Sears Has a Couple of Key Inputs

Sears has a couple of key inputs that drive sales -- employees and merchandise. As a traditional department store, Sears relies on its sales staff to move the merchandise that comes into the stores. While merchandise selection is important to entice customers to the stores with quality goods and the right price, it is the sales staff that are responsible for converting customers into sales. Sears has recently made an adjustment to its staff inputs.

At its Kmart subsidiary, the company has cut 700 staff by offering a toll-free information number as a replacement for a sales associate. Other associates will be trained to help out in the appliances area. The company believes that this adjustment will reduce the cost of labor at its stores, without a corresponding decline in sales. Inputs are something that companies can gain competitive advantage from. A quality sales staff can increase sales up to 40%, as noted in the article (UPI, 2011).

The approach that Sears is attempting is risky when viewed from that perspective. At the input level, the sales staff costs money. However, they contribute a throughput (service) that results in a positive output (higher sales). The theory that Sears is working with is that the value of that throughput, as measured by the output, is not as great as the cost of the input. Thus, the company believes that it can improve profitability by cutting costs at the input level.

The decline in output that results from this is not expected to be substantial. Thus, by making adjustments to the level of inputs, Sears hopes to maintain throughput levels and deliver superior outputs. Transformation processes are an important element of Sears' business model. The company is not competing as a cost leader, but rather as a differentiated player, still serving the mass market. One of the key points of differentiation for Sears is its service level. Service is a transformation process.

It comes from the staff input and is intended to deliver a number of positive outputs, including revenues, profits and customer satisfaction. Cao (1999) outlines a situation where Sears made adjustments to its transformation processes in order to improve service levels. An adjustment made to the company's vehicle routing and scheduling system was conducted in order to achieve a couple of specific outputs. One was shorter delivery times and the other was to give the company a more efficient home services fleet.

The adjustments that were made included the use of modern technology and techniques for more efficient routing of vehicles. Transformation processes are a critical element to all businesses. Sears begins with drivers and vehicles, and uses techniques to make them more efficient. This leads to improvements in the company's outputs. Sears relies on high levels of service to provide competitive advantage over its low-cost competitors, so investment in throughput improvement is something that should benefit the company. Transformation processes are essentially a process by which inputs are converted into outputs.

In this situation, multiple inputs such as labor, appliances and trucks are converted into outputs by the information system improvements in question, resulting in performance improvement. Good companies always seek to make improvements where possible to their transformation processes, as this can be a valuable source of both cost-cutting and service improvement. 3. The Sears Holdings Corporation 2010 Annual Report details a wide range of outputs. The company sells goods as a transformation process, converting the goods and labor involved into revenue, market share, customer satisfaction, employee satisfaction and other output measures.

The financial statements in the annual report outline the financial outputs of the firm -- its revenues, costs, profits, cash flow and the changes in the company's financial position. The company does not directly discuss market share in the annual report but does break down segment information. For example, in next year's annual report the impact on Kmart earnings of the staff reductions should be known. The company's outputs are basically anything that the company produces, whether it is a product for sale or not.

Much of any organization's outputs are not captured directly in the annual report, but the report typically provides clues about the outputs. Staff numbers are usually given, as well as.