OPERATION MANAGEMENT

GSM 5113
Group Assignment

Case Study Process Analysis in Carrefour

Group Members; Dhatchayani Ramanathan Kamini Vadivello Usharani Vachiravel GM 04679 GM 04678 GM04677

PROCESS ANALYSIS IN CARREFOUR GROUP INTRODUCTION - History of Carrefour First in Europe, Carrefour is the 2nd retailer in the world. With a presence in thirty-two countries, it makes half its sales outside France. This makes it the most international of all food retailers. The Group is concentrated on three continents: Europe (13 countries), Latin America (4 countries) and Asia (8 countries), a field of expansion to which one might add Africa, the Caribbean and the Middle East (7 countries). The Group started this world-wide expansion more than 40 years ago, from which it has gained considerable experience. With the strength of this expertise, Carrefour pursues a growth strategy that is increasingly based on its international business. Thus, in 2004, 80% of the new points of sale were created outside France. Growth has been achieved, with an increase of sales outside France of 8.3% at constant Exchange rates in 2004.

The scope of Carrefour focuses on four main grocery store formats which are hypermarket, supermarket, discount and convenient stores. Operations range from supermarkets stores and a variety of other outlets to convenience. But what Carrefour is known for above all else is the hypermarket. A hypermarket is, essentially, a super-sized supermarket that typically stocks some 70,000 items and has a sales floor as big as 20,000 square meters or approximately 215,000 square feet. Carrefour introduced the concept to Europe in 1963, opening its first one in the south of Paris. The trend caught on and Carrefour hypermarkets sprang up across the continent.

SUMMARY OF CASE STUDY Introduction Carrefour group is the worlds second largest retailer and the biggest in Europe. Their core processes are hypermarket, supermarket, discount and convenient stores. Has 15,000 stores which has over 490,000 employees with annual sale of $128.8billion in 2007. Operate in three major markets, Europe, Latin America & Asia. One of the leading private employers in any country it operates Home country of Carrefour is France where 90- 95 % of the products on its shelves sourced locally. Foundation of Carrefour Empire is shaky. It faces tougher competition abroad. Need for undertaking Process Analysis CEO Duran taken personal control of the process and improvement exercised He changed the from one that was complacent with its position at the head of a cozy duopoly and whose offering were stable, to one that is highly efficient and competitive. This results a sharp increase in market share and its profitability. Carrefour receive deliveries from supplies on daily and weekly basis Sell and restock everyday to customer. Previously the company had 50+ days of stock in pipelines, 4-6 % out of stock level with average service level of 90%. The Carrefours inventory turnover was poor. Customer satisfaction rates were bad. There were occurring between supplier and retailer There were times where no stock in retailer shelves but plenty in the warehouse due to fault in store process and communication system in the supply chain. Other competitor identified Carrefours pitfall and they were considering to enter the market.

Process improvement been implemented ; Centralization of buying function Redesign the distribution network Redesign of transportation system Development and implementation of IT based inventory replenishment system Establishing electronic data interchange (EDI)

Early Result of process analysis Cost saving of 5.2 % sales ( 8.6billion euros in saving) The average inventory holding has decreased gradually which create a huge amount of free cash flow. Use the cost saving on the price and improving in store amenities.

PROCESS ANALYSIS IN CARREFOUR GROUP Question 1 How did Carrefour connect its process analysis with strategic issues, such as those tactics to combat market competition? Process analysis is needed for both reengineering and process improvement, but it is also part of monitoring performances overtime. Commencing from 2003, Carrefour had been undertaking systematic process analysis where the company had reviewed its four core processes of supplier relationships, new service/product development, order fulfillment and customer relationships, while recognizing strategic issues, including gaps between competitive priorities and competitive capabilities as well lack of strategic fit. The company had identified strategic issues in the beginning of the process analysis activity i.e. in the first step of identifying opportunities and usually includes doing an environmental scan and SWOT analysis. On the other hand, alternatives to deal with the strategic issues were addressed in step 5 and 6 of redesigning the process and implementing changes at the end of the process analysis. SWOT ANALYSIS i. Strengths of Carrefour Over the past 40 years, the Carrefour Group has grown to become one of the worlds leading distribution groups; Worlds second largest retailer and the biggest in Europe. Relatively large stores with broad non-food lines; One of the leading private employers in any company where it operates (Employee base of approximate 495,000 around the globe); Very price-competitive compared to rivals; Store openings are progressing well; High proportion of locally sourced products; Ranked third in terms of profit in the industry after Tesco and Wal-mart; Joint ventures in different countries;

Large network of Discount, grocery and convenience stores, cash and carry, hypermarkets;

ii. iii. -

Pioneer in hypermarkets especially in France; Selling number of products with its own private brands; Strong brand in the world of retail industry; More than 50% sales of the company come from France; and Operating in 31 countries. Weaknesses of Carrefour High-levels of out-of-stock incidences (Poor stock management); Customer satisfaction rates were not so good (Lost of customers); Dwarfed by compatriot Casino; Own-brands relatively underdeveloped; Has missed out on significant takeovers; Reduce operating expenses; Weak position in Asia and Middle east countries; Labour relations; Taking too much time in opening new stores; Has not been able to attract Japanese customers; Weak own brand sales; and Poor E-commerce performance. Opportunities of Carrefour Organic supermarket and discount store growth; Expansion beyond Medellin and Bogota; Private label growth; Joint ventures and acquisition for more expansion; Discount stores development; Improve sale performance; Reduce operating cost;

Research and development required in marketing area to understand the dynamics of different segment; and

iv. -

Maintain better labour relations. Threats of Carrefour French consumers are spurning its hypermarkets in favour of discount chains such as Germanys ALDI and Lidl.

Wal-Mart and Tesco had identified Carrefours poor operations and were considering moving into the Continental market (potential entry);

Tough competition abroad

Carrefour must now design wider competitive marketing strategies that best position its offer against competitors offers and give the company the sustainable competitive advantage. Duran realized that action was urgently needed; otherwise, there was a strong possibility that Carrefour would not survive for long. There isnt any strategy that could be universally applicable and every brand must determine what strategy suits them based on their position in the industry and its objectives, opportunities and resources. Michael Porter, considered by many the worlds foremost authority on competition and strategy, once suggested 3 winning strategies to combat competition and achieve a competitive advantage. Cost leadership: This strategy entails a company to work hard to achieve lowest costs of production and distribution to ultimately pass it on to the customer with lower prices. This could be achieved through economies of scale. Differentiation: In this strategy a company concentrates on creating a highly differentiated product line and marketing program so that it comes across as the class leader in the industry. Most customers would trust and prefer to own this brand if the price of the products or service is not too high. Focus: Here a company, instead of appealing to the entire wide open market, concentrates its efforts on a few segments. The concept of segmenting the market and showcasing the product attributes to the target market helps gain a dominating share of the focused market.

Now all divisions in Carrefour needs to be concerned about process analysis simply because they are doing work, and process analysis focuses on how work is actually done. For instance, are they providing the most value to their customers (internal and external), or can they be

improved. In Carrefour operations and sales departments are the first are that comes to mind because they are so closely connected with the core processes. Nevertheless, the support processes in accounting, finance and human resources are crucial.

Question 2 How did the company identify and implement the six steps in applying the systematic approach to process analysis? Carrefour identifies and implements the six steps as below;

Step 1 - Identify opportunities Core processes a) Supplier relationship Employees in the supplier relationship process select the suppliers of services, materials and information and facilitate the timely and efficient flow of these items into the firm. For example; negotiation fair prices, scheduling on time deliveries and gaining ideas and insight from critical suppliers.

b) New product/services product development Employees in the new service/ product development process design and develop new service or products. The services or products maybe developed to external customers specifications or conceived from inputs received from the market in general. c) Order fulfillment The order fulfillment process includes the activities required to produce and deliver the service or product to the external customer. d) Customer relationship Customer relation process sometimes referred to as customer relationship management. Employees involved in customer relationship process identify, attract, built relationships with external customers and facilitate the placement of orders by customers. Traditional functions, such as marketing and sales maybe a part of this process.

Competitive Priorities

According to the case given, competitive priorities mentioned in the case given are as follow; i- Time Carrefour improves their delivery speed on daily basis. As development speed, Carrefour has implemented IT based inventory replenishment system. They forecast based replenishment system for distribution centers.

ii- Flexibility In term of volume, Carrefour sends the stock to customers and restocks more than once a day. They have also redesigned the transportation system to reduce a volume of direct store deliveries and take control of inbound freight volume to the distribution centers. In term of customization, Carrefour redesign distribution network by consolidating 31 distribution centers to only 9 regional distribution centers. Goods are received directly from supplier and distributed to regional distribution centers which are more flexible.

iii- Quality In term of top quality, Carrefour established electronic data interchange connection with stock supplier. Carrefour has established full two way, live, electronic interconnection with most of its 3000 suppliers.

iv- Cost In term of low-cost operations, the redesign of distribution network and transportation network has indirectly reduced the cost for Carrefour.

Step 2 - Define the scope Carrefours main scope of business are four main grocery store formats which are; Hypermarket Supermarket Discount Convenient stores.

The defining scope under systematic approach from the case study is as below;
Each country has differences - Pallets load size, order size & It interface Decision making process were not streamlined the central buying structure. Too many point of contact - supplier Less opportunity for national marketing having created Chances for duplication of products. Too many distribution networks - 31 distribution centers Bad transportation system time consuming More cost - bad transportation system Poor inventory turnovers - high levels of out of stock in retailers shelves but plenty in warehouse. Customers satisfaction levels were not good Inventory turnover are poor than the worlds best practice - 20days They have occurring between suppliers and retailers - reason could not be identified. Created opportunity for more competitors to enter the market.

Step 3 - Document the process Flow chart

Step 4 - Evaluate performance

The inventory turnover rates were bad shape. Where there are high levels of out of stock in retailers shelves but plenty in warehouse. So they are lack of good inventory system. Carrefour in each country has different pallet load sizes, order cycle, IT interfaces with suppliers. The decision making processes to move a central buying structure are stream lined. The supplier deal with a single point of contact and the opportunity for national marketing having created and duplication of effort is removed. Carrefour has too many distribution networks which involves 31 distribution centers. Even the transportation system of Carrefour is bad which involves a huge amount of cost due to need to supply to many region for many times. The inventory turnovers are also in a bad shape where sometimes there are high levels of out of stock in retailers shelves but plenty in warehouse. So they are lack of good inventory system. Customers satisfaction levels were not good which are obviously seen through the high level of out of stock incidence in Carrefour. The worlds best practice for average inventory turnover rate is 20days but then Carrefour had a poor performance. They have occurring between suppliers and retailers but the reason of the occurring could not be identified. The weakness has been noticed by competitors where they decide to enter the market.

Step 5 - Redesign the process Centralization Centralize the buying function of all the pallet size; order cycles, IT interface with supplier and etc for all the country. Centralization of buying structure means that decision making processes are streamlined, suppliers deal with single point of contact, opportunities for national marketing been created and the duplication effort has been removed.

Redesign of distribution network The distribution network has been consolidated from 31 distribution centers to 9 regional distribution centers. Good are received directly from supplier and distributed to regional distribution centers through the new introduced 4national distribution centers.

Redesign transportation system Implementation of transportation systems that reduces the volume of direct store deliveries and take control of inbound freight volumes to the distribution centers.

 Development of IT Carrefour improves its IT- based inventory replenishment system. A forecast based replenishment systems for distribution centers and stores have been installed. Besides that, the point of sale data signaling systems has been integrated to improve the communication throughout the distribution network.

Establish electronic data interchange (EDI) Carrefour established EDI connection with top suppliers. It also established full two way, live, electronic interconnection with almost 3000 suppliers.

Step 6 - Implement the changes Carrefour implemented the changes by doing the following steps: Centralization of buying function provide same facilities throughout all the branches ( standardization) Reduce numbers of distribution network from 31 to 9 regional distribution centers Improve transportation system implemented transport management system (TMS) Develop their IT-based inventory replenishment system have a good inventory control Improve their connection with supplier - establish EDI Carrefour hired special expertise for developing software. For example; Carrefour established EDI.

Question 3 How did the companys improvement initiative identify market opportunities and business expansion? Core Competence 1) Customer Satisfaction Relationship o Identify customers feedback through customers survey and identify customers the weakpoint that customers are not satisfied o Give facilities to customer and also some special privileges that can gain customers loyalty towards Carrefour brand such as giving special discount for those who are members. o During festive seasons, can send greeting cards and also birthday cards to show appreciation towards the customers for their loyalty o Have a members promotion on a particular day especially for the loyalty card member with remarkable discounts. 2) i. New Service/ Product Improvement Product Improvement o Produce product on their own brand name which they can quote a lower price compare to the other competing brand. o It will indirectly encourage customer to buy their brand name as the cost are lower and prudent. o This will eventually increase the numbers of loyal customers because everyone can effort to buy as the cost are low. ii. New Service o The new centralization of buying function has reduced the cost of employee needed so eventually the cost is cut down. o The new transportation systems indirectly reduce cost and time.

o Can provide more facilities such as free trolley which varies by sizes so that customer can choose according to their need. o Provide an ample space of free parking so that the customer feels convenient to park their vehicles during their visit to the hypermarket. o Investments made for the purpose of new technology o Carrefour embedded new jobs and skills. For instance, in order to implement the EDI system, Carrefour hired IT Professionals. o Implementing Lean Six Sigma - Lean is a systematic approach to identifying and eliminating waste through continuous improvement to allow product flow at the pull of the customer in pursuit of perfection. It focuses on eliminating non-value added activities from a company's processes while streamlining value-added activities. o Implemented IT based inventory system - avoided stock outage and also over stock storage
o Training given to the staffs to enhance their skills and knowledge on new systems

3)

Supplier Relationship o Scheduling on time deliveries with suppliers at the beginning itself. o Negotiate the best price from supplier through quotations. o Have a good supplier relationship so that they can provide the products in the best quality and at the lower cost per unit. o Give feedback on timely basis on their services provided to us to help them improve. o Select the good suppliers based on their history of their products quality and brand name.

4)

Order fulfillment o Ensure that percentage of order being returned by customers due to quality problem is at the lowest rate. o Ensure that the times taken for shipping the product to customers are relevant and on time as the customers need. o Minimize the rejection of orders by customer o Ensure to practice the best inventory turnover rate.