-
Obstacles to supply chain management
implementation of Sainsbury’s
re-engineering programmer
1.0
Project Aim
The
aim of this research project is to analyze the
reasons why Sainsbury‘s has made a
radical
change
of
the
supply
chain,
more
importantly,
to
examine
the
obstacles
of
implementation of the new supply chain.
2.0
Project Objectives
?
To
briefly
describe
the
importance
of
the
supply
chain
in
the
industry
of
the
supermarket.
?
To examine the reason of the fall of
the Sainsbury‘s old supply chain
strategy.
?
To
analyze
Sainsbury‘s
new
supply
chain
activities
in
implementation,
and
to
assess
the
possible
obstacles
to
Sainsbury‘s
SCM
(supply
chain
management)
implementation.
?
To
put
forward
recommendations
of
how
to
overcome
the
barriers
of
implementation SCM in
S
ainsbury‘s.
3.0
Context
In
order
to
have
a
clear
understanding
of
this
research
it
is
essential
to
outline
the
basic
theory
of
the
supply
chain
and
in
addition
give
an
overview
Sainsbury‘s
supermarket
which
has
undertaken
a
new
supply
chain
system
to
improve
its
performance.
2
3.1Area of
Research
The
SCM
is
indeed
a
very
broad
area.
The
scope
of
this
research
is
restricted
to
supply
chains
in
supermarket
industry
where
the
success
of
logistics
processes
is
largely
dependent
on
how
well
physical
deliveries
are
integrated
into
the
implementation
of
a
project.
More
importantly,
these
research
objectives
will
specifically focus on
the obstacles of implementation of SCM in
Sainsbury‘s.
―Over the past decade, companies have
been focusing their competitive
strategi
es on
leveraging the
competencies and capabilities to be found in the
clusters of customers
and
suppliers
constituting
their
business
supply
chains‖
(Ross,
2003)
.
Today‘s
best
enterprises have increasingly looked
toward SCM to gain the competitive advantage
that is difficult to imitate.
As for the supermarket
industry in the UK, the competition among the
Sainsbury‘s,
Tesco and ASDA is fierce
and the margin is extremely low. To gain the
market share,
it
is
necessary
to
have
an
effective
supply
chain,
for
the
reason
that
the
basic
functionality of the retail industry is
about how to deliver the goods from the supplier
to the end customer in a proper way.
Therefore, ―
supply chain development is
a key
aspect of retailers' drive
towards market domination‖
(
Campbell, 2003)
.
3.2 Company Overview
Sainsbury's
Supermarkets
was
established
in
1869
and
is
Britain's
longest-standing
major
food
retailing
chain,
employing
over
145,000
people.
(
Sainsbury‘s
website,
2005)
.however,
by
the
mid-1990s,
it
was
abundantly
clear
that
Sainbury's
could
no
longer keep up. The
grocery giant had already been bested by longtime
rival Tesco.
Furthermore,
Sainsbury's
faced
increasing
pressure
from
Asda,
which
was
acquired
by
Wal-Mar.
3
The
reason
of
Sainsbury‘s
itself
was
that
the
company
wa
s
using
a
30-year-
old
warehouse
management
system
(WMS),
compared
to
the
age
of
the
average
Tesco
depot
—
seven
years. The consequences were apparent: stock
shortages were common,
and on one
occasion, all of the depot systems crashed when
Sainsbury's tried to order
goods
in
a
different
way.
Much
of
the
technology
budget
was
dedicated
to
maintaining
the
complex
and
outdated
IT
infrastructure;
and
it
was
particularly
difficult to
launch new business initiatives
(,
2004).
The change of
Sainsbury SCM had begun in the late 1990s with the
retailer's adoption
of
Manhattan
Associates'
advanced
WMS
system,
which
is
a
global
leader
in
providing
supply
chain
execution
and
collaborative
commerce
solutions.
But
wholesale change came in 2000 when
Sainsbury‘
s outsource the entire IT
function to
Accenture, which was
responsible for the IT transformation program at
Sainsbury's,
including
some
of
the
supply
chain
systems
.
The
transformation
is
arguably
the
largest
and
most
ambitious
retail
supply
chain
project
in
Europe
which
will
be
completed
in
2005
(
,
2004).
Sainsbury's
was
confident
that
the
investment in supply chain technology
is enabling it to measure stock-levels and sales
in
real-time
rather
than
the
day
after,
as
with
the
old
system,
which
will
make
the
difference and help it claw back
market-share
(
Campbell,
2003)
.
Nevertheless,
in
terms
of
the
financial
performance
of
Sainsbury‘s
in
2004,
the
advanced new supply chain was driving
Sainsbury's to the worst pre-tax result in its
135-year history. Some analysts argued
the failure of Sainbury's supply chain is the
result
of
introducing
sophisticated
technology
too
quickly.
However,
some
still
believe bad financial performance was
temporary and there was nothing wrong with
the supply chain
(O'Brien
,
2004)
.
Due to the fact that the performance in
Sainsbury‘s with its re
-engineering
program
was
not
what
Sainsbury‘s
expected,
the
purpose
of
this
study
is
to
identify
and
describe key factors that impeded the
implementation of supply chain choices.
4
4.0
Literature Review
This chapter presents the
basic management concepts and theories that are
essentially
linked
to
the
research
problem
and
questions.
The
chapter
is
composed
of
three
sub-chapters. It starts with an
introduction to the concept of supply chain
management
and
its
main
objectives.
The
purpose
is
to
create
a
solid
base
for
judging
the
successful
elements
of
the
supply
chains.
The
second
sub-chapter
deals
with
the
obstacles to SCM implementation.
The literature
search has done by making the greatest use of the
secondary literature
sources, and
followed by the primary literature sources. Hence,
there is a wide range
of
literature
relating
to
the
broader
area
of
SCM,
including
business
newspapers,
books, journals,
electronic resources on Internet. There is however
far less literature
relating
particularly to SCM within the retail industry. As
for this reason, only half of
them were
taken into consideration.
4.1 SCM (Supply Chain Management)
Over
the
past
decade,
there
has
been
an
increasing
emphasis
on
supply
chain
management
through
which
firms
can
achieve
competitive
advantage
in
markets
(Dyer, Cho and Chu,
1998). A large number of examples in the 1990s,
both successful
and abortive, show how
companies have made large investments to
streamline their
supply
chains
in
order
to
improve
customer
satisfaction
and
increase
their
internal
productivity. As Christopher (1998)
states, it is not actually individual companies
that
compete
with
each
other
nowadays;
rather,
the
competition
is
between
rival
supply
chains.
Those
supply
chains
that
add
the
most
value
for
customers
with
the
lowest
cost in the chain make up the winning
network of individual companies. Therefore, it
is now necessary to take a closer look
at the concept of supply chain management and
its key objectives.
5
All
too
often
in
the
literature
the
term
supply
chain
management
is
narrowly
understood
to
be
the
same
as
logistics
management.
In
fact,
the
concept
of
supply
chain management has been derived from
logistics management and it has a broader
scope than tradition logistics within
companies.
Mainly due to the oil crises in the
1970s, when both transportation costs and interest
rates
–
and thus
also inventory carrying costs - rose at the same
time, the importance
of logistics to a
company‘s profits was really understood by top
management
(Ballou,
1992)
. It was then soon
realized that optimization of physical
distribution alone was
not
good
enough,
but
rather
purchasing
and
material
handling
should
be
integrated
very tightly into it. This integration
process was leading to an evolution of logistics
management
that
according
to
many
sources
(e.g.,
Langley
and
Holcomb,
1992;
Ballou, 1992; Gattorna & Walters,
1996)
can be considered to be the
combination of
two
management
disciples:
physical
distribution
and
materials
management.
Gradually,
logistics
management
was
understood
as
a
cross-functional
activity
affecting
the
whole
organization,
instead
of
optimizing
logistics
separately
in
each
functional column
(Christopher, 1998)
.
Christopher
(1998)
has
defined supply chain
management as
follows:
“The
management
of
upstream
and
downstream
relationships
with
suppliers
and
customers
to
deliver
superior
customer
value
at
less
cost
to
the
supply
chain
as
a
whole.”
In
recent
years
the
term
supply
chain
management
was
confronted
with
some
criticism
that
the
notion
does
not
describe
its
customer-oriented
focus
well
enough
(e.g.,
Christopher,
1998;
Vollmann
and
Berry;
2000)
.
Therefore,
the
term
demand
chain management has been used
alongside supply chain management in the
literature
to stress the importance of
customer-oriented thinking. However, this work
maintains
that a demand chain is not
the same as a supply chain, and therefore demand
chain
6
management and supply chain management
are not synonymous. According to
Eloranta
(1999)
,
a
demand
chain
transfers
demand
information
from
end
customer
markets
to
suppliers,
whereas
a
supply
chain
creates
products
and
services
that
are
transferred
from
suppliers
to
end
customers.
Working
together,
the
demand
and
supply
chains
create
the
demand-supply
chain.
A
demand-supply
chain
is
an
end-to-end
network
where
demand
knowledge
is
passed
from
markets
to
supply
sources and value offerings are passed
from supply sources to consumers
(Eloranta,
1999).
Figure 1: Demand-supply
chain
(Eloranta, 1999)
4.2 Obstacles to SCM implementation
Change was the hot
management topic of the 1980s and 1990s. It seemed
that every
organization was doing it
and every author was talking about it. The
strategic change
was
cited
as
the
only
way
to
survive
the
accelerating
cycle
of
product
and
process
innovation
(burgess,
2001)
. By 1994 over 40% of major US
companies had had 11 or
more major
change programmers in the previous years
(Filipczak, 1994)
. Achieving
a
step
change
of
SCM
can
provide
organization
with
a
significant
competitive
7
advantage if it produces the right
results. But, accomplishing this level of change
is
never
easy.
Indeed,
―by
most
estimates
50%
to
70%
of
SCM
change
initiatives
launched in
the past 20
years failed to achieve their
objectives‖
(burgess, 2001)
.
After 20 years
of sustained change management theory and
practice, and almost ten
years
of
supply
chain
management,
a
successful
implementation
can
still
provide
a
competitive
advanta
ge.
In
1996,
Donlon
stated
that
the
?main
barriers
to
full
SCM
literature also fails to raise the
obstacles that may be faced by those
implementation
SCM.
Unfortunately,
the
author
did
not
explain
what
these
familiar
barriers
are.
Similarly, a survey be Ernst and Young
identifies that organizations place excessive
emphasis on IT, and not enough upon the
real problems associated with SCM
(Baxter,
1994).
In
2002,
research
by
Burgess
has
shown
that
there
are
six
main
obstacles
to
implementing
SCM
(see
Figure
2).
Each
of
these
obstacles
could
severely
limit
or
totally prevent the success of the SCM
programmer. The figure below illustrates the
six major obstacles that companies
implementing SCM have faced on their paths to
achieving SCM.
Profect manag
ement
Suppliers
Organization s
tructure
Skill&knowledge
Resou
rces
Cultural
0%
20%
40%
60%
80%
< br>100%
% of imlementers who have faced
the obstacles
Figure 2
Major obstacles to SCM implementation
8