Strategic Supply chain Management The Fresh connection game analysis DELHOMME Vincent – u0968054
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Strategic Supply chain Management The Fresh connection game analysis
DELHOMME Vincent – u0968054
1
Executive summary
The fresh connection game that was taking place at the University of Huddersfield gives to the Logistics student a real vision of what logistics operation can be in a simulation game. As David Leach stated: “The Fresh Connection has been a really valuable addition to our final year programme, enabling students to experiment with supply chain theory and techniques developed during their studies.” This report will be an analysis of the strategic management undertake by the “hudd -‐ Team 28” that has been participating the game.
The participants of the game were to endorse the following position:
ü Purchasing Director, in charge of the supplier selection regarding to lead time and Supply chain requirement
ü Supply Chain Director, in charge of planning and logistics decision regarding forecasting ü Operation Director, in charge of warehouse management and bottling and mixing line of
production ü Sales Director, in charge for customer contract and demand forecasting
The selection of strategy was the responsibility of the CEO in charge of the coordination between the different services in order to achieve a positive return on Investment.
The report will review the strategy of the team and the implication with the competitive environment. It will also deal with a financial analysis based on theory and effective choice taken by the team, explaining the reason and the possible improvement that lead to the final round position and finally explain in which extent the final round decision could be improved to sustain and achieve a higher performance ratio.
2
Contents Executive summary ................................................................................................................................ 1
Introduction ........................................................................................................................................... 3
A) Team strategy alignments with competitive strategy ................................................................... 4
a) Main strategy ............................................................................................................................. 4
1) Efficient strategic management process ............................................................................... 4
2) Responsive strategic management process .............................................................................. 5
b) Supply chain Strategy within the Game ..................................................................................... 5
B) Final Round analysis: effect of supply chain strategy on financial performance ........................... 7
a) Analyse of the financial statement ............................................................................................ 7
b) Effect on the financial statement .............................................................................................. 9
C) Sustainable improvement and recommendation ........................................................................ 13
a) How to sustain a high level of efficiency? ................................................................................ 14
b) Long term strategy to achieve best in class performance ....................................................... 16
Conclusion ........................................................................................................................................... 17
Bibliography ......................................................................................................................................... 18
3
Introduction
Strategic management within a logistics and supply chain management company has to deal with several component of the supply chain. Supply chain management is the management that takes place within the supply chain with the aim to link all of the chain link that composes the supply chain. From the purchasing activities to the sales going through the operations and the supply chain, several strategies could have been undertaken.
The CEO of the company has to take decision regarding what to focus on (based on forecasting and demand) and to whom (selection of customer by priority or delivery organized to every customer without any regards to their demand) and also through paying attention to put together all the information given by the different departments.
The above process scheme is showing the interconnectivity between the different departments within the supply chain. The communication process between the different entities is one of the capital issues that company have to faces.
Within the fresh connection games, the aim of the strategy was to improve the return on investment of the company by applying two types of strategy based on two types of characteristic: efficiency, flexibility. According to Fisher, the two types of strategy that are used within the supply chain management have different uses that can correspond to different types of product.
With a difference in terms of product life cycle between the Functional and the innovative products from 3 months to a year for the innovative product to more than 2 years for the functional product. In the fresh connection game, the products were perishable so identify into the innovative product section.
Purchasing Supply chain Operabons Sales
4
A) Team strategy alignments with competitive strategy
a) Main strategy
According to Ballou, Supply chain strategy has three objectives to realise from cost reduction to capital reduction through service improvement (Ballou, 2004). During the Fresh Connection Game, two type of strategy could be undertaken to reach these objectives. According to the demand scope, the supply chain can be drive through either a cost or time oriented strategy. According to Porter, competitive advantage is a core point of competitive strategy (Porter, 1998), where it could be reach through cost leadership position or differentiation position within the market.
1) Efficient strategic management process
The strategy based on efficiency was linked to the direct costs (purchasing and production costs) that could affect the market. “The lower the direct costs, the higher the efficiency scores” (The fresh connection game, 2012). According to Fisher, the efficiency strategy can also be called the lean supply strategy where the reduction of waste lead to the reduction of costs. The aim of this strategy is to make sure that the value created and the cost are minimised via the elimination of waste (Jonsson, 2008).
“An efficient supply chain is distinguished by longer production lead-‐times, high set-‐up costs, and larger batch sizes that allow the efficient firm to produce at a low unit cost.”
(Taylor R. Randall, 2003) The efficiency, if it is the target, that the company try to reach has to implement several
leverage to influence the different department of the supply chain to get in touch with each other in order to create several connection that will enable the company to make cost reduction. This cost reduction could have several faces, from shelf life reduction, to the reduction of permanent employees or via a better selection of the supplier and lead to implement an efficient supply chain strategy.
The principal aim of an efficient supply chain management have also to deal with continuous replenishment to make sure that the order could be fulfill without falling into storage disruption (Christopher, 2004). In the case of efficient supply chain management the competitive advantage can only be translated as a value advantage where the company is not necessary seeking for a high productivity advantage but foe a high level of service that will help to earn the customer loyalty, and then set up a long-‐term partnership.
5
According to Fisher, the two types of strategy that are used within the supply chain management have different uses that can correspond to different types of product.
“Functional products requires an efficient process; innovative products, a responsiveness process”
(Fisher, 1997)
The product life cycle does have an impact on the demand that customer makes. To answer this demand the efficient supply chain management strategy does anything to maximise the reliability of the delivery to ensure a long term partnership. While on the other side the responsive strategic management is trying to achieve a high level of reliability through an adaptable supply chain and the reduction of stock out.
2) Responsive strategic management process
On the other side the strategy based on responsiveness, that have clear goals which are applied the main principle of the logistics. The Goal of Responsive supply chain strategy is to deliver to the customer what they want, when they want it and at the right price. This strategy helps to build a strong customer loyalty offering a high level of reliability at any time.
“A responsive supply chain is distinguished by short production lead-‐times, low set-‐up costs, and small batch sizes that allow the responsive firm to adapt quickly to market demand, but often at a higher unit cost.”
(Taylor R. Randall, 2003) According to many strategic management studies, the responsive strategic management has
to set up it functioning according to the forecasting to match customer’s needs. The company has to make sure that product is available at all time to ensure that customer demand even when the demand is fluctuating, are always met.
The principal goal of the Responsive supply chain is to ensure a quick response into the logistic stream. According to Fisher, this strategy has quicker reward when investing into it because this type of strategy has been built to create a high return on investment through the implementation of high level of reliability and so on the customer’s loyalty. This responsiveness enables the company to set up competitive advantage, through strong customer focused management and a capital reduction that can be translated to the minimization of investment along the supply chain and only seeking for the reduction of stock cost.
The responsive strategy is based on the Just in time concept where the customer demand are leading the whole logistics process and help to avoid obsolescence of stocks. The reduction of this cost and the responsiveness of the company then lead to service level improvement that has for effect a higher customer loyalty (Christopher & Peck, 2003)
b) Supply chain Strategy within the Game
6
The aim of our supply chain strategy was to reach the stage of the integrated supply chain with the main goal of achieving a high level of efficiency through the reductions of costs. Along the Fresh connection game, the “Hudd Team 28” had for goal to achieve an efficient supply chain strategy in order to implement a long term partnership with their customer. This strategy has been implemented along several decisions taken by the CEO of the company through the different service.
On the supply chain side, the main goal was to reach the lower level of obsolescence of the component as well of the finished product. Several issues rose from the miscommunication between the different fields of operation during the early round.
However the final difference between the two last round have shown that an efficient strategy could make changes on the long term basis , with a difference of +18,37% in the ROI. That allows the team to end up with a positive result. Through the reduction of cost on the different department the team has managed to reduce stock cost and handling cost. Moving from a cost reduction to capital reduction also act on flexible manpower and enables the company to finish the competition with a positive operating profit.
Within the supply chain department, the reduction of the stock cost and handling cost has to be handled by the safety stock management. The relationship between customer management undertaken by the sales department and the supply chain management affect the decision that has to be taken in order to maximise the efficiency of the company.
7
B) Final Round analysis: effect of supply chain strategy on financial performance
a) Analyse of the financial statement
A financial analysis is made out to identify the different area where a company is either profitable or efficient. The financial analysis is generally used to determine if the company is sustaining for investments. Measuring profitability and efficiency can be done through various ratios calculation (Ryan, 2008).
1. Financial Statement along the 6 Round of the Fresh Connection game:
2. Ratios analysis:
8
The following chart is showing the ROI (return on investment) of the Hudd – team 28 along the 6 Round of the game:
In order to implement an effective strategic management along the supply chain the company has to use leverage to act on their ROI, this different leverage has been evaluated through ratios that enable the company to monitor and control it growth over the game period.
The last round played by the Team 28 has been the most profitable. This could be attributing to a better management of the different department and an increase in communication between the services.
-‐20,00%
-‐15,00%
-‐10,00%
-‐5,00%
0,00%
5,00%
1 2 3 4 5 6
ROI
ROI
9
b) Effect on the financial statement
The ration analysis that has been undertaken using the financial statement has been separated between two different areas: the profitability ratios and the efficiency ratios.
1. Profitability Ratios:
Financial ratio that has to be calculated is linked to the efficiency of every department that compose the supply chain, according to the revenue they generated and the cost they had put in place to maximise the revenue (Atrill & McLaney, 2008).
Assessing the profitability through a logistics company is dealing with several variables such as customers’ expectations, cost reduction and capital utilisation.
The previous profitability ratios show that the return on investment of the companies went through a deep hole to finally come out positive, showing that the team has been more profitable on the last round. The principal goal of the Team 28 has been to achieve an efficient strategy more than a responsive strategy that will have led to a more profitable return on investment. Along the game the strategy undertaken was to set up at a minimum level, the production cost through influencing the permanent employee and by using the production line the most effectively in all field of area.
Along the Supply chain department the principal issue encounter at the first round was a high level of raw material and finished product obsolescence, which influence the cost of goods sold and affected the operating margin. As the profitability ratio table is showing the ROI has been affected between round 1 and round 6 but the gross profit ratio reflecting a marked improvement in cost management.
Round 1 2 3 4 5 6
Operation margin / net profit ratio (%) -‐8.99% -‐26.38% -‐22.57% -‐9.21% -‐22.82% 0.34%
Grossprofit ratio (%) 40.35% 36.61% 38.31% 37.57% 31.43% 40.32%
Operating ratio (%) 59.65% 63.39% 61.69% 62.43% 68.57% 59.68%
ROI (%) -‐6.86% -‐15.92% -‐15.34% -‐7.33% -‐18.03% 0.36%
Profitability Ratios
10
The net profit ratio and the ROI shows a utilization of the capital and the revenue has been correlated to each other, where investment affected the revenue in a way that machinery and software investment have been contributing to the increase of revenues. The operating ratio that shows the cost of goods sold compare to the revenue is creating value along the supply chain by controlling the cost engaged into the production and the revenues that it creates.
The gross margin profit represents the difference between sales over the cost of sales, it represent the real profit that been made from products sales after putting cost of production away (Perret, et al., 2007).
2. Efficiency Ratios:
The efficiency ratio show that the earning of the company compared to the capital that has been employed has been for enhancing the utilisation of the supply chain. An enhanced effectiveness by adapting the means of production to demand, and a better management of storage cost, but also a better management of sales and purchases. Each department within the company can manage his own efficiency related to the revenue (Atrill & McLaney, 2008).
The production ratio show that production cost have been enhanced through the different round leveraging on the employment while the Stock ratios is showing an considerable improvement along the game period regarding at the difference between round 1 and 6.
-‐40,00%
-‐20,00%
0,00%
20,00%
40,00%
60,00%
80,00%
1 2 3 4 5 6
Operabon margin / net profit rabo (%)
Grossprofit rabo (%)
Operabng rabo (%)
ROI (%)
Profitability Ra/o
11
The cost reduction has been effective regarding the “Overflow raw materials warehouse” and “Overflow finished goods warehouse” that has been reduce by 28% and 33%. The cost of scrap product has also been improved with a reduction of 18%. The stock ratio that calculate the relation between stock cost and revenues show that the control over the supply chain management will made the company more effecting by influencing a reduction of cost and generating operational incomes.
Regarding the contract cost that has been run over the game period, the improvement has been total with a perfect management that led to a 0.00% over consecutive period.
The prioritisation of customer has also help to the reduction of cost and taking more detail on quality product expectations.
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
1 2 3 4 5 6
Producbon (%)
Distribubon (%)
Administrbon (%)
Stock(%)
Handling(%)
Contract(%)
Eficiency ra/o
12
The supply chain management that has been undertaken by the team 28 has shown that an efficient strategy is based on a long term perspective, even if the product sold in the game are short life cycle and a responsive strategy will be more accurate (Brealey, et al., 2009). The following table is giving the position that Team 28 has trying to reach and it actual position:
market orientated channels that pass throughseveral organisations each performing value add-ing activities (Fuller et al., 1993). Every organisa-tion contains multiple supply chains, each focusedon specific market requirements and ideallyaligned with fellow supply chain members in aseamless manner (Towill, 1997). As with Skinner’s‘factory within a factory’ (Skinner, 1974) it is alsofeasible to operate several supply chains through asingle factory location, but emphasis must beplaced on segregating the management and opera-tion of each supply chain. Careful considerationmust be given to which resources can be effectivelyshared so as to gain from economies of scale andwhich resources must be tailored for specificsupply chain requirements so as to avoid averagingeffects.
Fisher (1997) explains the need to match theappropriate supply chain management techniqueto product characteristics as shown in Fig. 2. Theinnovative/fashionable products require a respon-sive supply chain in order to cope with demanduncertainty and short product life cycles. Therelatively predictable nature of demand for thefunctional products facilitates a more efficientsupply chain. Fig. 2 illustrates only the twoextreme types of product characteristics; in thereal-world there is a wide spectrum of productswith varying degrees of functional and fashionablecharacteristics. Furthermore, these characteristicsare not frozen in time because as products maturethrough their product life cycles the customer
requirements change drastically. Nevertheless thework of Fisher (1997) is a cornerstone of focusedsupply chain philosophy and is one importantstarting point of our approach.
5. The codification system used as the basisof the generic model
From the left-hand side of Fig. 2 it is clear thatduring this research the challenge of establishinggeneric procedures transferable across businessesand/or market sectors inevitably presented itself.As Garrett Fitzgerald (a former Irish PrimeMinister and economics expert) remarked on suchproblems ‘‘I can see how it will work in practice,but I am still trying to figure out how it works intheory!’’ (McRae, 2001). This statement is ofcritical importance because without a suitablemodel, establishing generic properties in produc-tion economics becomes extremely difficult. For-tunately the concurrent supply chain classificationresearch had already homed in on a possible modelon which the Case Study material could be tested.The latter source data was also considerablyupdated via further structured interviews withthe product champion as exploited in Childer-house (2002). The expected outcome from marry-ing the classification system and the updated CaseStudy is that the system is capable of realisticinterpretation against the present product range:at the strategic level the system identifies howmany concurrent supply chains are required: andat the tactical level how the present products areassigned to their best suited supply chains. It is thelatter problem which is the specific focus of thispaper which is an extended version of Aitken et al.(2001). Special emphasis is placed herein on theimpact of the product life cycle in matchingmanufactured items to pipelines.
The classification system adopted herein wasinitially proposed by Christopher and Towill(2000) following an extensive literature surveyplus their industrial experience in a range ofindustries. They have since shown that a variantof the model may be used to optimally fractiona-lise the relevant contributions of DevelopedCountry in-sourcing to Third World out-sourcing
ARTICLE IN PRESS
Functional Products Innovative Products
EfficientSupplyChain
ResponsiveSupply Chain
Match Mismatch
Mismatch Match
Fig. 2. Matching supply chains with product characteristics(Source: Fisher, 1997).
J. Aitken et al. / Int. J. Production Economics 85 (2003) 127–140 131
13
C) Sustainable improvement and recommendation
According to Taylor R. Randall, Ruskin M. Morgan, and Alysse R. Morton within a Journal of product innovation management, the supply chain strategy that are seeking for competitive advantage are more likely entering the market within an responsive based strategy to then continue on the efficient model, to guarantee a competitive advantage and to set up a loyalty regarding customers to then offer them efficient strategy (Taylor R. Randall, 2003).
The following scheme is showing the relation between the supply chain leverage and their
impact on the ROI of a company:
(Christopher, 2004)
14
a) How to sustain a high level of efficiency?
Supply chain has to be seen as a whole not only as multiple part that interact once in a while. Within the supply chain management the different services has to monitor their activities to determine if their sector is doing good.
The previous ratios that have been calculated in the previous section help to monitor the supply chain strategy profitability and efficiency that led to maximise the ROI. The following graph is showing the evolution of the competitiveness over the time:
(Christopher, 2004)
Though several strategies a company can appraise and maintain a high level of competitive advantage amongst their competitors. Benchmarking which could be defined as continuous improvement and measurement of the product prices and process along the supply chain is one of the examples of the supply chain management.
Yet, to manage with an efficient supply chain the company has to monitor their price advantage, product differentiation and price competitiveness. The utilisation of ratios such as ratios linked to the cost could be used to sustain and enhance business in a way that they are able to calculate the part of the costs that is combusted into the revenue.
However financial analysis has limit and could only give proof that the company is doing well or not, Supply chain directors and other member of the company have to find out what the ratios are saying, they are only consequences helping to find the cause.
15
The implementation of agile or lean strategy will depend on the nature of the product, depending on the lead-‐time and on the demand characteristics. The Team 28 has adopted a lean strategy in order to reduce to it minimum the costs generated along the supply chain.
Moreover the lean management strategy, based on the cost reduction process has it limit. And the future of the fresh fruit company will be to transform it strategy into a hybrid strategy or an agile strategy.
As comparison to Air transport market, improving the supply chain is making the whole participant of it working together through dedicated IT tools, through an increase in communication, in order to implement a high level of responsiveness while a fruit industry as played during the game should more focuses on planning and optimisation.
16
b) Long term strategy to achieve best in class performance
In order to ensure a long term strategy that will help to achieve best in class performance, the team 28 will have to ensure that IT process has been put in place to reduce the miscommunication that had been happened along the game.
A plan of action for future and long-‐term expansion along the game would be to implement continuous replenishment along the stock purchasing methods that will allow either the purchasing and the supply chain to predict and respond to the needs of the customer with more accuracy and will establish between the different service a natural communication process (Gattorna, 2006).
On the sales department perspective it will be appropriate to more to focus on customer prioritization, through technics such as ABC methods and to implement accurate forecasting to reduce the margin of error that the production line have to deal with.
The supply chain department will have to rely on forecasting and purchasing to implement an accurate replenishment of the stock by working closer with the operations in charge of warehousing spaces and could seek every waste that could have been made in order to increase the lean management accuracy. The implementation of six sigma1 strategy oriented will also lead to a reduction of cost through waste elimination with a continuous improvement scheme.
The implementation of system such as continuous replenishment or the calculation of reorder point, EOQ (Economic order quantity), would have a greater impact on the management of the supply chain efficiency by avoiding stock out and obsolescence (Jonsson, 2008).
1“Six sigma is a philosophy of doing business with a focus on eliminating defects through fundamental process knowledge. Six sigma methods integrate principles of business, statistics and engineering to achieve tangible results.” (Six sigma system, 2012)
17
Conclusion
The fresh connection game was an interesting and stimulating competition where each one of the participants could deal with the different position within a fresh fruit company. Such simulation of management allows student to be able to see how a company is working in time consuming environment and where able to organise themselves around the company objectives and positions.
Strategic supply chain management enclose a wide range of strategic issues, about how to run a business in ad equation to which product, to the demand and to the internal/external factors. Businesses are restraint to two main qualities: time and costs; and strategy are in line with them by trying to enhanced or reduce them to make company prosperous and competitive amongst others.
As stated in Strategy analysis and practice book, the example of Wahaha company show that the management strategy within a small soft drink company can actually compete with giant of the industry such as Coca-‐Cola company and PepsiCo (John, et al., 2005).
The strategy is the art of taking advantage of organisation of the structure and acting on the external factors to valuate the company assets at their best.
18
Bibliography Atrill, P. & McLaney, E., 2008. Accounting and finance for non-‐specialists. s.l.:Pearson Eduction Limited.
Ballou, R. H., 2004. Business Logistics/ Supply Chain Management: Planning, Organizing, and Controlling the Supply Chain. s.l.:Pearson Education International.
Brealey, R., Myers, S. & Marcus, A., 2009. Fundamental of corporate finance. In: s.l.:McGraw-‐Hill/Irvin, pp. Part 4 -‐ Financing/Part 6 -‐ Financial analysis and planning.
Changrui Ren, J. D. H. D. a. W. W., 2006. A SCOR-‐Based Framework for Supply Chain. [Online] Available at: https://unilearn.hud.ac.uk/webapps/portal/frameset.jsp?tab_tab_group_id=_2_1&url=%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher%3Ftype%3DCourse%26id%3D_7295_1%26url%3D [Accessed 1 March 2012].
Christopher, M., 2004. Logistics and Supply Chain Management. s.l.:Pearson education Limited.
Christopher, M. & Peck, H., 2003. Marketing logistics. s.l.:Butterworth-‐Heinemann.
Fisher, M. L., 1997. What is the right supply chain for your product?, s.l.: s.n.
Gattorna, J., 2006. Living Supply chains: how to mobilize the entreprise around delivering what your cutomers want. s.l.:Paerson education limited.
John, M., Howard, T. & David , W., 2005. Strategy: Analysis & Practice. s.l.:McGraw-‐Hill Education.
Jonsson, P., 2008. Logistics and supply chain management. s.l.:McGraw-‐Hil Educationl.
Lynch, R., 2009. Strategic management. Harlow: Pearson Education Limited.
Perret, F.-‐l., Jaffeux, C., Fender, M. & Wieser, P., 2007. Essentials of logistics and management. s.l.:CRC Press.
Porter, M. E., 1998. The Competitive Advantage. [Online] Available at: http://books.google.co.uk/books?id=H9ReAijCK8cC&printsec=frontcover#v=onepage&q&f=false [Accessed 25 February 2012].
Ryan, B., 2008. Finance and accounting for business. s.l.:Cengage Learning.
Six sigma system, 2012. What is sigma?. [Online] Available at: http://www.sixsigmasystems.com/what.php [Accessed 2 March 2012].
Taylor R. Randall, R. M. M. a. A. R. M., 2003. Efficient versus Responsive Supply Chain Choice: An Empirical Examination of Influential Factors. Journal of product innovation management.
Taylor R. Randall, R. M. M. a. A. R. M., 2003. Efficient versus Responsive Supply Chain Choice: An Empirical Examination of Influential Factors. The Journal of Product innovation management.
19
The fresh connection game, 2012. Infocenter -‐ The Fresh Connection. [Online] Available at: http://game.thefreshconnection.eu/2011/InfoCenter.aspx?itemkey=instructie_score8 [Accessed 15 Jannuary 2012].
Related Documents
