Operational Management case study. The author has attempted to view the case study through the prism of Operational and supply chain management and critically evaluates how Marsden community Stores has transferred the valuable operational concepts.

University Degree Business and Administrative studies

The author has attempted to view the case study through the prism of Operational and supply chain management and critically evaluates how Marsden community Stores has transferred the valuable operational concepts. Marsden Store is a grocery chain with 215 outlets located in the major towns and cities in England with an average size of 6500 sq feet. The USP (Unique Selling point) is the strategy that it has adopted. Niche Strategy, where price, location, convenience, and an adequate product range were seen as major criteria to maintain customer loyalty. The operations in the Marsden community centre can be acknowledged by number of laws operating undercurrent such as Theory of Swift Even flow, law of variability, laws of quality, law of bottlenecks, law of factory, trade-offs and theory of Performance frontier. The author strives to present a balanced picture of Swift even flow and critically examine how the trade-offs are linked with the performance and operating frontier of the Marsden community store. The Supply services department of the store was regarded as the heart of the Marsden customer service drive. The author also attempts to take help of the data and the survey of the gap analysis and pilot research, which gives him valuable insight about the Store in future.

“The Theory of Swift Even Flow” and “The Theory of Performance Frontier.”

Schmenner and Swink (1998) state, “The more swift and even the flow of the materials through a process, the more productive that process is”. It means the productivity of any process increases; if the materials can move more swiftly with no bottlenecks and if non-value-added wasteful steps of the process are either eliminated or reduced greatly. Furthermore the material to flow even more evenly, one must narrow the variability associated with either the demand or quality of the process or the process operational steps. The Swift Even flow is of paramount importance for the rapid and persistent productive gains of an organisation.

With reference to Swift even flow, the supermarket is not to solve the problem but it is to create an opportunity. It is possible only if it follows certain culture excellence approach (Burnes, 2004). Customer had a habit of choosing one store among many based on the strength of its location, convenience, goods and pricing. The main essence of the supermarket is its location. Location decision will usually have an effect on an operation’s cost as well as the ability to serve its customer - and therefore its revenue (Slack et al., 2004). Therefore being located in the villages and suburbs of major towns and cities in England from West Midlands to Lancaster with the convenient timings from 7.30am to 10pm enable its processes to better its performance frontier. Marsden Distribution depot is also strategically located at the centre of the chain of stores that helped in saving distribution cost, delivery time and the risks of inconvenient to customers.

In the context of the supply side of the business; the centrally located distribution depot facilitates the logistics goods to move easily from the suppliers, and from the demand side of the business, it become convenient and opportune for the consumers to shop and this makes swift and even flow of the products. This possibly ensures that there are repetitive and routine practices, which removes bottlenecks and make it possible to standardise processes. Standardisation of operations eliminates waste, replenishment of out-of-stock items and forecasting information is easily integrated which may increase productivity. Thus provides convenience and accessibility to its customers as well as suppliers.

The superstore, which adopts lean methodology, can truly imbibe the spirit of Swift even flow. According to (Slack et al., 2006 ) Lean synchronization is the aim of achieving a flow of products and services that always delivers exactly what customers want, in exact quantities, exactly when needed, exactly where required, and at the lowest possible cost. Lean strategy also eliminates all kinds of waste in the operation, whether it is waste of material, time, people or energy. It reduces inventory and speed up production times. Marsden Five year financial results show that their stock increases every consecutive year which further tell that they maybe deviating from their vision, Lean approach.

With the reduction in waste (time lag, inventory cost, elimination of non value added processes) Marsden reflects the improvement of quality which Schmenner and Swink, (1998) also supports with either by changes in product design, or by changes in material or processing. Rationalisation policy helped them to reduce their product lines as well as the suppliers for the continuous improvement and the high quality product. High quality products attract new customers and retain old ones. Therefore concepts like TQM (total quality management) and QPM (quality performance management) have been adopted to maintain high quality products. Moreover quality internal process avoids ...

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At Marsden quality is not confined to the products only but also to- service, research, information is also seen in the same light. They made big strides in sharpening their market information, Mary conducted surveys, interviews and questionnaire but they were not adequate and informative. Analysis of Pilot research also showed that they have poor quality of Information and research, but the flexible supply chain, giving faster response, aid them to know timely market information which helped them to increase their sales effectively. Market research can help to reduce the risk of new product development by assessing the need of consumers (Kotler and Keller, 2006). Market research facilitates forecasting, planning and also helps to identify gaps in the market and weakness in the competitor strategy.

The productivity of labour can be augmented in most instances by applying methods such as those identified by the Scientific Management movement (Schmenner and Swink, 1998). Therefore the positioning of the products and the centralisation was managed through EPOS so that stores, purchasing and warehouse management were provided with up-to-date demand, sales and margin information hence makes the swift even flow of material.

Good quality is essential to the swift, even flow of materials as it helps both to lower variability and to avoid bottlenecks (Schmenner and Swink, 1998). According to the Law of Variability by Schmenner and Swink (1998) “The greater the random variability, either demanded of the process or inherent in the process itself or in the items processed, the less Productive the process is.” Therefore with the four different kinds of stores that is, Community Supermarkets, Community Convenience Stores, Community Village Stores and Metropolitan Community range, the store has complicated operational procedures. The more variable the processing steps the less productive the process. Marsden impede on the Porter’s generic strategy of differentiation and adopted rationalising policy. Thereby by rationalisation in the product lines from 17 to 7 and supply base rationalisation will narrow variability. Productivity can improve when variation of an activity is limited (Porter, 1996). Thereby Marsden is concentrating just on the more profitable product families and is reducing the variables. The author further links this to the law of factory focus, the law states “Factories that focus on a limited set of tasks will be more productive than similar factory with a broader array of tasks Schmenner and Swink (1998). For example there were a number of Marsden store formats which may work contradictory to the law of factory focus.

A performance frontier is defined by the maximum performance that can be achieved by a manufacturing unit given a set of operating choices. Asset and the Performance frontier are the two powerful index of measuring the performance of a firm (Schmenner and Swink, 1998). Operational effectiveness and strategy are both essential to superior performance (Porter, 1996). Superior performance in one competitive objective is gained primarily by lowering performance in another (Da Silveria and Slack, 2001). Moreover the law of trade-offs suggest, “A manufacturing plant cannot simultaneously provide the highest levels among all competitors of product quality, flexibility, and delivery at the lowest manufactured cost.” (Schmenner and Swink, 1998). For example Ikea serves customers who are happy to trade off service for cost. In the same way Southwest Airlines has trade off all its activities to deliver low cost, convenient service on its particular types of route.

Fig: 1

Source: Schmenner and Swink (1998)

Journal of operations management 17 (1998) 97-113

In fig 1, There are three operating state for a manufacturing plant according to Schmenner and Swink, 1998. Plant A is underutilized and inefficient. Rationalising resources and resolving inefficiencies lead to position A1, where plant encounters its operating performance frontier. Operating policy changes improve the frontier and move the plant to position A2, where technological and asset constraints begin to affect performance.” The author attempts to show the steps taken by the Marsden to improve the operational efficiency of the company. The improvement of operating frontier can be seen in the light of rationalisation policy adopted by the store. Marsden increase its productivity, embarked on a rationalisation policy by trade off all processes which are regarded as waste in order to develop an operation that is faster, more dependable and that which provides superior customer quality and above all operates at low cost to maximise profits. Therefore it has increased its supplier dependency by eliminating bottlenecks and hence helps in the smooth flow of operations. Furthermore the adoption of supply chain policy and rationalisation policy may moves the operating frontier outwards.

A company can outperform rivals only if it can deliver greater value to customer or create comparable value at a low cost or do both (Porter, 1996). Low price has become an ever more consequential factor in food retailing; those with the best selection of goods at the lowest cost found themselves in the strongest position (Mintel, 2006). For example Wal-mart employ EDLP (everyday low pricing) which leads to greater pricing stability, a stronger image of fairness and reliability, lower advertising cost and higher retail profit. All superstores would like to achieve high volumes and high gross margins.

Marsden also gained high gross margin by adopting rationalisation policy. Prior to three distribution centres they now have one centralised distribution centre which is almost at the geographic centre of the chain. This saves the logistics cost, delivery time and therefore reduce supply chain cost. They also reduced the distribution stock from 20000 lines to 16000 lines and slimmed their whisky range from 17 t0 7 lines which further reduce their suppliers and helps them to makes high margins example, Mark and Spencer. Mainly dealing with many hundreds of suppliers is both expensive and prevents the operation from developing close relationships with its suppliers (Slack et al., 2006) on the other hand, more variety of products we have in the store may hide the major product and confuse the consumer.

The reduction in the product range and suppliers may lessen lead time operations and save on costs, because the abolished products have difficult operational procedures and needs additional inventory costs and thereby gain economies of scale. The faster we can replenish our stock, the less initial stock quantities are needed, and therefore the less risk of overstocking on low selling items. They also negotiate with their supplier reduction from £3 to £5 which aids them to promote their brand. Therefore narrowing variability through rationalization may increase productivity and will possibly have low operating cost. With rationalisation Marsden can not only better its operational choices but also upgrade designing, positioning and assembling capabilities. The store must embody a planned atmosphere that suits the target market and draws consumers towards purchase (Kotler and Keller, 2006).The hot spot and positioning of the products also helped Marsden to yield higher turnover and to make more profit. They analysed that 90% of the sale is concentrated on the channels of the supermarket.

Banks, hospitals, stores and hotels do not do everything themselves. They rely on suppliers of service for some of their activities. And these suppliers will themselves rely on other suppliers and so on. No operation is an island. They all rely on a network of other operations. So, these relationships need managing. And that is supply chain management. Supply chain management is defined as “the management of the interconnection of organizations that relate to each other through upstream and downstream linkages between the different processes that produce value in the form of products and services to the ultimate consumer”(Slack et al., 2004). Many companies have adopted lean manufacturing as a business practice but agile in their supply chain (Christopher, 2001). In the first case market winner is cost, whereas in the second case the market winner is availability. This encourages lean (efficient) supply upstream and agile (effective) supply downstream, thus bringing together the best of both paradigms.

Market winners and market qualifiers matrix for agile versus lean supply

According to Naylor et al., (1999) Agility means using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile marketplace. Leanness means developing a value stream to eliminate all waste, including time, and to enable a level schedule.

Reason for choosing certain product

REASON PERCENTAGE

From survey it appeared that the most important factor for choosing certain product is favourite brand (61%) people are brand loyal and 50% of these people which switch supermarkets if their favourite brand is not available. Price is not the only factor when it comes on the choice of products for example Whirlpool’s direct combo is nearly four times the price of comparable model. The author links that consumer psychology and pricing comes hand in hand.

This data shows that market sensitive is the agile supply chain. By market sensitive it means that the supply chain is capable of reading and responding to real demand. A key characteristic of an agile organisation is flexibility. Flexibility is important because it allows us to respond to whatever the market. Existing customers are more likely to be retained and new customers won over if the operation delivers high quality products and services, response customer service and an ability to flex as market needs change.

How does the variety of your favourite brand category compare with what it was a year ago

This survey shows that 39% perceives that variety is unchanged. Lean is an approach which tries to meet demand instantaneously with perfect quality and no waste (Slack et al., 2004). Lean strategy also encourages multiskilled labour, quality craftsmanship and mass production. Customer usually value speedy delivery, the faster the consumers can have the product or services, the more likely they are to buy it, or the more they will pay for it, or greater the benefit they receive. In supermarket Supply service department is regarded as being at the heart of the customer’s service drive. Thus the main objective of supply chain is to fulfil customer demand through the most efficient use of resources

Right Product

in the Right Place

at the Right Time

for the Right Price

Source: Fisher et al., (2000)

Harvard Business Review July- August 2000 pp. 117

The supermarket industry is very competitive and one means of remaining so as to reduce cost which may provide a competitive advantage. This might be achieved by adopting both lean and agile strategies. There are five operational performance objectives like quality, speed, Cost, dependability and flexibility which are inevitable for any organisation. They can only achieve if the organisation adopts both lean and agile approach ‘Leagile’. Cost is a function of what business pays for its inputs such as materials, labour and facilities. This partly depends on the 4 V’s of operations that is; volume, variety, variation and visibility and is also governed by how good the operation is at the other performance objectives like quality, dependability, flexibility. All these theories helps retailers to follow the holy grail of retailing (Fisher et al, 2000); to offer right product, in the right place, at the right time, for the right price, in the right quantity. From the above discussion it seems that Marsden were following the holy grail strategy by offering products in the right quantity at the right time which helped them in captured enormous amount of data that retailers should gather about the point of purchase, buying patterns and customer’s tastes.

References:

Burnes, B (2004), ‘Kurt Lewin and the Planned Approach to Change’: A Re-appraisal, Journal of Management Studies, Vol. 41, No. 6, pp 977.

Christopher, M. and Towill, D.R., (2001), ‘An Integrated Model for the Design of Agile Supply Chains’, International Journal of Physical Distribution and Logistics Management. Vol. 31, No. 4, pp. 235-246.

Da Silveira, G. and Slack, N. (2001) ‘Exploring the trade off concept’, International Journal of Operations and Production Management. Vol. 21, No. 7, pp. 949-964

Fisher, M .L. Raman, A. and McClelland A.S. (2000) ‘Rocket Science retailing is almost here- Are you ready?’ , Harvard Business Review.

Kotler, P. and Keller, K.L. (2006) ‘Marketing Management’, 12th ed., New Jersey: Pearson Prentice-Hall

Mason-Jones, R. and Towill, D.R. (1997), `Information enrichment: designing the supply chain for competitive advantage', Supply Chain Management, Vol. 2 No. 4, pp. 137-48.

Mintel, 2006. Food retailing (strengths and weaknesses in the market) – UK (online)

Available from:

http://academic.mintel.com/sinatra/academic/search_results/show&&type=RCItem&page=0&noaccess_page=0/display/id=173677/display/id=246233&section#hit1

Naylor, J. B and Naim, M. M. (1999) ‘Leagility: Integrating the lean and agile manufacturing paradigms in the total supply chain’ International Journal of production economics. Vol. 62, pp. 107-118

Porter, M. E. (1996) ‘What is Strategy? Operational Effectiveness Is Not strategy’,

Harvard Business Review, Vol. 74, No. 6, pp. 74-91.

Slack, N. Chambers, S. Johnston, R. (2004) Operations Management, 4th ed., London: Prentice Hall.

Slack, N. Chambers, S. Johnston, R. and Betts, A. (2006) Operations and process Management- principles and practice for strategic impact, 1st ed., FT Prentice Hall.

Schmenner, R.W and Swink, M. L (1998), ‘Theory in operations management’, Journal of Operations Management, Vol. 17, pp. 97-113. .

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