Power Dynamics within Supply Chains - Coursework Example

Power Dynamics within Supply Chains [Department] 6 December Power Dynamics Within Supply Chains 0 Introduction Supply chain is defined as the product life cycle processes that consist of informational, physical, financial and knowledge flows and whose objective is to ensure that the end-user gets satisfied with the physical products and services from various linked suppliers. It involves activities such as sourcing of goods and services, designing, manufacturing, transporting and selling. The main purpose of supply chain is to support the end-user satisfaction and consequently matching supply and demand (Christopher, 2011). A supply chain only exists when multiple enterprises are available to support the one who presents a product or service to the consumer. A typical supply chain is not limited in terms of direction of flow with the majority of what flows in the chain being a two-way flow (Neubauer & Heyden, 2011). Supply chain management is a business concept in the area of logistics that connects, aligns and coordinates processes in supply chains, materials and information flows. In today’s business environment, supply chain management has become one of most influential business improvement tools available. This results from increased competition among manufacturers, retailers, distributors and service organization to improve tactics and operations. There have been numerous improvements in the supply chains over the last two decades. This has been evident especially with the evolvement in the description of the practices which has seen use of terms such as logistics, reengineering, process re-design and partnering. This paper will discuss on various aspects of supply chains, largely focussing on the issue of power and how it should be managed in the supply chains. The discussion will also look at the influence that supply chains have on a business strategy, outlining the reasons why they have grown in popularity in recent times. By discussing on various aspects of power and its role in a supply chain, the paper will conclude by providing an evaluation of the supply chains in three companies namely Dell Corporation, Ford and Coca-Cola companies. The paper will, however, start by stating the strategic role of supply chain management. 2.0 The Strategic Role of Supply Chain Management In management, a strategy is used to provide managers with a guide to decision-making regarding the use of an enterprise’s resources while also establishing priorities. In supply chain management, strategizing means balancing the appropriate measures for exploitation and development of logistic capabilities and ways through which supply chain management achieves its objectives. These objectives target increased flexibility, quality, delivery, coordination, collaboration and minimised costs among other areas. Supply chain management plays a big strategic role in most organisations today. This is largely because it is an integral part of the business, spanning from demand by the end-user requirements to the suppliers who provide the goods and services to satisfy such a demand. Supply chain management involves risk-sharing with the suppliers, and this typically involves moving the risks higher to the suppliers best suited to handle the risk; therefore, good decision-making is necessary before engaging in them. In meeting its objectives, an organisation should evaluate and determine the most appropriate approach that enables it to meet its objectives. One of the ways is by evaluating its economic drivers that enable the organisation to develop the necessary level of sophistication regarding its supply chains. A supply chain strategy should support and conform to the corporate and business strategies thus facilitating the achievement of the overall corporate and business objectives (Cohen & Roussel, 2005). 3.0 Reasons Why There Has Been An Increasing Strategic Importance Of Supply Chains In The Business Environment Today. Globalisation- Most organisations today are relying heavily on the use of internet and consequently globalisation in their operations. This is especially attributed to the increased competition in most industry markets thereby forcing businesses to venture into new and distant markets. In supply chains, this means dealing with suppliers and customers across borders which makes it even more complex and risky. This has led to increased growth of interconnected supply chains that run across the globe. This has seen many marketers, product designers and manufacturers that were at one time operating in a single location now spread in other organisation with varying cultures and business objectives across the world. Sustainability- This is a concept that has received widespread attention especially by policy-makers. Sustainability can simply be defined as the use of resources to satisfy current needs without inhibiting the ability of those resources to meet the needs of the future generations. The debate on the focus on sustainability has also affected the importance of supply chains in the business world today. This has led to a great shift in focus towards a broader development and adoption of sustainability. However, sustainability affects more than just the supply chains and may involve other activities such as extension of product life, recovery processes and utilisation of by-products through recycling processes (Palevich, 2012). Increasing consumer demands- The consumer today has a huge influence in almost every operation in a business. Some years ago, consumers knew very little about supply chains and thus did not have much influence on this area. However, availability of information has allowed the consumers to learn more on supply chains and this has increased their influence and consequently more demands in supply chains management. Organisations should, therefore, understand consumer demands such as tracking and delivery of ordered goods and services, price competitiveness and sustainable practices. Businesses should guarantee efficiency in the process through which consumers can track and order their purchases. Lack of this may lead to cancellations of the orders by the consumers thereby seeking other service providers. Other demands by consumers include need by the organisation to provide competitive prices compared to other competitors. This has especially been rendered complex due to the availability of e-commerce that allows consumers to evaluate and make purchases from almost anywhere in the world. Also, a growing trend worth consideration is the demand by certain sections of consumers for more sustainable products. Some consumers will look for alternative companies once they realise that an organisation’s supply chain engages questionable labour and environmental practices (Wang et. al., 2007). 4.0 Key Considerations By An Organisation Before Creating A Supply Chain 4.1 Environmental Uncertainty These are the concerns raised about the influence of the environment in the product chain. The environmental issues include technological advancements, competitors, supplier and unpredicted changes of customers among others. Also, government support and uncertainty from overseas are also considered as factors worth of note. One of the environmental factors is the company environment that can be described as the company’s relationship with suppliers and this involves their level of trust and commitment. This form of environment also involves other related factors such as competition, quality expectations, timeliness in goods and service delivery among others. In some cases, organisations are involved in importation businesses and this means uncertainty when dealing with suppliers from overseas. However, organisations should formulate good strategies that allow them to deal with such environmental uncertainties. Other forms of uncertainties include political uncertainties, language barriers, variation in technologies, cultural issues among others. 4.2 Information Technology All organisations strive to cut costs and reduce time with an objective to improve their level of service while also enhancing their inter-organisational relationships. This motivates the organisation to adopt various kinds of information technology such as the internet which allows the manufacturers, retailers, distributors and customers to lower costs and time. There are two chief branches of information technology that can be utilised to enhance efficiency in supply chains: Communication tools and planning tools. Communication tools include the internet, intranet and electronic fund transfer among others. These tools facilitate communication and data transfer between trading parts thus enhancing improved organisation competitiveness and consequently cost reduction. On the other hand, planning tools help to integrate resource planning activities in an organisation. Examples of common planning tools include Enterprise Resource Planning (ERP), Material Requirement Planning (MRP) and Manufacturing Resource Planning (MRP). These and other planning tools can be used to execute and manage various activities and relationships in a supply chain. 4.3 Relationships Supply chain relationships play an integral part in enabling an organisation to achieve its goals. This results from the integration and coordination of activities with both the suppliers and customers leading to increased benefits for the organisation. When dealing with suppliers, an organisation should consider creating more beneficial partnerships and alliances that benefit both parties (Christopher, 2011). It is important that strategic alliances are formed between the two to allow for information sharing and risk sharing. In its relationship with customers, an organisation should ensure it offers better qualities than its competitors at competitive prices. Today’s customer is seen as more concerned about better goods and services, good quality and quick deliveries. 4.4 Vertical integration This is a strategic practice that involves unification of separate organisations across a supply chain. By vertical integration, the companies involved acquire separate business within the entire supply chain thereby giving them control over the process. The chief objective of this practice is to promote efficiency and cut costs through increasing the scale of production, which leads to savings. Another major consideration for adoption of this practice by an organisation is to improve the sales strategy through better information exchange. Another closely related practice is known as horizontal integration. 4.5 Sustainability issues There has been a heated debate on ways of mitigating effects of the impacts caused by activities of the supply chains on the climate. There are widespread concerns about cargo transportation either by roads, air or sea and the emissions they release to the atmosphere. It is important that an organisation can consider these effects and their influence in enhancing global warming when crafting its supply chain management strategies (Palevich, 2012). 5.0 Power Dynamics in A Supply Chain In supply chains, power is defined as the influence of the source company on the actions and intentions of the target company. It refers to the ability of one member in the supply chain to influence the decision-making processes and behaviours of other members. Power takes various forms such as punishments, rewards, rule-making, decision-making and work assignments among others. All members in a supply chain have unique capabilities due to their differences in functions and their relative positions in the network. The combined capabilities of the members involved lead to power advantage toward one another. There concept of power is seen in a supply chain through ways such as supplier participation, decision-making, improvement and incentive alignment. The use as well as abuse of power in a supply chain are major determinants of its effectiveness. For example, integrations efforts in a supply chain are largely influenced and driven by issues of power. On the other hand, power asymmetry refers to the basic capacity of participants in a supply chain to obtain benefits from an agreement based on the level of dependence on one another. It is characterised by a relationship where one chain member is considered more powerful than the rest. The dominant member has a greater influence on other participating members in ways such as their purchasing power, market share and technological advantages among others. The influence of power on strategies is seen in the informational differences between participating members in a supply chain. The member with the higher power is thus able to exert influence on areas of bilateral communication that helps to generate the synergistic outcomes that capitalise the power symmetry. In addition, the mutual dependence caused by power symmetry leads to adjustments that enhance successful performance of joint tasks. 5.1 Aspects Of Power In A Supply Chain Power takes various forms in a supply chain and can be categorised in five major types: Reward power- This refers to the ability of the source to participate in more future businesses with the target, for example, a customer/manufacturer case. Coercive power- This kind of power enables the customer to stop any business activities with the manufacturer as a form of punishment. Expert power- This occurs when a customer has the necessary skills and knowledge that are desired by the manufacturer. Referent power- This power is obtained through recognition by association that a company seeks with another company. Legitimate power- This is a natural power through which the target opines that a company has a right to gain influence. (Zastrow, 2010) 5.2 Areas Through Which Power Has An Influence In A Supply Chain Information sharing- For effective integration of buyers and suppliers in a supply chain, both parties need to share strategic information in various situations. For example, buyers need information about suppliers so as to allow their management of production and inventory scheduling among others. Suppliers have the power in this relationship since they control the resources. However, suppliers should avoid using methods such as coercive power, instead employing alternative ways such as expert, reward and referent powers that are more effective. Process coordination- Process coordination involves factors such as relationships, knowledge-sharing, conflict resolutions, and strategies among others. The dominating company may decide to use the advantages of supply chain coordination on its own while the other participants in the chain conforms. The powerful member, therefore, helps to coordinate the chain, reducing cases of conflicting objectives in the chain. Relationship commitment- Various aspects of power influence commitments differently in relationships. For example, expert and reward powers positively influence the normative relationship commitments. Coercive powers, on the other hand, have a negative influence on normative relationship commitment although it has a positive influence on instrumental relationship commitment. Legitimate power cannot be involved in instrumental relationships (Maloni & Benton, 2000). 6.0 Case Studies- Ford, Dell And Coca-Cola Ford is the second largest industrial corporation in the world with a revenue of more than $ 144 billion. It is a manufacturer of motors and is based in Michigan, United States. Ford has an elaborate supply chain that has seen the company team up with rival companies such as Chrysler and General Motors to work on the Automotive Network Exchange (ANX). The motive of this network was to lower the cost of production while creating consistency in processes in the supplier network. However, the power remains with Ford, who are the dominant manufacturers. In this network, the suppliers would be required to lower their costs. The company categorises its suppliers into tier 1, tier 2 and below suppliers. The company also has a retail network that was launched in 1998 that enables the company to effectively compete with retail chains while also offering an alternative distribution channel. On their website, Dell prides itself on their dedication to work closely with its suppliers. The company achieves this through sharing of expertise and best practices that it follows. Through this, the company helps to improve their capabilities. Dell facilitates the ability of its suppliers to sustain similar high standards that Dell itself observes (Christopher, 2011). Through this, the company emphasises on the importance of collaborations in the industry that ensures suppliers maintain high standards that create positive change and good image. By analysing this description, Dell takes the dominant position in the supply change being the manufacturer and thus the source. Dell is seen as making the rules and guidelines about the standards that its suppliers ought to maintain in creating a positive industrial change. The power certainly lies on Dell’s position in the supply chain indicating the dominance that the company has over other participants in the channel including the suppliers and retailers (Mangan et. al., 2008). Coca-Cola couples up as the world largest beverage maker and the most powerful brand. This has been evident especially having dominated the global soft drink industry for more than a century. One of the ways through which it achieves this is by ensuring that it puts all its suppliers accountable as they are supposed to observe sustainability. The company informs its suppliers about the permitted materials to supply and those to avoid in the supply chain. Coca-Cola has also developed principles that guide its suppliers regarding the expectations that the company has on its suppliers. By analysing these guidelines, it is evident that Coca-Cola provides the rules and thus is the dominant partner in its supply chain. The power in the supply chain lies on Coca-Cola since it guides what the suppliers has to provide, and that has to meet all the standards of Coca-Cola (Peters, 2010). 7.0 Conclusion Supply chain management plays an integral and important role in most operational activities by a company that aims to provide customer satisfaction and ultimately the success of the organisation. In some cases, supply chain management is regarded as the backbone of the organisation especially when critical issues of management such as global expansion activities, environmental concerns and enhanced growth are involved. Supply chain management directly affects an organisation’s corporate strategy and thus should be considered in its formulation. Supply chain management has various other importance such as improving the integrations of various processes in a firm, reducing the use of fixed assets in supply chain thereby improving the company’s bottom line among others. Supply chain management encourages integration and this leads to increased creation of relationships. Consequently, relationships involve other factors such as trust and power. It is thus important that all participants in a supply chain understand each other role to avoid conflicts and bad relationships. The dominant members should ensure that the supply chain is well managed as this will be beneficial to all of the members involved. References Christopher, M. (2011). Logistics & supply chain management. Harlow: Financial Times Prentice Hall. Cohen, S., & Roussel, J. (2005). Strategic supply chain management: The five disciplines for top performance. New York: McGraw-Hill. Mangan, J., Lalwani, C. & Butcher, T. (2008). Global logistics and supply chain management. Chichester, England: John Wiley & Sons. Maloni, M., & Benton, W. C. (2000). ‘Power influences in the supply chain’, Journal of Business Logistics, 21(1), 49-74. Neubauer, R. M. & Heyden, L. V. (2011). Business models in the area of logistics: In search of hidden champions, their business principles and common industry misperceptions. Wiesbaden: Springer Fachmedien. Palevich, R. (2012). The lean sustainable supply chain: how to create a green infrastructure with lean technologies. Upper Saddle River, N.J: FT Press Peters, N. (2010). Inter-organisational Design of Voluntary Sustainability Initiatives. Wiesbaden: Springer Fachmedien. Rogers, S. C. (2009). The supply-based advantage: How to link suppliers to your organizations corporate startegy. New York: AMACOM Wang, W. Y. C., Heng, M. S. H., & Chau, P. Y. K. (2007). Supply chain management: Issues in the new era of collaboration and competition. Norwood Mass: Books24x7.com. Zastrow, C. (2010). The practice of social work: A comprehensive worktext. Belmont, Ca: Brooks/Cole. Read More