Operations Management Analysis of Asda

3988 words (16 pages) Essay

10th Jan 2018 Marketing Reference this

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Introduction:

Every function of the business has its significance, importance and place in the business organizations. Not a single department, function or activity can be declared as sole vital for the life of a company. It is the combined effort of all the departments and joint work of function involved, which brings success, revenues and business development. However, the key factor of the business, are divided in some shapes; to get a clear and visible picture of the overall business activities, being carried out by the organization.

Operations management, financial management, marketing, sales, customer service, quality assurance, information technology and research and development are largely the main functions of a business entity in 21st century. No one can declare any of these functions as the sole guaranteer for the corporate success of the company, every function has its competitive and comparative advantages and also everyone has some unique characteristics which help in making that particular function more important. However, there is a function which is quite visible in all of these functions, or we can say that it is a facilitator of all the departments and functions in any organization. That particular function is called operations.

Whatever may be the department or function, there will be a process and procedure involved in the work flow of that particular unit. Operations are everywhere, whichever department we select; we will see a line of operations and standard operating procedure. This indicates how important and integral it is, to have a transparent and effective operations management system. Operations management not only gives insight about the efficient and effective workflow of a particular department but also helps in getting a smooth workflow all over the organization. The process and strategic planning is quite imperative for the success of the business, but the effective execution of that particular plan is far more important than that.

Effective operations management can help in achieving the group, departmental and organizational goals achievement in an effective, efficient and less costly way. So we can declare that, operations management ensures the life of the company. This report is a case study of ASDA’s operations management mechanism and is purely dedicated to find out the rights and wrongs in the operations of ASDA.

Operations Management:

Operations management is a management function and subject, which is largely concerned with supervision, design, and redesigning of the business operations in the making of goods and services. [1] It has two dimensions, one is company dimension and the other one is customers’ dimension. The company dimension of the operation management is dealing with the operations in a cost effective, efficient and less costly ways, while the customer requires the greater quality of the product and service. So in business operations, an organization has to ensure, not only its own circumstances and financial position but also the customers demand.

In simple words, the operations management is an organizational function, aimed a smooth flow of the processes to convert the input into the required output, in an efficient and cost effective way. So the quality assurance of the product offerings and their cost, are the key points of studying the operations management. Operations management usually refers to the production of goods and services independently, even though the difference between these two central types of operations is ever more difficult to make as producer convinced to combine product and service offerings. More commonly, operations management targets to increase the satisfaction level of value-added actions in any of the given processes. [2] 

The fundamental objective of the operations management departments attempt to create the desired balance between the costs and revenue to get the maximum net operational profit, but at the same time to ensure the quality of the product and service. Operations management includes the activities that are involved in the process of production and distribution of the goods and services. Normally, the small companies do not involve in the operations management processes but major businesses stress upon properly keeping up with the operations management processes and normally they do not change the processes rapidly.

Company Overview:

ASDA is a British superstore chain which retails food, clothing, toys and general commodities. It also has a mobile telephone network, ASDA Mobile. It has its head office in the ASDA House in Leeds, West Yorkshire. [3] ASDA became a subsidiary of the American retail giant Wal-Mart, the world’s largest retailer, in 1999. And today, it is the third largest chain in the UK after Tesco and Sainsbury’s. In December 2010, 16.5% of UK grocery stores used ASDA for their major shop, with ‘special offers’ the most bragged motive for its reputation. [4] 

Asda Stores Limited was established with the name of Associated Dairies & Farm Stores Limited in year 1949. However, the approval of the Asda name occurred in 1965 with the merger of the Asquith chain of three supermarkets and Associated Dairies; Asda is an abbreviation of Asquith and Dairies, often capitalised.

As Asda is subsidiary of Wall-Mart, so the focus of its marketing promotions have frequently been centred only on price, with Asda kept on promoting itself under the slogan of Britain’s Lowest Priced Supermarket, 13 Years Running. Because it is a wholly owned division of Wal-Mart, so, is not necessary for Asda to announce quarterly or half-yearly earnings. ASDA employs more than 150000, working on its more than 375 locations. The operating income of the company has been declared around £638 millions last year. Andy Clarke is the chief executive officer of ASDA and Andy Bond is chairman. Asda helped wall-mart getting success and market share in British market. [5] 

Under the leadership of strong people, ASDA has been pretty successful in competing with its rivals in the last many years. Today, although it is ranked on 3rd in terms of market share after Tesco and Sainsbury, still its reputation and public relations have been out standing.

Objective:

The objective of this study is to analyse the central operational functions of Asda and their associated factors, problems and deficiencies. In this regard, we will discuss the fundamental operations management theories and their application at Asda. We will also try to focus on the operational problems being faced by Asda currently because of increasing competition and financial crisis as well. In this regard, the key operational and functional matter of the company will also come under discussion.

Problems and Issues:

We have been observing a very sharp decline in the sales of the grocery store and shrinking growth for the last 3years or so, due to the financial crisis. In this scenario, the major problem for the companies is to sustain. For surviving and sustaining in this environment, there are two ways to be adopted. The first one is of increasing the revenues and the other one is of cutting the cost of doing business. In both of matters, the operational management capacity of the organization is challenged and the team is under strict pressure.

Competition has also increased and the competitors are trying very hard to gain the market share, in order to retain Asda’s market share, so here the company needs to have implemented effective operation management system and tools so that the production of goods and services will be maintained smoothly and customer’s demand is fulfilled quickly

So the focus of this report will not only be on the operations management of the company but also be on the dealing with the aftermaths of financial crisis with the help of operations management theories and practices.

Operations Management and Value Chain:

The concept of value chain is very important from the perspective of operations management. It is the fundamental concept on the basis of which all the operations building, is erected. Michael Porter is considered as the father of the value chain philosophy. He coined the idea of value chain in his book “Competitive Advantage: Creating and Sustaining Superior Performance (1985)”. This idea brought about a very positive change in modern day strategic management and marketing. Nowadays all successful companies give due importance to the concept of value in service delivery. Value means a mental perception of a product/service by the customer for which he is paying the price.

A person estimates the value by a simple equation; Value = Benefit/cost. [6] The concept of value is understood to be a core idea in marketing and strategic management. Many theories revolve around this concept of value; like value chain analysis and profit value chain etc.

The concept of service value chain is pretty similar to the Porter’s value chain idea. There is just a slight difference between them in terms of their practical implementation. For getting the true insight about these two models; fist we should understand the Porter’s value chain model.

Porter argued that the customer; when he pays the price for the product or service, he is not basically paying for the product or services.

He is paying the price of the perceived value which is delivered to him by the provider. If his benefits estimation exceeds the cost of the product or service, he will be satisfied and vice versa. So the core area of concentration in marketing must be to enhance the value so that the customer may be satisfied and come back again for the same value. [7] 

Value is not added on the corporate level. It is added from the operational level and with the efficient interlinks of the various functions. An organization is involved in two sorts of functions; the primary and core functions and the support functions. With the proper integration of the functions it can achieve the superior value. This diagram will further elaborate the Porter’s value chain model.

The primary functions include inbound logistics (Warehousing & raw material), operations (Process of converting raw material into finished goods), outbound logistics (finished goods inventory & packaging), marketing and service (selecting a target market and fulfilling its demand and after sales service provision etc.) While the support functions include the firm infrastructure, (its design, polices and procedures) HRM (hiring people, firing and training them etc.) Technology (technology enabled management to deliver quality and value), and procurement (purchase and warehousing).

Now we look at these main operations management functions separately, along with their complete reference to the organization of our concern.

The Value Chain of ASDA:

Inbound Logistics:

The Inbound logistics operations of Asda are presented in its totally inclined and agile form and also show the commitment of the overall low price strategic management o. As the company is among the major market players so it has the place and economies of scope which are considered as the key bargaining powers, it helps to achieve low costs through the suppliers of the company. The up-gradation of the IT and other functions of the company is a routine matter and with the improved order-taking system, the company has made it among leaders.

Out bound Logistics:

Asda is also working with all retail segments, physical ones, online and offline ones. As it is a subsidiary of Wall-mart, so it has to operate directly with all of the operations included in outbound logistics. The companies is always keen to of develop processes and tools to produce and distribute the goods and services effectively and efficiently. Asda has designed a variety of formats and types related to the stores, it will be implemented strategically with the aim of maximum exposure of the customer. The formats include the Express, Superstores, Metro, Extra and Homeplus, these ranges are divided and segmented according to the target customers [8] .

Marketing and Sales Programs:

Asda has also introduced incentives and various schemes for the benefit of the customers. Issues related to the environment, climate changes, public awareness, reduction of waste and the carbon footprint involved in the preparation of the meals. The company is always striving to satisfy the customers and makes them happy. This indeed has helped it gain greater respect in the eyes of the customers.

Services:

Asda is following what wall-mart is doing; the price leadership. The famous slogan of always low price depicts the philosophy of wall-mart. It is also implementing the strategies related to cost leadership and differentiation, the aim is to improve the customer service. The focal point of the value chain here is, is to create a valuable service which may result in a high degree of value as compared to the other service providers.

Asda has some very efficient strategies that are streamlined to apply the useful services in order to keep the customers. The main focus here is to reduce the cost of production and operations and hence gain a leadership position. There are some problems in the system, but can be resolved with the proper research and development.

Technological Factors:

In today’s globalized world, the leadership in the business can only be achieved through leadership in technology. Technology is an effective way to make the business more efficient, effective. It may happen that sometimes extra efficient use of technology may produce negativity, however this can be minimized. Asda has to take into consideration lots of matters related to technology, but as the technology is among major macro-environmental variable and it has influenced development of the Asda’s products and services.

Few years back when Wall-mart invested around $6 billion in its IT function to introduce RFID, they also introduce the same in Asda as well. This has increased service orientation of the business and customers are delighted. So we can say that technology is very important ingredient in gaining advantage over competitor in the operations management.

Information Technology and Integration:

Innovative technology has helped companies and the customers, in various functions and ultimately the rate of customer satisfaction has increased. Now the desired products and goods are available easily. Companies have individualized their services to make the customer happy, and hence the grocery shopping has become pretty suitable with easy access. Asda works on the ‘Customer is Always Right’ policy to improve its service orientation and has installed various IT gadgets to make the system more efficient.

Here is a list of those technology gadgets, which are being used by Asda in its business operations to make the customer more satisfied.

Self Check-out machines.

Wireless Devices.

Electronic Shelf and Labeling

Electronic Tracker

Electronic Fund Transfer System

Radio Frequency Identification (RFID).

These technologies have increased the value of these activities being performed in stores and making it more efficient. Now you have all kinds of solutions available under one roof of Asda.

I.T. Integration:

In this challenging time, the corporations are facing a rapidly increasing rivalry with changing environment and business tendencies. For long term survival in the business, the companies have to predict the change and adopt it as well. To endure and compete in this modern world it is compulsory to innovate in the technology, operational processes and improvement in the products and services.

When you are in the business of retailing, you have to keep these things in your mind. You have to ensure;

Proper Implementation of the systems to control and record all the stock.

Arranged record of all the previously delivered products.

Analysis of every business transactions properly.

The above mentioned are some factors that should be analyzed properly, as IT has many solutions that are beyond the traditional support role. Asda should also have adequate execution of extranet service it will be beneficial for the company. Here the internet will help to create customers circle and flow of customized information among the business partners and the company. Asda has taken an initiative to introduce the extranet system.

The system can provide connection with the business partners online and provides the opportunity to build relationships with the partners and delivering the easiest way of accessing the retailing services of Asda. There are many technological advances and systems that can support business operations. Asda has implemented some which includes like wireless devices, intelligent scale, electronic shelf labeling, self checkout machine and radio frequency identification systems. These systems can help the company in achieving its long term and short term goals and also the target to control the cost of operational processes and provide proper control upon the volume of the products and services.

Store and Inventory Management:

The inside store inventory management system of Asda is very effective because of the RFID technology used to store the information of the inventory and dealers information is also available with them which helps in making the process much reliable.

Channels management system:

The way it deals with its suppliers and other business partners that is really recommendable. As we discussed early that, value chain means to take care of not only your own value but he value chain of your network partner. Asda is working with a vast variety of suppliers across the world, being a major retailer with a diverse range of products and employed employees from very different ethnic groups and cultures. It is included in the policy of the company that it should maintain very healthy relationships with the suppliers and work with mutual concerns. The addition of technology in controlling the work pattern with the suppliers can improve the communication of the company with the suppliers.

Asda has a good network of communication with the suppliers because of Wall-mart but still it need to improve and add a technology that will be easily accessible by the suppliers and understandable also at the same time. The communication network should be very clear and effective between the supplier and the company. The record of all the required products should be clearly mentioned by the company to the supplier it will help in building a long term business. The contractors in the loop will be able to promote the orders and it will improve the conditions and steps included in the supply chain.

However, we see some loop holes in trade union relationship. In August 2005, the manager of a depot in Wakefield spoke out what were called “foreign-sounding” names over the communal address system ordering them to report instantaneously to the manager’s office. At least one was threatened with the sack unless he produced his passport the next day. The highly public initiative by management, which came within weeks of the 7 July bombings in London was followed by a flurry contempt for Muslims and their religion. [9] 

Loop Holes in the System:

In December 2007 Asda, Sainsbury’s and other retailers admitted to price fixing dairy products between 2002 and 2003. Asda commented, “Everyone at Asda regrets what happened, particularly as we are passionate about lowering prices. Our intention was to provide more money for dairy farmers, who were under severe financial pressure at the time.” So far in total these retailers have been fined £116 million.

Apart from this, we can see some of these problems Asda is leader brand and has massive business around the world. The strategies to control the business and increase the customer satisfaction and maximize the revenues are the ultimate goal of the company. There are some issues that are found within the company that are follows:

Lack of expertise.

No record maintenance of the stock.

Slow delivery to the customers

Logistics deficiency

No proper control of distribution channels.

Recommendations:

On the basis of the secondary data it has been proved that Flexibility in the work place is required because than the change will be adopted easily. The cost structure is varied at multiple places. In order to implement some efficient functions following steps should be taken:

Customer Service

Strategic Procurement

Supplier Connectivity and Order Fulfilment

Manufacturing Flow

Portfolio Management

Sales Cycle Efficiency

Reduction in unproductive time

Long term plans should be made related to technology

The above mentioned factors are at the initial level in the Asda company and can be handled very easily as Asda has many excellent and efficient ways to solve major problems. Asda also always takes care of its systems and processes but the only problem is the adoption of change which is very slow. Asda is a very large company which includes a large number of technological systems that are developed for the benefit of the company. Company also believes in fast transactions but the delivery process is still very slow in many areas, the customer order is sometimes ignored also due to lack of a communication tool.

Approach to Operations Improvement

Effective operations and processes allow a business to maximize its efficiency as well as revenues. It is necessary to understand the optimizing and streamlining the business activities and processes so that the output can be maximized. The processes should be built purely for the purpose of maximizing the customer satisfaction, profitability and increase effectiveness in the output.

To deliver the right good at the right place on the right time is the ultimate goal of the company but deeply requires the integration of the supply chain management and business processes and the contribution of buyers and suppliers, also joint product development, common systems within the company franchises and frequently shared information with the customers, suppliers and vendors.

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