Perspectives on Various Issues of Interest

Leaders in Supply Chain Management - Differentiating Factors

The AMR Supply Chain Top 25 ranking for 2010 is as follows:

1. Apple

2. Proctor & Gamble

3. Cisco Systems

4. Wal-Mart Stores

5. Dell

6. PepsiCo

7. Samsung

8. IBM

9. Research in Motion

10. Amazon.com

11. McDonald's

12. Microsoft

13. The Coca-Cola Company

14. Johnson & Johnson

15. Hewlett-Packard

16. Nike

17. Colgate-Palmolive

18. Intel

19. Nokia

20. Tesco

21. Unilever

22. Lockheed Martin

23. Inditex

24. Best-Buy

25. Schlumberger

Some of the differentiating factors of these companies as highlighted by the AMR report are as follows:

Apple: 

a) Ability to consistently bring both operational excellence and innovation excellence in some of the most competitive markets.

b) Ability to ramp volumes both in hardware and software while redefining industry boundaries

c) Transformation of supply chain into customer-centric value chain

d) Ability to engage in embedded innovation, networked supply and demand shaping

e) Vertical integration of the value chain that reaches from retail all the way back to microprocessors

Proctor & Gamble:

a) Specialized production operations in emerging markets and commodity hedging upstream for key inputs.

b) Use of innovation networks to tap external expertise for at least 50% of its new product ideas

c) Leadership in social and environmental responsibility by means of supplier sustainability scorecard

Cisco Systems:

a) Supply chain risk management

b) Multilevel demand-planning excellence

c) Regionalized supply network architecture

d) Customer Value Chain Management organization brings sourcing, production and logistics, customer service, quality and new product launch as hard-line reporting functions

Wal-Mart Stores:

a) Cost-focused supply chain innovation

b) Leadership role in supplier development efforts in emerging markets

Dell:

a) Ability to achieve high inventory turns

b) Innovative strategies such as the move towards the healthcare sector by targeting a service, software and hardware bundle for small to midsize doctors' offices looking to improve their operations with electronic health records (EHRs).

PepsiCo:

a) Metrics-intensive supply chain management

b) Tradition of continuous improvement from its plants upstream, all the way to a finely tuned, direct store delivery (DSD) network.

c) Vertical integration by acquisitions (e.g. $7.8 billion acquisition of two big bottlers in 2009)

d) Embedding issues such as social justice and consumer health in daily operations

Samsung:

a) Use of IT for essential processes such as sales and operations planning (S&OP) and demand modeling

b) Investing almost $23 billion in production capacity, R&D and vertical integration

c) Application of best practices to build market share and profits

IBM:

a) Organizational innovation in terms of creating matrixed management that successfully taps corporate-level scale for sourcing, process enablement and talent development while leaving business-unit autonomy intact.

Research in Motion:

a) Very good financial performance within its industry (Inventory turns: 13.7; Three-year weighted average ROA: 23.7%; Three-year average growth: 62.4%; 

b) Using long-term, multitiered, collaborative relationships with bidirectional feedback to support its explosive growth 

c) Clear focus on core customer value proposition of superior mobile communications for professional users

Amazon.com:

a) Pushing some critical frontiers in its value chain strategy, tapping and shaping online demand and developing an increasingly full-service IP value chain, including e-books, cloud-based movie sales and third-party brand support

McDonald's:

a) Productized approach to the restaurant business

b) Prudent management of (i) sourcing decisions that impact upstream agricultural markets and (ii) its promotional tie-ins, toy and packaging development, and complex logistics networks that play huge roles downstream in the consumer value chain

c) Integrating global expansion with economic development of emerging markets (e.g. McDonald's India spent six years developing local farmers' agricultural practices and building a reliable cold chain before opening its first store. Not only did this effort create wealth and transfer technology, but it also improved farm yields by 60% and cut chemical and water use by two-thirds.)

Microsoft:

a) Virtual nature of its organizational design and its approach to partnership

b) Pulled top talent from many respected consumer and high-tech supply chain teams and defined a span of control that includes not only sourcing and delivery, but strategy, technology enablement and design collaboration

Coca-Cola:

a) Focus on value-chain by acquisition of its biggest bottler, Coca-Cola Enterprises. (Success in water, juices, food and acquired brands will depend on an agile value chain controlled by the business. Growth in emerging markets, which is a key to Coke's success, will also require a global supply chain strategy to cope with different infrastructure and consumer retail landscapes around the world).

Johnson & Johnson:

a) Demand-driven supply chain strategy manifested in terms of engagement with critical customers like CVS or large group purchasing organizations in the healthcare industry

b) Efforts to improve the operational effectiveness of the wider healthcare value chain.

Hewlett-Packard:

a) On one hand it leverages enormous amounts of third-party talent in relationships with EMS and original design manufacturer (ODM) partners such as Foxconn Technology Group, Flextronics and Quanta Computer; on the other hand it operates dozens of its own plants, distribution centers and recycling facilities. (HP has made sweeping redesign in pursuit of cost savings and agility enhancements that allows it to serve far-reaching global markets cost effectively and in massive volumes).

b) Sustainability, emerging markets and supply chain talent are areas in which HP has a 20-year (at least) leadership tradition.

Nike:

a) Ability to contain cost but at the same time manage speed, agility and precision for strategic pre-eminence

b) Proven track record with environmental and social responsibility in the global supply chain

Colgate-Palmolive:

a) Outstanding three-year weighted ROA of 19.6% and solid growth (5.9% in a three-year weighted average) through a recession.

b) Accomplished more with its ERP backbone than most. Key benefits of the systems in place include global visibility, consistent data standards and reliable transaction execution.

c) Talent development processes offer an unusually rich and well-rounded training program for its supply chain professionals as they draw customer fulfillment demands back through operations all the way to sourcing.

Intel:

a) Customer-centric supply chain with a companywide effort to cut cycle times by as much as half and accelerate planning in order to simultaneously double the rate at which customer requests can be met, while still dramatically reducing unit costs.

Nokia:

a) In recent years the company has seen some setbacks (the company was once ranked no. 1 in the list). Cost-cutting measures and supply chain innovations are slowly showing up in terms of improved profits and market share in smartphones

Tesco: 

a) Known for low prices, innovations like home delivery of Web orders and high-quality, private-label products

b) Was able to use its scale and skill in supply chain management to deeply cut costs and gain market share during the downturn

c) One of the few grocers able to expand successfully internationally, with substantial success in Asia, and into nonfood retail, which provides a growth advantage over grocery

Unilever:

a) By adjusting cost models and distribution strategies, Unilever has been able to successfully access fast-growing, emerging markets such as India and Africa.

b) Innovative approaches, for example specialized packaging, simplified formulations and local sourcing

Lockheed Martin:

a) As a prime contractor and system integrator, much of what drives the company's score is in the financial metrics, including a solid ROA figure of 9.3% and very high 20.4 inventory turns.

Inditex:

a) By designing and making its own line of garments domestically in Spain, Zara is able to get new items from concept to shelf in weeks when industry norms often exceed six months.

b) Fewer sales on discount, more regular traffic through stores and lower prices for higher fashion.

Best-Buy:

a) Store experience innovations and extensions of the business model into home service (Geek Squad) and private label (Insignia)

b) Close work with key brands like Samsung and Panasonic have demonstrated the benefits of shared demand visibility and forecasting processes.

Schlumberger:

a) Aggressive development of a global supply chain organization was based initially in sourcing and procurement, but has built influence across the company and improved strategic thinking about the complex flows needed to support big projects, such as offshore oil exploration and production.

b) Organization's commitment to recruit and train top supply chain talent.

Source: O'Marah, K. and Hofman, D. 2010. "The AMR Supply Chain Top 25 for 2010." Gartner Research, ID Number: G00201212.

Aligning Environmental Dynamism, Purchasing Strategy Formulation, Implementation and Performance

In the recently concluded Academy of Management Annual Meeting that was held Montréal, Canada,I presented the findings from an ongoing research that my co-authors(Jayanth Jayaram and Ajay Das) and I are currently engaged in.This study investigates the alignment between environmental uncertainty, purchasing strategy formulation, purchasing strategy implementation and purchasing performance.By drawing similar parallels from the strategic management literature that have investigated environment-strategy-performance linkages, this research makes a unique contribution to the literature by examining these relationships at a finer grain functional level of purchasing. The research study posits that coping with environmental uncertainty, in particular, the purchasing environment, involves purchasing strategy formulation, which in turn influences purchasing strategy implementation via supplier selection and monitoring ongoing supplier performance evaluation. A combination of choosing appropriate supplier selection criteria and monitoring supplier performance ensures that the benefits of alignment of purchasing strategy with environment translate into better purchasing performance. Specifically,the following research questions are addressed in the study: - How does environmental dynamism influence purchasing strategy formulation, characterized in terms of purchasing function’s participation in strategic planning? - How does purchasing strategy formulation translate into different types of purchasing tasks associated with strategy implementation? - How is purchasing performance influenced by purchasing strategy formulation and purchasing strategy implementation?

 

The hypotheses are tested using survey data by means of structural equation modeling. The results provide support for the tenet that purchasing function’s strategy alignment enhances the purchasing task-performance relationships. However, these relationships varied according to the type of purchasing performance that was considered. In particular, relationships affecting strategic or operational tasks were not uniform and there was a differential effect on different types of purchasing performance measures.The results of this study have implications on how routines, as well as roles and responsibilities of purchasing and suppliers enable purchasing performance via dominant pathway relationships.Specifically, the results suggest that purchasing cost performance improvement is attained through a strong alignment of environmental dynamism with purchasing strategy formulation and the translation of purchasing strategy formulation into tasks associated with purchasing strategy implementation. The findings suggest that supplier’s strategic performance evaluation enables supplier’s operational performance evaluation, which in turn leads to improved purchasing cost performance. 

Quality, delivery, and flexibility performance of the purchasing function are influenced by three distinct paths. The first path is through purchasing strategy formulation to strategic supplier selection criteria and in turn to operational supplier selection criteria. The second path relates to the direct association between purchasing strategy formulation and operational supplier selection criteria. The third path is via the link between purchasing strategy formulation to supplier’s strategic performance evaluation, and in turn to supplier’s operational performance evaluation. Operational supplier selection criteria and supplier’s operational performance evaluation influences delivery, quality and flexibility performance dimensions. As compared to other purchasing performance dimensions, purchasing innovation performance is directly impacted by purchasing strategy formulation. Furthermore, the path linking purchasing strategy formulation with strategic supplier selection criteria also impacts purchasing innovation performance.Taken together, the results show differential pathways or routines based on the individual performance dimension that is being tracked.  The findings suggest that irrespective of the purchasing performance dimension, purchasing strategy formulation must be closely aligned with environmental dynamism. The dominant pathway for the translation of purchasing strategy formulation into improved performance is through positive significant impact on strategic supplier selection criteria and on supplier’s strategic performance evaluation. The association of purchasing strategy formulation with operational supplier selection criteria, albeit weak, also enables translation of strategy formulation into improved performance.  The managerial implications of the findings are that firms characterized by substantial changes in customer requirements related to quality, price, technological features, delivery and customization should involve purchasing in strategy formulation. This strategy formulation process impacts purchasing strategy implementation in two distinct ways. In the initial strategy implementation phase, purchasing is involved in devising supplier selection criteria. At this phase purchasing function’s involvement in cross-departmental joint business goal setting, active participation in corporate strategy meetings, recommendation and influence on end products are positively associated with strategic and operational supplier selection criteria. Subsequently, purchasing strategy implementation involves assessing the ongoing performance of the selected suppliers. The results suggest that purchasing strategy formulation is positively associated with strategic supplier performance assessment.  The multi-dimensional nature of purchasing performance is influenced by purchasing strategy implementation in varying ways. This suggests that at the corporate level it is important to have an understanding of the practices that are necessary to achieve specific performance improvements. Purchasing function’s cost performance is influenced by the supplier performance assessment phase of purchasing strategy implementation. Purchasing strategy formulation enables a firm to evaluate supplier’s strategic performance in terms of product technology, assistance in product development efforts, potential to undertake necessary investments, global reach, and ability to navigate technological changes. These strategic performance assessment measures enable an evaluation of supplier’s operational performance, typified in terms of supplier’s performance on cost, quality, product customization, delivery flexibility, and volume flexibility.  Similar to cost performance, purchasing function’s quality, flexibility and delivery performance are also positively influenced by a similar routine that links purchasing strategy formulation, supplier’s strategic and operational performance evaluation and performance. However, in addition to this routine, quality, flexibility and delivery performance are also influenced by the supplier selection task of purchasing strategy implementation. The results reveal that purchasing function’s innovation performance is directly influenced by purchasing strategy formulation and by the strategic supplier selection criteria. Operational supplier selection criteria and supplier’s performance assessment were not found to be positively associated with innovation performance. These findings emphasize the need for careful resource allocations to various purchasing strategy implementation tasks depending upon the specific performance dimension that need to be improved.  The results of this study also present implications for the reciprocal relationship between performance dimension and managerial attention to the tasks associated with purchasing strategy implementation. For example, firms that evaluate purchasing solely in terms of cost performance would instill a behavior focused on supplier performance evaluation. However, when firms give recognition to additional dimensions of purchasing performance, this instigates attention on both supplier selection and supplier performance assessment phases of purchasing strategy implementation. Evaluation of purchasing in terms of innovation performance is still relatively limited in industry. The study informs that firms seeking innovation performance from purchasing should include purchasing in strategy formulation process. Further, a focus on innovation performance motivates the purchasing function to give higher degree of attention to strategic supplier selection criteria. Finally, the findings of this study have implications for talent management in the purchasing arena. Recognition of routines that work relative to individual purchasing performance dimension that is being optimized and isolation of new and emerging routines over time constitute important tasks for purchasing personnel who are desirous of advancing in their careers. This aspect is especially important given the high turnover rate amongst high performing purchasing managers. Firms who are desirous of remaining at the cutting edge of performance frontiers should place special emphasis on attracting the right talent pool and retaining this talent in order to preserve the intellectual knowledge base (pertaining to routines) that is prevalent within firms.

Source: Nair, A., Jayaram, J., and Das, A. 2010. Aligning Environmental Dynamism, Purchasing Strategy Formulation, Implementation and Performance: An Empirical Investigation. 2010 Annual Meeting of the Academy of Management,Montréal, Canada, August 6 - 10.

India's Universal Immunization Program (UIP)

With a total spending of about US $500 million every year, India has one of the largest Universal Immunization Program (UIP) in the world. The program entails immunizing children against vaccine preventable diseases. Currently, the following diseases are such as Polio, Measles, Pertussis (whooping cough), Diphtheria, Tetanus, Tuberculosis, Hepatitis B, and Japanese Encephalitis. Cold chain, i.e. the supply chain involving storing and transporting products at the recommended temperature range from the point of manufacture to point of use, is an extremely important component to ensure that each immunized child receives quality vaccines. 

The use of manufacturing technologies - An external influence perspective

Given the generally positive relationship between technology utilisation and performance, why do some plants use installed technologies to a lesser extent than others? Literature suggests that the extent of use of technology, as a decision of choice, is influenced by a variety of factors. Organisational and individual influences include process type, plant size, perceived usefulness of the technology, and user demographics. External factors such as customer mandates and firm nationality have also been found to affect technology use. In this stream of research, one external factor of potential influence – supply chain management – remains conspicuously absent. In a recent study my co-author and I use data from industry to (a) develop rationales for a relationship between the extent of use of manufacturing technologies and supply chain management; and (b) offer data-based verification and insights on the nature and management of this relationship. Results suggest that the extent of use of specific manufacturing technologies increases or declines depending on the specific supply chain management practice in use. The findings raise interesting implications for managers and scholars.

 

Reduced internal use of technologies would imply a gradual loss of experiential capital. Confronted with a suddenly hostile ex-supplier turned competitor, re-building that capital may prove to be a difficult and onerous task. A particularly disquieting feature in the results was the observed decline in the internal use of design technologies in the presence of high outsourcing and strengthened supplier ties. Industry trends in electronics, plastics and machine tools reflect this reality. When the design technology core hollows out, little remains besides branding and distribution capabilities. History shows that such capabilities can be and are rapidly being acquired, witness the recent joint venture between struggling 3COM Corporation in Marlborough, Massachusetts, and the Chinese telecom challenger Huawei Technologies, and the acquisition of the RCA brand by the Huizhou-based TCL Corporation.

A troubling thought is that escalating relational supply chain management (RSCM) may encourage incremental creep in outsourcing that goes unnoticed by management. While the explicit strategy may be one of ‘insourcing’ of critical items, closer ties with key suppliers persistently nudge the buyers towards an implicit ‘outsourcing’ profile, eventually reducing in-house manufacturing and lowering the extent of use of internal manufacturing technologies. Since this would happen incrementally, we call it insidious, perceiving a real danger that (a) such movement may not be formally recognised by management until too late in the day, and (b) a disconnect will gradually develop between intended strategy and technology use decisions. Such unplanned and unnoticed declines could happen for a variety of reasons, but are at times ascribed to a phenomenon generally termed ‘the vicious cycle of outsourcing’. Simply put, outsourcing manufacture of a group of products increases the fixed cost/unit for the remaining products being manufactured in-house. The cost differential between external and internal manufacturing options naturally increases for the remaining products, encouraging further outsourcing in bits and pieces by cost-reduction driven lower management, and the spiral continues until ‘hollowing out’ occurs. The gradual nature of this process underscores the danger of the cycle activating without the knowledge of top management, thus subverting management’s formal insourcing-outsourcing strategy. Decision makers would need to monitor in-house technology use carefully to ensure that manufacturing tasks do not unintentionally ‘seep’ out to the supply base. 

There are gains to be had from collaborative RSCM, and a company may decide to take these gains and not advance further in its supplier relationship building programme. Nortel saw potential in obtaining Motorola’s capabilities in wireless communications technologies, but did not pursue a supply alliance because it feared that there would be high level of overlap in skills and competitive capabilities. However, such policies of limited RSCM have to be competitively feasible. We researched the literature for further suggestions for practical consideration:

. Identify and understand your technology core or near core technology – in line with recommendations offered in previous studies.

. Protect your technology core by actions such as patenting, maintaining a pilot process in-house for prototyping and testing key technologies. Aerospace OEMs are considering patenting all outsourced current and future designs, and special care is required in countries with weak intellectual property law enforcement.

. Depute technological personnel to supplier plants to maintain and upgrade buyer absorptive capacity.

. Foster closer alliances with distributing channels and end customers to protect replacement markets and raise entry barriers for forward integration by suppliers – in line with past prescriptions.

. Invest in equity with key suppliers.

. Be careful in developing asset specificity with key suppliers. We support this recommendation with industry best practice. Toyota shares information selectively and insists that supplier technical personnel work on new parts in Toyota’s own ‘design in’ rooms, in close consultation with Toyota’s engineers.

. Include self-learning as an explicit goal in RSCM programs. Relationships should be evaluated on the new knowledge they bring in, and not inevitably on their contribution to immediate cost savings. 

Source: Das, A. and Nair, A. 2010. The use of manufacturing technologies - An external influence perspective. International Journal of Production Research, 48(17), 4977-5006.