This essay is a study on Laura Ashleys strategic alliance with BLS and pertinent issue that arise from such an alliance. Issues are discussed in several aspects at strategic and managerial level.
SYNOPSIS
This essay is a study on Laura Ashley's strategic alliance with BLS and pertinent issue that arise from such an alliance. Issues are discussed in several aspects at strategic and managerial level.
The essay begins with an analysis on strategic and operational issues, particularly LA's existing problems such as complicated organization structure, disrupted information flow, and lack of coordination among functional departments. It examines the role of logistics information system in reducing overall costs and delivering superior service levels in a cost-efficient manner to end customers.
Through analyzing the nature of the strategic partnership of LA and BLS, which is an integrated contract logistics that incorporates both the physical service and the managerial functions under contractual terms, it argues that this partnership is designed to focus and develop the values of LA and BLS through leveraging their core competencies.
The essay offers recommendations and rationale for LA based on the recognition of its strengths and weakness. It argues that LA should maintain a long-term relationship with BLS to create more values, improve its inbound logistics management and supervise its outbound logistics systems for potential risks.
TABLE OF CONTENTS
SYNOPSIS 1
TABLE OF CONTENTS 2
.0 INTRODUCTION 3
2.0 STRATEGIC AND OPERATIONAL ISSUES 3
3.0 THE ROLE OF INFORMATION AND COMMUNICATION TECHNOLOGIES (ICTs) 4
4.0 THE NATURE AND SCOPE OF INTER-ORGANISATIONAL RELATIONSHIPS 5
5.0 CREATION OF 'VALUE' THROUGH LEVERAGING OF "CORE COMPETENCIES" 6
6.0 RECOMMENDATIONS AND RATIONALE REGARDING FUTURE DIRECTIONS FOR LAURA ASHLEY 8
7.0 SUMMARY OF POTENTIAL RAMIFICATIONS 8
8.0 CONCLUSION 9
REFERENCES 10
. INTRODUCTION
Laura Ashley (LA), a global clothing and furnishings retailer based in the United Kingdom, identified a series of problems in its distribution and warehousing operation systems. To solve these problems, LA decided to form a strategic alliance with Business Logistics Service ("BLS"), which is created by logistics leader Federal Express.
In the first section, strategic and operational issues are discussed. Then, the role of information and communication technologies is analyzed. In the third and fourth sections, the nature and scope of inter-organizational relationships and the creation of 'value' through leveraging of "core competencies' are examined respectively. In the last section, we put forward some recommendations and rationale regarding the future directions for LA; also, we point out the potential ramifications.
2. UNDERLYING STRATEGIC AND OPERATIONAL ISSUES IDENTIFIED
Strategic Issues
From 1980 to 1991, four fundamental issues can be identified that thwarted LA's development at strategic level: (1) overcomplicated management structure,
(2) protruding financial problems, (3) LA's weak branding maintenance, and
(4) duplicated information system.
Firstly, LA's overcomplicated management structure was characterized by its excessive management layers and pyramidal reporting system. A series of vertical hierarchy in this system triplicated its functions and systems and blocked communications in different branches. Such structural weakness is also reflected from LA's excessive repetition in the product line.
Secondly, LA's financial problems that emerged in late eighties were highlighted by significant currency exposure, working capital intensity, excessive short-term debt, and rapid cash outflow. These problems strained the management of LA's business.
Thirdly, LA's branding maintenance was weak. The brand had not grown with its traditional customer base; its local market share was less than 6% of its range; less than 5% of LA's range was common to all stores and operations worldwide. In addition, simplicity of product could not cover wider range of customers. It is a sign of losing sight of customers' real wishes and lifestyles, as well as LA's heritage.
Fourthly, LA' information systems designed to serve independent business units. Duplicate systems caused LA to spend twice the industry average on systems in 1990. It also influenced business transparency, customer service and operational efficiency. Information technology investments were also inadequate and lagged growth.
Operational Issue
Inefficient and costly logistics system was identified as an important operational issue for LA, particularly its distribution system, which resulted in inefficient goods flows, outdated inventory ordering practices, long lead times, and broken promises to customers. These issues reflected in the following four aspects: (a) warehouse problems, (b) independently managed logistics, ...
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Fourthly, LA' information systems designed to serve independent business units. Duplicate systems caused LA to spend twice the industry average on systems in 1990. It also influenced business transparency, customer service and operational efficiency. Information technology investments were also inadequate and lagged growth.
Operational Issue
Inefficient and costly logistics system was identified as an important operational issue for LA, particularly its distribution system, which resulted in inefficient goods flows, outdated inventory ordering practices, long lead times, and broken promises to customers. These issues reflected in the following four aspects: (a) warehouse problems, (b) independently managed logistics, including transportation problems,
(c) the replenishment system based on ineffective historic practice and outdated priorities, and (d) multiplied delivery problems. The warehousing, replenishment, and delivery systems were, in Maxmin's words, "a disaster, out of control". By 1990, the supply chain made LA's picture even more complicated: availability of products was roughly 80%; it would need 18 months from product design to store sale; numerous transportation contractors got involved in LA's distribution systems. These problems led to a decrease in customer's loyalty, degrading LA's quality service. Clearly, LA suffered from a devastating logistics system. Facing the predicament of its development, LA reworked its strategy, which was initiated to focus on three aspects to restore the company's profitability: brand management, systems development and distribution innovation.
3. THE ROLE OF INFORMATION AND COMMUNICATION TECHNOLOGIES (ICTs)
Information system is both a strategic and operational issue. By outsourcing warehousing and delivery functions to BLS and utilizing its sophisticated information-technology based system, particularly the inventory system, LA can provide accurate information flows to its retail shops and other sectors, enhance internal business links, make business more transparent, thus allowing its physical operation as sophisticated as possible and optimizing business.
After the strategic alliance, the logistics information system plays a key role in reducing LA's overall cost, delivering superior service to end customers in a cost-efficient manner. In practice, information flows go before product flows to assure key players to predict and meet demand patterns. This high-tech information system will increase the competitiveness of LA and BLS in the global market.
An effective information system must be supported by communication technologies.
LA will greatly benefit from BLS, which is technically supported by BLAST and COSMOS systems; they link the shops and warehouses, facilitating the goods transit between them. The former is a system by which LA would be expected to improve its global delivery, as it would smooth the way of preparing invoices and tracking cartons for dispatch. COSMOS, a tracking system that is linked with LA's Shop Stock and Warehouse Inventory System, would provide complete information on inventory from order through delivery. Thus, LA would be able to supply its shops throughout the world at any point in time, which was called GIT (Goods in Transit), realizing Baker's notion of 'global inventory' (Dornier, Ernst, Fender, Kouvelis. 1998: 202). It will simplify LA's supply chain and make the goods visible to the key players, increase the goods supply speed throughout the world, and reduce the distribution costs.
BLS's technology is also characterized by international transportation network and a Warehouse Management System (WMS), which integrated transportation services, computer services and warehousing services. This integration would dynamically monitor labor scheduling and control, product flows and tracking, storage management, quality of performance (Dornier, et.al, 1998). BLS's logistics expertise would offer a competitive advantage. Its warehousing and information systems would prove to be "real value-added" (Dornier, et.al, 1998).
Finally, a series of major software systems are introduced to LA as common systems to be implemented: a merchandise planning system, an electronic point-of-sale ("EPOS") system, a global purchase ordering system, a group finance/executive information system, and a manufacturing and U.K.distribution system. PC-based POS registers are installed in every shop, which would make shared data accessible.
In a word, BLS and Federal Express's ICTS systems will give LA clarity, simplicity and the transparency, these technologies would give strong impetus to LA and BLS's shared communication and mutual development.
4. THE NATURE AND SCOPE OF INTER-ORGANISATIONAL RELATIONSHIPS
The Nature - Strategic Alliance
Inter-organizational relationships refer to the structural and functional relationships between organizations in terms of financing, marketing, logistics, and HR, etc. Based on this definition, the inter-organizational relationships between LA and BLS refer to their strategic business partnership in nature.
The nature of the strategic alliance decides that LA and BLS will enjoy shared interests from each other's advantages. By outsourcing its inefficient logistics system to BLS, LA will concentrate on its core competencies with advanced technologies provide by BLS. BLS in turn, will share LA's worldwide products and customers. Both parties can foresee a promising future.
The Scope of Inter-Organizational Relationships
The scope of LA and BLS's strategic relationship can be generalized in the following aspects: (1) human resources, (2) logistics systems, and (3) information technologies.
A jointly cross-functional project team was organized; it is known as the steering committee, which comprised key managers from both companies with the aim of working out the solutions together for the two companies' future.
Moreover, LA outsourced its logistics systems to BLS and a new company was established - LA Distribution Ltd managed by BLS, which will manage all aspects of LA's distribution, including warehousing, transportation, inventory and delivery. At the same time, LA closed two warehouses. Thus, a strategic partnership was formed, which would be assured under the principle of "transparency, cooperative venture'.
Finally, LA integrated BLS' advanced information technologies, including BLAST and COSMOS systems and other major software systems, such as a merchandise planning system, a group finance/executive information system, an electronic point-of-sale (EPOS) system, a global purchase ordering system, etc.
5. CREATION OF 'VALUE' THROUGH LEVERAGING OF "CORE COMPETENCIES"
The strategic alliance between LA and BLS created both risks and values by leveraging their core competencies. This section will examined different perspectives of these competencies by analyzing new values created by LA and BLS respectively.
Values for Laura Ashley
LA demonstrated an ability to focus and develop its core competencies, particularly when realized that "distribution was not a 'core competence' by allowing its worldwide distribution to BLS. Doing so, LA would engage ample human and financial resources to its core activities including brand product development, product varieties promotion, and worldwide customer service. In the long run, LA's competitiveness in the changing global market would be increased.
By leveraging its core competencies, firstly, LA transformed its ineffective information and distribution management system into two effective systems. Taking advantages of FBL's global transportation service and its advanced warehousing and information systems, which focus on sophistication in its physical operation, particularly inventory system end-to-end, LA shifted its focus from independent inventory, systems, and merchandising, which isolated LA's internal business chains, such as supply chains, to the integration of technology and business chains. This managerial change would increase LA's inter communication among different sections, provide accurate information of product supply, and trace its service to customers. These would finally enhance LA's competition in global marketing.
Secondly, LA lowered its cost in logistics management. It established a new company, LA Distribution Ltd., selling it to BLS, which would manage all aspects of LA's distribution, and closing two warehouses. This structural change reduced LA's cost on human and financial recourses to a great extent. Accordingly, two centers - UK Process Center (previously known as Newtown Wales), and Satellite Process Center were established to monitor and manage all product flows and the U.S. market with a high-tech network and an accurate information system, assuring LA's overall quality service and lowering its cost.
Thirdly, LA enhanced customer service quality. It established two systems, BLAST and COSMOS in 1993, which would track and assure product service. The two systems offer in time, and 24-or 48-hour delivery with an efficient transportation system, shortening delivery period to the customers. Such a strategic change would improve LA's service quality to its customers; LA would cease suffering from its old problem such as "broken promise to customers' satisfaction".
Values for FedEx's Business Logistic Service
Firstly, the strategic alliance would promote the development of BLS in the future. LA's global business enables BLS set foot in European market and get access to clothing business. Therefore, the strategic alliance assists BLS to establish the "global nature of business" in future.
Secondly, BLS would increase its revenue. LA is an international company with worldwide customers; more customers would be attracted by BLS's effective, in time service. Consequently, it would enlarge BLS's reputation. With the long-term cooperation and mutual efforts, BLS would gain more profit in the future.
To sum up, the two parties would both benefit from their cooperation and create their values respectively. FBL would expand its business through sharing information with LA, while LA would improve its managerial system by utilizing the advanced logistics management of FBL. Furthermore, LA streamlined its distribution system, allowing more resources and energy to focus on its core competencies, such as brand development and product variety.
6. RECOMMENDATIONS AND RATIONALE REGARDING FUTURE DIRECTIONS FOR LAURA ASHLEY
It is essential for LA and BLS to maintain a long-term strategic alliance partnership. Re-examining the strength and weakness after the strategic alliance of BLS and LA is necessary. The primary strength of the strategic alliance is the sharing of accurate and immediate information, advanced technology and human resources. The weakness lies in potential risks and uncertainties hidden in the dramatic structural and managerial changes caused by the alliance. Another strength is that LA and BLS will tremendous benefit from their alliance in terms of supply chains, product development, inventory and logistic management. Clearly, the advantages outweigh the weakness. Both companies need sufficient time to cope with the structural and managerial changes, and the great development potential to be allowed by each party evinces that LA and BLS should maintain a long-term strategic partnership.
Secondly, LA should reinforce its inbound logistics management, ranging from infrastructure, application system to supplier network; at the same time, supervise its outbound logistic system, which was taken over by BLS. Dosing so, LA will increase the quality of its products and avoid obsolete information regarding manufacturing. Supervising BLS's transition of products to end customers also is necessary, it is an effective way of monitoring the overall distribution system.
Equally importantly, LA should ameliorate its internal management by simplifying its overcomplicated structure. In terms of the partnership nature, it is suggested that both parties strengthen common interest in stead of focusing on their owns to assure a win-win situation; regularly evaluate their relationships and performances to make amendments and avoid potential risks.
7. SUMMARY OF POTENTIAL RAMIFICATIONS
The success of the strategic alliance would bring substantial benefits to both LA and BLS. LA could cultivate core activities; focus its resources where it could add the most value, such as brand management. Their collaboration would help LA save working capital and distribution cost significantly, improve customer service levels, thus, enhancing its competitiveness in the market and consolidating investors' confidence. BLS would not only utilize existing international loading capacity but also explore its business in a new large market with tremendous future growth potential. LA and BLS could both concentrate on their "core competencies" and form a "win-win global business partnership".
Despite the opportunities, there are also some drawbacks and risks with outsourcing. For LA, the risks lie in its entire operations infrastructure; the failure of the alliances means the continuation of LA's ineffective distribution. While BLS risks its reputation for reliability as there might be a tremendous set-back for the idea of "partnership".
Although the strategic alliance could help both parties to achieve synergy effects, a long-term fruitful cooperation cannot be guaranteed. A failure in the coordination could ruin the partnership. LA could probably re-evaluate and re-organize the relationship with BLS if BLS cannot reach stated performance criteria and/or cannot sustain mutual trust and commitment. Accordingly, unnecessary costs will be generated. The worst possibility is the ending of the collaboration. In this case, both LA and BLS would be pushed into dramatically embarrassed situation.
As an international logistics company, FedEx could probably leverage the idea of "global partnership" and align with several other companies to establish the global nature of its business. Because both parties left the potential of the deal open, the unique competitive advantage gained by LA might be counteracted by BLS and LA's competitors in the future. In this situation, LA's competitiveness would be weakened. Equally, LA could also seek other qualified logistics companies who could provide varied services and set up a multiple alliance network to reduce the strategic risks that might be caused by single alliance.
8. CONCLUSTION
Identifying the various problems, particularly the inefficient logistics problem caused by duplicated information systems and inefficient inventory management, LA successfully formed a strategic alliance with BLS to solve these problems. However, both parties cannot ignore the potential risks, which will take more efforts to deal with so as to maintain a long-term strategic relationship. This relationship would assure LA to utilize BLS's technological resources to streamline its distribution system and improve its customer service significantly. BLS in turn could establish its global market, and align it with a well-respected consumer franchise. Thus, a win-win situation can be foreseen through their mutual trust and commitment.
References
Dornier, Ernst, Fender, Kouvelis, P. (DEFK) 1998, global operations and logistics: Text and Case, John Wiley& Sons, New York.