Integrated Supply Chain Management - Example

Integrated Supply Chain Management Name Name of Institution Executive Summary Thomas Foods is a leading Australian meat produce that serves major retail chains. The firm has made the strategic decision to expand its local production, distribute to a global market, and partner with a Thai firm to add a new processing facility. This report notes that firms with global supply chains get exposed to additional risks that need to be addressed using formal processes. An examination of literature shows that there is consensus on a three-step process that involves risk identification, risk assessment, and risk mitigation. In the case of Thomas Foods, the identified risks include labour strikes, inaccurate forecasting, uncertainty, piracy, politico-legal risks, cultural differences, technological challenges, and threats to health and safety, quality, and the Thomas Foods brand. The report recommends the use of different strategies for improved working conditions and ensuring that increased production does not affect quality, health and safety, and the Thomas Foods brand. When it comes to piracy, avoidance can be used to minimise risk exposure. A thorough audit of Charoen Pokphand Group will also be necessary to confirm that the partnership will be viable. When it comes to the forecasting and uncertainty issues, the report recommends investment in small processing plants and storage facilities in some of the leading markets. This added capacity will be essential in smoothing out availability issues. The paper concludes by noting that proactiveness is the key to allowing the business to manage the many risks that face multinational firms. Table of Contents Executive Summary 2 Introduction 4 Supply Chain Risks and Challenges 4 Recommendations 8 References 10 Integrated Supply Chain Management Introduction In recent years, there has been considerable growth in international trade. This increase can be attributed to factors like improved communication and transport systems that facilitate the delivery of products to all corners of the globe. It is worth noting that developing nations have played a significant role in this explosion of trade, with Asian states becoming attractive markets for firms in the developed world. The attractiveness of the Asian market partly explains Thomas Foods’ plans to partner with Thailand’s CP group and invest in a new plant in Adelaide. The partnership is aimed at increasing production, leading to the export fresh and processed meats to Asia. It is evident that supply chain management will be the key driver of the success or failure of Thomas Foods’ initiative to expand into the Asian market. In this case, supply chain management refers to the integration of supply and demand management between and within firms to satisfy the needs of the final consumers (Crandall, Crandall, & Chen 2014, p.144). This paper identifies the risks and challenges that Thomas Foods will be exposed to as a result of its decision to internationalise its supply chain. This will be followed by recommendations that will help the company to overcome the challenges and realise strategic business goals. Supply Chain Risks and Challenges According to the Global Supply Chain Institute (2014, p. 4), the supply chain faces the most risk when compared to other areas of business organisations. It is also noted that firms with global supply chain get exposed to additional risks thereby necessitating the use of a formal process to manage the risks. Surprisingly, companies often fail to give deserved attention to supply chain risk management. Some of the reasons for this oversight include the fact that supply chain managers can get too involved in meeting operational objectives while ensuring maintenance of customer satisfaction and low costs (Global Supply Chain Institute 2014, p. 4). It is proposed that businesses employ a three-step process to protect themselves from supply chain risks. This process involves the identification, assessment, and mitigation of risks (Supply Chain Institute 2014, p. 19). This recommendation aligns with a model proposed by Kern, Moser, Hartmann, and Moder (2012). However, this model adds the need for continuous improvement and measuring risk performance to the identification, assessment, and mitigation processes (Kern et al. 2012, p. 63). As stated, companies that expand to serve global markets face an enhanced level of risk (Global Supply Chain Institute 2014, p.4). An examination of the Thomas Foods case shows that it will face enormous issues as a result of its desire to expand. First, the company will assume added risks because of the expansion of local production in South Australia. Secondly, the distribution into a global market will expose the company to the supply chain challenges that are associated with international trade. Thirdly, the business’ risk exposure will multiply as a result of the partnership with Thailand’s Charoen Pokphand Group. Given that risk identification is an important part of risk management, this report describes the specific risks that are associated with each of these three decisions. When it comes to the expansion of production in Australia, Thomas Foods’ supply chain already faces the risk of disruptions from the workforce. As the country’s third biggest processor of meat, the firm needs to attract and retain a large labour force. Expansion of local activities will mean that the company has to engage with more employment agencies to reach recruitment and production targets. According to Kotsios (2015), Thomas Foods has been accused of unethical workplace practices that might affect its ability to acquire the required workforce. The firm is accused of employing immigrants with temporary work visas who are then forced to work under unhygienic conditions and low pay. The reliance on immigrants with temporary visas has also meant that experienced workers are being forced into other roles (Kotsios 2015). These labour issues are unsustainable over the long-term, and will affect the company’s ability to attain the goal of increasing local production levels. The expansion of the firm’s distribution will also lead to an increase in risk exposure. According to Balambo and Haouari (2014, p. 97), forecasting is one of the categories of risk facing supply chains. Thomas Foods will have to solve the challenge of forecasting if it is to be successful in serving an international market. It is an acceptable fact that forecasting plays a major role in supply chain management as it ensures that a firm has enough goods to satisfy demand. Thomas Foods deals with fresh and processed meat products, indicating that perishability can be a major issue. As such the firm has to have accurate forecasts of demand in a global market which raises the level of risk. For example, inaccurate forecasts can lead to considerable availability issues and excess inventory challenges (Global Supply Chain Institute 2015, p. 20). Thomas Foods will also have to face the challenge of uncertainty. According to Manuj and Mentzer (2008, p.134), uncertainty defines the inability to predict in an accurate manner. In the area of supply chain management, uncertainties operate at the tactical, strategic, and operational levels, and they become further pronounced when a firm expands its operations to international markets (Manuj & Mentzer 2008, p. 136). An example of how uncertainty will apply to Thomas Foods can be seen in the area of competitive advantages. As stated, the firm has grown to become the third-largest meat producer in Australia. It is arguable that the firm’s success can be attributed to the acquisition and maintenance of a competitive advantage over other organisation in the meat industry. However, expansion into international market raises uncertainty on whether the competitive advantages will still apply. Thomas Foods will also have to deal with uncertainties related to lead times and supplier reliability because of its international expansion (Manuj & Mentzer 2008, p. 136). Thomas Food’s global expansion also exposes the firm to the risk of disruption and delay from piracy. According to McKeith (2016), piracy represents a major concern for Australian firms that own or operate ships through Southeast Asia. The region accounted for 60% of global piracy in 2015, with the attacks targeting cargo for sale in black markets (McKeith 2016). The risk for piracy will be significant for Thomas Foods as any attack can lead to the disruption of supply or the use of alternate routes that increase lead time. In addition to piracy, entry to the global market exposes the company to politico-legal risks (Balambo & Haouari 2014, p. 96). These include political instability and financial decisions on issues like interest rates and monetary policy. In particular, the financial decisions will present considerable risks given the lack of uniformity in financial objectives and policies. The final part of Thomas Foods’ expansion strategy involves partnering with the Charoen Group to set up a processing facility in Adelaide. This will be a long-term initiative that will complement the efforts to increase production in existing plans and the entry into the global market. The decision to partner with an international firm will also have its challenges. First, Thomas Foods has attained its position by ensuring that all its production meets stringent standards from regulators like Meat Standards Australia and the Department of Agriculture. Partnership with a food producer from Thailand is likely to increase the risk of non-compliance with regulations. The nature of the product means that any health and safety breach will have a drastic impact on the reputation of the business. It is evident that partnering with an international firm poses operational risks in the areas of health and safety, brand management, and quality control. The partnership with CP Group also increases the risks of disruption and delays. First, the integration of the two firms will mean that the overall success of Thomas Foods will be tied to the success of the Thai food giant. For example, if the CP Group goes into bankruptcy, Thomas Foods will need to dedicate additional resources to the completion of the plant in Adelaide. This will affect the firm’s ability to deliver to the existing clients in Australia as well as those in global markets that had developed a reliance on Thomas Foods. Secondly, the integration of the two firms raises technological challenges. For example, Thomas Foods might use IT infrastructure and systems that are incompatible with the ones used by the Charoen Pokphand Group. This might affect operations and lead to logistical failures. Thirdly, cultural differences between the two firms might also pose challenges to the sustainability of the partnership. For example, it might be acceptable to offer bribes in Thailand, a cultural norm that might have severe consequences if applied within Australia. Recommendations As stated, the Global Supply Chain Institute (2014) proposes a three-step process for managing supply chain risks. The steps include the identification, assessment, and mitigation of the logistics and supply chain risks. Having identified the risks and challenges facing Thomas Foods, it is essential that each of the risks is subjected to critical analysis to understand its potential impacts on the business. A look at the company’s supply chain shows that there are several risks that need immediate attention. The first is the prevailing view that the business exploits workers. The firm also needs to prioritise addressing challenges related to health and safety, the brand, and the quality of the products. Giving a higher priority to these risks will go a long way in cementing the reputation of the business in a world where customers are increasingly concerned about ethics. When it comes to the actual mitigation of the challenges facing the business, different strategies will apply to the different issues. According to Manuj and Mentzer (2008), risk management strategies fall into seven categories that include avoidance, speculation, postponement, control, transfers, hedging, and security. Avoidance is a risk mitigation strategy that can apply to the issue of employing immigrants with temporary working visas and subjecting them to poor working conditions. As the third largest meat processor in Australia, Thomas Foods can afford to ensure that both temporary and permanent workers have a healthy work environment. Avoidance can also be used to resolve the issue of piracy. As stated, South East Asia accounts for 60% of global piracy (McKeith 2016). Thomas Foods should avoid the areas that a prone to attacks and explore other transport methods to deliver products to the Asian Market. In this case, avoidance is preferred as it can be less costly than transferring the risk to an insurer. It is recommended that CP Group is subjected to a thorough audit before the implementation of the proposed plans. The audit should address factors like the political stability in Asia, the type of technology used, culture, and the firm’s responsiveness to change. Additionally, factors such as adherence to health and safety standards and the value of the CP Group brand need to be evaluated through an audit. The audit of the supply chain partner will facilitate a better understanding of the viability of the proposed plant in Adelaide. When it comes to the issues of forecasting and demand uncertainty, it is recommended that Thomas Foods set up processing plants and storage facilities in some of its largest foreign markets. Live animals can then be transported to these processing plants to act as a buffer for situations where the levels of demand exceed the company’s capacity. Finally, supply chain managers at Thomas Foods will need to be proactive and dedicate more time to the management of logistics and supply chain risks. As stated, the majority of supply chain managers do not give supply chain risks the deserved attention owing to the challenge of meeting operational goals (Global Supply Chain Institute 2014, p. 4). Being proactive will allow managers to have the capacity to identify risks and take adequate measures to protect the firm from their effects (Zsidisin & Ritchie 2008, p.58). For example, proactiveness can lead to the purchase of insurance as a way to transfer risk to third parties. In conclusion, entry into new markets will have the effect of multiplying the risks facing Thomas Foods. However, support from the senior management should allow the logistics and supply chain management division to be proactive and mitigate the risks facing the business. References Balambo, M.A. and Haouari, M., 2014. Global Supply Chains and Risk Management: A Necessary Approximation. Singaporean Journal of Business, Economics and Management Studies, 3(2), pp.93-102. Crandall, R.E., Crandall, W.R. and Chen, C.C., 2014. Principles of supply chain management. CRC Press. Global Supply Chain Institute, 2014. Managing risk in the global supply chain. The University of Tennessee. Viewed Kern, D., Moser, R., Hartmann, E. and Moder, M., 2012. Supply risk management: model development and empirical analysis. International Journal of Physical Distribution & Logistics Management, 42(1), pp.60-82. Khan, O. and Burnes, B., 2007. Risk and supply chain management: creating a research agenda. The International Journal of Logistics Management, 18(2), pp.197-216. Kotsions, N., 2015. Thomas Foods International accused of abusing and bullying workers. The Weekly Times. Viewed < http://www.weeklytimesnow.com.au/agribusiness/thomas-foods-international-accused-of-abusing-and-bullying-workers/news-story/45966afee088c6e91c52a4b7fe1083d1?nk=07e2cbdb07c5aef0296f17aa9cb60085-1463359626> Manuj, I. and Mentzer, J.T., 2008. Global supply chain risk management. Journal of Business Logistics, 29(1), pp.133-155. McKeith, S., 2016. Pirate threat: Entire shipping system vulnerable in Southeast Asia. Huffington Post Australia. Viewed Zsidisin, G.A. and Ritchie, B. eds., 2008. Supply chain risk: a handbook of assessment, management, and performance (Vol. 124). Springer Science & Business Media. Read More