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Strategic

Supply
chain Management
The Fresh connection game analysis

DELHOMME Vincent u0968054


Executive summary

The fresh connection game that was taking place at the University of Huddersfield gives to
the Logistics student a real vision of what logistics operation can be in a simulation game. As David
Leach stated: The Fresh Connection has been a really valuable addition to our final year
programme, enabling students to experiment with supply chain theory and techniques developed
during their studies. This report will be an analysis of the strategic management undertake by the
hudd - Team 28 that has been participating the game.

The participants of the game were to endorse the following position:

Purchasing Director, in charge of the supplier selection regarding to lead time and Supply chain
requirement

Supply Chain Director, in charge of planning and logistics decision regarding forecasting

Operation Director, in charge of warehouse management and bottling and mixing line of
production

Sales Director, in charge for customer contract and demand forecasting

The selection of strategy was the responsibility of the CEO in charge of the coordination
between the different services in order to achieve a positive return on Investment.

The report will review the strategy of the team and the implication with the competitive
environment. It will also deal with a financial analysis based on theory and effective choice taken by
the team, explaining the reason and the possible improvement that lead to the final round position
and finally explain in which extent the final round decision could be improved to sustain and achieve
a higher performance ratio.

Contents
Executive summary ................................................................................................................................ 1
Introduction ........................................................................................................................................... 3
A) Team strategy alignments with competitive strategy ................................................................... 4
a) Main strategy ............................................................................................................................. 4
1) Efficient strategic management process ............................................................................... 4
2) Responsive strategic management process .............................................................................. 5
b) Supply chain Strategy within the Game ..................................................................................... 5
B) Final Round analysis: effect of supply chain strategy on financial performance ........................... 7
a) Analyse of the financial statement ............................................................................................ 7
b) Effect on the financial statement .............................................................................................. 9
C) Sustainable improvement and recommendation ........................................................................ 13
a) How to sustain a high level of efficiency? ................................................................................ 14
b) Long term strategy to achieve best in class performance ....................................................... 16
Conclusion ........................................................................................................................................... 17
Bibliography ......................................................................................................................................... 18

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Introduction

Strategic management within a logistics and supply chain management company has
to deal with several component of the supply chain. Supply chain management is the management
that takes place within the supply chain with the aim to link all of the chain link that composes the
supply chain. From the purchasing activities to the sales going through the operations and the supply
chain, several strategies could have been undertaken.

The CEO of the company has to take decision regarding what to focus on (based on
forecasting and demand) and to whom (selection of customer by priority or delivery organized to
every customer without any regards to their demand) and also through paying attention to put
together all the information given by the different departments.

Supply
Purchasing Operabons Sales
chain

The above process scheme is showing the interconnectivity between the different
departments within the supply chain. The communication process between the different entities is
one of the capital issues that company have to faces.

Within the fresh connection games, the aim of the strategy was to improve the return on
investment of the company by applying two types of strategy based on two types of characteristic:
efficiency, flexibility. According to Fisher, the two types of strategy that are used within the supply
chain management have different uses that can correspond to different types of product.

With a difference in terms of product life cycle between the Functional and the innovative
products from 3 months to a year for the innovative product to more than 2 years for the functional
product. In the fresh connection game, the products were perishable so identify into the innovative
product section.

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A) Team strategy alignments with competitive strategy

a) Main strategy

According to Ballou, Supply chain strategy has three objectives to realise from cost reduction
to capital reduction through service improvement (Ballou, 2004). During the Fresh Connection
Game, two type of strategy could be undertaken to reach these objectives. According to the demand
scope, the supply chain can be drive through either a cost or time oriented strategy. According to
Porter, competitive advantage is a core point of competitive strategy (Porter, 1998), where it could
be reach through cost leadership position or differentiation position within the market.

1) Efficient strategic management process


The strategy based on efficiency was linked to the direct costs (purchasing and production
costs) that could affect the market. The lower the direct costs, the higher the efficiency scores
(The fresh connection game, 2012). According to Fisher, the efficiency strategy can also be called
the lean supply strategy where the reduction of waste lead to the reduction of costs. The aim of this
strategy is to make sure that the value created and the cost are minimised via the elimination of
waste (Jonsson, 2008).

An efficient supply chain is distinguished by longer production lead-times, high set-up costs,
and larger batch sizes that allow the efficient firm to produce at a low unit cost.
(Taylor R. Randall, 2003)

The efficiency, if it is the target, that the company try to reach has to implement several
leverage to influence the different department of the supply chain to get in touch with each other in
order to create several connection that will enable the company to make cost reduction. This cost
reduction could have several faces, from shelf life reduction, to the reduction of permanent
employees or via a better selection of the supplier and lead to implement an efficient supply chain
strategy.

The principal aim of an efficient supply chain management have also to deal with continuous
replenishment to make sure that the order could be fulfill without falling into storage disruption
(Christopher, 2004). In the case of efficient supply chain management the competitive advantage
can only be translated as a value advantage where the company is not necessary seeking for a high
productivity advantage but foe a high level of service that will help to earn the customer loyalty, and
then set up a long-term partnership.

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According to Fisher, the two types of strategy that are used within the supply chain
management have different uses that can correspond to different types of product.

Functional products requires an efficient process; innovative products, a responsiveness


process

(Fisher, 1997)

The product life cycle does have an impact on the demand that customer makes. To answer
this demand the efficient supply chain management strategy does anything to maximise the
reliability of the delivery to ensure a long term partnership. While on the other side the responsive
strategic management is trying to achieve a high level of reliability through an adaptable supply
chain and the reduction of stock out.

2) Responsive strategic management process


On the other side the strategy based on responsiveness, that have clear goals which are
applied the main principle of the logistics. The Goal of Responsive supply chain strategy is to deliver
to the customer what they want, when they want it and at the right price. This strategy helps to
build a strong customer loyalty offering a high level of reliability at any time.

A responsive supply chain is distinguished by short production lead-times, low set-up costs,
and small batch sizes that allow the responsive firm to adapt quickly to market demand, but often at
a higher unit cost.
(Taylor R. Randall, 2003)

According to many strategic management studies, the responsive strategic management has
to set up it functioning according to the forecasting to match customers needs. The company has to
make sure that product is available at all time to ensure that customer demand even when the
demand is fluctuating, are always met.

The principal goal of the Responsive supply chain is to ensure a quick response into the
logistic stream. According to Fisher, this strategy has quicker reward when investing into it because
this type of strategy has been built to create a high return on investment through the
implementation of high level of reliability and so on the customers loyalty. This responsiveness
enables the company to set up competitive advantage, through strong customer focused
management and a capital reduction that can be translated to the minimization of investment along
the supply chain and only seeking for the reduction of stock cost.

The responsive strategy is based on the Just in time concept where the customer demand
are leading the whole logistics process and help to avoid obsolescence of stocks. The reduction of
this cost and the responsiveness of the company then lead to service level improvement that has for
effect a higher customer loyalty (Christopher & Peck, 2003)

b) Supply chain Strategy within the Game


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The aim of our supply chain strategy was to reach the stage of the integrated supply chain
with the main goal of achieving a high level of efficiency through the reductions of costs. Along the
Fresh connection game, the Hudd Team 28 had for goal to achieve an efficient supply chain
strategy in order to implement a long term partnership with their customer. This strategy has been
implemented along several decisions taken by the CEO of the company through the different service.

On the supply chain side, the main goal was to reach the lower level of obsolescence of the
component as well of the finished product. Several issues rose from the miscommunication between
the different fields of operation during the early round.

However the final difference between the two last round have shown that an efficient
strategy could make changes on the long term basis , with a difference of +18,37% in the ROI. That
allows the team to end up with a positive result. Through the reduction of cost on the different
department the team has managed to reduce stock cost and handling cost. Moving from a cost
reduction to capital reduction also act on flexible manpower and enables the company to finish the
competition with a positive operating profit.

Within the supply chain department, the reduction of the stock cost and handling cost has to
be handled by the safety stock management. The relationship between customer management
undertaken by the sales department and the supply chain management affect the decision that has
to be taken in order to maximise the efficiency of the company.

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B) Final Round analysis: effect of supply chain strategy on financial
performance

a) Analyse of the financial statement


A financial analysis is made out to identify the different area where a company is either
profitable or efficient. The financial analysis is generally used to determine if the company is
sustaining for investments. Measuring profitability and efficiency can be done through various ratios
calculation (Ryan, 2008).

1. Financial Statement along the 6 Round of the Fresh Connection game:

2. Ratios analysis:

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The following chart is showing the ROI (return on investment) of the Hudd team 28 along
the 6 Round of the game:

ROI
5,00%

0,00%
1 2 3 4 5 6

-5,00%
ROI
-10,00%

-15,00%

-20,00%

In order to implement an effective strategic management along the supply chain the
company has to use leverage to act on their ROI, this different leverage has been evaluated through
ratios that enable the company to monitor and control it growth over the game period.

The last round played by the Team 28 has been the most profitable. This could be attributing
to a better management of the different department and an increase in communication between
the services.

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b) Effect on the financial statement

The ration analysis that has been undertaken using the financial statement has been
separated between two different areas: the profitability ratios and the efficiency ratios.

1. Profitability Ratios:

Round 1 2 3 4 5 6

Profitability Ratios
Operation margin / net profit ratio (%) -8.99% -26.38% -22.57% -9.21% -22.82% 0.34%
Grossprofit ratio (%) 40.35% 36.61% 38.31% 37.57% 31.43% 40.32%
Operating ratio (%) 59.65% 63.39% 61.69% 62.43% 68.57% 59.68%
ROI (%) -6.86% -15.92% -15.34% -7.33% -18.03% 0.36%

Financial ratio that has to be calculated is linked to the efficiency of every department that
compose the supply chain, according to the revenue they generated and the cost they had put in
place to maximise the revenue (Atrill & McLaney, 2008).

Assessing the profitability through a logistics company is dealing with several variables such as
customers expectations, cost reduction and capital utilisation.

The previous profitability ratios show that the return on investment of the companies went
through a deep hole to finally come out positive, showing that the team has been more profitable on
the last round. The principal goal of the Team 28 has been to achieve an efficient strategy more than
a responsive strategy that will have led to a more profitable return on investment. Along the game
the strategy undertaken was to set up at a minimum level, the production cost through influencing
the permanent employee and by using the production line the most effectively in all field of area.

Along the Supply chain department the principal issue encounter at the first round was a high
level of raw material and finished product obsolescence, which influence the cost of goods sold and
affected the operating margin. As the profitability ratio table is showing the ROI has been affected
between round 1 and round 6 but the gross profit ratio reflecting a marked improvement in cost
management.

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The net profit ratio and the ROI shows a utilization of the capital and the revenue has been
correlated to each other, where investment affected the revenue in a way that machinery and
software investment have been contributing to the increase of revenues. The operating ratio that
shows the cost of goods sold compare to the revenue is creating value along the supply chain by
controlling the cost engaged into the production and the revenues that it creates.

The gross margin profit represents the difference between sales over the cost of sales, it
represent the real profit that been made from products sales after putting cost of production away
(Perret, et al., 2007).

80,00%
Protability
Ra/o
60,00%
Operabon margin / net
prot rabo (%)
40,00%
Grossprot rabo (%)

20,00%
Operabng rabo (%)

0,00%
1 2 3 4 5 6 ROI (%)

-20,00%

-40,00%




2. Efficiency Ratios:

The efficiency ratio show that the earning of the company compared to the capital that has
been employed has been for enhancing the utilisation of the supply chain. An enhanced
effectiveness by adapting the means of production to demand, and a better management of storage
cost, but also a better management of sales and purchases. Each department within the company
can manage his own efficiency related to the revenue (Atrill & McLaney, 2008).

The production ratio show that production cost have been enhanced through the different
round leveraging on the employment while the Stock ratios is showing an considerable improvement
along the game period regarding at the difference between round 1 and 6.

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The cost reduction has been effective regarding the Overflow raw materials warehouse
and Overflow finished goods warehouse that has been reduce by 28% and 33%. The cost of scrap
product has also been improved with a reduction of 18%. The stock ratio that calculate the relation
between stock cost and revenues show that the control over the supply chain management will
made the company more effecting by influencing a reduction of cost and generating operational
incomes.

Regarding the contract cost that has been run over the game period, the improvement has
been total with a perfect management that led to a 0.00% over consecutive period.


30,00%
Eciency
25,00% ra/o
Producbon (%)
20,00%
Distribubon (%)

15,00% Administrbon (%)

Stock(%)
10,00%
Handling(%)

5,00% Contract(%)

0,00%
1 2 3 4 5 6

The prioritisation of customer has also help to the reduction of cost and taking more detail
on quality product expectations.

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supply chain. Fig. 2 illustrates only the two updated via fur
extreme types of product characteristics; in the the product cha
real-world there is a wide spectrum of products house (2002). Th
withThe varying degrees of functional and fashionable ing the classificat
supply chain management that has been undertaken by the team 28 has shown that an
characteristics.
efficient Furthermore,
strategy is based on these
a long term perspective, if the product sold in the game Study
even characteristics are short is that th
life are
cycle not
and a frozen
responsive in timewill because
strategy as products
be more accurate (Brealey, et amature interpretation
l., 2009). The following table ag
is giving the position that Team 28 has trying to reach and it actual position:
through their product life cycles the customer at the strategic
many concurren
at the tactical le
Functional Products Innovative Products assigned to their
latter problem w
Efficient paper which is an
Supply Match Mismatch (2001). Special e
Chain impact of the
manufactured ite
The classificat
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Supply (2000) following
Chain Mismatch Match
plus their indus
industries. They
of the model ma
Fig. 2. Matching supply chains with product characteristics lise the relevan
(Source: Fisher, 1997). Country in-sourc

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C) Sustainable improvement and recommendation

According to Taylor R. Randall, Ruskin M. Morgan, and Alysse R. Morton within a Journal of
product innovation management, the supply chain strategy that are seeking for competitive
advantage are more likely entering the market within an responsive based strategy to then continue
on the efficient model, to guarantee a competitive advantage and to set up a loyalty regarding
customers to then offer them efficient strategy (Taylor R. Randall, 2003).

The following scheme is showing the relation between the supply chain leverage and their
impact on the ROI of a company:


(Christopher, 2004)















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a) How to sustain a high level of efficiency?

Supply chain has to be seen as a whole not only as multiple part that interact once in a
while. Within the supply chain management the different services has to monitor their activities to
determine if their sector is doing good.

The previous ratios that have been calculated in the previous section help to monitor the
supply chain strategy profitability and efficiency that led to maximise the ROI. The following graph is
showing the evolution of the competitiveness over the time:

(Christopher, 2004)

Though several strategies a company can appraise and maintain a high level of competitive
advantage amongst their competitors. Benchmarking which could be defined as continuous
improvement and measurement of the product prices and process along the supply chain is one of
the examples of the supply chain management.

Yet, to manage with an efficient supply chain the company has to monitor their price
advantage, product differentiation and price competitiveness. The utilisation of ratios such as ratios
linked to the cost could be used to sustain and enhance business in a way that they are able to
calculate the part of the costs that is combusted into the revenue.

However financial analysis has limit and could only give proof that the company is doing well
or not, Supply chain directors and other member of the company have to find out what the ratios
are saying, they are only consequences helping to find the cause.

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The implementation of agile or lean strategy will depend on the nature of the product,
depending on the lead-time and on the demand characteristics. The Team 28 has adopted a lean
strategy in order to reduce to it minimum the costs generated along the supply chain.

Moreover the lean management strategy, based on the cost reduction process has it limit.
And the future of the fresh fruit company will be to transform it strategy into a hybrid strategy or an
agile strategy.

As comparison to Air transport market, improving the supply chain is making the whole
participant of it working together through dedicated IT tools, through an increase in communication,
in order to implement a high level of responsiveness while a fruit industry as played during the game
should more focuses on planning and optimisation.

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b) Long term strategy to achieve best in class performance

In order to ensure a long term strategy that will help to achieve best in class performance,
the team 28 will have to ensure that IT process has been put in place to reduce the
miscommunication that had been happened along the game.

A plan of action for future and long-term expansion along the game would be to implement
continuous replenishment along the stock purchasing methods that will allow either the purchasing
and the supply chain to predict and respond to the needs of the customer with more accuracy and
will establish between the different service a natural communication process (Gattorna, 2006).

On the sales department perspective it will be appropriate to more to focus on customer


prioritization, through technics such as ABC methods and to implement accurate forecasting to
reduce the margin of error that the production line have to deal with.

The supply chain department will have to rely on forecasting and purchasing to implement
an accurate replenishment of the stock by working closer with the operations in charge of
warehousing spaces and could seek every waste that could have been made in order to increase the
lean management accuracy. The implementation of six sigma1 strategy oriented will also lead to a
reduction of cost through waste elimination with a continuous improvement scheme.

The implementation of system such as continuous replenishment or the calculation of


reorder point, EOQ (Economic order quantity), would have a greater impact on the management of
the supply chain efficiency by avoiding stock out and obsolescence (Jonsson, 2008).


1
Six sigma is a philosophy of doing business with a focus on eliminating defects through fundamental process
knowledge. Six sigma methods integrate principles of business, statistics and engineering to achieve tangible
results. (Six sigma system, 2012)

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Conclusion

The fresh connection game was an interesting and stimulating competition where each one
of the participants could deal with the different position within a fresh fruit company. Such
simulation of management allows student to be able to see how a company is working in time
consuming environment and where able to organise themselves around the company objectives and
positions.

Strategic supply chain management enclose a wide range of strategic issues, about how to
run a business in ad equation to which product, to the demand and to the internal/external factors.
Businesses are restraint to two main qualities: time and costs; and strategy are in line with them by
trying to enhanced or reduce them to make company prosperous and competitive amongst others.

As stated in Strategy analysis and practice book, the example of Wahaha company show that
the management strategy within a small soft drink company can actually compete with giant of the
industry such as Coca-Cola company and PepsiCo (John, et al., 2005).

The strategy is the art of taking advantage of organisation of the structure and acting on the
external factors to valuate the company assets at their best.

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