There is also the threat that given the significant inefficiencies in Compass Group that the risks of currency fluctuations could become very significant over time, especially as the dollar loses value and yet suppliers and logistics networks must be paid in this currency. Simply put, the price of food and the costs of running a global supply chain in perishable goods is exorbitant when currency fluctuations are also taken into account (Buzalka 2005, 46,48). To date there does not appear to be any benchmarking of sourcing, procurement, labor or inventory carrying and obsolescence costs, all factors that are major threat to Compass Group operating throughout North America and in the UK. All of these risks are in addition to the acute financial condition the company finds itself in during this period, with Net Current Assets as a Percentage of Total Assets (Table 1) negative throughout the five-year periods. This is a strategic threat and one the company responds to by issuing more debt, with bonds payable in the 2009 and 2010, each year owing £600M. The company is borrowing from its future to gain funds to survive this period in their history.
Strategy Recommendations
In the North American, UK, Continental Europe and Rest of World (RoW) regions, there are specific strategies Compass can pursue to nurture and sustain customer retention yet also achieve organic growth. First and foremost the inefficiencies of the supply chain, sourcing, procurement and logistics need to be addressed through cost reduction strategies and thorough business process analysis to determine why, with 56 inventory turns a year, Compass Group is still delivering only a 1.59% Return on Assets (ROA) and very low liquidity. What is needed is a thorough evaluation of these centralized functions first, and second, a thorough cost reduction strategy to alleviate the liquidity drain on the company. These two steps, at the strategic level, are essential for the company to gain control over their viability. In conjunction with these measures, Compass Group must get in control over the logistics of their sectors as this could also be contributing to the exceptionally low levels of liquidity and financial strength of the company. After these steps are completed there needs to be a thorough knowledge management strategy put into place to capture the lessons learned
Teare, Rayner. 2002, 354-360). From this knowledgebase, best practices at the process level can be turned into a transferable competitive advantage that Compass can capitalize on for years to come. These steps of first determining where the wasted resources are in their supply chain and internal processes, making the appropriate reductions in overlapping processes and if necessary staff, and then capturing this knowledge is necessary for Compass to be able to execute on the following strategies by region.
Beginning with the North America market, the greatest potential is in the Defense, Offshore and Remote business, followed by Travel Concessions, then Sports & Leisure and healthcare. The catalyst of the growth strategy within the North American market must get centered back on contract catering and support services first by streamlining the supporting supply chain, procurement and sourcing strategies supporting this area of North American operations. The development of Contract Catering needs to be spearheaded with aggressive development of additional Defence Offshore and Remote contacts will working diligently to sustain and grow customer retention in this critical vertical. Likewise in the Sports & Leisure and Healthcare markets, there is significant growth potential in each of these sectors as well. First streamlining the underlying systems and processes that support these key sectors is critical, followed by targeted nurturing and business development strategies to gain the greatest potential increase in customer retention. The travel concession business, clearly unprofitable in Europe, needs to be evaluated in North America given its turnover in the past.
In the UK, the majority of customer retention is within the Defense Offshore & Remote sector, followed by the Business & Industry sector, the relatively low contributions of Travel Concessions make this business both in the UK and within Europe as a candidate for selling off. Intuitively speaking the inherent logistics in managing travel concessions make this an expensive business to sustain and grow, and given the supply chain inefficiencies uncovered through financial analysis, this specific business needs to be evaluated for selling off. What is most critical as a strategy for Compass in the UK is to strengthen its contract business in the vending, Defence, Offshore and Remote sectors is critical. Compass needs to consider making more competitive terms in their contracts, specifically concentrating on Service Level Agreements (SLAs) and the development of more transparency and visibility into their service and support processes for these critical...
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