Global supply chain management - Essay Example

Global supply chain management Executive Summary Due to increased globalisation, intensified competition, blurring of economic boundaries, easy access to wide range of sourcing options and opportunities for implementing cost efficient supply chain framework, the companies are availing those business operations’ options which will allow them to satisfy their customers and enhance their profitability. Tesco has been severely impacted by the horsemeat scandal as it was found that one of the Tesco beef burgers had 29% of the horsemeat. The horsemeat scandal came into limelight when Irish Food Safety Authority announced that majority (one-third) of the beef burgers which were tested had horsemeat. The presence of this ingredient in the beef burgers of Tesco revealed a weak supply chain with missing standards for quality control and lack of proper accountability measures. Moreover, it was found that the supplier was the main person responsible for this major fraud and he deceived his customers. Although the fraud was committed but the customers’ trust was lost in the big brands and it impacted the reputation of Tesco to a great extent. It showed that the global supply chains are ineffective as they are unable to check the quality of the supplies and outsourcing the value chains has not been such an effective decision in the long-run for the organisations. In order to make sure that the logistics framework is collaborative and integrated, it is mandatory for Tesco to maintain a balance between the contemporary supply chain demands and sustainable elements of the logistics framework. Every organisation has to make sure that it successfully meets all the three obligations of the sustainable supply chain structure i.e. economic, social and environmental. Since a firm exists to make profit and give customers value proposition offerings, Tesco makes sure that it meets the customers’ needs but it has to keep a strict control on the upstream and downstream activities of its value chain so that any errors are avoided. Hence, Tesco will have to make sure that it promotes the sustainable supply chain framework so that it is able to reduce the cost, eliminate waste producing processes, enhance the customer satisfaction level and give excellent service quality. Even the IT systems have been integrated in its business operations so that the resources are efficiently managed and any errors are addressed beforehand. Tesco has been able to regain the trust of its customers by providing them with organic food items and investing heavily in Corporate Social Responsibility (CSR) activities. Thus, Tesco can prosper successfully by managing its global supply chain framework in compliance with the sustainable logistics requirement. Global supply chain management Introduction of Supply Chain Management (SCM) Supply chains are now the most important and integral parts of the companies’ businesses and they have been developed in terms of sophistication and competitiveness. According to Deloitte (2013), the global supply chains are vulnerable to a wide range of risks due to their global and interlinked aspects. There are many internal and external factors which are prompting these risks such as global connectivity and globalisation which are enhancing the complexity of the supply chains and even amplifying the effects of issues which arise in Supply Chain Management (SCM) frameworks (Branch, 2009). Although there are leading trends of just-in-time inventory, supplier consolidation, six sigma, agile manufacturing, lean production, reduced lifecycles of products, outsourcing/sourcing, quality management, integration of supply chains and etc. but they have introduced new forms of risks while reducing the error margins (Coyle et al., 2008; Sparks, 2010). As a result, any mistake in the structure can have profound effect on the business reputation and profits. The latest case was faced by Tesco Supermarkets in its Ready Meal logistics framework due to Horsemeat scandal. The horsemeat scandal was disclosed in February 2013 when some traces of horsemeat were found in the beef burgers. It was at that point that the retailers realised that they need to revamp their SCM frameworks so that they provide good quality offerings to their customers without compromising on their health. This incident also highlighted the demand of developing global logistics framework which will monitor the entire supply chain process efficiently (Lawrence, 2013a; McKinnon et al., 2013). Horsemeat Scandal Ireland’s Food Safety Authority examined some low priced ready meals and frozen beef burgers of few well-known supermarkets in November 2012 to test the presence of DNA of other undeclared species. It was found that horse DNA was present in more than one-third of the samples of beef burgers and 85% of them had pigs. One of the beef burgers samples from Tesco had about 29% horsemeat in place of beef. It was surprising for everyone because the results revealed something which was beyond their expectations. All the supermarkets in Ireland and UK have highly integrated supply chains. The UK Food Standards Agency got the report in November and since then it has implemented serious actions to control the foods supplied by the retail stores (Lawrence, 2013b; Lucas, 2013). Key issues in SCM of the scandal As the retail and food industries have evolved into being densely concentrated and globalised, the supermarket and beef processing sectors are controlled by few players across the European region. These businesses have created lengthy supply chains especially for their economic lines so that they can purchase the ingredients for the processed food items from the cheapest source. Other reason for searching for cost saving supplier is that there is a lot of fluctuation in the exchange rates and even the prices of the meat varies intensely across the global markets of commodities (Mollenkopf et al., 2013). As the supply chains have become longer and there are many parties involved in the entire framework such as brokers for networks (IT system developers and suppliers), operators of the cold stores and subcontracted/outsourced meat cutting facilities, the processes have to be made flexible so that the fluctuating orders are fulfilled on time. It has been stated by Chopra and Miendle (2013) that there is high probability that the integrity in the chain is broken at many levels. Hence, the key issues evident in Horsemeat scandal related to SCM were lack of quality assurance standards and management, too much focus on lean production and pressure on the retailers and buyers to avail the low cost options. This scandal is an example of the consequences of giving power to the big food corporations as the politicians are reluctant to create an image of being anti-market and the regulators are deprived of the responsibility of protecting the consumers. It shows that the global supply chains have weak accountability policies and the companies have undertaken such measures which have led them to conduct business activities in an environmentally and economically unsustainable manner. Even the retailers and producers in UK have declined to call off the myth of economical burgers and also the cutting of prices (Lawrence, 2013b). They believe that there is no point in buying the beef below its minimum production cost because it will be passed down in the long supply chain in which everyone will further take a cut but still sell at the bargain-basement price (Lucas, 2013). Hence, the complexity and length of the international chain were the foremost drivers of this fraud to customers. Possible solutions for the problems in SCM In order to avoid such kind of problems in the logistics and supply chain, the concerned authorities such as Food Safety Authority and other regulatory bodies have to develop and implement strict rules and regulations. It is vital to make sure that the quality of food is checked and made sure that it complies with the standards set by International Standards Organisation to be assured that the quality management of food is effectively carried out (Dahlgaard & Dahlgaard, 2006; Oglethorpe, 2010). In addition to implementing the transparent measures, it is imperative for the retailers to develop highly integrated, small and simple supply chain so that all activities are properly coordinated. Similarly, it is imperative for the food giants to make sure that they conduct their business operations in compliance with the social, economic and environmental requirements so that they make valuable contribution for all stakeholders (Oglethorpe, 2010). Hence, the major areas which need to be reworked are the policies for monitoring the slaughtering of animals for ready meals, revamping the supply chains to make them shorter and efficient and reviewing the quality standards to make sure that the customers are provided genuine and reliable products. Ready Meal Logistics Network of Tesco Supermarkets When Tesco introduced the Ready Meal product line, it had to encounter many challenges as it is the pioneer of introducing readymade food items at low prices. In order to meet the three crucial requirements of the business i.e. cost efficiency, high service quality and enhanced customer satisfaction (Slack, Brandon-Jones & Johnston, 2013), Tesco had to develop a logistics network in which the upstream and downstream activities were efficiently integrated and it successfully established a collaborative SCM framework for its operations. Tesco’s SCM has been developed in accordance to the value chain model developed by Porter (2003) so that all the cross-functional activities are coordinated and quality management is carried out with perfection (Agarwal & Smith, 2009). Performance Measurement In order to assess the performance of a company, it is crucial to develop an effective performance management system which will allow the firm to keep track of its performance and make sure that any discrepancies are handled proactively (Slack, Chambers & Johnston, 2010). The latest trend in the retail market is to determine a set of performance criteria which comprise of elements such as quality of products and services, reliability of offerings, customer services, availability of goods, customer satisfaction, cost efficiency, transparency of operations, accountability, quality control and etc. (Mangan et al., 2011). With the help of performance measurement tools, Tesco can monitor its performance in the retail market and make any changes in its supply chain structure to manage its operations productively. Hence, it has developed a performance assessment instrument which provides it feedback about its performance and look for opportunities which can help it in cutting down cost and reap the benefits of additional revenue stream. Sourcing Since globalisation has eased the business processes, opened avenues for further growth, widened the revenue streams and enhanced the accessibility to a wide target audience, it has made available an array of opportunities for relocating the production facilities in low cost regions. Majority of the leading organisations have either transferred their manufacturing or production facilities to cheaper areas or outsourced them to professionals which allow them to reduce the cost of production (Harrison & van Hoek, 2011; Matupolus et al., 2007). With the help of sourcing the upstream and downstream activities of the supply chain, Tesco has been saving huge amount of cost and expanding its Ready Meal market at an accelerating pace (Whiteaker, 2012). Lean SCM According to Dahlgaard and Dahlgaard (2006), lean SCM is the designing of the logistics structure in such a way that it improves the customer value proposition, smoothens out the peaks and troughs of the activities, reduces the wastage and eases the employee’s life. The primary aim of lean manufacturing process is to preserve value for the customers with less amount of work. The philosophy of this concept is that the resource expenditures for the goal other than the value creation for the customer are wasteful and they should be eliminated (Christopher, 2011; Heizer & Rander, 2011). Tesco implemented the lean concept in its New Product Introduction (NPI) division which reduced the NPI to eight weeks from twenty-six weeks and variability was also reduced to one week from six weeks. It also implemented the one touch replenishment process for effective order lean fulfilment and lean distribution was created which resulted in 30% increase in transportation effectiveness (“Tesco and Society Report 2013”, 2013). Total Quality Management (TQM) TQM is described as the process in which every activity within the organisation is designed in such a way that the business continuously improves its capability and competency of delivering superior quality offerings to the end consumers. In this approach, the efforts are drawn on the tools, policies and techniques of enhancing the quality assurance and control measures (PWC, 2013; Yeoh et al., 2012). Since excellence in quality is the major requirement of the customers of retail industry, Tesco has implemented ECR (Efficient Consumer Response) system in its company. Likewise in order to make sure that it has a collaborative and efficient TQM logistics structure, Tesco has implemented the latest quality accountability procedures especially after the horsemeat scandal. Every food item is assessed properly so that any chances of error or deception are eliminated and the customers are provided only value proposition services. Six Sigma Six Sigma is basically a set of tools and techniques used for improving the process so that the output quality is enhanced. The foremost purpose of this process is to identify and remove the factors which cause errors and minimise the variability in the final output of the business and manufacturing processes (Nabhani & Shokri, 2009). It makes sure that the employees are provided a well-designed infrastructure so that they make valuable contribution in the firm’s business activities. Each of the Six Sigma projects has a detailed plan of actions along with set value targets such as reduced cycle time of process, decline in pollution, cost efficiency, enhanced customer satisfaction and soaring profits (Barachenko & Oglethorpe, 2012; Heizer & Rander, 2011). In the Ready Meal logistics of Tesco, Six Sigma has been efficiently implemented so that every area of the supply chain works towards cost reduction target. The retail giant makes sure that the customers are provided top quality meals at reasonable prices and they can get value for their money. Recommendation for Tesco As the organisations exist to serve the needs of the customers, they have to make sure that they present them with the best range of offerings which will exceed their expectations (Cousins et al., 2008). In order to assist Tesco in meeting three objectives i.e. provide high service quality, meet customer satisfaction level and produce Ready Meals in cost efficient manner, it is recommended that the retail store utilises the lean-agile production process, implements Six Sigma and TQM concepts and makes use of the local sources. When the lean-agile production process will be developed, it will give Tesco an edge over its competitors as it will be able to respond to the variations in customer demands effectively and even just-in time inventory model will be effectively implemented simultaneously. Likewise, Six Sigma and TQM processes will employ the all key elements required in today’s business environment i.e. integrity, trust, ethics, training, teamwork, leadership, communication and recognition. Finally, the sourcing of ingredients from local suppliers will shorten the supply chain cycle and it will allow it to keep a strict control on the quality of the supplies. Even the latest IT system will be implemented which will support the entire functioning of Tesco logistics framework. Hence, all of these steps will allow the store to meet its long-term goal of providing customers with superior quality Ready Meals in efficient and worthwhile manner. Sustainability and Horsemeat scandal The responsible sourcing has become the major concern for almost all the organisations and it is more evident in the beverage and food sector which is driven by the enhanced elasticity of the supply chains, absence of visibility and globalisation. The horsemeat scandal has shed light on the complexities of the sourcing, logistics and supply chains which has made it imperative for the retail giants to restructure their supply chain structures so that they develop a sustainable supply chain framework (Aronsson, Abrahamsson & Spens, 2011; Lysons & Farrington, 2012). The concept of sustainability has been driven from the ‘Triple Bottom Line (TBL)’ concept developed by John Elkington in 1997. According to the TBL, the basic aim of a company is to make profit which is the bottom of the TBL known as Economy. Next is the people’s account known as Social which assesses the firm’s responsibility towards the society. Finally, the last line is the Environment which looks at the organisation’s attitude towards the natural environment (McKinnon et al., 2010; Shokri, Nabhabi & Hodgson, 2010). Hence, every organisation has to make sure that it focuses on the social, economic and environmental elements so that it creates a sustainable business environment. The horsemeat scandal has urged Tesco to redesign its global supply chain framework so that it is directly involved in the procurement stage and adequate attention is given to the supplies of the food items. Likewise, it needs to increase its efforts of regaining its market reputation which has been impacted due to this incident. Although it has to make sure that it carries out its business operations in cost efficient manner so that the customers are provided only genuine, high quality and satisfactory range of goods and services but it needs to focus its resources towards the development of a sustainable working atmosphere (Butler, 2013). By the development of a sustainable business, Tesco will be able to integrate the supply chain activities in economical, social and environmental friendly way. It will be conscious of its efforts as the retail store will have to monitor its operations so that it is beneficial for the society and environment as a whole. The latest trend in the market is of organic ingredients so that the customers can have healthy and nutritious food items and these options lower the need of industrial processing. With less amount of processing of the food, the energy cost will be reduced which will help in controlling the wastage production and carbon dioxide elimination will be reduced to a great extent (Gadema & Oglethorpe, 2011). Sustainability and Ready Meal Logistics Since the horsemeat scandal has highlighted major drawbacks in the supply chain of Tesco and there is lack of sustainable concept in the logistics system, it is imperative for the organisation to embed the elements of sustainability in its framework. The prominent features which need to be implemented in the Ready Meal logistics network of Tesco supermarkets are as follows to make sure that the sustainability dimensions are integrated in the system: 1. Engaging with the suppliers – It is mandatory for the company to interact and collaborate with the supplier so that it can be assured that the sustainable agricultural sourcing is done. It will make sure that valuable contribution is done in the carbon footprint and greenhouse gas emissions. Even the suppliers will be given adequate training in terms of technical assistance and capacity building. In the long-run, there will be reduction in volatility and enhanced security for future supplies. As a result, the expected price shocks will be mitigated to a great extent. 2. Supplier’s performance monitoring – Since the suppliers have to respond to each customer, they need to be provided a consistent level of requirements. It will assist them in meeting the demands of the customers effectively. The Food Safety Authority has developed a set of guidelines for the suppliers so that they can make sure that the food quality is excellent and it is socially and environmentally suitable for the customers. 3. Green working culture – In the organisation, Tesco will have to make sure that it changes those business operations which are damaging for the environment such as pollution creating methods, elimination of carbon dioxide, using contaminated ingredients and many more. Likewise, it needs to demonstrate that it will make profits without compromising on the quality of its offerings by making everything transparent so that each and every activity is clear. 4. Taking control – Since majority of the supply chain operations have been outsourced, it is imperative for Tesco to take control of all of these processes. It will have to keep track of its performance by getting engaged in the logistics framework and taking control of the entire system. Conclusion Hence, Tesco has realised that it needs to develop an effective, collaborative, integrated and sustainable global logistics and supply chain framework so that it can manage its business operations in ethical and socially responsible manner. 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