Supply Chain Management of Carrefour - Case Study Example

Abstract The Carrefour Group has grown to become one of the most undisputed players in distribution globally since its inception in 1959. The company has experienced massive growth for the last 50 years to become the leading distributor and second largest retail store in Europe. Carrefour has gone global serving over 30 countries while boasting 13443 stores in form of supermarkets, hypermarkets, and max discount stores. Carrefour is the pioneer of the global retail industry dealing in food products as well as non food products including electrical goods and multimedia goods at attractive prices. The major operating areas for the hypermarket is in Europe, China, Argentina, Colombia, the Dominican Republic, Brazil, North Africa and other parts of Asia. The Carrefour brand has become one of the significant medium of brand differentiation that has contributed to customer loyalty thus leading to organizational growth in sales. This case study looks at the practices of Carrefour supply chain management in respect to practices, procurement, warehouse management, logistics, as well as operational strategies in the global market (Carrefour 2009). Further, the paper will consider the customization process of Carrefour supply chain management in respect to the laws of the country in which they operate in and the information technology that is geared to enhance efficiency in the supply chain. Background of Carrefour Carrefour, the largest hypermarket in world was instigated in France and later spread to other parts of the world with time. The company is the leader in the hypermarket industry and it also operates in the form of discount and convenience stores. The company was opened on 3rd June 1959 by Marcel Fournier, Jacques Defforey, and Denis Defforey and for 40 years it operated as a Carrefour store. Come 1999, the company entered into a merger with one of its key competitor in the French market, the Continent. The company has ever since grown and in 2009, Carrefour updated its logo to what it is today (IGD 2002). In 1963, Carrefour invented the hypermarket concept, an invention that saw it being the largest retail shop in Europe, thus the second largest in the world. Carrefour is public limited company which is listed in Paris stock exchange. To date, the company has 460,000 shareholders, including employees of the company who own 2.98% of the total Carrefour Group share capital. The Carrefour concern for the social and environmental issues has helped in sustaining the prices of its shares together with transparency in the company corporate governance. The company culture and tradition is propelled by its binding mission of satisfying “each and every customer expectation with professionalism and to offer the best possible prices for high quality products and services” (Carrefour, 2010). The Carrefour business model is based on the need to enhance sustainability through economic profitability that promotes social, environmental and ethical considerations irrespective of the risk posed to man and society by globalization. Thus, the company is concerned with effective commerce undertakings and awareness of social campaigns. In 1976, the company introduced unbranded product “just as good and cheaper” referred to as “produits libres.” Further innovations were done in 1992 when it created filiere quality systems which were geared at guaranteeing product origin and traceability of products. Today, Carrefour has grown and it’s globally recognized as convenient one stop shopping centre where one will get anything he/she needs. The products that are sold in Carrefour includes; fresh and frozen products, textiles, electrical goods, audio visual appliances, garments and shoes, home kitchen items, just but to mention a few. The company produced a generic product line with its own brand line on products sold on all of its businesses and manufacturers. More than 2000 different products sold today in the company have strict specifications in terms of taste, food safety, price/quality ratio, innovation, authenticity and traceability. Furthermore, the company sells over 5000 non-food products under its brand names which meet the company specifications. There are 130 organic products which meets the organic farming specifications in the fresh food, frozen food aisles and grocery (IGD, 2001). The company ensures that suppliers of organic products adhere to the demand production control as well as tracking of product specifications and to attain the expected quality, inspections are done at various stages in the production and manufacturing of products. Market positioning The policy of large scale promotion and low prices has enabled the company to penetrate the market towards the discount end. The promotional campaigns have made it possible for the company to market the price of its product and offer competitive prices for its products. The promotional campaigns during the 40th anniversary of the company gave it a global opportunity to display the effectiveness of the company’s product thus forming a greater boost to its financial performance. The ability of the company to fit strategically in local markets promotes the global success. Furthermore, the company has been able to strive in local markets by settings higher standards that surpass the expectations of customers, suppliers and employees in the local market in terms of customer service, quality products, environment conservation, loyalty, working conditions and innovation. For instance, Carrefour is the largest employer in the private sector in Argentina. The success of the company’s lies on its strategy of holding on to low price policy, as well as ensuring effective communication and quality products (Russell and Cohn 2012). Organizational structure The organizational structure of Carrefour is one the best organized model. The organizational structure is made up of board of directors, group management committee, operational departments as well as functional departments. The Board of Directors in Carrefour comprises of 11 members and they are the governing body of the company. Of the 11 members, 3 of them are independent directors. To enhance efficiency in operation, the Board of Directors is assisted by an Audit Committee, Strategic Steering Committee and the Wages and Salaries Committee. Secondly is the Executive Committee which is an important part of Carrefour organizational structure as they form a strong backbone of Carrefour’s structure of management. The Executive Committee is responsible for creating strategic decisions and guidelines for the company as well as their deployment. The membership to the committee is in line with the distribution of the firm in different geographic locations and the cross-sector functions. Another important group in the organizational structure is The Quality and Sustainable Development Department. This department reports directly to the Chief Executive Officer and it advices the Executive Committee on sustainability issues. Carrefour established the institution of Shared Service Centers (SSCs) in countries it operates as a way of improving supply chain efficiency. The SSCs enables the firm to conduct management of suppliers and purchasing from single locations, consolidated centers. The company employs technology in managing the processes of supply chain such as logistics, procurement and warehouse management. Radio frequency equipment is employed when goods are to be transported to retail stores from warehouses. To enhance efficiency in distribution while cutting on global operational cost, the company procurement and distribution activities were centralized since 1990s (Cohen and Roussel 2004). To enhance success, third-party Logistics providers are usually employed to manage the global supply chain, a move that called for both regional and global ties with reputable firms, and as a result the firm has become the leading global retailer. To improve on its global image, Carrefour ensures high quality, efficient customer service, competitive pricing as well as freshness in its product. In so doing, Carrefour managed to secure the best reputation in the global market. Managing the Supply Chain: Procurement Supply chain management of Carrefour is the most complex and difficult task given the size and distribution of the company in several countries across the globe. The company has been engaging in quality choices of food, effective communication, house hold goods, personal care, leisure and entertainment. It is only in this largest hypermarket where customers are able to get all their household goods ranging from food to clothes and other non food stuff under one roof. Carrefour has been engaging in direct strategies of procurement to acquire food products and other non-food products from the manufacturers (GCI 2008). Purchases were done locally in the global market especially in developing countries where approximately 90% of goods here were locally procured. The supply chain management of the company believes that retailing must comply with the local image. The company adapted to the products, food and local cultures and this increased local purchase as well as keeping the operational cost low due to shortened supply chain. Developed countries, however, poses a big challenge since most of the products were obtained from wholesalers like in Japan. The growth in the size of the company calls for a need of linking operations. Carrefour adopts the Electronic Data Interchange (EDI) in procurement, where the many stores, suppliers and warehouses are linked via an efficient computer network. Further innovations in technology led to improved operations in supply chain include the Integrated Composite Application Network (ICAN) software. This was to be employed in customization of operations, merchandise and formats of stores so as to effectively integrate distribution centers, stores and suppliers in various countries. Hence, effective supply chain management enables the management of Carrefour to act locally while thinking globally at the same time (Russell and Cohn 2012). Carrefour products are sold at a lower price than in many other stores thus making the company more competitive in the market. Supply Chain Practices Supply chain refers to a system consisting of organizations and their processes thereof. The Carrefour Supply Chain Management is built upon eight fundamental processes of business that are cross-firm and cross-functional in nature. The different processes are controlled by a cross-functional team that includes; research and development, production, purchasing, logistics, marketing and finance. The business processes are the management of: supplier relationship, customer relationship, customer service, manufacturing flow, product development and commercialization, demand management, order fulfillment and returns management processes. The supply chain system will increase processing of order and turnaround times, enhance competitive advantage, offer greater variety of products and provide a greater value to customers (Slone and Mentzer 2010). With globalization challenges, supply chain management helps in reducing the inventory cost and wastage of valuable resources. In addition, it increases the overall sales in the company as it helps in meeting and surpassing customers expectations, increase the speed in exchanging data in real-time when transacting and in linking up the organization with the local demands to facilitate success. Carrefour invested $170 million in its business to improve the supply chain in 1997. The management focuses on building a shared service center that will help in managing the purchasing and logistics issues in order to enhance efficiency of the supply chain system. The company planned to outsource logistics providers given that by using the local providers in the logistics, the company will have intensive penetration in the market, understand the culture and products that will improve the overall performance of the business. More so, it increases consumer’s confidence on the operation of the company. The operation of supply chain management relies on five pillars of supply chain processes including; plan, source, make, deliver and return. The Electronic Data Interchange used in procurement facilitated logistics activities, inventory management as well as operation in the distribution centers. Come the year 2003, Carrefour experienced improved performance and this further propelled the company to adapt ICAN software in the local markets so as to customize operations, store formats and the merchandise mix (Carrefour 2007). The company strategized in purchasing goods from local manufacturers in its different locations thus being able to overcome the challenges of global supply chain management. Given that the local purchase made it possible for the company to shorten its chain of supply thus allowing low operational costs. Not only did the company but even the host countries as Carrefour obtained 90% of it’s from developing countries thus improving the living standards of locals. Further, it helped in integrating its stores and distribution centers with local supply chain partners. Despite the success in handling global supply chain management, there are challenges to be overcome (World Market Intelligence 2010). Shortages in parts, increased cost of transport, excess finished goods, cultural and social differences between member States, and underutilization of manufacturing plants. The company has made several acquisitions in the recent past that has contributed to its success including; 12 Hypernova hypermarkets in February, 2005 from Ahold in Poland. In April 2005, the company acquired 160 convenience stores in Italy through partnering with Aligros. Come May 2005, Carrefour acquired 81 supermarkets in Gima and 45 hard discount stores in Endi all of which are situated in Turkey. More acquisitions’ were done in June 2005 where the company acquired 10 hypermarkets in Brazil from the Sonae Group of Sao Paolo. Further, it acquired 6hypermarkets in Taiwan from Tesco in September, 2005. Lastly, the Carrefour Spain acquired 4 hypermarkets and 2 gas stations in 2006 from Caprado. These acquisitions were part of the organizations strategy in strengthening its global chain of supply. The company should aim at reducing operations cost to enable it to keep pace with new entrants and against competitive prices in the market. The supply chain process of Carrefour is characterized by the purchasing department, logistics department and warehouses and stores in different strategic places (Cohen and Roussel 2004). Improving Performance in the Logistics Chain The growth and continual expansion Carrefour results to increase in delivery of products to the company stores. This thus calls for optimization of the transport and logistics activities to enhance sustainable development. The company has chose to reduce the number of kilometers travelled by roads by optimizing lorry loads and using other modes of transport in order to cut on the amount of carbon dioxide released into the air. Carrefour started the Demeter Environment and Logistics Club to aid in development of sustainable logistics solutions that are friendly to the environment as well as compatible to the economic imperatives of different companies. The participants in the club are the parties that are engaged in the supply chain including; suppliers, service providers, the City of Paris, ADEME and retailers. The adoption of multi-transport of say waterway/roadway or rail/roadway helps in reducing mostly roadway traffic. In addition, the company offers its suppliers with Consolidation Centers to enable suppliers to deliver to a single destination (Carrefour 2009). The Carrefour Company then collects the goods from the consolidation centers and supplies the products to its warehouses using multi-supplier Lorries. For instance, in 2010 there were 11 consolidation centers in operation that was used by 380 different suppliers. The warehouses play a great role in optimizing transport to reduce the number of kilometers travelled by Lorries on roads. In essence, the company attains its objective of mitigating carbon dioxide through; the use of Lorries with twin decks and this helps in reducing the number of Lorries’ supplying goods especially in Greece and France. There is a clear synergy between the deliveries in hypermarkets and other stores to downstream multi-modal flows of transport as well as through coordination of delivery schedules (Christopher 2011). Furthermore, Carrefour uses Lorries with clean engines that have attained Euro 4 and Euro 5 standards of controlling greenhouse gas emissions. Innovations are underway to introduce electric Lorries and other hybrid Lorries that are free from emissions to be used in deliveries. Apart from environment pollution, the company intends to introduce silent Lorries that will curb noise pollution and this has been attained through the use of tailgate silencer and anti noise coating which proved to be successful. Some of the warehouses operated by Carrefour had impacts on the environment and this propelled the company to engage in initiatives that will foster sustainable developments in all countries that the company operates in. the management of warehouses is aimed at reducing greenhouse gas emission, foster social development, manage waste as well as accounts for energy consumption (Russell and Cohn 2012). In addition, Carrefour trains and informs all teams in the supply chain on how to enhance the objectives of sustainable development and the actions that are employed in attaining effective performance thus integrating employees successfully in the campaign. Carrefour Company after going global, there was dire need of being strategic in the supply chain management. Supply chains ought to be easier to implement, more flexible as well as cheaper in terms of cost. Operational Strategies To begin with, the supplier and Carrefour will have to join hands in delivering goods on shelf so that the customer will have enough quantity in respect to his/her demands leading to true performance. Secondly, the rotation of products need to be increased by controlling the flow of information and the flow of merchandise through collaborating with suppliers, optimization of logistics networks and ensuring excellent store operation (Forrester and Bamford 2010). The supplier should be able to consolidate deliveries to Carrefour store timely and efficiently. Cross-docking should be adopted to enhance service in stores by reducing the impact of minimum order, fostering safety of stock in store, increasing the frequency of order and delivery in lead-time for the stores to avoid the challenges of direct delivery. Cross docking should be employed by the company especially in Europe as this will enhance the management of supply chain (Carrefour 2007). Thus more goods should be directed to lead-time stores as this will help in increasing product rotation. Information sharing that is focused on improving the economic performance between the company and its suppliers are crucial in managing the supply chain. Important information to be shared includes; on shelf availability, shared forecasts, performance review, sharing of supply chain data, co-managed inventory and messages on order-invoice cycle. Further, the company will require all suppliers to publish online any information that the company may decide to ask them. Sharing of information plays an important role in supply chain management as it aims at increasing the on shelf availability thus facilitating centralized replenishment of stores, innovation, promotion, listing of new products under management of events, and cross docking. The shelves should have ready packaging as this will ease shelf refilling by staff while adding value to customer service through an attractive display of products enabling easy access and identification of products by customers. The logistics costs and logistics discount is a great issue that calls for more attention (Nigel 2009). Measures need to be embraced to ensure that discounts from logistics covers for transport, stock financing, handling and ware real estate costs. To achieve these continuous improvements should be undertaken in negotiations in order to balance the imbalance arising in some countries as in so doing efficiency will be achieved. Moreover, the company should ensure that suppliers deliver products daily with no minimum order and the extra to be consolidated in safety stock in the consolidation center. The organization has managed to redesign its supply chain a move that has enabled it reduce greenhouse gas emissions (Nigel 2009). Most of the carbon dioxide emissions arise from the transport sector and in respect to the size of the company and the number of business, more emissions will be done lest the company embark on policies in the system that will handle this. The challenge has been the drive to ensure On-shelf availability of products in shops. The success in ensuring On-Shelf Availability will not only reduce the carbon dioxide emission but will reduce the transport, logistics cost as well as reducing delivery delays. The supply chain management propagates the three strategic pillars of Carrefour which are; being the most preferred shopping center by customers, improving the effectiveness, efficiency and profitability of the organizations and its operations, and in being the leader in all markets where the company operates starting with France (Olofsson, 2010). In a nut shell, the supply chain management focuses on fostering excellence service in the company to ensure on-shelf availability of products through effective collaboration with suppliers. The company sets quality and standards of products required and share the information with suppliers. The alignment of product specifications with suppliers is fundamental in strategizing at a country and global level to facilitate excellence availing of quality products at the lowest cost possible in shelves. Replenishment in the logistics operations, store and warehouse teams will thus be attained. Key Supply Chain Issues Carrefour has seen the need of managing its supply chain given that the current supply chain is not effective. The issues leading to these includes; most of the replenishment contracts are not signed by major suppliers, information sharing in respect to basics like invoices is insufficient, the discounts from logistics do not cover logistics cost effectively, and the quality of deliveries are questionable in all countries. Therefore, the supply chain management will address aspects like; on shelf availability of products, increase in product rotation, sharing of information, ready packaging on shelf and ensuring that the discounts in logistics covers the overall cost of logistics. Creation of value through maximization of shelf availability of products was the key to success (Cohen and Roussel 2004). The company achieved this through development of turnover where the flow of merchandise in the stores, shops and warehouses were monitored. The supply chain relied on relation of supplier in the production to ensure that products are brought into the stores to ease replenishment of shelves. Carrefour must deal with all of its shortcomings in the supply chain in order to streamline inefficiencies so that it may better satisfy customers. The supply chain should properly analyze, planned and procurement made. This will improve the logistics process of products thus fostering success (Slone and Mentzer 2010). In the local environment, the company should enhance integration of the supply chain as this will help in ensuring proper timing in delivery of products, thus facilitating customer satisfaction and in the long run the revenue of the firm will increase. However, integration should be done with partners who are strong in the market and with good reputation. The current supply chain calls for the implementation of cross-docking effectively in order to deal with the problem of stock shortages brought about by problems in the delivery thus ensuring full on-shelf availability of goods. Further, to ease packing and avoid complexities in booking containers, the company should introduce standardized machines to aid in optimizing the packaging material. Roadmap Ahead & Recommendations The combination of Carrefour Group and the many retailers, suppliers, logistics providers, manufacturers and technological companies in the company should work together in paving the road towards an efficient supply chain in the future. Pilot movements towards collaborative warehousing, transport, city distribution and non-urban distribution should be conducted to measure their efficiency (GCI, 2008 pg. 47). This will facilitate adoption of new ways that will project a sustainable supply chain of both consumer and retail goods. Carrefour has been successful in the market and its ability of sustaining its position for such a considerable time is something to be admired. The company, however, need to invest more in technology to enhance innovation. The changes in the market as the world go digital means that many people will engage in online shopping more than physical shopping. It is high time for the company to grab this opportunity and venture more also in online shopping. The company should in return focus cutting more on operational cost by maximizing on its strength and this will enable them to offer the best price in the market, hence, it will be the most preferred shopping-stop by most of the customers. To attain this, the company opts for an integrated supply chain process where suppliers supply products directly to stores. In return, transportation and warehousing cost will be reduced thus embracing the objectives of being the most preferred retailer in terms of low prices (Slone and Mentzer 2010). Department’s roles should be optimized through a leaner system to ensure active and multi-skilled teams are used in operation. The departments should be led by managers thus adding to the team of management. The manager will help in identifying inefficiencies and problems in operation thus enhancing performance in the long run. The management should also increase visibility of products in all of its centers through promotional merchandise and hard discounts as this will reduce inventory days while increasing turnover sales. Conclusion The Supply Chain Management is a critical element in Carrefour with its amazing reputation in the global market. Adoption of new supply chain system has proved to be effective in transforming the business even as its market coverage and performance improve. The supply chain management apart from simplifying the logistics and procurement processes, it enhances information sharing between Carrefour, suppliers and customers. This new era of transparency is thus well catered for by effective online information sharing and in return, customers confidence, and loyalty is earned (Russell and Cohn 2012). Lastly, the operational strategy in supply chain management should be in line with Carrefour business strategy for positive results to be attained. The strong correlation between sustainability and the future supply chain management of consumer products in the future stress on the need of ensuring efficiency in the supply chain system today. The focus on profits by Carrefour will only be achieved once the company pays the necessary cost required including innovation, research and development, investing in technology, sustainability cost and participation of top management in integrating new models of Supply Chain management (Forrester and Bamford 2010). 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