Supply chain management: topical critic of articles

1.0 Integration of supply chains

1.1 Article Summary: Merits and demerits of integration in supply chain management 

Lawson, A., ‘Analysis: why food retailer Morrisons opted for vertical integration’, Retail Week, (February 2013)

This article expounds on the rationale for Morrisons embracing vertical integration. It also focuses on the riskiness of integration strategies in organisations. It supports integration in the sense that it can allow the organisation to optimise their supply chains. Having separate supply chain components integrated helps guarantee the quality of products and keep production more reliable. It also reduces the cost of operations. However points out that this comes at a cost. It increases the risk of failure. The main cost risk could be the increase in the cost of operation as opposed to cost reduction. The costs undertaken in the integration process are outlined as follows: in 2010, the company spent £34million in establishing a horticulture plant and it currently plans to invest £21million in an abattoir. The supply chain integration is used by the company to differentiate itself. It makes a comparison with Sainsbury which is relatively un-integrated.  

The advantages associated with integration include an opportunity to improve its margins by being able to control its production costs. It also enables the organisation stabilise the cost of production by avoiding fluctuations. When compared to suppliers who are able to optimise on the economies of scale by virtue of them serving a wide range of clients. The article however makes a case for integration where it cites that the organisation gets to gain full control of its entire supply chain. The risks associated with disagreements with suppliers are eliminated. However, there is a bigger risk that comes with integration due to the level of investment involved for meaningful integration to be realised. There can also be an issue with the complexity of operations where the organisation is forced to manage business operations that they may know little about. It also reduces the level of flexibility in the event that production of supplies is adversely affected by weather and other external factors.  

1.2 Concept extension

1.2.1 Integration of production schedule

 Krajewski, L. and Wei, J.C, ‘The value of production schedule integration in supply chains’, Decision Sciences, (2001) Vol. 32, Vol. 4, p. 601-634. Available at: http://search.proquest.com.proxy1.cl.msu.edu/docview/198105057/13E56F2A92412A6C254/1?accountid=12598 (Accessed 29 May 2013)

This article narrows down to the production schedules and the need to have them integrated within the supply chain. The production schedules are integrated to improve the efficiency of production and ensure that the production is sustainable over the long run. The integration of the process is can be done along the functions such as purchasing and activity scheduling among others. The paper also underscores the importance of maintaining flexibility in the scheduling that the organisation can easily adapt different environmental factors.

1.2.2 Rationale for supply chain integration

Panayides, P.M and Dong-Wook, S, ‘Evaluating the integration of seaport container terminals in supply chains’, International Journal of Physical Distribution & Logistics Management, (2008) Vol. 38, No. 7, p. 662-584.

This article explores the rationale for the application of the integration strategy to the seaport container terminals. It sites some of the advantages as cutting down of operation costs, reduction of risks associated with outsourcing, and extension of market dominance. It however sites the cost of integration of the supply chain as an enormous one that heightens the risk of failure if it fails to be implemented as it should.

1.3 Topic support

The articles advance the concept of integration by providing important examples that demonstrate the merits and the demerits. Krajewski and Wei (2001) outline the importance of integrating production schedules. It makes sense that for integration to be complete, production processes and activity schedules must be synchronised. This allows the organisation to keep its cost of inventory at the bare minimum. It also stabilises the production processes to ensure that production is never interrupted and that the cost of administration is kept at the bare minimum. On the other hand, the integration of production processes comes at a risk. The fact that production processes will be interconnected and inventory minimised can only mean that the inefficiency at any point in the production can lead to the failure of the entire process. This could interrupt production and this could be at a very high cost for the organisation which stands to lose its customers.

Panayides and Dong-Wook (2008) further contribute the topic by making a case for integration of seaport container terminals. The main merits for such integration are in the guaranteeing of service delivery. However, there is no clear indication as to whether the integration would result in lower operation costs. This is because such integration would require high start up costs as well as the cost of operation. The risk of the integration is that the container terminals may not be able to master the operations of the functions being integrated in a manner that makes economic sense for the organisation. The articles therefore bring to the fore the need to conduct an accurate diagnosis of the organisation and its processes before a decision is made on whether to integrate or not.

2.0 Distribution strategies in supply chain management

2.1 Article summary: Distribution efficiency in retail chains

‘China: BEIJING: AIRCELLE made its new voyage via opening a new site in China’, Mena Report, (February 2013)

This article explains the decision by AIRCELLE opened new distribution centre in China. The principle highlighted is proximity to the customers and promoting flexibility. This article also focuses on how the efficiency of the distribution strategies can lead to increased customer satisfaction for the consumers. It outlines its concept of value as constituting the ability of the customer to access the products sought without strain. It also provides an insight on the need to balance between the cost of distribution and the resultant value in designing a distribution system. This article also elaborates on the importance of employing proper distribution management systems that promote integration in the purchasing functions of the supply chain and ensure that shortages are detected automatically.

The article also addresses an important development in the distribution strategies which is aimed at making the supply chains more effective. The global company also has other distribution centres in different parts of the world. These centres include Paris, London, New York, Los Angeles, Dubai, Singapore, Sydney and the new plant in Beijing. This demand driven approach to distribution helps avoid wastage.

The article also applies a standard to the distribution network where quality, cost and service delivery are the main considerations that must be made in designing a distribution network. These are the dimensions that characterise the new retail chain that is not only efficient but also well distributed to the satisfaction of the average customer. The need for this investment is based on the nature of the service offered to customers. The servicing is regular and this makes it necessary for distribution centres to be placed in locations near the customers. With a growing customer base in China, Beijing becomes a very strategic location for the distribution centre. This is an example of distribution strategies and how they can be applied in supply chain management.

2.2 Concept extension

2.2.1 Distribution strategies in a globalised market

Mattsson, L., ‘Reorganisation of distribution in globalised markets: the dynamic context of supply chain management’, Supply Chain Management, (2003) Vol. 8, No. 5, p. 416-426

This article evaluates the concept of distribution in a globalised market. It evaluates how the free movement of goods and factors of production across national boundaries can contribute to the efficiency of logistics and therefore influence the distribution approach undertaken. It also focuses on the increased complexity of distribution for companies operating globally that are likely to serve markets that are significantly different from each other. It recommends the outsourcing of the distribution function to seasoned independent retailers as one of the avenues for ensuring that distribution is effective.

2.2.2 The role distribution systems in SCM

Robinson, P.E and Satterfield, R.K., ‘Designing distribution systems to support vendor strategies in supply chain management’, Decision Sciences, (1998) Vol. 29, No. 3, p. 685-706

This article explores the question of the distribution systems from the point of efficiency where it is imperative that an effective system for management is established. The process of designing a distribution system should consider the ease with which the distribution network can be managed while balancing between the risks and the rewards.  The article outlines the fact that a good distribution system must be one that can bring value to the organisation and also one that is in line with the overall goals of the organisation.

2.3 Topic development

The distribution efficiency is an important part of the supply chain design and the organisation must at all times ensure that they come up with a system that is efficient and capable of reinforcing the organisational strategies. This brings to the fore the concept of generic strategies adopted in the organisation where the distribution strategy embraced would need to weigh between efficiency and the need to advance market visibility as the case may be with different organisational strategies. This leads to the decision on the options on whether to outsource the distribution functions to independent retailers or to launch a fully owned distribution network. For manufacturers operating globally, the recommended approach is that of outsourcing using retail giants who already have a global coverage. The risk with outsourcing is that the manufacturer has less control over the efficiency of the distribution and the level of commitment needed to monitor the movement of stocks is one that the retail outlets may not be very good at.

On the other hand, own distribution networks can be costly for the organisation even though the guarantee for efficient distribution is higher. In an environment that is characterised by rapidly changing tastes and demand fluctuations, efficiency is key and this makes it very important that a corresponding distribution system be established to manage the process. Efficient systems that have been cited include those that enable the procurement officers to monitor the movement of stocks from the shelves of the retail outlets. The middle ground that has been suggested in the distribution design is the use of contracts where the retailers undertake to stock the products and implement a distribution management system together with the company. These would ensure that the companies do not have to undertake the costly option of having their own distribution network while at the same time enabling them to serve the market efficiently.

3.0 The impact of globalisation on the supply chain

3.1 Article summary: Can supply chains be truly global?

Chanda, N., ‘Horsing around the Global Food Chain’ The Epoch Times, New York Edition, (February 2013), p. A16.

This article interrogates the concept of the global supply chain. It defines the global supply chain as one where suppliers are sought from across the world and where the organisation is literally able to have a global presence through its supply chain. This article disputes this notion and hold that all supply chains are local. It uses the example of the global food chain where enforcement of global standards must be done at the local levels. In the end, all meat has a local source and there is no true global supply chain. The article makes an example of the decision by the UK to ban meats that are deemed to be below their standards. Nevertheless, the article appreciates the globalisation of food supply chains, especially that of packed foods. The rationale for this is the need to contain the costs of operation as well as the need to gather support for the company locally by being seen to be part of the local communities by supporting local suppliers. The article also holds that it is only through such a localised approach that the international company can exist and holds the fact that it’s a paradox that globalisation in supply chain management must be forfeited in order for the global company to be built.

In terms of the approach to distribution and transportation, the article outlines the fact that different regions and countries have different unique challenges and infrastructure. The approach to distribution cannot be global as different countries continue to bear peculiar characteristics. This would mean that a global approach would lead to the failure of the organisation. The same applies to the choice of technologies to be used in the supply chain. The article therefore holds the globalised supply chain is a myth that cannot be implemented as easily as analysts may want to claim.

3.2 Concept extension

3.2.1 Globalisation and its impact on the globalisation of supply chains

Johnson, M.E., ‘Supply Chain Management: Technology, Globalisation, and Policy at Crossroads’, Interfaces,(2006) Vol. 36, No. 3

This article takes cognisance of the changes that have come with globalisation such as technology and the policy reactions by different governments. It singles out technology as a major enabling factor for the globalisation of the supply chains as it facilitates ease of communication and integration of processes between suppliers and companies even where long distances are involved. It however holds that the factors may be at crossroads as many countries are yet to acquire the kind of infrastructure and uniformity of policies that could facilitate organisations to be truly global in their approach.

3.2.2 Global supply chains and HRM

Richy, R.G. et al, ‘Aligning operant resources for global performance: an assessment of supply chain human resource management’, Journal of Management and Organisation, (2011) Vol. 13, No. 3, p. 364-382

This article focuses on the human resource management aspect of the supply chain. It explains the importance of having an integrated HRM system to manage employees in a manner that facilitates efficiency in the global supply chains. This involves the need to ensure that communication systems are integrated and performance measurements are aligned to the goals set out in the organisation.

3.3 Topic support

Globalisation of supply chains has been hailed as a positive development in the globalised world. It provides many benefits which include the ability of the organisation to cut costs by finding the cheapest source of products from other parts of the world. It can also be useful in guaranteeing steady production as the organisation would be able to source from other parts of the world whenever one or more regions are paralysed for one reason or another. These developments are also facilitated by technological advancements which allow members of the supply chains to integrate their systems even across national boundaries. The articles observe that the increasing move to globalise supply chains has been the dominant trend in organisations. However, the supply chains are yet to be truly global with the most expansive ones being regional. This is due to a number of reasons.

One of the reasons cited for the failure of organisations to be truly global in their supply chains is the unofficial requirement for them to support local suppliers. It has become generally accepted that unless a given set of supplies is not available within the host economy, the companies would source locally. The other impediment is the lack of uniformity of laws and policies globally. Also important to note is the relative uneven distribution of technological developments and infrastructure and this prompts international companies to allow regional offices to design the kind of systems that would be easily implemented in the different localities. In addition to the differences, long distances increase the risks involved in transportation and the probability of production being interrupted may actually be much higher than there would be with local supply chains. Globalisation of supply chains is therefore an achievement that may be hard to achieve in the current circumstances.

4.0 The role played by technology in supply chain management

4.1 Article summary: Application of RFID in SCM

Napolitano, M., ‘RFID settles in’, Logistics Management (2002), (April 2013) Vol. 52, No. 2, p. 39-43.

This article explains the rationale for the adoption of the radio frequency identification (RFID) in supply chains. The article describes RFID as a technology whose adoption in the market has been accelerating. The RFID technology enables quick processing of goods and this allows for the cost effectiveness of the production process. It is compared to the bar code identification system which has been described as potentially slow since it would require a slow process of scanning products one at a time. The technology also facilitates the tagging of source to assure the authenticity of the supplies used in the supply chain. On the other hand, the application of the technology requires investment in equipment such as readers which smaller organisations may be unable to afford. However, it is gaining acceptance of as the need to ensure that only genuine products are sold into the market increases with the threat counterfeits.

This article underscores the fact that technology works for the good of the consumer. It is the consumer whose welfare is safeguarded when measures to weed out counterfeits are adopted. The organisation also benefits immensely from the technology as it is able to realise more sales when consumers are provided with a means for telling the genuine products apart from the counterfeit products. The article also delves into the mysterious myths associated with memory chips being used on humans and clarifies that the decision by the company is purely for the sake of ensuring that the supply chain management processes are efficient and that value is delivered to the consumer. It calls for the application of this and other technologies in order to allow market players to realise value for their investments. This article demonstrates clearly that when well used, technology can enable the organisation offer value to customers.

4.2 Concept extension

4.2.1 Inventory control using technology

Liu, X., Tang, O. and Huang, P., ‘Dynamic pricing and ordering decision for the perishable food of the supermarket using RFID technology’, Asia Pacific Journal of Marketing and Logistics, (2008) Vol. 20, No. 1, p. 7-22

This article is about how technology can be applied to improve efficiency of supply chain management in a supermarket. It helps in appreciating the rationale for popularity of the technology. The RFID technology helps with identification, security and dynamic pricing. It also serves the purpose of monitoring stock levels and therefore facilitates the integration of the procurement processes in the organisation. The technology can also enhance the satisfaction of the customers who may be keen on establishing the availability of products, their level of freshness as well as the prices of such products.

4.2.2 Communication technologies and SCM

Jonsson, S and Gunnarsson, C., ‘Internet technology to achieve supply chain performance’, Business Process Management Journal, (2005) Vol. 11, No. 4, p. 403-417

This article focuses on the importance of the internet in supply chain management. Even though it’s not focused on RFID, it highlights how technology can be used to improve supply chain efficiencies. Communication technologies serve various purposes including facilitating communication with members of the supply chains where supplies can be coordinated and challenges being faced discussed in a timely fashion to ensure that solutions are generated promptly. The internet also allows the organisation to keep in touch with its customers directly and this is important in gauging the popularity of the different brands marketed. This is very important to the demand forecast processes in the organisation.

4.3 Topic support

Technology plays an important role in improving the effectiveness of supply chain management. It enables efficiency by facilitating prompt communication between the members of the supply chain. For instance, integration of supply chain processes is highly dependent on technology where the shortage or completion of one process automatically triggers action on the other processes. The main trend in production has been the need to make use of supply chains to counter counterfeiting. This has mostly taken the form of using product identification technologies such as the RFID. This technology uses electronic devices that are implanted into any of the products and are recognisable by electronic reading machines. The technology promotes ease of identification of products and of course helps in curbing counterfeits as the fake products are not likely to have the chips. This results in enhanced customer value as the organisations are able to guarantee that the products being consumed are genuine.

As has been mentioned above, technology helps with the integration of supply chain management processes. The most common application of the integration is the supermarket scenario where the RFID technology is used to monitor the movement of stocks. Whenever an item is purchased, the system adjusts the stock levels automatically and when the reorder level is reached, the system triggers the re-order process. This practical application of technology is also extendable to other functions such as marketing. The use of the internet technology can be analysed to determine whether there are any noticeable demand trends. The result can be accurate demand forecasts that can inform the SCM processes and help in avoiding unnecessary inventory. In most cases, the price of technology is lower than the value that it brings to the organisation. However, this is a determination that must always be done a case by case basis and a positive decision made only when a positive net value is realisable.

5.0 Supply chain management contracts

5.1 Article summary: Merits and demerits of single sourcing

 ‘Ferro Corp. Chooses Capgemini for Global Delivery of Business Process and IT Outsourcing Services’, Wireless News (June 2013)

This article focuses on the management of suppliers and the risks involved in single sourcing. Ferro Corp picks a single organisation to manage its business processes and IT services. The article indicates that the contract has been negotiated and formed on the basis of value to be realised by both parties. The agreement is established through a binding contract ostensibly to guard either of the parties against wanton default. The contract between the organisation and certain suppliers come at a high cost as the suppliers who provide special/unique components would certainly want guarantees that the components would be purchased. This was a $35 million with grave implications for any defaulter. This means that is very costly to form multiple contracts. The rationale for entering into multiple contracts has been explained as the need to guarantee steady supply. The presumption is that if one supplier fails, the other ones will be in a position to adjust automatically and ensure that provision of services to customers is not interrupted. This article doesn’t discuss the merits of single sourcing or the process, but there is an implication that Ferro Corp has sufficient information about its partner for it to have entered into a binding contract.

The article prompts focus on single sourcing in terms of cost implications as well as the guarantee for business operations. The single sourcing in this case implies that Ferro Corp will depend on the reliability of Capgemini to deliver as expected. This brings to the fore the risks of single sourcing where default by the supplier can be harmful for the organisation. This is why thorough information search must be done about the prospective partners. There must also be a binding contract to guarantee performance. The risk of single sourcing can therefore be overcome through such contracts and ensuring that the welfare of the partner organisation is well understood at all times.

5.2 Concept extension

5.2.1 Information asymmetry and sole sourcing

Gachon, G.P. and Zhang, F., ‘Procuring fast delivery: sole sourcing with information asymmetry’, Management Science, (2006) Vol. 52, No. 6, p. 881-896

This article highlights risks that could be experienced due to single sourcing. Information asymmetry has been cited in this article as the biggest barrier to single sourcing. An organisation may not be able to generate the necessary guarantees that the supplier will not fail them at some point. Only the suppliers know their capabilities and are the only ones who can accurately tell whether they would be in a position to guarantee production. Since they are likely to exaggerate information in their favour, organisations discount their commitment and make up for the risk by introducing tough sanctions in the supply contracts to guard against failure.

5.2.2 Contracts in supply chain management

Thomas, M.F. and Mackey, J., ‘Supply chain management: monitoring strategic partnering contracts with activity based measures’, Management Accounting Quarterly, (2006) Vol. 8, No. 1, p. 1-10

This article is about partnering contracts and the focus of the organisation. It outlines the focus on activity specifications as the best basis for determining choice of partnerships with which to engage with the suppliers and other members of the supply chain. This article underscores the importance of contracts in supply chains and the need to enter into contracts based on assessed need and a rationale determination of the value realisable.

5.3 Topic support

The idea of using contracts is common to the supply chain management processes. The organisations wish to have the assurance that the supplies will be delivered on time and at the agreed price. The supplier on the other hand needs the assurance that the contract obligations will be honoured. This is what makes it necessary for supply chain contracts to be entered into. Contracts introduce sanity in the business relationship. In the situation that no contract is entered into, the organisation would rely on sourcing supplies in the open markets. This would have the advantage of providing good savings when the prices fluctuate downwards. However, a problem could arise when prices soar or when the supplies are not available. Contracts help in introducing this stability and enable the organisation to plan with certainty. The supplier can also enter into contracts for further integrated activities other than simply delivering supplies. This is common with organisations that embrace JIT where a supplier may even operate in the production site contributing to the actual manufacture of the products.

The importance of having information in the contracting process is very important. The organisation needs to make an assessment of the ability of the other party fulfilling their obligations. This need is especially acute when it comes to single sourcing where failure by a supplier could be devastating for the organisation which may be forced to interrupt production. This is why contracts tend to have clauses imposing heavy penalties for failure of either parties delivering on their obligations. However, the penalties may not be sufficient to replace the customers who may be dissatisfied and switch brands. This is why proactive approaches of gathering information and ensuring that the partnerships/ contract relationships function as expected.