CILT Level 5 Professional Diploma

1. CILT Level 5 Professional Diploma • GLOBLISATION AND THE RETAIL SUPPLY CHAIN • Learning outcomes • After studying this module you will be able to:- • •Be able to evaluate optimal sourcing solutions • •Assess the implications of global logistics on just-in-time objectives • •Recognise important issues to consider in a global logistics strategy

2. CILT Level 5 Professional Diploma 4.1 AVAILABLE SOURING SOLUTIONS Souring in a retail environment is about increasing sales through providing better products, innovation and higher margins by operating a more efficient acquisition and supply chain process. Clearly, the sourcing strategy needs to align with and support the corporate strategy. We began this Unit by looking at major changes in the retails sector, key elements of this were related to globalisation. This was a mixture of opportunities for UK retailers to open stores in overseas markets, overseas retailer opening and developing their business in the UK and direct sourcing.

3. CILT Level 5 Professional Diploma • Globalisation is a major factor and influence upon the UK retail sector, recapping the key drivers these are:- • Improved political and economic stability, at least in some parts of the world, together with the continued expansion of the World Trade Organisation and regional trading blocks. • As a result of the improvement to freer trade, a reduction in customs duties, tariffs, quotas and other impediments to the movement of good, together with clarity on legal issues, reducing the uncertainty and risk associated and international activities and business ventures.

4. CILT Level 5 Professional Diploma • Customer tastes have become more similar, although this could be viewed as a combination of cause and effect, resulting from the marketing efforts of multinational organisations and the influence of international media and the movement of people internationally. • Improvements in communications and technology • Improvements in education and management organisation in many developing countries • Opportunities for economies of scale • Changes in economies structures, resulting in reducing manufacturing employment and activity in developed economies

5. CILT Level 5 Professional Diploma • The massive shift in manufacturing is a combination of manufacturers establishing their own production facilities in these countries, outsourcing activities to indigenous manufacturers and retailers (and wholesalers) purchasing from producers in these countries. There has been an evolution in the supplier-base for many retailers, with suppliers going through the following:- • Manufactured in the UK, products are made primarily from components sourced in the UK. • Assemble in the UK, products are assembled in the UK, but key components are now purchased from lower cost countries. • Package in the UK, products are made and assembled in a low costs country and shipped to the UK in a semi-finished state. This is an example of postponement in the supply chain, and the product can then be tailored and packaged to meet the different requirements of an number of retailers.

6. CILT Level 5 Professional Diploma • •Manufacture and packaged in the low cost country, the UK supplier at this stage becomes a sales and marketing intermediary. Unless they are able to provide significantly more value add than this, they are at risk of disintermediation.

7. CILT Level 5 Professional Diploma • It is important to recognise some important issues at this stage:- • Whilst direct sourcing has been increasing and looks likely to continue to increase further, it is not suitable for all products. • The actual source country will depend upon a combination of factors, including expertise, legal systems, availability of raw materials and logistics challenges • Direction sourcing requires investment and commitment, and it is not without risk

8. CILT Level 5 Professional Diploma • The Scope for efficiencies range across:- • Cost price reductions • Range and supplier-base rationalisations • Manufacturing scale • Management activities, including advertising and promotions

9. CILT Level 5 Professional Diploma • Task 10 • Identify and evaluate the available sourcing solutions that assist retailers to deliver optimal performance including sourcing solutions. (4.1.1)

10. CILT Level 5 Professional Diploma 4.2 WHAT IS MEANT BY GLOBLISATION? The previous section discussed the changes in sourcing, this section examines the growth of retailers internationally. Consolidation and concentration isn’t only a UK phenomenon, recent decades have seen the emergence of multinational retailers, through a combinational of mergers and acquisitions and establishment of operations in new markets. This section provides an introduction to the international picture.

11. CILT Level 5 Professional Diploma • The global top 10 is dominated by US and German retailers, which reflects to some extent the size of the domestic retail markets in these countries, although there is no Japanese retailer in this list. • Another important international retailer is Zara (Inditex) for their agile supply chain approach to fast fashion, with 50% of their products sourced from their own factories in Spain, in stark contract to many of their competitors who source the vast majority of their ranges from low cost countries. • The discount retailers have prospered in the UK in recent years, these range from single price point retailers like Poundland, the off-price retailer TK Maxx and the food retailers Aldi and Lidl: • •Poundland have over 300 stores in the UK • •TK Maxx have over 260 stores in the UK • •Aldi UK have nearly 500 stores • •Lidl UK have over 53 0 stores

12. CILT Level 5 Professional Diploma The impact of the three overseas owned grocery discounters (Aldi, Lidl, and Netto – recently purchased by Asda) has been felt by Tesco, Sainsbury and Asda. Since entering the UK market, they have steadily opened stores and gown market share, creating a response from the leading grocers to re-invigorate their leading price point “basic” own brand, reduce prices and undertake extensive, aggressive marketing campaigns. The maturity and near saturation of the UK Market and intense competition has resulted in a number of UK retailers developing overseas business, some using a franchised model. Nevertheless, a number of overseas retailers have entered and successfully expanded their presence in the UK. It is worth noting that not all these ventures have been successful for example:-

13. CILT Level 5 Professional Diploma • Marks & Spencer’s acquisitions in the UK, Kings Supermarkets and Brooks Brothers together with its owned European stores were disposed of and closed down, following a series of poor financial results in 2001 and a decision to focus on its main UK business • • Sainsbury’s acquisition of Shaw’s supermarkets in the US, sold off in 1999 • •Borders, the large US bookseller, entered the UK in 1999 and operated its subsidiary until 2007 • •Best buy, the largest US electrical retailer entered the UK market in conjunction with Carphone Warehouse with the first 11 “big box” stores opening in Spring 201.

14. CILT Level 5 Professional Diploma • The challenges of international expansion are significant they include:- • •Prior to the internet age, the need to open a significant number physical outlets to achieve economies of scale and build a presence in the country. • •The risk associated with acquisitions, ranging from lack of truly suitable options to cultural difference – see the case study Wal-Mart’s German acquisitions below • •Difference in culture, currency, language, brands, seasonality, trading patterns etc. • . The most obvious opportunities for international expansion are those markets that are most similar to the UK, hence we have seen many UK retailers expanding aggressively across the Republic of Ireland . • Another strong area for expansion has been Central Europe, such as Hungary, Poland , Czech Republic and Slovakia, where the post-Communist transformation in retailing has provided significant opportunities and scope for new entrants. • Other tempting countries are China, India, Brazil and Russia, due to their rapidly expanding economies, middle classes and new opportunities for retailers.

15. CILT Level 5 Professional Diploma • International retailers need to adapt their business model to be successful: • •This may mean a more hands–off approach to acquisitions, especially the customer facing parts of them, with more emphasis on integration and synergies in support functions • •Develop partnerships and alliances • •Build international management teams

16. ............. CILT Level 5 Professional Diploma Task 11 Describe what is meant by the term ‘globalisation’ in relation to the retail market and discuss the major factors and influences which directly affect this sector. (500-750 words) (4.2.1)

17. CILT Level 5 Professional Diploma • 4.3 THE IMPACT OF GLOBALISATION ON RETAIL SUPPLY CHAINS • CHALLENGES • Cultural difference • Time zones • Lead times • Aligning products to different customer/market requirements • Legislative difference • Managing intermediaries • Information Management

18. CILT Level 5 Professional Diploma • Retailers need to overcome these challenges by:- • Being very clear on their requirements. • Simplifying and standardising administrative processes • Introducing “local” offices and people • Co-ordination of planning and management • Clarity over lead times • Information systems • Partnering with international supply chain specialists

19. CILT Level 5 Professional Diploma • 4.3.2 BALANCING SUPPLY CHAIN AND PURCHASING • Yet sourcing from distant countries appears to be moving in the opposite direction:- • Volume manufacturers want to carefully plan their use of capacity and require firm orders often a month or more before production • And they are unlikely to want to produce “little and often” or hold inventory • Transport costs structures that mean:- • Most products cannot cover the cost of air freight so need to travel by sea, which can take about 3 weeks from China • There are significant diseconomies of scale, sending less than a full container load from a single source will be more expensive per unit shipped and will take longer • The cost per unit using a smaller contained will be more expensive than using a larger one.

20. CILT Level 5 Professional Diploma • HISTORICALLY • Historically many retailer focused their purchasers on cost prices and gross margins, which was fine when suppliers delivered to stores. But in a direct sourcing environment many other costs end up in other budgets and need to be fully take into account in understanding the true(net) margin, these include, taxes shipping costs, damages quality problems, administration, inventory holding costs, obsolescence and returns. • There is no single answer, but the better solutions are a combination:- • direct sourcing for high volume • direct sourcing for one-off promotion products • Sourcing some of these products from manufacturers in lower cost countries that that are much closer to UK • A comprehensive understanding of the trust costs and benefits

21. CILT Level 5 Professional Diploma Task 12 Explain the impact of globalisation on the retail supply chain. Assess the implications of Global logistics on just in time objectives (JIT (4.3.1)