Term Paper on "Morrison Supermarket PLC"

Term Paper 10 pages (2881 words) Sources: 15 Style: Harvard

[EXCERPT] . . . .

Morrison Supermarket PLC

Morrison's overview

Morrison's is the fourth largest supermarket chain in UK. The company was founded in 1899 and it currently runs over 370 stores across the country. Unlike its main competitors, the retailer chose to focus on groceries and homewares and leave behind other products such as clothes and furnishings. Its strategy is centered on being efficient while providing basic products (e.g. food) and sell only in large stores.

At year end 2007, the company declared a £12,462 million revenue and £248 million in net income. At the end of the same year the company's personnel was hiring over 118,000 employees nationwide (Morrison's corporate website, Accessed April 2008).

The retailer's operations are split on six major areas: Midlands - with 75 supermarkets, North - with 72 supermarkets, South East - with 63 supermarkets (one of which in Gibraltar), South Central - with 62 supermarkets, South West - with 51 supermarkets and Scotland - with 51 supermarkets.

II.1. The theory of swift even flow

The original theory of swift even flow (Schmenner & Swink, 1998) suggests that a process' productivity increases as materials flow through the process and decreases with either the steps in the process or the demand on it. Without underestimating the capital -intensive character of those factories that have adopted a continuous flow process, these authors argue that productivity stems from the speed to which materials flow in the process and it falls when factors such as variability enter the equation.

In a later study, Schmenner (2001) hypothesized that those companies that had adopted a swift even flow should have performed better than those who hadn't. Indeed, major companies such as: Procter & Gamble, Standard Oil or Ford Motors stand as an example of swift even flow's success, whereas U.S. Steels's failure points out how rejecting this productivity method could lead to the failure of a giant as such.

Some of the basic issues related to swift even flow that need to be addressed refer to either swiftness or variability as follows (Schmenner, 2002):

Swiftness

Reason and place where materials lose time in the process

Inventories and bottlenecks reduction

Waste reduction in the materials/information flow

Ensure "once in motion, always in motion"

Reason for flow interruption or disconnection

Variability

Identification of problems with materials and service be Orders' irregularity arrival/size

Number of product/service irregularities

Added complexity cost attached to volume and product variability

Time spent by people/machines on variable time consuming products/services

II.2. The theory of performance frontiers

The theory of performance frontiers defines the performance of a given firm as the position of in an n-dimensional space of possible performance levels. The performance in this space is limited by the performance frontier (Schmenner & Swink, 1998), which may well be an extension of the production possibility frontier (Holmstrom, et.al., 2006). The ultimate performance frontier as generally quoted by the economic theory is the available technology, although Schmenner & Swink (1998) argue that other factors other than this one may limit performance before technology.

Performance optimization can be seen as either the attempt to get closer to the performance frontier or as the frontier's shift further in order to achieve a competitive benefit (Hayes, et.al., 2005). However, Holmstrom, et.al. (2006) argue that a productivity frontier shift is the case of extraordinary productivity drivers, such as the emergence of Internet or usage of radio frequency identification (RFID) chips.

FIG. 1 - PERFORMANCE IMPROVEMENT PATH

Source: Lapre & Scudder (2004)

The so called performance improvement path introduced by Hayes & Pisano (1996) and Clark (1996) refers to the actions undertaken by companies while attempting to improve their performance. Lapre & Scudder (2004) picked up from the former and raised a key question: should improvement attempts be approach on several dimensions simultaneously or separately (e.g. cost or quality/cost and quality).

II.3. Morrison's operations strategy and service delivery system

The UK supermarket industry is a mature one in which the following can be considered success determinants: value chain integration, value for money, customer experience, cost management and marketing power. Morrison's excels in the first four categories, but needs improvement in the last two. In fact, its superior value chain integration and the ability to provide cost benefits to its customers differentiated its services from those of its competitors.

In terms of operations management, the company has a well developed internal system which integrates production, logistics and marketing in the house. Thus:

The retailer is the largest in UK to produce and sell its own food - almost 80% of the fresh fruits and vegetables. For the customer this is translated into fresh food of good quality. Furthermore, because there is no middleman between buyers and the retailer, the products are sold at lower prices. Other retail products are provided in the same way through the company's inbound logistics system.

In terms of operations, the retailer considers its supermarkets its shop floors. Customers are provided with a unique shopping experience and the company managed to develop successful concepts such as the Market Street, which stands for natural, fresh products. In this section, the buyers get to see how the products are processed for several food categories, such as: cakes (the Cake Shop), fish (Fishmonger), bakery (Oven Baked), meat (Family Butcher), grocery (Greengrocer) and more sophisticated food (the Delicatessen).

The customer-related outbound logistics still needs improvement despite checking out and parking facilities that the company offers to its customers. The other large supermarket players, such as Tesco and Sainsbury offer better services in this area.

The distribution from production place to the selling one is done through a sophisticated distribution system, which uses third-party contractors for some activities. The largest contractor is DHL Exel Supply Chain, which currently runs eight distribution centers. For other activities, such as flowers, the retailer is using one of its own subsidiaries called Wm Morrison Produce Ltd., which ensures transportation in special conditions meant to preserve the products at a given temperature and humidity. The meat production, transportation and selling is also completely integrated in its value chain.

The company's operations strategy is focused on vertical integration along the value chain. The vertical integration refers to the control of one owner over several stages in the value chain. More specifically, a company is vertically integrated when the business units owned by it are organized in a hierarchical manner and they produce different goods/services, which are all contributing to the company's goals. Morrison's is running complex production and logistics systems that enable it to deliver medium quality goods in an efficient manner (low cost and high speed). The retailer's latest acquisition, Safeway, allowed it to compete with larger players in the UK supermarket industry, such as Tesco. One of the most post-acquisition challenging steps to be undertaken had to do with implementing its traditional uniformity policy in the Safeway network, as the latter was used to flexibility in terms of price setting, promotions, stocking and recruiting additional staff. At one point, the company was faced with a general dissatisfaction of all Safeway employees, when the company decided to shut down Safeway's supply chain system, which was far more complex than its own and use its old system, thus reverting from automatic to manual activities in many areas. The positive aspect of this event is that Morrison's flaws in terms of it endowments were highlighted.

The retailer is a perfect example of a company successfully adopting a swift even flow strategy. Since the very beginning, uniformity was seen as a key to success and most decisions were made to insure it. The positive side here is that, by doing so, the retailer provided its customers with a very good shopping experience and a good cost/quality ratio. The negative side of uniformity is that it inhibits innovation and given that the industry is very dynamic and competitive, technology is a crucial factor for all firms to reach a better point on their performance frontier.

Although the UK supermarket industry is a mature one, Morrison's has plenty opportunities to grow as there are many options that are underexplored by the company, such as online activity or complex logistics solutions that are able to automate many of the currently manual activities. The online retail is a segment that is expected to increase to a large extent in the future. However, Morrison's lacks both the it infrastructure to enable it and the market share for this segment. The complex logistics solutions can either be developed in-house or adopted from one of the acquisitions, such as Safeway's system. According to Martin White, retail specialist and former Sainsbury's supply chain manager, Safeway logistics system "allow it to do real-time store stock management, and fingerprint scanning technology for monitoring performance management" (Knits, 2005). However, Morrison's lacked all these utilities and after struggling to integrate this superior technology, it was decided that is better to remove it completely.

Summarizing, the company has gained a competitive edge on its uniformity strategy, becoming a label for good value for money and shopping experience over the time. However, given… READ MORE

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