The first component of the supply chain is production. In this case, since Argos is a retailer, production refers to the relationship it has with suppliers. It is obvious that Argos has great buying power over its suppliers and therefore the upper hand in all its backward relationships. “Buying power is used to push the costs and risks of business down the supply chain” (O. Brown 2005). The reason behind this is that Argos is usually the biggest buyer for its suppliers. Also, the existence of competition between suppliers, due to the nature of products, allows Argos’s managers to put pressure on quality improvements as well as reduction of lead times and prices. This gives Argos the opportunity to reduce costs and be price competitive, occupying the cost leadership position in the industry.
Another successful function in Argos’s supply chain is location. As mentioned above over 700 shops exist covering 98% of the population. This, accompanied by the comfort and convenience of home selection via the catalogue, offers a simple idea that wins a big market share of the industry. Furthermore as part of the location function, Argos uses a multichannel retail strategy to reach its customers. “A well-integrated multi-channel format enables consumers to examine goods at one channel, buy them at another channel, and finally pick them up at a third channel” (Berman et al 2004). In the case of Argos, customers are offered the different types of outlets for shopping mentioned earlier. Combined use of the different channels is also possible. Customers for example can browse products from the catalogue and then use the website or their phone to purchase it for store pickup or delivery. The successful use of multichannel retailing allows Argos to benefit from synergies as it leads to an increased customer base and added revenue. Overall the location component of the supply chain gives the opportunity for sustainable capture of market share.
On the contrary, some components do not function properly and can be viewed as weaknesses of the supply chain. Transportation for example which is “the significant link between the various stages in the supply chain” (J. Shah 2009) has created some inefficiency problems. The key transportation decision made by a firm is selection of mode. Argos managers have decided that road is the best mode as it offers greater flexibility. It is fast and cheap over short distances but at the same time highly dependent on congestion, therefore not completely reliable. This choice of mode is also determined by logistical relationships. As mentioned earlier, Argos uses a partly centralized system with a number of Distribution Centers scattered across the UK therefore the need for flexibility is vital for successful integration of the supply chain.
In theory a centralized distribution system allows for improved inventory management and less stock requirements at store level. In the case of Argos though, the inexistence of a completely centralized system leads to problems concerning inbound transport of goods at Argos’s Retail Distribution Centers. High traffic is observed mostly due to the diverse supplier base and differing methods of presentation and delivery. Trucks arriving are not fully loaded, increasing costs, and valuable time is consumed in sorting products in a coherent and easy to access inventory. This proves that Transportation and Inventory management are interrelated decisions. Therefore a firm has to evaluate the impact of transportation decisions on the total cost of the supply chain as bad decisions in one function of the supply chain will negatively affect other functions.
From the above it can be understood that transportation problems have hindered the efficiency of inventory management. “Inventory management is the branch of business management concerned with planning and controlling inventories and its main role is to maintain a desired stock level of specific products or items” (J. Toomey 2003). Being a catalogue retailer, the catalogue is in fact an all season promise of product availability to the customer; therefore Argos must ensure that it stocks the right products at the right locations to meet customer needs. Inventory managers are required to provide an accurate demand signal for an extended period of time and then match that forecasted demand to existing inventory stock levels across its supply chain to make the right procurement decisions. To achieve this strategy Legacy systems are being used. They are “socio-technical computer based systems that include software, hardware, data and business processes” (R. Seacord et al 2003). Despite having all the right components these systems are not very successful because they are not well integrated and optimizing inventory levels across the supply chain proves to be a significant challenge. The scale of the retail chain combined with the vast merchandise assortment and the seasonality of the business create enormous complexities.
First of all, many items are sold at a rate of less than one per week, making accurate inventory visibility almost impossible. In addition the seasonality of the business, for example Christmas holiday season when peak sales are 200% greater than the annual average, makes the anticipation of future demand requirements extremely difficult. Furthermore, Argos’s Legacy process requires separate weekly store level reporting that is then aggregated to determine replenishment requirements. Inaccuracies and inconsistencies created by the manual interactions involved in this process require Argos to keep additional safety stock to manage acceptable levels of serviceability for its customers. This makes inventory management even more complicated and increases cost as bigger floor space is needed to store this additional stock. Overall it can be observed that legacy supply chain systems cannot support the new inventory challenges faced by the company. According to Will Smith, program manager at Argos, “The legacy, mainframe-based merchandising and replenishment systems were developed many years ago and cannot provide the level of sophistication we require in a multichannel business environment.”
The above analysis has given us the opportunity to understand where problems exist in Argos’s supply chain and where solutions need to be introduced. Before doing so though, it is essential to understand that to optimize performance, supply chain functions must operate in a coordinated manner. Therefore management has to appreciate that changes made in one function of the supply chain will affect other functions as well. Also, in order to improve the supply chain efficiency dramatically, changes must be implemented in more than one of its functions so that smooth integration is achieved.
As far as the transportation component is concerned, Argos requires a system that manages the flow of merchandise to any one of its Retail Distribution Centers. It is therefore necessary to adopt a single system to assemble all the merchandise from suppliers and have them presented as one delivery. To achieve this, a new distribution center will be needed, which will be able to receive, validate and handle consignments from several hundred of Argos’s suppliers. The proposed system must work through direct computer links. It should electronically validate supplier merchandise against Argos ‘Order Book’ to confirm that the merchandise is required, consolidate it with a number of other orders and then send it to one of Argos’s existing distribution centers for final delivery. The aim of this system is to offer strong financial and organizational advantages to both Argos and its suppliers.
For the implementation of such a system though, Argos requires a complete modernization of its inventory management processes and information systems. Therefore change should occur at the inventory component of the supply chain as well, with the sole aim of optimizing order plans and synchronizing supply with consumer demand across multiple channels. The creation of a centralized hub of information is essential to support this process. With one centralized system, Argos’s managers will be able to work from a single view of stock levels, replacing the manual effort of aggregating and reconciling multiple stock balances from its disparate legacy systems. The proposed solution should also enable Argos to manage merchandise at a more detailed level by organizing it into item hierarchies, such as sizes.
The suggested alterations to the supply chain will lead to a number of benefits for all the parties in it. To start with, Argos will gain enhanced control of the supply chain, and higher visibility. All information about the products is entered into the system from pickup until the delivery is made so customers can track their goods virtually live. By merging deliveries together there will be a reduction in the number of trucks on the road as well as reduction of traffic in the Argos logistics and warehouse areas. This will have a positive effect on the environment which is part of corporate social responsibility.
Moreover, suppliers will benefit from these improvements to the supply chain. Using the scheme to consolidate goods for delivery far outweighs the financial and organizational burden of independently sending separate loads to different Distribution Centers across the UK. The improvement in supplier management processes will also increase collaboration between Argos and its suppliers, enabling the company to achieve incremental efficiencies across its supply chain well into the future.
Finally, more timely and accurate inventory information and decision making capabilities will allow stock levels to follow forecasts and project ahead of demand requirements. This will have two positive effects on the supply chain. Firstly, average stock levels will decrease which will in turn improve pick accuracy and reduce the floor space required. Secondly, improvements in stock accuracy should lead to increased stock availability at store level. The serviceability benefits gained from this will increase revenues. Overall, efficiency improvements and lower operational costs will be observed, creating a competitive advantage for the firm.
In spite of the numerous advantages gained from the proposed solutions, potential drawbacks arise as well. In order to introduce a new distribution center there is a need for extensive capital investment which will lead to a dramatic increase of fixed costs. Furthermore if the firm decides to put ‘all its eggs in one basket’ the risk of vulnerability underlies. For example, a natural disaster or an operational accident might have disastrous effects on the company’s stock levels and capital assets. Lastly, Argos might be faced with transition problems. Replacing the existing legacy systems with Advanced Inventory Planning is very time consuming and requires expensive labour training.
It is clear that the proposed alterations to the supply chain will bring greater benefit rather than harm to the firm. Accompanied by a carefully planned strategy to integrate the different parts of the supply chain Argos will be able to enjoy higher profits, the main target of any organization.
References
Berman, B. Thelen, S. (2004). Developing and managing a well integrated multi-channel retail strategy, International Journal of Retail and Distribution Management (Vol. 32 No. 3) pp. 147-156, Emerald Group Publishing.
Brown, O. (2005). Supermarket Buying Power, Global Commodity Chains and Smallholder Farmers in the Developing World, Human Development Report.
Christopher, M. (2005). Logistics and Supply Chain Management, Great Britain, Pearson Education Limited.
Seacord, R. C. Plakosh, D. Lewis, G. A. (2003). Modernizing Legacy Systems, Boston, Pearson Education Inc.
Shah, J. (2009). Supply Chain Management, India, Pearson Education Publishing
Toomey, J. (2003). Inventory Management: Principles, Concepts and Techniques, Massachusetts, Kluwer Academic Publishers.
