Operational chain management analysis

2009-10 has been as a year of very drastic change in finance and world economy, which has impacted on all developed and developing country harshly. Supply chain management is basically management of providing services and products to the consumers, It’s a management of the relationships and flows between the ‘branches’ of processes and operations that produce value products and good quality services for the customers. Cox (1997) has described that supply chain management is a way of thinking that is devoted to discovering tools and techniques that provides for increased operational effectiveness and efficiency throughout the delivery channels that must be created internally and externally to support and supply existing corporate product and service offering to customers. Every active and responsive company in chase for development and expansion tends to improve their competitive strength by getting the best from its business functions and creating an effective and efficient supply chain. Morrisons supermarket chain is facing the same environmental turbulence and uncertainty. To achieve superior performance and observing the rapidly changing market places business leaders have alertly started working closely to their partners. Basically supply chain management is focused on how an organisation makes the most from their suppliers, technology, capability and processes to develop competitive advantage.

The management side of supply chain network, however, has largely strained from the logical traditions of logistic and operations management. Steyn (1989) has illustrated that the ultimate purpose of research is to generate useful knowledge for managers. As per my opinion the assumptions about the role of research and its relationship to managerial practice is the main cause for these problems which all organisations facing presently to developing the field of supply chain.

Brief Company Profile and the Supermarket Industries

Supermarket governs UK food retailing business, with a growing number of brands jumping up all over. With such circumstances, consumers are offered with different variety of products and their substitutes from which to choose from thus increasing their expectation for a better price, quality and customer services. Hence, the competition level is very strong among these supermarkets,

Morrisons supermarket is UKs fourth largest supermarket chain and a Public Limited Company. Morrisons supermarket chain was established in 1899 by William Morrison. Morrisons supermarkets has moved up to the UK food chain with the acquisition of its larger rival Safeway Plc. The acquisition gave Morrisons increased its store count to about 425 supermarkets from just 125 when it hit out UK supermarket giants Tesco which is the UK’s #1 food retailer and ASDA(Owned by Wal-Mart ) in a extremely contested takeover battle. Currently Morrisons have 425 stores and 134,000 colleagues across the UK. Recent study says Morrisons serving 10 million customers per week which is increased by 12% than the year 2008-09. In year 2009-10 the Total turnover was £8.1bn and increase of 9.1% compares to the previous year excluding fuel, store turnover was up 5.8%. Profit before tax was £412m. ( www.morrisons.co.uk)

According to Phillip Dalton CEO Morrisons three observation stand out: Morrisons is a world class retailer; it has real and positive differences in its fresh offers; and there are many opportunities ahead to drive our top line, increase efficiencies in the business and to capture growth. Despite of the highly competitive nature of market Morrisons has won the Grocer Gold Award for the current year 2010. (www.morrisons.co.uk)

In this paper we are going to study how Morrisons Supermarket chain manage their supply chain, the two main objectives of supply chain are operations and process. Basically operations are part of external supply chain as it manages flows between operations externally, and internal supply chain internally manages flows between processes.

In this paper we are going to study how Morrisons follows the practical approach of Supply chain and how they make a positive difference by developing entirely. There are three basic building blocks that Morrisons adopt to improve their brand value and make it a tough competitor to their rivals.

1) Operational Chain Management

2) Supply Chain Management

3) Value Chain Management

And at the end we are going to discuss how Operational chain and Value chain works parallel and how both of them have same importance in development of Supply chain of an Organisation by looking at the Operational supply and value chain mapping.

Operational Chain Management:

Operations strategy translates services or product plans and competitive priorities for each market segment into decisions affecting the supply chains that support those market segments. Operation management is “the planning, scheduling and control of the activities that transform input into finished goods and services” (Bozarth & Handfield, 2008). Corporate strategy provides the umbrella for key operations management decisions that contribute to the development of the firm’s ability to compete successfully in the marketplace. Once managers determine the competitive priorities for a process, it is necessary to access the competitive capabilities of the process.

Inputs

Transformation

Process

Outputs

Broadly speaking, Operations and supply chain management underlie all departments and functions in a business. Whether you aspire to manage a department or a particular process within it, or if you just want to understand how the process you are a part of fit into the overall fabric of the business, you need to understand the principles of operations and supply chain management. Operations serve as an excellent career path to upper management positions in many organisations. The reason is that operations managers are responsible for key decisions that affect the success of the organisation. In manufacturing firms, the head of operations usually holds the title Chief Operations Officer (COO) and the PLC like Morrisons have Vice President of Production. Reporting to the head of operations are the managers of the departments, such as customer service, production and inventory control, and quality assurance.

Figure 1 above shows the fundamental transformation process model in the Operation Management, whereas figure 2 introduce how Morrisons uses their Raw materials and get outputs. In form of raw materials Morrisons have Seeds, compost and fertilisers and Packaging Materials, Information in the sense of codes and use by dates and ingredients. People such as Farmers, Employees and marketing staff and last but not least required facilities and machinery like production farms and manufacturing plants and farming equipments which are quite significant to transform inputs into outputs such as Availability, range of food and non-food products, marketing and many more.

Outputs

Availability

Customer service

Range of Products

Marketing

Transformation

Process

Manufacturing

Operation

And Service Operation

Inputs

Raw Material (Seeds, Compost-Fertiliser, Packing materials)

Information (Use by dates, Ingredients)

People (Farmers, Employees)

Facility and Machinery(Production farms, Manufacture Plants)

Figure 3 shows operations as one of the key functions within an organisation. The triangular relationships in figure highlight the importance of the coordination among the three mainline functions of any business; namely, operations, marketing, and finance. Each function is unique and has its own knowledge and skill areas. [Krajewski, L.J, Ritzman, L.P, and Malhotra, M.K (2010), p24],

Product & Service outputs

Support Functions Accounting, Information system Human Resource Engineering

Finance

Acquiring financial resources and capital for inputs

Marketing

Generates sales of outputs

Operations Translates materials and services into outputs

Materials and Service Inputs

Sales Revenue

Operations principle: the way in which processes need to be managed is influenced by volume, variety, variation and visibility these are called the ‘four Vs’ of processes. However, processes also defer in terms of the nature of demands for their products or services. (Cowe A. et al., 2010, p221). As we can see in the figure 4 we have compared Morrisons with its giant rival Tesco. In terms of Volume Morrisons is low than the Tesco because Morrisons have low number of stores than Tesco and try to saves hours by improving productivity the staff members are more multi-task than the specialised, thus makes morrisons staffs likely to perform a wide range of tasks and its more rewarding but less open to systemization. Whereas Variety wise Morrisons low as well because of be in the competition they needs to keep their prices low and that’s how they have routine task and limited resources thus limited products and services. In terms of Variation in Demand Morrisons is higher than Tesco as Morrisons just have their stores in UK and not in Global its resources are stable and manages with the predictability and meeting demands easily. In case of Visibility Morrisons is low again as they have limited stores compared to Tesco and limited Resources give a poor reputation in society and thus Morrisons have low customers than Tesco which shows low visibility.

Morrisons Implications

Tesco Implication

Porter’s five forces

Five forces analysis is a technique for identifying and listing those aspects of the five forces most relevant to the profitability of an organization at that time. As Porter (1980a, 1985) described the ability of a firm to earn an acceptable returns depends on five forces – the ability of new competitors to enter the industry, the threats of substitute products, the bargaining power of buyers, the bargaining power of suppliers and the rivalry amongst existing competitors. Figure 5 shows Porters five forces analysis.

Potential Entrants

Substitutes

Buyers

Suppliers

Industry Competitors

Rivalry among existing firms

Bargaining power of suppliers

Bargaining power of Customers

Expanding stores and substitutes

Threats of new Entrants

Here we are going to see how Porter’s five forces applicable to Morrisons.

Difficulty to enter in retail business:

Based on Porter’s model, the existing firms in the industry might put forward a struggle by having discouraging new entrants. There is hence a high threat of new entrants since the industry is highly intense. It is unlikely that new companies enter the industry, as there are problems in accessing supply channels. The exceptions are entries through mergers and acquisition or purchase of existing real estate.

A convenient way of expanding stores:

Threat of substitutes one of the Porter’s five force. There are major competitors from other rivals, restaurant, takeaways, and convenience stores, all the leading supermarket have found ways to battle these competitions. Expanding into convenient stores like Tesco Express and Sainsbury’s Local gave supermarkets’ a new trend in retailing. Thus the threat of substitutes challenges Morrisons to expansion to convenient stores.

Allowing Internet shopping for customers:

One of the chief forthcoming opportunities Morrisons was awaiting for is, Online grocers and family-run convenience stores been targeted by Morrisons-CEO Phillip Dalton, as U.K’s fourth largest supermarket chain outlined its plan for expansion. An, internet delivery service would increase competition with market-leader Tesco and other rivals with web operation including Ocado. (Metro-UK, 10/09/2010, 51p)

Low bargaining power of customers:

In retail business Customer is the King and always right, Customers have low bargaining powers. Truth behind this is supermarket shopping is “One-go” shopping. There are numbers of different supermarkets in their local area. Lower coast is advantageous to companies in the market.

High bargaining power to supplier:

It is mandatory to state that High bargaining power to suppliers gives company an opportunity to gain more profit. The marketing gurus of the leading supermarkets have long integrated and quality network with supply chains, and as a customer company have numbers of suppliers to choose from for the best offers. Because supplier also have a threat of losing a loyal customer (the company), allows company a high balances of economy to keep low expanses hence low prices.(Talaviya,P. (2010)CCA assessment-1)

Supply Chain Management:

Supply chain management is one of the significant and essential functions of the firm. It concerns with flow of information as well as the flow of products and services. It is a management of relationship between operations and processes. The notion of supply chain applies to the internal relationship between processes as well as the external relationship between operations. Overall it is a management of activities and relationship which intends to achieve maximum customer value and sustainable competitive advantage. (Cowe, Andy et al, 2010)

In order to know supply chain thoroughly we need to know types of supply chain and how it can be managed. External Supply Chain manages flow between operations externally, whereas Internal Supply Chain manages flow between processes internally. The very stable and Functional supply chain is appropriate for an efficiency and stability for the firm and predictable called Lean Supply Chain, whereas the Supply Chain which is responsive to the demand side are more appropriate for less predictable innovative product and services called Agile Supply Chain.

First-tier supplier

Second-tier supplier

First-tier customer

Second-tier customer

Demand side

Supply side

Purchasing and supply management

Physical distribution management

Logistics

Materials management

Supply chain management

Phyical flow

Information flow

End Customer

Farmer

Developer

Distributors

Retailer

Consumer

Supply Chain Objectives:

The objective of supply chain management is to meet the demands of end customers by supplying appropriate products and services when they are needed, at a competitive price. Doing this requires the supply chain to achieve appropriate levels of the five operations performance objectives – quality, speed, dependability, flexibility, and cost. In case of Morrisons the supply chain includes the following significant areas:

Order Management

Inventory Replenishment

Physical handling and Transportation

Exchange of Information

The ultimate purpose of these objectives are to drive out unnecessary coasts, eliminate bottlenecks, remove areas of duplications, re-engineer inefficient processes, look at best practice through the use of automation as and when necessary and create the “Value links” so that the whole chain can be managed with a win/win approach. (Asmus, D. and Griffin,1993 pp66-78)

Upstream Logistic Supply Side:

This Section looks at practices exhibited by Morrisons in the retail sector, in their attempts to become more competitive through the effective development of closer partnerships:

Morrisons

Morrisons measures the effectiveness of its supply chain through a service goal (Full on-shelf availability to its customers) and a cost goal (minimising cost of achieving service goal). The additional changes are a time measure and a measure of supplier performance. So measurement from a customer perspective looks at:

On-shelf availability

Timeliness of deliveries

From a supplier perspective:

Order fulfilment

Timeliness of Deliveries

Benefits from using quick response at Morrisons have, so far, led to the following benefits:

90% of what is sold is delivered to Morrisons stores using their own distribution network and operating on a 24 hour lead time basis;

Inventory and forecast management systems have been greatly improved for the replenishment of Morrisons warehouses;

Better sharing of information with suppliers to enable them to become more effective;

Rolling out sales-based replenishment systems to improve stock management and reduce stock thus less Waste and markdowns.

EDI transfer to all suppliers to help improve the supply chain by:

-Transmission of forecast orders

-Advance notification of delivery shortages

-Transmission of invoices

-Exchange of stock and product data

Through the use of a Phegasus programme, the collection of goods from suppliers reduces coast and increases flexibility;

Automated technology gives flexibility and improves productivity. The use of an automated rotation system in fresh foods operations has been very beneficial.

Downstream Logistics Demand Side:

Whilst retailers have recognised the need for getting closer to their suppliers and working towards a win/win approach, suppliers to the trade sector have also recognised the same need and several attempts have been made by various suppliers to develop closer relationships with their trade customers. One aspect of establishing effective working relationships with the trade is through building closer ties with the suppliers at the downstream end of the spectrum. Logistics management is ” that part of supply chain management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements” (Bozarth and Handfield, 2008, p.363).

Hammer (2001) argues that as business become accustomed to the customer economy “process thinking” Becomes essentials:

In order to achieve the performance levels that customers now demand, businesses must organise and manage themselves around the axis of process; moreover, they must apply the discipline of process even to the most creative and heretofore most chaotic aspects of their operations.

Hammer (2001) adds: Processes are what create the results that a company delivers to its customers, he continues by providing a customer economy definition of a process. He offers: “…an organised group of related activities that together create a result of value to customers”

The second step is to revalidate the notion of the demand chain as a separate entity from the supply chain. To this end the following definition of demand management may add some direction: an understanding of current and future customer expectations, market characteristics, and of the available response alternatives to meet these through the deployment of operational processes. In this sense the demand chain is a practical description and analysis encompassing all those processes within the firm which adopt and apply that philosophy. ( Rainbird, M. 2004)

Value Chain Management

Value chain is a significant part of Supply Chain Management; on the whole the notion of Value Chain was recognized by Porter in 1985. According to Porter a value chain “divides a firm into the discrete activities it performs in designing, producing, marketing and distributing its product. It is the basic tool for diagnosing a competitive advantage and finding ways to enhance it” (Cowe A. et al., 2010).

Porter introduced two major activities according to the organisation needs, first major Activities consist transformation of inputs which are: inbound logistics, operations, outbound logistics, marketing and sales and services. And second minor activities which are: firm infrastructure, human resource management, technology development and procurement, which are mainly in support to primary activities (Cowe A. et. al 2010). Value chain analysis makes possible for the organisation or management to find out activities which adding value to the organisation. An accurate management of value chain make easy for managers to judge which activities are more crucial and more beneficial to customers to increase as well as the value of products/services and profitability of an organisation.

Figure 8: Michael Porter’s Value Chain (1985).

It is significant to know that how Morrisons has carried out activities to help them to improve value of their product and services to the customers satisfactory level that can compile Morrisons competitive advantage. Morrisons is UK’s fourth largest supermarket chain and fifth largest food manufacturer, Morrisons have their plants and skilled teams across the country that process, produce and provide the award winning products that loved by their customers. From skilled food processing to preparing fresh fruits and vegetables, meat or oven ready food Morrisons constantly looking at ways to enhance their highly successful range to meet the customers’ demands.( www.morrisons.co.uk,)

Firm Infrastructure: UK’s fourth largest Retail Company, Subsidiaries, mergers and acquisitions

HRM: Training, Morrisons Academy, Sales force

Technology Development: Phegasus, IQM, Intranet, Equipment, RFID

Procurement: Procurement management team

Marketing and sales

Good Promotion of products, Advanced sales force, Attractive packaging

Operations

Key factors, High quality production, Environmental factors, Know usage of equipment

Inbound logistics

High variety of suppliers chosen by criteria that assures more profit

Outbound logistics

High quality and well organised warehouses, High variety of distributors

Service

Customer service, Morrisons Academy, Health and safety programmes

Margin

Figure above shows how Morrisons manages their Value chain by adopting these activities,

Support Activities

Firm infrastructure: As mentioned earlier in the introduction Morrisons become 4th largest supermarket and taken over from Safe-ways helped Morrisons to become a threat to their competitors like Tesco, ASDA and Sainsbury’s

HRM: Morrisons provides essential training like First-aid and Health & Safety as it’s a legal requirement apart from those Morrisons have their own Academy to train professional employee and have courses like Food specialisation, Equality and Diversity. Morrisons helped UK government and local agencies by recruiting 8% more than any other supermarket in UK in recession year 2009-10.

Technology Development: Morrisons has recently launched Phegasus system which does all the stock and orders itself to improve their demand side and faster delivery. Morrisons introduced IQM (Intelligent Queue Management) technology in year 2009 to help their customers in faster services than waiting in the Queues for longer. As a part of checkout scanning Morrisons use very intensive RFID for their customers.

Procurement: Morrisons have their procurement team that select appropriate suppliers to get freshest quality and fastest delivery to improve their brand value.

Primary Activities:

Inbound logistics: Morrisons always choose a supplier which meets their criteria for more profitability and good quality.

Operations: By always following their key factors Morrisons assures good quality production for adding more value to their brand.

Outbound logistics: Morrisons have their well organised warehouse with advanced technology and high variety of distributors to make faster and easier deliveries.

Marketing and Sales: Well presented stores with brand promotions Morrisons gives attractive Newspaper adverts with competition vouchers helps a lot for brand value.

Services: Morrisons reputation for customer services is not impressive to improve their services they have introduced Give me five to their employees for better communication and quality and satisfactory services to their customers.

Operational supply and value chain mapping

Given this, it seems clear that what practitioners require is a proper indulgent of the types of supply chain that exist. Early trials to create a typology of supply chains have been mainly evocative. Saunders, for paradigm, in taking issue with the logical approach pioneered at the CBSP, has challenged the case for an evocative typology of supply chains depended on differentiating between production items, consumables (MRO), capital equipment, goods for resale and services(Saunders, 1998). As practical as this approach is as a basic part of supply chains, it can be challenged that is suffers from an over-confidence on explanation over analysis. In general terms, it can be challenged that supply chains must exist as structural properties of power. By this one means that the physical resources that are crucial to create a supply chain will subsist in varying states of contestation. This contestation will be based on the horizontal competition between those who compete to own and control a specific supply chain resource, but it will also be based on the vertical power resist over value requisition between buyers and suppliers around significant supply chain resources as well as the horizontal contestation between direct competitors, is it likely to appreciate the genuine strategic and operational environment within which companies and entrepreneurs have to function.

The value chain exists in comparable with the supply chain and refers to the flow of revenue stream for each phase of the supply chain. The supply chain and the value chain thus subsist in a fundamental exchange relationship (Cox, 1997a). Figure 10 confirmed the relationship between these two.

There are three things we need to understand in order to begin the analytical categorisation of supply chain, as we can see in figure 10 it indicates that first we need to understand the physical resources which are required within the supply chain to create and deliver a finished product or service to a customer end. Second thing we need to understand and which is essential is the exchange relationship between specific supply chain resources and the flow of revenue in the value chain. Third the last but not least we must have acknowledge what it is about the ownership and control of particular supply chain resources that allows certain resources to command more of the flow of value than others. In acknowledgement of this, the process of analytically mapping the properties of power within supply and value chains can initiate. (Evans, J. R. and W. M. Lindsay, 2002, p54)

THE VALUE CHAIN

In which of the flow of revenue is appropriated by particular supply chain resources through “value in chain”

End consumers providing 100% of the revenue to create the value chain that sustains the supply chain

Raw materials without which commodities and supply and chains could not be created

THE EXCHANGE RELATIONSHIP

Between resources supplied and how much value they are capable of appropriating

THE SUPPLY CHAIN

In which particular resources are combined in order to create and deliver specific product and services to end customers, who derive “value in use” from the consumption

Conclusion:

The theoretical contribution of this paper to the nature of Morrisons supermarket chain and their supply chain relationship is threefold:

We have compared and examined the differences between Leading supermarkets and Morrisons in terms of Four Vs and Porter’s five forces;

We have identified how operation chain and value chain is essential for supply chain in all organisation and how they work parallel;

We have shown an upcoming Opportunity for Morrisons in terms of allowing online shopping to end customers

All the models and figures presented in this paper give a knowledgeable insight and perceptive of the active changes that can alter Morrisons within their supply chain relationships. The operational supply and value chain mapping presented in this paper may be helpful to leave its footprint for operations and in planning future transitions. In such way Morrisons management may take logical steps to implement desirable growth paths through specific management practices which utilize appropriate inter and intra-organisational capabilities.