The Scotts Company
The Scotts Company began selling hardware and seeds in Maryville, Ohio in 1868. After that, they sold the seed by mail and in 1927 developed the Turf Builder product. The first fertilizer design is for lawn care, which was brand sold with a strange strategy, as a consumer product. This product was successful in the market, so the Scotts Company develops the garden and lawn care product, which was also brand as a premium consumer product. For many years, by a good branding and advertising, the Scotts Company had sole their products exclusively in the United State market and they became a household product brand name. In 1993, Scotts put their foot into the Europe market which was recognized as a huge potential market. In 1995, they merged with Stern’s Miracle-Gro Products, since then, the Scotts became the numbered one marketer in the world.
From 1997 to 1999, the company developed the market grow in Europe by five European acquisition. The acquisition allowed Scott Europe to serve both the consumer and professional markets with a full line of lawn and garden products, which were fertilizers, chemicals and growing media.
The Scotts’ U.S. management forecasted the Europe market as an attractive market and brand, market, distribute their product across EU to grow the market and increase their market share. Moreover, they hoped to reduce the cost by optimizing its new operations to the supply chain. However, in 1999, the business result was lower than what they had expected. Although the international sell was increased two times, they got lower margin and the earning from the acquisitions were lower than their expectation.
In the end of 1999, Scotts Europe’ management had organized the operation into four largely geographic groups. Moreover they wanted to standardize the product and package, simplify the process and rationalize operations.
In this project, in order to achieve the Scotts Europe Company’ short-term objective – reducing the supply chain cost, and long-term objective – supply chain improvement, I will identify and discuss the main strategic and operational initiatives for Scotts Company. Moreover, I will analyse and quantify the financial some of the initiatives. Finally, there will be an introduction of a new full cost system for Scotts Company
Strategies and operational initiatives
1) Data and Information Transmission:
The transmission of data and information is very important for an operation. Especially, nowadays, which company get the information fastest will operate more efficiency. Firstly, it can help the operation to apply to the new change as quick as possible. More than that, it is very useful to keep the data for statistic or to do a research. Further more, this can also reduce the cost of business. Finally, the manager needs to use this data and information when they have to plan something for an operation or restructure an operation, especially, when they have to find out what is going wrong inside the operation, and outside the operation.
The European Company Scott has the advantages that their operations, which were divided into four largely geography zones, are located in lots of Euro Countries. Because all of these countries were in Europe, the information transmission between countries is very useful for each Scotts’ operation. For example, by transmitting information, they can help each other to forecast the market demand trend, to improve their production line, etc.
However, each zone manages its own forecasting and measurement. Moreover, they had never shared data platform since they operated. They missed the chance to get information which they could get easily and other competitors did not have this advantages. Finally, they had five separate IT systems. Because of the different IT system, it was very difficult to share the data, even though now they want to do so.
Scotts Europe can improve this field and get benefit from electronic data interchange or company networking. First of all, in order to share the data and the information, Scott’ Europe should change the IT systems into the same systems. Then, they should share the data platform, so that they can help each other to forecast to measure the operation more easily. Not only can they benefit from inside the company, but they can also develop this system to extranet. They will be able to contact their supplier, distributors and customers very quickly.
The sourcing of a company is the input of a transform process to produce the output. Not only does it affect the transform process, but also affects the output, particularly the price. If the company get the simple, good quality and cheap input, after transforming, their output can have lower price and more competitive in the market.
Regarding the source of Scotts Europe’ supply chain. They were applying virtiual spot trading type of supply relationship, which was many problems. There were 75 employees purchasing and they were also getting more. There were 681 product-related suppiers in total. Within 318 suppliers, there were 70 contacts with 30 suppliers for raw materials and finished products. Although Scott Europe Company has a lot of suppliers, the quantity purchased was not many. However, according to the statistic about 20 top suppliers, there was only 38% of total pending. Moreover, the price of each contract was different. Finally, within 250 packaging suppliers, there were about 26 contacts with 12 suppliers that had multiple contracts with Scotts.
As mentioned above, the sourcing of a company affect the whole process of business. Scotts Europe could improve their input to reduce the cost and to operate more efficiency.
They should change the type of supply relationship, from virtual spot trading type to partnership supply management. By concentrate in some supplier, Scotts Europe can have long-term business agreements and consolidate purchasing by product, so that they can have a contract with lower price.
Determining capacity is one of the most important decisions an organisation must face. For the long-term strategy, the capacity planning is very important. On one hand, if the capacity is too small, the organization, first of all, will be unable to provide the product to customer on time. Secondly, this may lead to the organisation will lose customer. Moreover, the competitors will have the chance to enter the market. On the other hand, if the capacity is too many, the company will have difficulty to control the operation. Moreover, they will make the price going down. Finally, they increase their short-term loan and might unable to pay it.
The Scotts Europe company had 10 factories throughout Europe, in which there were six chemical and fertilizer plants and four plants where growing materials were mixed and bagged. Fertilizer and chemical were manufactured in the same plant. In many years, there capacity had been low. The reason is that these two products are seasonal products. From April to September is in-season time and the rest time is pre-season time. Within the pre-season time, the factory could operate 100% of its capacity. Moreover, Scotts had to purchase between 10% – 15% of its chemicals capacity from some 150 subcontractors. However, the rest time, the plant only operated less than 40% of its capacity.
In order to reduce the pressure of demand in the pre-season time and to improve the capacity the Scotts Europe company have to balance the demand and capacity. First of all, by using some promotion, such as reducing price, they can recommend their customers to have inventory backlog from February to April. Secondly, they can purchase staff working for hour. By doing this, the company can reduce the cost. When the factory do not have to produce a lot of product, the company do not have to pay for this labour cost.
The order fill rate is very important. Not only does it affect the cost of company, but also affect their deputation with their customers. In order to fill the order, the company has to have a forecast demand, so that they can have enough inventories at the warehouse to supply for the market demand. By using the BPR – important performance matrix, we can see that the speed of supplying product is very important for both customers and suppliers. If the suppliers were slow in this process, they might lose the order.
The Scotts European company were facing this problem. They could not fill the order from their customers. The On Time In Full (OTIR) service levels of between 60-85%. This percents rate is too low. Because of this late of supply, the biggest customer in Europe was warning to drop down the Scott’s products, unless they improve their supply service. There were two companies which already lost 2.5 million Europe in 1998.
The reason is that there was not inventory in the warehouse. Moreover, Scott could only sure that 60% of the demand could be supplied. Regarding the customer, they wanted to get more products than what they had order, and get the bill with lower quantities than what they real got.
In order to improve the supply service, the Scotts European Company has to improve their short-term and middle-term demand forecasting. Because their product is seasonal product, they should you the seasonal index values. In other words they have to calculate the trend of demand so that they can calculate a seasonal index for each month ratios one the trend
The location of the factory is very important. First of all, it can increase the cost of whole business. Secondly, most of the labour cost incurred at the plants. Moreover the company can get the negative image because of the pollution. Finally, the transportation fee is base on the location of the factory.
The Scotts Europe Company had two plants in United Kingdom, which had the low cost advantages to other competitors. The reason is that these two factories were located near the United Kingdom peat bogs. However, they also have the disadvantages, because there was criticism that Scotts Company harvesting of non-renewable peat fields. This company also had other two factories, in which one was located in France and one was in Netherlands. Because of the distance from the peat bogs, these two plants have a higher cost structure than the twos in U.K. The Scott management were planning to close one of these two. If they closed one of two or both plants, every year they could save 500,000 to 700,000 Euro. However, the have to pay the one-time charges of close to 2 million Euro.
For the long-term strategy, the Scotts Europe Country should use the location analysis to have a final decision. Moreover, they should care about the critics in UK. Finally, if they could solve the critics problem and there were more advantages after having location analysis. They should close these one of these two plants in France or Netherlands, in order to reduce the cost.
6) Plants rationalize:
Not only has the location of a company, but also the rationalizing of the company affected the cost and the long terms strategy of an operation.
The Scott United State’ management wanted to rationalize the fertilizer plants in European Country and their target was to close the U.K. plants which were excess their capacity. Firstly, the management might not be familiar with the difficulty of closing a plant in Europe. Moreover, the cost for closing it was also high. Thirdly, it took one year to close the one of two U.K. plants. Moreover, it made a lot of other redundancy cost. One important thing was other on-time charges were about 800,000 Euro. In addition, the company had to pay out 2 million Euros of pending capital to move and repair the equipments. On the other hand, the company can use this spending capital to saving some cost in U.K. such as: material cost, labour cost, administrative cost, and other cost.
To make this decision, the Scott Europe Company has to analysis the U.K. fertilizer plant closure carefully. Not only did they had to calculate the annual raw materials cost impact, but also they had to care about annual inflation rate, which was the average growth rat of the products hat could be made more cheaply at plant to plant. Moreover, the fixed labour, supplies, and depreciation were also necessary. They also needed to know the taxes and capital spending, which was required to transfer equipment from plant to plant and to repair the equipment for use.