Supply Chain Management

Supply network of JM and Sons General Dealer Supermarket

Table of contents

Executive summary........................................................................................................31. Introduction................................................................................................................42. Background to the business........................................................................................53. The business’s value proposition...............................................................................64. Stakeholders and their value-adding activities...........................................................75. Sources of bargaining power......................................................................................96. Supply chain key success factors in the retail industry............................................10

(a) Supply management professionals.................................................................10(b) Supplier selection...........................................................................................11(c) Relationship management...............................................................................12(d) Delivery and distribution process...................................................................13(e) Key technologies............................................................................................13

7. Core competencies...................................................................................................158. SWOT Analysis.......................................................................................................169. Conclusions..............................................................................................................1710. Recommendations..................................................................................................1815. References..............................................................................................................20

Executive summary

Supply chain management is a major issue in many industries as organisations begin

to appreciate the criticality of creating an integrated relationship with their suppliers

and customers, as well as all other stakeholders. The study sought to develop a

theoretical framework to study JM and Sons General dealer supermarket from the

supply chain perspective. The framework involved the identification of the business’s

value proposition, identification of the stakeholders within the supply chain system

and the value they add, sources of the bargain power possessed by the different stake

holders, key success factors within the retail industry, core competencies possessed by

the supermarket and the analysis of its strength, weaknesses, opportunities and threats.

It can be deduced from the business’s slogan that the enterprise promises customers

low prices, an indication that it is following the best-cost provider strategy with the

aim of giving customers more value for their money. Within the supply chain level

consisting of manufacturers, wholesalers distributors, retailers and consumers, JM and

Sons General Dealer was found to be at a retail level. Although JM and Sons General

dealer is a retailer it did not have the powers and economies of scale to interact

directly with manufacturers. The supply chain system of JM and Sons were found to

be deficient in almost all the areas identified as key supply chain success factors in the

retail industry. All employees including the business owner were found not to have

formal skills or training in procurement and purchasing management. Selection of

suppliers was based on convenience and there were no visible initiatives aimed at

establishing formal relationships with supply chain members downstream or upstream

of the supply chain. The relationships established with some manufacturers did not

offer the business significant competitive advantage. Recommendations for the

business to focus on the development of good personalized trading relationships with

key suppliers to build trust and mutual relationships were made. It was also

recommended that the business put in place procedures to measure and control costs

and innovation. Other options available for the business were to outsource supply

chain management to companies who deal directly with manufacturers or to expand

and integrate vertically to achieve competitive economies of scale.

1. Introduction

Supply chain management is defined as the design and management of seamless,

value added processes across organizational boundaries to meet the real needs of the

end customer (Fawcett et al, 2007). The goal is to cost-effectively, meet customer

needs better than competitors. In order to be effective to the organisation in the long

run, cost reduction initiatives should be based on understanding why the company

wants to better manage costs in a given area, and what the value proposition related to

that area is, so that value is not unwittingly sacrificed. (Fawcett et al, 2007). Supply

chain management is a major issue in many industries as organisations begin to

appreciate the criticality of creating an integrated relationship with their suppliers and

customers, as well as all other stakeholders (Al-Mudimigh 2004). Managing the

supply chain has become a way of improving competitiveness by reducing uncertainty

and enhancing customer service. The concept of value chain management is becoming

quite prevalent in industry. The major processes required to support the supply chain

value proposition need to be identified and optimized with appropriate trade-offs

being taken. It is only when managers understand their company’s strategy, how the

company aims to meet customer needs and how people think about and manage core

processes do they understand the company (Fawcett et al, 2007).

For supply chain activities to be implemented effectively process thinking strategies

should be adopted (Al-Mudimigh, 2004). Process thinking aligns decisions with

corporate strategy and aims to coordinate activities across functions with the ultimate

objective of unleashing great competitive potential through reducing inefficiencies of

functional organisation (Fawcett et al, 2007). Process thinking requires major changes

in how people relate to one another and work across functions. Executive leadership

must therefore embrace process thinking for it to have a real chance to take root and

change people’s approach to getting work done. During process thinking, managers

must define appropriate type of relationship to build with the various stakeholders in

the supply chain. They must then build the processes to create and deliver the value

customers demand (Al-Mudimigh 2004). According to Fawcett et al, 2007) designing

and building great processes is difficult for at least two reasons. First companies have

been organized and people trained along functional lines. Most managers therefore do

not know what a great process should look like. Second great process design requires

a level of detailed systems analyses that is seldom performed. Even so, well designed

processes make it possible for a supply chain to work as a team, leveraging

complementary capabilities to create unique customer value. Understanding the

anatomy of a process and cultivating systems thinking can help managers mitigate

conflicting objectives and build great processes.

Process excellence is needed in two areas: (1) creating products that meet customer’s

needs and (2) managing the physical flow of materials from source to consumption

(Fawcett et al, 2007). Great products are developed when marketing gets into the

minds of customers to identify vital needs, new product teams translate these needs

into desirable products, and finance supports the entire process to assure profitability.

Of course satisfying customers and making money require the production and

delivery of outstanding products. Supply chain leaders are relentlessly customer

centric, recognize interim collaboration as critical, view open communication as a

must, are obsessed with performance measurements, are driven to improve asset

efficiency, focus on processes rather than functions, factor people into every decision

and invest in technology as an enabler (Fawcett, 2007).

This study aims to analyse supply chain systems within a local supermarket retailer,

with the objective of establishing areas of improvement. The systems will be analysed

with the value proposition of the business as the focus point. Best practices in areas of

purchasing, production, and logistics that are known to support the value proposition

in the retail industry will be identified and used to assess if the local super market has

adopted or are practising these processes and systems.

2. Background to the business

JM and Sons General Dealer is a retail establishment operating as a convenience

grocery super market. It was established in early 1990’s by the late Mr JM Ramagoma

and it is the first relatively large retail establishment to operate with the Swaneville

community. Upon his death, the outlet is rented out by Mr Muladi, who is the owner.

The business is located in Swaneville, Kagiso, a township just outside of

Krugersdorp.

Its management structure is composed of the business owner and is assisted by 6

employees. The business serves mainly a community of Swaneville, Kagiso. An

interview was conducted with the business owner to get insight into the operation of

the supermarket.

What is the core business: Retailing groceries and other fast moving consumer

goods.

Customers: Local community of Swaneville, Kagiso.

Living standards of customer base: Very low to middle income earners.

Value proposition: Low prices.

Selling slogan: “Compare our prices; we do not rip off our customers”

Neighbourhood competitors: More than 30 small retail shops including “spaza”

shop outlets within a 2 km radius. Outlets of relatively large sizes as

compared to “spaza” shops operated by foreign Africans are beginning to

emerge.

Strategy: Sourcing products at wholesale prices to enable retailing at competitive

prices as compared to neighbourhood competitors.

Turnover: About R3.5 million per year

3. The business’s value propositionValue proposition refers to the value the business promises to deliver to customers

(Fawcett 2007). The value proposition for JM and Sons General Dealer can be

deduced from their slogan which says “Compare our prices; we do not rip off our

customers”. It can be deduced from the slogan that the enterprise promises customers

low prices, an indication that it is following the best-cost provider strategy. Best cost

provider strategies aim at giving customers more value for the money (Thompson et

al, 2005). The objective is to deliver superior value to buyers by satisfying their

expectations on key quality/service/features/performance attributes and beating their

expectations on price (given what rivals are charging for much the same attributes). A

company achieves best cost status from an ability to incorporate attractive attributes at

a lower cost than rivals (Thompson et al, 2005). To become a best cost provider, a

company must have the resources and capabilities (including Supply chain

management) to achieve good to excellent quality, incorporate appealing features,

match product performance, and provide good to excellent customer service, all at

lower cost than rivals.

4. Stakeholders and their value-adding activitiesThe distribution channel in the grocery retailing industry involves manufacturers,

wholesalers (distributors), retailers and consumers (Marchand et al, 2000).

Manufacturers produce products that consumers purchase. Wholesalers and

distributors break bulk and ship products from manufacturers to smaller retailers

while helping them with planning and promotions; most consumers cannot name any

wholesalers and may be unaware of their role. Retailers are familiar to consumers and

may seem as vital to them as the manufacturers themselves.

JM and Sons General Dealer is in the retail level in the supply chain. The products it

sells are sourced mainly from retail wholesalers [Macro (food and dairy products),

Trade Centre (Food and dairy products), Yarona Cash and Carry (Food and dairy

products), Africa Cash and Carry (Health, beauty and relief medicinal products),

Dadwood Megastore (chicken products wholesaers), Citi Deep Fruit Market (Fruits

and vegetables)] and manufacturer linked distributors or factory shops (Goldi

Chickens (Goldi chicken products), Tiger Brands (maize meal and bread),

Sterkfontein Dairy (milk) and Coca cola (soft drinks)]. The modus operandi is to use

multiple suppliers for most purchased inputs. Makro, Yarona, Centre, Dagwood,

iAfrica, and Jumbo Cash and Carry at the Crown Mines, Johannesburg are located

within a 2km radius of each other. According to JM and Sons General dealer, close

proximity of these retail wholesalers guarantees low prices as business will compete

against each other, close proximity also reduces risk of sotch shortages and supplier

dependence, costs associated with transport costs when sourcing from widely

dispersed wholesalers are also reduced.

Some products such as soft drinks (manufactured by Coca-Cola) and Ace maize meal

(Tiger Brands) are sourced from manufacturing companies directly through the use of

authorized manufacturer distributors. Although the wholesale prices per item are

comparable to those at retail wholesalers, the products are bulk items that if they were

to be transported by the business owner, in the long run significant costs would be

incurred. Depending on the number of units purchased from the manufacturers,

discounts are granted. JM and Sons General Dealer has built a sizable customer base

compared to the neighbourhood competitors, and this has enabled the business to

purchase Coca-cola products and Maize meal in quantities that enable it to be granted

discounts. There is however no contractual agreements between the business and the

distributors, the discounts granted are based on standard guidelines that would apply

to anybody else. To gain economies of scale, JM and Sons has another business outlet

5 km away from the main general dealer, combining the orders of the two outlets and

thereby allowing bulk purchases and relatively lower wholesale prices. The business

also sells soft drinks to other small business outlets in the neighbourhood at

“wholesale” price. Milk (Sterkfontein Dairy) and bread (Albany, member of Tiger

Brand) are delivered daily from the manufacturing companies. And again the

wholesale price is dependent on the number of units purchased with JM and Sons

General dealer using its economies of scale to compete against the neighbourhood

business units.

JM and Sons sources branded chicken products in contrast to chicken products sold

by street vendors. Its meat products are constantly kept in refrigerators and are

sourced mainly from Goldi Factory shop in Olifantsfontein and Dagwood Megastore

at Crown Mines. Fruits and vegetables are sourced from City Deep Fruit and

Vegetable market, and to achieve economies of scale which enables the business to

purchase pallet sizes of fruits and vegetables, the business operates also as a

transportation and “wholesale” agent for street vendors who place their orders with

the business.

Identifying specific customer needs and then matching the company’s promises and

capabilities to those needs is the key to implementing a successful customer fulfilment

strategy (Al-Mudimigh, 2004). Supply chain analysis identifies the end-customer

needs and capabilities that must exist in the chain to meet those needs. Supply chain

managers must assure that buyer/supplier relationships yield competitive advantage,

and profit, to both firms (Shin et al, 2000). The products which include general

groceries, dairy, snacks and sweets, soft drinks, baby foods, tobacco, relief medicines,

cosmetic, hair products, airtime, bakery, stationery, fruits and vegetables must be

available for customers and in the quantities sufficient to meet demand and at prices

which are competitive as compared to prices of competitors and without

compromising on the qualities of the products and service to the customer. The

business is servicing a small community and survival depends strongly on customer

loyalty and competitive pricing of goods. This can be sustained only by meeting

customer’s needs better than the competition. And from a supply chain perspective,

that means building collaborative relationships that help the company design great

new products that can be made and delivered efficiently, quickly and with high levels

of quality and service. This performance satisfies customers, creating the loyalty that

keeps them coming back.

5. Sources of bargaining powerThe end customer takes centre stage in Supply Chain Management; she is the only

one who really puts money into the chain (Pawcett et al, 2007). Therefore, every

organization in the chain must know how to satisfy that end customer’s needs and

wants. Downstream companies typically have the best understanding of customer

needs, but rely on upstream suppliers to produce parts and products (Marchand et al,

2000). Successful companies, therefore, share information that helps the chain focus

on the end customer.

Retailers hold detailed information about customers that manufacturers’ lack, and

therefore possess best linkages with the customer (Marchand et al, 2000). The retailer

must stock all popular brands to ensure that he has the product that a particular brand

loyal consumer might want. Most retail and wholesale buyers see themselves as

purchasing agents for their target customers. Typically retailers do not see themselves

as sales agents for particular manufacturers. They buy what they think they can

profitably sell. In other words, they focus on the needs and attitudes of their target

customers. Unless there is a broad enough range of products available, from a

sufficient number of manufactures, consumers will not be interested in dealing with

manufacturers. There is no one manufacturer with a broad range of products to fulfil

customer needs. This has discouraged manufacturer’s attempts at direct distribution to

the consumer and it would be expensive for manufacturers to break bulk and

distribute directly to consumers. In this situation the intermediary or retailer can

influence consumer choice and therefore has power and can earn profits (Marchand et

al, 2000). Although JM and Sons General dealer is a retailer it does not have the

powers and economies of scale to interact directly with manufacturers. It is therefore

compelled to source its products from wholesalers who themselves are retailers also.

In instances where JM and Sons source its product from the manufacturers (and still

through intermediary distributors), the manufacturers [(Coca cola, Tiger Brands (Ace

maize meal)] enjoy significant brand loyalty and it would disadvantage the business

should they not stock items from these manufacturers. In the context described above,

traditional national retailers and wholesalers retain considerable power and market

share and thus significant ability to earn profits while small retailers like JM and Sons

Genral Dealer do not have powers.

6. Supply chain key success factors in the retail industryOnce an organisation understands its customer needs and success factors, it needs to

develop and align its core competencies to meet these needs (Fawcett et al, 2007).

Specifically the company must determine what its role in the supply chain is going to

be and decide how to structure and use its resources to add unique value.

Competencies and capabilities should be matched to key industry success factors. A

number of factors have been identified as key for the success of the retailing industry.

JM and Sons General dealer is benchmarked against these identified key success

factors.

(a) Supply management professionals

Supply chain management professionals control a large and important set of resources

that reside in the supply base (Fawcett et al, 2007). As a result, suppliers are often

managed as not just inputs but also supplier capacity and capabilities. The impact of

sourcing on company competitiveness is thus magnified. Sourcing professionals must

possess highly developed skills and substantial managerial judgement to build and

manage a world class supply base. How well supply managers select the right

suppliers, build the right relationships, and help key suppliers develop their own

capabilities influences a buying firm’s competitiveness. JM and Sons General dealer

is a relatively small business, and does not have a dedicated qualified team of supply

chain professional.

(b) Supplier selection

Supplier selection is arguably the most important step in the purchasing process. An

effective sourcing manager requires suppliers to provide the highest-quality product at

the lowest total cost supported with the best service (Fawcett et al, 2007). To achieve

these goals, supply managers must identify candidate suppliers, assess them, and

invite the most promising suppliers to participate on supply chain team. Identification

involves making a list of all potential suppliers. Evaluation involves the identification

of supplier selection criteria and the gathering of performance information that can be

used to assess and compare possible suppliers. Reduction of the supplier base is a

unique characteristic of contemporary buyer–supplier relationship. According to

Kekre et al. (1995, pp. 387), “in the purchasing function, many firms have discarded

the traditional practice of using several sources of supply in favour of a drastic

reduction in sources of supply.” Several important factors have caused the current

shift to single sourcing or a reduced supplier base. First, multiple sourcing prevents

suppliers from achieving the economies of scale based on order volume and learning

curve effect (Hahn et al., 1986). Russell and Krajewski (1992) demonstrate the

benefits of “coordinated replenishment” under current supply management practices

in which the number of suppliers decreases and the number of items from each

supplier increases. Coordinated replenishment is defined as the practice of ordering a

number of items from a common supplier to achieve full-truck-load efficiency.

Presenting a mathematical programming and a heuristic solution procedure, Russel

and Krajewski (1992) concluded that coordinated replenishment from a common

supplier is one of the best strategies to reduce the total cost of procurement in the

supply chain. Second, the multiple supplier system can be more expensive than a

single supplier system (Treleven, 1987). For instance, managing a large number of

suppliers for a particular item directly increases costs, including the labour and order

processing costs to manage multiple-source inventories.

Most of upstream suppliers for JM and Sons General Dealer are located in close

proximity to one another and all providing similar products and services and price is

the main factor on which the business bases its selection of supplier. According to JM

and Sons General dealer competition amongst the wholesalers result in lower prices,

and the business identifies the wholesaler providing best prices before purchasing, i.e.

it buys products at the listed lower price. The business also relies on promotion and

advertising materials that are distributed to customers by the wholesalers to identify

products at best prices. Payment is in the means of “cash and carry”; the purchaser

cannot carry the merchandise before cash payment.

(c) Relationship management

Supply chain management means building the right relationships with all suppliers.

Today’s supply managers need to build collaborative relationships with a few critical

suppliers (Shi et al, 2000). Knowing when and how to build collaborative

relationships is critical. At the same time, supply managers must maintain fair

relationships with all suppliers, so they can encourage good service and develop

additional resources. At JM and Sons General dealer there is no indication of

collaborative relationships with retail wholesalers or upstream suppliers. Contact

between JM and Sons with wholesale suppliers is mainly when the business owner or

representative makes a purchase at the wholesaler; there are no personal contacts with

the wholesale management. The only “formal” relationship which could be

established between JM and Sons and the upstream supplier was with Coca-Cola Pty

through the manufacturer’s authorised distributor. The company provided the business

with the Coca-cola branded refrigerator, with the manufacturer taking responsibility

of the maintenance and servicing of the refrigerator. The conditions attached to the

use of the refrigerator are that (a) it should be used for stocking Coca-cola products

and (b) certain levels of Coca cola products should be purchased from the company at

frequencies set by the manufacturing company.

The business also serves as a transport agent and distributor of fruits and vegetables to

street vendors. There is no indication of formalised relationship or further support that

the business provides to street vendors. The business is failing to encourage street

vendor customer loyalty through the provision of some form of added support.

Loyalty results when a company helps its customers improve their own

competitiveness (Fawcet et al, 2007).

(d) Delivery and distribution process

Effective transport and distribution strategies can greatly enhance competitiveness. A

business must have in place competitive delivery processes. Delivery means doing

things fast- consistently (Fawcet et al, 2007). Fast reliable delivery requires the

reduction of order cycle time and the elimination of variability. Anything that

increases the time or variability of any portion of the order cycle threatens the firm’s

ability to deliver on time. An incorrect order entry, a late supplier delivery, a machine

breakdown, a transportation delay, or the wrong routing reduces delivery performance

and drives costs up. Developing good relationships with reliable transportation

companies reduces transit times and increases on-time delivery performance (Fawcet

et al, 2007). JM and Sons relies mainly on its own transport system for goods delivery

from the suppliers to its enterprise. To mitigate the risk of vehicle breakdown, the

business owner has a passenger/commercial light vehicle on standby. In fact the

business owner identified possession of his half-truck available to him 24 hours as a

competitive edge he has against neighbourhood competitors. Large volumes of goods

can be transported in a single trip and this is cost effective. The business ensures that

truck loads are delivered for cost efficiency. For delivery of heavy products such

maize meal and soft drinks cases, the business relies on the manufacturers’ transport

facilities.

(e) Key technologies

To provide outstanding customer satisfaction, managers need information about order

status, inventory availability; delivery schedules, shipment tracking and invoices, and

they need the information in real time (Fawcett et al, 2007). Inventory control

determines how much and when to make specific products. Low inventories can mean

missed sales and customer frustration. The question of when to produce can be

answered by calculating a reorder point, which compares the amount of inventory

currently available to the rate of demand. The cost of capital tied up in inventories can

be large. Other costs incurred when products sit in storage include product

obsolescence, damage and loss. Forecasting provides an estimate of what products

need to be produced and when they need to be produced. Forecasts are used to plan

production, determine capacity needs, refine work plans, and determine inventory

levels (Fawcett et al, 2007). Matching capacity to demand is a challenge. Demand

chain alignment integrates the demand creation and demand fulfilment processes to

develop and to deliver products that convey superior customer value while deploying

resources efficiently (Juttner et al, 2005). Supply chain leaders invest supply chain-

wide technology that supports multiple levels of decision making and gives a clear

view of the flow of products, services, and information.

According to Anderson et al, 2007 business owners need to build an information

technology system that integrates capabilities of three essential kinds. (i) For the short

term, the system must be able to handle day-to-day transactions and electronic

commerce across the supply chain and thus help align supply and demand by sharing

information on orders and daily scheduling. (ii) From a mid-term perspective, the

system must facilitate planning and decision making, supporting the demand and

shipment planning and master production scheduling needed to allocate resources

efficiently. (iii) To add long-term value, the system must enable strategic analysis by

providing tools, such as an integrated network model, that synthesize data for use in

high-level “what-if” scenario planning to help managers evaluate plants, distribution

centers, suppliers, and third-party service alternatives.

JM and Sons General Dealer has invested in hardware and software for Retail

applications (HRS, provided by Superb–Uniwell) which is enabled to function in

multiple store and warehouses, provides periodic and graph reporting, allows stock

controls including re-order reports for stock holding and contains modules for

ordering and receiving goods. It is however not clear if the hardware and software is

integrated to allow for mid and long term planning. This technology is being used for

internal processes and decision making without having a linkage with upstream

suppliers of products, i.e. there is no information sharing with stake holders outside

the business. The business owner found the technology to be useful in the control of

stock level and is facilitated by bar coding and scanning devices. Re-order points are

manually set with minimum and maximum quantities to be ordered being put by the

software user. The software is able to give information on the profits made and taxes

payable, show items that are not selling and those that are selling fast. According to

Fawcett, 2007, despite the use of modern technology, poor inventory accuracy

information could lead managers to make decisions that drove costs up and service

down, especially if stock theft is factored in. A physical count of all the items in the

store is also conducted once a month and compared to the figure recorded in the

computer system. The software also allows stock adjustments.

7. Core competenciesCore skill is defined as the collective learning in the organisation especially how to

coordinate diverse production skills and integrate multiple or skill sets that give an

organisation a unique advantage over its competitors. (Prahalad, 1990). Core

competencies are based on combinations of attributes or skill sets that give an

organisation a unique advantage over its competitors. The value proposition for JM

and sons General Dealer is to give customers more value for money. In pursuit of this

goal, the business is exploiting its relative economies of scale (as compared to

neighbouring competitors) to attract customers to conduct business with them. The

business is relatively big compared to many “spaza” shop retailers around it, and as a

result, has a large number of items available for sale. The business sources its

products from multiple wholesale suppliers located in close proximity to one another

and are competing price wise enabling the business to source products for re-sale at

competitive prices. The business also operates as a supplier where it buys vegetables

and fruits in bulk for wholesaling to street vendors. While the strategy might be

contributing significantly to serve customers profitably, the question is whether there

skill cannot be imitated or replicated by other businesses; if it is broad enough to

allow the opportunity to enter many diverse markets or if more resources are required

to improve in a unique way the skills. The answers to these questions will enable the

company to identify the competitive strategy to adopt and to design a supply chain

process that will support the value proposition.

8. SWOT AnalysisEnvironmental scanning results in the acquisition and use of information about events,

trends, and relationships in an organisation’s internal and external environments

(Fawcett et al, 2007). By looking at both internal and external forces, managers can

place their company’s initiatives and strategies in the context of the broader,

competitive market place. They thus identify their firms’ strength and weaknesses and

know where the company stands vis-a vis competitors capabilities and customer’s

expectations. A critical step in the analyses is to organise the findings in a way that

communicates a compelling story. For this reason, SWOT (strengths, weaknesses,

opportunities, and threats) analyses often accompany scanning efforts. The findings of

the SWOT analysis done on JM and Sons General dealer are summarized in Table 1.

Table 1. Swot analysis for JM and Sons General Dealer

STRENGTHS WEAKNESSES

Excellent customer relationships Cost advantages over rivals First in the market Location Relative scale of economies Learning experience curve advantage over

rivals Better resources and utilisation thereof Value proposition that suits target customers. Strong image/reputation Good customer service capabilities Better product quality relative to rivals

Initiatives are below benchmarks with key success factors

Core competencies not sustainable

Lack of unique supply chain activities

Lack of management depth Product not strongly

differentiated from rivals Small and fixed customer base Multiple supplier of products

OPPORTUNITIES THREATS

Brand building Movement to up or down the supply chain Modification of Supply Chain relationships Expanding into new geographic markets

Entry of potent new competitors Likely entry of very potent

branded national competitors Overly dependent on fixed base

of customers

9. ConclusionsThe business does not have distinctive core competencies. It relied heavily on

(relative) quantity price discounts and mainly uses its own transport services. The

business was first in the market in the location in which it operates and has

consequently developed a loyal customer base. The objective of the business is to

provide customers with products at prices lower than that provided by competitors.

The supply chain system was found to be deficient in almost all the areas identified as

key supply chain success factors in the retail industry. All employees including the

business owner were found not to have a formal skills or training in business or

purchasing management. Selection of suppliers was based on convenience and no

initiatives to establish formal relationships with supply chain members downstream or

upstream of the supply chain were visible. The relationships established with some

manufacturers do not offer the business significant competitive advantage, and this

becomes particular in light of recent trends of national super chain stores establishing

their businesses in previously black townships. This is due to the fact that this

segment has become so attractive and it is becoming inundated with competitors,

intensifying rivalry and has potential to splinter segment profits.

More importantly other potent competitors are entrepreneurs from foreign African

countries who are establishing their businesses in black townships, and their strategy

is based on organizing themselves in purchasing groups and ordering products in bulk

at the lowest possible prices offered by wholesalers and manufacturers followed by

distributing the bulks amongst themselves for resale at competitive prices. One outlet

owned by foreign African entrepreneurs has already been established within a 500m

distance from the JM and sons General Dealer outlet, and is proving to be a

formidable competitor. The competitive pressure warrants JM and Sons General

Dealer to find innovative processes of reducing input costs. Chances exist that

competitors will find effective ways to match the business’s capabilities in serving the

very same target customers – perhaps by coming up with more appealing product

offerings or developing expertise and capabilities that offset the current strength of

JM and Sons General Dealer. The business cannot rely forever on customer loyalty

and goodwill and its first on the market advantage.

10. Recommendations

It is recommended that the business invest in supply chain management processes

including the training of staff in merchandise sourcing and effective procurement

processes.

The business should focus on the development of good personalized trading

relationships with key suppliers. There are no personal relationships with most of the

upstream suppliers that the business does transactions with. The business might not be

purchasing pallet volumes of individual items, and thereby not warranting the

wholesale management attention. It is apparent that in terms of total monetary volume

of stocks and the frequency of the purchases, the business might qualify for some

discounts. It is recommended that the business negotiates with one of the key

suppliers on general discounts based on monetary volume and frequency of purchases,

and passing the discounts to customers. This will also enable the business to increase

its selling volumes which would ensure business growth. The supplier will benefit

from long-term, larger volume businesses and loyalty from JM and Sons General

Dealer. The relationship could result in the business being allowed to order products

on credit, leveraging funds that can be used to expand the business.

The current strategy is for the business to identify and buy an item from the supplier

providing the item at a lower cost. According to the business owner, the retail

wholesalers are in close proximity with one another, and there are no major transport

and wasted time implications. The business should move away from item price

focused approach towards total cost of items, this will result in the building of trust

and relationships between the wholesaler and the business.

The business should put in place procedures to measure and control costs (in pursuit

of further gains in efficiency) and innovation (not just the product offer but also the

level of service and the way of doing business with key customers.

The business relies heavily on wholesalers who themselves are retailers. The business

should seek cost effective ways of bypassing retail wholesalers, and do business with

manufacturers directly or with distributors directly linked to the manufacturers. Most

manufacturers would require that the ordered products be of high volumes for cost-

effective deliveries. The business might not be having the resources and facilities to

purchase such high volumes as might be deemed cost effective by most

manufacturers. However, there are supply chain management companies who order in

bulk from manufacturers, re-package the products in quantities sufficient for small

retailers and distribute the products directly to national retailers and to small retailers

at manufacturers’ recommended wholesale prices.

Outsourcing of supply chain services is recommended particularly with supply chain

service companies that provide inventory management and customer demand chain

analyses services. The service company would have to be identified based on defined

criteria such as, quality, price, delivery dependability, capacity, service

responsiveness, technical expertise, technological advances, managerial ability and or

financial stability. The supply chain management company should ensure the

integration of supply chain information between the manufacturers, the business and

to the ultimate customer.

Vertical integration, expansion and branding beyond the current outlet to a level

where the business has its own distribution centre could enable the business to have

competitive economies of scales and bargaining powers sufficient to sell products at

competitive prices. The business could also serve as a supply chain service to other

small retailers. The business is already involved in this type of business as it is serving

as a distributor of fresh produce to street vendors.

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