Global Supply Chain Management - Essay Example

Global Supply Chain Management Executive Summary This paper will seek to identify and discuss obstacles that players in the fresh produce supply chain must overcome in managing their supply chain, as well as how buyers should prepare for potential breakdowns in this supply chain. Some of the obstacles covered in the paper include the fact that fresh produce, unlike other products, tends to go bad and decay easily and has higher regulatory safety requirement, while consumers demand diversity because of constant changes in their tastes. Moreover, linkages between different parts of the chain of supply for fresh produce are not effective. In addition, fresh produce supply chains have to overcome lower integration of technical support, imperfect markets, immature organization systems across the supply chain, and government policies like trade embargoes. Moreover, the paper also looks at how buyers in the supply chain can prepare for potential breakdowns in the chain of supply. Some of the recommendations given include dealing in organic foods only, undertaking a vulnerability assessment of the entire chain of supply, enhancing procedures and policies of procurement, strengthening their supporting technology, and integrating risk transfer mechanisms at all critical points of the supply chain. Introduction Food, despite numerous challenges in its supply chain, is an essential product, especially in developed nations like the UK. For example, most people in the past would remember eating expensive and imported luxury fresh products like oranges, which sometimes were only available during the summer, especially for produce that was of a limited variety. However, with the emergence of global supply chains, food is now in abundance, although at a cost. Disease, waste, spoilage, and bad weather have afflicted the industry in recent years. Majority of fresh produce consumers are not aware of these problems, only looking forward to consuming fresh produce that comes through a complex supply chain from the producers to the retailers (Yu & Nagurney, 2013: p276). DGI is a UK company that imports fresh produce, specializing in vegetables, salads, and fruits. The company operates within both the non-retail and retail sector, of which the former includes wholesale, food service, and catering. DGI continues to confront various challenges facing an industry that is rapidly changing and adapting, especially in light of the horse meat scandal that brought additional focus to the global food supply chain and its vulnerabilities (Yu & Nagurney, 2013: p276). This paper will seek to identify and discuss obstacles that DGI, as well as other players in the fresh produce market, must overcome in managing their supply chain. In addition, the discussion will also cover how buyers should prepare for potential breakdowns in DGI’s supply chain. Major Obstacles to be overcome in Successful Management of the Supply Chain The selling of fresh produce in supermarkets by major UK produce importers, including DGI, has deeply influenced the circulation and consumption of fresh produce. This increased tendency of supermarkets selling fresh produce has been driven by consumer demand changes, particularly as the standard of living improves and consumer awareness regarding healthy living grows (Batt & Noonan, 2009: p95). Food has become one of the key measures of life quality, including how the consumers buy the food. Markets that sell produce with no quality guarantee and a poor environment cannot satisfy consumer demand, especially for those consumers pursuing a life of high quality. This type of consumer wants to purchase desirable food within an environment that they feel is comfortable. In the UK, produce markets have gradually given way to supermarkets, which is a reflection of consumer demand changes. Today, at least 80-95% of fresh produce is sold in groceries and supermarkets, which are also the biggest buyers of DGI’s produce, while the commercialization of fruit in the UK today stands at 90%, that of meat products at 50%, and vegetables and grain at over 30% (Batt & Noonan, 2009: p95). In such an environment, the traditional transactions involved in selling produce cannot satisfy production and selling of mass produce. Supply chain management involves a chained process via which services, materials, organizations, and plans flow to the consumer/terminal user from the supplier. Xiao and Chen (2012: p792) contends that the strength and efficiency of the supply chain is always determined by the weakest link within the chain. Unlike traditional management of logistics, current supply chain management is concerned with the mutual support and reliance of partners within the chain of supply, on top of the flow of physical materials. In order to appreciate and realize this objective, supply chain management’s key goal should be to coordinate the relationship between the various organizations that take part in the chain of supply. In reality, fresh produce supply chain managers are usually faced with numerous channel options, meaning that they have to conduct numerous negotiations and carry out a lot of planning prior to determining the best channel structure (Kagan et al, 2013: p39). These channels, even following their determination, tend to change constantly, and the ultimate objective involves the establishment of channels that offer competitive advantage to the organization. For DIG, there are several obstacles that stand in the way of successfully managing their supply chain, especially with regards to the aspects identified above. To begin with, the linkages between different parts of the chain of supply for fresh produce are not effective. One of the vital aspects of supply chain management is the ability to create and maintain mutually supportive and reliable relationships between the lower and upper parts of the chain of supply (Van Boxstael et al, 2013: p193). However, the effects of the financial crisis and the subsequent economic recession have put the maintenance of stable and long-term suppliers of fresh produce, as well as long term packing and transportation partners, under threat. The ability to control cost and efficiency in the procurement of fresh produce is normally determined by an organization’s ability to effectively negotiate with partners. The ideal chain of supply model needs to be mutually beneficial for all partners, based on shared information and mutual trust. However, in the current environment, logistics support is becoming increasingly unstable, which threatens to break the chain of supply (Van Boxstael et al, 2013: p193). The currently provisional nature of cooperation between DGI and its partners, who are suffering the after-effects of the recession, threatens to result in decreased support and trust. Cost cutting measures that have resulted from the economic recession have also harmed distribution systems aimed at adding supply chain value (Chandrasekaran & Raghuram, 2014: p48). For a supply chain to be efficient, it should be integrated, and its links must be connected organically, which helps companies like DGI to realize common objectives with its partners through coordination and cooperation. This also aids in value addition to improve economic utility and the consumer’s feeling of product value (Chandrasekaran & Raghuram, 2014: p48).Product value is normally added via four major economic utilities, which are position utility, time utility, possession utility, and pattern utility. Each of this utility is created and maintained by different partners within the chain of supply, which necessitates their distribution according to the abilities of the different partners to ensure efficient value addition and management of the supply chain. However, according to Sparks (2013: p58), while majority of supermarkets, which are the biggest retailers of fresh produce, are attaching more importance to selling this product to gain competitive advantage, it is still not as profitable as expected. This is because, although fresh produce prices in supermarkets are high; variety, freshness, and quality are wanting due to poor value creation in some parts of the supply chain that were worst hit by the economic recession. Some partner’s in DGI’s chain of supply, for example, have been forced to improve efficiency and lower costs. However, others like supermarkets rarely take fresh produce supply chain management as a stand-alone project that should be implemented and developed (Fearne & Hornibrook, 2011: p90). This is not because they are not willing to adopt current methods and new concepts, but because of other obstacles to fresh produce SCM. These obstacles are mainly related to public policies, organization maturity, marketing systems, technical support, and product characteristics. The particular characteristics of fresh produce, including fruits, vegetables, and meats are one obstacle that DGI and other actors in the fresh produce market must overcome. This is because these products are perishable and tend to go bad quickly. In addition, some of these products are produced seasonally, while others can only be sourced from specific regions. These three factors in combination result in restrictions regarding supplier selection and development of the product (Fearne & Hornibrook, 2011: p91). The fresh produce supply chain must also overcome the obstacle posed by poor integration of technical support. Fresh produce logistics, especially for products sold by supermarkets, consists of processing and distribution, storage, loading and unloading, packing, and transportation (Shukla & Jharkharia, 2013: p125). During the entire process, each link of the supply chain requires varying degree of management optimization and technical guarantee. The profit margins are highly dependent on the fresh produce’s logistical conditions, especially for supermarkets and their suppliers, such as DGI. While fresh produce imported into the UK by DGI is improving, especially with regards to quality from the producer to the supermarket, fresh produce quality into new markets like China is declining. This is because there is a lack of technical support integration, particularly due to the poor management systems for produce safety and quality (Shukla & Jharkharia, 2013: p125). As a result, the identified management and technical obstacles tend to make fresh produce SCM less effective. Another obstacle that the fresh produce supply chain has to overcome is the immature nature of the organizational system. Practice evidence from industrial logistics management of the supply chain shows that majority of the participants in the chain of supply have high specialization and independent abilities of marketing. However, this is not the case when it comes to fresh produce, especially because small producers cannot be included easily into SCM for supermarkets (Gustafsson, 2009: p67). Distribution centers and logistic operators are still modernizing in line with requirements by the European Union, which increases the likelihood of breakdown in the supply chain due to relative lack of professionalism (Pandey et al, 2013: p122). Finally, the fresh produce supply chain must also overcome stringent public policies. For instance, the tax rate for supermarkets selling fresh produce is 2% lower than for other products, although this tax is higher than that levied in fresh produce markets (Pandey et al, 2013: p122). This acts to reduce the profit margins for supermarkets, which may cause some to reduce costs in other areas like safety safeguards. In addition, government embargoes on produce from specific countries could result in smuggling, leading to compromise of produce safety standards. How Buyers can Prepare for potential Supply Chain Breakdowns As seen in the discussion above, most obstacles faced by the fresh food supply chain portends potential risks for the consumer as these obstacles tend to affect safety guards in place to ensure produce is safe. One way that consumers can prepare for any breakdown in the fresh produce supply chain is to opt for products of organic farming. This is because these products are less likely to involve the use of preservatives, especially synthetic preservatives. The EU Organic Foods protection regulations were established as a way to have a common rule set for the production of organic foods (Nagurney et al, 2013: p92). As a result, the EU accredits private and state organizations as certifying agents who inspect farms, as well as how harvesting, handling, and transportation operations are carried out. This certification seeks to ensure that all organic foods in the market are in compliance with EU-set standards. As a result, the buyers of organic fresh produce should check that it is certified, where lack of certification could indicate a breakdown in the supply chain (Nagurney et al, 2013: p92). Buyers in the supply chain should also undertake a vulnerability assessment of the entire chain of supply. This should involve a structured approach meant to identify vulnerabilities regarding fresh produce safety within the chain. Assessment should mainly focus on the exposure to risk within the internal chain of supply, including those of logistics partners, key suppliers, and other partners (Kirezieva et al, 2013: p119). Purchasers in the supply chain can prepare for potential breakdown in the supply chain by strengthening their supporting technology. This will involve taking advantage of declining technology costs in enhancing the processes across the supply chain and monitoring them, particularly with regards to process control and traceability (Muller et al, 2012: p132). For example, they could consider the use of RFID tagging for traded and consumer units, as well as pallets that would enable them to rapidly trace finished products in the chain of supply, saving time and costs that would result from a recall is the supply chain broke down. Such tags could also record and transmit data on temperature, acting as an alert to non-conformity in transport and storage temperatures. In addition, the buyers could also optimize the control and effectiveness of thermal operations by introducing new mapping systems, while also investigating the use of alternative processes in delivering safer fresh produce to the end user. For example, fresh produce buyers could consider the use of heat-transfer systems for produce that is either sterilized or pasteurized. The costs of integrating mitigation or prevention management systems and technologies offers long term benefits, saving the buyers from massive financial and reputational losses if the supply chain breaks down (Muller et al, 2012: p134). Buyers in the fresh produce management system should also seek to integrate risk transfer mechanisms at all critical points. Uncovering mechanisms of risk mitigation to reduce claims in case of supply chain breakdown at every phase of the chain of supply can be carried out together with the identification of the relevant, as well as correct, insurance cover (Hoorfar, 2011: p59). For example, the purchasers should consider the options of risk transfer available at vital parts of the chain of supply in order to reduce losses if the supply chain breaks down and the fresh produce is contaminated. Contaminated products insurance cover will cover indirect and direct costs, such as brand rehabilitation in case of a recall and product retrieval costs if contamination is discovered respectively. First party recall insurance would also provide cover for product extortion, malicious contamination, and accidental contamination for buyers in the supply chain. In addition, the Global Supply Secure Insurance cover can compensate buyers when there are interruptions in business. For example, because of a fresh produce contamination crisis where the buyers cannot resell the produce (Hoorfar, 2011: p59). Finally, major buyers in the fresh produce supply chain should appoint and empower produce safety teams who would hold responsibility for the central assessment and management of the overall risks involved in the supply chain with regards to produce safety (Lindgreen et al, 2009: p37). Normally, their role would be to oversee processes and systems of risk mitigation, as well as quality assurance, from the selection of suppliers, controls of processing and production, ERP management systems, and bio-security processes. This should ensure that any breakdown in the supply chain is identified well in advance before the buyers procure the produce. The advantages to be accrued from the development and implementation of a central approach for all functions and divisions of the buyer include enhanced compliance with regulatory oversight, as well as enhanced consumer and stakeholder confidence (Jongen, 2012: p80). References Batt, P. J., & Noonan, J. (January 01, 2009). Quality Management in Supply Chains - Global Trends in Food Quality: An Exploratory Study in Fresh Produce Supply Chains. Acta Horticulturae, 831, 95. Blackburn, J., & Scudder, G. (March 01, 2009). Supply Chain Strategies for Perishable Products: The Case of Fresh Produce. 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