System approach to Managing Complexity: FMCG division of Spencer's retail Ltd - Essay Example

? SYSTEMS APPROACH TO MANAGING COMPLEXITY: FMCG DIVISION OF SPENCER’S RETAIL LIMITED By number and > INTRODUCTION: The globalisation and ongoing technological advancements have resulted in making the business processes more complex and difficult to manage. Organisations are coming up with different methods and strategies in order to cope up with the complexities and difficulties in the business processes and operations. This is essential in order to remain competitive in the industry. Most recently, the corporate world has shifted towards the system approach of managing the complexities in the business processes. The organisation is viewed as a system which is generating specific outputs from the inputs provided to it. The transformation of inputs to outputs takes place through different sets of business activities and processes. The system approach also makes it easy to understand the root cause of the problems and issues in different business processes and operations. In this report, the system approach is applied in order to manage the complexity within Fast Moving Consumer Goods (FMCG) division of Spencer’s retail ltd. The main focus has been on the supply chain management of the retail organisation. Supply chain management is the most important element for any organisation. More specifically, retail organisations can create competitive edge in the market by effective and efficient supply chain management. This report presents the complexity being faced by the Spencer’s retail ltd in the management of the supply chain and presents the solution to this complexity by using the system approach. BACKGROUND TO THE PROBLEM: Spencer’s retail ltd is carrying out its operations in nine different geographical regions and has a portfolio of around 200 stores. The retail organisation offers wide variety of products and items to its customers including FMCG, clothing, food items, grocery, etc. Along with this the company is sourcing all items and products from 3000 suppliers all over the country (Kini-Mendes). All of this requires well planned and executed supply chain management strategy. Supply chain management is essential in order to make sure that the organisation is able to fulfil the needs and requirements of the customers while achieving a strategic fit between the organisation’s competitive strategy and supply chain strategy. There are six drivers of supply chain which should be managed effectively and efficiently. These six drivers are: Facilities, Inventory, Transportation, Information, Sourcing, and Pricing (Chopra, Meindl, & Kalra, 2008). Also, supply chain management is directly related with other operations and departments of the organisation and there should be integration among them. (Chan and Qi, 2003) The most important element in this regard is the inventory management. Almost all retail organisations strive hard to achieve the optimal quantity of the inventory at stores and at distribution centres in order to avoid the situation of stock out and also to avoid excessive stocks of inventories. As, stock out leads to unsatisfied and thus lost customers and the excessive stocks also results in increasing the storage and inventory cost. Spencer’s retail ltd is also making all efforts in order to avoid stock outs and reduce the overall inventory storage and holding cost. Spencer’s Supply chain Model: The supply chain model of Spencer has been described on the basis of responsibilities of different teams: Category Team: Category team is an important part of the Spencer’s supply chain model and it is the responsibility of the category team to deal and formalise the terms and conditions and all types of contracts with the suppliers. Negotiation as well as screening of products to select the products are also the responsibility of the category team. The whole process of the supply chain of Spencer work in harmony and in a team as the category team sends information to the buying team regarding different things such as sending information regarding new products when they have been selected, sending information when some of the low selling products are replaced from the retail store etc. Buying Team: The other team that has been mainly involved in the supply chain model of Spencer is the buying team and the main responsibility of the buying team is to keep the IT team informed about different product norms and parameters while ordering as per the stores’ need. The IT team defines the minimum base quantity as well as the ordering quantity not only for stores but for warehouses as well. Therefore in the overall process, the parameters have been defined for supply order quantity to the warehouse of Spencer and from the warehouse the products are shipped to different stores. In addition to this, the buying team also identifies and set different parameters like frequency of delivery by different suppliers as well as the frequency and time taken for shipment to take the products to the store from warehouses. The whole process is a complicated one, as they have to analyse carefully about different products and identify patterns that which product would be sold more or which product would be sold less in different areas and during which time of the year. As there are around 1,500 to 4,000 products in each store and it becomes very difficult for the team to analyse each product at every division. Spencer has numerous suppliers approximately 150 to 250 in numbers. Some of the renowned suppliers include P&G, Unilevers, Nestle, Coca Cola, TATA, Parle, etc. In addition to these renowned international suppliers, Spencer has numerous local suppliers as well. The overall supply chain model has an important role to play in delivering high quality services to the customers and in making sure that the customers are able to find the product they are looking for at different retail stores. The team has been following the strategy that excess of any products would block the working capital of the company whereas having insufficient number of products would mean a loss in sales and a loss of customer therefore it is important for the team to know the right amount of quantity to ensure customer loyalty and customer satisfaction and at the same time achieve considerable profits and have sufficient working capital in hand. Reverse Logistics: The team of Spencer conduct audit every two weeks to check the expiries or damages of different products. If the expiry date of any product is less than 30 days, then the store operation team notifies the category team and then a complete report is prepared which is then sent to the suppliers to notify them about the issue. Suppliers having good return policies are given back the goods once they have been expired meanwhile Spencer offers promotional offer for such products so that they are able to sell these goods before they get expired. However products that are left unsold are given back to the suppliers from different stores of the company. Products that are non returnable to the suppliers are returned to the warehouse of the company from where they are destroyed. SYSTEMS APPROACH TO MANAGING PROBLEM: In the systems approach to manage problem and different issues, the organisation is viewed as a set of different business processes, and the system approach strives to improve these business process through business process management. It is important to understand what is meant by process. The process is the technique which is used in order to facilitate the conversion of inputs into outputs in effective and efficient manner. With reference to the systems approach, the business or organisation is divided into three different elements namely; inputs, processes, and outputs. In order to make sure that the business processes are converting the inputs into outputs effectively and efficiently, there is an information flow among all these factors or elements (Zairi, 1997). (Barlow, 2005) INFLUENCE DIAGRAM: As mentioned above, the supply chain process of Spencer’s retail ltd in FMCG division starts from buying team sending the information about the products and items which are required including important parameters to the IT team in order to set up the minimum base quantity and ordering quantity keeping in view the storage ability of stores and warehouses. The IT team works on these important parameters and decide about the order quantity and order frequency. This information is next transferred to the category team which is responsible for the negotiation with the suppliers and check the quality and demand of a particular product. The suppliers provide the required products which are then transferred to the distribution centres, from where they are transported to the retail outlets or stores in order to meet the requirements and demands of the final customers. SOFT SYSTEM APPROACH: The soft system approach or methodology will allow to understand the root cause of the issues and problems being faced by the supply chain management team of Spencer’s retail ltd. The main issues or problem in this regard is of deciding for optimal ordering and storage quantity in order to reduce the overall cost of the supply chain and at the same time increase the responsiveness of the supply chain. For this purpose one can use the seven stages of the soft systems methodology along with CATWOE in order to identify the root causes behind the problem (Morcos & Henshaw, 2009). Seven Stages of Soft Systems Methodology: The seven stages of soft systems methodology are (Morcos & Henshaw, 2009): 1. The problem situation – unstructured 2. The problem situation – expressed 3. Relevant Systems and Root definitions 4. Conceptual Models 5. Comparison of 4 with 2 6. Feasible Desirable changes 7. Action (Morcos & Henshaw, 2009) The seven steps of soft system methodology in this case are: 1. The problem situation: The problem situation in this case is the inventory management in order to reduce the overall cost associated with the supply chain management and increase the responsiveness of the supply chain. 2. Problem Expressed: Spencer’s retail ltd wants to decide about the optimal order quantity along with the frequency of orders and also wants to speed up the procurement and sourcing process in the FMCG division. The procurement and sourcing decisions and strategies should be made keeping in considerations the needs and demands of the customers along with the broad strategies of the retail organisation. 3. Root Definition: An effective and efficient supply chain management system for making sure that the demands and needs of the end customers are fulfilled with high responsiveness and at the same time integrating the supply chain strategies with the overall corporate strategies and reduce the costs associated with the whole process. 4. Conceptual Models: The supply chain management system and strategies should be designed in such a way that there is a strategic fit between the competitive and supply chain strategies. There is always a trade off between the responsiveness and cost of the supply chain, this means that the supply chain can be either cost effective or highly responsive (Chopra, Meindl, & Kalra, 2008). However, the effective and efficient use of the information, which is one of the driver of the supply chain, the organisations can achieve an optimal mix of cost efficiency and high responsiveness. After comparing the conceptual models and the actual situation the possible solution proposed in this case is the implementation of different information technology systems in order to speed up the process of procurement and sourcing. CATWOE Table: CATWOE Elements Definition or Description C: Customers In this case the Customers are the management of Spencer’s Retail Ltd., along with the suppliers and the end customers A: Actor The supply chain management team T: Transformation Process The implementation of different information technology systems in order to speed up the process of procurement and reduce the cost. W: World View – Weltanschauuang The technology systems and information management systems will allow to reduce the operational cost and at the same time will speed up the procurement process, which in turn will reduce the changes of stock outs. Also, the implementation of such systems and integration among different departments and suppliers will allow the company to order for the products according to the demand and on time. This will also reduce the inventory holding cost. O: Owner The management of Spencer’s Retail Ltd. E: Environmental Constraints The policies of Spencer’s Retail ltd, along with the policies of the suppliers. COGNITIVE MAPPING: PROPOSED SOLUTION: With the help of the system approach it can be witnessed that in order to make sure that the inventory management strategy is efficient and effective, there should be integration among all important departments and supply chain team. Secondly, there should also be integration with suppliers in order to speed up the process. All of this can be achieved through the implementation of different information management systems and retail technologies. The management of Spencer’s retail ltd, should first of all implement the technology of the Radio Frequency Identification (RFID) in order to keep a track of the items being sold. In this way the management of the retail organisation will be able to analyse the demand of the different products and can forecast the future needs and requirements. Similarly, different shopping tracking tools and technologies will allow the management to keep a check on the changing needs and requirements of the customers. The data gathered through the Radio Frequency Identification (RFID) and other shopping tracking tools should be integrated with the inventory management system, which in turn will be able to place automatic order to the warehouses and distribution centres for the replenishment of the particular product. At the same time, the management system should be integrated with the system of the suppliers to place direct order with them for the products or items required. All of this integration with the help of information management systems will allow the management of Spencer’s retail ltd to effectively and efficiently manage the inventory and supply chain. This will also facilitate in the process of reverse logistics. As, the products will be ordered according the requirements and demands there will be less chances of expired and unused products. So the retail organisation will be able to avoid discounts and sales promotions and hence will be able to make more profits. Secondly, the damaged products and items will be identified by the system at the initial stage and will be returned to the suppliers. All of this will result in saving the time and at the same time reducing the cost. Hence, the Spencer’s retail ltd will be able to solve the complexity involved in the supply chain management and inventory management and will be able to increase the responsiveness of the supply chain while reducing the cost associated with supply chain management at the same time. BENEFITS AND LIMITATIONS OF THE SUGGESTED APPROACH: The proposed solution of implementing the management information systems in order to integrate the activities of all departments and at the same time integrating and connecting the inventory management with suppliers for placing automatic orders, will result in saving the cost associated with inventory management on one hand and will speed up the process of procurement and sourcing on the other hand. This solution will allow to avoid the stock outs and will also reduce the changes of holding excessive inventory. Hence, the retail organisation will be able to reduce the cost of the supply chain management and will also be able to increase the responsiveness of the supply chain. However, implementation of technology and information management systems requires excessive initial investment. Secondly, the staff of the retail organisation will also have to be trained to understand the process and function of the different technology systems and information management systems. The organisation has to be careful in assigning the authority to only concerned persons for accessing the important information and data. If the information management system is not properly installed and implemented it will increase the cost of the organisation. Also, the retail organisation will face increasing resistance on the part of the existing employees who are used to the process of manual order placement and procurement. Hence, the top management should take essential and necessary steps in order to avoid resistance and manage the process of transformation in effective manner. References List Barlow, J 2005, Excel Models for Business and Operations Management, John Wiley & Sons, New Jersey  Chan, F, & Qi, H 2003, ‘Feasibility of performance measurement system for supply chain: a process-based approach and measures’, Integrated Manufacturing Systems, vol. 14, no. 3, pp.179 – 190. Chopra, S, Meindl, P, & Kalra, D 2008, Supply Chain Management: Strategy, Planning and Operation, Dorling Kindersley, London. Kini-Mendes, J. ‘Method in Motion.’ Logistics Week, Available from http://logisticsweek.com/feature/2010/09/method-in-motion/ [Accessed 9 March 2012] Morcos, M, & Henshaw, M 2009, ‘A Soft Systems Methodology for Transforming Organisations to Product-Service Systems (Application in Defence and Construction Industry’, 7th Annual Conference on Systems Engineering Research, Available from http://cser.lboro.ac.uk/papers/S04-32.pdf [Accessed 10 March 2012] Zairi, M 1997, ‘Business Process Management: a boundary less approach to modern competitiveness’, Business Process Management Journal, vol. 3, no. 1, pp. 64-80. Read More