LONDON (FNS) -- Marks & Spencer plc here plans to save $81 million a year in its food retail operation by 2002 by restructuring its supplier base and improving logistics.
"Our customers are demanding better value and better ranges," said Peter Salsbury, who took over as chief executive officer of Marks & Spencer earlier this year. "And we're taking steps to give them what they want. In order to deliver it, we're completely re-engineering the supply chain. What we're releasing here is the key to delivering that value to our customers and driving our top line."
Marks and Spencer anticipates total savings of $729 million a year by 2002 by improving supply chain efficiencies in all of its retail operations, which include clothing as well as food.
By streamlining the supply chain, the retailer hopes to improve its performance, which has suffered. Marks & Spencer recently reported a 64.5% drop in profits after taxes and exceptional items to $98.5 million on a 3.1% decline in sales to $6.06 billion for the half year ending Sept. 25.
Marks & Spencer already has begun trimming its supplier base, cutting three long-time U.K. suppliers to focus on more cost-competitive manufacturers with more capacity overseas. Salsbury said the goal is to reduce the amount the retailer sources from the U.K. to about 30% of its merchandise from the current 50%. This shift to more suppliers from outside the country would bring Marks & Spencer into line with its major U.K. competitors.
The retailer is also streamlining its sourcing process. Marks & Spencer currently has 50 buying departments, each of which on average deals with seven different suppliers. It is dropping suppliers that don't have significant scale in any one area, enabling the retailer to cut the number of interfaces with suppliers by half, he said.
The company is also leveraging its size to gain supply chain efficiencies. "The fact that we have unique relationships with our suppliers allows us to plan with them the transport and IT facilities required to lower the cost of distribution from overseas -- whilst gaining flexibility and speed to market," Salsbury explained.
Marks & Spencer also is aiming to cut its lead times, which in some cases have been months. By developing even closer relationships with its suppliers, the retailer expects to double its order frequency and cut its stock pipelines by about five weeks.
The company is implementing many of the Efficient Consumer Response programs that have been developed by most of Europe's leading food retailers over the last five years. Salsbury said Marks & Spencer's niche in the food retail market is for special foods, such as prepared meals, and its aim is to develop and deliver more of these.
The company is focusing its food production into the best factories to give its suppliers longer production runs and more economic production. However, it is not cutting any suppliers, Salsbury said.
Marks & Spencer also is implementing several deliveries of food a day rather than the single daily delivery it currently makes. In common with most other food retailers, it is switching its deliveries to a customer-pull basis rather than a warehouse-push one, Salsbury said. This will enable it to respond to customer demand, improve product availability and cut waste.
The retailer has also been running a pilot project in Sri Lanka which consolidates production from a number of factories in the area into one warehouse. This enables it to deliver product to its stores from Sri Lanka via air freight within three days.
It now is focusing its production and warehousing on five key manufacturing hubs -- Sir Lanka, Portugal, Morocco, the Middle East and the Far East. These will account for more than 50% of its total overseas production, Salsbury said.
"This will also have considerable benefit for our overseas operations. It will enable us to stop using the U.K. as an intermediary depot for our overseas outlets, particularly for Europe, allowing us to compete much more effectively in those markets. The benefits coming through from this project will play a key part in turning around the profitability of our European operations."