Case Study - Supply Chain Management and Logistics

Prepared by: Ahmed Hashim Fadhil

Learning Outcomes

1.    Understand the importance of supply chain management and logistics. 2.    Know the structure of a robust supply chain. 3.    Understand how to develop an efficient and enhanced supply chain. 4.    Understand the significant positive and negative factors involved in supply chain and logistics in an international context.

CASE STUDY

Argos is the largest non-food retailer in the UK market with annual sales close to 4.3 billion British Pounds (equivalent to  5.4 Billion Euros).    The company sells a wide range of electrical, home, garden and DIY products through its catalogue, website and through its shops in UK and Ireland.

Faced with significant growth, Argos wants to increase product availability and reduce costs.  Argos is dealing with a rapidly expanding product range and increasing price competition in many core product areas.    Being a catalogue retailer, the catalogue is in fact, an all season promise of product availability to the customer.   It means Argos has to stock the product all throughout the season.  Security of supply and pick accuracy are important.

Argos has decided to centralise the distribution of small items to increase the national availability by concentrating supplier deliveries to one site and improving picking efficiency.   At the same time Argos also wants more control and continuity of supply of direct imports, which makes up the growing proportion of the product range. 

Go through the above case and answer the following questions :

1.1 Explain the importance of effective supply chain management in achieving      the organizational objectives of ARGOS.

   

1.2 Explain the link between supply chain management and business functions in ARGOS.

1.3 Discuss the key drivers for achieving an integrated supply chain strategy in ARGOS.

2.1 Explain the role of logistics in supply chain management in ARGOS.

2.2 Evaluate procurement practices in ARGOS.

2.3 Discuss the factors that must be considered when improving logistics and procurement practices in ARGOS.

 

Note :

1.1 Explain the importance of effective supply chain management in achieving the organizational objectives of ARGOS.

The common objectives of Argos supply chain are:-

• Reduce overall lead time
• Support Argos in maintaining their Lead Time promise to the end customer of 7 days
• Increase reliability of supply to the end customer - delivery on time in full
• No increase in cost to customer to achieve short term lead times
• No to increase stock in the chain as this equals a risk of obsolescence, increases costs and will take up more space
• Efficient total supply chain
• Understanding all parts of the process and how can work together

The main roll of supply chain is the communication in two ways, external between customer and Argos and Argos to supplier, internal between supply chain and other functions inside the cooperation.

Argos’ customers can be shopped at a retail outlet or placing orders over the internet or by phone. To service customers effectively in this multichannel environment, Argos must ensure stocks to be in the right items at the right locations and with good quality to meet customers’ needs. Optimizing inventory levels across its supply chain creates a significant challenge for Argos. The scale of its retail chain combined with the huge merchandise assortment it carries and the seasonality of its business creates enormous complexities for Argos’ planners.

The challenge of Argos how ensure that merchandise be available on time to customer and how to be maintain that though suitable channel of communications to convert the customer feedback to demand this demand process by procurement department, logistic and warehousing teams.

In 2001, Argos introduced Replenishment And Core Operations (RACO) program that aimed to repair the inheritance supply chain solution with a complete modernization of its inventory management processes and information systems. Argos selected Oracle Advanced inventory Planning and Oracle Retail Merchandising System as the optimal solutions to support its goals. Through RACO, Argos was able to modernize its replenishment process leading to reduced inventory levels without disruptions to serviceability, benefiting both Argos and its customers.

The other Argos challenge set up the strategy  to efficiently manage the flow of merchandising from an wide base of more than 750 suppliers to any of the distribution centers throughout the UK . Argos selected UPS Supply Chain Solutions for this purpose, more specifically a solution called "Nominated Carrier Scheme". This system helps Argos to ensure merchandising is in the right place at the right time at same time reduce Argos vehicles in the road.

1.2 Explain the link between supply chain management and business functions in ARGOS.

The wide items contain in Argos need efficient Supply chain to provide information to different functions to achieve the aims of Argos. The natural of information should be accurate and on time.

The information gathering form market (customer) to categorize customer needs in order to feed procurement department, study warehouse space requirement, make price and promotion policy and make logistic plan controlling by finical team and the feedback from customer to supply chain through the customer service or market team.

Argos utilizes modern technology to manage sales and operation plan (S&OP). it allows analyze forecast to meaningful  figure, convert it to demand and make operation plan to procure goods need from multi suppliers, warehouse space allocate in each outlet than make price and promotion strategy and logistic plan which can divide it local and international plan also will be in two ways between supplier and Argos than Argos to customer via allocated budget  by finance department.

1.3 Discuss the key drivers for achieving an integrated supply chain strategy in ARGOS.

For domestic and international companies – consists of managing global suppliers by coordinating orders and delivery schedules, conducting inspection and quality control of products, consolidating shipments, providing financing tools and varied Incoterms.

The main objective for supply chain strategy is to provide goods to customer with lower price possible and shorter time to utmost shareholder and increase profitability. There are nine key trends create significant impact and changes to supply chain performance and design:

}  Emerging markets

}  Competitors

}  Short product life cycles,

}  Global supply networks,

}  Facilities

}  Inventory

}  Sourcing

}  Pricing

}  Demanding customers.

Will explain shortly each of each one:-

}  Emerging markets:

Argos as global co. not looking only to trade in UK but of UK border to increase the profitability therefore it goes to wide wise market like 3^rd world market though introduce new catalogue  and supply by use internet. This is be challenged for supply change to deliver the goods to those customer with lower price and short time to have trust and repeat order of those customer.

}  Competitors

The principal of supply more then demand become fact day by day that means suppliers increase day by day. The best way to gain share holders is by provide best service to customer which can`t happen if don’t have strong supply chain strategy. Argos supply chain not looking to sales the good but to the service after sales because of that customer have trust of Argos.

}  Short product life cycles,

Argos techniques known as cross docking. Using cross docking, products are routed from suppliers to Argos main warehouses or branches directly without setting for long periods of time as inventory. This strategy reduced Argos’s costs significantly and they passed those savings on to their customers with highly competitive pricing.

}  Global supply networks

Increasing product/service complexity, outsourcing and globalization have led to increasingly complex, dynamic supply networks. This has impacted on risk, changing it and changing its location in supply networks.

  As a resilient supply network should align its strategy and operations to adapt to risk that affects its capacities, the achievement of resilience should be reached from these two points of view.

-            Strategic resilience

From the strategic resilient viewpoint, a supply network must dynamically reinvent business models and strategies as circumstances change. It is not about responding to a one-time crisis, or just having a flexible supply chain. It is about continuously anticipating and adjusting to discontinuities that can permanently impair the value preposition of a core business with special focus on delivering ultimate customer centricity. Strategic resilience, therefore, requires continuous innovation with respect to product structures, processes, but

-           Operational resilience

In terms of operational resilience, the supply chain must be flexible for the change happen in world either ups or downs of the business cycle, the response should be quickly.

}  Facilities

The available in Argos very significant and impact positively supply chain activity by available very customer feedback and analyze customer demand moreover the logistic and warehouse facilities make work supply chain more smoothly.

}  Inventory

Argos always makes the produces available at main warehouse as well as at distribute center in same time have short live cycle as inventory, means the products should not be long time in warehouse that will reduce inventory. Argos have policy either direct supply from venders to customer or order base on demand which gather from market.

}  Sourcing

Argos Sc establishes strategic partnerships with most of their suppliers/ vendors, offering them the potential for long-term and high volume purchases in exchange for the lowest possible prices.

Argos develops international suppliers to obtain cost reduction and to implement a reliable supply chain.

}  Pricing

The company directly procured from manufacturers, by passing all intermediaries and it finalizes a purchase deal only when it is fully confident that the products being bought are not available elsewhere at a lower price.

}  Demanding customers.

Accuracy of customer demand helps Argos supply chain a lot because of that it gives attention by verify this demand upon of historical demand and change in global economy.

2.1 Explain the role of logistics in supply chain management in ARGOS.

The big retail organization like Argos supply chain can`t achieve the goals mentioned earlier unless they have efficient logistic because the information provides by supply chain need to be implement on the ground.

Provide service to customer of 750 retail warehouse as well as order on line with more than 11000 items, they need understandable logistic strategy to succeed supply chain by optimizing flows within organization.

The challenge for Argos was how to receive merchandise from an extensive base of more than 750 suppliers efficiently. The distribution challenge was complex—each supplier made its own

Arrangements for transportation, using supplier-specific documentation and subject to standard industry lead times. The diverse supplier base and differing methods of presentation and delivery led to the current retail distribution solution between Argos and UPS Supply Chain Solutions, under the banner of the ‘Nominated Carrier Scheme’. This solution has been such a success that UPS Supply Chain Solutions now provides logistics services for in excess of 200 Argos suppliers with stock receipts from European and Far East locations.

The Nominated Carrier Scheme manages the flow of merchandise to any one of the Argos Retail Distribution Centers (RDCs) throughout the UK. The goods are validated by checking that the order is correct, consolidated with a number of other orders, and then sent to the retailers’ own distribution centre for final delivery.

Success system now handles 35% of all Argos’ inbound goods in the UK and reduces transportation cost by use less vehicles to dispatch.

To make its distribution process more efficient, Argos also made use of a logistics technique called “cross-docking.”In this system, the finished goods were directly picked up from the manufacturing plant, sorted out and then directly supplied to the customers.

Argos invested heavily in IT and communication systems to effectively track sales and merchandise inventories in stores across the country. With the rapid expansion, it was essential to have a good communication system. High communication helps customer and Argos to achieve both goals by reach the product to the customer in short time.

Employees at the stores had a hand-held computer which was linked to in-store terminals through a radio frequency network. These helped them to keep track of the inventory in stores, deliveries, and backup merchandise in stock at the distribution centers.

Argos was able to reduce unproductive inventory by allowing stores to manage their own stocks, across many product categories, and timely price markdowns.

Instead of cutting the inventory across the board, Argos made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most, while reducing the overall inventory levels.

2.2 Evaluate procurement practices in ARGOS.

Supplies, the first links in the supply chain, are creating the most of the value of products delivered by almost companies included Argos. At the present, short-term emphasis as well as long term, the procurement strategy must ensure each of those links is as strong and capable as possible on cost, quality and delivery in order to drive the goods to end customer with the lower price and batter quality. Argos follows below procurement practices in terms of products :-

1-      Argos accentuated the need to reduce purchasing costs and offer the best price to the customer, Argos directly procured from manufacturers, by passing all intermediaries.

2-      Argus finalizes a purchase deal only when it is fully confident that the products being bought are not available elsewhere at a lower price.

3-      Environmentally-Friendly Products Based on Green Procurement in order to make environmentally-friendly products, Argos aim to procure parts, materials, and equipment that have low environmental impact from suppliers that always give appropriate consideration to the environment.

4-      Soft ware uses by Argos have connection with relevant local supplier,  that enabled the suppliers to download purchase orders along with store-to-store sales information relating to their products sold. On receiving information about the sales of various products, the suppliers shipped the required goods to Argos’s distribution centers.

Moreover Argos procurement has policies follows in terms of supplier can be listed as below:-

1-      Open door competitions.

Argos deal with all suppliers equality. It doesn’t  look to supplier experience, size of the company  or nationality since this supplier provide the goods on time within lower price and ensure constantly supply.

2-      Build up Relationship with suppliers base on of common Benefit and Trust.

Argos realizes that an amicable relation of mutual benefit with their suppliers based on mutual trust.

Argos believes that it is essential to promote approachable communication with their suppliers by means of their procurement activities.

2.3 Discuss the factors that must be considered when improving logistics and procurement practices in ARGOS.

Any successful company like Argos have sturdy logistics and procurement strategies to confrontational other competitors. Importance Argos always considers and research for the factors to improve those factions.

The significant factor is the information, that way Agro keeps develop the system to increase the capability to collect the data, Analysis, processed and convert to information be available on time and accurately to take right decision. Such decision will save the cost and increase customer loyalty.

The logistic objective deliver the merchandise on time with good quality also should maintain acceptable level of inventory that way Argos have centralization warehouse house to distribute merchandise to the distributers in all UK base on the demand to secure arrival of items on time and maintain lower cost also have to carry multi transportation either own transportation our contract with specialist transportation companies to service over sea customers.

The factors considers by Argos to improve procurement practices after information which present by accurate demand is suppliers. Argos always focuses to research for new suppliers as well as develop and improve the relationship with existing also purchase from DIY. This will reduce the cost of items and ensure availability on time. The inventory control and store is also factor consider by Argos to reduce finial cost which reflect at the end on produce price.

Reference:-

1-      http://ec.europa.eu/enterprise/archives/e-business-watch/studies/case_studies/documents/Case%20Studies%202004/CS_SR05_Retail_1-Argos.pdf

2-   http://www.accenture.com/SiteCollectionDocuments/PDF/Argos_Long.pdf

3-   http://en.wikipedia.org/wiki/Argos_(retailer)

4-      http://www.argosforbusiness.co.uk/procurement/