Barriers To Effective Supply Chain Management

Barriers To Effective Supply Chain Management supply chain management Abstract Purpose -The aim of this paper is to have a qualitative analysis of benefits,barriers and bridges to effective strategic supply chain management. Design/methodology/approach The author use a case study approach .Interview was conducted from Supplier, SC manager and retailer . Findings- Results shows that customer satisfaction is consider as the primary benefits by all chain partners. And primary barrier and bridge is adequate information system and human factors. Research limitations/implications Due to the resource and time constraint the findings of this research are only based on supply chain of a single organization. Practical implications -This paper provide a understanding of how managers ,suppliers and retailers view benefits .barriers and bridges of SCM. Originality/value Keywords Supply chain management, Strategic management, Relationship marketing Paper type Research paper Introduction In todays business world competition is very fierce. Due to the Globalization, advance technology, and Increase customer demand , organizations need to raise there bar of performance continuously. As Thomas Edison said, If there is a better way, find it. So managers must keep his advice in mind. And supply chain management is a better way to compete in market. Supply chain management is the management of activities from availability and procurement of raw material , their processing into finish goods and then distribution of these goods. The purpose of this encompassing process is to enhance the business of the company and satisfy customers. By Sandra Maria Stammberger Christopher argues that the real competition is not company against company, but rather supplies chain against supply chain. For example, Wal-Mart and its suppliers will battle Carrefour and its suppliers in consumer markets around the world. This study has looked at benefits and barriers to supply chain integration. Vital bridges to supply chain success are also explored. SCM can reduce inventory, improve productivity, enhance quality, and reduce both product development and fulfillment cycles. As attractive as the potential benefits of supply chain management appear; the barriers or roadblocks to achieving them appear equally ominous such as internal external turf protection, inadequate information system, poor collaboration among the chain partners etc. And bridges/solutions are the mirror image of the most of the barriers (e.g., poor management leads to barrier; careful management is the bridge). The purpose of the study is to provide an understanding of the benefits, barriers, and bridges to successful SCM. For this purpose data is collected from the supplier ,SC manager and retailer of PEPSI (Gujranwala). We conclude that there are numerous benefits of SCM but to achieve these benefits we have to overcome two main barriers that is technology and human barrier. Focus of managers and scholars must not be on any specific barrier, but rather consider these two in combination for strategic supply chains to be successful . We hope that the research methodology given in this study provide some useful insight to help managers and their companies as they make headway along the arduous journey to supply chain leadership This research article is comprised as follows: literature of SCM in terms of benefits, barriers, and bridges followed by research methodology.And the main part of article includes findings from in-depth interviews , and conclusion with some suggestions for future research. In this way this article provide valuable insight into the state and direction of supply chain practice research. Background: benefits, barriers, and bridges An enormous amount of material has appeared in current years about supply chain management in both academic journals and trade press. Driving forces of supply chain management The driving forces of SCM stem from two sources: external pressures and potential benefits from strategic SC alignment. External pressures include such forces as advances in technology and increased customer demand across national borders (Mehta, 2004); maintaining lower costs while meeting these diverse needs (Cook and Garver, 2002); and intensified competition utilizing relationships among vertically aligned firms (Togar and Ramaswami, 2004). These pressures have begun shifting the focus of individual firms vying for market presence and power to supply chains competing against supply chains (Bhattacharya et al., 1995). Top ten benefits ,barriers and bridges have been identified by Top ten benefits ,barriers and bridges Benefits Barriers Bridges Increased inventory turnover Internal and external turf wars Information transperancy Increased revenues SCM cost reductions Poor SCM planning Collaborative planning Product availability Lack of SCM vision IT architecture /internet Responsiveness Executive commitment Formal performance tracking Economic value added IT deficiencies Adopt strategic SCM vision Capital utilization Organizational structure /culture Attention to human factors Decreased time to market Lack of SC measures Suppply base reduction Reduced logistics costs Lack alliance guidelines Segmented customers: Poor SCM understanding Shared investment/benefits Benefits of strategic supply chain managemen Increased inventory turnover: Inventory turn reflects how frequently a company flushes inventory from its system. In SCM company has relations both with supplier and customer so they receive material on time and deliver goods to customer on time. So inventory turnover increases. . (Fawcett, S.E. and Magnan, G.M. (2001)). Increased revenues SCM cost reductions: Main source of cost saving is inventory management. Through SCM it is possible to reduce your inventory level and leads to cost saving. Other ways of reducing cost: Better trade relations and lower transaction cost Enhance asset utilization via shared resources Better product design that cost less (Fawcett, S.E. and Magnan, G.M. (2001)). Product availability: Involvement of supplier in new product development process can solve many problems like communications and new ideas are generated in collaborative design efforts rather than non-colleborative. In todays marketplace there is a need to have the right product available at the right time and right place at a lower cost than the competition. . (Fawcett, S.E. and Magnan, G.M. (2001)). Responsiveness: Responding to customers in a courteous, personal and understandable way is vary important.Quickly response to customers requests is possible through collaboration with chain partners.Close relationship with partners enables them to foresee their collaborators needs and handle unexpected events.Supply chain responsiveness requires exceptional/outstanding manufacturing and logistical flexibility to meet unique or special requests.And it is possible through integration. . (Fawcett, S.E. and Magnan, G.M. (2001)). Economic value added: There are two view points from which share holder value can be measured. 1) Internal view point (Economic value is used) 2) External view point (Market capitalization is used) EVA is calculated by deducting the cost of capital from its operating profit. Drivers of shareholder value are : Operating cost reduction ,fixed capital and working capital efficiency and revenue growth. There is no doubt that supply chain strategy affects all these drivers directly or indirectly. These are some of the strategies: Lead time of all incoming products is reduced by having partnership with the suppliers . By integrating processes .internal lead time can be reduced. By having a strong relation with distributor information flow from demand size is improved. (Christopher, M., Ryals, L. (1999)). Capital utilization: Capital utilization refers to how a companys assets are best used. Capital utilization is dollars of revenue generated in relation to dollars invested in assets such as account receivables, inventory etc. Examples of supply chain management connection: Demand planning Transportation management Inventory management Accurate forecasting (Timme, S.G. and Williams-Timme, C. (2000) Decreased time to market Successful companies create supply chains that respond to the sudden changes in market. Effective supply chain enables a firm to respond to the short term changes in demand and supply in the market because of collaborative relationship with suppliers and distributors. (lee(2004) Reduced logistics costs: In an integrated supply chain ,efficiency and effectiveness of operations can be improved by managing the movement of material throughout the firm in an organic and systematic way. This allow the firm reducing their purchase cost ,transportation cost and inventory and warehousing cost.( La Londe, B.J. and Masters, J.M. (1994), Emerging logistics strategies: blueprints for the next century, International Journal of Physical Distribution Logistics Management, Vol. 24 No. 7, pp. 35-47. La Londe, and Masters,). Barriers to effective supply chain management Internal and external turf wars: Conflicts within the departments and within organizations are fundamental barrier to SC collaboration. In most of the companies all departments such as marketing, finance , operation work independently. But when managers make decisions they only consider their own department and ignore the impact of their decision on other departments and on whole organization. And same is the case with supply chain partners each partner work only for its own interest. So A tug of war begins as each department and partner pull the organization in their favor. (Fawcett, S.E. and Magnan, G.M. (2001) Poor SCM planning: Supply chain management is a way to combine process and entrepreneurship. The concept of SCM begins with customer and integrates all activities from raw material procurement to finished product distribution. In many organizations SCM fails due to insufficient forecasting and poor planning process. For correct forecasting, planning process must involve appropriate players and relevant information. Andraski, J.C. (1998). Lack of SCM vision: One of the major barriers to SCM collaboration is that chain partners dont have clear and common vision of SCM. They hold different beliefs and values and supplier and customer dont share common goal. (Akkermans, H., Bogerd, P. and Vos, B. (1999), Lack of SCM vision: Lack of trust is one reason that channel partners are not willing to share information openly .because they have fear that if they share their weaknesses with their chain partners then they might use their weaknesses against them in near future. So Trust is pre-requisite in effective supply chain management. (Fawcett, S.E. and Magnan, G.M. (2001), Executive commitment: Top management should here be understood as the group of people that together constitute the highest management executive authority in a company. Top management is in a position to play an important role in successful SCM collaboration. A prerequisite for performing SCM is top management support. Almost all of the barriers such as incompatible technology ,conflict among supply chain members ,lack of employee willingness to share information can only be overcome with top management support. According to (Moberg et al., 2003) training and education are Important factors for top management to encourage and intensify. (Sandberg, Erik1; Abrahamsson, Mats(2010)) IT deficiencies: As because of globalization suppliers and customers are located all over the world so integration has become a major challenge .Lack of integrated information system is a major barrier as sharing of information is not possible without integrated information system. IT is like a nerve system of SCM. ( E.W.T. Ngai a,*, A. Gunasekaran b ,(2004) Organizational structure /culture: Organization culture and structure are also very crucial barrier to SC collaboration. If an organization is working independently for a long time then its very difficult for it work in collaboration with other chain partners. Lack of SC measures: In order to have a strong collaboration among the supply chain partners it is crucial to measure the supply chain performance.(Brewer and speh ,2001;) Measuring supply chain performance Lack alliance guidelines: Each channel partner in the supply chain has a separate plan for activities such as production plan and schedules. If an organization only have understanding of their on process and they dont have understanding of their customers and suppliers processes then there is a gap exist and organization cant improve their processes as external processes have an influence on internal processes. Lack of same performance measures across different departments and across the channel partners leads to conflicting behaviors both internally and externally. ( Barratt, M. (2004a) Poor SCM understanding: Employee dont have understanding of how SCM is beneficial for the organization and how it will benefit their job .This poor understanding is one reason they are not willing to contribute in SCM implementation. Bridges to effective supply chain management Information transperancy: ( yu zhenxin (2001) Each member of the supply chain should have complete information about the other members. If members are willing to share information then this leads to the improve performance of the whole system . Collaborative planning: Planning should be made with the involvement of all parties involve in the supply chain. Such as demand forecasting, production schedules etc may not be effective without the involvement of all partners. IT architecture /internet: With the passage of time SCM is becoming more and more complex and require online communication system .In order to enhance the buyer- supplier relationship different information technologies such as Electronic Data Interchange ,Internet And World Wide Web Are Used. Formal performance tracking: In order to have a strong collaboration among the supply chain partners it is crucial to measure the supply chain performance. (Brewer and speh ,2001;). Measurement of supply chain performance can help in Reducing cost ,Identify and target those segments of market which are more profitable((Lambert and Pohlen, 2001),better and improves decisions and test and employ new strategies Adopt strategic SCM vision: Chain partners should have clear and common vision of SCM. They should hold same beliefs and values and supplier and customer share common goal. (Akkermans, H., Bogerd, P. and Vos, B. (1999), Attention to human factors: A fundamental factor for the successful SCM collaboration is the human factor . People resist changes and they dont want to share information with others .So attention must be paid to human factors first as their willingness to implement effective SCM is the key to success. . (Fawcett, S.E. and Magnan, G.M. (2001)). Suppply base reduction: Supply base reduction is use by the firms to enhance quality , increase responsiveness , and reduce cost . Coke has adopted N+1 rule of thumb for determining maximum number of supplies. It means they have just 1 more supplier then required. (Fawcett, S.E. and Magnan, G.M. (2001)). Segmented customers: Organization should collaborate only with those suppliers and customers who are strategically important for the business. This segmentation play a very important role in successful collaboration.(Tang and Gattorna, 2003). Segmentation of customers is done on the basis of their buying behavior and services needed. Different supply chains are made for different segments. A different strategy and supportive culture and leadership style is required for different supply chains. To serve the segmented supply chain a further step is to segment the suppliers according to their abilities. Shared investment/benefits: For SCM to be more effective and successful there is a need to share benefits resulting from integrated SCM. Benefit sharing is as much important as information sharing . even though reliable and trust worthy information is available ,there should be a need to fairly allocate benefits among members otherwise it weakens their relationship. (Fawcett, S.E. and Magnan, G.M. (2001)). Methodology SCM removes the boundaries of the organization therefore it is known as boundary spanning activity (Bowersos et al,1999) . To Have a macro picture ,information is collected through channel analysis. In this way more generalized view about the benefits ,barriers and bridges can be obtained. Case studies The case study method is used for answering questions regarding what, why, and how related to SCM implementation. This method put emphasis on in detail qualitative analysis. In order to have a cross-channel analysis interview is conducted from supplier ,SC manager and retailer. A structured ,face-to-face interview was conducted and Confidentiality was ensured .Structured interviews are those conducted when it is known at the outset what information is needed. The interview has a list of predetermined questions to be asked. The interview guide was divides into general questions and questions about the benefits ,barriers and bridges faced by the organization. Average interview duration was 1 and half hour. And face-to-face interview helps in repeating and rephrasing questions if not understood by respondents, and clarify doubts. Interview consist of Open-ended questions. Results and discussion Top five benefits ,barriers and bridges Benefits Barriers Bridges Customer satisfaction Inadequate information system Adequate information system On time delivery Lack share risk and reward Sharing of risk and reward Response to customer request Lack willingness to share information Willingness to share information Order fulfillment lead time Lack employee empowerment Senior management interaction Cost reduction Measuring customer demand Supply chain training Benefits Customer satisfaction: Company customers are satisfied because company is in a position to fulfill their needs, deliver goods on time and at low cost through integrated SC. On-time delivery: The development of closer, cooperative relationships with chain partners together with the establishment of integrated systems and processes make it possible to consistently deliver goods and services to customer at the right time and at the right place. Respond to customer requests: Business analysts have been saying for years-that customers matter most. So response to customers need as quickly as possible is very important for the success of business. One way of doing this in todays competitive market is to develop strong relationship with suppliers, retailers and distributers. This collaborative supply chain enables all parties to respond to their customer speedily. Order fulfillment lead times: Supply chain integration also reduces order fulfillment lead times by having exact quantities on-hand when needed . Cost reduaction: One way of cost reduction is to reduce cost of inventory. Another is sharing of resources with your chain partners and also by reducing product development cost through integrated process. Some other benefits includes: Handle unexpected challenges More open and trusting relationships enable more accurate information to be shared on more timely basis. This helps in making Supply chain partners better able to foresee their collaborators needs and handle unexpected events (e.g unique or special requests ) Productivity One of the most important benefit due to which organizations are adopting SCM is to increase revenues and decrease costs. Productivity is the ratio of Outputs/inputs. if planned and managed correctly, changes in supply chain relationships can help in producing same outputs with low cost of inputs and ultimately revenue increase . This doubleimpact of supply chain management is motivating factor for organizations to build strong relationship with chain partners in order to constantly reduce the costs of purchased items and to work with them to improve their processes in ways that increase productivity. Product innovation lead times, Collaborative product development help to minimize product innovation lead time. Involvement of all the partners results in higher quality,lower cost and less time to market. To gain these benefits there should be a need to build strong relationship base on trust and communication is necessary to share technology, co-locate personnel, and accept supplier-generated design improvements. Overall product quality Through supply chain integration it is possible to shift the responsibity of quality to the supplier. Better quality is assured by supplier certification programs . Barriers Inadequate information system: Inadequate information system is that lack in quantity and quality of information if not enough information is shared or the information shared is of little value strategic SCM may fail. Lack of willingness to share risk and rewards: As employee dont have clear understanding of what SCM is and how will benefit their job so they are not willing to share their risk and reward. Lack willingness to share information: Lack of trust is one reason that people are not willing to share information openly .because they have fear that if they share their weaknesses with their chain partners then they might use their weaknesses against them in near future. So Trust is pre-requisite in effective supply chain management. Lack employee empowerment: Lack of employee empowerment is a barrier to SCM to be successful. As employee empowerment is one way to motivate employees to participate in making SC collaboration successful. Employee empowerment is a form of decentralization it means giving employees the power to make decisions regarding their job and tasks. One of these decisions includes making purchasing decisions .i.e. when and how much is to be purchased..This will leads to successful implementation of Just-in Time manufacturing concept. Measuring customer demand: Accurately forecast customer demand is very important for successful SCM integration . In case manufacturers and distributers fails to accurately forecast customer demands then there are chances of stock outs and organizations face difficulties in maintain adequate inventory level. Some other barriers includes: Organizational boundaries There are two kind of boundaries in any organizarion intra and inter-organizational boundaries. These boundries should be removed for successful supply chain integration. For successful supply chain integration intra and inter -organizational boundaries should be removed. inter -organizational boundaries overcoming the company boundaries and working closely with suppliers and customers. (i.e., functional, business process, information/materials flows, and information/communication technology integration) intra -organizational boundaries Integration between different discipline and functions, such as manufacturing, distribution, marketing, accounting, information, and engineering. Measuring SC contribution, à ¢Ã¢â€š ¬Ã‚ ¦Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒ ¢Ã¢â€š ¬Ã‚ ¦Ãƒ ¢Ã¢â€š ¬Ã‚ ¦. Measuring Supply chain contribution is very important . these four measures can be used to measure supply chain contribution. Delivery: percentage of entire order deliver to the customer when he or she wanted it. Quality: for this purpose Customer satisfaction and customer loyaty is checked. Customer satisfaction includes giving customer what they expects. Customer loyaty is the percentage of customers who still purchase their products after purchasing once. Time: order fulfilment lead time is effected by inventory level. For total order-fulfilment lead time, first The time spent in inventory should be computed for each part of the supply chain (supplier, manufacturer, wholesaler, and retailer) and then added. Cost: measure cost along the supply chain is to measure efficiency in value added or productivity. One measure of efficiency is as follows: Efficiency = sales cost of materials / labor + overhead Lack resources for SCM Resource constraints represent Serious hurdle in supply chain integration efforts Although companies are trying to best utilize the people resources that they have, but due to their nature of always trying to do more with less, create problem of lack of resources. e.g The managers who are Conside to be best for handling supply chain initiatives because of their experience, work ethic, creativity, technical knowledge, and personal credibility are always in high demand. interviewed managers identified other critical resources constraints including capital and technology Bridges Adequate information system: EDI LINKAGES: ERP system is a single unified system in which several computer hardware and software components are used . This unified system helps in cross functional integration (e.g between all departments , accounting departments, as well as marketing, strategic management, and human resources, in addition to warehousing, Information Technology, logistics, and production. ). Organizations adopt ERP system in order to integrate data and process into a single unified unit rather than trying to synchronize data and process across different systems Sharing of risk and reward: Interview manager also highlighted the point that in order to build closer relationship they share both Risk and reward with their chain partners. Frequent communication: Open and clear broad line of communication should be develop (Mohr and spekman (1994)) Senior management interaction: Top management is responsible for integrated supply chain management. Only senior manager can remove the walls between the organization and between the organizations. Supply chain training: As supply chain is becoming more popular and technology focused ,the individuals directly involve with it are required to give additional training. Some ways of giving training to individuals are On the job training Take classes out of work Online training Some other bridges includes: Suppply base reduction, Vendor managed inventory (vmi), Use of total cost analysis, Common goals and shared mission statement, Use of cross-functional teams and cross-functional processes Suppply base reduction: Supply base reduction is use by the firms to enhance quality , increase responsiveness , and reduce cost . Coke has adopted N+1 rule of thum for determining maximum number of supplies.It means they have just 1 more supplier then required. VENDOR MANAGED INVENTORY (VMI). Supplier is responsible for managing inventory at customer s location .Customer is not required to reorder .Its the duty of supplier to maintain the stock of customer at optimum level. Use of total cost analysis As we all know that Competition in todays markets is much more then before.so in order to compete in market , organizations need to offer products at low price and high quality. Through SC collaboration it is possible to reduce Total production cost . by having long term relationship with supplier, supplier reduce the cost of their supplies.in this way total production cost is reduced. Common goals and shared mission statement For SCM cooperative efforts to be successful, increase understanding and respect for partners businesses is very important. This process involves common golas and shared mission statement.When they all have a common goal , combine efforts are made to achieve that goal .And decisions are made for the success of each party. Use of cross-functional teams and Cross-functional processes Effective supply chain requires coordination across businesses and within the business. Coordination within the business is possible through Cross-functional teams and process. . For example, a cross-functional team is often used to plan and control the master schedule for manufacturing. The team consists of representatives from marketing/ sales, production, human resources, and accounting/ finance. The team develops a forecast of future expected orders, plans the capacity of manufacturing, and schedules customer orders. Everyone then agrees to work toward executing this plan. Without a cross-functional team of this type, marketing makes a forecast, production uses a different forecast to plan production, and the capital is not made available to provide the capacity needed. Clear Alliance management guidelines. alliance management techniques, none of the interviewed firms have every one in place. Clear roles and responsibilities are defined and communicated. Risks and rewards are shared on a mutually acceptable basis Technology linkages can be used to routinize information exchange. Overall product quality Through supply chain integration it is possible to shift the responsibity of quality to the supplier. Better quality is assured by supplier certification programs . Conclusion and Limitations This article attempts to identify potential benefits ,barriers and bridges of successful implementation of SC integration . Results shows that all chain partners are enjoying many benefits from SC collaboration. Primary benefit mentioned by all chain partners is Customer satisfaction. In supply chain ,Supplier want to satisfy their customer (i.e. manufacturer) and manufacturer want end user to be satisfied. So for this purpose they must be aware of what customer expects from the product or service and then make efforts to meet their expectations . SC manager ,supplier and retailer do not share the same values and beliefs regarding the primary barrier and bridges of supply chain management. SC manager identify human factors as the primary barrier to SC collaborati