ASDA is third largest retailing company in the United Kingdom. It was acquired by world’s largest retail giant Walmart in 1999. It deals in the retail of merchandise products including food items, grocery items, housing, electrical appliances, and other entertainment goods. It is also known as largest food retailer in the UK. Its head office is located in Leeds, West Yorkshire. It holds a remarkable share in the UK market. ASDA was established in 1949 with the name of Associated Dairies and farm Stores Limited. In 1965, it was merged with Asquith chain of three supermarkets. It employs more than 160,000 workers in more than 375 locations across the UK. It has 259 retail outlets and 19 storehouse across the UK. The operating income of ASDA is about 638 million pounds per year. Now ASDA is up grading its retail services by adding pharmacies, jewelry, and photo departments to its retail stores. About 16.5 percent of the grocery stores of the UK are engaged with ASDA for retail shopping as the company has significant reputation for special promotion offers. As a subsidiary of Walmart, this retail has improved the business and market share of retail giant in the United Kingdom. ASDA has been competing with its rivals for many years and maintained third position in the market with regard to market share.
Three Issues with operational management: Reverse Logistics, Supplier connectivity, Inventory management
Description of first Issue Identified: Reverse Logistics
The process of reverse logistics is the major operation that ASDA is witnessing during the last few years. ASDA deals with a variety of consumable products, and the moderate guidelines of return of the product facilitate the consumer to return defective product back to the supplier or manufacturers. Products particularly electrical appliances form a big portion of reverse logistics for ASDA. To deal with the products returned from the customer for exchange or repair, ASDA has to carry out a complex procedure of reverse logistics. Developing contact with suppliers or manufacturers of the returned products consume demands a lot of time and management. Failure in the process of reverse of procedures cost millions of pounds to ASDA every year. Moreover, it reduces the efficiency of company towards the delivery of exchanged or repaired product to the consumer. Hundreds of products are returned from the consumers to the storehouse of ASDA on daily basis, and demand proper management for further processing. As ASDA deals with online sale of consumer products, rate of returned products from consumer side has increased which further complexes the process of reverse logistics. Maintaining and processing reverse logistics has become an operational issue for ASDA.
Why process of reverse logistics needs improvement
ASDA is retail giant in the United Kingdom and maintains healthy reputation among consumers on retail as well as online sale. A suitable and efficient process of reverse logistics is necessary to maintain positive standards of services to consumer. It is crucial to engage existing customers and attract more customers. An effective reverse logistics procedure can increase customer satisfaction and improve customer relationship. Moreover, hundreds of products are dumped or disposed of in storehouses of ASDA due to absence of efficient procedure of reverse logistics, and cost heavily on company’s finances. This improvement is essential to avoid loss of millions of pounds.
Description of second Issue Identified: Supplier connectivity
Second major problem with operational management of ASDA is the ineffective connectivity with the supplier of products. ASDA being the competitive supermarket retailer deals with a variety of suppliers to ensure the delivery of products at the retail stores. ASDA has failed to manage effective communication with the suppliers. This hinders the delivery of consumer products in storehouses and retails at the right time which is harmful for the reputation of the company. Moreover, complex management procedures delay the delivery of payments to suppliers which can influence the delivery of orders from the supplier side, and eventually the supply of products at the retail is influenced. ASDA has been ranked worst by the suppliers in terms of the supply connectivity. Suppliers remarked that ASDA has failed to follow the Grocery Supply Code of Practice. Delayed payments have become serious issue for small suppliers of the UK.
Why supplier connectivity needs improvement
Suppliers constitute integral part of company’s operations. Efficient connectivity with supplier can increase efficiency and productivity of the company. It is necessary for the effective delivery of products and services to the consumer. Effective supplier connectivity is essential for the sustainability of ASDA in the competitive market of corporate retail.
Description of third Issue Identified: Inventory Management
ASDA has been expanding its business for many years, and it has become major operational issue for ASDA to manage inventory and distribution centers to fulfil the demands of retail stores. It has become difficult for ASDA to store food products which are vulnerable to expiry in inventories.
Why inventory management needs improvement
The waste of food products in store houses costs millions of pounds to the company every year. In addition to it, mismanagement in inventory can disturb the routine operations of retail stores. It can reduce level of consumer trust and eventually, risk the survival of the company in retail sector. A synchronized inventory management is essential for the sustenance of ASDA.
Definition of project and project appraisal
A project is an organized commitment of efforts to produce a desired outcome within the defined constraints of scope, time, budget, and quality (Kerzner & Kerzner, 2017). Project management is control and execution of planned set of activities to achieve certain goal with the constraints of time, cost, budget, and quality (Harrison & Lock, 2017). Project appraisal methods are the methods to evaluate the viability of project (Lichfield, et al., 2016). These techniques can account for various parameters to assess the performance and efficiency of the project (Gotze, et al., 2016). The practical and effective appraisal techniques from the literature include net present value, payback method, internal rate of return, and profitability index (Konstantin & Konstantin, 2018).
Project Appraisal Method 1: Net Present Value
Net present method is based on the annual cash flows of the project. The net present value of project is calculated by summing the net annual cash flow excluding the cost of initial outlay. If net present value is positive then the project is decision (Gallo, 2014). On the other hand, negative net present value implies for the cancellation of project. McCarthy used the net present value method to determine whether the investment in existing business can add value to the firm or not (Steven A., 2007).
Project Appraisal Method 2: Payback Method
Frank Lefley explained that the decision criteria in payback method is the number years that are required to recover the original amount of investment. If the amount of initial outlay can be recovered in the expected number of years then it would be feasible to start the project. The disadvantage of this method is that it does not account for cash flows after the period of payback (Häcker & Ernst, 2017).
Project Appraisal Method 3: Internal rate of return
In this method, net present value is equated to zero. In the research done by Santandra, the viability of the project was assessed by calculating internal rate of return to required rate of return (Santandrea, et al., 2017). If the internal rate of return exceeds the predetermined value then feasibility of project is positive (Ng & Beruvides, 2015). This method is not suitable for the evaluation of mutually exclusive projects.
Project Appraisal Method 4: Profitability
In this method, the ratio of present value of cash inflow to the present value of initial cost is calculated to measure the profitability index. If the profitability index is greater than one then project is accepted. This method requires cost of capital for the assessment and it is not feasible for implementation in cases where cash flows are not equal (Goyat & Nain, 2016). Gotze found out the positive side of this method as it accounts for all cash flows of projects (Gotze, et al., 2016).
Application of Project Appraisal Criteria and Method to improve the three identified issues
Improvement on process of reverse logistics with payback method
If two years are designated as the payback period for the improvement, and 500000 dollars are invested to improve the process of reverse logistics then ASDA can recover the loss the due to reverse logistics and add significant revenue to the company’s account along with the recovery of initial investment (Govindan, et al., 2015).
Improvement on inventory management with internal rate of return method
Internal rate of return is suitable for integrated projects, and improvement in inventory management is highly integrated with the existing set up of the company (Jacobs, et al., 2014). Managed inventory and distribution centers can increase the internal rate of return by increasing the annual sales of the company.
Improvement on supplier connectivity with internal rate of return method
Improving the supplier connectivity with the company encompass the change in policies and infrastructure of the company. This project will be integrated to the running projects of the company, and will not impact the cash flows. A high value of rate of internal return makes this project feasible for ASDA (McWatters & Zimmerman, 2015).
Selecting the operational issue for change
The procedure of reverse logistics will be selected for the improvement. It would be feasible to implement with minimum cost because it only demands technological improvements along with improvement in management (Bryman & Bell, 2015). It will control the annual loss of the company by avoiding the wastage of goods due to mismanagement. Moreover, the payback period of this project is minimum as evaluated by appraisal technique.
Literature review of radical change
According to researchers, radical change is a significant transformation of fundamental processes of any organization. It encompasses complete restructuring of any process (Rechtin, 2017). This change is implemented to achieve drastic improvement in efficiency and productivity of any process or system. The positive aspect of radical change is that it can imply for competitive advantage for the organization if the parameters of measurement produces positive outcome (Bennett, et al., 2018). The negative aspect of this change is that it can lead to drastic failure if the parameters of measurement gives negative outcome. It is observed that radical change has least probability of success in practical environments (Bennett, et al., 2018). It makes radical change unsuitable for large size business ventures.
Literature review of continuous improvement
Continuous improvement accounts for the continuous efforts to improve any process or system (Hutchins, 2016). This process involves the continuous monitoring and evaluation of different aspects of any process to introduce further improvement measures. It can include incremental changes over certain period of time or sudden breakthroughs in defined periods (Singh & Singh, 2015). The positive aspect of this process is that it maximizes the probability of success and minimizes the factors of failure (Hutchins, 2016). It is appropriate for new ventures as well as giant corporates.
Application of Continuous Improvement to implement changes in ASDA
According to Vasarhelyi, continuous improvement is the effective process for the improvement of operational issues related to ASDA. Improvement in procedure of reverse logistics require high cost for the implementation of complex management infrastructure. This project demands inclusion of new staff and incorporation of new technology to increase the efficiency of process. Continuous improvement can reduce cost of project and increase the chances of success. Continuous can support evaluation of the project throughout the process of improvement (Vasarhelyi, et al., 2018).
The project would be divided into fifty tasks with defined time scale for the completion of each task. The first part will include the planning of activities within the estimated time periods. The second part will include the execution of activities along with periodic evaluation of each activity. The final part will include the evaluation of the whole project.
According to the publication in 2015 by W. Ho and team, risk management is the process of identification and monitoring of potential risk, and the planning to mitigate the negative effects of those risks (Ho, et al., 2015). It can prevent the organization from absolute destruction in case of any disaster. This process involves three steps; the first step is the identification of potential risks and their comprehensive assessment (Bromiley, et al., 2015). The second step involves the risk evaluation to analyze the intensity of damage. The last step involves the risk treatment to mitigate the effects of risk (Glendon, et al., 2016). Risk management is a continuous process and should be updated by concerned authorities to avoid any mismanagement.
Risk Criteria and Appropriate Evaluation Method for CI
According to Albert Christopher risk criteria are the strategic measurement and the term of reference used to find the importance of a risk. It helps to identify which of the risks is most important, which of them should be prioritized first and which of them should be prioritized last. It includes associated costs and benefits, statutory requirements and legal requirements during the assessment of the risk (Christopher & Audrey, 2002). Organizations do risk criteria to find out how much their organization can withstand each of the risks. This helps them to decide which of the risks should be prioritized at which place. After the proper assessment of the risks, the next step is the design the mitigation techniques that can help the organization to mitigate those risks as much as possible (Luhmann, 2017).
The evaluation method of risk helps to identify how much a risk can harm the organization or the individual (Modarres, 2016). The major risk evaluation methods used are
- Quantitative Risk Analysis
- Qualitative Risk Analysis
Qualitative Risk Analysis
The qualitative risk analysis was used for the process of prioritizing the pre-identified risks according to the mentioned scale of ASDA supermarket. Each of the risks was given a number or score based on their severity and their likelihood of harming or impacting the organizations. The ASDA used a pre-defined scale which has different numbers or score on it (izenbridge, 2018). These scores are according to the extremeness of the risk.
The most dangerous risk is given the highest score while the least dangerous risk is given the lowest score. The scoring of these risks helps the organization to decide which of the risk should be dealt first and which of them should be dealt at last (A. & Burtonshaw-Gunn., 2018).
The scale for the probability of the risk has scored from zero to one while the one with the impact severity has scores from one to five. The risk with zero scores on probability scale means there is no chance of occurrence of such risk while score one of the scale means that there is the highest probability of occurrence of this risk (Graves, 2000).
Quantitative Risk Analysis
Supermarkets like ASDA face a lot of risks in the operations. One of the biggest risks that are linked with the operations is inventory management. If the inventory is not managed properly there is a risk of extra financial pressure on the company. Reverse logistics is a huge challenge for the company. It is important to be taken care of because this can add value to the company operations. Supplier connectivity is also an issue that needs to be dealt with. Analysis needs to be performed in order to make sure that these risks and the issues are taken care of properly. If these issues are left unaddressed they can create big troubles for the operations.
In this type of risk analysis, the risks are further analyzed and prioritized during quantitative or numerical rating. This numerical analysis helps to develop a probabilistic analysis of the project. The major difference between quantitative and qualitative risk analysis is that qualitative risk analysis is used for risk level while quantitative risk analysis is used for project level (Simplilearn, 2018). Quantitative risk analysis helps to get the probabilistic estimate of the cost and time needed to achieve specific aims and objectives of the project. It may require some specialized tools whole qualitative risk analysis do not require any software or specialized tools. This method is more time consuming because the analysis is a whole project level, not for one or two risks (McNeil, et al., 2015). It needs high quality data, prioritized lists of risks and well-developed project models to conduct a quantitative risk analysis while qualitative risk analysis does not need that (Goodrich, 2018).
The final plan is designed after giving enough thought to the process and the risks that are attached with the process. The areas that were sensitive and required much attention were given the required amount of time to avoid any form of risk that might appear.
ASDA is the third largest retailing organization in the United Kingdom which operates in the country to provide food items, grocery items, housing, electrical appliances, and other entertainment goods online. The company was founded in 1949 and has been successfully operating in the market since then. The company is now facing three major issues which are reverse logistics, supplier connectivity and inventory management which needs to be solved as soon as possible. There is a number of strategies that the company have to adopt in order to mitigate those issues. The detailed project plan defines how the company should move in order to bring some large-scale improvements in their business operations and consequently, in revenues.
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