This report describes project work carried out in the Faculty of Arts, Computing, Engineering and Science at Sheffield Hallam University between June 2009 and January 2010.
The submission of the report is in accordance with the requirements for the award of the degree of MSc Logistics and Supply Chain management under the auspices of the University.
ANALYSIS OF THE ARGUMENTS FOR RESTRICTING THE SUPPLY CHAIN TO EUROPE
This dissertation briefly discusses about the supply chain issues faced and their impact with respect to global supply chain. Also discusses about the need for smarter supply chain. In the recent European Union policies and trading benefits, a study is done on why not to trade locally than internationally by utilizing a proper supply chain system.
This report analysis will also discuss about the recent developments in supply chain management that have concentrated on the benefit of global supply chain.
The project investigates the case for limiting the supply chain to organizations within European Commission. In particular it identifies when it is better to source locally rather than globally.
BBC British Broadcasting Corporation
CIBC Canadian Imperial Bank of Commerce
CIPS Chartered Institute of Purchasing and Supply
CSCMP Council of Supply Chain Management Professional
EC European Commission
ECB European Central Bank
EIA Energy Information Administration
EMU Economic and Monetary Union
EU European Union
FDI Foreign Direct Investment
GDP Gross Domestic Product
GM General Motors
GVA Gross Value Added
ICT Information and Communication Technologies
IMF International Monetary Fund
NBER National Bureau of Economic Research
PLC Product Life Cycle
PSC Procurement Strategy Council
Q3 Quarter 3
RFID Radio Frequency Identification
RSCM Reverse Supply Chain Management
SME Small and medium enterprises
TEU Twenty-foot equivalent
TPR Trade Policy Review
UN United Nation
WTI West Texas Intermediate
WTO World Trade Organization
CHAPTER 1: Introduction
This chapter discusses about the general agenda of research involved. 1.1 gives an outline about the background of the research. Section 1.2 will state about the objectives of the research. Section 1.3 will state about the scope involved and section 1.4 will present a structure of the dissertation and some brief summary of each chapter. In this section the reader would gain a bird’s eye image on what the research is about.
1.1 Background of Research
The supply chain for the future is not to wait and react as the traditional way but the attitude is “drive fast”. Because of the demands, new technologies and new capabilities the vision on supply chain needs to be a more monitored and a smarter supply chain is what the world is looking for. After globalization the world has become a single unified market and the needs for trading is effectively high with more collaboration strategy. Due to globalization the recession which started in United States in financial crisis 2007-2009, it had spread across the world because of the inter dependence in global economy which resulted in a major downturn. According to IMF (international Monetary Fund), an economic growth of less than 3% or less is considered to be as a global recession. The recession has hit almost every country across the globe and after experiencing the tough time each one of them wants to self sustain in their internal economy.
Because of the outsourcing mostly the products across countries away from Europe, It has been become in a format that Europe have disabled in some fields for the future. Either we would be transferring our industries to make as foreign direct investment in other nations or we would be making products based on our requirements in their specialized fields which would be in more dependent criteria as which can’t be produced in house. Manufacturing companies and the business nowadays is going down and they are forced to think for a new way to compete and to produce products in cost effective manner and more customer oriented. The survival had become an important issue for the industries along with competition. Now it has an impact on the unemployment as because of companies started to move their new units in other countries because of cheap labor and availability of resources. Which in turn is a huge lose for the country and for the future as it would be affecting the countries growth as a whole.
There are number of other strategies that have made the companies to go for a change in supply chain to get rid of various issues they experienced in the past. The mobile industry such as Nokia produces mobiles with various advance technologies and manufacture across the globe. The theft in the technology and the innovations of it has lead the local Asian market for an availability a far cheaper mobile with all the technologies of Nokia in local brand names. This makes the original manufacturer a vulnerable market and looses the value for product. Similarly, the Hongqi HQD is the car model which was released by manufacturer of china which is as same as Rolls Royce Phantom model. In automobile sector, Daewoo Matiz verses Chery QQ, Vauxhall Frontera verses Landwind, Honda CRV verses Laibao SRV, Mercedes C verses Geely Merrie 300, Neoplan Starliner verses Zonda A9 (Bus Model), Smart verses er. Chinese Smart, Toyota Prado verses Dadi Shuttle, Nissan XTrail verses Greatwall Sing, BMW 7 verses BYD F6 are the very interesting copied models far across every company of the world’s luxurious cars been produced in China in a large scale industries with conveniently a lower price. The interesting news is all that these cars are not only look alike the same in appearance and aesthetic, but also the performance and quality records is being similar to the original ones. The international court which handles these cases results in vain for the car manufacturers as the design produced has some variation than the copyrighted original ones. It crosses from automobiles, electronics, computers, pharma industries, telecom industries, electrical items, aerospace etc. The original origin company loses a very high investment in research and development to produce a new product and the rate of return for them takes ages than the actual predicted period. Shutting down or transferring the production plant has also become a part for industries. For example, Vestas, a wind power manufacturing unit had built a new wind turbine production plant in China due to the local market demand and thereby keeping business profitable.
The purpose and motivation for me to study in this topic is because I had been studying the various reasons behind the problems that the companies faced during recession and hard to survive criteria with more problems leaving them to bankruptcy. Even the giant manufacturers in automobiles such as General motors, Ford etc, were one of the victims who were about to face the bankruptcy. The other reasons includes the design theft, information leakage, irresponsive supply chain strategy, poor visibility in supply chain, vendor management, gap between supplier and customer in 3T’s (time, Transparency, Trust) , degree of control, responsiveness (change in market demand), lead time issues, global CO2 emissions, etc are the other threatening factors what the Business face. Hence, I decided to come up with a further study and development of my knowledge on these areas and come out with a report regarding the various controls that management could be able to gain to trade within near shore to survive and what are the strategies can be adopted to restrict the supply chain within Europe.
This study has basically two main elements which deal about the various past experiences faced by the companies in sourcing across supply chain as well as future supply chain needs and the benefits and positive factors that show a better scope in near future for European market. It deals with the various concepts of supply chain, relationship management strategy in sourcing, and some strategies followed by world class companies.
I believe that this dissertation would be useful as a reference for sourcing companies in future as well. Student might gain some benefits from this dissertation as this helps students to further understand the theories and other concepts involved in supply chain that have been dealt while considering some real case examples.
1.2 Objective of Research
The aims of this dissertation are basically:
1) To analyze the current and past strategies in supply chain issues
2) To analyze about the expectation for future supply chain
3) To analyze the about the advantages in trading within European Union
4) To analyze the impacts of recession on Europe and UK
5) To study the various techniques used by the world class companies to overcome the supply chain issues
1.3 Scope of Research
The scope has been narrowed down to European market in this research. The area of research has been identified after a deep analysis on the literature review. The literature review gives a general idea and background about the various supply chain requirements about the past and for future. The study is discussing about history of the European Union and trading benefits. The comparisons of the advantages and the benefits that could be available in the Europe have also been discussed. The limitations are that it is a general idea about the various issues in supply chain and a theory behind supply chain. The scope environment is for the very big companies who has already started practicing near sourcing and for the medium size companies. It would not be a better option of trading for the small companies.
1.4 Structure of thesis
Chapter 1: Introduction
The background of this dissertation will be introduced in this chapter. The objectives of the research are stated. Scope of the project is identified and the structure of the thesis is presented. The reader can obtain an overview of the thesis from this chapter.
Chapter 2: Supply chain and Issues in Supply chain
All the relevant information and materials has been gain from journals, articles, news, magazines, reference books and internet will be summarized, concluded and organized in a systematic way in both chapter 2 and chapter 3. In this chapter, general information about supply chain and Issues in supply chain faced will be presented. About the supply chain, smart supply chain, traditional issues, credit crunch impact on supply chain, various issues faced by the current and past sourcing business faced are discussed. The contents has discussed about the past and the present scenario.
Chapter 3: European Union benefits and sourcing strategies
This chapter mainly concentrates on the EU benefits provided for its fellow country members and the various advantages it has for the near and long future. The discussion about the logistical issues, Impact of recession on EU has also been made. Reader can identify a general idea about the benefits of EU for the future in trading within Europe.
Chapter 4: Methodology
This chapter discusses about the research design and methodology employed in this research. This report would carry based on the study on articles, journals, up to date news and reference books. In the literature review part, all the relevant information is compiled based on the summary of reading of reference books, journals and articles.
In the case study part, several case studies of strategies adopted by world class manufacturers to counter the recession will be discussed. The strategies included the manufacturing strategies and marketing strategies.
Chapter 5: Case study and Discussion
In this chapter, several strategies adopted by various world class manufacturers are presented and some discussion will be made. The discussion part includes the understanding and comparison of the literature review with the case studies towards the strategy.
Chapter 6: Conclusion and Recommendation
This chapter will summarize this whole dissertation and point out several vital of the research. Limitation in this research will be carried out and recommendation for future research would be made.
Chapter 7: References
All the sources for this dissertation will be arranged according to alphabetical order in this chapter. Readers can refer to the sources for further study.
CHAPTER 2: Supply chain and Issues in supply chain
This chapter discusses mainly is to present some literature review and theory from journals, conferences, magazines, text books and online news. As it is literature review all the latest information is quoted and are compiled from internet. Section 2.1 share with a general introduction on supply chain management and the traditional supply chain management worries. Section 2.2 addresses the smart supply chain and the expectations in the smart supply chain and need for it. Section 2.3 cope for global supply chain issues faced while recession and before. Section 2.4 handles the issues in supply chain faced.
2.1 Supply Chain Management
As per CIPS the definition of Supply chain could be defined as “The supply chain conceptually covers the entire physical process from obtaining the raw materials through all process steps until the finished product reaches the end consumer. Most supply chains consist of many separate companies, each linked by virtue of their part in satisfying the specific need of the end consumer.” Supply chain management may be thought of as the management of all activities aimed at satisfying the end consumer; as such it covers almost all activity within the organization. It has been suggested that it incorporates a number of key success factors which include a clear procurement strategy, effective control systems, and development of expertise. Supply chain management therefore represents and reflects a holistic approach to the operation of the organization.
As per Stevens.J (1989), supply chain could be defined as a system whose constituent parts include material suppliers, production facilities, distribution services and customers linked together via the feed forward flow of materials and the feedback flow of information.
Supply chain management is the oversight of materials, information and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. The efficient supply chain management system is the one which concentrates in reducing inventory. The flow in supply chain is divided in to three main streams: the product flow, the information flow, the finances flow.
2.2.1 Traditional Supply chain issues
Supply chain is not a very new term in business and management. Since the day from which trading begun in the world, supply chain has been a part of the business. The overcoming of the current issues and risks involved has become a part of supply chain management challenges.
The four level supply chain issues stand in upstream from market place via the retailer, downstream flow activity, distribution and warehouse to factory and material flow in the form of products. There are more driving forces in a supply chain based on the industry because of the value adding operations involved. Based on (Towill, D.R., 1992), the light of information available the issues what a supply chain would get struck are perceived demand for products, which may be just a forecast from sales department, a production or value added process, information on the current performance, disturbance owing to machine / equipment or breakdowns, decision points, where the information is brought into action, transmission lags, decision rules, which is taken based on various internal decisions made in company for changing stock levels, placing new orders, etc.
The basic problem in supply chain is the demand forecasting. The operations in the supply chain gets complicated by the demand forecast (Forrester, J.W. (1961)), The smaller the lead time has also a very important and critical role to play in determining the stability of supply chain (Inger et al.), especially as Companies move into just-in-time (JIT) operations. In practice JIT pushes the effects of unpredictability upstream in the supply chain (Mallman, D. (1995)). Apart from the lead time cycle time involved plays a very critical role. In a discussion of Dr. Carlos Mena, from Cranfield University, explains the longer distance movement is the more the cycle time involved in the supply chain. Where the problems faced by the companies include the degree of control, lead time issues, additional inventory, and most importantly the cash tied up in a single place for a very long time which could be used by the companies for various other investments and the fluctuating interest rates across the companies for its money value is an interesting issue to concentrate. Other problems also include the responsiveness of the market that involved in the cycle time and delays or because of the excessive cycle time makes a very big problem and leads to trade off.
The other issues faced in the traditional supply chain as per the report by S.Mehra on International journal of production research(Aug 2005), are the strategy involved in procurement as competition on product and price, driving inventory out of supply chain, complicated Communication towards supplier making complex Supplier relationships, higher customer expectations and higher variability in demand, Contract complication leading to huge loss of business, bad Anticipation in supply chain, bringing more suppliers and going for new products are getting more complicated, achieving the entire supply chain visibility and responsibility of suppliers and customers towards the requirements, Responding quickly and critical understanding on the business on contribution on revenue and Real time information sharing.
2.2.2 Smart Supply Chain
The smart supply chain is the answer what the companies are expecting for because of the issues in supply chain faced by them and the need to go for a permanent solution. They have become used to supply chains day to day challenge because of the repeating issues.
The smarter supply chain is nothing but monitoring the entire supply chain design with more focus on transparency in entire chain with more interconnected in network and relatively a good level of collaboration with supplier and customer. The following are some of the components of the smart supply chain and some discussion on its advantages have been cited.
Supply chain reengineering:
Supply chain problems are acute with long lead time replenishment and maintaining a believable and tolerable customer service in product availability. The supply chain reengineering is the key process of identifying and designating specific tasks to the staff by making a complete involvement of staff with a two way communication in terms of openness from management.
It is atomizing the cost and time over improving the customer experience. Modifying the bad practices by identifying from the experience is a fundamental thing. Reducing cost is only key term in order to maintain and grow with margins in the current scenario. Considering the facts from the customer perspective and designing towards the source of the goods. It is done by gathering data, drawing the process map ideally starting from the customer point of view defining the problem statement, specific goal and measurable objective. A structured decision making system should be made based on prioritizing the resources and cost based on the fine target specified in the problem statement. These will give an idea of the actions to eliminate or to restructure the process for obtaining more efficient organizational structures. Challenges in current thinking give a more insight into the problem and which gives a prioritized list of alternatives to face the challenges. Planning state of identifying the causes and preventive actions should be analyzed to restructure the design or process model recommending the risk considerations. . The hardest part of reengineering is not process redesigning it but to implement it. It involves change in culture and behavior not assistance. Active tracking is needed and degree of seriousness only defines a success or failure scenario in redesigning.
As per the case study done by Littlewoods chain stores, the initiatives taken on reengineering includes a strong focus on customer management, redesign of the entire supply chain network from suppliers to stores in replacing the distribution chains and cross docking “flow through”, rebalancing the supplier base from far east to local procurement for quicker lead time and quick response, making a strong partnership with suppliers, evaluation of transportation costs by rationalizing the practices to single carried containers, reassessment of physical handling patterns, new design for better tracking and managing both product volumes and financial implications providing a scope to accelerate product flow in a more informed and cost effective way, an organizational aligned way and focus on the entire supply chain of improving the total performance and customer needs.
Supply chain & E-Procurement
As a major part of supply chain management (Leenders and Fearon, 1997; Monczka et al., 1997), supply chains in procurement are traditionally supported by information technology. The main idea of e-procurement is to include the end-user (requester) in the procurement process via an electronic multi-vendor catalog and to close the process gaps (e.g. re-entry of data) in the supply chain for indirect goods (Neef, 2001). According to Dolmetsch et al., (2000), e-procurement deals with the management of supply chains in the procurement of indirect goods are based on Internet information systems and also e-markets. The e-procurement reduces the operational functions, with increased efficiencies regarding the process and procurement costs. (Aberdeen Group, 2001); According to these studies,(Eyholzer and Hunziker, 2000; Arthur Andersen Business Consulting, 2001). e-procurement enables companies to decentralize operational procurement processes and centralize strategic procurement processes as a result of the higher supply chain transparency provided by e-procurement systems. The use of technologies like Internet in procurement is concentrated mainly in realizing the needs and to react faster and in more efficient operational procurement processes which bypass the purchasing department and enable those people to concentrate on more strategic tasks (Giunipero and Sawchuk, 2000;). In e-procurement, end users could directly search for and select products in electronic catalogs which are authorized and negotiated by strategic procurement in advance example- E-bay, Amazon etc.
The issues are really a challenge in identifying the right e-procurement strategy which is crucial to the success by selecting the right commodity of a company’s solution. A second strategy is one which uses outwardly hosting catalogs on a supplier’s website is also could be called the punch out mechanism. The punch out scenario helps customers to access external catalogs via their own e-procurement system (Kalakota and Robinson, 2001). A third strategy would be the use of external multi-vendor product catalogs that are hosted on electronic marketplaces. Similarly, implementing an e-procurement system in isolation without considering the entire procurement process and the systems involved will not be sufficient (Deise et al., 2000).
Technological approach With today’s emphasis on the need for improvements on cost cutting and streamlining expenses, many companies are looking out for improving their bottom lines with more effective supply chains. Technology implementation is a key term which could be used in supply chain to relate and improve the supply chain beneficiaries. By understanding the process clearly involved in supply chain processes makes supplier collaboration on a whole leading a better job in avoiding risks and much lesser repetition of mistakes. Usage of technologies like RFID, simulation, better communication software etc, leading to an advantaged scenario in understanding and maintaining supply chain visibility, online tracking, traffic management, warehouse management, reporting and analysis, order management and labor management.
In the Supply chain digest 2007, the various supply chain technologies and strategies that could be implemented in supply chain are cited.
E-auctions – for bidding contract,
Labor management system in distribution – a collaboration of software, engineering and mindset to improve the logistics productivity
Spend management visibility – software used to calculate the spending of company, when, where and with what vendors providing the expensive vendor management
Demand management – by utilizing the use of technological tools, integrating the demand and sales side of the company by unifying the financial and operations plan. The consistent feedback on a regular basis brings about a structural demand.
Supplier portals – providing a demand visibility from purchase order to advance ship notice and generating an inbound shipment management by providing barcodes, RFID or other automated tracking technologies.
Network optimization – supporting global sourcing strategies, more short time inventory planning, new product introductions, sales and operations planning could be optimally balanced.
Transportation management system – software technologies used by shippers to calculate, plan and execute connection electronically with carriers by reducing costs optimal mode of transport selection, carrier assignment, consolidation of shipment and use of continuous moves in freight.
Strategic / Global sourcing – More integrated approach towards supplier selection and procurement considering the facts of time, cost, purchasing power by considering the strategies tied to off shoring and global sourcing strategies.
Wireless in warehouse – usage of wireless technologies inside the warehousing leads to a clear picture of the stock / inventory available and helps in calculating the cost involved in storage and money as inventory. As well as picking in warehouse should be automated where possible, so more visibility is available.
Yard management system and Dock door scheduling – It gives a visibility in yard inventory and schedules, executes on inbound and outbound docks.
Reverse Supply Chain management (RSCM)
The Council of Logistics Management defined reverse supply chain as “the process of planning, implementing and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.”
RSCM is defined as the effective and efficient management of the series of activities required to retrieve a product from a customer in order to either dispose of it or recover value (Prahinski and KocabasoÄŸlu , 2006; Defee et al., 2009). Fleischmann et al., (2000) base the growing importance of RSCM basically on agreements for excess products and extended producer responsibilities. As per Harvard Business review 2002, In general, the companies that create what so called as a closed-loop system, have enjoyed most success with RSCM by having a close coordination in their forward supply chain. For example, they make product design and manufacturing decisions with eventual recycling and reconditioning in mind.
The definition of reverse logistics from an environmental perspective in the forward supply chain is focus on taking return of recyclable or reusable products and materials. Reverse logistics, flow of materials from the customer to forward supply chain, is the least studied operational function (Sarkis, 2003).
2.3 Global supply chain issues
The growth in oil price will always lead to a substantial slow down in international trade because of the transportation dependency on oil market. According to the report of EIA (Energy Information Administration) (2007) the 96% of the US transportation works on the fuels, 43% of the industries runs on the fuels, 21% of the residential homes and commercials and 3% of the electric power works with the help of the fuels. This means that the US economy is related to each other and this made an impact in all areas due to the increase in oil price. In the June 2008 the price of WTI reached the maximum and that was 145 US dollars per barrel the all time highest price which US market has seen. So this made the price for the gasoline high in July 2008 to 4.10$. Based on a CIBC report 2008, the trade price increases by 1 % in every increase in 1$ for a barrel. Because of the increase in oil price directly affects the wages to decline and increased product cost. The increase in oil prices leads to elimination of importers and need to go for local suppliers. The analysis of rising oil prices would impact profitability as well as the core supply chain design. The impact for a supply chain design would lead to tradeoffs among transportation, inventory, and distribution and in all sections of supply chain. By Dr Bassam Fattouh (2007), the volatility of oil prices had lead to a challenge for the supply chain and could slow down economic growth, also can cause inflation pressures, can Create global imbalances, Volatility increases uncertainty & discourages much needed investment in oil sector, tight market conditions raised fears about oil scarcity and concerns about energy security.
The measurement of supply chain collaboration has received a little attention to date (Sanders and Premus, 2005: Jap, 1999: Injazz and Paulraj, 2004). At about that time, an ongoing discussion emerged that supply chain management should be built around the integration of trading partners (Barratt and Oliveira, 2001), the sharing of information and benefits (McLaren, 2004) and the collaboration of organizations (Patrakosol and Olson, 2006). Collaborative Planning is a first step on the road to Extended Supply Chain Management with specific customers It has a seamless fit with PSC (Procurement Strategy Council) strategy and as such is an excellent opportunity to create Customer Intimacy Through follow up implementations, we can created the chances to start gaining the first Business Benefits. Economist Intelligence unit (2006) says that the cooperation of the government and UN to designate the standards are one of the key issues faced by the SME’s. Manufacturers are more concerned about the interoperability than the responds overall. A majority of survey results cites that trust in payment would be certain as a major factor that assists the companies to integrate their operations with global supply chain. In a report of ECOlogistics (2007) explains the communication gap in between the supplier and customer leads to problems in scalable issues regarding quality. The collaboration missing of the government regarding with the trading sector leads to complication in global supply network. Variation in theme of a support by the market incentives, and networks of local, social, political and moral enforcement leading to missing in regulatory systems. There “glocal” needs to be implemented, which means the global standards in the local market, Which in turn produces cost effective system with improved standards. Public – Private Partnerships in Standards Compliance