Supply Chain Management & Operations

SCM as part of Operations

Operations and Processes

  • Doing Things Right vs. Doing the Right Things:
    • Doing Things Right: Focuses on efficiency and minimizing waste in existing processes.
      • Costs associated with not doing things right include the cost of redoing work and scrap materials.
      • This leads to a loss of income.
    • Doing the Right Things: Focuses on strategic alignment and ensuring the business is pursuing the most valuable activities.
      • Costs associated with not doing the right things include the cost of doing the wrong things.
      • This also results in a loss of income.
    • Handling Changing Customer Requirements:
      • Addresses the need for adaptability in the face of evolving customer demands.
      • Costs associated with lacking required capability include the cost of lacking required capability and potential loss of income.

Importance of Operations Management

  • Competition in the Digital Age:
    • How can traditional brick-and-mortar supply chains compete with e-commerce giants like Amazon?

J.C. Penney Case Study

  • Catalog Revival:
    • J.C. Penney resurrected its catalog after discontinuing it in 2010 due to the rise of e-commerce and the recession.
    • The catalog was reintroduced to drive web sales.
    • In 1963, the JCPenney catalog was first introduced, with the largest catalogs reaching 1,000 pages.
    • Home goods are among the best-selling catalog items.
    • The number of catalogs mailed in the U.S. by retailers reached 11.9 billion in 2001, then declined.
  • Digital Age Oddity:
    • Despite the increasing trend of online shopping, customers still appreciate the experience of browsing through catalogs.
  • CEO's Decision:
    • CEO Myron Ullman brought back the catalog to revitalize the retailer after a disastrous overhaul under former Apple executive Ron Johnson.
    • Ullman initially stopped publishing the catalog, assuming catalog shoppers would migrate online.
  • Customer Behavior:
    • The company realized that many online sales were actually catalog shoppers placing orders through the website.
    • This realization led to the return of the catalog to regain lost customers. “We lost a lot of customers,” - Mr. Ullman
  • Financial Losses:
    • J.C. Penney lost over 99 billion in the last five years.
    • Since 2011, it has closed over 150 of its big Sears stores and over 350 Kmart stores.
    • Revenue has fallen to a projected 2525 billion in 2016, from 42.642.6 billion in 2011.
    • The stock price has fallen to 8.758.75, from a high of over 190190.
  • Amazon's Success:
    • Amazon's revenue is on track to reach 136136 billion this year.
  • Sears' Decline:
    • Sears, once the largest and most powerful retailer, has significantly declined.
    • Ten years prior, the department-store chain operated 3,500 stores.
    • By February 2022, Sears' and Kmart's combined stores were expected to fall to just 182 locations.
  • Turnaround Plan:
    • CEO Jill Soltau implemented a turnaround plan, closing 27 stores in 2019.
    • J.C. Penney refocused on compelling apparel and related merchandise.
    • The company is testing ways to reinvent itself, such as adding yoga studios, video game lounges, style classes, and high-tech dressing rooms in remodeled stores.
  • Inventory Management:
    • J.C. Penney once had inventory accuracy comparable to Macy’s and Target but has since fallen behind.
    • Macy’s and Target increased their use of RFID (Radio-Frequency Identification) technology for inventory management, while J.C. Penney did not prioritize it.
    • J.C. Penney lags Macy’s and Target by more than five years in inventory management technology.
  • Customer-Based Corporate Valuation (CBCV):
    • CBCV is an emerging doctrine that can be applied to improve the health of a company’s customer base.
    • It produces reliable projections of future revenue and margins.
  • New CEO Search:
    • The new CEO should focus on modern retail.
    • The CEO should recognize the importance of fixing JCP’s inventory accuracy problem and be open to applying Customer Based Corporate Valuation principles.
  • Customer Lifetime Value (CLV):
    • Customer value is defined from a supplier-oriented point of view as the customer’s economic value to the company.
    • This differs from the demand-oriented definition of customer value as the company’s or its products’ value for the customer.
    • A comprehensive understanding of customer value should include all aspects of a customer’s contribution to the company’s success.
    • CLV represents a profound supplier-oriented understanding of customer value.

Leadership Changes at J.C. Penney (2022)

  • Marc Rosen:
    • Appointed CEO after serving as president of Levi Strauss America.
    • Has shown the ability to bring new talent and excitement to JCPenney.
  • Sharmeelee Bala:
    • Appointed CIO.
    • Responsible for IT and global technology systems powering the company’s stores, operational centers, supply chain, and corporate functions.
    • Leads the development of solutions to unite JCPenney’s physical assets with its evolving digital footprint.
  • Katie Mullen:
    • Appointed chief digital and transformation officer.
    • Leads the growth of the e-commerce business, including JCPenney.com.
    • JCPenney plans to reimagine the consumer experience in terms of where and how to shop.
  • Merchandise Initiatives:
    • The merchandise initiatives by Marc Rosen and Michelle Wlazlo are expected to accelerate the company's turnaround.
  • Operational Team:
    • The strong operational team headed by Sharmeelee Bala and Katie Mullen speaks well of the development at JCPenney.
  • Forever 21 Reappearance:
    • Forever 21, which had a strong customer following, reappears in JCPenney.
    • This is expected to be successful and bring new, young customers to the stores.
  • Turnaround Signs:
    • These developments indicate the first steps of a turnaround for the 119-year-old company.

Sears' Decline and J.C. Penney's Challenges

  • Sears' Leadership Perspective (2003):
    • A former Sears leader believed that nothing could save the retailer.
    • Referred to the company as “the world’s slowest liquidation sale.”
  • J.C. Penney's Predicament:
    • Like Sears, J.C. Penney became trapped in the boring middle, trying to sell a little bit of everything to everybody.
    • The company faced an increasingly less relevant offering and an untenable competitive positioning.
    • J.C. Penney has been trying to store close and cost cut its way to prosperity, while making incremental changes that have failed to make a difference.
    • There is not enough time nor money to make the radical changes they need to make.

Multichannel Operations

  • Offer Restrictions:
    • Offers are often exclusive to either online or in-store purchases, not valid for both.
      *Appealing to the Middle or Everyone?

Appealing to the Middle or Everyone

  • Relevance of offerings, need for radical changes.

Appealing to Everyone by Using Technology

  • J.C. Penney Beauty Expansion:
    • Plans to debut J.C. Penney Beauty in stores nationwide.
    • Currently in 10 brick-and-mortar locations, expanding to 300 stores in 2023 and 600 in 2024.
    • Features mass, masstige, and prestige beauty products.
  • Technology Integration:
    • New beauty offerings incorporate technology.
    • AI-driven skincare advisor analyzes selfies to provide personal recommendations.
    • Makeup try-on using augmented reality.

J.C. Penney Merger (2025)

  • Merger with SPARC Group:
    • J.C. Penney merged with the SPARC Group into Catalyst Brands.
    • This deal has the most significant customer reach and involves the most brands, including Aéropostale, Brooks Brothers, Eddie Bauer, Lucky Brand, and Nautica.
    • The SPARC Group was originally a joint venture between property owners (Simon Property Group and Brookfield), with Authentic Brands Group and Shein.

Supply Chain Management Changes

  • Strategic Weapon:
    • Supply chain touches many sides of the business and has become a strategic weapon.
    • Moving from supply chain to ‘value chain.’

Tesco Price Promise

  • Description:
    • Tesco Price Promise matches prices of own-label brands and fresh food to ensure customers get the best value.
      *What do I need to do to participate in the Tesco Price Promise in- store?
      *What Exclusions make sense from a supply- chain perspective?
  • Exclusions:
    • Purchases in Express or Homeplus stores are not included because they do not allow fair comparisons.
    • Online purchases at Tesco Direct, Tesco Wine by the Case, Tesco Clothing, Tesco Bank, and Tesco Phone Shop are excluded.
    • Excluded Products are not compared in the Tesco Price Promise.
  • Specific Excluded Products:
    • Electrical items, garden products, home & furniture, entertainment, DIY & car, sports & leisure, toys, baby & toddler accessories, gifts & jewellery, clothing, homeware, batteries, stationery, kiosk items, Tesco telecom, pharmacy items, opticians, beauty center, cafe, fuel, photo-processing, in-store concessions, and online delivery charges.

Tesco Shopper Complaints

  • Customer Discontent:
    • Customers complained about being shortchanged, with one noting that the cardboard tube in the middle of white ones could have a bus driven through it and that they weigh less.

Tesco Clubcard Changes

  • Loyalty Scheme Changes:
    • Tesco made changes to its Clubcard loyalty scheme, dropping the value of some rewards and raising some others.
    • Shoppers collect points for money spent, which become vouchers for things like restaurant meals.
      *Nick wrote: "I don't have club cards in supermarkets for various reasons, so when I finish shopping I give my points to someone near me at checkout. "It is a small thing but it makes people smile. Today I was told in Tesco they have stopped people doing it!
  • Halting Points Transfers:
    • Tesco stopped allowing customers to give their points to others at checkout, which was previously a small act of kindness.

Tesco Profit Overstatement and Supplier Relations

  • Profit Overstatement:
    • In September 2014, Tesco admitted to a £250250m overstatement of first-half profits for that year.
      *Building Supply Chain Relationships?
  • Supplier Mistreatment:
    • The UK’s supermarket watchdog found that Tesco deliberately and repeatedly withheld money owed to suppliers to boost its sales performance artificially, in a serious breach of supermarket regulations.
  • Investor Lawsuits:
    • Scores of investors sued the company, alleging they lost millions because they bought shares based on misleading accounts.
  • Stock Value Decline:
    • Tesco shares lost almost half of their value in the months after the scandal broke and have struggled to recover properly since.
      *BBC News 19 January 2015
      Sir Terry: Where Tesco went wrong
  • Sir Terry Leahy's Perspective:
    * Sir Terry, credited with building Tesco, emphasized the importance of gaining customer trust through low prices.
  • Price Disparity:
    * Asda is now 6% cheaper than Tesco, indicating that Tesco is no longer perceived as the cheapest option.
  • Promotion Reliance:
    * Sir Terry noted that Tesco ramped up promotions to gain payments from suppliers (commercial income) to support the balance sheet, rather than focusing on sustainable low prices.

Tesco's Efficiency and Price Focus

  • Efficiency Changes:
    • Chief executive Jason Tarry stated that changes (1600 jobs) would make Tesco more efficient, allowing reinvestment of savings into customer priorities, especially price.
      *Inflation at a 30-year high. This is only going to get worse when energy price rises and the National Insurance hike come into play in April.
      The price of a basket of 18 staples has risen 8.3% across the grocery market, but just 0.8% at Tesco. This compares to a 15.3% rocket at Morrisons and a 13.6% jump at Asda.
  • Inflation Impact:
    • With inflation at a 30-year high, Tesco aims to offer competitive prices.
    • The price of a basket of 18 staples has risen 8.3% across the grocery market, while Tesco's price increase is only 0.8%, compared to 15.3% at Morrisons and 13.6% at Asda.
      *Sears and JC Penney were lost in the ‘middle ground’ – what is going to happen for Tesco now that it has rediscovered (again..twice!) price as the most important differentiator?
      *JC de Castelbajac United Colors of Benetton's artistic director

Benetton and Sustainability

  • Climate Emergency & Fashion:
    • The artistic director of United Colors of Benetton discusses the climate emergency plaguing the fashion industry.
      *'Can we do jeans without 20,000 litres of water?'
      Jean-Charles de Castelbajac, United Colors of Benetton's artistic director, talks fast fashion,reinvention & more.
  • Design Philosophy:
    • Originally, fashion was designed for multiple generations, with durable and lasting pieces.
      *The perfect department store has to be reinvented. It’s no longer about the four Ps (price, positioning, publicity and power) but about the four Es — ecology, experience, emotion and e-system. If you don’t [reinvent], you’ll be facing huge competition from the screen (e-commerce).
  • Reinventing Department Stores:
    • The perfect department store must be reinvented to focus on the four Es: ecology, experience, emotion, and e-system. This is crucial to compete with e-commerce.

Benetton Case Study

  • Core Business:
    • Benetton’s core business is in the manufacturing, production, and sale of casual and sportswear, accounting for 95% of total revenues.
      *Retail operations - main objectives
  • Market Presence:
    • The company has a market presence in over 120 countries and has consistently generated revenues exceeding 22 billion throughout this decade.
  • Retail Outlets:
    • It has 5,000 retail outlets around the world, mostly run by independent managers as part of a franchise arrangement.
  • HQ Control:
    • Benetton HQ retains overall control on every aspect of product sales to ensure the Benetton “total look” is adhered to.
      *What does this say about uncertainty management/forecasting?
  • Global Information System:
    • A global information system unites every link in the supply chain.

Benetton's Retail Strategy

  • Shift in Strategy:
    • Stiff competition has forced Benetton to radically change its retail strategy.
    • The company introduced over 100 'mega-stores'.
      *Less good at seeing the opportunity?
  • Direct Ownership:
    • While the majority of stores remain under the franchise system, Benetton has taken direct ownership and control of a few to form a closer relationship with its clientele, aiming for a deeper understanding of customer preferences.
  • Franchise System Criticism:
    • One expert suggests that Benetton is lagging behind competitors not due to supply chain defects but because it is