Introduction
Any firm is bound to create feasible projections for its operations in the near future, as these strategies define its long-term success. Savola Group is a Saudi Arabian company that focuses on grocery retail stores, with 205 locations already operating across the country (“About Savola,” n.d.). The firm faces a challenge in maintaining its market position. This organization comprises two major divisions: Savola Foods, which oversees the manufacturing processes of grocery items commonly found in its stores, and Savola Retail, which manages the company’s physical locations (“About Savola,” n.d.). The firm must keep pace with demand and strengthen its market position through further expansion and strategic partnerships.
Capacity and Demand Concerns
Savola Group has a broad reach in Saudi Arabia, which puts a significant strain on both of its divisions. The firm must combine both capacities to create a comprehensive ecosystem that offers a unique experience to its customers. The concerns of Savola Group stem from changing perceptions and trends among its consumers, as well as the actions of its competitors.
The population growth, increased retail demand, and digital stores put an additional strain on the Savola Group to continue its expansion. (Rahman, 2022). This notion may lead to a loss of revenue and a slowdown in the company’s operations. Furthermore, sustainability efforts, which are vital for the Savola Group, may be hindered due to inaccurate capacity predictions that lead to food waste (Al-Khateeb et al., 2021). Thus, the company is obligated to create projections that align with realistic market expectations.
Capacity Calculations
Savola Foods
To define the upper limit of the output rate of Savola Group’s stores and manufacturers, it is essential to perceive their bottlenecks. The primary challenge for the Savola Group is to combine the operational efficiencies of its divisions, Savola Foods and Savola Retail. The manufacturing part of the company’s capacity relies on its raw resources, equipment, and workforce. The limited number of machines is further limited by employees’ work hours. Additionally, the number of resources supplied puts a cap on each factory’s productivity.
Therefore, the first formula would be:
total units per day = raw resources delivered / (factory equipment resource to product conversion per hour * daily work hours per employee).
These goods are intended to cover a portion of all sales in Savola Group’s stores, necessitating the need for extensive logistics operations.
Savola Retail
At the same time, retail stores must account for warehouse space, their employees, the quantity of finished goods delivered for sale, and their fleet for product transportation. The daily sales capacity of a single store relies on the products that have arrived and the shop’s working hours, and is limited by the maximum available storage space.
The second formula would be:
maximum capacity of sales per day = ((the capacity of a single transport * the number of vehicles in use) + the existing warehouse supplies) / (a store’s sales per hour * employees’ work hours per day).
For Savola Group to maintain a consistent and sufficient supply of goods at its locations, the firm must accurately predict the daily sales of each product type and replenish them promptly.
Strategies and Recommendations
The Lead Strategy
For the firm to continue its successful operations, it must be able to adapt to the ever-changing market conditions. Therefore, the organization must define its lead, match, and lag strategies to demonstrate flexibility in the face of potential adversities. First, if Savola Group plans to lead its regional market, it must consider utilizing the expand-early approach, which provides the firm with sufficient maximum capacity to match its actual needs if such a need arises (Stevenson, 2021). This plan is based on optimistic projections of the firm’s business performance, although it may not be sustainable under sudden strain, such as new COVID-19 lockdowns. Therefore, this method appears to include high risk and high reward.
The Match Strategy
If the Savola Group decides to closely monitor the market and increase its capacity just before demand shifts, the firm can remain on its current trajectory while applying an additional safeguard. A capacity cushion, which is a way to ensure that a short-term spike in demand can be managed through a small amount of excess inventory, can help Savola Group maintain its position (Rahman et al., 2023). It may be seen as stagnant, yet a secure way of existence for the business.
The Lag Strategy
Finally, the wait-and-see approach to capacity planning is what Savola Group may use for its lag strategy. This form of planning incorporates two critical elements: the preservation of the company’s resources and a careful observation of market trends (Stevenson, 2021). This method may be suitable for the company if it decides to increase its capacity to fulfill customers’ orders gradually. At the same time, Savola Group will have to take the risk of losing a small portion of its client base due to its short-term inability to overcome the external pressure from its competitors (Stevenson, 2021). While there are weaknesses associated with the wait-and-see approach, it remains a safe option for this organization.
Recommendation
The firm continues its expansion efforts through the acquisition of firms operating in the grocery retail industry in Saudi Arabia. Furthermore, the company exhibits a robust, forward-focused approach, which is evident in its sustainability initiatives that attract investors and enhance its competitive power in the global market (Mahmood & Alsayegh, 2020). Therefore, it is recommended that the firm maintain its momentum and continue to focus on the lead strategy. A feasible recommendation for Savola Group is to continue diversifying its production lines, which ensures the firm minimizes its risk of failure during the growth period (Bakhashwain & Faleel, 2021). Thus, Savola Group can focus its efforts on increasing its market share.
Conclusion
In summary, as a grocery retail chain, Savola Group needs to meet demand by expanding its capacity through thoughtful planning. The firm faces challenges that stem from potential issues in the supply chain, unexpected shifts in customer trends, and actions by its competitors. As seen in capacity calculations, the firm has an upper capacity limit that is bound to its workforce, logistics, raw resource supplies, and warehouse space.
Despite the concerns, Savola Group has a solid prospect of strengthening its position. The size of the available market ensures that Savola has sufficient space to continue its current business practices. Therefore, in the current market environment, it is highly recommended that the company pursue a lead strategy and build on its recent momentum with further expansion. Due to its capability to connect stores with suppliers, it is highly recommended that Savola Group adopt the expand-early approach to stay ahead in its industry.
References
About Savola. (n.d.). Savola Group.
Al-Khateeb, S. A., Hussain, A., Lange, S., Almutari, M. M., & Schneider, F. (2021). Battling food losses and waste in Saudi Arabia: Mobilizing regional efforts and blending Indigenous knowledge to address global food security challenges. Sustainability, 13(15).
Bakhashwain, W. J., & Faleel, J. (2021). The impact of diversification on firms performance in Saudi Arabia. PalArch’s Journal of Archaeology of Egypt/Egyptology, 18(13), 88-97.
Mahmood, Z., & Alsayegh, M. F. (2020). The governance of corporate sustainability in the Middle East: Preliminary insights. Journal of Business and Social Review in Emerging Economies, 6(2), 715-731.
Rahman, M. N. (2022). Amalgamation of small firms given boost to the retail sector in Saudi Arabia. New Innovations in Economics, Business and Management, 4, 143-160.
Rahman, T., Paul, S. K., Agarwal, R., Shukla, N., & Taghikhah, F. (2023). A viable supply chain model for managing panic-buying related challenges: Lessons learned from the COVID-19 pandemic. International Journal of Production Research, 1-20.
Stevenson, W. J. (2021). Operations management (14th ed.). McGraw-Hill.