ABC supermarket

ABC Supermarket

Executive Summary

This report will look to analyse the ABC supermarket organisation and develop ways to improve their business performance and drive down costs. At current ABC has fallen from its spot as the number one supermarket and is looking in the near future to gain its position as market leader back. ABC supermarket has listed a number of issues that has attributed to its downfall with the main sector being its IT department. Last year ABC recorded loses of £37m due to direct increased operational costs with IT systems. This along with the overall spend of £450m on IT has cost ABC its market leading position. With the improvement of the IT department ABC will be able once again to compete for the role of market leader within the supermarket sector.

Within this report is a market analysis of the current market and competitors. ABC is not doing well as this is down to a number of factors mentioned in this section. Tesco for example has a very efficient IT department and from comparing it to ABC it is clear why they have lost their number one position. Along with the increase of competition it was noted that the economic environment is still not back to where it was a few years ago. ABC’s current IT department is failing and something needs to be done to change this. The main issues discovered regard:

Ø IT culture within the organisation is stagnant and antiquated

Ø No direct relationship between customers, supermarkets and IT department

Ø Limited Planning

Ø No incentives for IT department to deal with issues

Ø Not enough expertise regarding newer technologies

Ø Some IT systems are coming to an end and need updating

As with any change to an organisation it will require major planning and standardisation of the various operations involved. The main points ABC need to take into account when changing system includes:

Ø Staff training

Ø Costing

Ø Upgrades and Maintenance

Ø Change of culture within IT department

Ø Initial high outlay of money before benefits are seen

Ø Affect customer base

In order to evaluate ABC supermarket a number of tools and techniques where implemented. These included a SWOT, a PESTLE, a PORTER’S five forces and an ITIL analysis. The SWOT analysis provided a broad look into how the organisation is operating and discovered some of these key points;

Strengths:

Ø Strong Brand Name

Ø Strong customer base

Weaknesses:

Ø Failing IT department

Ø No longer market leader

Opportunities:

Ø Improve IT department

Ø Joint property venture with British Land

Threats:

Ø Strong competition

Ø Economic Environment is weak

As well as a SWOT analysis a PESTLE analysis was also undertaken. This provided us with more information on ABC supermarket. In addition to this the key political issue identified regarded the government’s intervention in pricing policies of the big supermarkets. Regarding the economic factors we noted that the current economic climate is not yet fully recovered and this could pose a problem. In terms of the social impact for ABC the current healthy eating trend that is happening in the UK is an issue and although not major, it is still something that could affect ABC’s trading. The main trend currently regarding ABC and technology is the internet. The rise of broadband services has impacted greatly on supermarkets with almost the majority of which all of them now offering online shopping services.

In order to analyse ABC in more depth PORTER’s five forces analysis was used. This provided us with details regarding the threats and opportunities of the current market. PORTER’S analysis showed us that competition within the market is extremely high, as there are many major supermarket chains. This analysis also showed that the barriers for entry into this market are significantly high, showing that not many more major supermarkets will appear within this sector. PORTER’s analysis also provided us with the information that the buyer’s power in the market is extremely high as there are many competitors, and that the supplier’s power depends directly on the suppliers each supermarket decides to use.

After looking into the market sufficiently we decided upon a number of possible solutions which included both technological and managerial changes. After comparing these ideas with the main issues ABC has been facing, we decided upon the best solutions available. We eventually decided upon these solutions:

Ø Implement a Customer Relationship Management (CRM) system

Ø Update the Point of Service (POS) application

Ø Implement an improved Inventory Management System

Ø Re-invent the IT culture within the ABC supermarket

Ø Create appropriate planning systems

Ø Create relationships between customers, supermarkets and the IT department

Ø Training

Ø Create Reward Schemes

Introduction

ABC supermarket is a major player in the UK supermarket industry. It was until recently the leading supermarket and has lost its dominant position to other supermarket rivals. We have noted that currently ABC has 560 stores across the UK and employs 40,000 full and part time staff. We have also noted that ABC has 30 offices across the UK that supports its operations including an IT department based at each office.

After looking into a number of details regarding ABC we have been able to gather where the company needs improving. Last year’s financial summary shows that ABC continued to improve with total retail sales and profit before tax both increasing. Along with this the operating summary seems positive too with a continued growth in customer numbers and also a continued investment in product quality and competitive pricing.

Whilst looking into ABC we also noticed a number of initiatives and objectives set by yourselves to help deal with the current predicament including a joint property venture with British Land and your objective to continue to offer value and quality over major competitors. We are also well aware that currently the economic environment is not in the best of shape; however you still feel we are in a good position to continue with the good progress. All of these factors noticed will be taken into consideration when deciding upon possible solutions to help ABC become once again the number one supermarket.

The key point to this report is that the IT department is failing. At current, ABC has listed a number of problems and failings with the way the IT department performs. For example, the problems with the IT systems last year cost ABC £37m and the people within the department are not being managed or supported effectively. It is for this reason that the main focus of this report will be the improvement of the IT department.

Within this report we will look into a number of items that can help ABC return to being a dominant force in the supermarket sector. This report will look into the competitors by carrying out a market analysis, assessing ABC, proposing solutions and will finally finish with a financial summary of the proposed solutions. Hopefully this report will be able to help ABC take onboard some key solutions and implement them, and in the long run help return ABC back to the top of the supermarket sector.

Market Analysis

Over the past twelve months the supermarket sector has seen a slight increase in profits due both to an increase in consumer spending and an upturn in the current economic climate. At current, ABC and all other rival supermarkets are posting an increase in sales and profits. Although this is good for ABC, it has been followed by bad news as the supermarket has been overtaken as the leading supermarket. As mentioned, the economic climate has been improving lately however it is still not as stable as it once was and the supermarkets may still feel the effects of this for a few more years to come. The supermarket sector at this current time is still healthy enough for ABC to make an improvement and gain back its title of being number one supermarket. However they will need to undertake a number of different changes to make this happen.

As noted from the details provided by ABC, we can see that one of the main reasons the supermarket has noticed a downturn in fortunes is due to the failings of the IT department. From looking into the supermarket sector it is clear to see that other supermarkets such as Tesco and Sainsbury’s have very good IT departments that are being managed notably well. During this market research we looked into Tesco as an example. The IT department at Tesco is extremely efficient; it is managed and used to the best of its ability. Tesco currently spends most of its IT costs on its website, PDA systems for its staff, and navigation systems for its lorry drivers. The key point noted from researching Tesco supermarket is that the management of the IT department including its systems plays a key role. Tesco put a major emphasis on the management of the IT and feels that this is the key to the success of their systems. This is a key piece of information that should be taken into account by ABC supermarket.

Assessment of the IT Department at ABC

The ABC Supermarket, being one of the leaders in the modern supermarket industry, considers necessary the assessment of its IT department performance. Having ethos and setting the values of tomorrows business, recognises the importance of IT in a cutting edge and innovative company of the 21st century.

Based on a recent consultancy report, the IT department’s lacks basic principles and communication techniques. More specifically, the IT culture within the organisation is stagnant and antiquated. The problems occurred are solved randomly and no history reports are kept in order to prevent future failures. The communication channels with the end customers are cut-off and only specific employees are responsible for resolving problems without though, any incentives or motivations to work towards a better result. New technologies introduced are not supported effectively and therefore, no advantages are provided by these initiatives. In addition, another major issue of the IT department is the distribution of its staff across several sites in the UK increasing the complexity and the overall costs of the business. Referring to the latest financial details of ABC, operational costs increased during the last year reaching the enormous amount of £37m and a total of £450m was spent during the previous year.

To sum up, the IT department needs to adapt a new formula that will enhance the company’s efficiency, productivity and overall performance. Systems that are out of date need to be replaced by new ones whilst the introduction of new methods and processes will help the organisation upgrade and modernize its operations.

Problems for ABC changing to a new system

The introduction of new technologies will with no doubt bring multiple changes in the overall company’s structure. As a result, a lot of problems will arise making it difficult for the business to accept and adopt the new changes.

Moreover, the use of new systems will make staff more cautious and resistant to the organisation’s restructure and radical change. Thus, the company should establish a new culture that will provide different training techniques and methods to adapt to the new up-to-date equipment and also introduce new upgrades and maintenance features to support the change.

Problems also may occur concerning the calculation of the final cost. The technology used will be new and therefore there will be no comparison with previous year’s balance sheets. Making an initial outlay of the money needed before investing will be a rough estimation of the accurate expenses which will cover the transition from the old and antiquated technology to the new one.

Tools and Techniques

SWOT Analysis

SWOT (Strengths, Weaknesses, Opportunities, and Threats) is a tool used to provide a general, detailed snapshot of a company’s status. SWOT while offers professional, effective and evaluative techniques to aid decision-making processes[1].

The SWOT analysis will help determine which area of ABC is succeeding in order to maintain its prior dominant position. It is also a very effective way of identifying the Strengths and Weaknesses as well as the Opportunities and Threats ABC may face. A detailed SWOT Analysis of the ABC supermarket can be seen below.

Strengths

· Strong brand name that is easily identified based on cheap, bargain pricing and quality products[2].

· Various stores across the UK, making it accessible to all types of customers.

· Adhering to the policy of listening to customers.

· Ability to buy goods in bulk and gain larger discounts compared to other supermarkets. ABC will pass on discounts and pricing benefits to customers, thus further solidifying its reputation as a bargain store.

· Increase in the value of share price.

Weaknesses

· Poor IT department that allows competitors to take advantage of other supermarkets like Tesco, ASDA, and Marks & Spencer’s.

· Unlike Tesco, ABC is not present in markets beyond the UK; this can result in problems if there is an issue within food retailing.

· Lost No1 place

Opportunities

· Increasing sales by providing online shopping to customers.

· Provide customers with price incentives to encourage them to shop at ABC.

· Further exploiting of the non-food sector.

· ABC currently trade only in the UK, therefore there are opportunities for further business expansions in other worldwide markets[3].

· Property joint venture with British land will unlock key store development opportunities.

· Improve IT department

Threats

· The reduction in disposable income of customers due to the recession and fear of job losses has caused people to reduce their shopping budget.

· Stiff competition from Tesco, ASDA, Sainsbury’s and other supermarket retailers.

· Overseas competitors are entering the UK market.

PESTLE Analysis

PESTLE Analysis, acronym for Political, Economical, Social, Technological, Legal, and Environmental factors, is an important tool for understanding the “big picture” of the environment in which ABC is operating. All of these factors are beyond the control or influence of any business including ABC[4].

Political

· Government investigation of price fixing among the top retailer’s in the UK can have some negative impacts to the industry in general. Although ABC is well established among consumers, these investigations can lead to a negative public image, as they might feel cheated[5].

· The UK government is to decrease the corporation tax from 30% to 28%, which will save ABC a significant amount of money6.

Economical

· The global food crisis has increased prices all over the world, which results in the rising of the purchasing cost for ABC, this in turn could lead to the increase in price being passed on to the customer

· Stiff competition within every segment of the retail sector has lead retailers to give a lot of incentives to consumers. This will affect ABC, as the prices will have to be kept down for most of the time.

Social

· Nowadays more emphasis is put on fresh and easy style cooking; this is an opportunity for ABC, to encourage new recipes and unfussy eating.

· A huge emphasis by the government is given to promote healthy eating, due to increase in obesity within the UK, This could lead many consumers to shift toward healthier food6.

Technological

· The Internet phenomenon seems to be growing within western countries. It is predicted that by 2011 online retail sales in Europe will reach £263bn, with British shoppers accounting for more than a third of the total revenue. ABC can use the Internet as an advantage to increase its sales6.

· Self-checkout has increased efficiency and has helped to reduce the number of staff on the counter.

Environmental

* A lot of companies endeavour to reduce their carbon footprint and increase energy efficiency. Every company has to prove that they are reducing their impact on the environment, meaning that ABC should invest more in greener solutions.

Legal

* With the stringent laws on food and drinks, ABC will, for example have to deal with the laws in place for packaging and labelling

PORTER’S 5 forces analysis

Porter’s 5 Forces Analysis deals mainly with factors outside ABC which influence the nature of the competition within it. In contrast, the forces inside ABC, influence the way in which the company competes. This analysis provides a framework that look at a company from five different factors, which are: rivalry, barriers to entry, threats of substitutes, buyer’s power, and supplier’s power[6].

Competitive Rivalry

* The retail market is extremely competitive and crowded. More organisations are trying to get into the non-food sectors

* ASDA, Tesco, and Sainsbury’s are some of the other leading supermarkets in the UK retail sector. All of them have different competitive advantages over each other. ABC’s, main advantage is its reputation for high quality and value products.

Barrier for Entry

* Barriers to entry are high in the food retail market due to a number of reasons. Firstly, organized retail is among the most sophisticated sector within the UK and needs a lot of investment, along with significant brand development, which takes a while to establish. Secondly, retail is also at an advanced stage within the UK and most of the western world, which means there is only a little scope for new entrants.

Threats of Substitutes

* The threat of substitutes in the food retail industry is low because consumers have considered it as a necessity8.

* The only major threat of substitute is an internal one in which a supermarket can lap up the business of other supermarkets.

Buyer’s Power

* Buyer power is extremely high in this industry because of the presence of many competitors selling the same products.

Suppliers Power

· Supplier’s power is difficult to categorise as there is a mutual dependent relation between the suppliers and the supermarket. It can be argued that if supermarkets do not sell their products, consumers will shift loyalties making suppliers more powerful. However, if the products do not reach the supermarkets, their sales volumes will be affected rapidly. The relationship might change depending on the situation of the big branded supplier.

ITIL Analysis

ITIL® (Information Technology Infrastructure Library) is a customisable framework of best practices that promotes quality computing services in the IT sector. ITIL® addresses the requirements for an IT Service Management by presenting a comprehensive set of management procedures and describing the requisite generic operational processes.[7]

Referring to the IT processes of ABC, we can clearly state that the practice of delivering services based on technology fiefdoms or silos is already part of the past. According to Steinberg, “the rapid pace of business change, technology advancement, regulation, and services that must be delivered across an ever-flattened global economy is forcing IT to organize and manage itself more effectively”.[8] Therefore, by implementing the ITIL standards, ABC will raise its customer satisfaction, reduce the waste in the IT organisation and lower most of its operating costs. A set of other processes will also be enhanced such as Service Level Management, Availability Management, Capacity Management, IT Service Continuity Management and IT Financial Management.

Moreover, ITIL is the tool to deliver the SLAs to evaluate the overall performance of the organisation. The Change Management techniques will help people adapt to the new technologies quickly and effectively. All the staff will be involved in workshops and managers will be in the same side with their employees, understanding the needs of the business as well as other sociological factors that may arise.

Proposed Solutions

Today information technology is playing a key role in the supermarket industry. Information systems are widely used in stores, inventory control and logistics. In recent years technology has revolutionised the way that businesses operate and ABC supermarket can be seen as a firm that has taken advantage of this technology in order to increase efficiency in operations, create market opportunities and encourage loyalty. But looking into the way that technology is used today, it is clear that it supports the organisation and enables in to run effectively. Mass competition has increased the need for supermarket retailers to be quick thinking and innovative. Perhaps some retailers might have simply lost sight of recognising what the customer’s wants and needs. Regardless of this, today’s customers are more intellectual and have less time than ever before. Consolidation in the market will continue to influence existing supermarket chains, both large and small. Improvements in the supermarket technology area can be classified into two broad categories. The first is the consumer-related technological one and the second is the operational one. In the consumer oriented approach the primary focus is on kiosks. These are generally connected to the front -to- end systems and the other computers via the internet. The benefits offered by these systems to the consumers are extended product assortments and services beyond those typically available. In the operational area, most of the improvements come from the software and surveillance sector. Software modernisations cover m-commerce capabilities, sophisticated supply chain management and overall connectivity. Surveillance covers the GPS system and storewide monitoring for productivity and security.

Other examples of information technology used in the supermarkets are the barcode reading system, EFTPOS and the use of debit cards and electronic data interchange. The barcode reading system is used to read the codes which are kept on the label of the products that a customer is buying so that it relays the product details and price to the system. The EFTPOS and debit cards are used so that if the customer does not have any physical money on them they can easily purchase goods in the supermarket or store, whereas the electronic data interchange (EDI) is a method for speeding up the transfer of orders to suppliers. In general, most of the supermarket chains have added technology at a conventional pace in the past few years due to the ROI (Return on Investment) requirements. The technology used in supermarkets is designed to improve the customer’s experience in shopping, such as faster checkouts, efficient pricing, and various payment options. These innovations have allowed As we discussed earlier, the IT department of ABC supermarket is in a very serious condition, as most of the resources are not in use and may be considered to be of no use in the future. The culture of the department is also not flexible and stagnated. They are not keeping any track records of the problem resolutions and known faults. There is not direct communication between the IT department and the end customers. There are also no incentives for the IT department employees. Some of the newly fit technology systems are implemented but are not giving out the required output. The most important part is that some of the existing systems are coming to an end meaning that they are outdated and in need of replacement.

Supermarkets in the industry to keep food prices lower so that people spend significantly less money from their disposable income on their weekly shop.

Proposed Solutions: To overcome the problems within the IT department of the ABC supermarket, some proposed solutions will be detailed below which should help ABC to reform from their current bad situation. Most of the improvements mentioned should be outsourced so that there will be no extra burden for the company.

(1) Customer Relationship Management Solution: CRM (Customer Relationship Management) programmes are suitable as a business approach for supermarket chains. CRM applications will give merchants a real-time view of customer behaviour and desires. Supermarket industries have maintained loyalty programs for years. Customer Relationship Management is a business thinking which includes indentifying, understanding and providing better quality for your customers and simultaneously building a relationship with each customer to improve satisfaction and maximise profits. It involves anticipating, understanding and responding to the customer’s requirements. If ABC’s employees maintained a database of which customers buy what type of product, when, and how often then ABC will know how to market their products effectively. They could use this information to build a relationship with the customer by reminding customers of service dates, product recalls, new offers and gift coupons which will encourage them to stay loyal with ABC supermarket.

(2) The Point-of-Service Application Must Be Updated: The POS (Point of Service) system is still the most critical application in a supermarket environment, and it must support the way in which customer wants it to interact. It must be available during all the supermarkets open hours. POS is the base platform of all the applications which operate around it. ABC supermarket is currently running the old and outdated POS system; the function and capabilities of the old system are limited. The existing POS system should be updated in order to compete with the other supermarket chains. To mitigate the threat of running older technology too long, and the problem of supporting an older OS, many other supermarket companies are developing migration approaches to shift to newer platforms. Newer POS systems are required for ABC supermarket to enable easier development, device “plug and play” ability, incorporation with other systems, suppleness, and manageability. Advanced POS systems are self-manageable, self-diagnosing and self-healing. After adopting the new advanced POS system the result will be a better shopping experience for the customer and a strategic advantage for the ABC compared to the other rivals. It is important that ABC supermarket chooses a platform capable of supporting POS applications, in order to provide an easier migration path in the future, and to help control principal spending costs.

(3) New Advanced RFID: Radio-frequency identification (RFID) is the use of an object (typically referred to as an RFID tag) applied to or incorporated into a product for the purpose of identification and tracking using radio waves. It is a generic term used to describe a system that broadcasts the identity in the form of a unique serial number, of an object wirelessly, using electromagnetic waves. It’s grouped under the broad category of automatic recognition technologies. Some tags can be read from several meters away and beyond the line of sight of the reader. ABC supermarket is using the outdated RFID technology in their stores. At current the system used is not good enough to detect every time if an individual steals a product. It is also helpful in improving supply chain efficiency and making sure that the product is on shelf when a consumer wants to buy it. RFID technology is also used in inventory control, distribution of goods, asset management and retail sales in the stores. A new advanced RFID technology has been launched by IBM recently. By implementing this newly launched RFID, ABC supermarket will gain the following benefits.

ü Real reduction in errors via automation – reduction in wrong shipments, lost inventory, and errors in redundant data reads

ü Real gains in productivity by better managing the use of skilled resources through automation

ü Industry recognised qualitative impacts which returns improved customer service

ü Driving regulatory impacts through compliance activities to meet governmental regulations

ü POS systems efficiency increases meaning that skilled resources are in front of your customers – and not behind a cash register.

(4) Customer Information Terminals: Some supermarket retailers have started programs to deliver effective content to customers inside the store, through touch screen terminals. This will help customers to find out of new products arrivals, prices of products, and on which shelf the product is available. Customers will use “opt in” service to receive personalised information upon entering a store. This will enable the supermarket to target products to the customer. Custom-made shopping lists and promotions will be at the customer’s fingertips. Today’s consumer is very eager to receive information before making purchase decisions. The Internet has created a new generation of information-savvy shoppers. By using this technology ABC supermarket will create another opportunity for enhancing a customer’s shopping experience.

(5) Improved Inventory Management System: As we have already discussed our inventory management system is becoming outdated and it is causing problems on a day by day basis. It has been suffering recently and has resulted in many millions of pounds being wasted. An inventory control system may be used to automate a sales order. Such a system contains a list of orders to be filled, and then prompts workers to pick the necessary items, and provides them with packaging and shipping information. SAP and ERP are such systems which are used to control and manage the inventory systems. Various Enterprise Resource Planning (ERP) vendors have developed retail-specific systems which help in integrating all the functions from warehousing to distribution, front and back office store systems and merchandising. An integrated supply chain helps the retailer in maintaining their stock, getting their supplies on time and prevents items being out of stock. These systems can be outsourced and there are some well known companies which sell these products like IBM and Accenture. ERP is the important pillar of the retail business, which has three elements – People, Process and Technology. The People part is the most difficult to manage as it needs to recruit, train and motivate people constantly, generate awareness and change management. This makes the task more challenging, as it needs to manage deployments in such a dynamic environment whilst keeping pace with the company’s exponential growth plans.

(6) Wireless/RF Communication: This technology helps in improving price accuracy and consistency. It lowers the cost of changing shelf price tags, and provides consumers with more product information, such as the nutrition of a product. The facility is complete with shopping carts, aisles stocked with goods, a wireless LAN based system of RF tags, LCD displays, servers, access points and wireless stations, which controls and updates prices for each item. With the help of wireless technology an ABC supermarket employee will be able to update prices throughout the store in a matter of minutes with a few keystrokes. The benefits of having this technology would be the following:

ü Ensuring 100% coverage inside supermarket.

ü It offers mobility to employees.

ü Customers no longer have to wait for somebody to call them back, since all the infor