Cases in Operations Management

Introduction
Marks & Spencer (M&S) is a leading retailer of clothing, food, homeware and financial services. Around 10 million customers per week are served in around 300 UK stores. The company was started in 1884 when Michael Marks (a Russian-bornPolish refugee) opened a stall at Leeds Kirkgate Market. By 1997, M&S had grown into an international group with an annual sales turnover in excess of £8 billion –combined with one of the highest net margins in retailing.M&S experienced a wrenching time since those glory days, having become highly vulnerable in its core customer base – women aged between 35 and 55. The very advantages that M&S had painstakingly built up became liabilities in the market downturn of autumn, 1998.
For example, lengthy supply chain procedures meant that the company was buying 9 to 12 months ahead of the market. TraditionallyM&S bought twice a year for spring and autumn with phased buying in between –that is, there were just two main sales ‘seasons’ per year. Nimbler competitorsexploited many seasons per year for fashion items at one end of the market, and everyday low pricing that M&S could not match at the other. The M&S counter-offensive took a long time to formulate. Luc Vandevelde, the third CEO in as many years, said in his annual review to shareholders in 2001:

‘…we have been able to conduct a thorough strategic review. Although some of the decisions we’ve taken are painful, they are necessary if M&S is to return to growth, and they will improve our ability to compete and respond more quickly to operational demands.’
As part of this strategic review, the UK retail management team, led by RogerHolmes, developed an operational plan that envisaged building on the strengths of M&S and exploiting new growth opportunities. A key part of the recovery plan included major improvements in product appeal, availability and value in order to rebuild relationships with the core womenswear customer base.
A former supplier’s view
Many of the ‘painful decisions’ related to Marks & Spencer’s traditional UK supply base, which had been decimated in the scramble to reduce costs. In some ways, this had made the slowness to respond to market changes even worse. A former employee of a former M&S supplier, which has now closed most of its UK factories, commented on the recent changes:
‘Three years ago M&S operated a very standard, very formalized route from order to contract, production and distribution. Each item had to have an M&S garment numbers identification all the way through production, which precluded suppliers from manufacturing items for other retailers. More recent supplier rationalization has changed this approach, but it is still very formalized and in reality, a more informal approach is taken on a daily basis to actually get things done.’
Much of the manufacture of M&S products had been transferred abroad. There is very little capital expenditure on clothing. Typically, raw materials account for 50per cent of the product cost, and labor for 30 per cent. Labour costs were much cheaper in countries like China, Cambodia, and Bangladesh, but this has had a significant impact on lead-times: it takes four to six weeks to ship from the Far East.Airfreight is used sparingly, as it has not been possible to get the type of costs required for routine airfreight.When buying standard ranges there is a balance between buying few color ranges at higher volumes or more colors at lower volumes. Combinations add to complexity: if there are eight colors and eight sizes, there are 64 stock keeping units (SKUs) in the range. M&S bought in a ratio across sizes based on sales history, but actual sales in a season – especially colors – were difficult to forecast. Responding to changes in volume and mix in the marketplace was difficult enough for the ponderous M&S systems, but the company’s insistence on a single brand brought further problems:
‘M&S procedures do not allow flexibility for short lead times. Had they agreed to sub-brand in the past, it would have been possible to produce different quality standards for different product ranges.’
New product development was also slow and costly. All suppliers were asked to develop all ranges – M&S would then decide who would manufacture what and where. This increased development costs all around. The company has become more skilled at assessing supplier capabilities in advance. Suppliers who are low-cost producers receive orders for commodity products, while those with strengths in product or material development receive orders for more innovative lines. Read Marks & Spencer market structure
Improving the supply chain
M&S identified opportunities to reduce supply chain costs substantially, and achieve targeted savings of £120 million in 2000. The priorities were to eliminate duplication and to increase transparency. Some of the savings were achieved by using fewer sup-pliers and by working more effectively with them. This enabled M&S to get goods to the shops faster and to respond more quickly to emerging customer demands. By re-establishing closer working relationships with its supply partners – historically a unique strength – M&S wanted to achieve further improvements in quality, value, product appeal, and availability.Using information about customer preferences, buyers were better able to give supplies the information needed to be more flexible and efficient in production.The company admitted that the speed of the changes made, and the replacement of a major supplier, did create availability problems in the autumn and spring
of 2000/2001 – particularly in knitwear and lingerie. A focus on the 500 best-selling products, particularly basic items like socks and knickers, sought to ensure that customers noticed an improvement in availability.
Improving the segmentation of clothing
M&S has concentrated on regaining the loyalty of its core customers, who prefer classically stylish clothes. In the past, the company had resisted splitting its traditional brand name, preferring to leverage the power of a single name that became synonymous with the company. As part of its new plan to segment products across different lifestyles, the company recognized that this was no longer tenable. For example, George Davies was appointed to design and supply a collection for the fashion-conscious woman. Davies had risen to fame as a result of making the retailer Next will be known on the UK high street with his innovative designs and methods, and by his subsequent success in developing the George range of clothing at Asda supermarkets.His sub-brand at M&S was labeled per una, and 50 selected M&S stores were laid out by lifestyle to give impact and clarity to the display. Supply chain issues were also attended to.
‘per una is “ring-fenced” within the M&S system so that the range can be produced to a different standard. This enables George Davies to achieve a four-week turnaround.’
Another range called The Autograph was created by top designers to offer fashion items at High Street prices. A compromise was reached in sourcing this range, which was originally produced in UK factories but moved to Portugal. This had the benefit of cheaper labor costs than the UK and shorter lead-times than the Far East.M&S also planned to regain the confidence of its customers in the quality and fit of its clothing. It chose to sharpen pricing by rebalancing the price structure and by extending the range of entry prices. The aim was to deliver ‘aspirational quality at great value’.
Womenswear ranges for autumn 2001
M&S further segmented its womenswear products to appeal to different lifestyles by introducing a number of ranges and sub-brands in addition to per una and The Autograph, including The Perfect Collection and The Classic Collection.
The Perfect Collection
The Perfect Collection focused on classically stylish merchandise for core customers.There are 60 lines for women and men which ‘return to basics’, and they include plain, white shirts, black roll-neck sweaters, and jeans. With many items machine-washable, non-iron and tumble-dry friendly, they’re aimed at the customer with a busy lifestyle who is looking for quality and value at a reasonable price. The brochure described them as ‘timeless essentials that you can wear with just about anything’.
The Classic Collection
The Classic Collection was aimed at the more mature customer, and the advertisingconcentrated on design, comfort, long-lasting style and versatility – ‘Every piece in The Classic Collection is designed to skim and flatter the natural body shape, whatever your size’.
The Classic Collection
is a range of smart, elegant clothes, made from high-quality fabrics at value-for-money prices. ‘It’s a timeless collection that reflects your style and finesse, and not just the latest fashion.’
The Autograph range
The category manager, Liz Alcock, states: ‘The Autograph philosophy is to bring cutting-edge design to a wider audience within a unique environment’. Like per una, The Autograph label, which was launched in the spring/summer 2000 range, was made available in selected stores only. M&S recruited some of the best designers in the business – such as Julien Macdonald, Philip Treacy, and Sonja Nuttall – to create womenswear, menswear and accessories collections. For example, Philip Treacy’shat collection was launched in 15 M&S Autograph boutiques nationwide in March 2001 and comprised 18 hats and 10 bags with no more than 60 of each colorway and style.
Autograph brings top designer collections to M&S customers at high street prices, within a designer boutique environment.
This high-quality range was designed to appeal to a broad catchment at competitive prices, and was launched in September 2001 into selected stores. The target customers were fashion-conscious women aged between 25 and 35, sizes 8–18. The aim was to provide ‘superb designs at very affordable prices’. George Davies controls the supply chain, including sourcing and
merchandising as well as control of the look of the selling space in the store. In the brochure, he says embodies principles of ‘the highest quality materials … designs inspired by the very latest trends … limited editions … individual cuts for every size … fanatical attention to detail … ease of shopping’. The 300-piece collection was sourced from 90 suppliers from Hong Kong to central Europe. Production runs were short with no repeats, and speed of reaction was important to ensure that goods made it from design concept to shop rails in weeks not months. In Marks & Spencer Magazine, September 2001, George Davies was quoted as saying:
‘I know women don’t want to see loads of the same thing around. It’s OK for plainer pieces, but if it’s distinctive, they want it to be rare. Which is why we’ll have a series of limited-edition items introduced throughout the life of a three-month collection – so buy them because they won’t be in store for long.’
Unlike other ranges in a store where up to 20 of a style can be seen together, items were presented in small numbers, making each style ‘special’ and more exclusive.
was 10 percent more expensive than the M&S main range. However, the rollout programme had to be scaled down because the company could not keep up with higher than expected customer demand.