Argos: Supply Chain Management and Application Management Outsourcing

When Argos decided it needed to develop an end-to-end supply chain solution that would deliver more responsive service to its smaller stores, it turned to Accenture.

Accenture’s ongoing High Performance Business research reveals that high performers understand the importance of operating their supply chains at peak efficiency—continually tuning supply to demand so that customers are neither over-serviced nor under-serviced, and that cost efficiency is not achieved at the expense of meeting customer expectations. Argos clearly understood the challenge involved in balancing supply and demand.

Argos, which is part of Home Retail Group, sells general merchandise and products for the home. Though its primary sales outlet is its catalog, the retailer has more than 700 stores throughout the United Kingdom and Republic of Ireland. It also boasts the second most visited Internet retail site in the United Kingdom. With approximately 34,000 employees, the company serves more than 130 million customers each year. For the financial year ended March 2008, Argos’ sales grew 8 percent to £4.2 billion (US$8.1 billion).

To learn about more Client Successes, sign up for My Outlook, your single e-mail source for all of Accenture's latest ideas and innovation, personalized specifically to your business interests and the industry issues you face.

Argos ran a lean operating model. Its stores tended to be relatively small, averaging about 14,000 square feet. Yet, within these stores, Argos typically offered 11,000 stocked items. In many cases, only one item was in stock at any given time. When it sold, customers would have to wait up to a week or more for the item to be replenished. Complicating matters was the fact that Argos’ shops used 45 different systems to manage the company’s complex supply chain. Some of these applications were more than 15 years old and nearing the end of their useful life.

Argos conducted a strategic review of its supply chain capabilities. The results confirmed what was suspected: the existing supply chain management systems would hinder the company’s ambitious plans for growth and the further development of its multichannel sales approach.

As part of its efforts to achieve high performance, Argos set out to develop an end-to-end solution that would deliver more responsive service to its smaller stores, while enabling the retailer to maximize the lean business model for which it was known.

After reviewing its options, Argos decided on an innovative co-development relationship with Accenture and Oracle Corp. to build a solution based on Oracle Retail Advanced Inventory Planning and outsource application management to Accenture. Oracle and Accenture enjoy a longstanding alliance relationship that enables the companies to deliver exceptional business solutions based on Oracle Retail applications.

For Argos, Oracle would provide the expertise needed to maximize the value of the new Oracle Retail implementation. Accenture would provide deep and broad retail and system integration skills, as well as unrivalled change management, supply chain, outsourcing and quality assurance capabilities that the retailer had experience in previous engagements.

Argos believed this combination of industry-leading knowledge and skills was critical, given that the supply chain transformation represented not only the biggest systems initiative in the history of the company, but also the world’s first implementation of Oracle Retail Advanced Inventory Planning.

In delivering the program, Argos, Accenture and Oracle united behind a common vision: to help Argos develop advanced replenishment capabilities that would increase product availability, reduce inventory in stores and warehouses and increase sales by enabling Argos to stock a broader product range within its existing store footprints. The transformation program comprised two main elements.

''Heart and lungs'' system transplantation

Argos selected Oracle Retail Advanced Inventory Planning as its core replenishment application for a variety of reasons. The Oracle solution would enable the company to create realistic, forward-looking replenishment and allocation plans across the supply chain. It would allow the company to convert these plans into orders and transfers. And it would combine time-phased replenishment and allocation algorithms to produce a receipt process based on demand forecasts, replenishment parameters and inventory availability.

In addition, the team opted to implement the Oracle Retail Merchandising System. This system would allow Argos to carry out its core merchandising activities—including inventory replenishment, purchasing, vendor management and core data and stock ledger management.

Accenture’s Supply Chain team and members of its Center of Excellence worked together with Oracle to custom design both systems and align them to the company’s business priorities. During the build phase, the team carried out 600 base modifications to the Oracle solutions, replaced 45 legacy systems and created (or modified) more than 100 application interfaces.

Following a comprehensive testing regimen, the team worked with business users to pilot the new technologies within six product categories, selected to reflect a range of sales volume, value, seasonality and supplier types. Based on the pilot’s success, the team launched a category-by-category rollout.

Change management and organizational design

Resources from Accenture’s Talent and Organization Performance service line set the framework for a comprehensive stock management training and communication program that covered all areas of the Argos supply chain, including suppliers, distribution centers and individual stores. As part of this effort, the team tailored job roles and tracked business readiness performance to help ensure that the 1,000 affected stakeholders would be able to function effectively within an environment marked by new processes and systems.

At the same time, Accenture worked closely with Argos to make significant in-store changes. For example, a new stockroom layout for all Argos stores freed additional space and increased speed of service. The team also recommended Argos stockroom adjustments, making faster-selling items more accessible to sales associates.

First and foremost, with Accenture’s help, Argos implemented a leading-edge replenishment capability—based on advanced Oracle Retail technologies—without disrupting business operations or customer service.

The project’s success was based largely on the team’s well-orchestrated approach to program management. An important element was executive buy-in. The project received board-level sponsorship from the outset; early clarification of the business case and project priorities meant that all parties were aligned and engaged from day one. Also important was the fact that Accenture and Oracle adhered to a strict governance and quality assurance process. This process involved having key business users throughout Argos support the design, build, test and pilot phases and then return to their roles during the rollout phase to act as change champions.

Argos’ new supply chain capabilities have already delivered a number of benefits:

• The new merchandising system delivers a single source of master data across products, suppliers, inventory and replenishment definitions. This streamlines the forecasting and replenishment processes, and allows the company to make proactive forecasts and faster, better supply chain-related decisions.
  
  
• An advanced replenishment algorithm helps ensure that replenishment plans are aligned more closely to actual demand.
  
  
• Daily stock management calculations have replaced Argos’ previous weekly calculations, which allow orders to move through the supplier and distribution center network on a daily basis. With the new systems, Argos can run 685 billion computations within just four hours.
  
  
• With deliveries occurring on a daily rather than weekly basis, Argos stores have been able to reduce their levels of safety stock held in inventory. Reduced inventory costs are on track to generate more than £100 million (approximately US$196 million) of stock reduction savings by 2010.
  
  
• The systems enable Argos to share supply performance with suppliers, which improved collaboration and, more importantly, increased “right first time” product and pallet presentations from 68 to 99 percent.
  
  
• Argos’ distribution centers now logs 100 percent of received goods into the system on the day of delivery. This improvement contributed to a “goods-in efficiency” increase of more than 50 percent.

The success of this program is further demonstrated by the seven-year outsourcing agreement that Argos signed with Accenture’s Retail Center of Excellence in India to manage the Oracle application. Argos recognized that by outsourcing the ongoing management and maintenance of its application to Accenture, it would gain the flexibility of being able to refocus its employees on other critical business imperatives while realizing increased value and lower costs through improved performance.

The overall engagement also resulted in Argos receiving the 2008 Retail Technology Initiative of the Year award from leading United Kingdom publication Retail Week. And, most importantly, Argos now has a distinctive supply chain capability that lays a solid foundation for high performance.

''The supply chain transformation work is already beginning to present results. Once complete, we’re confident that Argos will be better prepared for the future and strategically positioned to maintain our lean operating model and competitive edge.''—Adrian Burleton, commercial director of supply, Argos.

To learn about more Client Successes, sign up for My Outlook, your single e-mail source for all of Accenture's latest ideas and innovation, personalized specifically to your business interests and the industry issues you face.