Formulation of Strategy for Spar Zambia

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EBU 4008 Module: Supply Chain Strategy Assignment: Strategy Development Report Student No. : 1110434 Submitted in partial fulfillment of the requirement for the degree of MSc in Logistics and Supply Chain Management. University of Bolton Contents 1. Introduction4 2. Structure of the report4 3. Organization and supply chain background5 4. Review of Business Strategy5 4. 1Market Penetration5 4. 2 Strategic alliances6 4. 3 SPAR: expansion and growth. 6 4. 4 System. 7 4. 5 Market Research7 4. 6Supply Chain7 5. PESTEL ANALYSIS and SWOT analysis8 5. 1 PESTLE ANALYSIS8 5. 2 SWOT Analysis11 5. Porters five forces13 5. Barriers to entry13 5. 2 Threat of substitutes14 5. 3 Bargaining power of customers14 5. 4 Bargaining power of suppliers14 5. 5 Rivalry among the existing players14 6. Review of SPAR’s customer requirements15 6. 1 Order qualifiers15 6. 2 Order winners15 7. Performance review of SPAR Zambia’s competitor supply chains16 7. 1 Shoprite background and operations. 16 7. 2 Shoprite weaknesses17 7. 3 Shoprite Supply Chain17 7. 4 Corporate Social Responsibility (CSR)17 7. 5 Competing for market share17 7. 6 Outsourcing18 8. SPAR’s current supply chain18 8. 1 Location of operations18 8. 2 Capacity of operations18 8. Transportation arrangements including use of 3PLs19 8. 4 Key skills, knowledge and experience of supply chain personnel19 8. 5 Main supply chain information systems used20 8. 6 Supply Chain Performance measures20 9. Recommendations for a revised supply chain strategy21 9. 1 Location of operations21 9. 2 Capacity of operations21 9. 3 Transportation arrangements including use of 3PLs22 9. 4 Key skills, knowledge and experience of supply chain personnel22 9. 5 Main supply chain information systems use22 9. 6 Supply Chain Performance measures22 10. Conclusion23 11. Abbreviations24 12. References25 1. Introduction

The purpose of the report is to: a. Develop and outline supply chain strategy and implementation of an affective supply chain strategy to managing quality, value chain and distribution strategies, and strategic alliances with stakeholders. b. Utilize the tools and techniques relevant to Supply Chain Strategy to outline the supply chain strategy for SPAR Zambia. 2. Structure of the report 2. 1. Organization and supply chain background 2. 1. 2SPAR business Strategy 2. 1. 3Strategic tools used by SPAR Zambia i) PESTLE ii) SWOT analysis 2. 1. 4Review of SPAR’s competitive forces using Porter’s five forces 2. 1. 5SPAR current supply Chain . 1. 6 Review of SPAR’s customer requirements 2. 1. 7 Performance review of SPAR Zambia’s competitor supply chains 2. 1. 8 SPAR’s current supply chain 2. 1. 9 Recommendations for a revised supply chain strategy 3. Organization and supply chain background SPAR Zambia Limited is a joint venture established between Innscor International of Zimbabwe and Platinum Gold Zambia Limited. The company registered in 2003 and commenced trading in December the same year with the first store being opened at Arcades Shopping Mall in Lusaka. Source: Spar Zambia. com The main competitors of SPAR Zambia are: Shoprite Checkers and Pick N Pay. . Review of Business Strategy The selection of a business strategy involves answering the strategic question ‘How are we going to compete in this particular business area? ’ Source: Lysons et al (2006) SPAR Zambia answers this question by employing the following business strategies: 5. 1 Market Penetration Spar Zambia has set in place an ambitious plan to grow the SPAR brand in Zambia, and become the benchmark by which their competition is measured. The Arcades store has been re-launched and acts as a flagship for SPAR brand in Zambia. SPAR Zambia’s key focus is on quality and service. The aim n 2011 is to widen the range of products offered to their customers by working with SPAR RSA, SPAR UK and SPAR International in sourcing private label ranges, first launched March/April 2011. (Source: Spar Zambia. com) 4. 2 Strategic alliances SPAR Zambia has entered into strategic partnerships with its wholesalers, retailers and farmers. This unique partnership allows SPAR Zambia to operate locally offering customers a personal service supported by all the benefits of global business. SPAR partners are carefully selected by a panel looking at various variables of the product(s) being offered such as: 1.

Pricing 2. Quality. Does it meet the minimum required standards? 3. Capacity of the supplier to meet the demands of the corporate stores 4. Packaging. Does it meet the standards stipulated by the government of Zambia? ” Source: Interview with Dux Bhaga, 4. 3 SPAR: expansion and growth. Expansion is a key component to SPAR’s business strategy. That is why spar continues to invest in the redevelopment and expansion of their store portfolios and the SPAR chains worldwide. SPAR Zambia is planning to open 30 stores by 2015. ( source: spar-stategy2sustain. com) 4. 4 System.

The electronic system that supports stock control, pricing and supply chains of SPAR Zambia is RMS (Retail Management System). RMS was recently interfaced with the centralized Finance operations. The system offers SPAR a complete point of sale (POS) solution that can be adapted to meet unique requirements. RMS automates POS processes and store operations and provides centralized control for SPAR Zambia Corporate stores. 4. 5 Market Research In order for SPAR to maintain or increase its market share, it has to constantly carry out its market research to find out what the customer needs are.

It has to be innovative, creative and customer orientated as it looks at its product range and its supply chain. 5. 6 Supply Chain SPAR Zambia imports 10% of its products from South Africa’s Distribution Centers (DCs). SPAR has outsourced its part of its logistics management bringing about order-to-delivery lead-time reductions and overhead reductions. SPAR has entered into partnerships with RSA transporters to deliver straight to individual SPAR shops in Zambia. The elimination of a DC in Zambia means that there are lower overheads costs and less handling of goods (This eliminates waste in the supply chain).

Other services that SPAR has outsources are security and cleaning services. However, one needs to be mindful of the fact that outsourcing can also generate negative externalities for the outsourcing firm. For example firms can experience diseconomies of scope in management of multiple firm activities or diseconomies of scale in producing a single activity. Source:Graves et al (1993). Both the advantages and disadvantages of outsourcing have to be looked at before a decision to outsource is reached. 90% of products are sourced locally with suppliers delivering to individual SPAR shops.

SPAR is committed to supporting Zambian industries and developing local products.. Source: Interview with Dux Bhaga The DCs in RSA have excelled with 171 million cases delivered through the seven DCs during the year 2010 and in the past 3 years has spent in excess of €100 million in upgrading warehouse facilities. This includes building a new 33,000 square meter DC in Cape Town. Source: www. Spar-international. com/about 5. PESTEL ANALYSIS and SWOT analysis 5. 1 PESTLE ANALYSIS There are many factors in the macro-environment that will affect decision making of any organization. To help analyse these factors managers can ategorise the use of the PESTEL model. In order to penetrate more of the Zambian market, SPAR needs to use PESTEL model as they strategize. * Political This refers to government policy such as degree of intervention in the economy. What goods and services does government want to provide? Tax policy, employment laws such as minimum wages, and political stability are some of the factors that affect the continued expansion of SPAR in Zambia. With the new government in place there has been a reduction in lending rates and slight reduction in fuel pump price, and lowered PAYE tax and doubled the threshold for non-taxable income.

These measures are meant to increase the purchasing power of the Zambian people and SPAR needs to re-position itself to ensure that it increases its market share. * Economy These include interest rates, taxation changes, economic growth, inflation and exchange rates. The Zambian economy grew strongly in recent years owing to favorable external circumstances. In 2008, however, the sharp fall in copper prices adversely affected Zambia’s economic prospects and impacted on consumer expenditure. A sharp rebound in copper prices during 2010 and a large maize crop helped Zambia recover.

Zambia’s economy is highly dependent on copper and this lack of market diversity subjects Zambia to high level of instability in the economy. Source: www. spar. co. zm Even as it plans to grow the SPAR brand in Zambia, it must periodically analyse the economic factors that might affect its expansion. * Social These are the social trends, socio-economic groupings, value systems and ethics that affect the organsation, both sector and industry-wise. Zambia has diverse cultures and religious beliefs that affect customer tastes.

Spar tries to focus on ethical aspects such as the origin of eggs and responsible animal treatment, as well as on organic product ranges. (Source: spar-International website) SPAR international is committed to responsible retailing. it meets the needs of customers, provides employment for locals and a suitable market for suppliers. It is from this involvement that SPAR fulfils its corporate social responsibility (CSR) by supporting charities, communities and sports organizations. ( source: spar-strategy2sustain website), SPAR Zambia supports the Leukemia ward at the University Teaching Hospital in

Lusaka. * Technological New technologies create new products and new processes. On line shopping is one technology that SPAR can consider using in Zambia. It will improve the way SPAR does business and be of great benefit to the customers. * Legal Organizations need to keep up with legislation that affects their business. Health and Safety regulations and pollution controls put in place by the government have to be met. For example here in Zambia, SPAR must meet the health requirements and packaging standards stipulated by the government such as inclusion of expiry dates on food stuff. Environmental The number of ‘SPAR green products’ found in stores is increasing. Customers show their responsibility for the environment, as well as for a healthy nutrition by purchasing these products. As part of their Corporate Social Responsibility program, SPAR has focused on the health and well being of their customers. ( source: spar website) 5. 2 SWOT Analysis SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a business venture.

It involves specifying the objective of the business venture and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. source: wikipedia website In its strategy formulation exercise it is important that SPAR analyses the environment in which it operates. * Strengths A company’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Spar’s strengths are product freshness, quality, value and friendly customer service. These have always been the core strengths of SPAR. * Weakness

SPAR is relatively new to the Zambian market which gives its competitors an advantage because the competitors have created brand loyalty. Pricing – most of SPAR Zambia products are slightly higher than it’s closest competitor, Shoprite . SPAR needs to change its pricing policy especially regarding local basic products found in other supermarkets. * Opportunities In a growing market like Zambia, the opportunities for growth are great. Right now SPAR shops are concentrated in the capital city, Lusaka. Most parts of Zambia only have Shoprite which sometimes do not meet all the needs of the customers creating opportunity for SPAR. Threats The main threat is the emergence of the giant supermarket Pick n Pay. 5. Porters five forces Porter’s 5 forces analysis draws upon industrial organizational economics to determine the competitive intensity and therefore attractiveness of a market. We will use this model to analyze the competitive position of SPAR in relation to other Supermarkets operating in Zambia. Three of Porter’s five forces refer to competition from external sources. The remainder are internal threats. 5. 1 Barriers to entry These barriers measure how easy or difficult it is for new entrants into new erritories, including cost advantages, government policies and taxation, access to distribution channels. The Zambia government has waived some company taxes in order to encourage foreign investment. SPAR can take advantage of the good investment policies of government to effect expansion into new areas where they do not exist. 5. 2 Threat of substitutes SPAR management have to constantly check on the performance of their products against available competing products, price and performance of substitutes, buyer switching costs, perceived level of product differentiation. 5. 3 Bargaining power of customers

With a number of new entrants into the supermarket market business, this means that SPAR customers have greater choices than they had before and can easily switch brands. The threat comes from the fact that in this industry customers are price sensitive and there are many substitutes on the market. For example, one can easily substitute a SPAR private label with a Shoprite brand.. 5. 4 Bargaining power of suppliers The bargaining power of suppliers is also described as market of inputs. For most products, SPAR has a good number of suppliers who are willing to deliver to the stores.

However, the threat might be high prices being charged by some suppliers of exotic products. 5. 5 Rivalry among the existing players SPAR management realize that the food and grocery industry is growing and becoming more competitive. Shoprite and Pick n Pay are carrying out weekly promotion activities and quickly increasing number of outlets so that they can woo more customers. SPAR has to step up its expansion and growth strategy if it has to compete and avoid being outperformed. 6. Review of SPAR’s customer requirements Order winners are factors that directly and significantly help products to win orders in the market place.

Order qualifiers are factors that are regarded by the market as an ‘entry ticket’. Source: Harrison Alan et al (2008) 6. 1 Order qualifiers The following are the order winners for SPAR Zambia: a. Freshness of the food. For example the vegetables, meats and confectionary are always fresh. b. Customer- orientated products. This includes sandwiches, ready- made favorite local dishes). SPAR products appeal to diverse modern day lifestyles of customers. c. Quality of goods. SPAR tries to promote their service and quality at fair prices that may not necessarily be the cheapest but customers get value for money. . 2 Order winners a. Essential to meeting the convenience needs of their customers, SPAR Store opens for long hours, from 07:30 hours to 22:00 hours. This has helped SPAR to secure competitive advantage as most shops close early in Zambia. b. Innovative product ranges. SPAR has widened its product range offered to customers by working with SPAR RSA, SPAR UK and SPAR International in sourcing private label ranges. Source: www. spar. co. zm` 7. Performance review of SPAR Zambia’s competitor supply chains SPAR’s main competitor in Zambia, Shoprite Checkers. . 1 Shoprite background and operations. Shoprite group opened their first shop in Lusaka Zambia in 1995. Currently Shoprite group has 18 retail stores, one wholesale and 7 fast foods outlets trading as Hungry Lion. Shoprite employs about 1698 people. The bulk of the operations are in urban areas with a handful in rural areas mainly the provincial centres. Source:http://www. amsco. org Shoprite winning philosophy is to offer its customers a convenient shopping experience in clean stores where they can get lowest prices on food and household requirements.

Shoprite Group has unveiled an aggressive expansion plan aimed to growing turnover and increasing trading profits. Source://www. bizcommunity. com and shoprite website Customers also benefit from value added services such as Money Market Counter, set up pay points for water utility companies. 7. 2 Shoprite weaknesses 7. 2. 1. Shoprite Zambia does not seem to value its workforce as evidenced by the low salaries which have led to a number of strikes and government intervention. As a result customer service is poor in most Shoprite stores. 7. 2. 2 Commitment to developing local industries and products is low.

The percentage of its imports is higher as compared to SPAR. 7. 3 Shoprite Supply Chain Shoprite Zambia consolidates the purchases for all its shops and ensures that its suppliers have the capacity to meet demands of the shops. 7. 4 Corporate Social Responsibility (CSR) Shoprite involvement with community is limited. Shoprite runs a consumer programme on the national radio station. It has occasionally supported some national sporting activities and provides information boards in all its supermarkets as part of its CSR. Source: htt://www. amsco. org 7. 5 Competing for market share

Shoprite pricing strategy of giving its customers the lowest prices on basic foods, has given it competitive advantage and currently enjoys a good market share in Zambia. Shoprite has been in Zambia longer and brand loyalty has been established in some customers. SPAR can look at these strengths and put in place strategies that can convince customers to switch brands. A quick win for SPAR would be to quickly open up outlets in other cities of Zambia. 7. 6 Outsourcing Shoprite Zambia has a policy on outsourcing and subcontracting. Management listed outsourced and subcontracted services as security, merchandising and cleaning.

Source:htt://www. amsco. org 8. SPAR’s current supply chain 8. 1 Location of operations SPAR Zambia has 7 outlets in Lusaka and other 4 outlets in Livingstone. Choma, Ndola and Chipata. 8. 2 Capacity of operations There are currently 11 retail shops in Zambia with an average retail sales area of 2,010m2. (Source: Spar Zambia. com). An interview with Procurement Manager (Dux Bhaga) revealed that of the 11 stores: Six operate as corporate stores and five operate as franchise stores. Spar operates under “voluntary trading” principles which means that while etailers are encouraged to take advantage of SPAR’s trading power, they can also source goods from local traders. That is why each store has its own regional personality. Source: www. spar. co. za 8. 3 Transportation arrangements including use of 3PLs SPAR uses 3PL providers to integrate or bundle together transportation, warehousing, ,inventory management, packaging and freight forwarding of its imports. In order to cut down on overheads, SPAR Zambia does not own its own transport but has entered into special relationships with third party logistics providers (3PL).

These 3PL providers perform part of the supply chain management functions, mainly consolidating orders, repacking where necessary and transporting to individual stores in Zambia. SPAR has engaged clearing agents to handle customs clearance. Items that are sourced locally are transported by the suppliers straight to the individual supermarkets. The centralized buying unit has no DC. 8. 4 Key skills, knowledge and experience of supply chain personnel The importance of employees in providing outstanding service is recognized within SPAR. To achieve this SPAR continues to invest in training and development of staff.

SPAR has started the SPAR academy which meets the training requirements and aims to becoming employer of choice. SPAR Zambia has more 700 employees. The Central buying unit is situated in Lusaka Zambia and headed by a Group Procurement Manager who is supported by buyers. Each corporate store has a dedicated buyer with either CIPS qualification or are studying. 8. 5 Main supply chain information systems used The electronic system that supports stock control, pricing and supply chains of SPAR Zambia is RMS (Retail Management System). The system was recently interfaced with the centralized Finance operations.

It offers SPAR a complete point of sale (POS) solution that can be adapted to meet unique requirements. RMS automates POS processes and store operations and provides centralized control for SPAR Zambia Corporate stores. Source: Interview with Dux Bhaga 8. 6 Supply Chain Performance measures Supplier performance is measured through inventory reports which show for every item ordered what has not been delivered or has been partially delivered. The buyers have to meet the timelines stipulated on the Order Schedule agreed on with the Group Procurement Manager. The buyers have visibility into the inventory levels through the system.

The agreed re-order level for most goods is 21 days stock. 9. Recommendations for a revised supply chain strategy 9. 1 Location of operations SPAR should reposition itself in 2012 by considering opening up shops in other provincial centers and towns along the line of rail. SPAR should take its supermarket operations to the densely populated city townships and rural towns. 9. 2 Capacity of operations SPAR should revise its purchasing strategy by consolidating orders as opposed to individual supermarkets operating separately. The following will be the benefits of consolidating orders: * Cost reduction * Volume discounts Price uniformity * Standardization of processes Instead of each store having a dedicated buyer, buyers should be allocated specific categories and these can be bought in bulk for all the SPAR corporate stores. This entails coming up with a proper distribution plans to ensure that the right quantities are delivered from the supplier to the individual supermarkets. SPAR can also improve also improve its operations by employing collaborative planning, forecasting and replenishment (CPFR). CPFR is aimed at improving collaboration between buyer and supplier to improve customer service and make inventory management more efficient.

Source: Harrison et al (2008) 9. 3 Transportation arrangements including use of 3PLs In order to improve SCM processes SPAR Zambia should engage ‘customer developer’ who is a 3PL provider that integrates and takes over the entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them. This is the highest level that a 3PL provider can attain with respect to its processes and activities. Source: Hertz et al (2003) 9. 4 Key skills, knowledge and experience of supply chain personnel SPAR Zambia needs to employ more qualified personnel.

It is good that they encourage their staff to study CIPS but there should be a deliberate policy to employ experienced and already qualified staff. 9. 5 Main supply chain information systems use The current system is not linked to its supply chain partners like transporters and clearing agents. SPAR should consider implementing a system that integrates all the supply chain activities including the ones that are outsourced like transportation and customs clearance. This will provide visibility into the whole SCM with standardized processes. 9. 6 Supply Chain Performance measures

SPAR SCM need to put in place the following performance measures with its internal customers (SPAR shops): i) Key Performance Indicators (KPIs) for the Supply Chain – agree on KPI with all stakeholders. ii) Service Level Agreements. An SLA as an objective basis for gauging service effectiveness ensures that both parties use the same criteria to appraise service quality. iii) Use a tracking tool that will provide central repository for tracking of SCM activities which should be able to help identify problem areas in SCM process for improvement. 10. Conclusion SPAR is a retail concept which responds to the convenience needs of diverse odern day lifestyles of customers. The SPAR stores are usually identified through their innovative, creative, quality and customer-oriented character. Spar Zambia has brought world class trading standards to an under-developed retail industry and have exciting future plans to open up 30 stores by 2018 in all major towns and cities in Zambia. With the right pricing and expansion strategy SPAR Zambia can outperform Shoprite and position itself as leader in the very hot battle for market share. SPAR has to quickly expand its operations in Zambia as Shoprite is failing to meet the demands of the customers in some cities like Kitwe.

In order to source funds for its expansion programme, SPAR can list its shares on the Lusaka Stock Exchange. 11. Abbreviations Abbreviation| | CIPS| Chartered Institute of Purchasing and Supply| CPFR| Collaborative Planning Forecasting and Replenishment| CSR| Corporate Social Responsibility| DC| Distribution Center| PAYE| Pay As You Earn| POS| Point of Sale| RMS| Retail Management System| RSA| Republic of South Africa| SCM| Supply Chain Management| UK| United Kingdom| | | | | 12. References 1) www. spar-strategy2sustain. com hppt://www. spar-strategy2sustain. com/product. asp. ) www. spar-international. com hppt. www. spar-international. com/about spar/growing sustainability. hppt. www. spar-intertnational. com/sparworldwide. 3) www. spar. co. zm 4) www. wikipedea. com 5) www. Thezambianmarketer. com 6) www. linkedin. com 7) Harrison Allan and Remko van Hoek,( 2008), Logistics Management and Strategy Pearson Education, UK 8) Hannagan, Tim,( 2005),Management concepts and practices, Pearson Education, UK 9) Kenneth Lysons and Brian Farrington, (2006), Purchasing and Supply Chain Management, Pearson Education, UK 10) The Zambia Marketer issue:q306 01/0/2006 1) Graves S and Longowitz N (1993) ‘’Innovative Productivity and Returns to scale in the Pharmaceutical Industry’’ Strategic Management journal 12) Source:http//www. shoprite. co. za/pages/127416071/about/Africa/Zambia. asp 13) www. Spar-international. com/about 14) source: http://en. wikipedia. org/wiki/SWOT_analysis) 15) Source://www. bizcommunity. com/Article/410/182/51429. html 16) Source:htt://www. amsco. org/projects/country-reports/Zambia_report 17) Interview with SPAR Group Procurement Manager, Dux Bhaga in Lusaka, Zambia December 2011. 18) Hertz and Alfredsson (2003)

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