Sheetal Ladva

Business Logistics

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Introduction
World Duty Free (WDF) is the UKs leading travel retailer, which features over 17,000 products across stores at Heathrow, Gatwick, Stansted, Glasgow, Edinburgh, Aberdeen and Southampton. It is part of the Autogrill group who is the worlds leading provider of food & beverage and retail services for travellers. The group is present in 35 countries with about 62500 employees and manages more than 5,300 points of sale in over 1,200 locations (Autogrill, 2012). This report will outline the logistics and operations management of the organisation within the luxury department of the store that sells sunglasses.

Research
Primary research was carried out to gather the data for the report. The replenishment manager at World Duty Free was interviewed. Observations were also carried out in the stock rooms and shop floor.

Operations Management
Operations management is about how organisations produce goods and services. The operations function is the part of the organisation that is responsible for this activity. Every organisation has an operations function as every organisation produces a product or service (Slack et al, 2009). World Duty Free utilises the concept of outbound logistics where the supplier provides material to the manufacturer, manufacturer delivers to the company warehouse, and the warehouse then sends the products out to the retailer where a service and the products are provided to the customer. The organisation uses many different concepts of logistics to keep up with customer demand for products in the fast paced environment at the airport. It uses many different logistics techniques and programs to keep up with this demand. For example they uses solutions such as a system called the Portfolio Merchandise Management and Portfolio Planning and Forecasting applications (World Duty Free, 2012).

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World Duty Free Operations Management

Input
Sunglasses for sale Sales Staff Information Systems Customers

Processes
Source and store goods Display goods Give sales advice Sell goods

Output
Customer and goods assembled together

Characteristics of Operations Processes

Operations processes have different characteristics four of which are known as the four Vs these determine how the organisation performs. All four dimensions have implications for the cost of creating the products or services (Slack et al, 2009). Volume of Output The volume of output for World Duty Free is immense. They retail over 17,000 products over the store. Within the luxury department they have a selection of over 1000 sunglasses with many more within the stock. For every one pair on display the company stocks 5 of the same pair. The Variety of Output The variety of output for the sunglasses is very diverse, the organisation has sunglasses from over 20 brands that include huge brand names such as Gucci and Christian Dior. The sunglasses have a varied price range between 45- 250 to meet the needs of a broad customer base.

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The Variation in Demand

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The demand of sunglasses within the aviation retail environment fluctuates due to seasonal times in the year. For example sunglasses sales reach peak during the summer break as schools and colleges break up more people are going away on holiday. The same with Easter and Christmas breaks which affects the demand for sunglasses. However at the airport people are always flying out to holiday destinations therefore it is important to have sufficient stock to meet the demand. The Visibility The customer contact is very direct within this department as the customer will be trying the sunglasses on and getting advice from the sales person on the department. It is a very personal service and the consumer has maximum visibility of the product and service.

Operations Performance Objectives

Operations are judged by the way they perform. There are many individuals that judge this performance therefore it is important to meet objectives. How the firm operates can affect the profits of the company therefore good operations management is essential. Below explains how performance is measured. Quality Within the luxury department of World Duty Free the quality of the products are assured due to the luxury brands that the products are associated with. For the price that the consumer is paying quality is one of the main things that they will look for. The sunglasses are produced with special materials and resources to ensure that they are providing the best protection as well as on trend frames. Speed The sunglasses are available to the customer immediately at point of purchase. There is no waiting time or order system. Therefore there is fast delivery to the customer.

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Dependability When the sunglasses are sold it is ensured that they meet the standards expected by the customer. On most occasions a new pair is sold to the customer instead of the ones on display. The stock room for the sunglasses is located on the shop floor making it a fast process.

Flexibility There are wide ranges of sunglasses that are available within the department. These vary from style, price and protection, which make it flexible for the consumer. Cost The sunglasses within the department are priced to meet the different needs for different customers. For the customers that wish to make a purchase for a pair of glamorous pair that can be priced up to 250. However for customers that may just want a pair for their trip and may not want to spend as much there are pairs that are priced at as little as 20 making it cost effective for the consumer.

Competitive Factors
Factor Order Winning Retail Qualifying Cost World duty free is expected to be cheaper than the high street. Flexibility A variety of products are expected. Quality is absolutely essential through all the products.

Less Important

Speed is not as important as the other factors however does have its own standing in the process

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Inbound Logistics
Supply chain management objectives are to satisfy the customer whilst achieving the performance objectives. The retailer is in between the supply side and demand side of these activities and certain decisions need to be made in order to meet objectives. Decisions to be made whether to outsource or produce the products themselves within the organisation. In the terms of inbound logistics World Duty Free belongs to the retail sector of the supply chain where the company receives the products from the supplier and then makes them available to the customer. More than the products the company provides a service to its customers. The company outsources to the supplier in order to meet demand. Outsourcing means deciding to buy products or services rather than produce them in house (Slack et al, 2009).

Suppliers
In order to choose an appropriate supplier certain attributes need to be taken into consideration to achieve the organisations firms. A decision has to be made whether to use a single supplier or multi source as both have their advantages and disadvantages (Slack et al, 2009).

Multi-Sourcing
The luxury department has adopted the method of multi-sourcing rather than using one supplier. The sunglasses department at World Duty Free has many suppliers, which include Marchon, Marcolin, Mau Jim and Safilo. Under these suppliers are the various high-end brands. The Marchon group produces and supplies sunglasses for brands such as Calvin Klein, Fendi, Lacoste, Michael Kors and Valentino (Marchon, 2012). Similarly the Marcolin group supplies sunglasses for Tom Ford. The Safoli group hold the largest account with more than 10 brands supplied to World Duty Free (Safoli, 2012).

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Advantages of Multi- Sourcing

World Duty Free can negotiate price Can switch sources if one supplier fails Wide sources /variety of brands and sunglasses Expertise, knowledge on seasonal trends /fashion

Disadvantages of Multi-Sourcing
Difficult to encourage commitment to supply Many communication issues Failure to meet demand could lead to fall in sales/revenue

Customer Base
Due to the fast paced nature of the environment that the company operates in it is difficult to determine a single customer segment. Sunglasses cater the needs of a mass market, however majority of the customers that buy at the store are professionals and individuals associated with business roles.

Location
The company is located in London, at Heathrow Airport across 4 terminals. The warehouse for the organisation is located in Runnymede 20 miles away from the retailer (Google Maps, 2012). The suppliers located across the UK supply to the warehouse in Runnymede.

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Performance Objectives
Performance Objectives Quality Speed Outsource Specialists for sunglasses However difficult to communicate Delivery delays that may affect demand However good speed of response Barriers when transporting to an airport Larger suppliers Wider capabilities Products supplied may not always meet all the customers needs Economies of scale Reduces costs for World Duty Free Coordination costs

Dependability Flexibility

Cost

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Internal Logistics
Process design is the process by which some functional requirement of people is satisfied, through the shaping or configuration of the resources and activities that compose a product or service. Process design and product/service design are interrelated which should be taken into consideration (Slack et al, 2009).

Process Type
Service shops are characterised by levels of, customer contact, customization and volumes of customers. Service shops are a mix of front and back office activities. Service shops include banks, high street shops and restaurants, hotels, etc (Slack et al, 2009) World Duty Free falls under the service shop category as it provides a service and products to the customer. The process flows are continuous, tasks are repeated and can be complex. Volumes are high and variety is between high and low. A service shop also has to be flexible so encounters high costs through its processes. Below is a diagram that describes the processes in the terms of variety, volume, process tasks and process flow.

Process Types

Process Types Source: Operations Management, 2009

Sheetal Ladva Performance Objectives Quality Speed Dependability Flexibility

Cost

Business Logistics S10523233 Benefits of good process design Less waste Services on specification Short customer waiting time Low in process inventory On time deliveries Wide range Low costs Cope with unexpected issues Low processing costs Low resource costs Low inventory costs

Layout
The layout of an operation or process means how its transformed resources are positioned relative to each other and how its various tasks are allocated to these transforming resources. It is an important decision as if done wrong can cause customer dissatisfaction (Slack et al, 2009). Factors that make a good layout; Inherent safety Length of flow Clarity of flow Accessibility Use of space

The shop floor at World Duty Free uses a functional layout where similar products are grouped together. In a functional layout, similar resources or processes are located together. It is convenient to group them together as when customers will come through the business this route is determined according to their needs (Slack et al, 2009). Below is a diagram of the layout at World Duty Free where similar products are grouped together for display.

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Functional Layout World Duty Free Business Logistics

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Sunglasses Watches Watches Sunglasses Jewellery Jewellery

Functional Layout World Duty Free Shop Floor Source: World Duty Free, 2012

Advantages and Disadvantages of the Functional Layout

Advantages High mix and product flexibility Relatively robust in the case of disruptions Relatively easy supervision of products Disadvantages Low facilities utilization Customer queues can be high Difficult to control

However World Duty Free always ensures it has adequate resources and staff to overcome the disadvantages.

Materials and Requirement Planning

Materials requirements planning which is a dependent demand system that calculates materials requirements and production plans to satisfy known and forecast sales orders (Slack et al, 2009). The company uses a pull system where products come in if and when they are required. A push system is more suitable for the manufacturing process rather than the retailer. In the pull system of control the pace and specification of what is done is set by the customer acts as the only trigger for movement. Pull systems are far less likely to result in inventory build up and therefore favoured by just in time operations (Slack et al, 2009). Sunglasses stock is only ordered when required by the buyers. Once a pair is sold

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to the customer the system automatically updates the inventory and another pair is ordered hence adopting the just in time method. Advantages of JIT Lower stock holding means a reduction in storage space. As stock is only obtained when it is needed, less working capital is tied up in stock. Avoids the build-up of unsold finished product that can occur with sudden changes in demand. Disadvantages of JIT There is little room for mistakes as minimal stock is kept for re-working faulty product. Delivery is very reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed.

Outbound Logistics
Geographic Location
World Duty Free is based at Heathrow Airport, which is 15 miles west of central London and easily accessible from the M4 and M25 motorways. It operates in all terminals 1-5. The companys warehouse is located in Surrey about 20 miles away from the airport (Heathrow.com, 2012).

Distribution
Distribution is all modes of transportation of goods through all parts of the supply chain. In terms of World Duty Free it is about the distribution of consumer products to the retail store. The organisation uses Third Party Logistics to distribute their products nationally. They are currently using 3 agents however cannot be named due to the organisations privacy

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policy. Third Party Logistics are freight forwarders or courier agents that integrate the operation, warehousing and transportation to support the distribution of products for companies (Huang, 2012). There are many benefits for using this method of distribution, which include: Economies of scale Flexibility Increased geographical coverage Lower risk

Method of Distribution
The main method of transport used by the organisation is by road as most of the distribution is national. Road transport is domestic and international freight transport by road that is carried out by vehicles. The supplier uses road transportation to send the products to the World Duty Free warehouse. From there the products are transported again by road to the store.

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Information System and Process Map

Information System
Manufacturing Resource planning is an expansion of materials requirement planning to include greater integration with information in other parts of the organisation and greater sophistication in scheduling calculations (Huang, 2012). World Duty Free uses Enterprise Resource Planning to organise its information as well as resources. Enterprise Resource Planning is the integration of all significant resource planning systems in an organisation that, in an operations context, integrates planning and control with other functions of the business. World Duty Free uses Oracle to plan its resources and information. Oracle provides the worlds most complete, open, and integrated business software and hardware systems. Oracle's product strategy provides flexibility and choice across their IT infrastructure. Oracle is the only vendor able to offer a complete technology stack in which every layer is integrated to work together as a single system (Oracle, 2012). The Oracle system at World Duty Free integrates the distribution, inventory, human resources, marketing and sales and purchasing and supply functions of the business. Advantages of ERP Reduces paperwork Software communication through all functions Efficient management of the business Better Control Good communication Disadvantages of ERP Expensive Adaptability to the organisation Investment if time, money and staff

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EDI Electronic Data Interchange

All the sunglasses in the department use a barcode that is interlinked with the information system. This helps keep an electronic inventory of all the products as well as information about the price and model of the sunglasses. Information is exchanged with suppliers and customers through EDI (Electronic Data Interchange) to help ensure that every detail is correct.

Reverse Logistics
The firm uses reverse logistics to recycle and re-use plastic packaging that comes with the products. It is sometimes re-used if not damaged. Over 95% of waste materials generated in-store & back of house in the UK is sent for recycling. The other reverse logistics that process in store is when a customer returns a product either because they have changed their mind, or the product is damaged. If damaged the product is returned to the supplier. If the product is in a re-sellable condition it is replenished back onto the shop floor.

World Duty Free and the Environment

World Duty Free aims to be environmentally friendly. It carries out many tasks to ensure this, which are: Work with airport partners on environmental issues Carrier bags in Spanish stores are made from 100% biodegradable materials. Work with supplier partners to reduce the amount of excess packaging Over 95% of waste materials generated in-store & back of house in the UK is sent for recycling (World Duty Free Group, 2010)

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World Duty Free and Corporate Social Responsibility

Corporate Social Responsibility is when a business takes account of its Economic, Social and Environmental impacts in the way it operates. It is the voluntary actions of an organisation for the interests of the society and the business. World Duty Free demonstrates this in various ways. The organisation partners a number of different charities. These range from initiatives with focus on localised issues to large national and international charities (World Duty Free Group, 2012). Supported issues include: Disability Child welfare Poverty and lack of key resources in the developing world

The firm recognises the importance of supporting the communities located around airport operations. Employees in operational regions are actively involved in social and business communities. Areas include: Local business award schemes, forums and networks Cultural projects (World Duty Free Group, 2012).

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Recommendations for Better Business Logistics & Operations Management

Adoption of E commerce
Even though World Duty Free has a website it does not sell its products online. This is an opportunity that should be taken into consideration in order to increase market share and profits, as there are many advantages of an electronic market place.

Feasibility
It is feasible to implement a E-procurement strategy where customers can purchase products online, as World Duty Free already has got a website in place. However not many products are made visible to the customer. The firm has the resources in order to expand and improve their website. This will bring the following advantages to the business: Efficiency Improve relationships with the customer Reduce transaction costs Keep prices competitive Help the business manage its supply chain more efficiently

In terms of the performance objectives:

Objectives Quality Speed Dependability Flexibility Cost

No need to re- enter data everything is saved Instant response to customer requirements Efficiency, productivity Available to the customer at any time Saves time and money

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Effect on Supply Chain Management

The implementation of this strategy will also have a positive effect on the supply chain flows of the organisation:

Market/Sales Information Flow:

Understanding what products the customers needs and wants Buying the appropriate and most popular products more profit Able to forecast the demand- able to stock appropriately

Product /Services Flow:

Better inventory management electronically managed and updated Better distribution only distributing what is ordered

Cash Flow:
Customer invoicing easy to track as it is online Customer receipts printable

Limitations for Implementation

Costs associated with the improvement of existing website Websites that integrate buying and selling can be complex Price restrictions due to the tax free nature of the products

Evaluation
Overall World Duty Free has a good understanding of efficient logistics as well as operations management. However there are areas where improvements could be made. If implemented these could bring more profitably and more customers for the business.

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