Project Report-Sakshi Arora(OM)

A Project Reort

On

“Strategic Partnership within Supply Chain”

Under the guidance of

Mr. B.N. SHARMA

Submitted by:

SAKSHI ARORA

Roll No. 1402009258

Centre Code –00963

In partial fulfillment of the requirement

For the award of the degree

Of

Master of Business Administration

(OM)

July 2015 Fall Session

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Bonafide Certificate

Certified that this project report titled “Strategic Partnership within

Supply Chain” is the bonafide work of “Sakshi Arora” who carried

out the project work under my supervision. in partial fulfillment of the

requirements for the Summer Training Project of the Degree of Master

of Business Administration.

He has worked under my guidance.

SIGNATURE SIGNATURE

HEAD OF THE DEPARTMENT FACULTY INCHARGE

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Acknowledgement

I express my sincere thanks to my project guide, Mr B.N. Sharma for

providing me an opportunity to work under his guidance and tireless

support during the course of the project.

I sincerely acknowledge him for extending his valuable guidance,

support for literature, critical reviews of project and the report and above

all the moral support he had provided to me throughout all stages of this

project.

Finally I am indebted to our other faculty members, my friends and my

parents who gave their full-fledged co-operation for successful

completion of my project.

It was an extremely good learning experience.

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Index

Chapter no. Particulars

1.Introduction Summery

2.Background and Problem Discussion

3. Objectives

4.Strategic supply chain partnerships

5.Research Methodology

6.Limitation of study

7.Reference

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Introduction

• Natural Logic has been closely observing supply chain environmental practices and partnerships -- monitoring projects, benchmarking companies, and developing new initiatives for clients.

• Over the last three months, we interviewed senior EHS, Supply Chain and Sustainability executives across a broad range of sectors in order to learn more about perceived challenges and opportunities

– High Tech, Pharmaceuticals, Chemicals, Food and Beverage, Shipping,

Forest Products, and Health care – Qualitative rather than quantitative approach - looking for common themes and insights regarding major challenges and opportunities

• This report:

– contains an overview of our findings from these interviews, – identifies some key implications, and – proposes a potential approach to capturing the opportunity

Summary of findings (I)

• There is growing interest in the opportunity to significantly increase the business impact of environmental and social initiatives by focusing on key customer/supplier relationships.

– Provides a means to engage key decision-makers across the business

• This is being driven, in part, by powerful market trends that increase the attractiveness of a proactive approach to supply chain issues and opportunities.

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– Increasing customer awareness of life cycle environmental and social impacts, creating demand for action ‘upstream’ along key supply chains.

– Regulatory trends creating more compelling case for action, e,g., product take-back, content requirements, etc.

• While most companies report that they still employ an ad hoc, reactive approach to supply chain partnerships, a few leaders are showing the way forward with more strategic approaches.

– Pro-active supplier partnership initiatives driven in part by EHS and/or sustainability issues.

– Systematic approaches to leveraging EHS/Sustainability skills and expertise to enhance customer relationships, build market share.

• A number of critical skill gaps and organizational barriers need to be overcome in order for more companies to take full advantage of strategic supply chain opportunities– Supplier/customer relationships often confined to sales/procurement staff and processes

– Significant gap between people who understand issues/opportunities (e.g.,

EHS, Sustainability) and other relevant decision-makers – Extreme complexity and fragmentation in many supply chains

• A well-conceived strategic partnership approach can address many of these obstacles and create significant value for suppliers/customers

– Systematic approach to identifying and developing new solutions that focuses on areas of greatest business leverage and environmental impact

– Expanded field of view: NOT “How do we improve our own performance?” but RATHER “How can we develop the market positions of both companies?”

– Taking advantage of broader company strategies and platforms for performance improvement.Over the last decades, Malaysian manufacturing companies have embraced a wide variety of

management programs to improve product value and to enhance business performance. In

addition, the increase of competition, global economy and the business challenges have made

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many Malaysian manufacturing companies to integrate diverse competitive strategies into the

operation system. Due to intense business competition in the global arena, manufacturing

companies need to increase their strategic competitiveness. These manufacturing companies can

no longer be satisfied with only one traditional competitive advantage which they could have

relied on previously. At present they have to create multiple possible niches to become more

competitive and productive. An area that the manufacturing companies can focus on is the

enhancement of their supply chain management (SCM) to optimize their outcomes. Interestingly,

several researchers have suggested that the understanding and practicing of SCM is an essential

prerequisite for staying competitive in the global race and for enhancing profitability (Li, Ragu-

Nathan, Ragu-Nathan, and Rao, 2006; Wei, Liang and Wang, 2007; Kim, 2007; Li and Wang,

2007). Cagliano, Caniato, and Spina (2006) highlighted that a huge number of contributions to

the operation management literature are now focused on how companies should integrate their

activities with customers and suppliers, and how SCM practices should be aligned with the

company strategy. Many organizations have begun to recognize that SCM is the key to building

sustainable competitive edge for their products and services in an increasingly competitive

marketplace today (Maheswari, Kumar, and Kumar, 2006; Li and Wang, 2007). Supply Chain

Management (SCM) is one of the most popular management concepts to impact the business and

the logistics concept in the 1990s. The Problems relevant to the concept of SCM include (1) the

lack of research on what it means to practice SCM, (2) how to implement a SCM program, and

(3) how to measure the performance of a supply chain. Many definitions for the supply chain

have been offered in the literature (Harrington, 1995; Davis, 1993; Hammel and Kopczak, 1993;

Stevens, 1989). These definitions are too limited in their scope because they imply that the

supply chain focuses on just manufacturing or logistics processes. Because this research

examines the supply chain as an enterprise-to-enterprise model, the following definition for the

supply chain is used: An integrated collection of organizations that manage information,

product, and cash flows from a point of origin to a point of consumption with the goals of

maximizing consumption satisfaction while minimizing the total costs of the organizations

involved (Caplice and Sheffi, 1994).

A different set of metrics that capture all aspects of the supply chain must be developed. Caplice

and Sheffi (1994) state that measures used to capture the performance of a transformational

process fall into one of three primary dimensions: utilization, productivity, and effectiveness. A

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consortium of companies and academic institutions, under the guidance of Pittiglio, Rabin, Todd,

and McGrath (1994), developed a comprehensive set of agreed-upon The Strategic Supplier

Partnership with Quality and Business Performance ISSN 1985-692X International Journal of

Business and Management Science, 1(2): 129-145, 2008 supply chain metrics that can be used as

standards and can pass assessment using the eight criteria stated above. These measures fall into

one of four categories: customer satisfaction/quality, time, costs, and assets. Research has

indicated that the firms that use a supply chain strategy might use different types of performance

metrics than the firms that do not utilize the concept of supply chain (Chow, Heaver, and

Henriksson, 1994). No research was found indicating whether the firms believed their measures

for evaluating performance are effective, regardless of SCM implementation. The strategic

supplier partnership identifies optimum practices that can facilitate supply chain process

alignment and integration. In order to further expedite collaboration, it is necessary to implement

the latest collaborative information systems that drive efficiencies, performance, and quality

throughout a supply chain (Robinson and Malhotra, 2005). Several researchers suggest that

effective SCM practice has a direct impact on the overall financial and marketing performance of

an organization (Shin, Collier and Wilson, 2000; Prasad and Tata, 2000). In fact, SCM practice is

expected to increase an organization’s market share, return on investment (Shin et al., 2000;

Prasad and Tata, 2000), and improve overall competitive position (Stanley and Wisner, 2001).

Sila, Ebrahimpour and Birkholz (2006) points that in order to achieve high performance in SCM;

companies need to integrate their supply chain partners into their operations. Yet very few

studies have examined empirically the role of strategic supply partnership in the supply chain

management process, as well as its linkage to a firm’s performance. This paper will review the

literature on supply chain management as well as supplier partnership. A model will then be

determined for analyzing these two key variables and their linkage to a firm’s quality and

business performance. At the end the Malaysian Strategic Supplier Partnership Index (MSSPI) is

calculated in the context of product quality performance and business performance to explore the

level of strategic supplier partnership.

LITERATURE REVIEW

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Supply chain partnership is defined as a strategic coalition of two or more firms in a supply chain

to facilitate joint effort and collaboration in one or more core value creating activities such as

research, product development, manufacturing, marketing, sales, and distribution. The objective

of supply chain partnership is increasing benefits to all partners by reducing total cost of

acquisition, possession, and disposal of goods and services (Maheshwari et al., 2006; Li et al.,

2006). Supply chain partnership is designed to influence the strategic and operational capabilities

of individual participating organizations to help them achieve significant ongoing benefits

(Stuart, 1997). Strategic partnership with The Strategic Supplier Partnership with Quality and

Business Performance ISSN 1985-692X International Journal of Business and Management

Science.

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suppliers enables organizations to work more effectively with a few important suppliers who are

willing to share responsibility for the success of the products (Anderson and Katz, 1998; Li et al.,

2006). Strategic supplier partnership in SCM has been reported to yield organization-specific

benefits in term of financial performance (Tsai, 2007). Vereecke and Muylee (2006) highlighted

that strategic partnerships between suppliers and manufacturers have a significant impact on

supply chain performance and various aspects of competitive advantage. Supply chain

partnership in the supply chain management is one of the most popular hybrid organizational

forms. It has been increasingly adopted by firms to manage inter-organizational collaboration in

the supply chain. Supply chain partnerships provide both large and small firms with numerous

opportunities to improve their conduct of business such as wider diffusion of products without

costly physical presence in the markets, risk and reward sharing, resource pooling, reduction in

coordination and transaction costs, ability to concentrate on core competency, and rapid response

to market needs (Spekman, Kamauff and Myhr, 1998). Li et al. (2006) emphasize that the

departments and functions in partnering companies need to work with each other in evaluating

inventories, systems, processes, training, work methodologies, equipment utilization, and a host

of other opportunities to reduce the cost of operations and explore opportunities for the

partnerships. Supply chain partnerships are resource-intensive investments, which involve both

financial and strategic risks (Maheshwari et al., 2006; Wang, Rivera and Kempf, 2007). Kotabe,

Martin and Domoto (2003) points out that involving suppliers extensively in SCM, organizations

could gain more production flexibility, faster product development cycles, lower input costs and

higher end-product quality in order to gain greater market share and premium

Executive Summary

Title: Strategic Partnership within Supply Chain; A Pragmatic Model for Volvo Power train Corporation

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Issues in Global Supply Chain Management

The trade imbalances that arise due to increasing globalisation can cause

demand-supply concerns. Therefore, global supply chain managers need to

have better cost management strategies, incorporate technological

innovations, and improve their logistics efficiency. Companies fail when they

globalise with insufficient knowledge of geography, culture, and differences

in logistics of different countries. Companies need to choose between

international and local products, decide on the nature of control, and

determine the technology to use in global supply chains. The following are the different issues in Global Supply Chain Management

International versus regional products

Local autonomy versus central control

Project scale and span of control

Technology solutions

Cost of technology absorption

Availability of technology infrastructure

Internal and external resource capability

Miscellaneous issues

International versus regional products

A company ideally aims to build universal products which can be sold in

many markets. But achieving the same is not simple due to the large

categories of products with different international requirements and

specifications. Let us understand how companies adapt to both

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requirements.

Region specific products – These are products that have to be designed

differently and manufactured specifically for certain regions. In automobile

design, which is region specific, the manufacturing is altered to meet the

region’s requirement. For example, Honda Accord has two basic body

styles. A smaller body style, tailored to European and Japanese tastes and

a larger body style, designed to satisfy the Americans.

True global products – These are products which require no modification

for global sales. A well-known example for this is Coca-Cola that is

essentially the same throughout the world. Some other examples are Levi’s

jeans, and luxury brands like Armani and Gucci which are essentially the

same worldwide.

It is difficult to determine if a region specific product or a global specific

product is better. But companies need to evaluate carefully as to which of

the two product types is more apt for a particular situation. Employing

strategies designed for region specific products to global products, or vice

versa can lead to disastrous results.

Local autonomy versus central control

Centralised control seems good for certain strategies but for some cases

local autonomy plays a bigger role in the supply chain. Duplication can arise in decentralised organisations. Many multinational companies like Unilever

have tried to overcome the problems that arise due to a decentralised

structure.

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Depending on the characteristics of the region involved, organisations need

to alter their expectations to meet the regional business requirements.

Organisations need to find the right balance between local autonomy and

central control. The following four practices can help organisations to

achieve this:

Having centralised steering committees - With this strategy,

organisations can standardise practices, reduce redundancies, and

aggregate best practices. In addition, these committees can review and

approve all project plans.

Sharing data with central decision teams – Local branches need to

share information with a central decision team that monitors their

activities. The central team can assign responsibilities to the local teams.

The local teams can manage operations that are specific to their region.

Promote co-operation and local accountability – Local units need to

collaborate with the central team. They need to be made accountable for

all local operations.

Use modern communication and database technologies – The use

of modern technologies can make the task of balancing local autonomy

and central control easier. Managers can use modern information

systems to have flexible centralised structure with reduced costs and

complexity. Developing strategic partnerships in the supply chain:

a practitioner perspective

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Martin Christopher*, Uta JuK ttner

Cranxeld School of Management, Cranxeld, Bedford, MK43 0AL, UK

Received 6 January 1999; received in revised form 19 September 1999; accepted 31 October 1999

Abstract

The idea of managing supply chain partnerships for competitive advantage is receiving considerable interest amongst both

academic researchers and industry executives. This article describes some current practices in several industries with respect to

managing supply chain relationships. Focus group interviews and multiple case studies were conducted to gain insights into

practitioners' experiences. Six salient content themes are identi"ed and structured into a managerial framework, to provide guidance

to the increasing number of organisations that are now seeking to manage integrated supply chains. ( 2000 Elsevier Science Ltd. All

rights reserved.

It is becoming apparent that a major re-appraisal of

the way in which companies compete is now required.

Traditionally, the under-pinning philosophy of marketing

has been based upon the idea of `matchinga the

needs of the market with the capabilities of the "rm. If the

product or service was carefully researched and if the

marketing mix was well managed, success should follow,

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it was argued. Nowadays, however, competitive advantage

on a sustainable basis is unlikely to be achieved in

this way. Technologies are easily cloned, brand values

can be emulated by competitors, òwn labela products

attract growing numbers of customers and many markets

have taken on the characteristics of `commoditya markets.

Against this backdrop, a new model of competitive

strategy is emerging. It is based upon the premise that

increasingly the "rm competes through its capabilities

and competencies. In other words by how well it manages

the fundamental processes involved in satisfying

customers. Such processes include the new product development

process, the customer management process,

the order ful"lment process and, speci"cally, the supply

chain process.

* Corresponding author. Tel.: #44-1234-751122; fax: #44-1234-

752691.

E-mail address: m.g.christopher@cran"eld.ac.uk (M. Christopher)

Supply chain management is concerned to achieve a

more cost-e!ective satisfaction of end customer requirements

through buyer}supplier process integration

(Christopher, 1992). This integration is typically achieved

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through a greater transparency of customer requirement

through the sharing of information. This integration is

subsequently compounded through the establishment of

`seamlessa processes that link the identi"cation of

a physical replenishment need with a `just-in-timea response.

Organisations have also been re-appraising their value

chains and out-sourcing those activities which they consider

to be non-core. Simultaneous with this growth in

out-sourcing has been a move towards rationalisation of

the supplier base. In other words organisations have

actively sought to reduce the number of suppliers they do

business with. The motivations for this move towards

supplier rationalisation are based partly upon economics,

partly upon the search for continuous quality

improvement and innovation but also on a realisation

that there is a limit to the extent to which multiple

supplier relationships can be e!ectively managed.

As a result of these changes in the supply chain there

has emerged a growing inter-dependency amongst the

parties in that chain. With this inter-dependency has

come a realisation that co-operation and partnership

are essential pre-requisites for the achievement of longterm

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mutual bene"t. The implications for competitive

strategy of this move towards collaborative supply chain

0969-7012/00/$ - see front matter ( 2000 Elsevier Science Ltd. All rights reserved.

PII: S 0 9 6 9 - 7 0 1 2 ( 9 9 ) 0 0 0 3 8 - 6

Table 1

Selection of companies represented in focus group discussions

BASF Kraft Jacob Suchard

British Airways Philips Lighting

Esso Samsung Europe

Reebok International Honda

Kellog's Benelux Panasonic

Lever Europe Ericsson

Timberland USA Marks & Spencer

Johnson & Johnson Du Pont de Nemours

Rank Xerox International Distillers & Vintners

3M Rockwell International

WhitbreadBeerCompany LauraAshley

networks are considerable*in particular the likelihood

that real competitive advantage will, in the future, derive

from the supply chain as a whole rather than the individual

components of it. In other words `supply chains

compete, not companiesa. As a result, the need to structure

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supply chain management into overall business

strategy development becomes ever more apparent.

Interestingly, whilst the need to develop strategic approaches

to managing supply chain relationships is commonly

accepted, there appears to be a void of empirical

research (Olsen and Ellram, 1997). Existing frameworks

and managerial guidelines are mainly conceptual and

theoretical and lack empirical observations of the state of

practice (see for example, Ellram, 1991; Anderson and

Narus, 1991). The work of the International Marketing

and Purchasing (IMP) Group pioneered the focus on

interaction as a key to understanding the buyer/seller

exchange process (e.g. Ford, 1990; Hakansson and

Johanson, 1992). Whilst this and other work have signi"-

cantly in#uenced the way academics view the role of

relationship management there is still only a limited

amount of empirically derived evidence on how supply

chain relationships might best be managed.

The objective of this article is to help "ll the gap by

reporting a study which speci"cally investigated how

executives in industry manage strategic supply chain

partnerships on a day-to-day basis for long-term success.

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We have integrated the "ndings into a framework based

upon six salient aspects for a systematic approach to

relationship management.

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Background and Problem Discussion

One of the widespread conclusions in supply chain management research is that huge benefits can be achieved if suppliers are involved in the OEM’s product development process as early as possible, since suppliers often possess vital product and process technology leading to significant improvements in product design and new product development process. The issue is a need for a model of supplier selection to support the contribution of suppliers in product development processes; whilst supplier attributes or performance metrics for traditional supplier selection do not seem to include specifications that are usually required in close relationships. What practitioners need in practice, is a simple-to-use methodology with producing logically precise results.


The second part of this study presents a model to boosting the integrated partnership established on the basis of the first part endeavor.

Theory: The first part covers the theories emerges from a large number of stochastic studies concerning hypotheses proofing of relations between diverse aspects of hypothetical influential characteristics of partnerships and its performance. And the second part deals with theory of suppliers association.

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Analysis: Collected data from suppliers of VPT as well as practitioners is analyzed and compared with the academic studies in the first part. Second part, however, deals only with theory since it needs more time and effort which is proposed as prospect studies.

The conducted survey shows that two-way communication (or multi-way in more developed situations)* and mutual trust are the most vital elements to partnership survival. It has been presented in this effort, and suggested to VPT, that the best practice in this respect is developing the supplier association in a framework of Plan-Do-Check-Act cycle (PDCA) constituted of key suppliers for a particular system and /or subsystem.

As it will be indicated in this study, multi-way communication between members of a supplier association is developed to exploit more potential to achieve competitive advantages.


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OBJECTIVE

The reason of this study is developing a model of supplier selection to support the contribution of suppliers in product development processes, and eventually, developing a strategically integrated supply base for Volvo Power train Corporation (VPT). Among the first part of this study, a model of supplier evaluation and selection has been developed, considering attributes and success factors for integration with suppliers, and also examined in VPT with the aims of achieving mutual success in both products and commerce for VPT, as the focal company, and its supply chain members. Standardisation is a process of using a standard product in place of a family

of products. Standardisation helps to achieve economies of scale by doing

an activity once and repeating it many times.

Generally, lead time can be shortened by reducing inventory levels and

increasing forecast accuracy. However, after a certain stage it cannot be

achieved in the same way (stock out issue), but standardisation can be used

to further reduce the lead time.

There are four different approaches (identified by Jayashankar M.

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Swaminathan, an expert in the global supply-chain management and mass

customisation) to standardisation. They are:

Part standardisation

Process standardisation

Product standardisation

Procurement standardisation

Part standardisation

In part standardisation, common parts are used across many products.

Common parts are used to avoid keeping huge inventories that include all the required parts of the product. When excessive parts are common it

reduces product differentiation, so that less expensive customisation options

take over the sales of more expensive parts.

Process standardisation

In process standardisation, the process is standardised for different

products and then the products are customised. The process is designed in

such a way that it can be modified according to manufacturing decisions

made for a specific product. The manufacturing process starts by making a

generic product. This product is then modified into a specific end product.

Here, products are redesigned specifically for delayed differentiation. This

approach is also known as postponement or delayed product differentiation.

Generally, the manufacturing process is re-sequenced to bring in process

standardisation. Re-sequencing is a process of modifying the sequence of

product manufacturing steps. Re-sequencing is done to postpone those

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operations which result in the differentiation of specific items or products.

An ideal example of postponement is provided by Benetton, a trade marked

Italian apparel manufacturing company. Benetton introduced an innovative

manufacturing and supply chain strategy based on postponement to set a

good market position for itself. Sweater manufacturing process involves

procuring yarn, dyeing yarn, manufacturing the garment part and combining

those parts to form the sweater. Benetton, instead of first dyeing the yarn,

like other sweater makers, weave plain wool into sweaters and postpone the

dyeing activity until the forecasting and sales information were received. An

initial shipment of sweaters was shipped to stores, after which the company

got sound information about the colours, which were on demand. Then, the

remaining sweaters were dyed accordingly to meet the demand pattern for

the different colours.

The difference between traditional apparel supply chain and Benetton’s.

E-commerce impacts SCM in the following ways:

Cost efficiency – E-commerce facilitates transportation companies of

all sizes to exchange data over the Internet regarding the cargo. It

allows shippers, firms associated with trucking and freight forwarders to

update their documents related to cash and time investments that are

necessary for the traditional paper work system.

Flexibility in distribution system – E-commerce provides businesses

with more flexibility in the complex process of sharing information and

products between clients, suppliers, and businesses. It links the

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distribution channels and customers and simplifies the complex

movement of products and services through supply chain.

Customer orientation – E-commerce supports the logistics and

transportation services for local and global customers. It helps

companies deliver services to their customers with better quality, speed

up the growth of supply chain initiatives that are significant for the

business, and reduce the cost related to their processing. Internet, when

used for e-commerce, allows customers to place orders, monitor

shipments, access rate information and also pay their bills.

Shipment tracking – Through e-commerce, users can get real-time

information about cargo shipments. Users can create and submit bills of

lading, order for a cargo, analyse the charges, submit a claim for cargo

and carry out other functions. Encryption technologies help to secure

such business transactions.

Shipping notice – E-commerce automates the process of receiving the

delivery. The list of the goods that will be delivered can be given to the

receiver beforehand, to enable cross verification. It also records the

details of parcel and items to be shipped.

Freight auditing – Freight auditing deals with reviewing the. This

reduces the risk of over payment, paperwork, or the auditing done by a

third party. In addition to this, it provides instant access to the databases

that contain the data on various discounts, latest prices and allowances

for major transporters.

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Reduced shipping documentation – E-commerce enables automatic

generation of bills of lading, shipping labels and the public statements of

the carrier. It also generates the specialised export documentation that

is used for overseas shipments. The reduced paperwork makes the

shipping department more efficient.

Online shipping inquiry – The online shipping inquiry provides access

to the shipping information to all the employees from the company at

any location. It helps in tracking and verifying the shipments for their

delivery. This allows the customers to analyse the transportation costs

and performance efficiency, and negotiate better rates with the

suppliers.

Reduced order cycle time – The improved communication features of

e-commerce have reduced all components of the order cycle time to

seconds. The buyer can determine if the product is available with a

supplier before placing an order. The seller can instantaneously monitor

the demand and adjust the supply according to the demand. This helps

the seller to avoid or reduce the stock-out time.

All these aspects of e-commerce lead to the following benefits for an

organisation:

Improved productivity

Improved communication

Improved quality

Improved customer service

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Reduced costs

Shortened supply chain

Faster product development

Access to new markets

Shorter lead time

Improvement in cash flows

The objectives of the program are to enhance and develop participant skills to shoulder increased and senior managerial responsibilities by focusing upon the following areas:

• Supply chain as a strategic function of business that can be leveraged for competitive advantage;

• Respond to competitive challenges by understanding and managing the full value chain; • Build and manage supply chain partnerships;

• Focus upon supply chain process details and operational execution;

• Understand role of information technology in the supply chain

Strategic supply chain partnerships

What are they and why do they matter?

Representative Programs

CUSTOMER PARTNERSHIPS

Create new offerings in partnership with Leadership with business customers who also seek to leverage environmental and social leadership

– Design for Environment

- De-materialization

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- Substitution- – New product/service models

SUPPLIER PATNERSHIPS- Catalyze introduction of supplier offerings that help both companies achieve

significant business, environmental and social objectives- – Environmentally Preferable Purchasing - – Functional outsourcing- – Design for Environment - – Radical resource productivity

Desired Benefits

• Dramatically improve cost structure

– Lower direct costs, e.g., operations, procurement

– Lower indirect costs, e.g., permitting, disposal, insurance, lost time, etc.

– Reduced contingent liabilities, e.g., likelihood of a spill, lawsuit, etc.

• Significantly enhance brand-building and marketing efforts

– Address needs and perceptions of customers and other stakeholders

• Achieve superior product benefits

– Increased share and revenue growth

– Enhanced customer loyalty

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• Leverage success to improve integration of business, environmental and social objectives

– Sr. mgmt. participation and support

– “Self-funding” approach

Strategic Partnership within Supply Chain 15thoughts around close cooperation and its required soft and hard infrastructureamong strategic partnerships*.A set of survey questionnaires developed and distributed. It had been requestedthrough these questionnaires from BPT leaders to investigate on attributes andsuccess factors, in terms of ranking questions from 1 for the worst condition, up to 5for the best practice. Each questionnaire, which takes account of the attributes andsuccess factors of strategic partnership, is to be ranked for each characteristic persupplier (see Appendix B).Furthermore, the attitudes of suppliers who are members of decreased supplybase (say 84 suppliers for the case of VPT) should be taken into account. On the basisof VPT’s Engineering team members’ meetings (which author has been participatingtoo), it had been decided to invite the most prioritized 20 suppliers out of 84considering roughly the higher amount of spent and performance history intransactions, on the basis of their direct contact person’s experience in VPT, toparticipate in VBPP’s engineering stream two days event. Invitations sent toappropriate individuals of these suppliers and eventually, it was requested for theirparticipation registration in engineering stream event of VBPP through VPT’s officialwebsite.During the first day of VBPP event, hold on 11th of April 2006, the plan wasinforming suppliers what the expectations were so far, what has been achieved, andwhat will be prospect plan and expectations in cooperated product developmentactivities for new and /or existing products. The activities and associated outcomeswere on the basis of Volvo’s GDP (Global Development Process), which is Volvo’scommon project steering tool. It has been continuously improved and is based onyears of experience.The GDP provides the structure needed to identify, develop and launch new

29

products fast and efficient, while providing competitive solutions with a high level ofquality, through cross-functional work and global thinking, utilizing commonprocesses, platforms, technology and parts and is the tool to use in all VPT’s productdevelopment projects. The GDP includes best practices and years of practicalexperience from each of the Volvo family truck companies, Volvo 3P, Volvo Bus,Volvo Powertrain and Volvo Parts. It describes what activities must be consideredfrom the time an idea for a product change or a new product is considered throughdevelopment, industrialization and delivery to the customer.The GDP is defined in six phases, each of which is intended to indicate a certainfocus in the project work. The phases are (Volvo Group AB, GDP Guide-book):_ Pre-Study Phase. Define the scope of the project by balancing projectprerequisites, developing requirements and alternative solution concepts._ Concept Study Phase. Analyze alternative concepts and select one fordevelopment. Sign off the Project Description.* Noteworthy to point that the word “infrastructure” has embraces as both soft and hard factors in this study,rather than just hard as often used in literature.Chapter Three: Developing Supplier Evaluation and Selection Model 16_ Detailed Development Phase. Define and approve the technical solutions tobe implemented and the project’s delivery commitments from all areas. Signoff the Project Description._ Final Development Phase. Build, test and refine the product solution andprocesses._ Industrialization Phase. Install, prepare and verify the industrial system.Launch product and Aftermarket. Sign the Product Release Approval._ Follow-up Phase. Hand-over product to line organization, summaries projectexperiences and close project.Each phase starts and ends at gates. Gates are the GDP checkpoints, where projectmanagement confirms that gate criteria are met for the current gate. The projectsteering committee decides if the gate is to be opened or not, i.e. if the project shall beallowed to carry on forwards or not. Of course, gates and gate criteria can becombined, added or deleted to suit the unique needs of each project. The projectsteering committee will approve the tailoring of the GDP.At Gates preceding a product decision point, the project steering committee opensthe gate and recommends a decision to the project decision body, which thenapproves or rejects the project and approves or rejects funding for the period up tothe next product decision point.

30

During the second day of VBPP event, 12th of April 2006, which involvedengineering workshops, participants were managed to split up into smaller groups;each group encompasses agents from one, two or three suppliers from diverseorganizational levels as well as their appropriate counterparts from VPT. To achievemore qualified outcomes from workshops, each group had VPT’s representatives asat least one director, and two BPT leaders per each supplier. The non-conglomeratehomogenous diversification of individuals from suppliers and VPT, made a ratherperfect environment for discussion on short, mid, and long-term plans and deliveriesfor engineering and product development activities, as shown through a graphicalinterpretation in Figure 3.1. The focus of this study, however, is on long-termcooperation (here called AE -advanced engineering) in strategic partnership.Suppliers and VPT’s representatives in each working group were requested tobrainstorm around success factors in partnership. The outcome was compatible innearly all respect with what expected. In general, the main characteristics andprerequisites, which have been pointed out by supplier as building blocks of creatingstrategic partnership atmosphere, were as followed:_ Information sharing_ Joint problem solving_ Precise resource allocation_ Sharing risks (financial and non-financial)_ Shared planning_ 3-way communication (Volvo- Supplier- Supplier)_ Sharing GDP (product development process) with suppliersStrategic Partnership within Supply Chain 17_ Long-term relationship_ Yearly technology seminars_ Openness_ Joint technology roadmap definition/reviewingA rough appraisal of these characteristics shows that some of them are thoseattributes that predict the pillars and atmosphere in which partnership will be builtlike long-term relationship commitment. Some other characteristics, yet, are thosewhich should be considered over the life time of partnership, such as openness. Andalso a number of them reflect the relationships between more than two preliminaryparties, like 3-way communication, which will be discussed through followingchapters.

31

Anyway, the questionnaire were needed a small amount of modification on thesubject of new information collected from workshops. A set of modified surveyquestionnaire has been presented in Appendix B.

RESEARCH METHODOLOGY

● Research Objective

The objective of the study is:-

To find out the “Strategic Partnership within Supply Chain”

● Research Design

Exploratory

● Sample Size

30 People are selected randomly and 15 people respond.

● Sampling Technique Used

Random Sampling

● Data Collection

Primary and secondary data is collected for the study.

Primary data are those, which were collected afresh & for the first time and thus

happen to be original in character. The ones that have been used are:

● Questionnaire

● Informal Interview

32

Secondary data is collected from previous researches and literature to fill in the

respective project. The secondary data was collected through:

33

Our data collection strategy involved two phases, "rst

a focus group discussion phase and subsequently a multiple

case study phase.

A total of 12 focus group interviews were conducted

during a major logistics conference in October 1996 (see

Christopher, 1997). The focus groups comprised delegates

who were responsible for supply chain management

at a senior level, drawn from a wide range of

companies and industry sectors (see Table 1).

Participation in one of the 12 focus group discussions

was voluntary and the delegates were recruited to groups

by a process of self-selection and availability. Information

about the scope of the focus groups was sent to

delegates before the event. Previous research has identi-

"ed these task-oriented interaction-centered focus

groups as an ideal methodology to explore professionals'

experiences and to describe that experience (Calder,

1994). Running the groups ourselves, we used a brief on

the topic to be discussed as an initial stimuli and, in

addition, relied on the fact that the group context itself

has a strong focussing e!ect (Calder, 1994). In our role as

moderators, we encouraged participants to identify commonalities

and di!erences in their experiences and summarised

34

the discussion at the end. The discussions were

taped and content-analysed for patterns of salient issues

and experiences. Overall, six content themes relating to

the issue of supply chain management were identi"ed.

Focus groups can provide rich insights but should be

followed by more in-depth means of data collection, i.e.

for example surveys or case studies. In our research, six

cases have been developed to investigate each of the

issues identi"ed in the group discussions in greater detail.

This sampling approach (Glaser and Strauss, 1967;

Eisenhardt, 1989), appeared to be consistent with our

objective to describe business experience. Following the

group discussions, the delegates from participant "rms

were screened and asked for their willingness to collaborate.

Whilst all cases are based on personal interviews and

archival data analysis, two of the cases additionally involved

a survey. These two companies requested that

their names should remain disguised.

35

1.. Methodology

Our data collection strategy involved two phases, "rst

a focus group discussion phase and subsequently a multiple

case study phase.

A total of 12 focus group interviews were conducted

during a major logistics conference in October 1996 (see

Christopher, 1997). The focus groups comprised delegates

who were responsible for supply chain management

at a senior level, drawn from a wide range of

companies and industry sectors (see Table 1).

Participation in one of the 12 focus group discussions

was voluntary and the delegates were recruited to groups

by a process of self-selection and availability. Information

about the scope of the focus groups was sent to

delegates before the event. Previous research has identi-

"ed these task-oriented interaction-centered focus

groups as an ideal methodology to explore professionals'

experiences and to describe that experience (Calder,

1994). Running the groups ourselves, we used a brief on

the topic to be discussed as an initial stimuli and, in

addition, relied on the fact that the group context itself

has a strong focussing e!ect (Calder, 1994). In our role as

moderators, we encouraged participants to identify commonalities

36

and di!erences in their experiences and summarised

the discussion at the end. The discussions were

taped and content-analysed for patterns of salient issues

and experiences. Overall, six content themes relating to

the issue of supply chain management were identi"ed.

Focus groups can provide rich insights but should be

followed by more in-depth means of data collection, i.e.

for example surveys or case studies. In our research, six

cases have been developed to investigate each of the

issues identi"ed in the group discussions in greater detail.

This sampling approach (Glaser and Strauss, 1967;

Eisenhardt, 1989), appeared to be consistent with our

objective to describe business experience. Following the

group discussions, the delegates from participant "rms

were screened and asked for their willingness to collaborate.

Whilst all cases are based on personal interviews and

archival data analysis, two of the cases additionally involved

a survey. These two companies requested that

their names should remain disguised.

2. The framework

Based upon what is essentially qualitative research,

albeit strengthened by a limited quanti"ed sample, we

sought to identify a tentative framework to guide managers

37

in their attempt to develop strategic partnerships in

the supply chain. Inevitably when the data derives from

a limited number of case examples, it has to be emphasised

that any resulting conclusions and generalisations

will be contingent upon the conditions and context within

which the selected organisations operate. However, we

feel that the companies included in this study, together

cover a broad spectrum of commercial activity and hence

we feel con"dent to present this generalised framework as

a guide for action.

Our proposed framework aims at supporting managers

who face the challenging task of developing partnerships

in the supply chain. The six related elements of

the framework should be seen as ìngredientsa of a systematic

relationship management approach rather than

118 M. Christopher, U. Ju( ttner / European Journal of Purchasing & Supply Management 6 (2000) 117}127

Fig. 1. The framework.

consecutive steps in a rigid procedure. Furthermore, relationships

being the focus, we take a dyadic view and

include both the buyer and the seller stance. Fig. 1 gives

an overview of the six elements of the framwork. For each

element we "rst summarise the main arguments from the

38

focus group discussions and the literature and subsequently

provide a company-speci"c case example for

illustration.

2.1. Dexning a balanced set of relationships

Every company maintains a variety of di!erent relationships

and may not be willing or capable of developing

close ties with all parties. Partnerships are resourceintensive

investments with not only a "nancial risk, but

maybe more importantly, a strategic risk emerging from

the increased vulnerability of the parties and their exposure

to opportunistic behaviour. Therefore, relationship

management is a situational approach and involves the

development and maintenance of a portfolio of relationships

with di!erent natures, and not only close partnerships.

Prior to developing a speci"c portfolio model, a good

starting point for the company is to be precise about its

own strategy and to de"ne the role that partnerships and

speci"cally joint strategic activities play within this corporate

or business strategy. Xerox, for example, has been

known for its quality-orientated strategy for many years.

The development of close relationships upstream and

downstream the supply chain has been part of that strategy.

More recently, however, the company decided to

39

change slightly its course towards a stronger emphasis on

costs which has allegedly also had an impact upon supplier

choice as materials cost has emerged as an orderwinning

criteria, whilst quality is now seen as a `quali-

"era.

A further initial consideration is to de"ne the structure

of a potential relationship agreement. Whether only two

parties are involved in a bilateral structure or several

parties are participating, has implications on how the

relationships should be managed. The more levels the

agreement spans within the chain, the greater the complexity.

Trust that the other party will forgo opportunistic

behaviour is a primary concern in a structure where

one party deals with several competing players. An

example is a retailer who receives di!erent category management

plans from competing suppliers and deals with

them on an independent basis. The example also reveals

the impact of the parties' power positions. A majority of

companies will "nd themselves in a chain which is dominated

by the so-called `channel captaina. It is generally

impossible to be proactive in de"ning the terms of the

relationship from a weaker position but instead of remaining

`passivea, such companies can launch what

40

could be called a `best adjustment strategya. The underlying

capability &to be good at being led' as a route to

achieving corporate objectives is often a successful stance

to adopt. A good example is the relationship between

IBM and Microsoft in its early phases.

Having de"ned their own strategy and position, companies

should evaluate existing relationships as well as

future prospects. Often, the relationship value is not

measured at all or only on the basis of revenue and

volume. In business-to-business contexts however, the

real value of a relationship is linked to other, more

disguised, criteria (Matthyssens and Van den Bulte,

1994). Whilst the need for a more comprehensive, standard

measurement approach is being recognised (Anderson,

1995), experience also shows that the criteria are

company and industry-speci"c and, in addition, some of

the most important criteria are di$cult to quantify (Ellram,

1990). Criteria which are frequently mentioned in

this context are the substitutability of the buyer or seller,

the indispensability of the goods purchased or sold, the

savings resulting from the partner's practices and the

degree of common interest (Krapfel et al., 1991). The

substitutability can reveal that, for example, two customers

41

or suppliers with the same business volume are

completely di!erent in terms of how easy they can be

replaced. This is explained by the indispensability of the

goods purchased or sold; the more speci"c the products

are, the lower the substitutability of the partner. Furthermore,

from a seller's viewpoint, these are often the products

with the highest contribution margin. The savings

a company can achieve when dealing with a partner in

the long-term have an additional leverage e!ect on the

relationship value. These are the so-called `transaction

costsa which decrease over time and which in their most

generic form refer to lower administration costs. Finally,

the degree of common interest builds a political dimension

supplementing the economic relationship value and

is particularly helpful in identifying those business partners,

who in spite of their high relationship value should

not be selected for partnership agreements. These relationships

are characterised by substantial di!erences, for

example in strategic objectives or corporate cultures.

They frequently occur in takeover relationships and the

BMW}Rover takeover might serve as a case in point.

M. Christopher, U. Ju( ttner / European Journal of Purchasing & Supply Management 6 (2000) 117}127 119

42

Fig. 2. Supplier hierarchy.

In spite of recommendations from the literature to

apply portfolio techniques to classify relationships and

thereby optimise the return on relationship investments

(e.g. Krapfel, et al., 1991; Wilson, 1995), we have found

few companies following this advice. General practice is

not to use two or more dimensions equally weighted in

a matrix, but instead to classify relationships in the form

of a simple hierarchy. On the procurement and logistic

service provider side in particular, companies structure

their supplier base in hierarchical tiers. The aim is to

follow internally a more structured procurement approach

using prede"ned rules, and to make this transparent

to the external relationship partners.

2.1.1. Case illustration

The "rst case study, based in a retailing environment,

highlights some of the potential pitfalls related to the use

of partner tiering. The focal retailing company has introduced

a four-tier supplier segmentation approach as part

of a comprehensive relationship strategy. The classi"cation

structure could also be interpreted as a `career patha

for suppliers and is depicted in Fig. 2.

As shown in the "gure, all potential new suppliers can

43

only enter at the bottom, i.e. they start with the lowest

supplier status. Upgrading and downgrading suppliers is

related to a formal evaluation procedure involving several

management levels in the retailing company. Furthermore,

exit is possible at any stage if a company performance no longer meets the prede"ned performance

standards. The classi"cation is a formal part of the retailer

's relationship strategy and is communicated internally

as well as to suppliers. Because the retailer not only

places a greater proportion of business with the higher

tier suppliers but also invests more resources in these

relationships, there is an incentive for suppliers to achieve

"rst tier supplier status. Thus, it could follow that the

suppliers' relationship commitment should be higher in

the top tiers and, as a consequence, that the relationship

satisfaction experienced by retailer's boundary spanning

employees should be higher in these relationships.

We designed a survey to test these two assumptions

and measured the relationship commitment and

satisfaction on the retailer as well as on the supplier

side. Interestingly, a "rst "nding has shown that the

relationship commitment in the "rst and second tier

supplier companies has been signi"cantly lower compared

44

with the third and fourth tier supplier commitment

(t-value"2.95, signi"cant at 0.01 level). Two

alternative interpretations can explain this result: On

the one hand it could be argued that the supplier

classi"cation has counterproductive e!ects because it

encourages complacency in higher classi"ed companies.

This is supported by statements from supplier managers

in the preliminary qualitative interviews who complained

that `the rating system was not faira. On the

other hand, it could indicate that the suppliers in the top

tiers have already invested substantially in the retailer

relationship and are not prepared to go any further.

Indirect support is given by the relationship satisfaction

scores, which were not signi"cantly di!erent for both

groups. A second "nding demonstrated that the o$cial

corporate supplier classi"cation was not supported by

the relationship preferences of the retailer's boundary

spanning employees. Each employee was asked to name

the supplier status of their most and least satisfactory

supplier relationship and a chi-square test associating

supplier status with this classi"cation was not signi"cant

(chi-square"4.1(chi-square critical at p"0.05). This

"nding suggests that a formal corporate relationship

45

classi"cation may di!er from the employees' relationship

evaluation.

Summarising, a systematic approach to developing

partnerships in the supply chain should start with de"ning

a balanced set of relationships, grounded in the

company's over-arching business strategy. Thereby relationship

investment decisions are supported and a framework

is provided for managing relationships of a

di!erent nature on a day-to-day basis. Relationship value

assessment is indispensable and classi"cation approaches

are supportive but, as our case illustration has shown,

o$cial partner classi"cations should be used carefully

and reviewed on a regular basis.

2.2. Developing the right interface structure

The classic debate within the strategy literature in the

past as to whether a company's `structure follows its

strategya or, alternatively, if the `strategy follows structure

a, could be continued in the context of relationship

management. Experience shows that the quality of relationships

like the degree of closeness between the parties,

is strongly in#uenced by the interface structure which has

been set up to manage them on a day-to-day basis

(Carter and Ellram, 1994). Therefore, de"ning a balanced

46

set of relationships for the strategic partner choice

and the development of the right interface structure are


Fig. 3. Interface structures.

mutually reinforcing and a clear-cut attribution of e!ects

seems impossible.

The following "gure illustrates four distinct interface

structures which represent typical approaches applied in

practice (McDonald et al., 1996) (Fig. 3).

From the top left to the bottom right the number of

ties between the companies gradually increases and the

relationship becomes multifaceted. The "rst structure shows an interface which is con"ned to a buyer}seller

interaction, other functions as well as the strategic level

are not involved in the relationship. For these business

relationships, the commercial deal is central and negotiations

concentrate on price and margin. On the positive

side, the interface structure can be set up with few

resources and can therefore be used as a structural foundation

for managing a large number of relationships.

Likewise, switching barriers are low, which can be both

an advantage or a disadvantage. On the downside however,

47

the structure sets limits to value creation exceeding

the mere product value, mainly because it does not enable

the parties to get to know each others business,

a precondition for comprehensive value generating processes.

The second structure is built around a closer

collaboration between buying and selling, which is

underlined by the change in titles to purchasing and

account management for the corresponding boundary

spanning employees and departments. They get back-up

support from further functions on demand, although the

functional people are not dedicated exclusively to one or

a few accounts. Compared to the traditional sales force

organisation described above, this second interface structure

represents an increasing resource commitment

which explains the involvement of managers from the

strategic level. In the third structure, the relationship is

organised as a relationship between companies. Direct

interactions between a range of functions emphasise

a collaboration across each partner's core business processes

and create stability independent of individual employee

turnover. Managing the relationship on such

a basis requires substantial investments and therefore the

decision is linked directly to the company's over-arching

48

business strategy. The same applies to the fourth structure,

where company boundaries become blurred. The

assignments of the focus teams further illustrate that the

parties are not only jointly handling the day-to-day operational

business but are cooperating on strategic issues

like R&D or market research and market development.

Due to the close linkage between the interface structure

and the quality of the relationship, it follows that

companies with a balanced relationship set do not manage

them all from the same structural platform. The

following case example illustrates how this issue is currently

addressed by one company.


The case example illustrates the organisation of

Speedo, a leading international brand company of professional

swim wear, based in the UK. Like many companies

today, Speedo has set up di!erent, parallel

structures for managing its diverse customer base.

Their current organisation comprises three distinct

interface structures: "rst, a traditional sales organisation

with a large and dispersed "eld salesforce who deal

with the small independent sports stores. They have

traditionally been the pillar of the business and represented

49

in the past the main channel of distribution. For


Speedo however, the sports stores are low volume customers,

geographically spread all over the country and

therefore best dealt with by individual salespeople. The

company's concern for these relationships is manifested

in the strong emphasis they place on an experienced,

well-quali"ed salesforce with a high level of employee

retention.

The portion of the business accounted for by the second

customer segment, major high street retailers and

sports multiples, has gradually increased over the last few

years to approximately 50% today, with the prospect of

a further rise to 80% in the near future. The shifting

balance and the concentration within this channel of

distribution, leverages the relationship value which in

turn justi"es the resource-intensive account structure

Speedo maintains to deal with these customers. The work

between the dedicated account managers and their

counterparts on the retailer side is facilitated by the

provision of back-up support from other functions within

the company.

50

Finally, Speedo has started an even closer cooperation

with two potentially high growth customers about a year

ago. The relationship project and the corresponding interface

structure are still in a trial phase but both parties'

commitment is high. One of the clients is Sports Division,

Europe's biggest independent sports retailer with approximately

120 High Street stores, additional in-store concessions

as well as a number of superstores. For Speedo,

the relationship is crucial because aside from the high

economic relationship value, Sports Division shares their

interests, stocking only leading brands and not own label

products. The initiative for the project came from the

operations director who is still in charge of the implementation

and who assigned an account development

team to work exclusively on this one account. The team

members have been selected to match the retailer's supply

management team and both teams' target is to improve

the e!ectiveness and e$ciency of the supply chain.

To sum up, the most important factor concerning the

second aspect of our framework is to match the interface

structure with the relationship classi"cation. As a consequence,

companies will often "nd themselves in a position

where they operate from several structures

51

simultaneously. As the example of Speedo has shown,

such an approach can be developed through gradual

extension, where new structures are "rst organised as

temporary, trial projects. Finally, just as important as the

structure itself is the symmetry across the companies'

boundaries, i.e. to mirror the partners' structure. If, for

example, one account manager faces a whole purchasing

team, it is likely to cause frustration on both sides.

2.3. Cooperating across systems

The third aspect, cooperating across systems, refers to

all initiatives undertaken to improve the information

exchange between the parties. We deliberately use

a broad de"nition because the form the cooperation

takes can di!er depending on its purpose or the industry.

In fast moving consumer goods industries, cooperation

across systems is often a central issue in partnership

development, concepts like È$cient Consumer Response

(ECR)a, `Vendor Managed Inventory (VMI)a or

`Co-Managed Inventory (CMI)a are based on linkages

between the parties' information systems (see Peck, 1998).

Likewise, Just-in-Time relationships as experienced in

the motor industry, strongly rely on technology as a relationship

facilitator. But the use of sophisticated systems

52

is not always essential to improve the information exchange.

Relationship parties might simply set up a PC

connection through the Internet or commercial networks

and install speci"c software packages like Lotus Notes to

facilitate inter-company communication.

The most critical issue to address is the de"nition of

the scope for mutual systems development, i.e. to clarify

as a "rst step which business functions should be connected

in boundary spanning processes. From that, the degree

and form of technology needed to secure a smooth

information #ow within these processes can be derived.

Looking at the example of a collaborative relationship

between a retailer and a manufacturer, the business functions

that are typically linked are forecasting, ordering

and distribution. Interestingly, these are at the same time

very information-intensive functions which might explain

the crucial role of joint systems development for retailer

}supplier relationships. Smooth information #ows

within these arenas will then in turn impact upon the

more company-speci"c issues, such as pricing, promotions

or new product introduction on the demand-side;

and production planning, new product development or

transport planning on the supply-side.

53

Cooperating across systems is a very sensitive aspect of

developing partnerships and the way is strewn with barriers

to be overcome. First, the best system can only

transfer the amount of information fed-in by its users.

Sharing information requires a degree of trust and openness

which often contradicts traditional policies and demands

cultural changes that are di$cult to achieve in the

short-term. Even worse, the means of information transmission

has to be `boughta and justi"cation for the

sometimes high capital investments as well as agreements

on how the costs should be shared are an issue for debate.

In addition, one party resistance can be encountered

because the weaker party may fear becoming overly

dependent, or alternatively for the dominant player, the

current favourable position might be at stake. Finally,

di!erences in the existing technical infrastructure are an

impediment, particularly when both parties are already

operating sophisticated systems.

The primary concern for system development is data

accuracy and not the degree of automation or sophistication

of the technology. Data accuracy implies the need to


54

tailor the system to the speci"c situation and therefore,

the following case study serves to illustrate the main

issues to be addressed in the procedure which will then

lead to a customised solution.


The case example describes the approach developed in

a relationship between the Whitbread Beer Company

and Anheuser Busch, Whitbread's largest supplier for the

take home o!-trade. For Whitbread, the objective was to

move its relationships with major suppliers on to a comanaged

inventory (CMI) basis and Anheuser Busch as

a supplier of a relatively small number of predictable,

high volume SKUs was an ideal pilot partner. Applying

co-managed inventory principles for Whitbread was seen

as an opportunity to replenish just-in-time into its own

distribution network while reducing stock holdings but

improving stock availability and achieving order cycle

reductions. Two functions which had to be linked in

order to achieve these ambitious goals were ordering and

forecasting.

Under the old approach, there was a clear-cut separation

between order placing performed by Whitbread

and order ful"llment as Anheuser Busch's responsibility.

55

In addition, whilst Whitbread placed orders in line with

their weekly sales forecasts, this forecast information was

not passed to Anheuser Busch and therefore, Anheuser's

production and transport planning could only be geared

to meet incoming orders. In the pilot programme these

activities were rede"ned and joint responsibility was

agreed. Instead of "xed orders, Whitbread de"ned

a stock band with a maximum and a minimum level

within which Anheuser could operate. The two-to-four

days stock band enabled Anheuser Busch to raise an

order and decide when it should be sent. They would

simply give 24 h advance noti"cation about their deliveries

which in turn, would be con"rmed by Whitbread. In

the new, joint forecasting process, Whitbread does a rolling

forecast over a 13 weeks period which is passed on to

Anheuser. On top of this, Anheuser gets daily updates on

stock holdings and information about projected sales for

the next two days, to prepare them for deviations from

the original forecast, if for example demand begins either

to overshoot or sales have not gone as planned. Both

rede"ned processes have implications for Anheuser's production

and transport planning which can now be optimised

based on actual sales and stock level data.

56

The restructuring of the relationship has been inextricably

linked to a more extensive and frequent information

exchange between the parties, with di!erent data

types: the 13 weeks forecast data, the two days sales and

stock level data transferred on a daily basis and the order

noti"cation and con"rmation data. Optimising data accuracy

from all the di!erent data sources has been the

primary criterion for joint system development. Whitbread

experimented with a manual system but quickly

moved on to a fully automated system. Both parties are

convinced that EDI is a prerequisite of their speci"c

approach. Finally, for Whitbread, the experience from

the pilot study has been built into their supplier management

policy: all CMI suppliers have extended contracts,

more than compensating for any investment in technology

that those suppliers may have to make.

2.4. Managing people through change

Many companies struggle to implement partnership

programmes because they do not pay enough attention

to what is often labelled the soft side of the strategy, i.e.

the people issues (Dion et al., 1995). A company's progress

in developing partnerships in the supply chain owes

much to the way the relationships between participating

57

individuals at all levels within both companies, supplier

and customer, are handled. Building robust partnerships

between companies requires the commitment of all

people involved. Gaining employee commitment however,

seems to be a notoriously underestimated, complex

task. In many cases, companies rationally accept the

bene"ts of partnership approaches but their cultures are

not readily compatible and implementation faces strong

resistance to change.

Emphasising internal relationships with employees

and reinforcement of their commitment as strategic prerequisites

to external customer relationships has "rst

been proposed in service management (e.g. GroK nroos,

1990). Empirical work by Schneider in particular, demonstrated

that organisational climate impacts upon

boundary spanning employees' behaviour in service encounters

and that this in turn, in#uences the perceived

service quality and satisfaction of customers (e.g.

Schneider et al., 1980). More recently, the linkage between

internal and external relationships has also been

recognised in business-to-business contexts (Evans and

Laskin, 1994; Beckett-Camarata et al., 1998). The crucial

coordinating role of the àlliance managera (Spekman et

58

al., 1994) or `key account managera (McDonald et al.,

1996) in inter-company relationships, gives rise to the

insight that they must perceive tangible evidence of

a supportive, trusting and committed relationship between

their company and themselves in order to perform.

However, not only the alliance manager but all employees

who interface across the company's boundary on

a regular basis, determine the success or failure of intercompany

relationships. Therefore, the company's responsiveness

to their needs, as well as assurance and

empathy about their role will constrain or enhance their

perception of the partnership programme.

As a consequence, a partnership strategy should be

approached like any change management programme.

Apart from the provision of training and support, particular

attention should be paid to the timing of decisions

as well as the required degree of openness and honesty.


Radical changes * especially when requested by customers

* cannot always be avoided but, in a time of

`downsizinga, they face growing scepticism in companies

today. Similarly, management may hold back delicate

59

information for too long and keep those a!ected in the

dark. Such behaviour can be seen as a leadership weakness

by employees or, alternatively, they feel patronised.

A good starting point instead, is to analyse the current

interaction process and decompose the business-to-business

relationships into all interrelated contacts between

the individuals involved (GroK nroos, 1997). In this way the

informal structure within and across both companies and

the in#uence network can be revealed (Krackhardt and

Hanson, 1993). Identifying the key players reveals important

leverages for strategy implementation. Typical roles

to be found in partnership programmes are `pioneersa

and `baronsa. Pioneers often come from IT or logistics

departments. They are the "rst to be involved and most

enthusiastic about partnering. Barons in turn, run divisions

or sites and whilst powerful, tend to be parochial so

that it can be very di$cult to make them view the bene"ts

of partnerships from a corporate perspective. On the

customer side, buying managers often take the role of

barons. When a partnership programme is well on its

way, the balance between the interpersonal relationships

at di!erent hierarchical levels or functions should be

monitored. Strategic agreements made in good spirit at

60

board level, can be greeted less warmly by employees

involved in the working relationships. Likewise, early

established links between departments sta!ed with

`pioneersa, can be far ahead of other inter-company

interfaces, where sceptical individuals remain at the edge

of the project. Pulling these threads together should be

a prime priority for the alliance manager. Finally, building

partnerships requires the use of creative, innovative

means to support relationship transformation. Companies

preaching the corporate partnership vision and

communicating o$cial guidelines seem to be less e!ective

than those following an unconventional route. Considering

the strong impact of personality factors, companies

should see their role as a facilitator of closer contacts

between individuals in the organisations concerned.


The case example highlights some of the di$culties

companies encounter internally when embarking on

partnership strategies. It is another study we have carried

out in the retailing environment and looks speci"cally at

a supplier-targeted partnership strategy, launched by

a retailing company. Although positive supply chain effects

have been achieved since the retailer moved about

61

40 of its most important suppliers on to a partnershiptype

relationship, they still felt stuck in their search for

further improvements. Intuitively, it was suspected that

the ideas and philosophies articulated in the relationship

strategy, did not cascade to the boundary spanning employees.

Instead, the relationships appeared to be strongly

in#uenced by factors which could hardly be controlled

by the company. After initial in-depth interviews, we

designed a survey to measure the e!ect of the corporate

strategy on the individual employees' behaviour in their

supplier relationships as well as their relationship satisfaction.

The results were stunning: although relationship

satisfaction was good overall, the strategic activities

undertaken to support relationship improvements had

only a very limited e!ect and altogether explained only

8% of the di!erences between the individuals' partnering

behaviour (Multiple regression R2"0.08). In addition,

the results revealed that the employees' incentive for

partnering stems from a deeper, personal motivation

which we operationalised as their general `job attitudea.

The "ndings underline how di$cult it is to `reacha individual

employees in their external interactions and, in

addition, provides partial support for a widespread suspicion

62

that in business relationships, ìt all comes down to

personalitya.

2.5. Assigning a relationship promoter

Many of the problems that arise in relationship management

are recognised by companies but they lack the

capabilities to resolve them. Since in many industries

business relationships have been adversarial for decades,

relationship issues present a new task for companies and

well-established planning and implementation tools are

not always applicable.

Assigning a relationship promoter is an important step

in overcoming this problem and to support the learning

process essential for successful relationship building.

A relationship promoter can either be a single person or

a task force group and should address the following

partnership barriers (GemuKnden and Walter, 1994): "rst,

the barrier of `no knowledge of each othera, which is

characteristic for supply chain partners because the parties

focus on speci"c tasks within the chain. As a consequence,

they lack empathy for their counterparts'

business in related supply chain stages and the problems

associated with it. A relationship promoter should actively

seek to make all parties view &the overall picture' of the

63

supply chain process. Secondly, the barrier of `no ability

to co-operatea which may even exist when two equally

determined and complementing parties face discrepancies

for example in the language they use or the way they

de"ne problems. Here, the relationship promoter facilitates

the dialogue until the parties achieve a common

perspective. Finally, and most troublesome, the barrier of

`no will to co-operatea, which can be rather evident or

otherwise, remain disguised. The challenge for the relationship

promoter is to work towards a change in the

people's attitude and to support them in overcoming

emotional resentments to deal rationally with the situation.


An issue of debate in business practice is whether the

role can be best ful"lled by outside consultants, a person

or team from one company, or by a joint team with

representatives from both parties. Furthermore, some

companies expect the account and purchasing managers

to take over the role on top of their management responsibility.

The idea however, is to assist them in conducting

tasks they cannot do themselves due to a lack of

expertise or time. Consultants tend to be called in at an

64

early stage to analyse de"ciencies in the current situation

and to investigate the potential for mutual bene"ts from

closer cooperation. They are perceived to be less e!ective

in solving implementation issues later on and more importantly,

lack credibility among employees at the operational

level who feel they have been imposed from above.

Compared with one party representatives, designating

a joint team has considerable merit but the decision is

often in#uenced by resource constraints. Few companies

seem to be able or willing to dedicate people as `Relationship

Promotersa and free them from their daily responsibilities.

Independent of the assignment's form and structure,

relationship promoters should distinguish themselves

through certain personal characteristics (Geddes, 1993).

They have to dispose of experience and expert knowledge

in order to be asked for advice and to be accepted as

neutral counsellors and mediators. Likewise, their background

should be broad enough to cover su$cient knowledge

about all co-operation partners. In addition to

these professional quali"cations, relationship promoters

should possess the social competence required to establish

trust and commitment between the interaction partners

and to be respected as a discrete `referent powera

65

(GemuK nden and Walter, 1994). Together, these personal

characteristics substitute for the lack of hierarchically

legitimated power when relationship promoter(s) seek to

extend their in#uence beyond company frontiers.


Our example describes the case of a company which

assigned a relationship promoter team to facilitate the

relationship transformation between their own company

and its suppliers. The team comprised six members, some

of which have been recruited speci"cally for this position.

All six however, were on the buying company's pay-roll.

The team's top two priorities were to work `between the

linesa as a relationship facilitator and, in addition, to

support the company's own buying people. The buying

company carefully selected the members to represent all

important interest groups in the inter-company relationship:

"rst, the team leader was a director and as such

represented on the board. He had the legitimate authority

essential for the team's internal tasks. The supplier

companies' perspective was recognised by appointing

a former production manager. Moreover, a buyer was

promoted to represent the employees dealing with the

day-by-day working relationships. Finally, the company

66

wanted to bene"t from the experiences gained in other

industries and brought in a member with a di!erent

industry background.

Although the buying company thought that they had

done everything to meet the need for a relationship

facilitator, they were still not satis"ed with the team's

e!ectiveness. The reason for this became apparent when

we investigated the satisfaction with the team's support

function, both, within the buying company and among its

suppliers. Interestingly, the results revealed that the supplier

companies were signi"cantly more satis"ed with the

support they received from the team (t-value"12.4, t signi

"cant at 0.001 level). The main reasons for the disenchantment

within the buying company were the

perceived lack of availability of team members, their lack

of accountability and responsibility and the assessment

that they were understa!ed considering their massive

task. The conclusion to be drawn from this case is to be

realistic about the relationship promoter's assignment

and to carefully manage the expectations of the people

involved. A relationship promotor team that is accepted

by only one of the two relationship parties cannot ful"ll

its assignment and will inevitably fail.

67

2.6. Monitoring the relationships

Enacting a relationship approach involves the management

of ongoing value creating processes which are

underpinned by a monitoring procedure. Relationship

monitoring complements rather than substitutes for established

customer or supplier value assessment methods

(Anderson et al., 1993). Traditionally, when buyers and

sellers have evaluated their agreements, they have focused

on the e!ects on their own operating revenues,

expenses, pro"ts and growths (Magrath and Hardy,

1994). Tighter linkages lead to greater interdependence

between the parties and this in turn, extends the requirements

of relationship monitoring. In a partnership, relationship

monitoring refers to all procedures employed to

evaluate whether the relationship meets the speci"cations

agreed upon. In other words, it is not an independent

surveillance but involves joint negotiation and performance

control activities. An examination of business

practice suggests that companies engage in either formal

or informal monitoring procedures. Whereas formal

monitoring is based on well-detailed, written and often

legally binding contracts, informal monitoring involves,

for example, a routinised procedure executed by both

68

parties and facilitated by open information sharing.

Choosing either form seems to be dependent on the

speci"c situation (Cannon, 1994). The use of formal

monitoring is appropriate when performance evaluation

is di$cult or when one party has made signi"-

cant relationship investments and seeks assurance that

the relationship will continue long enough to justify


the investments. However, when both parties have made

relationship-speci"c investments, the mutual dependence

facilitates information sharing and informal monitoring

seems more appropriate.

Formal and informal monitoring processes should

both integrate business targets, for example in the form

of key performance indicators, as well as processrelated

targets. Thereby, feedback is not only obtained on

`what has been achieveda but also on `how it was accomplished

a. In the event of a problem, both measures

together allow the parties to trace back to its causes.

Any unforeseen situation should in addition be covered

in an escalation procedure. Furthermore, monitoring

processes should accommodate the soft, people issues.

69

With little amendments, traditional customer surveys

can often be applied to internal boundary spanning

employees to gather information on their perception of

the relationship quality as well as suggestions for improvements.

Finally, planning and negotiating the end of

the relationship in a disengagement procedure is seen as

an important part of a professional relationship monitoring

approach. It forces the parties not only to be explicit

and open about their commitment but also to recognise

di!erent relationship `life cyclesa. Bene"ts from a relationship

can decrease over time, even though the quality

of the relationship rises. They may peak when both

parties are working on new solutions, but diminish once

the new solution has been put into place.


A compromise between the formal and informal

monitoring alternatives described above, is the development

of a written mutual agreement without legal status.

It became "rst known in the motor industry and has

recently been adopted by a retailer and its supplier companies.

Here, the document is signed by both parties and

is seen as a mutual statement of the relationship intent. It

comprises a general part describing the mission and

70

vision of the relationship as well as a speci"c and detailed

business plan for the next four years. Furthermore, objectives

relating to the relationship's general purpose as well

as operational performance measures and monitoring

responsibilities are included.

An example of a high level objective in such an agreement

would be: to create a framework which enables

retailer and supplier to deliver the value proposition to

the ultimate customer. A process objective within the

retailer's responsibility is his commitment to increase the

spend with a supplier upon achievement of superior

performance. The supplier in turn might agree to dedicate

appropriate supply capacity to produce products

exclusive to the retailer. Finally, performance measures

de"ne, for example, that both the retailer and the supplier

measure and provide feedback on service performance

and that costs on both sides of the relationship will be

made transparent.

In the case that we studied the agreement attempted

to move relationship monitoring onto a corporate

level with consistent processes across all interfaces. The

targets are measured objectively and communicated

openly among the parties. A formal review process incorporated

71

in the document de"nes how it can be adjusted

over time to accommodate relationship changes.

Overall, the agreement builds a solid foundation for

professional relationship monitoring but as a member of

the company emphasised: `the document is a piece of

paper and it's down to us to take full advantage of its

richnessa.

3. Conclusion

As companies foster longer-term and co-operative relationships

in the supply chain, buying and supplying

companies need to better understand how to manage

these relationships. The need to see relationship management

as a strategic priority within the over-arching business

strategy is increasingly accepted but traditional

management approaches and tools are not ideally suited

to accommodate the changed requirements of such a

strategy. These traditional approaches all emerged from

industrial environments which were distinctly di!erent

from today's markets. Thus, practitioners making decisions

on relationship arrangements often act intuitively.

The purpose of this paper has been to share the experiences

of managers seeking to apply relationship management

principles in supply chain contexts. Drawing upon

72

the insights gained, we developed a framework encompassing

six aspects which have been identi"ed as

the key areas for advancing the state-of-practice. Whilst

each aspect can be interpreted as a step in a procedure

and is illustrated through a case study, we do not claim

to provide a rigid model. We have not sought to establish

a theoretical foundation at this stage and follow

instead what could be described an attempt to gather

the `theory in usea by practitioners (Zaltman, 1982)

and to disseminate this knowledge for application and

development.

● Text Books

● Programme Overview ● While supply chain management has risen to great prominence in recent year, there are hardly related developments in research methodologies. Yet, as supply chains cover more than one company, one central issue is how to collect and analyze data along the whole or relevant part of the supply chain. ● Supply chain management involves a number of decisions that benefit by quantitative techniques of analysis and design. The course will take up a few of these to explore modeling and computation of solutions in some areas of Supply Chain Management. ● Objective of the Course ● The course is designed to provide in-depth knowledge of key methods, such as modeling, surveys, and case studies. It will be of great interest to researchers in the area of supply chain management and logistics, but also to neighboring fields, such as marketing management, analytics and global operations. At the end of the course, the participants will be able to: ●

73

● Understand some of the research methodologies, commonly used in the area of Supply Chain management. ●● Understand the role and applicability of various research methodologies in Supply Programme Coverage

Interpretive Structural Modeling (ISM)

Analytic Network Process (ANP)

Data Envelopment Analysis (DEA)

Structural Equation Modeling (SEM)

Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS)

Decision-Making Trail and Evaluation Laboratory (DEMATEL)

Nomination and Correspondence Interested candidates should send the nomination on the enclosed Pro forma duly sponsored by the appropriate authority along with the course fee to The Head Continuing Education Centre Indian Institute of Technology Roorkee Roorkee, Uttarakhand India – 247667 Tel: 01332 – 284327 / 285227 Fax: 01332 – 285545 / 273560 Email: [email protected] [email protected] However, self-sponsored participants are also allowed. ● Seats are limited and are on the first come

74

Profitability is a prime concern in all organizations. Operations management uses various tools and strategies to try and improve if not maximize profitability. Operations management, which encompasses supply chain management and logistics, deals with how well some function is performed. This research analyzes the specific strategy of production mix efficiency and what mediating effect it has on the relationship between operations management and financial profitability. Confirmatory factor analysis and structural equation modeling was utilized to analyze the relationship between the three constructs. This research found that operations management alone does not have a positive impact on profitability. However, the strategy of production mix efficiency has a positive mediating effect on profit, which provides a potential answer to firms trying to increase profits through operations.

Keywords: Logistics, Manufacturing, Production, Supply Chain Management

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1. INTRODUCTION

This research studies and analyzes a strategy of operations management for the purposes of increasing profitability. The strategy of production mix efficiency looks at factors involved in the process of producing goods. Some variables here are the number of items each firm makes and the time and costs involved in each. This study is logistical aspects of business. The purpose of this paper is to provide operation managers and firms with an in-depth understanding of what factors have a more direct impact on profitability.

This study analyzes scrap steel companies and sent survey questionnaires to 1600. All of these firms are physically located within the United States. Literature asks more questions about how the supply chain affects profitability than it gives answers. This study attempts to provide some answer to the dilemma.

2. OPERATIONS MANAGEMENT LITERATURE

Operations management is concerned with all areas that affect the company on a daily basis. According to Jaggi (1992), one of the goals of operations management is to achieve profit maximization. In order to achieve this, there are various factors that can be utilised. A few of these strategies are production mix efficiency, product route efficiency, and resource commitment. This research analyses production mix efficiency.

Giuntini (1996) describes a situation in which a management process that is not optimised will result in less than optimal results. Such results lead to solid and hazardous waste, as well as increasing operational costs.

This forward supply chain issue creates a desire and need for a well-organised and robust reverse logistics system. Supply chain disruptions pose an increasingly significant risk to supply chains (Speier, C et. al, 2011).Synergy demands these forward and reverse systems be linked for effective communication and scheduling purposes. Typically, supply chains will consist of an independent system for the reverse chain; however, it will work hand in hand with the forward chain. Without such integration, Stock (1992) notes that several problems may arise because:

1. Firms do not understand they can positively affect the environment through reduction and recycling of waste.

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2. Industries are in the habit of utilizing virgin materials rather than recycled ones.

3. There exists a perception that recycled materials are inferior to virgin ones. International Journal of Economics and Management Sciences Vol. 2, No. 07, 2013, pp. 20-32

© Management Journals http//: www.managementjournals.org 21

4. PROFITABILITY

As Rothschild (2006) notes, “The ultimate goal of firms is profit maximization, regardless of what service or product they offer.” Rothschild (2006) goes on to say that the ultimate definition of profitability is a firm’s return on equity (ROE). He notes that other methods that are also sometimes used include return on assets (ROA) and net income. Jaggi and Freedman (1992) also support the use of these ratios to analyse a

firm’s profitability, while including net income.

If the efficient return and refurbishment of products is ignored, many companies miss out on a potential return on investment. Logisticians who treat reverse logistics as a way to maximize the value of returned assets make a significant contribution to their

companies’ bottom lines (Andel, 1997).

5. LITERATURE GAP

Prior literature has not studied operations management’s impact on profitability in the aspect of the business strategy of production mix efficiency from a comprehensive analysis of variables according to literature. Furthermore, no study analyzes the relationships this research does from a comprehensive reverse logistics aspect. In addition, this study is the first to separate the OM construct into 2 dimension of production commitment and production efficiency,

6. DATA SOURCE

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Data was collected via the developed survey instrument. This was then mailed via postal service. Usable response totaled 298 for the overall data set. This provided an effective response rate of 18.625%, since a total of 1600 surveys were mailed. As previously stated, scrap steel firms were surveyed and only firms within the United States were questioned.

7. METHODOLOGY

This section presents the development of each construct used in this research. The two-step approach is used. This approach which was presented by Anderson and Gerbing (1988) and Joreskog and Sorbom (1984), is one in which a measurement model is developed and is followed by the formulation of a structural model.

Each construct is developed through a rigorous process including the formulation of a measurement model for each latent construct operationalized. The purpose of a measurement model is to describe how well the observed manifest variables serve as a measurement instrument for the latent variable being modeled (Joreskog and Sorbom, 1993). The first step in this process involves running an exploratory factor analysis (EFA) on the data set to determine the authenticity of the data and cleanse the data. The second step here involves performing a confirmatory factor analysis (CFA) on each construct and its manifest variables. The last step involves building a measurement model for all the constructs in the model.

This study used Statistical Package for Social Sciences (SPSS) software to perform the reliability analysis and factor analysis for the exploratory analysis. The result of the EFA for all constructs is detailed in Tables 2, 3, and 4. EFA procedures include reliability analysis (Cronbach’s Alpha), Kaiser-Meyer-Olkin measure of sampling adequacy, Bartlett’s, test of sphericity, and a factor analysis on all the manifest variables and the constructs in which they are correlated.

The focus of this research was to examine the relationship between operations management (OM), Production Mix Efficiency, and Profitability. These characteristics inherently have an effect, as the literature states, but to what degree had yet to be tested.

78

This research first performs Confirmatory factor analysis which will allow for removal of any indicator items. This study uses LISREL 8.54 (Joreskog and Sorbom, 1993) to perform structural Equation Modeling. Structural equation modeling is a multivariate statistical technique that defines and estimates the relationships among endogenous and exogenous variables simultaneously (Bollen, 1989; Hair et al., 1998; Rakov and Marcoulides, 2000; Gillon, 2006).

The overall fit of the hypothesized model is generally accessed by the chi-square statistic. The significance of the chi-square value is directly related to the sample size, meaning the chi-square is sensitive to the number of observations in the research.

Since the overall sample size is less than 300 this study the 2 statistics will be relied upon for indicative fit of the model in this analysis. However, due to the proximity of this threshold, other measures will also be taken International Journal of Economics and Management Sciences Vol. 2, No. 07, 2013, pp. 20-32

© Management Journals http//: www.managementjournals.org 23

into account for overall model fit. Byrne (2001) said the assessment of the model adequacy must be based on a number of criteria that includes practical and theoretical considerations as well as statistical. Some of these criteria are listed below.

79

The goodness-of-fit index (GFI) measured the variance and covariance amount in the sample data that can be explained by the model. This is an absolute index since it compares a hypothesized model to no model (Byrne, 2001). The GFI provides information about how closely the models fitted compare to perfect fit (Maruyama, 1998; Gillon, 2006). The ranges in GFI are from zero to one, with values .90 or above indicative of a good fit. The normed fit index (NFI) is included here as advised by (Bentler & Bonnet, 1980). At situations where the samples are small, NFI has been known to underestimate fit; therefore, comparative fit index (CFI) will also be used to consider overall model fit. As with GFI, CFI and NFI also range from zero to one, with .90 or more being a very good fit. The root mean square error of approximation (RMSEA) takes the error of approximation into account and is expressed per degree of freedom (Gillon, 2006). The RMSEA has 3 levels of fit: lower than .50 indicates an excellent model fit; a range from .05 to .08 indicates a good fit; a range between .08 and .10 indicates a mediocre fit; and a value over 1.0 indicates a poor fit of the model. The following equation represents the CFA model of measurement used in the evaluation of the latent constructs in this research:

Xi = Λi ξi + δi (1)

where:

Xi = a vector of observed exogenous indicators

Λi = a matrix of structural coefficients (factor loadings)

ξi = a vector of exogenous concepts

δi = a vector of errors in the measurement model

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The indicator items presented in the survey instrument represent the ξi construct. The structural coefficients (Λi) represented the path coefficients from the construct to the indicator items. Measurement errors present in the CFA measurement model are represented by the δi terms. In the path diagrams, manifest variables are presented by a rectangle. Structural coefficients for each manifest variable are printed along the path from the latent construct to the item. The error terms are printed on the inside of the circles to the left of the manifest variables. The Xi terms represent the exogenous (independent) variables. Endogenous (dependent) variables included in a CFA measurement model are represented with a Y term and not an X term.

In a standard CFA model each indicator is specified to load only on one factor, measurement error terms are specified to be uncorrelated with each other, and all factors are allowed to correlate with each other (Hair, et.al. 1998). One-factor standard models are identified if the factor has three or more indicators. Multi-factor standard models are identified if each factor has two or more indicators.

The first research question asks whether operations management has an impact on the profitability of these scrap steel companies. Jaggi (1992) gives a good overview of profitability in firms and describes the common techniques which are used to measure this factor. The literature showed many different ways to measure profitability. However, according to Jaggi (1992), the four most important and necessary are return on assets (ROA), return on equity (ROE), net income, and return on sales. All four of these measures will be used in this study.

81

Many researchers have studied operations management (OM). Anderson (2001) gives an excellent guide for measures used to analyze this item of OM. She says that the most crucial constructs to be studied are product quality, production efficiency, and productivity indexes, each of which is composed of several variables. This study incorporates Anderson’s recommendations. Hypothesis one addresses the first research question. The second research question addresses the relationship between operations management and the strategy of production mix efficiency. Several different items must be taken into consideration to account for production mix efficiency. Wahab (2005) said that machine flexibility and production mix efficiency response time are two key elements of product mix, while Anderson (2001) included machine downtime and defect intolerance, and Mohammed & Reinstein (2005) added the factors of costs and time.

For this study, production mix efficiency is defined as the combination of goods a firm produces to meet demand while trying to maximize profitability. Of course the producing firm may have to take several factors into consideration to find the optimal output to produce. The few studies (Wahab, 2005; Anderson, 2001; and Mohammed & Reinstein, 2005) done on production mix efficiency as it relates to profitability used only a few elements of the production mix. This study incorporated all the factors mentioned in the studies to give a more, well-rounded and overall accurate analysis of optimizing the production mix efficiency. Hypothesis two addresses the second research question.

Hypothesis 2: The production mix efficiency will yield a positive effect on the relationship betweenThe reliability analysis measures the degree of consistency between the manifest variables measuring the construct in question. Determining Cronbach’s Alpha coefficient and testing the corrected item total correlations perform this assessment. The KMO statistic measures the amount of intercorrelations among the variables being tested. This statistic also measure the appropriateness of factor analysis. This scale which was devised by Kaiser (1974) is as follows: a score greater than .90 is marvelous, greater than .80 is meritorious, greater than .70 is middling, greater than .60 is mediocre, greater than .50 is miserable and anything less than .50 is unacceptable.

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Table 2 presents the results of the EFA for the Operations Management construct. The KMO measure is .763, which is fair. The Bartlett’s test resulted in a 2 value of 10854.286. All items show low CITC scores. The two lowest are eliminated from the study due to the fact they are below .30 on the CITC scale. They are as follows: OM1, and OM7. However, the other items are not eliminated due to an acceptable Alpha and KMO score. The reliability coefficient is .7426, while the KMO value is .763 both of which fall into acceptable parameters.

Table 3 shows the findings of the EFA for the construct Product Mix Efficiency. The KMO measure is .775, which is good. The Cronbach’s Alpha is .9174, which is excellent. The Bartlett’s test resulted in a 2 value of 15952.95. A total of 1 item was eliminated from this construct. Item OM 2 showed a poor CITC score and also the alpha if this item was eliminated proved significant. All of the remaining item scores are acceptable and therefore not eliminated or rejected.

Table 4 shows the findings of the EFA for the construct Profitability. The KMO measure is .813, which is very good. The Alpha value is found to be .9183, which is excellent. The Bartlett’s test resulted in a 2 value of 1264.380. All of the CITC values show very good scores. Elimination of any manifest variables would

Items 1 and 3 are problems of perception and belief. Management is in a prime position to alter people’s beliefs through the information exchange that will occur within an integrated system of logistics. No research shows recycled materials to be inferior to new, virgin material made goods. This knowledge should not only be passed on but also reinforced by managers. Item 2 is a little more complicated but not without solutions.

Incentives are one method that can be offered to entice companies to use more recycled goods.

Operations management is traditionally a broad topic. This study focuses on 2 particular aspects of operations management: Production Commitment (OM1-4) and Production Efficiency (OM 5-8).

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This research does not analyze the two aspects in different constructs for several reasons. The most important being, as this is new, empirically tested research it needs to be determined if any intercorrelation is present between the two dimensions. Also, this research needs to be not too restricting, at least initially to maximize potential usefulness among a broad array base of operation management firms.

3. PRODUCTION MIX EFFICIENCY

Slack (1984) tells that production mix efficiency is the flexibility to produce a wide range of products, accommodate modifications to existing products, and assimilate new products all with minimal degradation of performance. These scheduling “mixes” are based upon factors such as current demand, material availability, equipment, and profit margins. Also, firms may be limited in the amount they can produce and may not be able to match demand, whether it is scheduled or forecasted.

There are two types of location problems, uncapacitated and capacitated. Uncapacitated assumes each facility can produce and ship unlimited quantities under consideration, while capacitated places a limit on supply or demand. Some studies have focused on uncapacitated location problems (Salhi and Gamal, 2003; Lozano, Guerrero, Onieva, and Larraneta, 1998) while others have concentrated on capacitated problems (Sherali, Al-loughani, and Subranmanian, 2002; Eben-Chaime, Mehrez, and Markovich, 2002).

In the case of the scrap steel industry, these firms are capacitated since there is a limit to how much they can produce from a limited supply of inputs such as recyclable materials. The appropriate lot sizing scheduling decision enables the production system to produce more with existing resources and therefore increase its profits significantly (Himola, 2005).

Letmathe and Balakrishnan’s (2005) study shows a relationship between optimal production mix efficiency and different environmental factors such as waste. This provides evidence that one factor may affect another and that the environmental factor must be taken into consideration when dealing with the production mix efficiency, which this study has done. 9. LIMITATIONS

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All research, especially when it is exploratory as is this research, has limitations and this study is no exception. Some firms may not be able to utilize the strategy talked about in this research. For example, some firms may focus on one particular, unique product type. Therefore, they can’t employ a strategy of producing different types of goods in differing lot sizes according to things such as demand, warehousing costs, and production times. 10. FUTURE RESEARCH Future research needs to scour new sources of literature and add new variables to each construct to potentially adjust or re-analyze this study’s findings or compare differentiations. This could potentially verify results shown here or show a variance in findings which in itself could be researched as to why. Also, future research should add different strategies and analyze them. There are other strategies in addition to the one provided here of product mix efficiency, and there are a number of possible combinations. 11. SUMMARY The research questions posed in led to the development of the tested hypotheses. Each path in the conceptual model led to one of the two hypotheses. The application of the hypotheses was dependent upon the data being used to perform the statistical analysis to reject or fail to reject. Data analysis included structural equation modeling (SEM), confirmatory factor analysis (CFA), and xploratory factor analysis (EFA). SPSS version 11.0.1 was used to perform the EFA and CFA. Other statistical analysis, such as SEM, used LISREL version 8.54. Testing of each hypothesis was tested using SEM in LISREL Regression results from SEM were used to consider the strength of the constructs in each model and how in combination they add to the overall variance explained by the construct. As the findings show, this study contributes to existing literature in a several ways. First, this research focuses primarily on logistical aspects of operations. Second, this study took a comprehensive approach to literature and added manifest variables for each construct according to author’s recommendations. Finally, rigorous statistical analyses were performed to verify or reject the hypotheses formulated. This research provides managers with a tool statistically proven to increase profitability by proper scheduling allocation. This can be done simply by allocating time and resources to each individual indicator item as managers see fit, using the findings within study as a guide

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It is important with regard to profitability to make the most of the materials a firm has. This is achieved by using the materials the firm has to produce the optimal mix of products to achieve maximum profitability. There are several factors that need to be considered. For instance, turnover time is important. What if the most profitable item sits on a shelf for six months compared to a less profitable item that will ship immediately? In this situation, it would be more efficient to produce the item which will sell now then wait to produce the more profitable item closer to the date it is expected to be needed. Of course, there is always the problem of uncertainty (which is hard to account for) in regards to current and future product demands, as well as supplier deliveries. Wahab (2005) says that to combat this uncertainty the manufacturing system should be flexible under dynamically changing environments rather than static ones. Below, Figure 1 is good graphical representation

This section describes the instrumentation, model formulation and sampling method utilized in this study. Validity and reliability of the constructs are also discussed. Validity and Reliability of the Constructs The instrument used in this study was a structured survey questionnaire. The questionnaire consisted of two major parts. The first part comprised several constructs measuring strategic supplier partnership practices. To enable respondents to indicate their answers, seven–point Likert interval scales were used for the of strategic supplier partnership dimensions. The strategic supplier partnership determinants in this study were adopted from prominent studies The Strategic Supplier Partnership with Quality and Business Performance ISSN 1985-692X International Journal of Business and Management Science, 1(2): 129-145, 2008 133

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(Gunasekaran, Patel and Mcgaughey, 2003; Kuei, Madu and Lin, 2001; Li, Rao, Ragu-Nathan and Ragu-Nathan, 2005; Vickery, Calantone and Droge, 1999). The strategic supplier partnership construct was operationalized based upon five different kinds of activities that manufacturers commonly use to integrate their operations with suppliers namely ‘Emphasis on high quality’, ‘Long term relationships with suppliers’, ‘Jointly problem solving with suppliers’, ‘Continuous improvement programs with suppliers’ and ‘Planning and goal setting with suppliers’. In the initial data analysis, the five strategic supplier partnership determinants were subjected to validity and reliability tests. Before creating the final scales, the data were checked for normality and outliers. The second part of the questionnaire comprised several performance measurements. Several studies have identified performance improvement constructs that are commonly associated with strategic supplier partnership in SCM (Voss, 1988; Gunasekaran et al., 2003; Kuei et al., 2001; Cox, 1999). Voss (1988) classified performance measures into three groups: market place competitive advantage, productivity increases, and non-productivity benefits. Marketplace success involved longer-term competitive gains including increased market share and greater profitability. Productivity gains came from decreased labor costs and increased throughput. Non-productivity benefits included quality improvement and lead-time reductions. This study divided the firm’s performance into two types: 1) Product Quality Performance and 2) Business Performance. Similarly, the dependent variables namely product quality performance and business performance also used a seven-point interval scale, representing a range of agreement on statement whether over the past three years these performances are high relative to competitors after implementing strategic supplier partnership in SCM practices. Validity and reliability tests were conducted to select and assess the final items of the independent constructs that would be used for statistical testing (Refer to Table 1). Content validity represents the sufficiency with which a specific domain of content (construct) was sampled (Nunnally, 1978; Ahire, Golhar and Waller, 1996). Content validity is subjective and judgmental but is often based on two standards put forward by Nunnally: does the instrument contain a representative set of measures, and were sensible methods of scale construction used (Flynn, Sakakibara, Schroeder, Bates and Flynn, 1990). The critical variables of supply chain management in this study had content validity because an extensive review of the literature was conducted in selecting the measurement items. Divergent or discriminant validity was tested by analyzing bivariate correlations between each of the strategic supplier partnership scales and other variables such as demographic variables and company size. Confirmatory factor analysis (CFA) or a measurement model using AMOS 5 was employed for examining construct validity of each scale by assessing how well the individual item measured the construct (Ahire et al., 1996). Specifically,

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confirmatory factor analysis was used to detect the unidimensionality of each The Strategic Supplier Partnership with Quality and Business Performance ISSN 1985-692X International Journal of Business and Management Science, 1(2): 129-145, 2008 134 construct. Unidimensionality is evidence that a single trait or construct underlie a set of measures (Hair, Anderson, Tatham and Black, 1998). The measurement model for each construct was treated as a single factor congeneric model with error variances and estimated regression weights. According to Motwani, Kumar, Youssef, and Mahmoud (1997) in order to establish the construct validity of the measure, it is crucial to determine (1) the extent to which the measure correlates with other measures designed to measure the same thing and (2) whether the measure behaves as expected. The goodness of fit index (GFI) and comparative fit index (CFI) of the three constructs calculated from CFA exceeded the 0.90 criterion suggested by Hair et al. (1998), hence, establishing the construct validity. CFA showed all the items were loaded highly on their corresponding constructs, which supported the independence of the constructs and provided strong empirical evidence of their validity. Table 1: The findings of the reliability test on ‘strategic supplier partnership’, ‘product quality performance’ and ‘business performance scales’

Constructs

No. of Items

Mean Standard Deviation

Reliability

GFI (CFA)

CFI (CFA)

Strategic Supplier Partnership

5 5.18 1.03 0.85 0.940 0.943

Product Quality Performance

4 5.37 0.99 0.95 0.990 0.999

Business Performance

4 4.68 1.06 0.90 0.998 0.999

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Limitation Of The Study

▪ Time is a limiting factor in any research.

▪ This is not an exhaustive study some import conclusions might have escaped

my observation

▪ Most of the information collected is secondary data.

▪ The data is analyzed on the basis of my research.

It was very difficult to obtain the date regarding “Strategic Partnership within

Supply Chain” hence approximately data were taken from both primary and

secondary.

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Martin is Head of the Marketing & Logistics Group and teaches those

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Administration.


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Chau, P.Y.K. (1997). Re-examining a Model for Evaluating Information Center Success Using a Structural Equation Modeling Approach. Decision Sciences, 28(2): 309-344. Chow, G., Heaver, T.D. and Henriksson, L.E. (1994). Logistics Performance: Definition and Measurement. International Journal of Physical Distribution and Logistics Management, 24(1): 17-28. Cox, A. (1999). Power, Value and supply Chain Management. International Journal of Supply Chain Management, 4(4):167-175. Davis, T. (1993). Effective Supply Chain Management. Sloan Management Review, 34(1): 34-46. Flynn, B.B., Sakakibara, S., Schroeder, R.G., Bates, K.A., and Flynn, E.J., (1990). Empirical research methods in operations management. Journal of Operations Management, 9(2): 250-284. Fornell, C., Johnson, M.D., Anderson, E.W., Cha, J. and Bryant, B.E. (1996). The American Customer Satisfaction Index: Nature, Purpose and findings. Journal of marketing, 60(4): 7-18. Gunasekaran, A., Patel, A., and Mcgaughey R.E. (2003). A Framework for Supply Chain Performance Measurement. International Journal of Production Economics, 87(3): 333-347. Hair, J.F., Anderson, R.E., Tatham, R.L. and Black, W.C. (1998). Multivariate data analysis. New Jersey: Prentice-Hall. Harrington, L. (1995). Logistics, Agent for Change: Shaping the Integrated Supply Chain. Transportation and Distribution, 2(1): 30-34. Hammel, T.R. and Kopczak, L.R. (1993). Tightening the Supply Chain. Production and Inventory Management Journal, 34(2): 63-70. Kotler, P. (1994). Marketing management analysis, planning, implementation and control (8th Ed.). New Jersey: Prentice Hall. Kim, S.W. (2007). Organizational structures and the performance of supply chain management. International Journal of Production Economics, 106(2): 323-345. Kotabe, M., Martin, X. and Domoto, H. (2003). Gaining from vertical partnerships: Knowledge transfer, relationship duration, and supplier performance improvement in the U.S. and Japanese automotive industries. Strategic Management Journal, 24(4): 293-316. Kuei, C.H., Madu, C.N., and Lin, C. (2001). The relationship Between Supply Chain Quality Management Practices and Organizational Performance. International Journal of Quality and reliability Management, 18(8): 864-872. Li, S., Rao, S., Ragu-Nathan, T. S., and Ragu-Nathan, B. (2005). Development and validation of a measurement instrument for studying supply chain management practices. Journal of Operations Management, 23(6): 618-641. Li, S., Ragu-Nathan, B., Ragu-Nathan, T.S., and Rao, S.S. (2006). The impact of supply chain management practices on competitive advantage and organizational performance. Omega, 34(2): 107-124. Li, X and Wang, Q. (2007). Coordination mechanism of supply chain systems. European Journal of Operational Research, 179(1): 1-6 Maheswari, B., Kumar, V. and Kumar, U. (2006). Optimizing success in supply chain partnerships. Journal of Enterprise Information Management, 9(3): 277-291. McGaughey, Nick. (1991). Building competitive strength: Lessons from the

99

chemicals industry. Industrial Management. 29(3): 36-41. The Strategic Supplier Partnership with Quality and Business Performance ISSN 1985-692X International Journal of Business and Management Science, 1(2): 129-145, 2008 145 Motwani, J., Kumar, A., Youssef, M.A. and Mahmoud, E. (1997). Forecasting quality of Indian manufacturing organizations: An exploratory analysis. Total Quality Management. 8(6): 361-373. Nunnally, J. (1978). Psychometric Theory. New York: Mc Graw Hill. Pascucci, D. (1998). Up to date communications a must for keeping pace in the service business. Air condition. Heating & Refrigeration News, 205(16): 5-6. Pittiglio, Rabin, Todd and McGrath (1994). Integrated Supply Chain Performance Measurement. A Multi-Industry Consortium Recommendation, Weston, Massachusetts: PRTM Consulting. Prasad, S. and Tata, J. (2000). Information investment in supply chain management. Logistics information Management, 13(1): 33-38. Robinson, C. and Malhotra, M.K. (2005). Defining the concept of supply chain quality management and its relevance to academic and industrial practice. International Journal of Production Economics, 96(1): 315-337. Sila, I., Ebrahimpour, M. and Birkholz, C. (2006). Quality in supply chains: An empirical analysis. Supply Chain Management: An International Journal, 11(6): 491-502. Shin, H., Collier, D.A. and Wilson, D.D. (2000). Supply management orientation and supplier/buyer performance. Journal of Operations Management, 18(3): 317-333. Spekman, R.E., Kamauff, Jr. J.W. and Myhr, N. (1998). An empirical investigation into supply chain management: A perspective on partnerships. Supply Chain Management, 3(2): 53-67. Stanley, L.L. and Wisner, J.D. (2001). Service quality along the supply chain: Implications for purchasing. Journal of Operations Management. 19(3): 287-306. Stevens, G. (1989). Integrating the Supply Chain. International Journal of Physical Distribution and Materials Management, 19(8): 3-8. Stuart, F.I. (1997). Supply chain strategy: organizational influence through supplier alliances. British Journal of management, 8(3): 223-236. Tsai, J.F. (2007). An optimization approach for supply chain management models with quantity discount policy. European Journal of Operational Research, 177(1): 982-994. Vickery, S., Calantone, R., and Droge, C. (1999). Supply Chain Flexibility: An Empirical Study. Journal of Supply Chain Management, 35(3): 16-24. Vereecke, A. and Muylle, S. (2006). Performance improvement through supply chain collaboration in Europe. International Journal of Operations & Production Management, 26(11): 1176-1198. Voss, C.A., (1988).

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Success and failure in advanced manufacturing technology. International Journal of Technology Management, 3(3): 285–296. Wang, W., Rivera, D.E. and Kempf, K.G. (2007). Model predictive control strategies for supply chain management in semiconductor manufacturing. International Journal of Production Economics, 107(1): 56-77. Wei, C-C., Liang, G-S. and Wang, M-J.J. (2007). A comprehensive supply chain management project selection framework under fuzzy environment. International Journal of Project Management, 25(1): 627-636.

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Documents

Project Report-Sakshi Arora(OM)