Success Of Sainsbury's Supply Chain Strategy example essay topic

Introduction This report will show how Sainsburys have used performance management to increase their ability to provide a quality service and gain a competitive advantage, it will also show how systems have been implemented to achieve this and what Sainsburys have changed in recent years to achieve the competitive advantage it was looking for, The main area Sainsburys have changed is there Supply chain which had a cost gap of around lb 60 million. It will also look at how the operations functions carried out by Sainsburys can be linked in with other areas of the business like Finance, Human Resource Management and Marketing. The main contents of this report will be based on the theory about performance management; it will start with a section explaining what the theory is and how it is generally applied in business. It will also contain my own experiences and insight into how operations have had an effect from my own viewpoint. It will have a conclusion on how I believe my experiences of operations management has helped me and or hindered Sainsburys. There will also be a report conclusion showing how I think Sainsburys operations strategies have evolved over time.

Theory This section will be looking at the theory which will be applied to Sainsburys and how it can be applied in this way. The main theories I will be looking at will be Capacity management, Open Systems, Quality Management, Performance Management and how Socio-technical Systems can be implemented into Sainsburys business. Capacity Management The meaning of capacity itself is being the ability to produce work in a given time, must be measured in the unit of work. There are three main types of Capacity management when looked at through operations.

These are Potential Capacity The capacity that can be made available to influence the planning of senior management (e.g. in helping them to make decisions about overall business growth, investment etc). This is essentially a long-term decision that does not influence day-to-day production management Immediate Capacity The amount of production capacity that can be made available in the short-term. This is the maximum potential capacity - assuming that it is used productively o Effective Capacity An important concept. Not all productive capacity is actually used or usable. It is important for production managers to understand what capacity is actually achievable.

There are constraints on capacity management and these are normally Time and Capacity. Time may be a constraint where a customer has a particular required delivery date. In this situation, capacity managers often 'plan backwards'. In other words, they allocate the final stage (operation) of the production tasks to the period where delivery is required; the penultimate task one period earlier and so on. This process helps identify whether there is sufficient time to meet the production demands and whether capacity needs to be increased, albeit temporarily. Capacity is a factories ability to produce items explained as follows, consider a factory that has a capacity of 10,000 ' machine hours' in each 40 hour week.

This factory should be capable of producing 10,000 'standard hours of work' during a 40-hour week. The actual volume of product that the factory can produce will depend on: - the amount of work involved in production (e.g. does a product require 1, 5, 10 standard hours? - any additional time required in production (e.g. machine set-up, maintenance) - the productivity or effectiveness of the factory. Open Systems Approach Below is a definition of how open systems can be explained in a business by Ludwig von Bertalanfty. ' Organisations are open systems (like organisms) and must have an appropriate relationship with the environment if they are to survive'.

The open systems approach is based on the concept that the organisation is an Open system with the primary work group as a sub-system of the total organisation. The reason why Ludwig von Bertalanfty said that open system organisations are like organisms is because they are engaged in active transactions with the environment. The Diagram on the next page is a visual example of the explanation below, Raw materials or customers form the input to the organisational system and finished goods or services form the output. The environment through competition will influence the feedback that the organisation receives which will then be processed to either improve the goods or service before it is reproduced to allow the cycle to begin again. The changing economic situation, changing values in society, new alternative products or services and many other factors demand adaptation within the organization if it to survive. Quality Management The totality of features and characteristics of a product / service that bear on its ability to satisfy stated or implied needs.

BS 4778 (1987) Working definition: "FITNESS FOR PURPOSE " Many people have come up with methods and statements which are available to businesses to look at and use to keep on top of quality management, the people who will be mentioned will be Deming, Crosby and Ishikawa. Deming emphasizes the statistical control of Quality in all stages of production, maintenance and service. 'The analysis of errors, for either type or cause, will help control errors. ' 'You cannot inspect quality into a product; you must build in quality right from the outset. ' Below is the Deming / Shew hart Cycle. Crosby had four absolutes which he believed you needed to fulfil to achieve quality they are as follows, definition of quality is conformance to requirements quality system is concerned with prevention and ensuring 'right first time' production measure of quality is cost standard of performance is zero defects.

Ishikawa however believes that to maintain quality you must follow these rules, Company wide quality control (QC) Top Management QC Audit Industrial Education and Training Quality Circles Application of Statistical Methods Nationwide QC promotion and are all necessary aspects of Quality Implementation, Below is the diagram Ishikawa came up with to implement these measures. Ishikawa / Fishbone Diagram Performance Management Below are some of the things most people use as performance measures, o competitive advantage o flexibility o financial performance o resource quality of service o innovation The evolution of the concept of performance management as a new Human Resource Management model reflects a change of emphasis in organizations away from command-and-control toward a facilitation model of leadership. This change has been accompanied by recognition of the importance to the employee and the institution of relating work performance to the strategic or long-term and overarching mission of the organization as a whole. Employees' goals and objectives are derived from their departments, which in turn support the mission and goals of the organisation. Socio-Technical Systems Socio-technical system is a mixture of people and technology. It is, in fact, a much more complex mixture.

Below, we outline many of the items that may be found in a Socio-technical system. It can be noticed that many of the individual items of a socio-technical system are difficult to distinguish from each other because of their close inter-relationships. Socio-technical systems include: o Hardware Mainframes, workstations, peripheral, connecting networks. This is the classic meaning of technology. o Software Operating systems, utilities, application programs, specialized code. It is getting increasingly hard to tell the difference between software and hardware, but we expect that software is likely to be an integral part of any socio-technical system. o Physical surroundings. Buildings also influence and embody social rules, and their design can affect the ways that a technology is used. o People Individuals, groups, roles (support, training, management, line personnel, engineer, etc. ), agencies. o Procedures both official and actual, management models, reporting relationships, documentation requirements, data flow, rules & norms.

Procedures describe the way things are done in an organization (or at least the official line regarding how they ought to be done). Both the official rules and their actual implementation are important in understanding a socio-technical system. o Laws and regulations. They might be laws regarding the protection of privacy, or regulations about testing use. These societal laws and regulations might be in conflict with internal procedures and rules. For instance, some companies have implicit expectations that employees will share (and probably copy) commercial software. Obviously these illegal expectations cannot be made explicit, but they can be made known. o Data and data structures.

What data are collected, how they are archived, to whom they are made available, and the formats in which they are stored are all decisions that go into the design of a socio-technical system. Background into Sainsburys Sainsburys was first opened in London in 1869 by John James and Mary Ann Sainsbury. In 1928 Sainsburys had sales of lb 6 million from 182 stores, making it the market leader by almost doubling sales of any other store. In October 1972 Sainsburys floated 15% of its equity on the London Stock exchange, it was the largest offering ever made at the time and, because of the firm's reputation, it was oversubscribed 45 times. In 1987 Sainsburys bought the American firm Shaw's supermarkets.

Below I have an industry comparison to show how Sainsburys compares to other stores in the UK in 2002. Industry Comparisons Sainsbury's Tesco ASDA Safeway 2002 Sales Including VAT (lb) 18,200 25,700 9,500 9,400 Number of Stores 648 979 245 480 Number of Employees 173,800 260,000 109,000 90,000 Average store size (Sq. ft.) 32,000 35,000 42,000 31,000 Customers / Week in UK only (M) 11 14 8 8 The Problems Facing Sainsburys In 2000, a benchmarking study revealed a significant age difference in systems and warehousing infrastructure between Sainsbury's and its best-in-class competitors, as well as a supply chain cost gap of lb 60 million. As a result, the company was under intense pressure to both increase growth and improve the efficiency of the supply chain. Sir Peter Davis, Chief Executive of the Sainsbury's Group, publicly committed to reducing Sainsbury's overall cost base (including stores, systems, other assets and administration) by lb 700 million within three years. In late 2000, Sainsbury's top management decided to launch the "7-in-3" supply chain management program, which involved a major overhaul of the firm's physical infrastructure, systems, processes, and skill sets. Realizing the urgency, Sainsbury's management opted for a radical approach to rejuvenating their supply chain and vowed to have what was originally intended to be a seven year plan implemented in three years starting in 2001.

Martin White, Supply Chain Director at Sainsbury's, highlighted the far-reaching implications of this decision:" We committed to completing our Supply Chain renewal program in three years - when it was initially devised to take seven. It was the biggest and most important business transformation ever seen at Sainsbury's and perhaps in Europe". White summarized the four key principles of the "7-in-3" Supply Chain Strategy: o To replace the current depots with automated fulfilment factories and Primary Consolidation Centres. o To manage transportation in an integrated fashion from the factory gate through to the store backdoor. o To replace core supply chain systems which were old and inflexible. o To ensure that there were clear ways to measure performance by reorganizing the supply chain structure and processes. Sainsbury's Solutions Fulfilment Factories and Primary Consolidation Centres Key to the new supply chain strategy was replacing the existing network of 25 regional distribution centres with automated distribution facilities called "fulfilment factories" which were strategically located throughout the U.K. The new network consisted of nine fulfilment factories, three of which were manual (located in Haydock, Rotherham and Emerald Park) and six of which were fully automated. The six automated ones would be located in Langland's Park, Hams Hall, Waltham Point, Green ham Common, north London and south-east London. In addition, two slow-moving goods depots were developed in Stoke-on-Trent and Rye Park, and two frozen food centres at Els tree and Stone (see below for supply chain structure).

Hams Hall, the first fulfilment factory, has over 160 docks, with supplier goods being received on one side and Sainsbury's trucks loaded for deliveries to stores on the other. Suppliers could deliver goods to one of the primary consolidation centres (PCCs), non-perishable item warehouses, or frozen food warehouses. Goods in the non-perishable warehouses were first shipped to the fulfilment factories before moving on to the retail stores, whereas the goods from the frozen food warehouses were shipped directly to the stores. Each fulfilment factory was designed to: o Handle a variety of merchandising units as well as single items, cases, board and roll pallets, o Receive goods throughout the day, with chilled products received in 'waves' and sorted on receipt on to an automated sortition system. o Typically serve over 70 stores and up to 150 local stores. o Handle up to 24 million cases a week and 11 million single items. o Be over 650,000 sq feet and cover a site of 40 acres. o Cost around lb 70 million per site, including lb 27 million for mechanical handling equipment. o Have a sorter in operation for 20 hours a day (12 hours chill, 8 hours ambient), o Have a vehicle leaving the site every two minutes. A network of supplier-facing PCCs had to be developed to optimize the ambient and perishable products going through the network. Most suppliers would deliver to the PCCs, which were shared-user storage warehouses typically located within 30 miles of a suppliers production facility.

The PCCs held products destined for Sainsbury's retail stores; there was no minimum ordering quantity and the stock was consolidated between suppliers into full loads at a fixed cost per pallet. Products held in a PCC remained the supplier's property until the goods were received at Sainsbury's fulfilment factories. Factory Gate Pricing and Transport Optimization To achieve an integrated "end-to-end" plan to manage transportation from the factory gate to the store backdoor, Sainsbury's planned to introduce factory gate pricing and transport optimization schemes. The rationale behind the introduction of factory gate pricing was that if delivered cost was split into the cost of transportation / warehousing and the cost of goods (i. e., the factory gate price), opportunities could be identified to reduce both sets of costs.

Transportation costs could be reduced by means of Sainsbury's new, integrated transportation system and, where appropriate, through control of suppliers' transportation and warehousing. Increased visibility of factory gate prices was expected to enable Sainsbury's trading staff to ensure that competitive costs were achieved and margins improved. The first wave of negotiations with suppliers began in May 2001 and yielded several opportunities for cost reduction. These included transferring the supplier's transportation operations to Sainsbury's, renegotiating existing primary haulers' rates and increasing utilization of Sainsbury's fleet in back haul operations.

The transport optimization element of the "7-in-3" strategy involved the creation of a National Transport Service Centre (NTSC) operated by Excel Logistics that would plan transportation operations in the UK. It also involved the implementation of an advanced transport management system to optimize both primary and secondary transportation. The latter involved the introduction of in-cab technology using the Isotrak system to enable Sainsbury's to manage its fleet more effectively. Isotrak used a satellite-based global positioning system (GPS) to position the vehicle, which together with PC-based transport management technology enabled transportation activities to be managed on a real-time basis.

Supply Chain Information Systems Since many "legacy" systems remained from different development paths, Sainsbury' management decided to invest heavily into re-plat forming the supply chain systems to deliver an integrated solution. The overall aim was to ensure that the supply chain's end-to-end performance was enhanced by moving goods more quickly through the supply chain, controlling the use of resources, and providing better information to the stores. A major review of the IT re-plat forming program during roll out led to some changes in the timing of the various projects; projects were re-prioritized so that those delivering the greatest benefits were scheduled first. The new supply chain information system integrated two applications for supply chain planning and six for supply chain execution. Supply Chain Planning o Sainsbury's Information Direct (SID): A business-to-business (B 2 B) portal for suppliers, containing performance data and ground breaking collaborative applications developed to Sainsburys own specifications; SID was first launched in May 1998 and by the summer of 2003 well over 2,000 suppliers had subscribed - free of charge - to SID's "B 2 B Toolkit". o Cygnet: A new ordering system that determined when and how products were moved from the supplier to the store. It consisted of the Retek Demand and Forecasting (RDF) module to forecast sales, the Retek Store Ordering (RSO) module to calculate deliveries to the store, and Retek Fulfilment Planning (RFP) to order products from suppliers.

Supply Chain Execution o Fire wing: Software that enabled suppliers to replace paper delivery notes with an electronic solution known as Advanced Shipment Notice (ASN); o Phoenix: A new paperless warehousing system that managed all activities within a distribution centre. It included a new Warehouse Management System (WMS) and Warehouse Control System (WCS) o Transport Optimization: A system that made best use of available transportation resources through advanced planning and tracking tools; o National Transport Service Centre (NTSC): A transport planning system based on Manugistics software was operated by Excel Logistics through the NTSC; o fleet Management: In-cab Isotrak technology' improved management of fleet operations and provided support for drivers and the distribution centres; and o In-store Stock Management: Retek In-Store Supply Chain Systems kept track of inventory levels in store. This information was used within Cygnet when deciding how many products to send to the stores Supplier DependencySainsbury's "7-in-3" strategy also required that its suppliers make major investments in order to comply with the retailer's highly automated fulfilment factories. By September 2002, when the first fulfilment factory opened, suppliers were expected to conform to six dependency criteria.

Their successful involvement in Sainsbury's new supply chain depended on their ability to: 1. Achieve accurate traded unit bar code (TUC) compliance. 2. Send advance shipment messages (ASN) with all products. 3.

Use correct EAN pallet labels displaying a serial shipment container code (SSC C) with all products. 4. Achieve data integrity through registering the full portfolio of commodities with UDEX (Universal Descriptor Exchange). 5. Achieve the right pallet standards. 6.

Adhere to arrival times and purchase order accuracy. In order to manage the transition, Sainsbury's suppliers were classified into three types - codified as red, amber or green - according to their dependency capabilities. Suppliers were warned that the trading relationship would be negatively impacted if they did not comply with the requirements. Sainsbury's Scorecard for Supplier Dependency Readiness RED AMBER GREENASN's If you have been classified as a red supplier then as yet you have no agreed plan for sending EDI messages If you have been classified as an amber supplier then you have the capability to send a test message (but it may contain some errors) If you have been classified as a green supplier then you have successfully sent a test message with no errors. data integrity If you have been classified as a red supplier then you have not yet registered with UDEX If you have been classified as an amber supplier then you have registered with UDEX, but so far have only registered details of your new line products If you have been classified as a green supplier then you have registered with UDEX and have sent details of all your products including new If you have been classified as a red supplier then you are less Than 95% compliant with the delivery standards requirements If you have been classified as an amber supplier then you are between 95 and 98% compliant with the delivery standards requirements If you have been classified as a green supplier then you are more than 98% compliant with the delivery standards requirements timeliness of delivery If you have been classified as a red supplier then you are less than 90% compliant with the timeliness of delivery requirements If you have been classified as an amber supplier then you are 90% to 95% compliant with the timeliness of delivery requirements If you have been classified as a green supplier then you are more than 95% compliant with the timeliness of delivery requirements TUC If you have been classified as a red supplier it means you are: o a high volume supplier with a read rate of below 86% o a medium volume supplier with a read rule of below 76% o a low volume supplier with a read rate of below 40% If you have been classified as an amber supplier it means you are: o a high volume supplier with a read rate between 86% and 99% o a medium supplier with a read rate between 76% and 99% o a low volume supplier with a read rate of between 40% and 99% If you have been classified as a green supplier you have a read rate accuracy of 100%pallet labels If you have been classified as a read supplier then it means you do not provide a pallet label If you have been classified as an amber supplier then you have provided a pallet label but it has an unacceptable read rate of below 98% If you have been classified as a green supplier then you have full capability of providing EAN standard pallet labels Statement of intent failure to comply will prevent the effective processing of your goods and ultimately, if not resolved, will prevent us from handling these commodities. Source: Company records, People Issues People issues were considered crucial for the success of Sainsbury's supply chain strategy, as emphasized by Martin White: "The "7-in-3" strategy is not only about buildings. it's also about developing the culture in our supply chain and changing the way all people at Sainsbury's work to ensure that it can be a flexible, responsive operation that, through cooperation and teamwork, is devoted to offering the best possible customer service standards. No matter how good our systems, the supply chain team can only succeed in its aims with the commitment and skills of the 8,000 colleagues involved in this important part of the business.

Improving the skills and capabilities of our workforce is vital in these times of change". Sainsbury's established a dedicated supply chain human resource team and launched an extensive training and development program involving all levels within the supply chain. Over a period of three years, the supply chain 1-1 K team was responsible for developing and managing the cultural side of the "7-in-3" strategy. Up to 50 facilitators were trained to assist in teaching new working practices, and colleagues in depots received over 27,000 hours of development based on unique shop floor exercises.

Some of the other activities included ensuring smooth coordination with the trade unions, assessing the equipment for the fulfilment factories from a people perspective, maintaining open, honest and timely communication, and organizing stakeholder forums, regional forums and depot action series. All or Nothing? In July 2003, aside from a few glitches, the transformation of Sainsbury's supply chain was well under way. The first fulfilment factory in Hams Hall was opened in late 2002; by spring 2003, it already served 45 stores with the full range of ambient and product SKUs, with the remaining stores to be added by the end of 2003. Waltham Point was expected to achieve full capacity in October 2001 The slow-mover depot in Stoke was expected to offer a full range for 200 stores by the end of November 2003; at its counterpart in Rye Park, full capacity was expected by summer 2004.

Almost lb 100 million had been saved in 2002, and overall availability in the stores had improved by [%. The store re-invigoration program was also successful, with more than 100 new shops contributing to growth. An internal survey of 1,250 colleagues showed that cultural style and behaviour in the supply chain were becoming more positive. Sir Peter Davis confirmed that, "improved planning, better systems and the hard work of our colleagues delivered consistently high availability worldwide". However, some industry observers continued to express doubt that this fundamental business transformation would be successful. While archrival Tesco was moving forward with unprecedented speed, Sainsbury's was still struggling in the marketplace.

More importantly, Sainsbury's had committed to a degree of automation in its supply chain systems that was previously unheard of In particular, the decision to bet heavily on automated fulfilment factories was not uncontroversial. In order to achieve high levels of efficiency in its operations, these factories were required to run at high capacity and the economic situation in the UK had not picked up. The verdict on Sainsbury's supply chain transformation, "the biggest project of its kind in Europe and one of the largest in the world", was still out. A newspaper commentary summarized the concerns:" The UK's number two is meeting turnaround targets set by Sir Peter Davis, CEO, two years ago.

But the complexity of Sainsbury's regimen means its healthy overall financial appearance could disguise selective bingeing. Growth has still lagged behind that of market leader Tesco, and Tesco has a lower investment as a percentage of sales. Sainsbury is recovering from a disastrous patch in the late 1990's. It is on target to achieve the lb 700 million of cost savings promised by 2004, and margins seem to be creeping slowly towards its targeted 5.5%. But it can hide behind its cost savings while it buys time to demonstrate that improvements in the brand and supply chain will have a sustainable impact on its competitive position.

They might. But investors need stronger sales momentum to give them comfort, especially as the market becomes more difficult and competitors such as ASDA continue to outperform. Until Sainsbury's shows it is building up muscle - not just shedding fat - fitter rival Tesco deserves its 15% premium.".