Table of Contents
Debenhams PLC. is one of the leading international multichannel retail stores that deal with a variety of items with inclusion of clothing, and furniture and other household items. It has its headquarters in the United Kingdom. The company has enjoyed massive growth since its establishment in the late 17th Century by William Clark. By the year 2016, the company is reported to have been operating more than 250 retail stores in 27 countries with its online marketing available in more than 60 countries around the world (Debenhams, 2016, Pp. 17). In its half year results reported in February 2016, the company pronounced its consistent progress in implementing strategic priorities put in place two years earlier. Besides this, the store boasted some of its success which encompassed an escalation of 5.5% profit margin before tax as well as diminution of its net debt by £ 95.6m (Debenhams, 2016, p. 23).
The chain store has however not been in venture without confronts especially with the volatile economic market which has left some of the big companies struggling for existence. By the year 2017, the retail giant management had felt existence of the challenge as its profits dropped by 6.4% while their share prices plummeted by 5.9% (Davey, 2017, p. 21). The company administration decided to modify its operations strategy to maintain its growth and compete ideally in the volatile market.
In an announcement made by the company’s CEO, in April 2017, the management came to a contemplation to close down 10 of its 176 stores that operate in the United Kingdom as a part of their recovery plan. The other expected changes were switching about 2000 of staff back room to customers service roles as well as invest in online marketing in what he called giving the stores a new look. The previous strategies appeared outdated (Davey, 2017, p.23). The two moves are among many other operation strategies that the company seeks to implement and are provided expansively in its organizational strategy.
Every organization operation concerns are towards its survival in the long run by examining how things are done through the production of goods and services, as well as the customer’s services which are an integral part of the business. The move by Debenhams to revisit its operation strategy is not new in the business world as many companies strive to remain relevant by maintaining their competitive edge. However, though many people perceive the term operation to mean day-to-day tactical concerns of the business, a good long-term business plan has to include operation strategy otherwise failure is expected in objectives achievement. No matter how noble a business plan is, it only becomes viable if the short-term operations are incorporated since they are a channel towards achieving the long-term goals of every business organization. A good business operation strategy comprises a stream of actions which work in harmony with each other to deliver the optimum outcome. Often, when a business is involved in operation management, it targets the key areas which are customer services and resource utilization.
Debenhams New Operation Strategy
In the effort to trim down its operation cost, the CEO announced that the company would shutdown its 11 warehouses and 10 out of the 176 stores that operate in the United Kingdom. Although the management argued that none of the stores were making losses, they said that they would review their outlets in five years too and close down those that were not meeting the threshold of their expected returns. According to an explanation by one of their management companies, Debenhams had opened too many retail outlets and there was a necessity to close down some of them (Canning, 2017, p. 45).
According to the CEO, though only one store was considered to be unprofitable, there was a foreseen danger that ten more could also become unprofitable and hence the decision to cut the losses. In addition to the outlet stores, the other way of reducing their costs was by shutting down some of their smaller warehouses as well as reduce their stock by 10%. The closure of the ten stores would see the company cutting down their employees in the United Kingdom by 500 which means it will be a benefit regarding reducing the operation costs (Jefford, 2017, p.101).
In the new operations strategy dubbed Debenhams Redesigned, the store seeks to replenish its stock faster than before to ensure no shortage and that their customers will get what they want at any given time. Fundamentally, the company will move planning on switching 2000 more employee to customer service roles (Jefford, 2017 p. 184). The company furthermore will invest more in online retail to tap the online market and compete more fairly with its competitors who are believed to have beaten it in the sector. The strategy also involves introducing new services such as nail bars and cafes, a move that the management believes will bring new experiences to their customers (Jefford, 2017, p. 187). In other words, Debenhams is trying to restructure its operations sector to be able to compete fairly in the market and restore their glory especially since their share prices have fallen to number three in their United Kingdom’s stock market. The company has however not announced when it expects to complete their restructuring.
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Analysis
Different firms use different operations strategies which suit them and will ensure that they maintain their competitive advantage. The three most common operation strategies include;
- Level capacity strategies
- Chase demand strategies
- Demand management strategies
Level Capacity Strategies
In this strategy, the firm ignores any changes or fluctuations in the level of demand in the market and continues to produce or offer their products at a constant rate. The strategy ensures that the firm utilizes its resources to the maximum at any given time and therefore there is minimal wastage. There is efficient production since the rate is constant. It also lowers the unit costs due to mass production. It is, however, a dangerous move especially since the taste of the customers might change meaning that a variety of products in stock will be obsolete amounting to huge losses. The other problem with the strategy is that the firm might be forced to maintain a constant number of employees who might be under-utilized.
Debenhams planned operation strategy is completely in contrast with the strategy as part of their plan is to moderate their operations cost through the various mechanism such as reducing their stock. The closing down of some of their stores will regulate the number of their employees by approximately 500 meaning that they will not have underutilized workers. The reduction of their stock by 10% and the idea of replenishing them as fast as they are sold ensures that they do not run obsolete in the case the customer needs change. The other smart move is moving to the online marketing as they will enjoy diminished costs of maintaining their physical stores which might not be relevant and strategically placed.
Chase Demand Strategy
The second operational strategy is the complete opposite of the level capacity strategies. In this strategy, the business is always updated on the consumer demand and ensures that its products match the market demand. In other words, the firm’s production and provision of services are dictated by the market demand which means it maintains low stocks and replenishes them as the demand increases. The advantage of this strategy is that there is the optimum utilization of resources and there is no room for wastage. For instance, the firm saves the cost as it channels its staff to the areas where they are needed ensuring that they do not have underutilized workers and machines. The company maintains the stock at the lowest level resulting to minimal cash-flow tied up in the unwanted stocks that might be obsolete.
The strategy has some disadvantages. First, each business has its peak and off-peak seasons. In such a case, the operations decisions might be influenced by the season which might not reflect the real demand for the products. Therefore, the strategy might be costly. For instance, the management might be deceived by an off-peak season that the demand for their products is low and therefore cut down their stocks and workers only to be caught unaware by the peak season. Though the issue of the seasons might already be known, sometimes they are unpredictable, and in such a case the firm might be caught off guard. The second disadvantage arises when the unexpected happens, and the company is unable to deliver their products according to their customer demands. The company maintains stocks at its lowest and minimum number of workers. When the demand rises, they will run out of stock as well as risk their employees being overwhelmed thus not satisfying their customers. In such a case, the company might lose the customers to their competitors.
Debenhams seems to be operating under this strategy due to some reasons. First, their plan of reducing their stock by 10% is to guarantee that they do not tie their cash-flow to large stock that might become obsolete in case the customer needs change. It is also a way of warranting that that cost of maintaining the stock is as low as possible and the replenishment will be done according to their demand. The other move is that the firm announced that they would drop some of their products to focus on the provision of quality products which means the products that they are going to abandon are those that are not in high demand. There is also a plan to switch 2000 back room staffs of the company to dealing with the customers directly. The moves mean that the firm is implementing the strategy to ensure that their workers are not underutilized.
Demand Management Strategies
This strategy focuses on influencing the customer demands at certain times to match the organization’s supply. In other words, it is a strategy to ensure that there is no gap between the customer demand and the firm’s supply regardless of the season whether it is a peak or off peak. The idea behind the strategy is to make the customers come to you during the off-peak season instead of contracting extra workers, therefore ensuring the maintenance of efficient levels of inventory. The strategy involves attracting customers through things such as promotions and discounts. In as much as the idea might be effective, at times it might not work since the customers might fail to respond to the promotions despite the resources invested. The use of discounts also means the profit margin of a product is lowered which might harm the overall profitability of the company. In the case of Debenhams, the management seems to have completely ignored this idea in their plan as they did not announce any way they are going to implement it in their strategy.
In any way that a company chooses to implement its operations strategy, the main focus remains on the optimum utilization of resources by avoiding wastage while at the same time meeting the market requirements of their customers. In the case of the Debenhams PLC, their operation strategy will mainly affect two areas which are the capacity management through closing down of some of their outlets and warehouses, as well as supply networks. While the supply networks will also be affected by closing down of the physical outlets, they also expect to expand them by investing in the online retail. The investment might help them reach more customers than before. Through capacity management, the company is aiming at maximum utilization of resources by removing those that are not profitable and focusing on those that are profitable. In investing in the online marketing, the company is aiming at meeting the market requirement where it seems to be losing its customers to its competitors.
Evaluation
Stock Reduction
The idea is a great one as it will reduce the danger of having unwanted inventory that might become obsolete in the case of a change in the customer needs. The other advantage of the strategy is that the company will be able to reduce the cash flow tied up in its stock and channel it to other areas which might be useful. However, Debenhams should ensure that they do not maintain their stock too low that might risk shortage as this might be damaging to their customers if they are not able to deliver when required. Therefore, the company should implement a strategy to ensure that their inventory is replenished before they are out of stock. The idea to drop some of their products that are not in high demand is also good as it will give them room to concentrate on those products that are profitable. They should, however, ensure that the products they are dropping are not the ones that define their brand as they might risk losing their loyal customers.
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Closing down of their stores
The move is indispensable as it will help the company condense the operational cost incurred by maintaining too many stores that might not be beneficial to the organization. From their research, they acknowledge that the targeted stores are not meeting the firm’s threshold and therefore there is no need to continue running them. However, they should ensure that they do not lose their loyal customers by being unreachable. One way of avoiding this is by ensuring that the stores they do not shut down all their stocks in the same geographical area leaving their customers with nowhere to shop. In as much as they are investing in online retail, they should consider the walk-in clients who might not feel satisfied by shopping online. In other words, they should maintain the physical presence to avoid the risk of losing their customers to their competitors.
Online shopping channels
The world is now becoming digitalized, and one of the areas that have been affected by technology is the online shopping. It is a great move by the company as it will join other global online shopping outlets. The move will help them reduce their costs as they will not require many physical outlets that are expensive to manage. Online shopping can however at times be overwhelming as the customers can be able to shop from any part of the world as long as they have the internet and they can access the company’s retail website. Therefore, Debenhams should ensure that as they target to expand their online market, they have the capacity to meet the market demand otherwise they will risk making more losses if the customers are not satisfied with their services.
Introduction of new services
One of the ways that the retail store seeks to improve its services is through the introduction of nail bars and cafes as their competitors are already implementing. In as much as it is a good move, the company should do enough research and see whether it will add value to the firm or it will be just an additional cost that will continue reducing their profits.
Conclusion
In summary, Debenhams Plc has enjoyed impressive growth and expansion. However, their growth was threatened by the fall in their profit margin by 6.4% forcing the firm to embark on a journey of new operations strategy to prevent further decline in proceeds and maintain a continued growth. Some of the strategies to be implemented by the company include shutting down some their outlet stores as well as warehouses. In addition, Debenhams will invest in the online retail shopping. The effort is to help the company in the operations strategy with the main focus being in the capacity management and the network analysis. Though the steps taken by the company will be effective, there will be a need for the firm to observe some of the major risks as outlined in the evaluation sector.
- Canning, M. (2017, April 21). Debenhams says 10 shops at risk new boss Bucher unveils strategy.
- Davey, J. (2017, April 20). UPDATE 2-UK’s Debenhams could close stores in recovery plan.
- James, T., 2013. Operations Strategy. Bookboon
- Jefford, K. (2017, April 20). Debenhams Mulls 10 Stores Closure as Part of their Turnaround Plan.
- Slack, N., Chambers, S. and Johnston, R., 2010. Operations management. Pearson education.
- Stevenson, W.J. and Hojati, M., 2007. Operations management (Vol. 8). Boston: McGraw-Hill/Irwin.