Module: Operations & Supply Chain Management

Lesson: Supply chain performance and metrics

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Supply chain performance and metrics

Introduction

By the end of this lesson, you will have a deeper understanding of some of the key strategic
elements that are associated with managing a supply chain in operations management. Some
of the core elements that we will discuss here will include strategic fit, the challenges in
managing a supply chain and the metrics used to measure success. For this lesson, we
recommend reading and looking at part 1 of the Chopra (2015) text. It offers a great insight into
the strategic context of supply chain management.

Lesson Objectives

7.1 Assess the importance of strategic fit to the organisation’s success

7.2 Discuss how the organisation achieves strategic fit between supply chain and competitive
strategy

7.3 Evaluate the importance of growing the strategic fit across a firm’s supply chain

7.4 Consider the challenges in managing a supply chain

7.5 Identify key metrics in measuring supply chain performance.

As a result of these objectives, after completing the lesson you will have a much better
understanding of how strategy plays an important role in supply chain management. 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
in your notebook. 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/229269676/87d555915f

Transcript

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Word cloud

Figure 7.01 - Word cloud

Infographics

An interesting read on some supply chain statistics.

Concept of Strategy

A strategy must link specifically with the objectives of the organisation.

For example, the statement:

‘We will be the best food manufacturer in the world’

is of little use to an organisation. It gives no idea of how the organisation will become the best
food manufacturer in the world, and it gives no direction towards any objectives.

However, the statement:

‘We will provide the largest range of chocolate confectionery of any food manufacturer through

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a process of innovation and acquisitions and mergers’

gives a much clearer strategy. Instead of the rather vague concept of being the ‘best’, the
organisation has now defined the area in which it wants to compete - a wide range of chocolate
confectionery - hence giving a clear objective. Also, rather than just giving a ‘wish’, the
organisation is now providing some indication as to how it will achieve this - through innovation
and acquisitions and mergers.

Of course, there needs to be a lot more detail within the strategy - and it is that detail we are
looking at in this section. However, there is a clear purpose that the organisation is trying to
pursue.

A strategy should envelop the whole organisation, as the following definition indicates:

Strategy is the pattern or plan that integrates an organisation’s major goals, policies and action
sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate
an organisation’s resources … (in order to) anticipate changes in the environment.

(Quinn, in Mintzberg et al. 2003, p. 10)

In order for a strategy to be successful, the whole organisation must be pointing in the same
direction and putting all their efforts into achieving the same thing. An effective performance
management process is one way of directing employees’ efforts jointly and severally towards
the achievement of organisational goals.

For example, if we continue with the example of our food manufacturer, the organisation’s
strategy gives a clear emphasis on the development of its range of chocolate confectionery. If
the HR department were working on the strategic statement for their department, they should
be asking the following types of questions:

Have we got the skills available in the organisation to develop new chocolate
confectionery?

What training do we need to arrange to ensure the workforce has relevant skills?

Do our reward packages reward innovation?

What is the law surrounding acquisitions and mergers in relation to employment?

If the HR department develops its strategy aiming to answer these sorts of questions, they will
be working in the same direction as the organisation’s strategy.

However, let us presume that the HR department has become interested in the area of
teamworking, and they want to set their objectives around this. They might then be asking
questions such as:

What are the best models of teamworking?

Who would make a good team leader?

What training do we need for teams?

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 How can we adjust our reward packages to reward teams and not individuals?

Although the pursuit of teamworking might be a very good idea, it is not supporting the
organisation’s immediate strategy. The overall strategy might fail because the employees
within the organisation do not have the skills and abilities to innovate and develop a new
chocolate confectionery range - a problem the HR department could have helped to solve if
they were focused on the organisation’s strategy rather than on something they wanted to
pursue for no clear reason.

A strategy does not exist in isolation from the overall purpose of the organisation. The
stakeholders in the organisation will have a desire to see the organisation achieve, and they
will want to know that the organisation is attempting to do this. A useful quote from Johnson
and Scholes (2002), suggests that strategy is

… is the direction and scope of an organisation over the long term, which
achieves advantage for the organisation through its configuration of resources within a
changing environment and to fulfil stakeholder expectations.

(Johnson and Scholes, 2002, p. 10).

There is thus a purpose to the strategy which relates to meeting the ongoing expectations of
the stakeholders. So, returning to our example, we can see that the long-term positioning of
the food manufacturer as having the largest range of chocolate confectionery is linked to a
specific achievement - which will hopefully meet the expectations of the stakeholders.

Johnson and Scholes (2002), in their text Exploring Corporate Strategy, noted eight key points
about any organisation’s strategy, as follows:

Strategy is concerned with the scope of the organisation’s activities.

Strategy will only work if it matches the organisation’s activities to the environment in
which it operates. For example, a business strategy based on domination of a market will
no longer work if other competitors enter that market.

Strategy is also about matching the organisation’s activities to its resource capabilities. For
example, suppose a college evolves a new strategy based on the expansion of its degree
courses. That strategy will almost certainly fail if it does not recruit appropriately qualified
teaching staff and invest in better-quality teaching facilities.

Strategy is all about deciding how to allocate resources - in our example about the college,
managers will face difficult decisions as to how to shift more resources to degree-level
courses, thereby annoying other managers who will then have fewer resources with which
to do their jobs. For example, there may be less money for students on ‘special needs’
programmes.

Strategic decisions have a knock-on effect on the whole operation of the organisation, as
shown in our example.

Strategic decisions will be heavily influenced by the values, aspirations and expectations of
the organisation’s managers. Taking the same example again, more money for degree
courses will enhance the career opportunities of lecturers and managers in that area of

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 college work. Consequent cuts in other areas of college work will have the opposite effect.
This can harm morale, encourage good staff to leave, etc.

Strategic decisions will usually determine the longer-term plans of the organisation. The
increase in degree courses discussed above will - if successful - completely change the
image of the college in the eyes of the local marketplace and may hit traditional areas of
work. Younger and less qualified students may opt to go elsewhere.

Strategic decisions lead to changes throughout an organisation. In our example, the

increase in numbers of degree course students will have implications for the college library,
college support services and even for the choice of food provided in the college canteen.

Most of what we have studied here has been applied to long-term strategy. However, there can
also be short-term strategy that focuses on the achievement of a specific objective within a
short time frame.

Best Fit Vs Best Practice

Strategic fit is naturally very important for a business to achieve, but should policies and
practices be unique or should they be lifted and shifted from a text book? Read this article by
John Purcell (2006) and share your thoughts with your tutor.

https://www.researchgate.net/profile/John_Purcell6/publication/228007164_Best_Practi...

Strategic Activity

Find out the strategy of the organisation you work for, or that of an organisation with which you
are familiar. Find out how the strategy is communicated to the different departments within the
organisation and how those departments then go on to develop their own strategies.

Importance of Strategic Fit

The term ‘vertical integration’ refers to the links between HRM 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

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pursued by the HR function. Historically, the links between HR 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 HR. 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 HR and the business could be
described as being vertically integrated.

In this situation, the HR function would be in tune with the key business drivers and would
instinctively consider these factors when deciding on a particular course of action. Vertical
integration also requires the HR 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.

The modification of the human resource function in organisations is one which has evolved
over many years and continues to develop dynamically (Foot and Hook 1996). The successful
management of human resources now differentiates a successful organisation from one that is
unsuccessful (Marchington and Wilkinson 2002).

Therefore, senior management have a vested interest in ensuring that the approach taken to
managing their employees is the most appropriate in terms of success. Handy (1993) puts
forward the notion that when organisations become larger, they begin to systematise their
management of human assets. Following on from the point made by Marchington and
Wilkinson (2002), it is the decisions made by senior management regarding human resource
approaches that will determine whether an organisation achieves a competitive advantage or
not. A competitive advantage occurs when all or part of the market prefers the organisation’s
products or services (Jackson and Schuler 2000).

There is much debate surrounding best fit and best practice, thus rendering neither approach
dominant over the other in terms of the literature (Beardwell and Claydon 2007). The debate
between best fit and best practice is perhaps one of the most well documented throughout
HRM literature in terms of it achieving a competitive advantage (Collings and Wood 2009).
This essay aims to show that although both strategies offer some desirable outcomes when
used on their own, if they are combined and implemented together, they can be more
beneficial.

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Best fit encourages organisations to tailor their approaches to human resource management
around the organisational strategy and the external environment (Torrington et al. 2005).
Successful leaders view human resources as assets that need to be managed conscientiously
and in tune with the organisation’s needs (Jackson and Schuler 2000). This is due to the
policies and procedures implemented by the human resource function being geared towards
the goals of the organisation.

Miles and Snow (1994) suggest that in order for organisations to achieve success, fit is
required to strategically align organisational goals with the employees whilst also accounting
for the external environment. Few companies succeed in doing this, but those that do enjoy a
competitive advantage and long-standing success (Miles and Snow 1994). The issue that the
external environment poses to the management of human assets, in terms of the labour
market, expanding global markets and technologies, is one which organisations need to
account for (Jackson and Schuler 2000). Therefore, in order for organisations to succeed, the
integration of the external environment must be considered when implementing strategies and
managing the human resources of the organisation. Handy (1993) suggests that organisations
should first achieve fit between the leaders, subordinates and tasks. Once this level of fit is
satisfactory, the organisation should then integrate the environment.

Best practice proposes that organisations use a specific set of human resource procedures
which are thought to earn them a competitive advantage (Marchington et al. 2002). These
procedures are thought to initiate high performance and high commitment regardless of the
context in which organisations are operating (Beardwell and Claydon 2007). Both best
practice and best fit offer different views on the integration of human resource procedures into
the strategies of the organisation. As such, the decision facing organisations may not be which
procedure to implement but rather the extent of the compromise that they choose (Boxell and
Purcell 2008). Therefore, this allows organisations to have a degree of integration between
human resource management and organisational goals whilst also being able to implement
those procedures which are most likely to lead to high levels of organisational and individual
performance. This presents the notion that best practice and best fit are more complementary
than opposing approaches to managing people in organisations.

Achieving strategic fit

As we have just explored, using the text above to help us, strategic fit essentially involves
ensuring that the strategy chosen or selected is one that fits the policies, processes and
practices of the supply chain and network in order to gain a competitive advantage over rival
firms. Often a business will unleash its greatest assets in order to do this - namely its people.
Naturally, as you may expect, failure to achieve fit will not lead to business success but more
likely to failure because resources and other tools will be neither matched nor in line with the
core attributes of the organisation. So, how does a firm achieve strategic fit within its supply
chain operation?

By understanding its customers’ needs, wants and expectations

By understanding the core attributes of the business and what its capabilities are

By ensuring that the strategic plans of the business match the strategy of the supply chain
as well as the other core components of the business.

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Organisations which are not congruently aligned to each other and the organisational grand
strategy will lead to strategic drift, which is sometimes known as ‘punctuated equilibrium’.

Importance of achieving strategic fit

The importance of achieving strategic fit cannot be underestimated. It is of paramount

importance because failure to achieve strategic fit could leave firms following an emergent
strategy, i.e. different to the one which was originally intended because of a change in the
business environment or the fact that the internal policies and departmental strategies were
not aligned to the grand strategy of the organisation.

This means that an organisation does not plan a strategy in a rational manner. Instead, a
strategy will emerge. This means that strategies emerge from particular patterns of behaviour.
A variety of managers will exhibit a range of different behaviours in the workplace. However,
some of them will adopt consistent approaches which will become an organisational strategy.
Nobody ever sits down and writes out this strategy, but it can be equally effective.

Some people would argue that this is more effective than rational strategic planning because it
emerges from the day-to-day behaviour of line managers, who are in a position to see if ideas
are practicable propositions. In other words, they look at the issues from the bottom up.
Moreover, if the ideas do not work, they can be quietly dropped without any embarrassment
for any manager. If they do work, however, word will get around and other managers will
adopt similar approaches.

In our college example, the rational strategic approach means that senior managers plan
every stage towards the ultimate goal of a big increase in the number of degree-level
students. However, in an emergent strategy, one head of department does their own thing and
sets up one or two degree-level programmes, advertises them quietly in a local paper and
contacts one or two local sixth form colleges. Being a small operation, very few extra
resources (lecturers, rooms, etc.) are needed, so if it is a flop it is not a big deal. If it catches
on then other heads of department will copy the idea and it will eventually become a college
strategy.

Criticisms of the Emergent Strategy

There might not be a cohesive direction for the organisation overall

Employees can be confused about what they are actually expected to achieve

A strategy might not emerge - which then leaves the organisation without any clear
direction

It could be seen as the lazy approach to strategic management!

However, the other big issue with not achieving fit is the fact that organisations won’t achieve
a competitive advantage over others, and this can have severe consequences in terms of it
being successful in a busy and competitive marketplace.

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Challenges of managing a supply chain

Having reviewed some of the material from other lessons, you may already know the answers
to this, some of which we have already covered. However, here are some ideas for you to
consider when looking at some of the daily challenges a business will face:

Expansive and widening use of technology

Growing demand for international culture

New supply chain management considerations such as business ethics

Widening and differing view of stakeholders and stakeholder management

Achieving strategic fit for strategy to ensure it is tied into the business plans as well.

These may seem very straightforward, but they are vitally important to the success of the
organisation. If operations managers do not understand these core elements, then the supply
chain may function, but it will not function well.

Key Metrics

Review of Targets

It is important to ensure there is a regular review of the targets that have been set. However, at
all times, it is important to remain focussed on the business strategy and to ensure that the
strategy is being met.

The operations strategy should be reviewed to determine whether it is having a positive impact
on the organisation. This can be achieved by looking at an attitude survey, or by seeking
feedback from departmental managers.

There is also the need to be thinking about any changes to the business strategy and how they
need to be addressed. For example, there might have been a target to recruit a specific
number of employees. However, there could then be a downturn in the business performance
and, as a result, there could be the need to make a number of employees redundant. In such a
situation the goal of the operations department would need to change.

External Comparisons

As well as looking within the organisation it is important to consider whether the organisation is

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successful in comparison with other operations departments. One way that this can be
assessed is through benchmarking.

Benchmarking is the comparison of processes by which results have been achieved. Hence, it
is not looking at absence rates or attitude survey results and just comparing outcomes; rather,
it is looking at the processes that have been used with a view to determining the best way.

Karlof and Ostblom (in Benchmarking. Chichester: John Wiley 1993) identify six steps to a
concept that they call ‘bench learning’.

What to benchmark?

This might seem a very obvious first step, but an operations department does need to start
by thinking about what they want to benchmark. It can be very easy to get carried away
with the idea of making comparisons with a world-class operations department without
taking the time to think about the nature of the organisation - is it comparable? The area
must not be too broad (there are many factors involved in successful supply chain
management, so what particular aspect is under investigation?). Equally, it must not be too
narrow.

How do we do it?

The process that is to be benchmarked must be clearly defined within the operations
department seeking the benchmark information. This is an important exercise to carry out
because it helps operations to understand the process that they want to study more clearly.
It is particularly important if benchmark information is being sought from outside the
organisation - other organisations might not be willing to keep answering more and more
questions.

Who should we choose as a benchmarking partner?

At times it might be possible to benchmark within the organisation. For example, if there is
a large organisation with several divisions, comparisons could be made between different
HR teams within each of those divisions. However, this internal approach is limited in that
there is no exposure to ideas from other sources. Benchmarking against external
organisations might give a broader range of ideas, but other organisations might be
reluctant to give information or might give incomplete information. It is also important that
the comparator is sufficiently similar for the comparisons to provide valid information. For
example, the processes of a small manufacturing company operating in one location are
likely to be very different from those of a large multinational retail business (although there
are often lessons that they can learn from each other!)

How do they do it?

It is almost inevitable that any benchmarking exercise is going to involve an exchange of

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 information; it is therefore important that both organisations have clearly identified the
process to be discussed. It is then important that the initiating organisation thinks carefully
about what they want to know. A series of questions needs to be prepared, thinking about
what is valuable to understand.

What are the lessons and how can we apply them?

Once the information gathering has taken place, it is then important to think about what that
information is telling the HR department. What can they learn from the information and how
can it be used to improve success? It is important that the department does not simply try
to copy the comparator because each HR department operates in a different scenario,
however slight that difference might be. It is important to question each piece of information
and maybe prioritise the actions to be pursued.

How can we implement the change?

Having identified what changes are required, the process of implementation needs to be
considered. People will almost inevitably be involved; hence, the issue of communication
needs to be addressed. The timing of the changes needs to be considered, and the person
who is going to be responsible for the implementation also needs to be identified.

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. and 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), pp. 8-9. [Available from: Business Source Complete].

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

Further reading

Analoui, F. (2007). Strategic Human Resource Management. Thomson Learning.

Beardwell, J. Claydon, T. (2007). Human Resource Management: A Contemporary Approach.

Prentice Hall

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Boxell, P. Purcell, J. (2008). Strategy and Human Resource Management. Palgrave
Macmillan.

Collings, D. Wood, G. (2009). Human Resource Management; A critical Approach. Rutledge.

Paauwe, J. Boselie, P. Challenging strategic human resource management and the relevance
of the institutional setting. Human resource journal, Vol 13, No 3. 2003 pp56-70

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