manage the continuous replenishment programmes which enable the management of inventories (IBM 2004). Therefore suppliers need to be aware of the environmental pressures affecting each organisation within the supply chain, so as to enable effective communications for planning and forecasting purposes. M&S will need to ensure price optimisation to maximise profitability, as this will affect the quality of the merchandise in their stores. M&S will need to invest in multi site inventory programmes to optimise their inventories. This is important if M&S is to maintain its offshore sourcing as they need to have visibility of all products in the supply chain, and this means having a dependable and accessible information technology system. This information technology system will also streamline the administration procedures and allow store managers to order their stock online by selecting the supplier with the shortest lead times. 6.0 Conclusion The supply chain is one of the most important aspects of an organisation as it is responsible for adding value for the customer. In Marks and Spencer's case, their failure to adapt the supply chain for changes in the market place resulted in poor sales and the near closure of the business. As customers are faced with more choice and leverage, they now dictate the pace of the market, and this meant that organisations have had to adopt flexible and innovative systems to cope with this change. Marks and Spencer's took the step of identifying the problems within its supply chain and succeeded in making some changes; however these changes focussed on the cost advantage for Marks and Spencer and totally ignored the implications for its suppliers. This obviously did not yield much in the way of better sales figures, so an in-depth analysis was required to solve the problems experienced in the supply chain. The most suitable solution included the development of parallel supply chain strategies, especially with their decision to take on offshore sourcing. This also involved the adoption of JIT strategies to reap the maximum benefits from its suppliers and the arrangement. This solution is consistent with the development of total end-to-end supply chain strategy which is appropriate for Marks and Spencer as it allows for the management and collaboration of offshore sourcing centres. References Braithwaite, A. (2002). "Achieving world class supply chain and logistics in the chemical industry" EPCA Logistics Meeting, Monaco. IBM Business Consulting Services. (2004). "Energise your supply chain network" IBM Institute for Business Value Executive Brief. Slack N, Chambers S and Johnson R (2005), Operations Management, Financial Times Management, Read More