Logistics and Supply Chain Management

First of all, many items are sold at a rate of less than one per week, making accurate inventory visibility almost impossible. In addition the seasonality of the business, for example Christmas holiday season when peak sales are 200% greater than the annual average, makes the anticipation of future demand requirements extremely difficult. Furthermore, Argos's Legacy process requires separate weekly store level reporting that is then aggregated to determine replenishment requirements.

Inaccuracies and inconsistencies created by the manual interactions involved in this process require Argos to keep additional safety stock to manage acceptable levels of serviceability for its customers. This makes inventory management even more complicated and increases cost as bigger floor space is needed to store this additional stock. Overall it can be observed that legacy supply chain systems cannot support the new inventory challenges faced by the company. According to Will Smith, program manager at Argos, "The legacy, mainframe-based merchandising and replenishment systems were developed many years ago and cannot provide the level of sophistication we require in a multichannel business environment."

The above analysis has given us the opportunity to understand where problems exist in Argos's supply chain and where solutions need to be introduced. Before doing so though, it is essential to understand that to optimize performance, supply chain functions must operate in a coordinated manner. Therefore management has to appreciate that changes made in one function of the supply chain will affect other functions as well. Also, in order to improve the supply chain efficiency dramatically, changes must be implemented in more than one of its functions so that smooth integration is achieved.

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As far as the transportation component is concerned, Argos requires a system that manages the flow of merchandise to any one of its Retail Distribution Centers. It is therefore necessary to adopt a single system to assemble all the merchandise from suppliers and have them presented as one delivery. To achieve this, a new distribution center will be needed, which will be able to receive, validate and handle consignments from several hundred of Argos's suppliers.

The proposed system must work through direct computer links. It should electronically validate supplier merchandise against Argos 'Order Book' to confirm that the merchandise is required, consolidate it with a number of other orders and then send it to one of Argos's existing distribution centers for final delivery. The aim of this system is to offer strong financial and organizational advantages to both Argos and its suppliers.

For the implementation of such a system though, Argos requires a complete modernization of its inventory management processes and information systems. Therefore change should occur at the inventory component of the supply chain as well, with the sole aim of optimizing order plans and synchronizing supply with consumer demand across multiple channels. The creation of a centralized hub of information is essential to support this process. With one centralized system, Argos's managers will be able to work from a single view of stock levels, replacing the manual effort of aggregating and reconciling multiple stock balances from its disparate legacy systems. The proposed solution should also enable Argos to manage merchandise at a more detailed level by organizing it into item hierarchies, such as sizes.

The suggested alterations to the supply chain will lead to a number of benefits for all the parties in it. To start with, Argos will gain enhanced control of the supply chain, and higher visibility. All information about the products is entered into the system from pickup until the delivery is made so customers can track their goods virtually live. By merging deliveries together there will be a reduction in the number of trucks on the road as well as reduction of traffic in the Argos logistics and warehouse areas. This will have a positive effect on the environment which is part of corporate social responsibility.

Moreover, suppliers will benefit from these improvements to the supply chain. Using the scheme to consolidate goods for delivery far outweighs the financial and organizational burden of independently sending separate loads to different Distribution Centers across the UK. The improvement in supplier management processes will also increase collaboration between Argos and its suppliers, enabling the company to achieve incremental efficiencies across its supply chain well into the future.

Finally, more timely and accurate inventory information and decision making capabilities will allow stock levels to follow forecasts and project ahead of demand requirements. This will have two positive effects on the supply chain. Firstly, average stock levels will decrease which will in turn improve pick accuracy and reduce the floor space required. Secondly, improvements in stock accuracy should lead to increased stock availability at store level. The serviceability benefits gained from this will increase revenues. Overall, efficiency improvements and lower operational costs will be observed, creating a competitive advantage for the firm.

In spite of the numerous advantages gained from the proposed solutions, potential drawbacks arise as well. In order to introduce a new distribution center there is a need for extensive capital investment which will lead to a dramatic increase of fixed costs. Furthermore if the firm decides to put 'all its eggs in one basket' the risk of vulnerability underlies. For example, a natural disaster or an operational accident might have disastrous effects on the company's stock levels and capital assets. Lastly, Argos might be faced with transition problems. Replacing the existing legacy systems with Advanced Inventory Planning is very time consuming and requires expensive labour training.

It is clear that the proposed alterations to the supply chain will bring greater benefit rather than harm to the firm. Accompanied by a carefully planned strategy to integrate the different parts of the supply chain Argos will be able to enjoy higher profits, the main target of any organization.

References

Berman, B. Thelen, S. (2004). Developing and managing a well integrated multi-channel retail strategy, International Journal of Retail and Distribution Management (Vol. 32 No. 3) pp. 147-156, Emerald Group Publishing.

Brown, O. (2005). Supermarket Buying Power, Global Commodity Chains and Smallholder Farmers in the Developing World, Human Development Report.

Christopher, M. (2005). Logistics and Supply Chain Management, Great Britain, Pearson Education Limited.

Seacord, R. C. Plakosh, D. Lewis, G. A. (2003). Modernizing Legacy Systems, Boston, Pearson Education Inc.

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