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Om finance final

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J Sainsbury was established in 1869 and steadily grew to become one of the largest retailers in the UK. Currently, it stands behind only Tesco and ASDA in the UK retail market industry. Every organisation needs to have a successful operations management team in place in order to be successful. The three aspects of operations management which need to be covered include managing finances, managing human resources and managing information technology. Certain aspects of each of these areas have been analysed below to consider Sainsbury’s operations management. These resources when leveraged properly would benefit Sainsbury’s. The report begins with the definition and role of several financial institutions followed by a financial ratio analysis of Sainsbury’s which suggests how the financial performance can be improved and how the financial institutions can help. This is followed by an analysis of Sainsbury’s recruitment and selection procedures to assess their impact on overall business performance. Finally, the report considers the IT capabilities of Sainsbury’s and how these have been leveraged. The report ends with a summary of the findings and the recommendations that can be made based on these findings.

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Om finance final

  1. 1. Operational Management Module Leader: Mr Hector Dela Victoria Additional Tutor: Dr. Abhijit Ganguly Submitted By: Chintan Gosai
  2. 2. [Operational Management] 2012 Contents Contents........................................................................................2 Introduction & Brief History...............................................................3 Managing Finance............................................................................3 Financial Institutions........................................................................3 Role of Financial Institutions.............................................................4 Types and role financial Institutions...................................................4 Commercial Banks........................................................................4 Saving Institutions........................................................................5 Credit Union.................................................................................5 Insurance Companies....................................................................5 Pension Funds .............................................................................6 Ratio analysis.................................................................................6 Human Resource Management..........................................................9 Recruitment & Selection................................................................9 Recruitment & Selection at Sainsbury’s..........................................10 Validity and Reliability.................................................................11 Managing Information....................................................................12 Role & Importance Information Communications Technology (ICT).....12 Role of IS in Sainsbury’s..............................................................13 Conclusion....................................................................................15 Recommendation...........................................................................16 References....................................................................................18 Page 2
  3. 3. [Operational Management] 2012 Introduction & Brief History J Sainsbury was established in 1869 and steadily grew to become one of the largest retailers in the UK. Currently, it stands behind only Tesco and ASDA in the UK retail market industry. Every organisation needs to have a successful operations management team in place in order to be successful. The three aspects of operations management which need to be covered include managing finances, managing human resources and managing information technology. Certain aspects of each of these areas have been analysed below to consider Sainsbury’s operations management. These resources when leveraged properly would benefit Sainsbury’s. The report begins with the definition and role of several financial institutions followed by a financial ratio analysis of Sainsbury’s which suggests how the financial performance can be improved and how the financial institutions can help. This is followed by an analysis of Sainsbury’s recruitment and selection procedures to assess their impact on overall business performance. Finally, the report considers the IT capabilities of Sainsbury’s and how these have been leveraged. The report ends with a summary of the findings and the recommendations that can be made based on these findings. Managing Finance Financial Institutions Financial institutions are defined by Gup (2008) as “organisations whose principal function is managing the financial asserts of business concerns and individuals. They bring savers and borrowers together by selling securities and services to savers, and then lending (or investing) those funds to borrowers” (Gup, 2008, p. 1). Page 3
  4. 4. [Operational Management] 2012 Role of Financial Institutions Since financial institutions accept deposits from investors and lend to borrowers through securities purchases and loans, they serve the following purposes in the markets suggested by Madura (2011): 1. They provide the service of depositing sources which has the characteristics of liquidity and accommodation required by the investors. 2. They repackage amounts deposited by the investors to lend them to the borrowers at the size and maturity they desire. 3. As a result, they provide a matching service efficiently that would be otherwise hard to achieve by individuals on their own. 4. They manage the risks involved in making loans. 5. They ascertain the credit worthiness of borrowers in a better manner than investors would be able to individually. 6. They use diversification to spread the risk of defaults on loans due to the sum of investment available to them and therefore can absorb loan defaults in a more efficient manner than individual investors would be able to. Types and role financial Institutions There are a number of different types of financial institutions. A few major types are discussed here: Commercial Banks Commercial banks tend to be the foremost depository institutions. They offer investors a large variety of deposit accounts and they transfer deposited money to borrowers by offering loans. Commercial banks serve both the public and private sectors including households, organisations, governments etc. Commercial banks also lend money to one another in the instance when a certain bank has more amounts being borrowed than amount being invested. The banks then lend money to other banks through a federal funds market (Madura, 2011). Page 4
  5. 5. [Operational Management] 2012 Saving Institutions Another type of depository institutions are saving institutions, sometimes called thrift institutions. These include savings banks, and savings and loan associations (S & Ls). Saving institutions are similar to commercial banks such that they receive deposits from investors and make loans to borrowers, but they differ in their allocation of funds such that they concentrate on residential mortgage loans. However, deregulation over the last 30 years has allowed savings institutions to become more flexible in fund allocation, thinning the distinction between saving institutions and commercial banks. However, an important distinction is that while commercial banks are shareholder owned mostly, saving institutions tend to be depositor owned ‘mutual’ institutions, although they can have shareholders too (Madura, 2011). Credit Union Credit unions are distinguished from commercial banks and savings institutions in two important ways; 1) they are non-profit institutions, 2) they are restricted in providing services to members of a certain credit union with a common bond, for instance an employee union. The second characteristic of credit unions tends to limit the size of credit unions making them significantly smaller than commercial banks or savings institutions. Credit unions generally exist to lend money to its members. Insurance Companies Insurance companies offer insurance policies to individuals and businesses that ease the financial burden that comes with illness, death or damage to property. Insurance companies charge a premium for the insurance provided and the premiums collected are invested into other financial securities such as bonds or stocks issued by the government or by organisations, until an insurance claim is made and funds are required to cover these claims. Insurance companies finance the borrowers through funds made available to them and hence act as important financial intermediaries. The performance of insurance companies is largely linked to the performance of the stock market or the bond market on which they invest (Medure, 2011). Page 5
  6. 6. [Operational Management] 2012 Pension Funds Pension funds are run by funds received from pension plans offered by organisations and governments to their employees. The funds are contributed by both the employees and their employers. The pension fund is accumulated to pay for retirement of the employees. The pension funds manage the funds until the employees’ retirement by investing them into bonds or stocks issued by organisations or government. In this way, they act similar to insurance companies by financing the needs of the borrowers and hence serving as an important financial intermediary. Ratio analysis The table below displays the financial ratios of Sainsbury’s for the last five years. These ratios can be used to analyse the Sainsbury’s business performance. Profitability Ratios 2012 2011 2010 2009 2008 Return on capital employed 11.1% 11.1% 11% 10.1% 8.8% Gross profit margin 5.5% 5.5% 5.4% 5.5% 5.6% Net profit margin 2.7% 3.0% 2.9% 3.6% 3.0% Assets turnover 1.9% 1.9% 1.8% 1.9% 1.8% Liquidity Ratios Current ratio 0.60 0.58 0.64 0.54 0.61 Quick ratio 0.30 0.30 0.39 0.36 0.35 Activity Ratios Average receivable turnover 54.5 61.5 92.9 60 56 Inventory turnover 21.6 26 27.4 26.2 29.1 Investor Ratios Earnings per share 28.1 26.5 23.9 21.2 17.4 Dividend cover 1.75 1.75 1.68 1.67 1.63 Gearing Ratios Debt to equity ratio 35.2 33.4 31.2 38.2 30.5 Sainsbury’s profitability ratios have been fairly stable over the past 5 years with gross profit margin fluctuating slightly above or below 5.5 percent. This shows that despite a growth in sales owing to new stores opening and increase in sales in current stores, the cost of sales is increasing at a similar pace too, resulting in a steady gross profit margin. Page 6
  7. 7. [Operational Management] 2012 This implies that Sainsbury’s has the potential to increase gross profit margin by controlling cost of sales. The net profit margin jumped from 3 percent to 3.6 percent from 2008 to 2009, but has been steadily declining since then until 2012 where the lowest net profit margin has been reported in the last 5 years of 2.7 percent. However, this seems to be largely due to unrealised losses on financial instruments being revalued to their fair value or pension liabilities changes. Since these losses are unrealised losses they may or may not be permanent. However, this implies that Sainsbury’s should consider using financial risk hedging in order to hedge the risk of financial losses in case they materialise. Like other indicators of profitability, ROCE and ROA seem to be relatively stable as well with ROCE fluctuating slightly around 11 percent and ROA fluctuating slightly around 1.9 percent. This also suggests that the amount of capital employed in the business and the assets available to support it and growing at the same rate as the sales growth. This means that Sainsbury’s is relying on increase in asset base to increase sales rather than increasing the efficiency of existing asset base and capital employed. Therefore, Sainsbury’s should consider evaluating its processes in order to increase efficiency of existing processes to improve the profitability and profitability ratios of the organisation. The liquidity ratios reveal the ability of the organisation to meet its short term cash demands. Having a high ratio is essential to be able to meet short term liabilities but it should not be high enough to indicate a hoarding of resources in the business which would mean inefficient resource allocation. Since Sainsbury’s is a retailer and that too as grocery retailer, it tends to have low liquidity because it holds fast-moving inventories of goods which are sold at cash only. Sainsbury’s current ratio has also been fairly stable around 0.6 except for 2009 when it fell to 0.54. The ratios indicate a fairly liquid position where Sainsbury’s has 60p of current assets against every pound worth of current liabilities. This shows that Sainsbury’s can fairly easily pay off its short term debts. The quick ratio compares the most liquid current assets with current liabilities. This means excluding inventory from the calculation of current assets. The values show that the quick ratio has been decreasing over the last 5 years. This is despite an increase in current ratio from 2009 to 2010 and from 2011 to 2012. This indicates that most of the current assets of Sainsbury’s are in the form of inventories. A look at 2012’s current and quick ratio shows that out of the 60p worth of current assets against every pound of current liabilities, 30p is in the form of inventories. This means that half of Sainsbury’s current assets are in the form of inventory. While this may not be of a great concern in a fast-moving inventory business, which converts inventories into cash very quickly, this Page 7
  8. 8. [Operational Management] 2012 seems like an inefficient use of resources as it may indicate an overstocking situation where more cash is being held up in the form of inventories which are not required rather than being invested in other more efficient places. The activity ratios suggest how efficient Sainsbury’s is at converting its assets into cash. Both the inventory turnover ratio and the receivables turnover ratio show a decreasing trend. In 2008, the inventory was converted to cash an average of 29.1 times while this has reduced 21.6 times in 2012. This shows that the activity has reduced and the inventory is being held in the business for a longer period of time now than in 2008. Similarly, the receivables turnover increased from 56 times in 2008 to 92.9 times in 2010. However, this has once again reduced to 54.5 times, which is the lowest turnover in the past 5 years. This implies that Sainsbury’s debtors are taking longer than usual to pay, which is again causing the efficiency of the business to be reduced as the resources are tied into receivables or inventory when they can be used for investment with a better return elsewhere. Overall, this shows that Sainsbury’s is not using its resources in the most efficient manner. The investor ratio calculated here is the Earning per share (EPS) and the dividend cover. The EPS has demonstrated a positive trend. This is because in pound terms the net profit has seen a steady growth while the number of shares in issue has remained fairly constant. However, this represents increasing returns to shareholders and investors which is always a positive sign. The dividend cover represents the number of times the dividend can be covered by the net profit for the year. This has fluctuated between 1.65 and 1.75 over the last five years. Sainsbury’s has a target to maintain its dividend cover above 1.75 which it has achieved in the last 2 years. The ratio implies that Sainsbury’s is distributing nearly half of its income in dividends but also retains almost half of the income to reinvest in the business and to fund expansions which is fairly reasonable. This reinvestment has resulted in Sainsbury’s being able to fund operations and expansion internally without having to issue fresh capital which has caused the EPS to increase steadily as well. Finally, the gearing ratio of Sainsbury’s has been considered. The debt to equity ratio reveals a fluctuating trend with the ratio increasing from 30.5% in 2008 to 38.2% in 2009 before falling back to 31.2% in 2010. The current debt to equity ratio stands at 35.2%. This shows that 35% of Sainsbury’s operations are financed by debt while the other 65% is equity. This shows a low risk funding as most of the funds come from equity which does not have a interest charge attached to it. However, this also shows that Sainsbury’s has the ability to raise funds from outside sources easily in order to fund its expansion. Page 8
  9. 9. [Operational Management] 2012 Therefore, Sainsbury’s can approach one of the financial institutions outlined above in order to receive funding and do so easily due to its low debt to equity ratio. Human Resource Management Recruitment & Selection Recruitment and selection are considered to be planned, rational activities, which comprise sequenced stages of the process of resourcing employees; an activity that forms part of the larger framework of human resource management. Bratton and Gold (2007) make a distinction between the two terms by identifying a clear link between the two, as follows: “Recruitment is the process of generating a pool of capable people to apply for employment to an organisation. Selection is the process by which managers and others use specific instruments to choose from a pool of applicants a person or persons more likely to succeed in the job(s), given management goals and legal requirements” (Bratton and Gold, 2007, p. 39). Foot and Hook (2005) add that despite being closely linked, recruitment and selection require different skills and expertise and may or may not be carried out by different employees. They highlight that the recruitment process might be outsourced to external agencies but the selection process is generally kept in house, which clear differentiates the two. Recruitment and selection can be used as a strategic tool to shape any organisations’ effectiveness and to enhance performance. Organisations with the ability to attain employees who possess the required skills and knowledge for their job, and the ability to accurately predict the abilities they may generate in the future, can effectively improve the organisation’s performance. Consequently, such organisations can save costs such as costs pertaining to high employee absences or dissatisfied customers, as well as create a mutually advantageous relationship with its employees generating commitment by both the employer and the employee (French and Rumble, 2010). Recruitment and selection gives organisations the opportunity to consider its employees a source of competitive advantage, as well as form a key component of the human Page 9
  10. 10. [Operational Management] 2012 resource management process. This leads to an interest in the fairness, reliability and validity of the recruitment and selection process. Over the last 30 years, the changes in work psychology have significantly influenced the modes through which employees are recruited, by rigorously developing and evaluating the procedures used for selection (Arnold et al, 2005). As a result the validity and reliability of recruitment and selection tools is important. Recruitment & Selection at Sainsbury’s Recruitment and selection at Sainsbury’s goes through a four step procedure. All of Sainsbury’s job vacancies are advertised and recruited through its online system. Therefore, the first step for the process is to post vacancies on to the online system. These vacancies are divided into different sections such as in-store jobs, finance etc. The only way of applying to these jobs by applicants is to complete the online application form. The application form has a psychometric test that tests the match of the applicant with the organisational culture and the job, and a situational awareness test that tests the applicant’s response judgment. This information is shared with the applicants who are given feedback on how strong the match is. The next step is finding out more about the applicants. If the first step identifies that the applicant would be a good match for the role and Sainsbury’s overall, more information is demanded through e-mail which includes previous addresses, passport details, driving licence details, employment history including contact details, and educational qualifications. Following this, Sainsbury’s makes any checks as deemed necessary to further ascertain match. If the checks are all successful, the applicant is invited to an interview. The details of the interview varies from job to job but generally include an interview with an potential immediate line manager and further tests such as numeracy, situational awareness etc. which are further meant to identify the competence of the applicants. If the applicant is successful at this stage, he or she is offered a job (Sainsburys, 2012). Page 10
  11. 11. [Operational Management] 2012 Validity and Reliability It is obvious that organisations wish to make sure that its recruitment and selection procedures are effective, as would Sainsbury’s. However, it is also clear that making decisions based on the applicant’s personal characteristics and match with organisational culture is challenging and that frequently used selection procedures can be significantly flawed. Organisations have to look for reliability and validity of recruitment and selection procedures. French and Rumble (2010) elaborate what is meant by reliability and validity in the context of recruitment and selection. They suggest that reliability is concerned with temporal or re-test stability and consistency. Temporal stability determines the effectiveness of selection tools by judging the consistent manner in which it generates results. For instance, applicants could be asked to complete a personality test at different times over several years. Consistency determines whether the test measures what it aims to measure. For instance, some IQ tests may emphasise an applicant’s vocabulary which would be enhanced by general and educational backgrounds rather than being solely based on intelligence. Validity is based on face validity, content validity and predictive validity. Face validity emphasises the extent to which the selection tool used is acceptable. For instance, a correlation between a person’s weight and strength may be probable which may help in jobs such as stockroom controllers but applicants may be sceptical of having their weights measured as part of the selection process. Content validity is concerned with the nature of the measure and how adequate it is as a tool for selection. For instance, night time shift managers would not be adequately tested if their on-job testing is conducted during the day. Predictive validity is based on the link between scores on a certain selection test and the future performance of the employee (French and Rumble, 2010). It is clear that in order to improve its recruitment and selection procedures, Sainsbury’s should consider the validity and reliability of its recruitment and selection procedures. For instance, Sainsbury’s should consider enlarging its selection period to span over a couple of months to allow re-test stability to be ensured by conducting similar tests during the online application form and the interview. The cut off period would ascertain that the online application test answers do not influence the answers in the interview and hence re-test stability could be improved. Consistency is another important issue to be considered. Sainsbury’s should ensure that the tests are devised by professionals who are aware of the requirements of the job as well as the competences that are required for the job. The questions should then be flexible enough to allow for the desired Page 11
  12. 12. [Operational Management] 2012 competences to be connected to each job role than a generic one. For instance, a store manager role would require different competences than a human resource expert and as such the test should reflect the different competences required. Similarly, content validity needs to be ensured such as asking a night time shift manager to do an on-the-job test during the night instead of the day. Finally, predictive validity should be ascertained not only to determine the effectiveness of the new recruits, but also for improving the quality of future recruits. Managing Information Role & Importance Information Communications Technology (ICT) ICT has increasingly become the fundamental component in organisations that impacts the organisational design. Used in the appropriate manner, information systems and information technology can leverage human resources, natural resources, raw materials and capital in order to optimise organisational performance. ICT can be used to overhaul business processes by designing processes around ICT to create synergies rather than just using ICT as an add-on. ICT has changed how businesses work by changing the processes of organisations, changing communication patterns and changing the way information is processed and used for decision making (Pearlson and Saunders, 2010). There is no doubt that the current era is that of technology where the technological advancements are being made on a daily basis. While technology has altered the life of individuals, at the same time it has also transformed businesses and business processes. Nowadays, not only large businesses but even small and medium businesses are highly dependent on technology for driving their operations, functions, processes and infrastructures. Technology is also now viewed as a competitive source for expansion and growth. Brown and Powell (2009) suggest that the most obvious and immediate benefit of advancement in technology is its contribution to the transformation of communication channels through tools such as e-mails, websites, instant messaging etc. which have entirely reshaped communication within and outside businesses. Improvements in communication have benefited both businesses and customers who both now have information readily available to them or information that can be quickly and easily be assimilated. Technologies such as satellite communication, networking, Page 12
  13. 13. [Operational Management] 2012 cellular networks and internet have opened up new opportunities for business for exploring, attracting and communicating with its customers. Wijaya and Collery (2010) suggest that businesses appreciate the technological breakthroughs because it gives them to opportunity to reduce costs, allow multi-tasking, reduce errors, and assist in operational management. A number of manual tasks have been replaced with computerised systems to save time, errors and labour costs. Even quality management techniques such as Total Quality Management and Six Sigma are more realistically achievable with the appropriate IT systems in place to implement them. Moreover, IT alters the organisational decision making process, as well as the information required for making these decisions. IT enables data that is needed to produce timely and accurate information to be captured at source. This has resulted in real-time information availability as well as a reduction in the need of data entry employees who typed in information from data entry sheets into computers. Additionally, it can alter the content and quantity of data available to the employees. Advancements in technology have enabled organisations to maintain data warehouses where all information is stored and can be retrieved to search for relevant information using data mining tools. Data analytical tools have also advanced to allow employees and managers to analyse data to identify trends, patterns or correlations between various data. This information can be used by managers to make critical decisions. Moreover, information systems such as decision support systems (DSS) and executive information systems (EIS) support managers in making decisions as well. Overall, IT has facilitated the flow of information to all levels of the organisation and provided the necessary tools to filter and analyse this information, making decision making more informed, accurate and timely (Pearlson and Saunders, 2010). Role of IS in Sainsbury’s Like any other organisation, Sainsbury’s makes use of information systems and technologies in order to improve the organisational performance. Sainsbury’s uses IT in a variety of different operational management processes. Its IT infrastructure ranges its entire supply chain from manufacturers and suppliers to customers. For manufacturers, Sainsbury’s has a web Electronic Data Interchange (EDI) in place which allows it to communicate with manufacturers in real time to allow information exchange regarding requirements, production volumes, product designs, and critical Page 13
  14. 14. [Operational Management] 2012 path management. In addition, Sainsbury’s has a product performance and exception management system called horizon. Horizon consists of three applications; alerting and resolution management (ARM), product performance management (PPM) and collaborative planning system (CPS) The ARM is a tool which automatically reports breaches to pre-determined product thresholds to Sainsbury’s which can be tracked and fixed quickly. PPM allows analysis of products such as average shelf life, sales volumes, sales breakdown by time of the day etc. which allows Sainsbury’s and the manufacturers or suppliers to mutually decide on a course of action based on the information available. Finally, CPS allows Sainsbury’s and manufacturers or suppliers to collaborate in planning promotions or new product launches etc. Another tool used by Sainsbury’s for its suppliers is the Primary Stock Tracking (PST) that allows suppliers to track their stock through Sainsbury’s to identify where they are being sold, in what quantity etc. (Sainsbury, 2012). All of these tools help create a stronger bond between the suppliers and Sainsbury’s as well as allows suppliers to share control regarding their sales practices such as stock volumes, promotions, displays etc. and hence reducing the burden on Sainsbury’s. These IT packages also provide Sainsbury’s with real time information that they can use themselves to make decisions regarding different products, for example deciding whether it is profitable to continue selling a particular product at a particular branch, what time the delivery should be timed in order for the product to be available at the right time at which that product is mostly purchased, should the order quantity for a particular product be increased or decreased etc. As a result, Sainsbury’s can operate a real time inventory system which reduces inventory handling costs or the costs pertaining to stock run-outs etc. Moreover, the ARM ensures that Sainsbury’s quality standards are maintained and hence the tools also work as quality management technology. Similarly, Sainsbury’s provides a number of IT solutions for its customers as well. In addition to the Transactional Processing System (TPS) that records any sales directly into the system, customers can also make purchases online on Sainsbury’s website using the Online Transaction System (OLTP). In addition, Sainsbury’s has a loyalty card scheme by the name of Nectar. The scheme enables customers to collect points on purchases which they can redeem later on items they wish to purchase in the future. This is a very useful data collection tool for Sainsbury’s. It allows Sainsbury’s to gather information regarding each customer’s individual shopping preferences, brand Page 14
  15. 15. [Operational Management] 2012 preferences, shopping patterns, types of products they are interested in etc. which allows them to cater promotional material to that particular customer’s needs. Consequently, any promotional material sent to customers at their home address or e- mail would be tailored to that individual person’s preferences. Moreover, it will also give information about shopping patterns of customers as a whole to Sainsbury’s which they can use to make decisions regarding operations such as layout of stores, potential locations of new stores etc. Finally, most recently, Sainsbury’s has introduced an IT tool by the name of BrandWatch for its customers which allows customers to compare the costs of a bucket of goods purchased against the cost of the same goods at its competitors such as ASDA or Tesco. This tool can be accessed by customers using Sainsbury’s website and it helps reinforce Sainsbury’s position as a competitive low cost provider of goods, inducing brand loyalty in its customers (Sainsbury’s, 2012). Sainsbury’s uses data accumulated from these various sources to feed into its own internal systems such as Enterprise Resource Planning (ERP) which allows information from internal sources such as Sainsbury’s own applications as well as external sources such as government portals, new agencies etc. to be assimilated and shared throughout the organisation to facilitate information flow as well as improve decision making by the managers. This tool is integrated with the Online Analytical Processing (OLAP) system which allows data to be data mined or analysed in order to reach appropriate conclusions. Conclusion For any businesses’ operations to be successful, they need to be able to manage three of its resources successfully; financial resources, human resources and IT resources. A well balanced operations strategy to address all three of these aspects can serve a company well. Sainsbury’s manages its resources fairly successfully. However, this Page 15
  16. 16. [Operational Management] 2012 report highlights certain aspects of Sainsbury’s management of these resources which can be improved upon to enhance the overall organisational performance. The financial analysis identifies a steady return on investment for investors; however, it reveals low efficiency for the usage of its current assets by tying up excess resources within the business which can be improved. The human resource management is good but Sainsbury’s can improve its recruitment and selection procedures by making sure they are both valid and reliable. Finally, Sainsbury’s has incorporated IT at various levels within the organisation and throughout its supply chain. However, full utilisation of these systems is not being made as is evident by the financial analysis that the inventory is being tied up in the business. Based on these findings, the following recommendations can be made to Sainsbury’s. Recommendation First of all, Sainsbury’s needs to improve the usage of its resources to make them more efficient. In particular, Sainsbury’s needs to manage its inventory and receivables well in order to free up blocked resources which could be invested elsewhere to generate a return, and to improve its liquidity position by improving the current and quick ratio. For this purpose, Sainsbury’s should leverage its IT capabilities. With a little further effort and planning, Sainsbury’s can implement a Just-in-Time (JIT) inventory system which will allow it to order inventory on a JIT basis, i.e. only when the stock is low and replenishment is needed so that when the fresh stock arrives, the stock can be displayed and sold rather than being placed in the stock room. This will reduce the inventory holding costs of Sainsbury’s as well as avoid stock build ups which results in tied up resources. Therefore, Sainsbury’s can use its strengths in IT to tackle its financial weaknesses. Moreover, Sainsbury’s should consider the validity and reliability of its recruitment and selection procedures. For instance, Sainsbury’s should consider enlarging its selection period to span over a couple of months to allow re-test stability to be ensured by conducting similar tests during the online application form and the interview. The cut off period would ascertain that the online application test answers do not influence the answers in the interview and hence re-test stability could be improved. Consistency is another important issue to be considered. Sainsbury’s should ensure that the tests are devised by professionals who are aware of the requirements of the job as well as the competences that are required for the job. The questions should then be flexible enough Page 16
  17. 17. [Operational Management] 2012 to allow for the desired competences to be connected to each job role than a generic one. For instance, a store manager role would require different competences than a human resource expert and as such the test should reflect the different competences required. Similarly, content validity needs to be ensured such as asking a night time shift manager to do an on-the-job test during the night instead of the day. Finally, predictive validity should be ascertained not only to determine the effectiveness of the new recruits, but also for improving the quality of future recruits. Page 17
  18. 18. [Operational Management] 2012 References Atrill, P. (2009) Financial Management for Decision Makers, 5th Edition. Harlow: Financial Times Prentice Hall. Bloomberg Businessweek (2012) Sainsburys J plc Financial Ratios [Internet] Available from http://investing.businessweek.com/research/stocks/financials/ratios.asp? ticker=SBRY:LN (accessed 26th November 2012). French, R., Rumbles, S. (2010) Recruitment and Selection, in Rees, G., French, R. (2008) Leading, Managing and Developing People, 3rd Edition. CIPD: London Gup, B. E. (2008) Handbook for Directors of Financial Institutions. Edward Elgar Publishing Limited: Cheltenham J Sainsbury plc (2012) b2b Toolkit Overview [Internet] J Sainsbury plc. Available from https://touchpoint.sainsburys.co.uk/wps/portal/home/applications/overview/! ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gjD3cTD08TQ0sDFx9nA09H8zAXg 0B_AwN_c6B8pFm8s7ujh4m5j4GBhYubhYGRk6mZZ6CBi4GBpykB3eEg- _DrB8kb4ACOBhB5uA3- Qe6WBp4m3n7O_u5hIBX6fh75uan6BbkRBpkB6YoAlT8TsQ!!/dl3/d3/L2dBISEvZ0F BIS9nQSEh/ (accessed 3rd December 2012). J Sainsbury plc (2012) How do I apply online for a permanent role? [Internet] J Sainsbury plc. Available from http://www2.sainsburys.co.uk/aboutus/recruitment/instore_roles/search_vacancies/p ermanent.htm (accessed 28th November 2012). J Sainsbury plc (2012) Annual Report and Financial Statements 2012. [Internet] J Sainsbury plc. Available from http://www.j- sainsbury.co.uk/media/649393/j_sainsbury_ara_2012.pdf (accessed 21st November 2012). Page 18
  19. 19. [Operational Management] 2012 J Sainsbury plc (2011) Annual Report and Financial Statements 2011. [Internet] J Sainsbury plc. Available from http://www.j-sainsbury.co.uk/investor-centre/reports/? &page=0 #form_filter_media (accessed 21st November 2012). J Sainsbury plc (2010) Annual Report and Financial Statements 2010. [Internet] J Sainsbury plc. Available from http://www.j-sainsbury.co.uk/investor-entre/reports/? &page=0#form_filter_media (accessed 21st November 2012). J Sainsbury plc (2009) Annual Report and Financial Statements 2009. [Internet] J Sainsbury plc. Available from http://www.j-sainsbury.co.uk/investor-entre/reports/? &page=0#form_filter_media (accessed 23rd November 2012). J Sainsbury plc (2008) Annual Report and Financial Statements 2008. [Internet] J Sainsbury plc. Available from http://www.j-sainsbury.co.uk/investor-entre/reports/? &page=0#form_filter_media (accessed 23rd November 2012). Madura, J. (2011) Financial Markets and Institutions, 9th Edition. Cengage Learning: Oklahoma Pearlson, K.E., Saunders, C.S. (2010) Managing and Using Information Systems: A Strategic Approach, 4th Edition. John Wiley & Sons: London Page 19

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