task) in order to secure greater responsiveness and/or efficiency. The aim is to secure totaladded a pens ene oe 85 possible. This s discussed in detail in Chapter 2. ee eae eae 'e optimal number of suppliers for a given activity; the nee ppropriately be evaluated; and the optimal method of selection (eeblirect negotiation or competitive bidding). Selection methods must be structured and managed: effectively, in order to secure the desired outcome. Procurement (defined by Chopra and Meindl as ‘obtaining goods and services within a supply chain’). Managers must structure procurement so as to increase supply chain added value: eg procuring direct materials with a focus on buyer-supplier co-grdination, and MRO items with a focus on low transaction costs. (We Pies ieee ee, Chapter 5.) Sourcing-related metrics. Supplier performance impacts quality, inventory, costs and pricing. It will be essential for managers to measure performance metrics such as: average purchase price and purchase quantity (identifying potential for cost savings from aggregation}; supply quality; supply lead times {identifying potential for greater responsiveness and inventory reduction); and supplier reliability (performance relative to contract or plan). We discuss the measurement of supply chain performance in Chapter 11, 2 Supply chain management The strategic role of supply chain management 2.1. nrecent decades the role performed by the supply chain function has generally taken on an increasingly strategic aspect. The reasons for this are worth examining briefly. 2.2 The cost base of most manufacturing companies has changed dramatically in recent decades. Many industries have seen a huge investment in automated production processes, and the sums invested in plant and equipment are now high in proportion to labour costs. na related trend, many businesses sw take a resource-based approach to strategy, focusing on core competencies which offer compenitive advantage. Support activities, previously provided by in-house departments, are increasingly outsourced } to external suppliers. So procurement ‘and supply chain responsibilities now extend to a larger proportion of the organisation’ spending - and functional decisions can make a significant impact on the bottom line, in the crucial area of external expenditure. ' i 2.3 Meanwhile ‘world class’ manufacturing approaches initially adapted from Japanese management — including total quality management, justin time techniques, lean production and continuous improvement i a have impacted heavily on supply chain functions. It's now ‘widely recognised that they have a vital part E pave rp id class manufacturing, through their role in quality management; waste and cost reduction; & Se ae ness (agility) and innovation. hain flexibility, responsive world cass’ thinking is the recognition that quality cannot be achieved bya Tation. concepts such asthe ‘supply chain} ‘value chain’ and ‘quality chain’ (a semen view suppliers as part of a continuous low of goods, services ere fos and corweys valet customers, The need to secure proactive, consistent, Bae ornate ree trom suppliers has driven a shift from traditional approaches to supplier Se % Bee ees rejtaboratve or partnership relations relationships, 3" te —_ supply further development single organisation in iso! cornerstone of ‘total quality mana|supply chain mem | Management components Network structure 2 What level of integration Who are the key |and management should be| supply chain members? applied foreach ink? 2.16 Many writers now argue that SCM is a key strategic issue in its own right because: * ‘Focus has moved from competition between firms at the same level in the production process to competition between supply chains... A company’s ability to create trust-based and long-term business relationships with customers, suppliers and other strategic partners becomes a crucial competitive parameter’ (Jespersen and Skjatt-Larsen) + ‘The real competitive struggle is not between individual companies, but between their supply chains or networks... What makes a supply chain or network unique is the way the relationships and interfaces in the chain or network are managed. In this sense, a major source of differentiation comes from the quality of relationships that one business enjoys, compared to its competitors’ (Christopher, Logistics and Supply Chain Management). | \ the goals and contribution of strategic SCM “TT om o number cf ways inconch BEM may hale ergervzahion achieve compahtite ndventnge Gp Thefoats (and claimed contributions or benefits) ofa strategic SCM approach may be summarised as follows. oe see Reducing non-value-adding (waste) activities throughout the supply chain. (‘Often there are many = activities that do not create value involved in trade between two companies. Jointly locating and eliminating these activities, as well as developing co-operative goals and guidelines for the future, can focus resources on real improvements and development possibilities’ Jespersen and Skjott- Larsen, ‘Supply Chain Management in Theory and Practice) © Reducing total costs throughout the supply chain (through better co-ordination and planning, reduction of inventory and better capacity utilisation, elimination of wastes, fewer inspections and defects, systems integration reducing transaction costs and so on) ~ avoiding sub-optimal solutions where costs are reduced by one firm in the supply chain at the expense of others (eg a buyer forcing. suppliers to hold extra inventory) * Reducing cycle times: supporting innovation (through faster new product development), faster and. more precise delivery times (through shorter order cycles), lower inventory (eg just in time) and supply chain agility. Faster lead times for product development and delivery also mean that new and modified products can be offered in response to changing customer demand (agile supply) + improving responsiveness to customer requirements (by emphasising the continuous flow of value towards the customer) - with a knock-on effect on customer loyalty and sales revenue © Giving access to complementary resources and capabilities (eg joint investment in research and development; technology and innovation sharing; and so on) * Enhancing quality and service (through collaborative quality management, continuous improvement and enhanced supplier motivation and commitment) ‘© Improving supply chain communication (through increased information sharing and integration of systems for faster and more accurate information flows). This in turn offers planning and co-ordination benefits such as potential for demand-driven (lean or agile) supply and so on,tora private sector organisation is norm: 5 "7 ally to - nthe selling price of a product (or the total ae aa ae cof producing the product. In other words, itis the gain or surplus left ony en 2 Product) an provider has paid allits costs, As a measure of performance, proft inane stn manufacturer holders and other investors, and can be compared across organications wpe ncatar for Organisations. I ip of inputs to important tonote that attention to profitability does not necessarily imply an objective of pimisotion. Profit levels must be satisfactory to shareholders, and sufiient to ensble reimiecrro put managers may seek to attain adequate profits rather than maximum possible profits: an onientare ‘| sometimes called satisficing behaviour. Price, productivity and investment decisions are often taken wth a vange of managerial objectives and constraints in mind: the need to preserve quality and environmental fesponsibity, the need to price fairly or competitively (to support marketshare), the need to preserve | ‘working conditions in the labour force and supply chain and so on, 446 Weave already discussed the contributions of SCM, many of which relate to supply chain profitability. To ‘summarise, supply chain management can contribute measurably to corporate, business unit and supply chain profitability in the following ways. + Realising revenue benefits: either by raising the number of units sold (eg by enhancing availability or ‘pushing’ product into and through selling channels) or by increasing average revenue per unit sold {eg by commanding a price premium). Both aims can be met by increasing customer service levels, eg through targeted new product development, developing product distribution to match customer ‘demand and buying preferences, offering make-to-order and late customisation options to fit. ‘customer choice, and so on. + Reducing operating costs: eg through strategic cost reduction programmes (eliminating wastes : and optimising and integrating the supply network). Where cost reductions are retained within the business, there is an immediate improvement in the bottom line. Ifthe surplus resource is used up by budget holders, there is no direct impact on the bottom line — but there is added benefit. ao © Mikurak and Whitaker (in Gattorna) argue that: ‘Traditionally, supply chains were seen only as a cost to be ‘minimised: [now] supply chains are being tied to overall company strategy ang their potential to create value in ways other than cost reduction is being recognised... They reson number of approaches to enhancing revenue through supply chain management strategie). + Omnipresent supply chain strategies enhance revenue through supporting wide-spread product availabilty increasing unit volume. This fits a mass-market, brand-focused corporate strategy: examples cited include Coca Cola, McDonald's or Intel. The drawbacks of such a strategy, however, include supply chain costs and complexity: large, market-leading, resource-rich companies may profit most from this approach. + Channel-focused supply chain strategies enhance revenve by providing value to channel partners {66 distributors and retallers) who can enhance unit volume, Efficient and effective supply is required tomeet channel expectations, and the supply chain will often be tailored to meeting channel requirements, * Customer-customised supply chain strategies enhance revenue by providing enhanced value to the end consumer, increasing revenue per unit (eg by enabling premium pricing). Ths fits business strategies based on mass customisation, It requires core competencies in consumer targeting and direct relationship management, often including late customisation to consumer specification («8nputers). Drawbacks to this strategy include low margins (due to the need to develop ibution networks). “Operational agile supply chain strategies enhance revenue by responding rapidly to emerging market needs, and increasing revenue per unit by capturing the higher margins available to first or early movers into the market. This fits corporate strategies focused on innovation. It requires core competencies in innovation, product development and marketing (consumer insight), with supply chain functions often outsourced, This presents challenges including costs of flexibility, and the need to manage a changing network of supply partners. + Speed-focused supply chain strategies enhance revenue by providing product to the market faster in response to demand: increasing revenue per unit by capturing a premium for ‘newness’ or freshness! —and also minimising capital locked up in inventory. This fits business strategies based on customer service. It requires competencies in supply chain collaboration and end-to-end visibility, In contrast, Mikurak and Whitaker identify a supply chain strategy which they call logistics optimisation, which — rather than enhancing revenue ~ seeks to reduce overall supply chain costs. This fits cost-driven or Jow-pricing business strategies. Logistics optimisation focuses on: ‘+ Lowering operating costs through continuous improvement and efficiency: collaborating with supply chain partners to manage supply chain flows, minimise current assets deployed (eg inventory), and develop operational excellence + Maximising the utilisation of long-term capital assets: collaborating with supply chain partners to ensure that infrastructure is sufficient to meet growing demand, without over-investment. ‘We will explore cost reduction strategies further in Chapter 2, as a competitive strategy. According to Gattorna, the traditional view of supply chain management was that increasing customer service levels was costly, ‘However, we now know that if companies truly understand customer buying behaviours, they can reallocate existing resources, rather than increase resources... They can then improve alignment with customers, so that... service profile increases simultaneously with a reduction in cost-to- serve, We call this the “best of both worlds” Market share 4.10 BAL 3.12 +313 Innearly all cases, a private sector firm will be one of several, or many, firms offering goods or services Of a particular type. Securing competitive advantage, in order to win more customers and better quality customers (higher lifetime value), is therefore a key focus of private sector strategy, including supply chain management. fs cs will see in Chapter 2, competitive advantage may be defined as the ability (gained through the evelopment, protection and leverage of distinctive competencies and resources) to deliver value to Customers more efficiently or effectively than one’s competitors. ltms may measure the success of their co petitive efforts in variou: é Efowth, sales revenue growth, or growth i = owes he in the number of customers. However, the most common y @ given product or organisation. Market ) or value (revenue). tor of performance fe markets. It enables fimsto dentin cea! MANY Private sector organisations in competitivesjratepic coherence depends nga congruence, and thelr , } & directions. i Pr(allgnment of strategies in two | eral alignment is about ensuring that goals set higher objectives of the business etre Be ee seers eevee qaission: they ar, in turn, expressed as functional objectives, So, an a Pee eo enue for Innovation may set objectives for new product development, ample an rganisation wth vain objectives {among others) for supplier partnerships, value enginee Pecans anyobiectives set for the supply chaln must be inne with (and enneeen oun. BE redes. their contribution to) «Horizontal alignment is about ensuring that the plans of every unit or activity in anor {orsupply chain) are co-ordinated with those of others so that they faciitate the fares customers and present a consistent, coherent face to the world. So, for example, supply tp strategies must be co-ordinated with the needs of customers (defined by marketing plan), the fequirements of operations (defined by operations plans) and the availablity of resources (eg through HR and financial planning) and so on. 52 _Tangand Gattorna argue that ‘Effective supply chain strategies must be aligned with corporate of business unit objectives. The advantage of aligning supply chain strategy to business strategy is that it can Incresse revenve, reduce costs and improve competitive advantage. The opposite is true for a misaligned operating (trategyitusvally results in value destruction through the pursuit of misdirected initiatives! 3 David Taylor (The Noked Leader) argues that the process of mapping functional plans onto each other, and onto corporate strategy, has advantages in a range of areas. « ‘Apart from giving a cohesive view, it helps prevent duplication of effort and resources, encourages ‘everyone to help each other, and gives each team a view ‘and feeling of corporate impact — tying everyone's role to the bigger picture. This is hugely motivating for people and teams at every’ level.” «© ‘Organisations that have mastered this approach achieve stunning improvements 9 driving their business forward. In addition to improved planning and ‘understanding by all involved in the vision and journey, such contentious issues as ‘ownership, prioritisation and delivery can be more fully explored and explained. « ‘Adopting this method also leads to improved measurement of your value. It will only be possible to fist each and every activity asit is matched to a business justification, rather than being done for its own sake. _ The strategy cascade goals cascade or ‘low down’ to supply chain operating sew}providing comparable value to the customer more efficiently than competitors (low cost), | performing activities at comparable cost but in unique or distinctive ways, creating more value for ‘customers than competitors and commanding a premium price (differentiation). | ‘atthe same time, an organisation can choose to apply elther of these strategies either toa broad market gto anarrow-ocused or targeted market (or market segment), Porter identified the various permutations asthree generic strateties) «s Cost leadership: seeking to become the lowest cost producer in the industry as a whole. ferentiation: secking to exploit a product or service perceived as ‘different’ or ‘unique! in the industry as a whole «. roeust targeting activities to a selected segment of the market, either by providing goods or services slower cost to that segment orby providing a differentiated product or service forthe needs of that segment. 3) {You may have noticed that there are in practice two focus strategies (cost focus and differentiation focus), and therefore, arguably, four generic strategies. Subsequent commentators on Porter's model have taken that line, depicting the possibilities in a simple matrix: Figure 21 Figure 2.1 borers generic strtegis) COMPENTIVE ADVANTAGE Lower cost Differentiation Ey srood (industry wide) | Costlendesnip Diferentiation eg 5 row (maretseoment) | Costfous | Diflerenation fous Creating cost advantage 4:11 Fororganisations competing in a price-sensitive market, cost leadership isthe key strategic imperative, Cos reduction will also be a key objective to support the financial goals of the firm (proftability, liquidity, return on capital invested and so on), even in the public sector (with goals such as value for money service provision and efficiency targets). All organisations need a thorough understanding of their costs and cost | rivers, and of thelr customers’ definition of quality. Their essential task is then to supply acceptable quality atthe lowest possible unit cost: specifically at a low cost level relative to competitors. 4.12 _JsWidentify four key cost drivers that can be targeted to help drive cost leadership. ‘© Input costs, such as labour and materials. Many SBUs seek to offshore labour-intensive operations inow-labour-cost countries (discussed later in this chapter), and a key strategic contribution of the procurement and supply function will be to reduce and manage external expenditure on inputs. «Economies of scale: the reduction of average costs as a result of increasing scale of operations, €8 Dy spreading fixed costs over higher levels of output (or aggregation of requirements in order to source it higher volume) Experience and learning curve effects, whereby efficiency and productivity increases with experience : ‘expertise and learning over time, enabling a reduction in unit costs. Systems and practices may be fefned and streamlined, for example, and collaborative efficiencies gained through developing supp chain relationships. © Product and process design, where efficiency is ‘designed in’ through value engineering to optimise whole life costs. _ » etratasic supply chain management perspective, the major plication of a cost leadership strateg212 34 33 sereasing collaboration, co-ordination and integration within the supply chain, in order te vpn to pursue competitive advantage over competitors’ supply chains (rather than view von as occurring between individual organisations at the same ‘level in the supply chain). Inadaltion, organisatians may collaborate at an industry level (eg in buying consortia, joint ventures multistakeholder interest groups) to increase bargaining power and/or to Improve value, quality or lity standards for the industry as a whole. |gwemphasise that: ‘Advantage may not always be achieved by competition alone, Collaboration etween organisations may be a crucial Ingredient in achieving advantage ~ or avoiding competition, Also, rganisations simultaneously may compete in some markets and collaborate in others: These aspects will be discussed further in later chapters of this Course Book We will now look in more detail at some specific areas in which supply chain strategy may contribute fo corporate and business strategy, as highlighted by the syllabus. Enterprise profit optimisation i The discipline of enterprise profit optimisatio the difficulties of balancing supply with peaks and trougt traditionally been addressed by focusing supply. management attention on two levers: levels of inventory and productive capacity. However, these are relatively inflexible: they cannot always be ramped up, or down, swiftly or economically ~ particularly in a global economy with long lead times for international supply. aol (or EPO ~ Greg Cudahy) was developed in response to isin demand. Unexpected demand swings have PO seeks to resolve this problem by converging, and simultaneously optimising, the supply and demand side of a business, using the following techniques. «Pricing and revenue optimisation (PRO), to offer demand-side solutions (by influencing demand). PRO techniques segment the market; predict the buying behaviours of different segments in relation to price; and utilise differential pricing strategies to bring customer demand for given goods and services into line with the optimal supply (optimal use of available capacity and assets). You might be familiar swith this concept, as a consumer, from the way that airlines and hotels typically allocate blocks of seats or rooms to different market segments (business, leisure, budget, last-minute) according to forecasts of demand. They then price each block differently, according to the price the segment will bear. This ensures that the highest possible revenue is earned from fixed capacity (limited seats or rooms). Interactive internet technology allows the mix of block allocations and prices to be constantly adjusted in response to actual sales, for fine-tuned optimisation. The aims to balance the pricing, needed to win customers with the pricing needed to maximise contribution to profit. «Supply chain management, to offer supply-side solutions (by responding to demand, and maximising return on assets through end-to-end supply chain optimisation and cost reduction). ‘Combining the proven power of cost reduction solutions with the revolutionary breakthroughs of emerging pricing and revenue optimisation tools, EPO integrates disparate parts of the value chain, helping. companies improve operational efficiency and achieve profitable growth simultaneously. EPO looks across the entire enterprise to enhance profitability. When mismatches of supply and demand occur—as they always do — they should not be viewed strictly as a supply chain problem or a pricing problem, but rather as an opportunity for EPO!Shbeyie O-teesrcing if é 2 The term business process outsourcing (8PO) is given to ‘the transfer of responsibility to a third party 46 a7 48 Strategic outsourcing Sal = nal suppliers} or design or manufacturing capability (eg by 0 acture to an external contractor). : 4 allablity of suitable external suppliers and positive supplier relationships, (A lack of suit suppliers would push the firm towards the ‘make/do" end of the spectrum.) The assessed risks of devolving activities to the external supply chain (eg in terms of loss of control, Joss of in-house knowledge and skil risks to confidential data and intellectual property, and so on), ‘Outsourcing may be defined as the process whereby an organisation delegates major non-core activities ‘or functions, under contract, to specialist external service providers, potentially on a long-term relational basis, Outsourcing is thus the ultimate expression of a buyer's attitude to the supply chain as an extension of in-house resources, as seen in the concept of supply chain management. of activities which used to be performed internally’ (Lisa M Ellram and Arnold Maltz, Outsourcing ‘Supply Management), mainly back office and front office functions (such as 7, HR, accounting and procurement). ‘+ The term facilities management is given to outsourcing solutions in which the customer transfers to ‘an external services provider the responsibility for the operation and maintenance of one or more facilites, ‘+The term shared services is gjven to the outsourcing of a business function to an expert internal department or unit. For example, the procurement unit at one plant may provide procurement services to all sites within a manufacturing company ~ as well as to external third-party clients. The term managed services is given to the outsourcing of responsibility for managing service operations and project activity. In the construction industry, for example, itis common for a single ‘main contractor of lead provider to be appointed, whose task isto identify, commission and manage appropriate subcontractors (or lower tiers of the supply chain). + The term in-sourcing is given to the reverse process: the transfer of an outsourced function to an internal department of the company, to be managed by employees. This may include ‘competitive in- sourcing’, whereby internal employees bid against third-party providers for a defined scope of work, Lysons and Farrington explain the difference between outsourcing and subcontracting as a long-term. strategic versus a short-term tactical approach: ‘If you want a beautiful lawn in the neighbourhood and you hire someone to take responsibilty for every aspect of lawn care, it’s strategic outsourcing, But hiring, someone to cut your lawn is subcontracting’ ‘The strategic view, discussed by Hamel and Prahalad in thelr work Competing for the Future (1894), ‘encourages organisations to identily their core business — the parts of their business that are at the heart of their operation and where they excel - and build on this. Areas outside this should be considered for ‘outsourcing to providers who consider the outsourced area their core competency. Robert M Monczka (Purchasing and Supply Chain Management) further argues that outsourcing is best regarded as a supply chain question ‘Looking at the entire supply chain, who should be doing what?’) rather than a piecerneal outsource question (‘Should we outsource this activity?') * Supply chain management encourages consideration of the long-term objectives and impacts of make-do-or-buy and ‘boundary of the firm’ decisions across the supply chain, * Established supply chain relationships also support decision-making: suppliers’ capabilities will be Known, a level of trust may have developed; information-sharing and relationship management systems may already be in place; and suppliers may be m ly to understand and suppor and suppliers may be ry be more likely to unders ahheir needs, underpins quality thinking, a Quality chains. The quality chain extends from suppliers through to consumers, via the supply chain’ (supplier and customer units representing the flow ‘of work within the organisi sari each link in this chain impacts on the next one, and will eventually affect the quality provided to the consumer. Each ‘micro-operation’ (such as a procurement ‘team) has a responsibility to define its customers’ requirements. and plan to meet them. At the same time, there is an increasing drive tewards management of the entire supply network: working with suppliers to improve quality all along the chain. Quality culture. Quality is a ‘way: of life’: a key cultural valu expressed and modelled by senior management, and supported and rei leadership, recruitment, training, appraisal and reward systems. Total involvement. Every person within an organisation potentially has an impa the responsibility of everyone to get quality right. Quality through people. Commitment, communication, important in securing quality than mere systems. Team-based management. Cross-functional teams must necessary to correct problems, propose and implement improvements, and respond flexibly and fast to customer needs. Quality circles, quality improvement teams or corrective action teams may be used — but there is a more general emphasis on high-quality, multi-directional communication. Get it right frst time. Quality should be designed into products, services and processes from the beginning, with the aim of achieving zero defects and minimum cost. Taking into account all the costs of poor quality, no proportion of defects can be considered ‘optimal’ or tolerable. «Process alignment. Business processes should be deliberately designed and modified so that every activity is geared to the same end: meeting the customer's wants and needs, in an optimal and cost- affective way. Where this is nat the case, there may be the need for radical change programmes such in the organisation, which must be inforced in the long term by ct on quality, and it is awareness and problem-solving are more be empowered and equipped to take action 1s business process re-engineering (BPR). + Quality monagement systems. Online and offline controls are applied, with attention focused on getting processes right. Quality systems should be thoroughly documented in compary quality wr uals, departmental procedures manuals and detailed work instructions and speciReation>, The quality management system should also be auditable (eg using !S0 9000 certification or equivalents) to maintain assurance. Continuous improvement or Kaizen, Quality improvementis not seena ‘one-off exercise: By seeking! improve continuously, organisations stay open to new opportunities and approaches, and encourage leening and flexibility at all levels. In contrast to radical, ‘discontinuous’ or ‘blank slate’ change approaches such as BPR, continuous improvement may operate by small-step or incremental change Shoring best practice. Quality circles, quality councils, matrix structures, benchmarking, accreditatior sind certification schemes and supply chain networking are used to share quality data, techniques an standards, Implementing T@M John $ Oakland (Total Quality Management) puts forward a ten point plan for implementing a TOM. approach. neon rammitment to constant improvement with constancy of purposve oF aeTeFCTANGE YONRPTER FACTORS EXAMPLES Ts Demeogophis lage, gendeethicy, populiion mover io relioneen re he sipoony tai a Consumerism and consumer power SS dress nesaeur aed he ale snr Values (eg re corporate social responsibility and diversit : sy and drat nd sine pylon . sities eat ‘employment equity and employee relations eee pene + itu ferences Impetigo fats ction lua manage '* Gender roles (affecting expectations of equal opportunity} a % + Information and communications technology (IC developments changing po processes (eg e-commerce) * Automation facitating workforce rationalisation or downsizing vit (through improved communication, integration and control) Laie * [CTenabling the more rapid adoption of supoly chain integration «the economic strength and stability ofthe nation or industry (ee affecting employment, priority for Survival, sources of competitive advantage) Ste! of inflation, interest and taation (Impacting on dlsposable Incomes, the costs of Business finance, pay rates and expectations) roars rey oral supply markets: exchange rates, comparative wages and takes, Meador of SbOUr ‘and capital movements, trade agreements etc Envirormental for» Consume demand and public pressure for eco endl products sre Press ct ‘ecologicat') cee std regultion (and related compliance rks} on environmental sues such as Pel on, carbon | os ‘emissions and waste management a aie ve green issued eg wate management, deforestation ciate cas greenhouse-gas emissions 5 The availability, scarcity and price of natural resources and ‘commodities: Political + Government pels (eg on international ade suppor for business andinnovation, PURIC Ss Tending cuts,or HR polices eg work-ife lance felongleatringand:4i08) Seer and subsides avalobe eg fr employe, supplier of regional develope 2 rar ae (eg pital orci unrest of wat) in operational regions of supply and Jabedt markets Legal «wide range of law and reguation on issues such 2s: employment rights and obligations; workplace ‘health and safety; equal opportunity; working hours; minimum wage; ‘environmental protection; empeiton; consumer fights; contracts, data protection: and BUBIE Seis? procurement. Ethical o eesumer demand fr eticaly soured and produced goods and seit (8 pricing, supply “pan abour standard, avoidance of animal testing sustainable sourcing of non-renewable resources) ra a eaves and standards published by buyers and supplies, professional bodies (such as CIPS, trade unions and pressure BrOUPS tr el and reputational ik arising from exposure of or association wih unethical practices in the supply chain ara cra oyer brad’ ofthe argarisation (te abour markets perception ofthe organisation as an “cslemployer affecting is ability to attract and retain qualty bow) Socio-cultural factors BP eesti riituralerviranment embraces people: aspectscfie seach which the organisation operates and from which t draws its suppliers, customers and workers, Socio-cultural factors include: demographic characteristics (age, gender and geographical distribution, population density and ‘rovements, educational and occupational trends and so ont; cultural norms, values and customs; merging values (such as green’ consumerism}; atntudes to work and spending; lifestyle and fashion trends and so on. 2.3. These actors reflect the needs and expectations ofthe organisation's target market, helping to forecast demand for products and services and to identify market segments which can Be targeted for competitive ane .-: honing rolationshins with suppliers from: Business imperatives What PESTLE factors in the ncoendionme i influence the change? ae ‘Market requirements for success | What market demands (for produc or service, delivery, quality, innovation etc) must be met for the business to succeed? ‘What strategies must the business pursue in order to meet the ‘market requirements for success? Organisationalimperatves | What changes to structures, systems, processes, resources, competencies, technology or people will be required to implement those sratepes? yee Eur Waneratves What cultura nore and alie# Walp feet ae oS Imperatives? es yet [| ReeeceYempioyee benovicur | What do teadersand teams need odo (or do diferent i order fp to embody and enforce the new culture? e Leader/employee mindset What attitudes, beliefs and mental models will need to be developed to sustain this behavioural change? Disruptive change and incremental change 34 The term transformational (or revolutionary) change is often given toa reactive approach, responding to ‘disruptive’ change in the environment, crisis or the need for a ‘completely new paradigm. It seeks 2 : overthrow (or throw out) the status quo and introduce radical transformation in 2 relatively short period 0 time. This s the basis of business improvement strategies such as business process re-engineering (BPR). Because it requires discontinuous and sweeping change across organisational structures and stay iq can only be implemented from the ‘top down’, with top management vision and leadership. 2 requires heavy investment, and some risk, it can achieve transformative improvements for This makes ita particularly effective approach where the status quo has become dysfunctional organisational survival or growth, and where sudden challenges require 2 radical respons ei a the introduction of new technology, re-alignment of processes in response 10 nats a eS cr Te-tucturing in response to take-overs or mergers). An extreme example would be POET turnaround situation, where there is aneed for major structural change or cost cutting Organisation's survival through performance decline or competitive threat..n) defined ticImprovement in critical, contemporary measures of performance, sue ‘piscontinuous thinking’: breaking away from old rules and assumptions, and seeking a clean sj for radical change. (What, how, where, when, by whom isa task done? Why? What if it were don differently?) « horizontal approach, focused on processes which cross structural boundaries © Astrategic approach, which must be supported and driven by the strategic plan and the suppor of top management. Atypical BPR model embraces managerial, organisational, social and technolog (‘MOST’) aspects of the business, (ocremental or evolutionary) change is often used as a proactive approach, building on the existing iS Situation (the status quo) in small steps over a long period of time. This is the basis of business go" improvement strategies such as kaizen (continuous improvement) and total quality management Because it requires only realistic, small operational improvements and elimination of wastes, it can be implemented from the ‘bottom up, involving employees through suggestion schemes, quality circles and self-improvement plans. 3.7 __Thismakes it a particularly effective approach for building up organisational learning and core competencies: building the organisation's general responsiveness to change (such as shifting patterns of ‘customer demand, sector dynamics and cultural change). 3.8 Incremental change has the followin eal ‘© Itbuilds on existing skills, routines and beliefs in the organisation: change is likely to be more efficient, less traumatic and more likely to win acceptance and commitment. There is ltely to be less resistance, requiring less management. _{tallows flexibility and responsiveness to environmental changes and feedback, allowing constant re-alignment of strategy. Resources are not wasted on long-range plans which are undermined by uncertainty, (Near goal-posts are less likely to move.) + Itallows a continuous sense of progress, even through uncertainty and difficulty. Small changes may be easy to achieve ~ and may trigger (or help to emerge) bigger changes: ‘Big strategies can grow from litte ideas’ (Minteberg, Strategy Safar). This is the cornerstone of kaizen philosophies of learning and \ duality management +‘ tempowers employees Because big strategies can grow from litle ideas... almost anyone in an R organisation can prove to be a strategist’. Continuous improvement, and the power to make a small a difference that makes a big difference, can be a powerful source of job satisfaction and employee commitment. 3.9 Again, kaizen itself is beyond the scope of this syllabus, but you should have encountered it elsewhere in your iPS studies. Mullins defines it as ‘a Japanese concept of a total quality approach based on continual evolutionary change with considerable responsibility given to employees within certain fixed boundaries’. Itrelies on small-step incremental improvements: elimination of wastes (non- value-adding activities) and immediately accessible improvements to equipment, materials or team behaviour. Its essentially a cyclical ‘approach to change, because it also incorporates reflection and evaluation (hanse/ koizen) for future learning and improvement.“foreign investors and buyers operate ethical and CSR policies and fea monitorir done to protect their own reputations...). or y = Global consumers benefit from more product and service choice and competitive pricing. «It has been argued that international trade is a primary mechanism for positive international relations anda deterrent to conflict. @ Itshould be obvious from TV footage of violent protests outside World Trade Organisation meetings, however, that there is a contrary viewpoint, Those opposed to globalisation argue that: Pape cncousess the exploitation of labour in developing nations (poor wages, poor conditions, child wpitgsi labour and so on) for lower-cost production. Ths is partly supported by more relaxed intellectual property, employment protection and health and safety laws. «It encourages the exploitation of local markets, using them as dumping grounds for poor-quality or obsolete goods, and leading to increased foreign debt. «It ‘exports’ pollution, deforestation, urbanisation and other environmental damage to developing nations. + Itundermines governments in the management of their own domestic economies, particularly through the influence of the World Bank (loan conditions and so on) and the power of global ‘corporations (whose turnover exceeds the GNP of some nations...) + Itcauses unemployment in developed nations, where justified expectations of pay and conditions make labour ‘uncompetitive’ with cheap-labour competitors. + Itsqueezes small, local businesses out of markets, with negative effects on competition, communities and cultures. (There is a well-publicised cultural fight-back by small local retailers against glants like WalMart, for example, and by ‘slow food! producers against the McDonald's of the world...) «+ Itencourages the homogenisation of cultures, through consumption, media and the anglicising of language. Globalisation and supply chains 48 An Accenture Global Study on Supply Chain Planning (2008) notes that: ‘Globalisation has driven rapid and fundamental change in every aspect of nearly every company’s business - particularly in the ways they source, manufacture and distribute products and provide services’. Most large companies today cater to customers from all corners ofthe globe... likewise, most companies’ suppliers, Plants, distribution centres and transportation routes are sprinkled around the world, introducing whole new complexities for jinate these pieces of the supply chain’ managers who must ¢0-0' 49. Drivers of change in globalised supply chains are summarised in Table 3.4.Which type of relationship is best? 18 19 semtegic Relationship Manonerest | CHAPTER = 1g on concepts such as ‘core competencies’ and Jy chain management. Coy’s stepladder of order of increasing closeness sions of the spectrum, often relyin to effective suppl describes a spectrum including (in There are various ver ‘strategic alignment’, which are central ‘contractual relationships, for example, and mutual dependency): ‘Adversarial leverage: multi-sourcing and hard-negotiat Where no unique competence is required of suppliers «Proferred suppliers: a smaller list of potential suppliers on the basis of vendor rating and accreditation, for more important purchases where some special competence Is required of suppliers Single sourcing: purchasing strategically important supplies from a single, high-quality supplier who can offer distinctive, important competencies = Network sourcing and partnerships: partnerships immediate supplier, which takes responsibility for developing partnership as a way of integrating and controlling the wider supply chain e firm the formation of a jointly-owned separat competencies are fed short-term contracts for routine purchases, between the main buyer and a ‘first-tier’ or 5 with second-tier suppliers, + Strategic supplier alliances or joint ventures: to produce the supplied product or service, w complementary and of equal importance. here the buyer and supplier's We will discuss the nature of competitive and collaborative supply chain relationships in Chapter 9, but from our discussion of supply chain management in Chapter 1, you may already be tempted to think that collaborative relationships would be ‘best’ or ‘deal’ ~ or at least ‘more enlightened’ ~as an approach to supply chain improvement and competitiveness. This s nO& necessarily the case, however, and you should be prepared to take a contingency view of the most appropriate relationship type: in essence, ‘itll depends. procurement situation or supply chain may depend on The most appropriate relationship type for agiven factors such as the following. of the items being sourced: low-value, routine or one-off procurements t in long-term collaboration ~ whereas complex, customised, «The nature and importance 1y well ustify such investment, in order to ‘are unlikely to justify heavy investment high-value procurements in unstable supply markets mA secure control over the supply specification, quality and availability The competence, capability, co-operation and performance of suppliers (and reciprocal conduct of the buyer), and therefore the degree of trust developed between them: trust being a necessary 1 for closer relationship cal distance: close relationship: ally if there is lit crs: if their strategic aims, 1s may be more difficult to establish and maintain with ttle communication infrastructure available values and systems are | foundatio Geographi overseas suppliers, especi ncompatib! The compatibility of the supply partn it may be too coss‘may not be fairly shared in the partners ower balance) plementing partnership sourcing The CIPS reference paper Partnership ‘Sourcing identifies a number of factors required for successful partnership. Cultural compatibility between the partners A relationship of trust between the Partners + Mutual acceptance of the ‘Concept of win-win within the supply chain: that is, collaborating to add value and achieve competitive advantage which benefits all participants Open-book costing (or cost transparency) Expertise, or relevant complementary competencies Meaningful performance me: service) Top management support _ The use of cross-functional teams ti ent. sures 0 assess supply chain performance (focused on quality, cost and fO-enhance co-ordination nenraceor example, via follow-up visit k five steps to describe this process (which might be mor il the programme down to: identifying eit and identifying performan forming1.16 2 eiceenne ne hain relationships, based or n(e ly important sup Rupa TED) oasdielazed'n Cheever same - pproaches and action plans for managing key rel be developed? What will the key Issues or potential problems be? What kinds o control will be used?) . Implement action plans for communication and collaboration, using appropriate mechanisms (€B extranets, contact structures, briefing and review meetings, and so on) Monitor and evaluate the effectiveness of relationships and communication, in terms of fulfilled objectives, partner satisfaction, relationship development and return on investment for the organisation. ‘The following are some examples of ftrategic relationship management iasest) Supplier relationship management (SRM): establishing sustainable improvement of the total supply chain by creating, managing and supporting relationships with key vendors. The focus ls on: choosing the right vendors; establishing the right relations; information exchange; co-operation (in appropriate: areas and to appropriate degrees); and systems integration. Customer relationship management (CRM): developing, managing and controlling customer relations. The focus is on securing customer loyalty; increased information exchange with customers; consolidation of knowledge about customers; integrating customer-facing processes and systems, {sales force, order processing, customer service and so on); and creating increased value for the customer. + Collaborative planning, forecasting and replenishment (CPFR): 2 collection of new business practices that leverage the internet and electronic data interchange in order to radically reduce inventories and costs while improving customer service’. The focus is on information exchange, systems integration and process-focused collaboration on production planning, product development, transport planning and marketing activities. + Partnership sourcing: ‘a commitment by custo term relationship based on clear mutually agre effectiveness’. + Supplier developme better (eg by training, inve: mers and suppliers, regardless of size, to a long- .ed objectives to strive for world class capability and : supporting or assisting suppliers to be able to meet the buyer's requirements .stment in systems integration, information exchange and so on). We will now look in more detail at each of these methodologies for implementing strategic relationship management. Customer relationship management The role of customers in supply chains 21 mers as definers of value and drivers of demand, ‘pulling’ flows through supply chains — both external and internal. The emphasis of supply chain management is to optimise the supply chain to (a) serve customers and meet their requirements, while () minimising castto-serve. This optimisation has traditionally focused on improving the procestes to deliver product to tustamersin the most cost-effective way, But managing customer relationships today offers opportunities thatgo far beyond cost containment. In convincing the customer to buyin the first instance, companies can use that first interaction to develop a strong long-term relationship, based on a deep understanding of the customer’s requirements and the ‘company’s ability to deliver’ {Dull et af, in Gattorna). ‘We have already noted the focal role of custo