Module: Operations & Supply Chain Management

Lesson: The impact of the supply chain on business performance

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The impact of the supply chain on business performance

Introduction

By the end of this lesson, you will have a deeper understanding of some of the key impacts the
supply chain has on a business. As you will see in lesson 7, where we take this one step
further by reviewing it in line with business and corporate strategy, strategic fit must be
achieved. However, before we get to that stage, it is necessary to review in general the impact
it can have, as well as the management systems that can often be associated with this stage.
Multiple books such as Chopra (2015) and Slack (2013) will be of assistance to you for this
module. Chapter 2 of the Slack (2013) proves to be very useful for this lesson.

Lesson Objectives

6.1 Discuss the impact of the supply chain on the firm’s success

6.2 Consider and apply different supply chain macro processes: Customer Relationship
Management (CRM), Internal Supply Chain Management (ISCM) and Supplier Relationship
Management (SRM)

6.3 Assess make or buy decisions

6.4 Consider the appropriateness of vertical integration and ownership within the supply chain.

As a result of these objectives, after completing the lesson you will have a much better
understanding of how supply chain management can impact a business. We hope that you
enjoy your lesson and if you have any problems, please contact your tutor at any time.

Reflections, REMINDER!

Before we progress, a quick reminder from us to ensure that you add your reflections to date
on the MyLearningSpace Blog. This will keep your thoughts up to date and help you track your
development from the previous lessons.

Narrated Presentation

Please now view the narrated presentation which will give you an overview of what is included
in this lesson, as well as an overview of the content, theories and activities.

https://vimeo.com/229269646/a636fb4b55

Transcript

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Word cloud

Figure 6.01 - Word cloud

Supply Chain Podcast

Listen to this podcast and establish if any companies are doing things that seem to suggest
success when it comes to supply chain management. Report to your tutor with your findings.

Impact of supply chain on organisational success

There is no getting away from it - a business which has a successful and effective supply chain
will not guarantee themselves success, but it will be a leading contributing factor for high
business performance. You will see later in lesson 7, for example, that if all policies and
practices are aligned with each other, and they meet the strategy of the business, the outcome
is likely to be a positive one. The second aim is that SHRM should look at the longer term at

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the same time as ensuring that the function balances hard and soft HRM, as we mentioned
previously.

Variable factors in organisations such as cultures, size, external environment and the skills
required by employees to do their job will all have an impact on the strategies that
management choose to adopt. Achieving a competitive advantage will require different
qualities from organisations that are operating in different sectors. For organisations to
determine what approach they should adopt, it is necessary to understand what outcomes they
are seeking to obtain. Taking this approach allows organisations to see what they should be
investing in the organisation. Some industries will be particularly focussed on innovation;
therefore, having skilled employees who are motivated to develop new products or services
may be the most desirable outcomes for organisations. In this case, perhaps the resource-
based view would be most suitable as it encourages investment in employees. There are many
variable factors that impact on organisations; however, to a degree, each strategy can agree
on some terms. The integration of goals and human resource strategy is a point which is
consistent throughout each approach. Also, the need to create a competitive advantage
remains the same within each approach. Therefore, organisations need to identify the
outcomes that they seek, to determine what they need to invest in the organisation.

Is supply chain management a strategic business element?

Based on the reading you have just undertaken, think of three reasons why an organisation
should consider its SC to be a strategic element of the business. What cost savings could a
business realise from an operations department that was fully aligned with the grand strategy
of the organisation.

Green Supply Chain Management

Zhu

Read the article by Zhu et al. 2004 and write down 5 ways in which you think green and
ethical supply chain management could enhance operation performance?

Supply chain blog

Read this interesting article about how uncomplex a supply chain needs to be. Logically, what
benefits could this bring to the organisation in terms of performance?

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Impact of supply chain at Coca-Cola

https://www.youtube.com/watch?v=UBSOiHUctrY

Watch this short video clip about Coca-Cola and how it has become the top-selling drink in
every country around the world (incidentally, Scotland is the only place in the world where this
is not the case - Irn Bru is!) and write down five things that make the business successful
based upon its supply chain alone. Share your thoughts with your tutor.

Supply Chain Macro Processes

Having now understood the importance of the supply chain on an organisation, the lesson will
now focus on building upon this knowledge further with three important concepts that are
closely associated with the area - Customer Relationship Management (CRM), Internal Supply
Chain Management (ISCM) and Supplier Relationship Management (SRM). We will take each
of these in turn and review them for you to consider as part of your learning.

Customer Relationship Management

CRM may sound like a complex topic to try and unravel, but the concept is very
straightforward. Essentially, it is the process of establishing exactly what the customer wants
and needs. Naturally, if a business can do this at a price the customer is willing to pay, then it
should be a win-win situation for the company in question. A prime example of this in action is
Wal-Mart. They conducted studies that showed fathers buying nappies for their children on a
Friday night. If a father is doing that, then it is highly unlikely that he will be able to nip out to
the pub for a swift light ale. Wal-Mart decided that to meet this demand, or expected demand,
they would sell beer at the same time. This is an ideal situation as it means that it caters to
different needs and scenarios at once.

Customer Relationship Management - CRM

https://www.youtube.com/watch?v=D4-yqxLdiTc

Watch this short video about how Tesco uses the data from your Clubcard to send you
vouchers that are appropriate to you. Note down if this is something that you had previously
realised takes place and also how you feel about it now that you know! Are you happy about
it? Is it a good thing or a negative one?

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Internal Supply Chain Management - ISCM

Sometimes known as ISCM processes, again, not a difficult one to understand; it is simply the
next stage in the process of fulfilling the demands set by the CRM process. If a business
understands what a customer wants, these are the internal processes that are in place to meet
those demands. Activities at this stage may include things such as strategic planning, demand
planning, supply planning and fulfilment of orders. As Chopra (2015) suggests, one of the
strongest operations management attributes at this stage is strong communication.

Supplier Relationship Management - SRM

As you may already have guessed by now, this is the third stage in the process, where the
organisation will source, buy and negotiate the sources that it needs to run the supply chain
and get the goods back to the customer. The one thing that must be said about each of these
processes is that they must be integrated. You will learn more about fit in lesson 7, but for the
time being, understanding what is happening at the other sources is crucial for a successful
business.

Assess make or buy decisions

Another important aspect of the supply chain model is the question over whether a product
should be bought or made. Intense pressure on manufacturers to cut costs and improve return
on assets, combined with heated competition from third-party suppliers that often have
perceived advantaged footprints in Eastern Europe, China or other low-cost countries, has put
the ‘make versus buy’ dilemma centre stage in many corporations.

The use of in-house capabilities to make a product is often desirable when an item is critical to
a company’s performance, time-sensitive or prone to frequent design changes. In all of those
cases, tight control over production and logistics is essential if the manufacturer needs to be
certain that the product will always be available when and where it is needed and that it meets
quality requirements.

Alternatively, companies can opt to buy a product or a set of manufacturing processes for
making a product — in this context, by outsourcing — usually because they view the item or
production process as not being strategic to the business. In Figure 2, you will note some of
the pull and push factors involved in make or buy situations. Companies hope to attain an
assortment of benefits by outsourcing: eliminate the burden that asset-intensive manufacturing
processes put on the balance sheet, reduce unit costs, gain flexibility to increase or diminish
output in response to changes in demand, minimise expenses driven by hard-to-move
production sites and intractable union contracts, gain access to new and alternative process
technologies, leverage others’ innovation and design expertise, and alleviate the
environmental and other regulatory risks that increasingly accompany manufacturing efforts.

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 Figure 6.02 - Make or buy

Some companies choose an ‘all-buy’ solution, outsourcing every aspect of the manufacturing
process for a given product, product line or business. Others prefer to outsource certain
noncore elements of their manufacturing process while continuing to perform the final
assembly or other processes they consider essential. There are a number of factors that
should be considered first, though:

Cost of product

Risk of using another source/location

Potential lack of control

Political situations in other countries

Lack of control/quality control issues.

Too often, however, make-versus-buy choices are based on precedent and poor or incomplete
analysis. Keeping the process in-house is often preferred only because the capability and
capacity already exist internally, even when such vertical integration strategies are
inconsistently applied throughout the organisation. And outsourcing is frequently an emotional
response, a way to avoid fixing manufacturing processes that have become inefficient and
flabby but whose true potential is not completely understood. In other words, outsourcing may
be a poor alternative to confronting internal manufacturing problems head-on and in the
process improving the overall performance of the company.

Consider the appropriateness of vertical integration and ownership within the supply
chain

Vertical integration within supply chain management is vital and really isn’t an option for a firm;

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it is a necessity. The term ‘vertical integration’ refers to the links between operations
management and the wider business strategy. An organisation which is ‘vertically integrated’
would demonstrate a high level of consistency between the strategy and objectives of the
business and the initiatives being pursued by the operations function. Historically, the links
between operations activity and business delivery may not have been that obvious - roles and
responsibilities were possibly not defined, or focus may have been given to the ‘softer
aspects’ of supply chain management. But to ensure survival in today’s world, the role of HR
has to be very different.

An organisation where there is strong alignment between supply chain management and the
business could be described as vertically integrated.

In this situation, the operations function would be in tune with the key business drivers and
would instinctively consider these factors when deciding on a course of action. Vertical
integration also requires the operations function to take into account the context in which the
business is currently operating and to be aware of any internal and external factors which may
have an impact.

Where the organisation is not vertically integrated, this has serious implications for the
implementation of strategy. The following are blocks or barriers which may cause this to
happen:

Junior managers and supervisors regarding themselves as separate from, as opposed to a

part of, the senior management

Work overload

Lack of training

Desire on the part of supervisors for flexibility

Inadvertent rule-breaking by management.

References and journal articles

Essential reading

Slack, N., Brandon-Jones, A. and Johnston, R., 2013. Operations management. 7th edition.
Harlow: Pearson.

Journal articles

Krajewski, Lee J.;Ritzman, Larry P.;Malhotra, Manoj K. 2013., Operations

Management:Processes and Supply Chains: Global Edition. [online]. Pearson Education.
Available from: 25 July 2017

Milner, C., 2016. Operations management: The interesting option, or ‘the pizza puzzle’.
Operations management, 42 (2), 8-9. [Available from: Business Source Complete].

Piercy, N., 2012. Business history and operations management. Business History, 54 (2),
154-178. DOI: 10.1080/00076791.2011.631121. [Available from: Business Source Complete].

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Further reading

Camp, R.C. (1989), Benchmarking: The Search for Industry Best Practices that Lead to
Superior Performance, ASQC Quality Press, Milwaukee, WI.

Garvin, D.A. (1991), “How the Baldrige Award really works”, Harvard Business Review,
November-December, pp. 80-93.

Garvin, D.A. (1993), “Building a learning organization”, Harvard Business Review, July-
August, pp. 78-91.

Hackman, J.R. and Wageman, R. (1995), “Total quality management: empirical, conceptual,
and practical issues”, Administrative Science Quarterly, Vol. 40 No. 2, pp. 309-42.

Langowitz, N.S. and Rao, A. (1995), “Effective benchmarking: learning from the host’s
viewpoint”, Benchmarking for Quality Management & Technology, Vol. 2 No. 2, pp. 55-63.

© 2017 Arden University Ltd. ALl rights reserved

© 2017 Arden University Ltd. ALl rights reserved
 © 2017 Arden University Ltd. ALl rights reserved

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