Read the case carefully and answer the following questions:

Marks & Spencer was formed in $1894,$ when Russian immigrant Michael Marks formed a partnership

with Tom Spencer. In the $1920$s the business went on to adopt the policy of buying direct from

manufacturers, instead of through wholesalers. By the $1970$s the company had acquired a reputation

for excellent service, quality, and value for money. M&S had provided generations of middle class

shoppers with high quality clothing in classic styles and conservative colors. In addition to woman$$s

outerwear, the company held a significant share of the UK market for children$$s clothing and men$$s

wear. In $2000,$ M&S$$s profits exceeded $1$billion for the first time in its history. Encouraged by

unstoppable success, the company$$s top management team had happily decided on an expansion

strategy.

$$Marks & Spencer aims to become the world$$s leading volume retailer with a global brand and

global recognition... $($Marks & Spencer Annual Report, $2001).$ By June $2002$ M&S$$s retail empire

stretched to $651$ locations across $31$ countries. In North$-$west Europe M&S concentrated on buying

stores around major centers of population. In Central Europe it relied on franchise agreements with

local partners. Back in the UK$,$ the company was planning a $20\%$ increase in retail space. By the

spring of $2002$ the company launched Marks & Spencer Direct., a clothing catalogue for adults and

children. The mail order selection was designed to complement the retail offer in terms of product,

style, image and price.

Over the years, close relations with textile suppliers and manufacturers had enabled M&S to lead the

way with innovative new products and fabrics resulting in the introduction of the non$-$iron shirt,

machine washable silk sweaters and stain$-$resistant fabrics. M&S designed most of its clothes inhouse before putting the designs forward to preferred manufacturers along with extremely strict

specifications regarding the finished product. M&S relied on its trusted suppliers to put forward their

most recent innovations; often allowing M&S exclusive access to technological breakthroughs.

The physical distribution of merchandise had been outsourced for years to specialist suppliers. Five

transport service providers $-$ BOC, Lex Transfleet, Christian Salvesen, Exel Logistics and Tibbett &

Britten were involved in transportation and distribution of goods within the UK and Ireland. Exel and

T&B carried goods from suppliers to fourteen regional distribution centres $($RDC$).$ The other three

companies were contracted to bring goods from the RDCs to the stores. The RDCs themselves were

each managed by one or another of the five suppliers.

In $2006,$ from the outside it seemed that things had never been better for M&S$,$ but insiders knew that

all was not well. Within M&S concern had been rising over the possible competitive threat posed by

international retailers, such as the US$-$based Gap and Spain$$s rapidly expanding high fashion chain

Zara. In store, goods were still displayed in large quantities by product category, using huge racks

each filled with a particular style and colour of jacket, skirt or trousers. M&S$$s style contrasted badly

with that of its innovative rivals, who preferred to present goods in attractive boutique$-$style

combinations, indicating to customers the way designers had intended the garments to be worn.

Moreover, M&S$$s own in$-$house data showed that although profits had risen throughout the $1990$s$,$

other key business indicators revealed a worrying trend. In November $2005,71\%$ of customers had

rated M&S positively for service and had $69\%$ felt that the goods offered value for money. By March

$2006,$ the figures had fallen to $62\%$ and $57\%$ respectively.

In the autumn of $2008$ British retailing was in sudden recession. The difficulties in the UK caused

by currency fluctuations and the on$-$going collapse of some of the Far Eastern economies. Planned

store openings in the Asia$-$Pacific region were cancelled. The New Year brought trading figures that

$2$

were much worse than everyone had suspected. Profits decreased by $50\%.$ Too much winter stock

cost M&S $150$ million. Some critics pointed to overpricing and poor service as the reasons behind

the falling sales, others claimed that customers were unhappy about a drop in quality of some

products.

Suppliers were first warned of the need to become more price competitive. Certainly this would

involve switching a greater proportion of production overseas. Dewhirst, M&S$$s oldest supplier

relocated vast sections of its manufacturing operations to Sri Lanka, Indonesia and Morocco. It was

testing a $72-$hour air bridge system that would allow the company to lift product from its major

distribution centres to stores anywhere in the world within $3$ days. Morocco was used as the test$-$site.

M&S went on to announce plans to shift the balance of its overseas transport from $60\%$ sea and $40\%$

air to a mainly air$-$based network.

In Eu