Supply chain management supermarket performance

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SUPPLY CHAIN MANAGEMENT

ABSTRACT:

The main purpose of the report is to analyze the performance of supermarkets with supply chain management and analyze how these supermarkets where able to withhold pressure and could succeed by developing various strategies implementes by them.

Since Analyzing all the supermarkets is not feasible we will study how the supply chian management helped Sainsbury's during critical times.If we have to study the strategies implemented by Sainsbury's during critical times then we have to study the Sainsbury's financial market during 2000-2003 and 2008-2009. These two time periods were the critical moments handled by the Sainsbury. Analyzing the time period 2000-2003 shows how it could withstand the market when they wee on the verge of collapsing in late 90's and Analyzing th time period 2008-2009 shows how Sainsbury's were able to effectively handled the econimic crisis.

A trend Analysis is done to demonstrate the pattern of Sainsbury's performance over the years 2005 to 2009. An Analysis of developments in the supermarket wee also developed for the years. In addition, analysis is done on how the company were ready to face any pressure by the downturn or any other reason. These analysis are very useful inorder to aviod the impact on the financial performace. These will atleast help them to decrease impact of these on the financial sector.

1.1 INRODUCTION:

Definition:

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“Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers” - (Harald, 1996).[1].It comprises of all activities associated with the flow and transformation of goods from the raw materials stage to providing it to the end user along with the associated information flows i.e., it deals with the whole process of creating each element of a product to the final consumption of the product. Material and information flow both and down the supply chain.

The ultimate goal of any company for using the supply chain management would be to reduce the inventory supposed that the raw materials we needed are available. As the number of companies interested in improving their supply chain management are increasing many we b based application service providers are competing with the software systems provided with web interfaces for the company. These web based application service providers are ready to provide all or part of the SCM services for the companies who rent their service.

There are 3 different types of supply chain management flows:

The product flow
The information flow
The finance flow

The product flow:

It corresponds to the flow of goods to customer from supplier.

The information flow:

It corresponds to the flow of transmitting orders and updating the delivery status.

The finance flow:

It corresponds to payment schedules, credit terms, consignment and title ownership arrangements

There are 2 types of SCM software”

planning applications

These applications analyzes all the different ways to fill in an order and selects the best way to fill in this order. These applications used advanced algorithms for this.

execution applications

These applications mostly deal with the information on the goods like tracking the physical status of the application , managing financial information of all the companies involved (like payments done, payments pending etc.,) and they also deal with the management of the materials.

In some cases we need supply chain management applications which share data both inside and outside the enterprise. For these type of application they are developed from a data model. Proper data model is created so that all the inside data of the enterprise will not be distributed to the outside of the enterprise, To avoid any corruption of data this data is stored in database systems or data warehouses.

By providing a means to share data there can be huge benefits. These type of applications have the potential to improve time to market of products, they reduce the costs they also provide assistance in managing their resources and plan their future needs.

As the number of enterprises turning towards the websites and for the web based apps are increasing these websites became a good marketplaces. They are even ready to offer e-procurement market places where manufacturers and suppliers can trade, they also provide facility to auction bids with suppliers.

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An overview of the supply chain system can be shown by the following diagram:

source: http://www-935.ibm.com/services/uk/bcs/html/bcs_scmsol.html

Some Definitions of Supply Chain:

A network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products.

--Jayashankar

Supply Chain Management is the integration of key business processes across the supply chain for the purpose of adding value for customers and stakeholders

--Lambert

[1] Harland, C.M. (1996) Supply Chain Management, Purchasing and Supply Management, Logistics, Vertical Integration, Materials Management and Supply Chain Dynamics. In: Slack, N (ed.) Blackwell Encyclopedic Dictionary of Operations Management. UK: Blackwell.

A supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products, and deliver the products to customers through a distribution system.

--Lee and Billington

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.

--Ganeshan and Harrison

According to Wikipedia.org

Supply Chain Management (SCM): Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose of satisfying customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption

(http://en.wikipedia.org/wiki/Supply_Chain_Management).

Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes the crucial components of coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperate to provide product and service offerings has been called the Extended Enterprise.

---Council of Supply Chain Management Professionals (CSCMP)

1. 2 Need for Supply Chain Management:

From the past few decades there is a rapid increase in supply chains due to globalization. The products produced by the companies are no longer confined to a small areas. The globalization has inceased the extent to which products can be marketed and distributed. Companies have been trying to market their products all over the world. As the extent to which the marketing is done increases the supply chain grows bigger and bigger and becomes complex, this changes requirements for the Supply Chain Management. This asks for the change in software used for the supply chain.

In the past, maketing planning deistribution, manufacuring retailing and purchasing organizations each of the used to be operated independently. Each of these organiations followed their own plans which produced conflicts between the organizations. Most of them concentrated on producing maximum output so that it would lower costs. They forgot to consider impact on inventory levels and distribution capabiities. And the orders are taken with very little information. All these problems were because of the reason that there is no intergrated plan between the organizations. To solve these problems a strategy should be made which would provide integration between all the organizations which is call the Suppply Chain Management.

1.3 Evolution and scope of supply chainmanagement:

As the suppy chain grew longer, the order times and the delivery times increases. These increase in times will cause lot of problems like less production flexibility i.e., once an order is placed it is very difficult to change it, and it asks for higher levels of inventory. Inorder to solve these problem we need to speed up the supply chain. Even though we can speed up the supply chain to reduce these problems it is not always appropriate as we keep speeding up the supply chain the amount of the problem solved decreases i.e., after speeding up the supply chain to some extent, further speeding up of it might not yield better result. When this limit is reached this method no longer works. So we need to change and restructure the supply chain. This means we need to discuss and evaluate and reconsider every strategic level decision we made before.

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We can define the supply chain as the flow of information and material to and from suppliers and customers. The scope of Supply Chain Management (SCM) is to:

1. Reduce the total supply chain cycle time and costs.

2. Speeding up the supply chain process and its flexibility to customers.

3. Increase the capacity, utilization, and profit.

4. There are four fundamental principles for SCM :

(a) Use the most simpler way of information flow from producer to the comsumer.

(b) Use the most simpler way of material flow from producer to the comsumer.

(c ) Prepare a smoothe possible way of production and usage.

(d) Reduce the lead times and the need for inventories so that there will be enough time so solve any problems if appeared

Evolution of Supply chain management:

There are exactly six major movements that can be seen in the evolution of supply chain management. They are Creation, Integration, and Globalization, Specialization Phases One and Two, and SCM 2.0.

Creation:

The concept of supply chain management came to great importance with the creation of assembly line in 20th century. During this period the the supply chain management manily needed large scale changes like re structuring and downsizing driven by cost reduction programs .

Integration:

The development of Eectronic Data Interchange (EDI) in 1960's and the developmet nt of Enterprise Resource planning (ERP) systems in 1990's were the greatest break though in this period. However with the use of internet-based collaborative systems. This period has both the increasing value and cost reductions through integration.

Globalization:

This period is supply chain management is used organizatons with the goal of increasing their competitive advantage and reducing costs through global sourcing. This movement gives attension to global systems of supplier relationships and expansion of supply chain management over national boundaies and over into other continents.

Specialization -Phase One: Outsourced Manufacuting an Distribution:

During 1990's companies were focusing on a apecialization model. These model which soleley focus on the core competencies. This mode works for design, manfacture, distribute , sell and provide service for the product. The set of partners might change depending on the region and availability of materials. So each product produed may have its own unique characteristics.

While the industry solely gets its focus on the core. It frequently sells all the non-core operations to other companies increasing the supply chain management.

Specialization -Phase two: Supply chain management as a service

This movement began in 1980 where industries focused into aspects of supply planning, collaboration, execution and performance management. The ability to quickly create products by using the best partners to contribute to the overall vale chain itself, which increases overall effeciency.

Outsourced technology for supply chain began in 1990's and primarily focused on transportation and collabpration. It progressed from Application service provide in 1998 -2003 to On Demand model from 2003-2006 to Software as a Servie modell currently in focus.

Supply Chain Management 2.0

This movement describes the development in the supply chain management its methods and tools used in this decade. Web 2.0 uses wolrld wide web that is meant to increase collaboration, interction comng users. The core part of it was to navigate through the information available on the web . It is a path to the SCM results, processes , methods, tools and delivery options to guide companies for quick results due to effects of globalization and rapud fluctuations in prices.

Goal and Principle of SCM

GOAL:

Providing Quality products and support to customers at the least possible total cost

SCM Principles:

1. Try to know th product closest to the customers and speed conversion across the supply chain.

2. Manage the raw materials wisely to reduce the total cost of owning materials and services.

3. Develop supply chain that supports multiple level decision making

4. Guage the success of the product reaching the customer effectively and effeciently

5. Listen to market vibes and change the supply chain accordingly

6. Customerize profitability of customer

7. Serve serment customrs based on service needed and adapt the supply chain to serve with profitability.

Cycle time reductions:

By considering constraints as well as its alternatives in the supply chain, it helps to reduce cycle time.

Inventory costs reductions:

Demand and supply visibility lowers the requirements of inventory levels against uncertainty. Ability to know when to buy materials based on the customer demand, logistics, capacity and other materials needed to build together.

Optimized transportation: By optimizing logistics and vehicle loads.

Increase order fill rate: Real-time visibility across the supply chain (alternate routing, alternate capacity) enables to increase order fill rate. Analysis of the supply chain management can help to predict propagation of disturbances to downstream.

CASE OD SAINSBURY's

Sainsbury having reputation for its high quality grocery chain in UK. It was shaws supermarket in the US . In mid 90's it had a annual revenue of $27 billion from 450+ stores, it was a crisis time of Sainsbury's, everyone thought that Sainsbury may no longer keep up as most of the market profits drifted towards it longtime rival Tesco with also an competitive pressure from Asda. Sainsbury had 11 million customers at that time who were looking for products with wide variety of choices and high quality products with good customer service but with no higher prices. Suppliers were disappointed with the unsteady order flow and the shareholders have seen 30% drop in earnings.

When executives were looking for the reasons for the failures it was clear that they had an outdated supply chain management with 30 year old WMS(Warehouse management system)which was not sufficient to handle 2000 suppliers, 35000 SKU's(Stock Keeping Units) and 800 million cases of product each. And the applications developed for the sainsbury where are in developed independently using the available data. As the number of applications increased the system grew complex and in one suh case when a order was placed differently all of the depot systems crashed. Having more than 400 applications developed inhouse which are complex and old was not helping either.

The change came in 2000 after Sir Peter Davis joined as CEO. He realized that most of the bussiness is being affected by the IT systems. Davis stopped all the inhouse projects and outsourced all the IT function to Acceture. The primary goals were to halve the IT operating costs and produce user friendly applications. The transformation accounted for $1.8 billion which would update all the software applications and the hardware and also provide strong data security and low cost of ownership.

Accenture could not do everything for Sainsbury's. Even though it provided with all the core technology it was important that it integrate all the best technologies to lower the the efficiency. Sun Microsystems Inc provided the necessary help for sainsbury's in this. With an experience of developing more than 5000 supply chain managements ,having more than 100 software partners it also had cutting edge technologies like wireless mobility and Auto ID(automatic identification of parts and matrials) which fitted Sainsbury's needs perfectly.

At present Sainsbury is one of the top three retailers in UK. It has more than 800 stores and has a vast amount of online shopping service which offers both the food and nonfood products. It now has around 18.5 million customers every week of which 100,000 customers are through online.

Even though various thing accounted for the success of Sainsbury's. There are 5 important things that contributed greaty to the success

1) Low cost of ownership

Sainsbury placed a limit on the containable total costs. Accenture provided then lot of savings in hardware expenditure by providing them with the Sun Fire V880 servers(servers that are widely used ffor warehouse management). These servers replaced all the servers with all the servers from all the Sainsbury UK depots. The total savings amounted for $7.5 million.

The IT service costs are also minimized because of the simple and standardized architecture with V280 servers. And also they were operaiting their servers on solaris OS which is a reliable OS. Which provided for 99.95% uptime according to the contract provided by the Accenture.

2) Partner led business model

Accenture and Sun Microsystems Inc., have greatly contributed to the success of the Sainsbury's While Accenture provided all the core technologies for Sainsbury's, Sun Mircosystem's contributed for the advancement and easy to handling of all the applications developed. While Accenture was providing a great deal of flexibility and great choice, Sun provides assistance for to help customers integrate and streamline their business processes.

3) Data Integration

Accenture had done really one is providing with the core compenents of the sainsbury's. This can be easily said because not many problems had showed up while integrating various supply chain applications on top of he Solaris and other Operating system. Sun also provided the right architecture which helped a lot in providing the right framework.

The JES(Java Enterprise System) was the middle layer for all the infrastructure at Sainsbury's. Which provided services like web access, identity management and directory services. The JES has three fundamental elements

(a) a new software

(b) new systemetic approach

© a new business model.

When the three of these combines we can provide system. Sun worked with SeeBeyond so that it can provide with the simple architecture and also a flexible one. The JES provides with a wide variety of features. JES provided the essential component like version control, updating at regular intervals of time which intime reduces the IT overhead and maintenance costs.

4. Robust security

In early 2000 when Sainsbury's were using the windows PC's the front office was attacked by a worm(type of computer worm which speads rapidly to all the computers in the network). Sainsbury's was out of action for several hours which accounted for a huge loss. If the similar thing happened with the supply chain then it can tolerate it.

After this incident Sainsbury's and accenture focused on the security and they replaced all the winows PC's with the stable solaris Operating system and Sun's high reliability servers. After that Sun introduced several layers of security for strengthening the case for all the new softwares developed like Auto ID.

5) Open standards

All the IT operations outsourced to accenture were to be done in open standards. So that it would not be a problem for future plans. And also it enables to use various commerically availble software to be used without minimal issues.

Sun suppports all the standards of Electronic Product Code(EPC) which would be very helpful for the future generaion supply chain networks.. With the deal made with Intel rival AMD made the point of open systems, because of the high reliability of UNIX servers.

“Open systems are the systems that allows third parties to make products that plug into it. For example, the PC is an open system. Although the primary components are controlled by Microsoft, Intel and AMD, hardware devices and software applications are created and sold by other vendors for the PC. The term "open systems" referred to the Unix world because Unix ran in more types of computer hardware than any other operating system. “[www.your definition.com]

The first phase of supply chain transformation completed in 2004. Sainsbury's incured profits in varius sectors and with very flexible and standard systems placed allowed the company to elimiate the compexity of various issues and it could cut down the IT operating costs by several folds.

During the 2003 fiscal year there was a increased revenue of 2% and boosted operating costs by 9.4%. The online sales grew by 35% and set a standard ground for the coming years.

Issues faced in 2004:

In october 2004 Sainsbury's reported its first ever loss after a failed IT project. It created a huge uproar in market. Sainsbury's wrote down £140 million in IT assets and £120 million in automate distribution. Due to the overhal the stock price hae went very low. To get back things to normal it axed 750 head office jobs while taking on 3000 staff to stock shelves.

And the company started to concentrate on rebuilding its IT team inhouse and negotiations have been done wih Accenture. Sainsbury brought back Swan Infrastructure (the company setup to run transformation program) for £553 million.

Problems with the Accenture started in here when Sainsbury's found that Accenture has been give major responsibilty of all the problems. And Accenture distanced itself fom the supply chain problems and stressed that its contract did not cover the problem areas.

Now if we think about how sainsbury survided over years and hows it doing now we need to know how it has gone through the downturn because of the economic inflation. Which is discussed in the paragraphs belowL

Income Statement

2009 (£m)

2008 (£m)

2007 (£m)

2006 (£m)

Sales

18,911

17,837

17,151

16,061

Gross Profit

1,036

1,002

1,172

1,067

Total Operating Income

18,968

17,867

17,168

16,062

Balance Sheet

2009 (£m)

2008 (£m)

2007 (£m)

2006 (£m)

Goodwill

114

114

112

109

Stocks

689

681

590

576

Cash & Equivalent

627

719

1128

1080

Total Current Asset

1591

1610

1915

3845

Total Current Liabilities

2919

2605

2721

4810

Long Term Debt

2,177

2,084

2,090

2,178

Cash Flow

2009 (£m)

2008 (£m)

2007 (£m)

2006 (£m)

Net Cash Generated from Operating Activities

1,206

998

830

780

Proceeds from disposal of Property, plant and equipment

390

198

106

164

Dividends paid to shareholders

218

178

140

131

Cash at end of year

599

601

765

842

Sainsbury Key Financial s 2006-2009

Source: London Stock Exchange (2009)

Despite the drip in the gross profits for year 2008 Sainsbury's profits continued to increase because of the various strategies placed by Sainsbury's. The table shows the Sainsbury's performance over the past few years.

Maclaney and Atrill stated, ‘Profitability ratios provide an insight to the degree of success in achieving the purpose of the business'. The table below demonstrates Sainsbury profitability ratios.

2009 (%)

2008 (%)

2007 (%)

2006 (%)

Remarks

Gross Profit Margin (GPM)

§ Industry - 3.53%

5.48 (0.14% decrease from 2008, 1.35% decrease from 2007

5.62 (1.21% decrease from 2007)

6.83

(.19% increase from 2006)

6.64

GPM increased from 2006 to 2007 by 0.19%. In 2008, it fell by a margin of 1.21% from 2007. GPM in 2009 continued to fall in small s.

Net Profit Margin (NPM)

§ Industry - 0.92%

3.56 (0.59% increase from 2008, 0.53% increase from 2006)

2.97 (0.06% decrease from 2007)

3.03 (1.60% increase from 2006)

1.43

NPM increased by 1.60% from 2006 to 2007. During the downturn in 2008, it fell by only 0.06% from 2007. However, it increased by 0.53% in 2009.

Return on Capital Employed (ROCE)

9.46 (2.40% increase from 2008, 1.87% increase from 2007)

7.06 (0.53% decrease from 2007)

7.59 (4.70% increase from 2006)

2.89

ROCE almost tripled from 2006 to 2007. In 2008, it fell by 0.53%. In 2009, the firm showed the largest increase over the past four years.

Sainsbury Profitability Ratios 2006-2009

Source: London Stock Exchange (2009)

The ratios above shows a decline in profitability in 2008 when compared to 2007. The reason for the decline is due to the economic slowdown of UK which led to the changes on policies and practices for a way to overcome the inflation and increases in food prices. However in 2009 the profitability increased by approximately 3% overall. This was possibe by instigating the purchasing behaviour of the customer's and to attract them by reducing the wasteges by revamping and intensily increasing promotions.

The Gross Profit margin decreased slightly by 1.35% and net profit margin increased by 0.59% over 2008 and 2009. The return of the capital increased by 20% mainly due to property disposal and using that to finance the overall operations. From 2007 to 2008 it decreases slightly due to oil related costs and increased business rates.

Investment Ratio Analysis

2009

2008

2007

2006

Remarks

Earnings per share (EPS)

16.60

(Decreased by 2.50% from 2007 and 2.6% from 2007)

19.10

(Decreased by 0.10% from 2007)

19.20

(Increased by 15.40% from 2006)

3.80

From 2006-2007, there was a 20% increase in EPS. From 2007-2008 there was 10 pence margin between the s. It decreased in 2009 by 2.50%

Diluted Earnings per share

16.40

(Decreased by 2.20% from 2008 and 2.50% from 2007

18.60

(Decreased by 0.30% from 2007)

18.90

(Increased by 15.10% from 2006)

3.80

DPS remained moderately stable during the downturn but decreased slightly by 2.20%

Beta Ratio

-

0.73

(Increased by 0.18% from 2007)

0.55

(Decreased by 0.28% from 2006)

0.78

Beta ratio showed a slight decrease in 2007 but increased by a mere 0.18% in 2008.

Sainsbury Investment Ratios 2006-2009

Source: London Stock Exchange (2009)

Earnings per share fell by 10 pence during the economic downturn and declined further by 26% in 2009, therefore shareholders gained lower rate per share in 2008-2009. Diluted Earnings Per Share slightly declined by the same rate from 2008-2009. Beta ratio tells that the there is a little drift in the shares when compared to the market since it remains at less than one. In 2008, beta ratio increased a little due to downturn of the economic comditions but still the beta ratio remained under one.

Final Analysis:

Sainsbury's operates in a highly competittive environment. There are 4 major supermarkets Tesco, Asda, Sainsbury's, Morrisons which account upto 75% of the UK's market which can be clearly seen in the picture below.

All the 4 supermarkets follow the same low cost strategy. As the consumers are benefitting there is a increase in demand and the profit is steadily increasing. Each one of them is trying for the short time strategies so that they can gain the customers. But from the past few years the market is steady and there is no drift towards any supermarket. All o them having a steady state of market share. There is neither a decrease nor increase in ther market share.

Market Share of the Too Four Supermarkets in the UK

Source: www.marketresearch.co.uk

Changes in the UK Financial Market:

Due to econmomic crisis their were many changes occuring in the market.

Increase in unemployment:

The UK labor market was severely affected by credit crisis. This create lot of lay offs and unemployment increased from april 2008 to september 2008. The number of unemployment rose to 164,000 which is the highest recording since 1990. The unemployment rate was 5.8% for these 6 months. Due to this their was a sudden declination on the demand and the market was hit.

Source: http://www.economicshelp.org/blog/economics/uk-economy-2009/

Due to inflation the costs increased and the market shrink due to less demand as consumers has a difficult time buting things.

Due to downturn of the economic crisis the supermarkets can no longer limit themselves for just a few food products. Their was already a food inflation which made them look for other products like finance and mobile and broadband markets. This helped a lot as though there was a slowdown in food product sales they cold maintain their sales in other areas.

In 2008 the supermarket spenf £123 billion for consumer spending while it was only £119.8 billion which records a increase of £3.2 billion from the previous year. This shows how the supermarkets developed strategies to get profits even during the time of inflation.

PESTEL ANALYSIS:

PESTEL stands for Political, Economic, Social, Technical, Environment and Legislative.

It is a strategic planning technique that provides a useful framework for analysing the environmental pressures on a team or an organisation.

PESTEL Analysis of the UK Supermarket Industry 2008-2009

Source: www.marketresearch.co.uk

Effects of Financial Market on Sainsbury

In 2008 due to downturn the supermarkets deployed several strategies to overcome the slow sales growth. Some of the changes in the strategies are discussed below:

Effects of the downturn

Changes made to adapt

Increase in unemployment, rise in food inflation and decrease in disposable income.

Household budgets were clearly under pressure from the effects of the downturn. Sainsbury had to slash the cost of essentials and basic products as customers faced the biggest squeeze on income in 50 years. Marketing strategy shifted to focus on cost and their value chain was adjusted to improve layout, increase space, future hedge with suppliers, and shed off unnecessary costs. Customers were demanding low cost products and Sainsbury adjusted to suit demands.

Decreased Interest rate and decreased CPI annual inflation rate.

Sainsbury benefited from decreased interest and CPI inflation rates as more customers were able to take advantage of lower borrowing. Sainsbury took advantage of this by lowering prices, and intensified marketing of their cheaper own label goods.

Lifestyle changes

As the economy dipped, more people chose to prepare home-cooked meals to eliminate the costs attached to eating out. Penny-pinched consumers depended on Sainsbury to provide low cost vegetables and meats from tied in suppliers.

Competitive rivalry, customer loyalty

Fierce competition caused Sainsbury to focus on value, price and advertising while reinforcing excellent customer service Sainsbury annual report (2009) stated that a clear strategy was developed to focus on five main areas: great product at fair prices, increase growth of non-food ranges, additional marketing channels to reach more customers, increase space and active property management (includes disposal of property and investing in increasing space in profitable areas). Sainsbury increased promotions and marketing strategies such as ‘Making Sainsbury's Great Again', loyalty discount cards, online shopping, cheaper and high quality own brand goods and increase in technology and faster checkout time. They additionally branched out spreading risks into the financial sector, oil-related areas and department stores.

Effects of the downturn on Sainsbury

Source: Sainsbury Annual Reports 2008 and 2009

Logistics is the management of the flow of goods, information and other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers (frequently, and originally, military organizations). Logistics involve the integration of information, transportation, and inventory, warehousing, material-handling, and packaging.
Logistics management

Logistics management is that part of the supply chain which plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements. A professional working in the field of logistics management is called a logistician.
Logistics Management Software

Software is used for logistics automation which helps the supply chain industry in automating the work flow as well as management of the system. There is very few generalized software available in the new market in the said topology. This is because there is no rule to generalize the system as well as work flow even though the practice is more or less the same. Most of the commercial companies do use one or the other custom solution.

But there is various software that is being used within the departments of logistics. Few department in Logistics are namely, Conventional Department, Container department, Warehouse, Marine Engineering, Heavy haulage, Etc.

The software that is used in these departments is:

Conventional department: CVT software / CTMS software

Container Trucking: CTMS software

Warehouse: WMS

Business logistics

Logistics as a business concept evolved only in the 1950s. This was mainly due to the increasing complexity of supplying one's business with materials and shipping out products in an increasingly globalized supply chain, calling for experts in the field who are called Supply Chain Logisticians. This can be defined as having the right item in the right quantity at the right time at the right place for the right price and is the science of process and incorporates all industry sectors. The goal of logistics work is to manage the fruition of project life cycles, supply chains and resultant efficiencies.

In business, logistics may have either internal focus (inbound logistics), or external focus (outbound logistics) covering the flow and storage of materials from point of origin to point of consumption (see supply chain management). The main functions of a qualified logistician include inventory management, purchasing, transportation, warehousing, consultation and the organizing and planning of these activities. Logisticians combine a professional knowledge of each of these functions so that there is a coordination of resources in an organization. There are two fundamentally different forms of logistics. One optimizes a steady flow of material through a network of transport links and storage nodes. The other coordinates a sequence of resources to carry out some project.

Production logistics

The term is used for describing logistic processes within an industry. The purpose of production logistics is to ensure that each machine and workstation is being fed with the right product in the right quantity and quality at the right point in time.

The issue is not the transportation itself, but to streamline and control the flow through the value adding processes and eliminates non-value adding ones. Production logistics can be applied in existing as well as new plants. Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and new ones added, which gives the opportunity to improve the production logistics system accordingly. Production logistics provides the means to achieve customer response and capital efficiency.

Production logistics is getting more and more important with the decreasing batch sizes. In many industries (e.g. mobile phone) batch size one is the short term aim. This way even a single customer demand can be fulfilled in an efficient way. Track and tracing, which is an essential part of production logistics - due to product safety and product reliability issues - is also gaining importance especially in the automotive and the medical industry.

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Sainsbury 's is the UK's longest standing major food retailing chain. It started it first store in 1869 amd now it has 500 supermarkets and 300 convenience stores with more than 150, 000 employees.

The company also includes Sainsbury's bank which is a joint venture and also it provides internet based home delivery service from 165 stores. On avergae it offers around 30,000 products.

Since 2004 the number of stires for Sainsbury's had increased by 30%. To increase their market evenmore there are 5 things that has been the prime focus of the Sainsburys from then. They are

1) Good food at fair prices

2) Increasing the growth of nonfood product ranges so that to reduce the impact of the food inflation on the enterprise.

3) Advertising the additional customers through convenience stores, onlines based home delivery operations and Sainbury bank.

4) In june 2009 the enterprise announced a target to increase its floor space by 15% by 2011. This 15% also includes he 2.5m square foot of the shop floor space.

5) Active property management.

Challenges:

All online operations and supply chain are dependent on the availability of IT infrastructure. Eventhough the whole company's network is managed externally, it could retain control of its DMZ(de-militarized zone) which provides the means to link to the external systems and internet through a secure connection. If any problem may occur likebreack of the secure connection are a problem with the DMZ then it could impact all of the online shoppers and also it would impact on te product stock levels.

With more than 100,000 deleveries every week Sainsbury's is the second largest online food retailer in UK. It represents an important source of income for the company.To handle this a reliable and cost effective IT infrastructure is needed for the Sainsbury's online as well as for the day to day operations of the supermarket. All the stores, business centers and disaster recovery site rely on the company's network to process customer payments and for internal and external communication.

All tha WANs( wide aread networks) and LAN (Local Areas Networks) are managed by Sainsbury's network service provider. It operates a DMZ which acts as a gateway for all the communications that are to be done outside of the enterprise this section of the network is highly secure and protects the core section of the Sainsburys system from all the external threats.

The DMZ network includes more than 100 servers. These are important for the Sainsbury's ability that help in communicating wit the suppliers andplace product orders as well as for the web based online shopping services.

A problem in DM network could impact the ordering anf receiving of the customer orders and process the orders. It is one of the sources of income for Sainburys where the revenue is increasing at a rapid rate, so a downtime could be extremely detrimental to the reputation as well as for the future growth of the company.

To avoid this problem Sainsbury had retained the internal control of the DMZ using a specialist team who will be responcible for supporting andmaintenance of the infrastructure.

The iteam came with an idea based on CA NSM and older CA network management option. Sainsbury's needs advanced network management solution that can provide visibility of all DMZ devices and still should be able to integrate with CA NSM

solution:

To overcome this the Sainsbury implemented CA Spectrum Infrastructure Manager which handles 1800devices within DMZ and wider network. This Infrastructure manager provides alerts to any problems that arise in the DMZ and also it integrates with CANSm which is used to monitor 1200 servers within the production environment and centrally consolidate system alerts.

In july 2008 Sainbury deployed CA spectrum Infrastructure manager with assistance from CA partner Darasoft solutions. Th CA spectrum infrastructure manager not only monitors the 1800 deviceswithin DM but also provides good transperancy and performance levels and also help in management of its outsourcing partner.

When ever a problem is detected in Sainsbuey's DMZ infrastructure an automated alarm is raised. The infrastructure manager used even correlationa dn fault isolation which helps in validatinf tha alerts and remove any unnecessary noise. This also aids in prioritising the alerts raised so that the high risk alerts will be dealt first and also it removes any duplicates generated in the system.

The alerts are routed through a CA NSM, which acts as the retailer system managers, It also handles alerts from hardware systems and mainframe environments. CA NSM provides a single interface for managing any issues that occur all through over the 1200 production services. This solution is integrated with a service desk system which raises it tickets for high priotity issues.

In addtio to alerts the Infrastructure manger also provides weekly reports for the Sainsburys on the network performance and also detailed roperts on an ad hoc basis. These are very useful for looking into problems encountered in the network and also to enhance the security of the network for example using these reports all the open ports in the system were studied and how they are used. With the help of this all the unused ports are identified and have been closed.

CA spectrum infrastructure manager was also easy to use with one click interface and is securely accessed from any desktop in the team this means that it was able to increase the number of users intern its helping to utilise the resources more effectively.

Benefit:

By the use of this the visibility of the entire IT infrastructure had beem improved and it can prioritise its response to the problems i.e., it responds to each of the problems according to their priority levels. By this means the retailer can safeguard the availability and performance of the DMZ. This in return ensures that all the online orders are processed promptly and the there is no disruption to the supply chain.

With the use of CA spectrum infrastructure manager the Sainsbury's is able to safeguard the availability and performace of DMZ which also helps for:

1) It ensures that all the 100,000 online orders made are processed promplty every week.

2) Ir provides the access to email and internet all the time

3) It prevents disruption to the supply chain.

The company states that” Many of our operations rely on the DMZ network. By safeguarding its availability with CA solutions, we can minimize any impact to online shopping and ensure that our shelves remain fully stocked”

deal with IBM:

Sainsbury's has signed a 5 year contract with IBM to reconstruct the supply chain. Under the contract the IBM will host a system which replaces legacy platforms with the vendor Wesupply. The host system will be made based on the network and vissibility application. By this the supermarket chain is trying to enhance its supply chain performance and interaction with its 4000 suppliers. And they are planning to set up a real time view of supply chain performance.And all the electronic data interchange will be changed Inovis.

Sainsbury is looking for a advanced It service which would monitor all the status of the orders and better managibility. It should also should be able to streamline information flows on orders, shipping information and invoices.

r ve The new platform created will integrate with the office systems of the company and does the checking anf validation of content against business rules. If there ever occurs an error or any delays occurred in the data then it would create alerts and will be sent. And all these alerts are prioritised depending on their risk levels. And the errors are resolved based on theit priority.

According to Sainsbury's “the measures will improve stock availability as well as customer service.

“To support our continued growth, we were looking to enhance our collaboration with suppliers without a significant increase in cost, while continuing to introduce greater intelligence into our supply chain," said Sainsbury's director of supply chain operations Tim Goalen.

Even though each supply chain has its own demands and challenges there is a basic pattern to the practice of supply chain management. There are five ares in which each all the supply chain management practice. Even though each of the companies may look to improve one of these areas all the companies who practice supply chain management work on one of these areas so that they can meet their market demands and operating challenges. And these five areas are

1. Production:

It is about what products the market want? what products needed to be produced? how much production has to be done? And by when should they be produced? This

All these activities include creation of master production schedules which will look into the capacity of the plant, workload on the machines quality of the products produced and equipment maintenance.

2) Inventory:

Inventory is has an important it acts as a buffer for the supply chain because inmost cases the supply chain cannot tell how much of the raw goods, semi finished goods and fully finished goods are needed. It will remain uncertain in most cases until the production is done. However keeping a load of goods in the inventory is expensive so the inventory holds the key aspect of how much is the optimal inventory levels of the goods and the reorder points.

3. Location:

Where should be the production unit? Where should be the inventory? What is the most cost efficient locations for the production and inventory? Are the current and productions units enough or should we need new inventories and production units? Once all these questions are answered they determine the possible paths for product to flow to the final consumer.

4. Transportation:

How the goods are moved from one unit to the other? What is the best means of transportation? Transportation by air and by road are reliable but expensive. Shipping by sea or through rail road is very cheap but it takes longer transit times and so the shipping times or mostly uncertain. These uncertain times will be okay for stocking the inventor. So these rail and sea transportation is used for stocking up the inventory. And the road and air route is used for shipping of the finished goods. Although these means of transportation seems to be effective its always uncertain how the conditions might arise so what is the better mode of transportation is always uncertain.

`` 5) Information:

How much data should be collected on the production units and inventory units and how much of this information should be shared? Accurate information at the correct time holds the key role in decision making. With accurate information effective decisions can be taken like what should be produced?, how much should be produced? And where to locate inventory and how best will the transportation be and the effective way for the product flow is taken.

By making decisions based on the above five aspects will determine how effective the companies supply chain is. The way the company does the work and the way it competes with the other companies in the market is all depends on the effectiveness of its supply chain. Depending on the need the market companies introduce strategies to serve a mass market and compete on basis of price. It would had been better if it had a supply chain that is optimized for low cost. If a companies strategy is to compete on basis of customer service and convenience then it should have better supply chain optimized for responsiveness i.e., it should provide a quick response to all the requests made to it. What a company is and what can it do depends on its supply chain and the market it serves.

How the supply chain works.?

Production:

Production refers the amount of goods the company can make and store them. The factories and warehouses are used for these purposes. The most difficult task that the managers face when making decisions on production is to resolve the trade-off between responsiveness and efficiency. If the facilities and warehouses are built big so that they can have a excess lot of capacity then they will be very flexible and they can respond to any order immediately. But on the other hand they cost a lot and also all the excessive capacity which we have in the facility has no use and they can not even provide the revenue, so the more excess capacity that exists the less efficient the operation becomes . If the facilities are built a bit small so that all the goods would exactly fit in. Then if there is any changes in the supply chain then it would not be enough. So the facilities should not be constructed too big that the goods would be of no use or should not be too small enough they cannot not even accommodate the a few surplus in goods. These facilities can be built to accommodate one or two approaches:

1. Product Focus:

A facility that takes a product focus performs operations to the given product line over a range from developing of these individual product parts to assemble all the parts to make it as an entity

` 2. Functional focus:

While the product focus performs all the operation like selects all the group of parts and assembles them together the functional focus only performs part of the operations like just selecting the group of parts or only just assembling all the parts. These functions can be used to do small operations but can do different kinds of operations. While the product focus approach gives a result of expertise in all the functions the functional approach results in expertise about particular functions. The enterprises should decide on which approach to use whether to gaiin expertise on the given product or to gain expertise on an given function or a mix of the true approach also works fine as long as the companies demands are approached. Actually the mix of the two approaches will give the companies the capability and expertise they need to respond to customer demands.

As the factories have approaches similarly the warehouses also have different approaches. There are three approaches on the basis of which the warehouses are built so that they can accommodate different approaches:

1.Stock keeping unit(SKU):

This is the effective and easy to understand way to store the products. This approach follows the traditional way of storing things. By this method all the similar products are stored together.

2. Job Lot Storage:

In this type of approached based on type of the product the products are divided. In most cases needs for a certain type of consumers are stored together or products related to a particular job are joined together. This helps in effective picking and packing operation but usually requires lot of storage area than the SKU storage approach.

3 cross docking:

Wal-mart is the supermarket that first made this approach. By this approach the products are not in the warehouse. Instead the facility is used to work on process where the goods are arrived. All the process is done here where all the supplier's arrive and all

the unload is done. By this method the large lots are divided into smaller lots. By the method ther ill be many small lots of products. These smaller lots are all recombined according to the needs of the dayand they are quickly loaded into trucks that deliver these products to the final destination.

***Inventory:

Inventory is facility where all the raw materia ls, semi finished goods and finished goods are stored. These inventories are all over the supply chain and they contain goods a that are held by the manufacturers, distributors and retailers in supply chain. Even though there can be lot of goods in the inventoy the manager plays tha major role in deciding the products that will be contained in the supply chain. Because storing all the raw materials and semi finished goods has no use and also that do not provide any revenue. So depending the the size of facility and the products available managers decide the inventory products based on the efficiency and responsiveness needed by the company. Even though a large inentory costs a lot and is kept as low as possible there are three basic approaches to decide regarding the creation and holding of inventory.

1) Cycle Inventory:

It refers to that amount of inventory needed to just satisfy the denad for the given product in the period between product purchases. Most of the companies try to buyimportant goods in bulk. The companies make deals for large amounts so that they can get the goods at a little cheaper prices. But the thing is when large lots of goods are purchased there will be lot of shipping and the shipping costs will certainly amount to a lot. Not only that carrying costs also account to a lot these carrying costs refer to storem handle and insure the inventory. Managers always face the confusion of which one to use whether the reduced cost of orering or the better proces offered for the product by the company. This increases the carrying cost of cycle inventory that comes when the products are purchased in a bulk.

3) Safety inventor:

4) Seasonal inventories.