Services Operations Management: Retail. 3000 word essay

Services Operations Management

Table of Content

Introduction

According to Bettley (2005), Operations management is a vast field, not just in regards to studies and academics but also within the framework of real life scenarios. With reference to the scenario of retail organizations, operations management is not as restricted in scope as it used to be in the past i.e. buying and selling of merchandise; the scope has moved much beyond that. Today, the size of the store, location, routine happenings, customer handling procedures, exceptional handling, defining practices, and much more is involved when talking about operations management, even in isolation.

Scope of a Retail Set up

Retail set up has moved from the constraints of a shopping place to an experience for  the customer that attracts them to visit over and over again to satisfy all their needs and wants, and to make the customer realize what their needs and wants are, apart from what they actually came to shop for. In particular, with concepts such as cross-selling becoming an essential part of retail operations, the scope has become almost unimaginable.

Slack (20029) states that the major stress of operations management has moved towards planning and execution of inventory, pricing, sales force planning, store design, location, cross selling, placement of various products and categories, and so on. Other functions including finance, marketing, human resources, administration and strategy, are to be integrated with the core retailing function of the business. With the growth of the internet as a channel of business and communication, internet retailing is becoming an option to expand business across new horizons; synergies need to be established in the multi channel retailing strategy and there is a need to move  across boundaries from a purely bricks and mortar model. With huge business operations, decisions should made with respect to the organizational structure, centralization vs. decentralization of operations, use of technology in the operations such as Radio Frequency Identification (RFID), data mining, point of sales (POS) terminals, etc.

Choosing the Company for Analysis

Considering all the importance that operations management has in the retail environment, the industry chosen for analysis in this paper is a retail set up: the firm chosen is Argos (www.argos.co.uk) for the analysis of services operations in the given set up. This report begins with the introduction of the company under consideration (Argos) and moves towards an overview of literature available pertinent to the operations management in the retail set up, narrowing down to operations management specifically at Argos and lastly, making any recommendations and offering a conclusion that are inferred from the observation.

Company Introduction – Argos

Argos is a retail store primarily in the business of selling general merchandise and home products, and is a part of the Home Retail Group in the UK. Argos has over seven hundred retail stores (following the brick and mortar model) spread  all over United Kingdom and the Republic of Ireland; its business model also includes selling online and offering services via telephone. Home Retail Group itself is the home and general merchandise seller and has two brands, viz. Argos and another, Homebase. The company had its inception in 1973 and is UK’s leading merchandise retailer. Employing over 34,000 employees, the business showed growth rate of approx 8% moving towards GBP 4.2 billion. Statistics reveal the success of Argos through the following numbers (http://www.argos.co.uk/static/StaticDisplay/includeName/AboutArgos.htm):

• 130 million customers served at stores annually
• 4 million customers served online or through phone
• Approx two-third of the UK public has an Argos catalogue at home
• 30 stores added to the chain annually
• The website is second most visited internet retail web in the UK

Difference between goods and services

Beyond the numbers and the fascinating figures associated with Argos, it is imperative to differentiate between goods and services, and to determine which product should be classified as each. Herbig (1997) says that a product can be defined either as a product or a service but normally a product does not have a pure attribute of a product or a service. In fact, it lies somewhere on the goods service continuum since it comprises both the intangible and the physical element associated with being a service or a product respectively. The definition therefore also becomes subjective since it depends on the perception of the customer or the user. Since service does not take a physical, tangible form therefore, judging the performance of a service is a difficult task; the quality of a service therefore is much more contingent on the perceptions that are a result of consumer expectation and how the service actually performed for that particular person experiencing it. Goods are normally evaluated on the basis of the final goods that reach the customer; the process to a greater extent is largely ignored. Whereas the case with a service is quite different and evaluation  is not determined solely on the basis of the end product but also on the basis of the process of the service delivery. Hence conforming to the requirements and expectations of the customer is the determination of whether there is a high level of service delivery.

Characteristics of a service

A service as distinguished from goods and has certain characteristics viz. intangibility, inseparability, heterogeneity or variability, and perishability. The service is intangible in the sense that it cannot be seen, touched in the physical sense, smelled, and heard before consumption. In fact, it is more of an ‘experience’ for the consumer of the service. Secondly, services are inseparable from the provider of the service; it is normally produced and consumed at the same time – such as having a hair-cut, undergoing surgery, being taught etc. Thus the provider of the service, because of his or her inclusivity in the process, is very much a part of the service. This inseparability has a greater impact on the quality of the service. Thus, task related skills and technical competence are not enough; interactive skills are or of wide importance too. Another aspect of services is that they cannot be stored – perish ability factor comes into play; this leads to more complex quality management issues as regulation of supply becomes difficult when demand for a service increases, and in terms of low demand, capacity has to be put to use effectively. Heterogeneity is another factor impacting services, since service is highly associated with the person delivering the service; therefore there are great chances of variability in the service produced from one time to another.

Importance of service quality in a retail store – literature overview

Reichheld in 2001 and many others have identified linkages between the long term financial performances of the firm and the increase in share value associated with higher customer loyalty resulting from better service. Customer loyalty is driven by many factors – that too is subjective, depending on the perception of the individual consumer or the buyer. According to some, brand image and product quality are the main determinants of product quality (Jones & Sasser, 1995); others suggest that customer satisfaction leads to customer loyalty.

Much literature on operations management in retail stores identified focused on the performance or ‘execution’ of retail stores, customer satisfaction or lack thereof, and better financial performance as identified in the previous paragraph.  Further analysis suggests the financial incentives given to store managers and other personnel increases customer loyalty by motivating staff, and so impacts monthly sales, reducing shrinkages and leads to better customer service. Performance or ‘execution’ at a service store is an important consideration (Raman et al. 2001a, 2001b) because it helps in the control of inventory and the recording any inaccuracies in inventory records, and further, when execution fails then even products on the floor go out of customer reach.

Product portfolio

            The store is non specialized – since it sells general merchandise and household items such as furniture, sound systems, electronics, appliances, hardware, Do it yourself, garden equipment, bar-b-q skewers, leisure, toys, PC games, jewellery, personal care, baby products, cosmetics, watches etc. This range has been further more expanded as the company has launched its Home Delivery service.

Channel Management Strategy

            The retail chain has over 700 retail outlets across UK and Ireland and it sells not only though traditional retail sales channels (i.e. via its retail outlets), but also online (i.e. via internet), and also through telephone orders. Its target, therefore, is the integration of various multiple located channels and point of sales with others. Its reach is so vast that it is said that there is an Argos store within 10 miles for 98% of the population of the UK. Argos used simply to have bricks and mortar stores, but with expansion strategy the company moved on to making catalogue sales to its customers. As it progressed, services are now offered via mobile phones, the company website and through TV advertisements. Mobile services were once just limited to the provision of service by Vodafone; the menu was accessible for making reservations in store and subsequent home delivery. Then, later orders and advertisements were done through digital television sets. The website launched in 1995 and is revamped often to make it more user-friendly and easily accessible, and the application of the click and collect model, though a modest 5% or so of customers use the website to place their orders.

Argos has made sure the website offers the best and most secure service for users to place their orders and submit any personal information required to execute the transaction. All orders are accepted over a Secure Socket Layer (SSL) to prevent information being transmitted to an insecure connection. Options are provided to customers for checking stock availability, tracking delivery status information, reserving any goods that they might require in a certain time period – through services like Ring and Reserve call centre and Text and Take Home, an SMS service for the customers using either fixed line or mobile telephony respectively.

State of the art technology

Argos has made complete use of information and computer technology in its operations; since its early days the usage of computer systems has become an integral part of the way Argos functions as a retailer. The monitoring of stock levels, identification of market trends, avoiding excessive stock and shortages, and point of sales electronic systems have improved the accuracy of the financial system prevailing in the huge organizational structure. The use of technology is not just limited to the internal controls, but communication with customers and suppliers, for transactions, obtaining feedback and serving the customers through online channels and home delivery system. Another popular approach adopted by Argos is the invitation to customers for attending open evenings for the provision of feedback on how Argos can improve the services that it offers to its customers. The complete store – that is each and every single outlet, distribution centres and head office – is integrated via email and intranet.

Supply Chain Management

The most important factor for any retailer including Argos is management of the supply chain – the procuring of merchandise and then managing the flow of that merchandise to be sold to the end user or consumer. The company has over a 700 suppliers from whom it makes purchases of merchandise which is then supplied or moved to the various distribution centres that Argos manages. For distribution management, Argos has obtained solutions from United Parcel Service (UPS) known as Nominated Carrier Scheme – the system is aimed at delivering and ensuring the right product at the right place and the right time. With the nominated carrier scheme, one standardized approach is used to gather merchandise from all suppliers, even from the different industries for delivery at one time. This way Argos has more or less outsourced a small portion of its job. And this way UPS sends the merchandise directly to the distribution centre.

The Automated Distribution Channel

            The distribution channel at Argos encompasses a central warehouse for imported products, and another store picking function for small items. The complex set of technologies integrates the automatic storage and retrieving of products required. With the integrated distribution channel system Argos has reduced much of its operational costs, thus utilizing the resources efficiently where they are used better elsewhere. Earlier managed manual work is greatly reduced and the floor space required is also lessened.

International Competition

Retailing, and particularly of general merchandise like consumer products, has always been a competitive industry within itself, particularly the markets that Argos is catering for. Technological upgrades and timely replacement of products is the key that drives the competition and gives cutting edge to one competitor over the other. This cutting edge is witnessed mainly in store traffic and repeat purchases, which is a clear indication of effective merchandising by a retailer. For smaller competitors, it is easy to be effective by being more specialized; however, great competition is seen when competitors are huge in size and mass. Argos has been successful in developing and retaining customer loyalty and therefore the international competition has not been able to make a big time impact on its customers in terms of switching to other retail stores. At the same time, it is important to understand that under the present economic scenario, it is essentially even more important for the business to develop strategies that can well retain clients; with purchasing power reducing amongst customers, retailers have to fight for every sale from a dwindling number of available customers.

Process and Rapid Improvement

            Process improvement is an on-going process, and these are the sort of strategies that make businesses live and enable them to survive for a longer period of time. Process improvement can be internally as well as externally driven. However, the difference in magnitude and effectiveness is vital. Externally driven improvements are primarily based on customer opinion obtained in any manner. At the same time, the internally driven can be initiated through bottom-up proposals or by means of strategic changes by think tanks. Out of these three mechanisms of process improvement, the customer (externally) driven improvement is the most effective one as it generates a feel of care for the customer as they assume their voice is being heard. In a similar context, Argos has done a remarkable job of  listening to customer complaints by means of all its modes. Argos has a customer complaint section is in almost all of its retail stores, as well as on the website, and also the complaints are heard on phone systems, which gives a clear indication that all hearing ends do not only take orders but also complaints. This medium of involving and empowering customers is an efficient and effective mode of operations management.

Location strategies

According to Brown (2005), store locations are of prime importance and this is an important subject area for operations management personnel. The importance of stores mainly focuses on these factors:

• Proximity to the warehouses
• Proximity to the customers
• Proximity to the next store

These three issues are of prime importance for Argos since they do not want their stores far away from the customers and their own warehouses, and simultaneously, a distance is also to be maintained from the next Argos store. In relation to this strategy, the business has strategically located warehouses either next to the store itself or very close to it. As for the next available store, Argos has defined its target market in terms of population and developed this strategy of having a store for ‘x’ population, for instance for every 10,000 customers or prospective customers, there is a single store allocated. Another point in terms of supporting the location strategy is the rent vs. buy decision. Effectively, Argos owns the land of those stores that have the most sales compared to the other locations. In addition, even the ones which are rented are on long term basis and the rents are fixed to the favour of Argos. This is a strategic move that makes a huge impact on the finances of a business, particularly when revaluating the balance sheet based on market pricing, and the decision made is operational in essence.

Operations layout strategy

            Operations layout strategy is more linked with how the retail store is set up within its boundaries, something similar to what marketers and sales person do in terms of shelf-spacing with the difference being that in shelf spacing, it is a particular brand spaced, while in layout strategy, it is more about placing categories of products: for example, the most commonly or the most rapidly selling categories are placed in the front row, and so on. Argos has specialized information systems that track down the data pertinent to the sales made and this data can be accessed in various forms and formats. Thus, it becomes easier to analyze the data over the years and conclude which category has been the most high-selling, and based on those figures the category is placed fourth or back in the layout, for example. However, the point of importance is the consistency of the layout. Argos has developed this strategy of keeping the layout very much the same in all its retail stores, giving the customers the same feeling no matter which store they visit, and to provide them a consistent look and set up, much as many large retail businesses such as fast food restaurants. Hill (2005) stated that such an approach is very effective operational management technique and firms are often able to maintain customer loyalty due to such a stance in their strategy.

Purchasing management

            In a retail world of cut-throat competition, it is important to keep the supply chain tied and to keep the suppliers and customers locked in. For locking in suppliers, the retailer needs to develop customer loyalty as a chain impact exists; when suppliers see the retailer getting the crowd, it is bound to retain its loyalty with the retailer. Argos, in this context, has done quite well, as it has spread its vast network across the UK and in Ireland, and its sales figures speak for themselves. Suppliers have found themselves in a lesser bargaining position, despite having more options to sell, but with the customers coming in to Argos, suppliers are locked in to supplying to Argos, giving the retail giant’s strong bargaining position. However, Argos has retained a partnership relationship with its suppliers and purchasing management is done in a highly professional manner whereby information systems generates purchase requisitions and the supplier piles up the stock in the retail store or the warehouse as and when needed.

Learning curves

            Perhaps the strongest point for Argos remains that it has never closed the doors of learning: its learning curve has been steep and rising, and its eyes are open for any opportunity for improvement. This is a very ‘classy’ example of how operations management should proceed towards perfection and of how delivery should be conducted to satisfy the customer to a maximum extent.

Inventory management

            Inventory management is a critical phenomenon in retail business, particularly because the loss suffered because of an unsatisfied or un-entertained customer is irreparable, particularly with rising competition. Inventory management needs a proactive approach rather than dependency on an information system that dictates the minimum and maximum inventory level, and human involvement along with an objective approach is also needed. There might be several indications like holiday leave, etc. to be placed in the information system for exceptional handling and seasonal changes in minimum inventory levels, but a human check and involvement is always a plus point. At Argos, these systems are not just managed but regular objective involvement of operations individuals takes place that alters inventory levels based on their foreseeable future with the logic that they offer. This keeps inventory management not just effective but efficient as well.

Conclusion

            Overall, as can be seen through the analytical review of operations management at Argos, it is very much clear that the retailer is doing very well with its presence in the UK and Ireland, with rigorous expansion projects in the pipeline. This is sure to give a clear cutting edge to the firm. However, in the present economic climate, where a tremendous recession is being witnessed in the UK, the firm needs to slow down on its pace and instead consolidate and proceed steadily. The reduction in pace doesn’t necessarily mean that the firm is not growing and is cutting down its expenses, but when costs are calculated, due to reducing purchasing power, newer ventures may truly not be viable. At the same time, it can be seen that the off-site modes, such as phone shopping and the online modes, are doing remarkably well particularly amongst the younger more internet-savvy demographic. Therefore, it can be recommended that spending should increase towards enhancing these modes of shopping for customers. Enhancing these modes of shopping is generally relatively inexpensive as they do not involve high set-up costs, and with existing infrastructure in place enhancing them further would be easy. Overall, then, Argos as a retail business is performing well, and its enhanced operations management contributes significantly to its success.

References

Books

Bettley A, Mayle D, Tantoush T (2005) Operations Management – a strategic approach, Sage/Open University

Brown S, Lamming r, Bessant J, Jones P (2005) Strategic Operations Management, Butterworth Heinemann, 2^nd edition

Clottey, T.A. , Collier, D.A. & Stodnick, M. (2008) Drivers of customer loyalty in a retail store environment, Journal of Service Science, Vol. 1, No. 1

Hebig, P.A. (1997) Handbook of Cross Cultural Marketing, Haworth Press 

Hill T (2005) Operation Management, Palgrave MacMillan, 2^nd edition

Jones, T.O. & Saseer, W.T. (1995) Why satisfied customers defect, Harvard Business Review, November – December

Pal, J.W. & Byrom, J.W. (2003) The five Ss of retail operations: a model and tool for improvement, International Journal of Retail & Distribution Management, MCB UP Ltd

Raman, A.N. (2001a) The Achilles Heel of Supply Chain Management, Harvard Business Review, May

Raman, A.N. (2001b) Execution: The missing link in retail operations, California Management Review

Reichheld, F.F. (2001) Lead for Loyalty, Harvard Business Review, July – August

Slack N & Lewis M, (2002) Operations Strategy, FT Prentice Hall

Online/Website

Argos Online Shop [Internet] Available from < http://www.argos.co.uk/static/Home.htm> [Accessed 24 March 2009]