Marks & Spencer have been pioneers in the field of sourcing for many years and their practice makes valuable reading for managers all over the world. Their sourcing is regarded as best practice and has enabled M&S to build up a competitive advantage. This blog post will explore their sourcing strategies and how they manage their suppliers.
History from 1884 to the late 1990s
The story of Marks and Spencer starts with Michael Marks and a market stall in 1884. In 1894 Marks went into partnership with the former store cashier Thomas Spencer. They opened their first shop together in Leeds in 1904. In the 1920s they started to buy their goods directly from the suppliers, bypassing the Wholesale Textile Association that had been created to protect the wholesalers (i.e., the middle-men). During the Great Recession they faced a lot of competition and found they needed to adjust their business model to be able to compete better. They decided to focus on two segments: clothing and food. In 1934 a research laboratory was set up to pre-test the quality of the goods and develop new fabrics for the clothing department. This enabled them to offer higher quality at a lower cost – this yielded great success. After World War II the demand for fashion clothes increased, and with the research laboratory M&S were able to meet the demand. From the mid-1970s the suppliers were also involved in designing the products at M&S (Marks & Spencer, 2014).
The crisis of the late 1990s and early 2000s
Marks & Spencer went through a crisis in the late 1990s and early 2000s, with declining revenue and falling profits. This was caused by a change in the fashion industry. This period forced them to change, and changing the company’s outsourcing principles was a key part of this. The crisis affected the company’s share price as shown in Figure 1.
Figure 1. (M&S Investorpage, 2015)
Since making the changes in the early 2000s M&S has followed the cyclical trends of the FTSE 100 index.
Today Marks & Spencer is a leading retailer in the UK and a global company with an annual turnover of GBP 10.3 billion and a profit of GBP 0.62 billion before tax (Marks & Spencer, 2014).
The fashion industry
Producing clothes is a manufacturing industry that requires capital, personnel and management time. Most retailers in the fashion industry outsources the production of clothes, and instead focusing on improving their core competences (Bragg, 1998). This is use of market transactions instead for vertical integration. The retailer focus on the outcome and output, and the supplier focus on the input and processes, this leads to one of the characteristic of using the market; disipline (Domberger, 2008).
By separating the buyer and the supplier there is a value created since both can focus on more limited operations, and maximize as best they can.
The emergence of global markets
“The emergence of global markets has increased the hostility and competition in the industries worldwide. Specifically in fashion retailing, where there are unpredictable consumer demands, the importance of quick response to change in the market place and the increasing competition from low-labour-cost countries makes formidable conditions for conducting business.” (Khan, 2013, p. 75)
For a long time M&S bought most of their products from British suppliers. Their competitors instead sourced their products from low-cost countries and could therefore offer the same products at a lower price. Customers did not value the fact that the products were British. With the opening of the borders of countries like China, the Western world gained access to good-quality clothing at low prices because of these countries’ low wages. It was now impossible for M&S to compete with other companies importing from low-cost countries. This was one reason for the decline in sales and profits of the late 1990s (Mellahi, Jackson, & Sparks, 2002).
New customer trends
Over recent decades people’s shopping habits in relation to fashion clothes have changed. Today people have easy access to cheap and good-quality clothes. The purchasing power of the average consumer in the Western world is much higher today than 30 years ago. The fashion industry is faced with customers demanding new and trendy clothes at low cost (Christopher, Lowson, & Peck, 2004). This leads to the modern fashion retailer requires short lead-times, fast inventory turnovers and the capacity to order high volumes at sales peaks (Barnes & Lea-Greenwood, 2006).
Sourcing pre-crisis (late 1990s to early 2000s)
Until the early 2000s M&S had practiced the same sourcing principles for about 50 years. The main characteristic of these principles was the close network of relationships with suppliers and contractors. The company rarely went outside their existing network to do business – they preferred to collaborate with existing suppliers (Domberger, 2008). M&S works closely with their suppliers and contractors in processes like choosing raw materials, product specifications and methods of productions. They also help their suppliers and contractors with managerial and technical issues. They are thus investing in a contractual relationship, which provides suppliers with a solid incentive to maintain a high level of performance. M&S is well known as a strong contracting organization which has excellent capabilities in developing and maintaining long-term relationships. This gives them a good reputation among suppliers and contractors, who know working with M&S gives them a lot to gain and little to fear (Domberger, 2008). In addition M&S don`t want the suppliers to be over-dependent on them, therefore they encourage the suppliers to bid on other contracts. M&S say that the suppliers shouldn`t have more than 30-40% of the revenue coming from them (Domberger, 2008).
But close collaboration with suppliers has a downside. Having many parties involved in the design and manufacturing of products yielded problems like fragmented fashion collections and poor quality. This was another cause of the decline in profits in the clothing department in the late 1990s (Khan, 2013).
Redefining sourcing principles after the crisis
The crisis in the late 1990s forced M&S to redefine their sourcing principles. The emergence of the global market, poor performance from the suppliers and the new customer trends forced M&S to adopt a new strategy by terminating many of their contracts with UK-based suppliers and starting to source overseas (Khan, 2013). But M&S also picked out their best British suppliers and helped them set up operations overseas (Johnson M. , 2004). This approach reduced the risk for M&S, since it eliminated some of the potential problems of going into new collaborations with suppliers unfamiliar with the high standards M&S require.
Sadly this did not prove to be a good strategy. The British suppliers lacked the capabilities to perform business overseas and some of them went bankrupt. Instead M&S abandoned some of its British suppliers and found new overseas (Chapman, 2004).
Dealing with the new suppliers
To handle the new suppliers overseas and manage risk, M&S made following strategic changes:
• implementation of an in-house design team;
• implementation of a procurement team;
• creation of in-house design studios with designers, colourists and design forecasters;
• consolidation of the supply base;
• maintaining of strategic partnerships;
• fostering of close relationships with suppliers;
• direct sourcing.
The main change was that M&S took control over the design process as they wanted to develop this process as their core competences.
By redefining their sourcing practice they became more flexible and gained more control over their relationship with the suppliers. These two issues are addressed by (Domberger, 2008): flexibility is defined as having the ability to change fast and at low cost; having control is in this case important to manage processes and have control over output. M&S solved the issue of control by creating in-house design studios, which gave them more effective control over design and innovation processes. In addition they began to use more direct sourcing, cutting out the middle-man and dealing directly with the supplier. This allowed them to get more involved and build close relationships with the suppliers. Flexibility was achieved by consolidation of the supply base and sourcing more overseas (Khan, 2013). By entering markets like Asia, M&S gained capacity for production of clothes.
M&S visit their suppliers often to ensure that their standards are met, and sanctions are applied when they are not. M&S also expect suppliers to improve their processes continuously, even if not sanctions are executed.
The managers and engineers at M&S have a important job with coordinating and monitoring the suppliers. They need both industry experience and competence toward value- and supply chains.
M&S use what they call ‘social audits’ to evaluate suppliers’ performance in relation to the Global Sourcing Principles and the local country’s legislative and regulatory requirements. This audit is performed by skilled individuals with knowledge of the local language and culture (Johnson M. , 2004).
M&S have a three-way strategy to succeed as an responsible buyer. First, they build up the awareness of suppliers, giving them clear standards and communicating their expectations to them. Second, they build the capacity to perform the first part of the strategy. The goal is for the suppliers not only to know but to understand how to be an ethical supplier. Third, they monitor performance by using balanced scorecards (Nicolls, 2014).
The Global Sourcing Principles
The Global Sourcing Principles ensure for example that suppliers pay their employees a fair salary, treat them with respect and make sure they work in a safe environment (Marks & Spencer, Global Sourcing Principles).
The Global Sourcing Principles work as governance for the suppliers. As well as M&S following the principles themselves, it is expected that the suppliers also apply the standards to their own supply chain. In addition to the Global Sourcing Principles the suppliers need to work according to the following collaborative codes: the Ethical Trading Initiative Base Code, the Global Social Compliance Programme Reference Code and the UN Guiding Principles on Business and Human Rights (Marks & Spencer, Global Sourcing Principles).
Supplier selection criteria
• bring something unique to the company, i.e., skills or expertise;
• produce better-quality products than existing suppliers;
• set their laboratories to the same quality standards demanded by the company;
• financial stability;
• follow code of practice for Global Sourcing Principles and according to the Ethical Trading Code of Practice.
(Khan, 2013, p. 81)
Becoming a supplier with M&S is not an easy task, but when the partnership is established the suppliers enjoy from a good and stable collaboration.
Commitments to suppliers
M&S have a range of commitments for the suppliers to fulfill – the relationship goes both ways. For example, M&S provides help and support for suppliers to meet the requirements of the Global Sourcing Principles. They also encourage the suppliers to be open and engage in constructive communication to be able to perform better (Marks & Spencer, Global Sourcing Principles).
Strategic or non-strategic outsourcing?
Outsourcing is motivated both strategically and non-strategically. A paper by Alexander and Young (1996) shed light on why companies outsource for strategic reasons. Many use outsourcing as part of an explicit strategy. In the case of M&S, the company markets itself as a global ethical company that ’looks after’ its supply chain by applying principles with a focus on human rights and the environment. M&S’s marketing strategy is closely related to their sourcing strategy. The benefits of their sourcing practice also yield revenue through extra sales. Often, when we think of outsourcing we only value the cost savings or quality improvement achieved; M&S use their sourcing strategy to build marketing strategies.
Corporate social responsibility
M&S work hard to attain high ethical standards and they promote themselves to customers as leaders in this field. They work to ensure that suppliers follow their Global Sourcing Principles (GSP),
M&S have a strategy called ‘Plan A’, which is a range of commitments to help the world. The goal is to be the world’s most sustainable major retailer.
“Plan A is our way to help protect the planet – by sourcing responsibly, reducing waste and helping communities.” (Marks & Spencer, 2015)
Marks and Spencer was rated by The Economist in 1991 as the most admired company in Britain. The article noted the following:
“Marks & Spencer started being nice to its employees, customers, suppliers and neighbours decades before it was fashionable to do so… Marks & Spencer are a company people are fond of.” (Brown & Turner, 2008, p. 53)
M&S have on several occasions been accused of not being able to live up to their high standards. In 2007 one of their Moroccan suppliers, which had replaced a British factory in 2002, entered a dispute with a Moroccan union regarding wages and conditions at the factory. Later M&S visited the factory but could find no evidence of poor practice (Hencke, The Guardian, 2007).
Such cases will probably inevitably turn up now and then. M&S have taken a strong position on social responsibility and people are likely to follow them closely because of that.
Marks & Spencer’s sourcing practice has been through changes in the last two decades. They are constantly adjusting and improving their relationships with suppliers and contractors. Many companies have adapted a similar approach, whereby sourcing is a key element to achieve an effective supply chain.
Sourcing in the fashion industry incurs high transaction costs through monitoring and communicating. Being able to source effectively gives a strong competitive advantage. The competition is hard and continuously changing, but for now M&S are managing very well in this industry. They have been able to change and adapt to the new trends.
Alexander, M., & Young, D. (1996, February). Strategic outsourcing. Longe Range Planning , pp. 116-119.
Argyres, N., & Mayer, K. (2007). Contract design as a firm capabilty: an integration of learning and transaction cost perspectives. Academy of Management Review (32), pp. 1060-1077. x
Barnes, L., & Lea-Greenwood, G. (2006). Fast fashioning the supply chain: shaping the research agenda. Journal of Fashion Marketing and Management (10), pp. 301-315.
Bragg, S. M. (1998). Outsourcing – A guide to selecting the correct business unit… Negotiating the Contract.. Maintaining Control of the Process. Canada: John Wiley & Sons, Inc.
Brown, M., & Turner, P. (2008). The Admirable Company: Why Corporate Reputation Matters So Much and what it Takes to be Ranked Among the Best. Profile Books.
Chapman, S. (2004). Socially Responsible Supply Chains: Marks & Spencer in Historic Perspective. International centre for corporate social responsibility , pp. 1-17.
Christopher, M., Lowson, R., & Peck, H. (2004). Creating agile supply chains in the fashion industry. International Journal of Retail & Distribution Management (32), pp. 367-376.
Domberger, S. (2008). The Contracting Organization . New York: Oxford University Press Inc.
Hencke, The Guardian. (2007, 03 20). M&S supplier embroiled in dispute over Moroccan workers. The Guardian .
Johnson, M. (2004 йил 1-03). Marks & Spencer Implements An Ethcial Sourcing Program for Its Global Supply Chain.
Khan, O. (2013). Managing risk by internalising product design in fashion retail: An exploratory case of Marks & Spencer. Manchester School of Management , pp. 75-84.
M&S Investorpage. (2015). Chart share price 1996-2015. Retrieved 05 05, 2015 from http://corporate.marksandspencer.com/investors/share-price/chart.
Marks & Spencer. (2014). Annual report and financial statements 2014. Marks & Spencer.
Marks & Spencer. (2009). Marks & Spencer. Retrieved 05 04, 2015 from https://marksintime.marksandspencer.com/download?id=996
Marks & Spencer. (2015). Marks & Spencer. Retrieved 05 04, 2015 from http://corporate.marksandspencer.com/?intid=gft_company#
Marks & Spencer. (2009). Marksintime. Retrieved 05 04, 2015 from https://marksintime.marksandspencer.com/ms-history/timeline
Marks & Spencer, Global Sourcing Principles. (n.d.). Marks & Spencer Sourcing Principles. Retrieved 05 04, 2015 from http://corporate.marksandspencer.com/documents/policy-documents/global-sourcing-principles.pdf
Mellahi, K., Jackson, P., & Sparks, L. (2002). An Exploratory Study into Failure in Successful Organizations: The Case of Marks & Spencer. British Journal of Management (13), pp. 15-29.
Nicolls, L. (2014, 04 04). Ethical sourcing by Marks & Spencer. (O. Balch, Interviewer)